10q10k10q10k.net

What changed in KOPIN CORP's 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of KOPIN CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+308 added−340 removedSource: 10-K (2025-04-17) vs 10-K (2024-03-14)

Top changes in KOPIN CORP's 2024 10-K

308 paragraphs added · 340 removed · 171 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

25 edited+87 added−121 removed30 unchanged
Biggest changeOur application-specific optical solutions are based on our proprietary microdisplay technologies, which include micro inorganic light emitting diode (“MicroLED”), OLED, liquid crystal on silicon (“LCOS”), and active-matrix liquid crystal displays (“AMLCDs”) and various optics which may be our proprietary designs.
Biggest changeOur portfolio, as evidenced by our official website www.kopin.com, includes four types of miniature active-matrix liquid crystal displays (“AMLCDs”), liquid crystal on silicon (“LCOS”) displays, organic light emitting diode (“OLED”) displays, and emerging micro light emitting diode (“MicroLED”) displays, in addition to optics, electronics, and housings for subsystems which we call Application Specific Optical Solutions (“ASOS”).
If the federal government terminates a contract with one of our customers, our contract with our customers generally would entitle us to recover only our incurred or committed costs, settlement expenses and possibly profit on the work completed prior to termination. However, under certain circumstances, our recovery costs upon termination for convenience of such a contract may be limited.
If the federal government terminates a contract with one of our customers, our contract with our customers would entitle us to recover only our incurred or committed costs, settlement expenses and possibly profit on the work completed prior to termination. However, under certain circumstances, our recovery costs upon termination for convenience of such a contract may be limited.
We also cannot be certain that past use or disposal of environmentally sensitive materials in conformity with then existing environmental laws and regulations will protect us from required remediation or other liabilities under current or future environmental laws or regulations. Certain chemicals we import are subject to regulation by the U.S. Government.
We also cannot be certain that past use or disposal of environmentally sensitive materials in conformity with the existing environmental laws and regulations will protect us from required remediation or other liabilities under current or future environmental laws or regulations. Certain chemicals we import are subject to regulation by the U.S. Government.
Some of these third-party contractors and suppliers are small companies with limited financial resources. In addition, our defense customers typically buy a small number of units, which prevents us from qualifying and buying components economically from multiple vendors. As a result, we are highly dependent on a select number of third-party contractors and suppliers.
Some of these third-party contractors and suppliers are small companies with limited financial resources. In addition, our defense customers typically buy a small number of units, which prevents us from qualifying and buying components economically from multiple vendors. As a result, we are highly dependent on the select number of third-party contractors and suppliers.
The Technology License agreement provides for Kopin to transfer certain patents to Lightning Silicon if they achieve certain milestones, however upon transfer Kopin will receive a license to the technology. The Company will also receive a royalty based on unit sales of products that utilize the technology licensed. Drs.
The Technology License agreement provides for Kopin to transfer certain patents to Lightning Silicon if they achieve certain milestones, however upon transfer Kopin will receive a license to the technology. The Company will also receive a royalty based on unit sales of products that utilize the technology licensed.
For additional information, see “Item 1 – Business: Human Capital Resources” in this Form 10-K. 12 We strive to create a workplace based on the following principles and goals: Care for Our People ● We believe in upholding the principles of human rights, worker safety, and observing fair labor practices within our organization. ● We respect different viewpoints and perspectives, and ultimately individual thoughts create innovation and achieve better results.
For additional information, see “Item 1 – Business: Human Capital Resources” in this Form 10-K. 9 We strive to create a workplace based on the following principles and goals: Care for Our People ● We believe in upholding the principles of human rights, worker safety, and observing fair labor practices within our organization. ● We respect different viewpoints and perspectives, and ultimately individual thoughts create innovation and achieve better results.
We do not directly source tin, tantalum, tungsten, or gold (collectively referred to as 3TG) from mines, smelters or refiners, and we are in most cases several or more levels removed from these supply chain participants. 13 Government Regulations Our business is subject to extensive regulation in the industries we serve. We deal with numerous U.S.
We do not directly source tin, tantalum, tungsten, or gold (collectively referred to as 3TG) from mines, smelters or refiners, and we are in most cases several or more levels removed from these supply chain participants. 10 Government Regulations Our business is subject to extensive regulation in the industries we serve. We deal with numerous U.S.
These investments may not provide us with any financial return or other benefit, and any losses by these companies or associated losses in our investments may negatively impact our operating results.
These investments may not provide us with any financial return or other benefit, and any losses by these companies or associated losses in our investments may negatively impact on our operating results.
Any failure on our part to obtain any required licenses for the export of technical data and/or export of our products, or to otherwise comply with ITAR, could subject us to significant future liabilities. 14 We are also subject to federal importation laws that regulate the importation of raw materials and equipment from other nations that are used in our products.
Any failure on our part to obtain any required licenses for the export of technical data and/or export of our products, or to otherwise comply with ITAR, could subject us to significant future liabilities. 11 We are also subject to federal importation laws that regulate the importation of raw materials and equipment from other nations that are used in our products.
We will also provide to any person without charge, upon request, a copy of any of the foregoing materials. Any such request must be made in writing to us, c/o Investor Relations, Kopin Corporation, 125 North Drive, Westborough, MA, 01581. 15
We will also provide any person without charge, upon request, a copy of any of the foregoing materials. Any such request must be made in writing to us, c/o Investor Relations, Kopin Corporation, 125 North Drive, Westborough, MA, 01581. 12
If terminated by the government as a result of our default, we could be liable for payments made to us for undelivered goods or services, additional costs the government incurs in acquiring undelivered goods or services from another source, and any other damages it suffers.
If terminated by the government because of our default, we could be liable for payments made to us for undelivered goods or services, additional costs the government incurs in acquiring undelivered goods or services from another source, and any other damages it suffers.
Sales to significant non-affiliated customers for fiscal years 2023, 2022 and 2021, as a percentage of total revenues, were as follows: Sales as a Percent of Total Revenue Fiscal Year 2023 2022 2021 Customer 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 % Our fiscal year ends on the last Saturday in December.
Sales to significant non-affiliated customers for fiscal years 2024, 2023 and 2022, as a percentage of total revenues, were as follows: Sales as a Percent of Total Revenue Fiscal Year 2024 2023 2022 Customer Defense Customers in Total 82 % 56 % 52 % DRS Network & Imaging Systems, LLC 65 % 33 % 40 % Collins Aerospace 11 % 27 % 28 % Funded Research and Development Contracts 12 % 33 % 30 % Our fiscal year ends on the last Saturday in December.
We acquired an equity interest in Lenovo New Vision in the first quarter of 2018 for $1.0 million and the contribution of certain intellectual property. As of December 30, 2023, we own approximately 10% interest in this investment and the carrying value of our investment is $1.5 million.
We acquired an equity interest in Lenovo New Vision in the first quarter of 2018 for $1.0 million and the contribution of certain intellectual property. As of December 28, 2024, we have approximately 10% interest in this investment and the carrying value of our investment is $1.5 million.
We acquired a right to an equity interest in a medical device company in 2021. As of December 30, 2023, the carrying value of this investment is $0.3 million. As of December 30, 2023, we own 100% of the outstanding common stock of NVIS, Inc (“NVIS”), FDD, and e-MDT America Inc.
We acquired a right to an equity interest in a medical device company in 2021. As of December 28, 2024, the carrying value of this investment is $0.3 million. As of December 28, 2024, we own 100% of the outstanding common stock of Kopin Virginia, Inc. (formerly NVIS, Inc), KEL, and e-MDT America Inc.
Our initial process for the strategy creation includes work by a cross-functional ESG team of leaders representing operations, human resources, supply chain, finance, marketing, and facilities departments. We also utilize third-party facility, environmental and legal consulting services.
With the growing awareness of environmental and social issues, we are in the process of creating a more formalized ESG strategy. Our initial process for strategy creation includes work by a cross-functional ESG team of leaders representing operations, human resources, supply chain, finance, marketing, and facilities departments. We also utilize third-party facilities, environmental and legal consulting services.
We cannot be certain that we will be able to compete against these companies and technologies, or that consumers will accept the use of such eyewear in general or our customers’ product form factor specifically. 11 There are also several AMLCD, LCOS, OLED, MicroLED and alternative display technologies in development and production.
We cannot be certain that we will be able to compete against these companies and technologies, or that consumers will accept the use of such eyewear in general or our customers’ product form factor specifically.
Of these employees, 3 hold Ph.D. degrees in Material Science, Electrical Engineering or Physics. Our management and professional employees have significant prior experience in semiconductor materials, device transistor and display processing, optical design, manufacturing, and other related technologies. Our employees are in the U.S., Europe and Asia and the laws regarding employee relationships are different by jurisdiction.
Human Capital Resources As of December 28, 2024, our consolidated business employed 181 full-time employees. Of these employees, 3 hold Ph.D. degrees in Material Science, Electrical Engineering or Physics. Our management and professional employees have significant prior experience in semiconductor materials, device transistor and display processing, optical design, manufacturing, and other related technologies.
We do not manufacture optical lenses, backlights, or ASICs but we either have them made to our specifications or buy standard off-the-shelf products. Patents, Proprietary Rights and Licenses An important part of our product development strategy is to seek, when appropriate, protection for our products and proprietary technology using various U.S. and foreign patents and contractual arrangements.
Patents, Proprietary Rights and Licenses An important part of our product development strategy is to seek, when appropriate, protection for our products and proprietary technology using various U.S. and foreign patents and contractual arrangements. We intend to prosecute and defend our proprietary technology aggressively.
None of our employees are covered by a collective bargaining agreement. We have policies to prevent discrimination based on gender, race, ethnicity, nationality, religion, sexual orientation, gender identity or gender expression. We take affirmative action to ensure that applicants are hired, and that employees are treated during employment without regard to their race, ethnicity, religion, sex, or national origin.
Our employees are in the U.S. and Europe and the laws regarding employee relationships are different by jurisdiction. None of our employees are covered by a collective bargaining agreement. We have policies to prevent discrimination based on gender, race, ethnicity, nationality, religion, sexual orientation, gender identity or gender expression.
The code is reviewed and updated periodically by our Board of Directors and is available on our website at www.kopin.com. Environmental, Social & Governance (ESG) Initiatives We strive to create and maintain a working environment that fosters honesty and hard work and rewards all of our employees’ hard work.
Environmental, Social & Governance (ESG) Initiatives We strive to create and maintain a working environment that fosters honesty and hard work and rewards all of our employees’ hard work. We endeavor to make Kopin Corporation a place people are proud to be associated with.
Funded Research and Development We have entered various development contracts with agencies and prime contractors of the U.S. Government and commercial customers. These contracts help support the continued development of our core technologies. We intend to continue to pursue development contracts for applications that relate to our defense and commercial product applications.
Government and commercial customers. These contracts help support the continued development of our core technologies. A substantial percentage of our revenue derives from Funded Research and Development, focusing on developing custom product solutions, particularly for the U.S. defense industry.
The general commercial display market is highly competitive and is currently dominated by large Asian-based electronics companies, including AUO, BOE Technology Group, Himax, LG Display, Samsung, Sharp, Sony and Texas Instruments. In addition, several companies focus on OLED microdisplays including BOE Technology Group, Lakeside, MicroOLED, Olightek, Seeya, Seiko Epson and Sony.
Competition and Risks The general commercial display market is highly competitive, and we face competition from large Asian electronics companies such as AUO, BOE Technology Group, Himax, LG Display, Samsung, Sharp, and Sony in the near eye microdisplay sector.
We also take affirmative action to employ and advance veterans in employment. We consider relations with our employees to be good. In 2004, we finalized and adopted a Code of Business Conduct and Ethics regarding the standards of conduct of our directors, officers and employees.
In 2004, we finalized and adopted a Code of Business Conduct and Ethics regarding the standards of conduct of our directors, officers and employees. The code is reviewed and updated periodically by our Board of Directors and is available on our website at www.kopin.com.
The fiscal years ended December 30, 2023, December 31, 2022, and December 25, 2021, are referred to herein as fiscal years 2023, 2022 and 2021, respectively. Augmented and Virtual Reality We believe that defense, industrial, and consumer companies are looking at AR and VR as new applications and computing platforms.
The fiscal years ended December 28, 2024, December 30, 2023, and December 21, 2022, are referred to herein as fiscal years 2024, 2023 and 2022, respectively. Augmented and Virtual Reality Kopin Corporation, a leader in optical solutions, has expressed views on the future of augmented reality (“AR”) and virtual reality (“VR”) in defense, industrial, and consumer sectors.
Our transmissive AMLCDs are designed in Westborough, Massachusetts, have initial manufacturing steps performed in Taiwan and then are completed in our facility in Westborough, Massachusetts. Our AMLCD and OLED displays are sold separately or in subassemblies.
For example, AMLCDs are designed in Westborough, then initial manufacturing steps occur in Taiwan and then the product is completed in Westborough, while FLCOS products are handled by our facility in Dalgety Bay, Scotland. Our OLED displays are designed in Westborough, the initial manufacturing occurs in South Korea, then they are completed in Europe or Asia.
Removed
Item 1. Business Overview Incorporated in Delaware in 1984, Kopin Corporation (“Kopin” or “the Company”) is a leading developer and provider of high-performance application-specific optical solutions consisting of high-resolution microdisplays and optics, subassemblies, and headsets. We define microdisplays as displays that have a diagonal measurement of less than 2 inches.
Added
Item 1. Business Overview Corporate Background and Market Presence As used herein, the terms “Company,” “we,” “us,” or “our” refer to Kopin Corporation, a Delaware corporation.
Removed
Our products are used for defense applications (thermal weapon rifle sights, fixed and rotary wing pilot helmets, armored vehicle targeting systems, and training & simulation headsets); industrial and medical headsets; and 3D optical inspection systems. We believe that the technologies we are developing may eventually be used in consumer augmented reality (“AR”) and virtual reality (“VR”) wearable headset systems.
Added
Kopin Corporation, a Delaware corporation that was incorporated in 1984 and is headquartered in Westborough, Massachusetts, is renowned for its innovative microdisplay technologies and optical systems, catering to defense, enterprise, industrial, consumer, and medical sectors.
Removed
Our products are primarily used to overlay digital information on the real-world scene.
Added
These microdisplays and subsystem solutions are all geared toward enhancing human performance when it matters most – in critical applications. Within the reporting period, we announced a patent pending fifth-generation MicroDisplay called NeuralDisplay™ which is in development. The display is a bi-directional, human-in-the-loop and AI enabled backplane that can be manufactured into microdisplays using either OLED or MicroLED deposition technology.
Removed
As part of our plan to focus our resources on new and existing defense, industrial and consumer applications that are in line with our strategic plan, in January 2023, we conducted a partial spinout of our organic light emitting diode (“OLED”) development unit to Lightning Silicon Technology, Inc. (“Lightning Silicon”).
Added
While microdisplays are at the heart of everything we make, we also bring value to our customers through the design and manufacture of high-performance subsystems of ASOS which include optics, electronics, and housings that are designed to meet the rigorous performance, size, weight, power, and cost requirements of the applications into which they are used.
Removed
Lightning Silicon received a license under a Technology License agreement to certain Kopin intellectual property to develop, manufacture and sell OLED display technologies for use in the consumer market, based on 12 inch deposition technology development.
Added
These products are critical for applications ranging from weapon mounted thermal sights to spatial computing devices and medical headsets. We have been supplying our microdisplays and ASOS to the U.S. Department of Defense for many years for solider centric systems, rotary and fixed wing aircraft and are developing products for armored vehicles and soldier carried missile systems.
Removed
The Technology License agreement provides for Kopin to transfer certain patents to Lightning Silicon if they achieve certain milestones, however upon transfer Kopin will receive a license to the technology. We received an equity interest in Lightning Silicon and expect to receive royalties from the sale of products related to the licenses.
Added
Our market reach now extends globally, with significant operations in the Americas, Asia-Pacific, and Europe. This global footprint and strategic focus underscore our capability to serve diverse and demanding markets, particularly in defense, where it supports both U.S. and international customers with development and production programs.
Removed
We retained the ability and rights to develop, manufacture and sell OLED displays and complete optical solutions that include microdisplays to our core base in the defense and enterprise markets, as well as value added consumer applications. Lightning Silicon is a company formed by Dr. John C.C.
Added
Strategic Initiatives and Recent Developments Historically, we have focused on selling individual display components, but we have shifted our focus to offering higher-value complete solutions. These solutions integrate displays, optics, and drive electronics into subassemblies or headsets, catering to the growing demand for integrated, application-specific products – our ASOS.
Removed
Fan, our former Chairman of the Board, and former Chief Executive Officer, to develop and supply advanced OLED microdisplays for the consumer augmented reality and virtual reality markets. We are transitioning from selling just displays to a solution that includes our display, optics, and drive electronics in a subassembly or a headset for the customer’s particular application.
Added
This move is supported by our proprietary technologies, which enable the design and manufacture of high-performance, rugged systems. The additional capability in offering complete solutions positions us to better serve our customers by offering a seamless integration of components, ensuring optimal performance and ease of use.
Removed
Our strategy is to focus on providing our defense, industrial and medical customers with application-specific optical solutions, which sets us apart from our competition who typically only provide displays.
Added
This is a critical differentiator, as competitors like Samsung, LG, and Sony, while strong in display manufacturing, do not typically provide integrated subassemblies or headsets, requiring customers to handle the highly complex additional integration which requires complex processes, know-how and trade secrets, and specialized equipment and facilities to do correctly.
Removed
Our primary sources of product revenues are from the sale of display and optical components and subassemblies for defense and industrial applications and development contracts primarily for U.S. defense programs.
Added
Our ability to meet specific customer needs is enhanced by our proprietary technologies, which include over 200 patents and patent applications covering microdisplays, optics, and related systems, providing a significant intellectual property advantage, as noted in recent patent filings.
Removed
We believe we also are well-positioned with our technology, intellectual property, manufacturing capabilities and partnerships and reputation to take advantage of the emerging market for AR and VR applications and products of which microdisplays are the cornerstone technology. At the center of all our products is a microdisplay.
Added
Technological edge allows us to develop products that are not only high-resolution and low power but also rugged enough for defense applications, such as pilot helmets and armored vehicle targeting systems. The Company’s competitive edge is further strengthened by our focus on application-specific solutions, which cater to the unique requirements of each market segment.
Removed
We are the only company, to our knowledge, that offers AMLCDs, LCOS displays and OLED displays, and related optics, which enable us to serve the markets and customers based on their needs and the problems they are trying to solve. We are also in development to create MicroLED displays and displays with additional capabilities such as eye-tracking.
Added
For example, in the industrial sector, we license wireless headset reference designs that integrate displays and optics for field service personnel, enhancing productivity.
Removed
We believe our display technologies, combined with our extensive expertise in optics, system electronics and human factors, are the reason why many customers come to us.
Added
Similarly, in the medical field our stereoscopic 3D high-resolution headset is used by surgeons to provide comfortable and convenient visual support with more comfort and convenience. 4 ONE Kopin Strategic Initiative and Rebranding In alignment with our “ONE Kopin” strategic initiative, we have undertaken a strategic initiative to reorganize and streamline our operations.
Removed
In situations where a new market is developing, or the market already has a number of low-priced display offerings of the size and resolution needed, we may purchase displays from other display companies for use with our proprietary optics and or headset designs.
Added
This initiative will include a rebranding effort to unify our corporate identity, and as announced in recent corporate updates, includes the introduction of a new logo, corporate identity, and website, reflecting a modernized brand image. Our unified business now operates through various market and technology groups, strategically located across multiple sites to support our global operations.
Removed
The components we offer for sale consist of our proprietary miniature or micro AMLCD, LCOS, OLED, MicroLED display technologies, application specific integrated circuits (“ASICs”), backlights, and optical lenses. We refer to our AMLCD as “CyberDisplay®,” our LCOS displays/Spatial Light Modulators (“SLMs”) as “Time Domain Imaging TM technology”, and our OLED displays as “Lightning® displays”.
Added
These groups are organized by market segments (e.g., defense, industrial, consumer) and technology areas (e.g., AMLCD, FLCOS, OLED, MicroLED), with locations including Westborough, Massachusetts, Dalgety Bay, Scotland, and Reston, Virginia.
Removed
For example, we offer a display as a single product, a display module which includes a display, an optical lens and backlight contained in either plastic or metal housings, a binocular display module which has two displays, lenses and backlights, and a higher-level assembly which has additional components for defense applications.
Added
In addition to unifying our operations, we have also expanded and unified our sales and business development team, substantially increasing our investment in new customer acquisition, existing customer revenue and margin enhancement, and diversification of our customer base. In the defense, medical and industrial segments that we serve, product development cycles and transitions from development to manufacturing are lengthy.
Removed
Examples of products manufactured by our customers that include our AMLCD and OLED displays include: ● Weapon sights and target locators for soldiers to enable faster and more accurate target acquisition; ● Weapon sight systems that support artificial intelligence (“AI”) based targeting systems in tanks; ● Fighter and helicopter pilot helmets that use our display to overlay information (targeting, flight operation, etc.); ● Headsets and systems used by soldiers for training and simulation purposes; ● Industrial headsets for applications such as field maintenance/service where a service worker can visually access diagrams and drawings in real time while keeping both hands free to conduct work or to access a remote expert with live video to help solve a problem remotely – thereby increasing productivity and effectiveness; ● Medical headsets used by surgeons that include our displays so that the surgeon simply glances down to see the patient or glances up and sees a magnified image of the anatomy being worked on; and ● AR consumer products for recreational use including rifle sights.
Added
Therefore, maintaining a robust pipeline of active customer-funded development programs that will evolve into production programs is a critical part of growing revenues and expanding our customer base.
Removed
Our LCOS products are designed and manufactured at our Forth Dimension Displays (“FDD”) subsidiary in Dalgety Bay, Scotland. Our LCOS displays are often configured with drive electronics and sold as a package that makes it easier for our customers to design our displays into their end products.
Added
In conjunction with our portfolio of unique microdisplays and ASOS, we have also invested heavily in our sales and business development group – nearly doubling the resources focused on acquisition of new customers and programs over the past 18 months.
Removed
A significant portion of the LCOS displays are sold to customers for incorporation into SLMs, which are built into manufacturing equipment that are used for 3D optical measurement. We are currently developing color and monochrome MicroLED displays and displays with additional capabilities.
Added
This reorganization is designed to improve coordination and innovation, leveraging the strengths of each division under a single umbrella, and growing and diversify our customer base. Our multiple locations ensure global reach, supporting customers in the Americas, Asia-Pacific, and Europe as these regions become more focused on sovereign defense spending, medical research and semiconductor developments.
Removed
The AMLCD display driver ASICs we offer are the electronic interfaces between our displays and the products into which the displays are incorporated. The optical lenses and backlights we offer are based on either our proprietary designs or designs we license from third parties. The ASICs, optical lenses, and backlights are manufactured by third parties.
Added
Product Portfolio and Technological Edge Our product lineup is diverse, with four microdisplay technologies inclusive of both off-the-shelf and custom products, as well as complete headset solutions for training & simulation and medical applications, and ASOS sub-systems. Manufacturing processes vary.
Removed
We design and manufacture defense and industrial head-mounted and hand-held VR products for training and simulation. Our products allow customers to visualize and interact with simulated 3D environments and equipment for training purposes.
Added
These displays are sold separately or integrated into subassemblies, including binocular modules and higher-level assemblies (“HLAs”) for defense, used in applications like weapon sights, pilot helmets, and training headsets.
Removed
Our customers develop high-fidelity training and simulation applications that require high-performance visuals, intuitive controls, and unsurpassed customer support. 4 The focus of our internally funded research and development activities is on our OLED, MicroLED and other display technologies.
Added
Our development of OLED and MicroLED displays, including color and monochrome variants with capabilities such as NeuralDisplay™ Artificial Intelligent (“AI”) based eye-tracking, signifies our forward-looking approach to deliver new capabilities designed to enhance human performance where and when it matters most.
Removed
Previously we used internally funded research and development funds to design headset systems that were focused on the emerging industrial and consumer markets for head-worn, hands-free, voice-and gesture-controlled wireless computing and communication devices.
Added
Additionally, we offer display drivers, application-specific integrated circuits (“ASICS”), optical lenses, and backlights, manufactured by third parties, complementing its core offerings.
Removed
We continue to license our previously designed systems under agreements that may include a royalty payable to us and a purchase and supply agreement that requires us to supply our customers and our customers to buy our components for integration into their products. The licenses may convey the right of exclusivity for a particular market or geographic area.
Added
Revenue Streams and Market Opportunities Revenue generation derives primarily from the sale of displays, optical components, and Application Specific Optical Solutions (ASOS) that we manufacture for defense, industrial, medical and training and simulation applications, alongside customer-funded development contracts for U.S. defense programs. This dual revenue stream ensures stability and growth potential.
Removed
In addition to sales of our components, subassemblies, and headsets, we also derive a significant portion of our revenue from developing custom product solutions for our customers, which we refer to as Funded Research and Development.
Added
Most of the programs designed for these market segments tend to run for extended time periods, yielding multiple years of revenue and margin streams. We are particularly well-positioned for the emerging augmented reality (AR) and virtual reality (VR) markets, leveraging our technology and intellectual property.
Removed
We enter into development agreements with the goal of successfully developing a customer product and then winning the production orders for such products once design is complete and tested. These development programs can take several years. The Funded Research and Development process typically adds to Kopin’s knowledge base and expertise, putting us in a better position for future business.
Added
Our unique position as the only known USA-based provider offering AMLCDs, LCOS, OLED and MicroOLED Displays, combined with optics, enhances our ability to offer the market the best solution for each unique application, serving customers based on their specific needs. This is a significant competitive advantage for us.
Removed
The Funded Research and Development arrangements typically have various milestones we are required to achieve to be reimbursed for our efforts. These arrangements are normally fixed price and may be cancelled by the customer on short notice.
Added
The addition of AI Enabled backplane architectures and pending patent applications in this area puts us at the forefront of display technology for consumer and defense applications. Research and Development Focus Internally funded research and development is concentrated on advancing OLED, MicroLED, and other display technologies such as bi-directional pixel architectures and software defined, AI enabled backplane architectures.
Removed
We also believe that the technologies developed for the U.S. defense industry can eventually be used in commercial and enterprise applications and subsequently in consumer applications.

… 153 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

81 edited+27 added−19 removed108 unchanged
Biggest changeIf these foundries were to become unable to provide the required capacity, services or quality on a timely basis due to a military or other form of conflict, geopolitical tensions, or other reasons relating thereto, we may not be able to manufacture and ship our display products, or we may be forced to manufacture them in limited quantities until replacement foundry services can be obtained.
Biggest changeIf these foundries were to become unable to provide the required capacity, services or quality on a timely basis due to a military or other form of conflict, geopolitical tensions, including in Ukraine, the Middle East, China, Taiwan and other regions, financial market volatility and disruption, inflationary concerns, changes in tax laws and regulations, interest and currency exchange rates, uncertain economic conditions in the United States and abroad, and additional tariffs, including those imposed or that may be imposed by the new presidential administration in the U.S., or other reasons relating thereto, we may not be able to manufacture and ship our display products, or we may be forced to manufacture them in limited quantities until replacement foundry services can be obtained.
Any new contracting methods could be costly to satisfy, be administratively difficult for us to implement and could impair our ability to obtain new contracts. Our ability to manufacture and distribute our display products would be severely limited if the foundries that we rely on to manufacture integrated circuits for our display products fail to provide those services.
Any new contracting methods could be costly to satisfy, be administratively difficult for us to implement and could impair our ability to obtain new contracts. Our ability to manufacture and distribute our display products would be severely limited if the foundries that we rely on manufacture integrated circuits for our display products fail to provide those services.
Due to natural disasters such as earthquakes and typhoons that have occasionally occurred in Asia, many Taiwanese companies, including the Taiwanese foundry we use, have experienced related business interruptions. Our business could suffer significantly if any of the foundries we use have their operations disrupted for an extended period of time due to natural disasters, political unrest or financial instability.
Due to natural disasters such as earthquakes and typhoons that have occasionally occurred in Asia, many Taiwanese companies, including the Taiwanese foundry we use, have experienced related business interruptions. Our business could suffer significantly if any of the foundries we use have their operations disrupted for an extended period due to natural disasters, political unrest or financial instability.
As the Catalogue for the Guidance of Foreign Investment Industries is updated every few years, there can be no assurance that China’s government will not change its policies in a manner that would render part or all of our business to fall within the restricted or prohibited categories.
As the Catalogue for the Guidance of Foreign Investment Industries is updated every few years, there can be no assurance that China’s government will not change its policies in a manner that would render part or all of our investment to fall within the restricted or prohibited categories.
Changes in government trade policies may increase the cost of our products, which may materially adversely affect our sales or profitability. We depend on a Taiwanese foundry for the manufacture of integrated circuits for our AMLCD display products and on Chinese and Korean foundries for our OLED display products.
Changes in government trade policies may increase the cost of our products, which may materially adversely affect our sales or profitability. We depend on a Taiwanese foundry for the manufacture of integrated circuits for our AMLCD display products and on Chinese, Korean, and European foundries for our OLED display products.
In situations where control transfers or services are performed over time, revenue is recognized based on the extent of progress toward completion of the performance obligation. We generally use the cost-to-cost approach to measure the extent of progress towards completion of the contractual obligation for our contracts.
In situations where control transfers or services are performed over time, revenue is recognized based on the extent of progress toward completion of the performance obligation. We use the cost-to-cost approach to measure the extent of progress towards the completion of the contractual obligation for our contracts.
Among the more significant laws and regulations affecting our business are: ● The Federal Acquisition Regulation, which comprehensively regulates the formation, administration and performance of federal government contracts; ● The Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with contract negotiations; ● The Cost Accounting Standards and Cost Principles, which impose accounting requirements that govern our right to reimbursement under certain cost-based federal government contracts; and ● Laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the export of certain products, services and technical data.
Among the more significant laws and regulations affecting our business are: ● The Federal Acquisition Regulation, which comprehensively regulates the formation, administration and performance of federal government contracts; ● The Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with contract negotiations; ● The Cost Accounting Standards and Cost Principles, which impose accounting requirements that govern our right to reimbursement under certain cost-based federal government contracts; and ● Laws, regulations and executive orders restrict the use and dissemination of information classified for national security purposes and the export of certain products, services and technical data.
If a government review or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties or administrative sanctions, including: ● Termination of contracts; ● Forfeiture of profits; ● Cost associated with triggering of price reduction clauses; ● Suspension of payments; ● Fines; and ● Suspension or debarment from doing business with federal government agencies. 20 Additionally, the False Claims Act provides for substantial civil penalties where, for example, a contractor presents a false or fraudulent claim to the government for payment or approval.
If a government review or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties or administrative sanctions, including: ● Termination of contracts; ● Forfeiture of profits; ● Cost associated with triggering price reduction clauses; ● Suspension of payments; ● Fines; and ● Suspension or debarment from doing business with federal government agencies. 17 Additionally, the False Claims Act provides for substantial civil penalties where, for example, a contractor presents a false or fraudulent claim to the government for payment or approval.
In addition, due to the absence of a substantial non-cancelable backlog, we typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The uncertainty of product orders makes it difficult for us to forecast our sales and allocate our resources in a manner consistent with our actual sales.
In addition, due to the absence of a substantial non-cancellable backlog, we typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The uncertainty of product orders makes it difficult for us to forecast our sales and allocate our resources in a manner consistent with our actual sales.
The threats we face are continuous and evolving and vary in degree of severity and sophistication. These threats include advanced persistent threats from highly organized adversaries, including but not limited to cyber criminals, nation states and so-called hacktivists, particularly those adverse to the security interests of the U.S. and its allies, which target us and other defense contractors.
The threats we face are continuously evolving and vary in degree of severity and sophistication. These threats include advanced persistent threats from highly organized adversaries, including but not limited to cyber criminals, nation states and so-called hacktivists, particularly those adverse to the security interests of the U.S. and its allies, which target us and other defense contractors.
We cannot provide assurance against supplier price increases that negatively impact the cost of producing products, which may adversely affect sales or profitability. Finding and/or qualifying a more cost-effective replacement supplier may take significant time. 21 The markets in which we operate are highly competitive and rapidly changing and we may be unable to compete successfully.
We cannot provide assurance against supplier price increases that negatively impact the cost of producing products, which may adversely affect sales or profitability. Finding and/or qualifying a more cost-effective replacement supplier may take significant time. 18 The markets in which we operate are highly competitive and rapidly changing and we may be unable to compete successfully.
Our business is characterized by short-term purchase orders with shipment schedules within one year, and we generally permit orders to be canceled or rescheduled before shipment without significant penalty. As a result, our customers may cease purchasing our products at any time, which makes forecasting our revenues difficult.
Our business is characterized by short-term purchase orders with shipment schedules within one year, and we generally permit orders to be cancelled or rescheduled before shipment without significant penalty. As a result, our customers may cease purchasing our products at any time, which makes forecasting our revenues difficult.
Government contracts; and ● Our ability to secure agreements from our major customers for the purchase of our products. 18 As a result of these and other factors, investors should not rely on our revenues and our operating results for any one quarter or year as an indication of our future revenues or operating results.
Government contracts; and ● Our ability to secure agreements from our major customers for the purchase of our products. 15 As a result of these and other factors, investors should not rely on our revenues and our operating results for any one quarter or year as an indication of our future revenues or operating results.
Moreover, we, like other companies, are seeing an unprecedented number of previously unknown vulnerabilities, for which there are no known mitigations, being revealed by new attacks. Further, the sophistication, availability and use of artificial intelligence by threat actors present an increased level of risk.
Moreover, we, like other companies, see an unprecedented number of previously unknown vulnerabilities, for which there are no known mitigations being revealed by new attacks. Further, the sophistication, availability and use of artificial intelligence by threat actors present an increased level of risk.
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, delivery date and cost of materials and the performance of our subcontractors.
Contract costs include material, labor and subcontracting costs, as well as an allocation of indirect costs. We must make assumptions regarding the number of labor hours required to complete a task, the complexity of the work to be performed, the availability, delivery date and cost of materials and the performance of our subcontractors.
In 2023 we experienced quality issues with the products we supplied for the FWS-I program. These quality issues resulted in suspension of shipments to our customer at various times during 2023 as we made modifications to our production processes. We are continuing to make modifications to our production processes as we resolve certain issues.
In 2023 and 2024, we experienced quality issues with the products we supplied for the FWS-I program. These quality issues resulted in suspension of shipments to our customer at various times during 2023 and 2024 as we made modifications to our production processes. We are continuing to make modifications to our production processes as we resolve certain issues.
We may in the future receive show-cause or cure notices under contracts that, if not addressed to the federal government’s satisfaction, could give the government the right to terminate those contracts for default or to cease procuring our services under those contracts. 19 In addition, U.S.
We may in the future receive show-cause or cure notices under contracts that, if not addressed to the federal government’s satisfaction, could give the government the right to terminate those contracts for default or to cease procuring our services under those contracts. 16 In addition, U.S.
Competition for highly skilled personnel is intense and there may be only a limited number of persons with the requisite skills to serve in these positions. Due to the competitive nature of the labor markets in which we operate, we may be unsuccessful in attracting and retaining these personnel.
Competition for highly skilled personnel is intense and there may be only a limited number of people with the requisite skills to serve in these positions. Due to the competitive nature of the labor markets in which we operate, we may be unsuccessful in attracting and retaining these personnel.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) imposes disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in products, whether or not these products are manufactured by third parties.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) imposes disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in products, whether these products are manufactured by third parties.
If we fail to comply with any of these regulations, we could be subject to a range of regulatory actions, fines or other sanctions or litigation. If we must disclose any material weakness in our internal control over financial reporting, our stock price could decline. 26
If we fail to comply with any of these regulations, we could be subject to a range of regulatory actions, fines or other sanctions or litigation. If we must disclose any material weakness in our internal control over financial reporting, our stock price could decline. 22
If the federal government terminates a contract with one of our customers, our contract with our customers generally would entitle us to recover only our incurred or committed costs, settlement expenses and possibly retain any profit on the work that was completed prior to termination.
If the federal government terminates a contract with one of our customers, our contract with our customers would entitle us to recover only our incurred or committed costs, settlement expenses and retain any profit on the work that was completed prior to termination.
As a result, defense spending levels are difficult to predict beyond the near term due to numerous factors, including the external threat environment, future government priorities and the state of government finances. Significant changes in defense spending or changes in U.S.
As a result, defense spending levels are difficult to predict beyond the near term due to numerous factors, including the external threat environment, future government priorities and changes to funding of government agencies, and the state of government finances. Significant changes in defense spending or changes in U.S.
Moreover, the license fees we pay may be increased, which would negatively affect our ability to achieve profitability and positive cash flow. 22 We may incur substantial costs in defending our intellectual property and may not be successful in protecting our intellectual property and proprietary rights.
Moreover, the license fees we pay may be increased, which would negatively affect our ability to achieve profitability and positive cash flow. 19 We may incur substantial costs in defending our intellectual property and may not be successful in protecting our intellectual property and proprietary rights.
We have experienced a history of losses, have a significant accumulated deficit, have had negative cash flow from operating activities in fiscal years 2023, 2022, and 2021, and expect to have negative cash flow from operating activities in fiscal year 2024 . Since inception, we have incurred significant net operating losses.
We have experienced a history of losses, have a significant accumulated deficit, have had negative cash flow from operating activities in fiscal years 2024, 2023, and 2022, and expect to have negative cash flow from operating activities in fiscal year 2025 . Since inception, we have incurred significant net operating losses.
Government contracts generally are not fully funded at inception and may be terminated or modified prior to completion, which could adversely affect our business. Congress funds the vast majority of the federal budget on an annual basis, and Congress often does not provide agencies with all the money requested in their budget.
Government contracts generally are not fully funded at inception and may be terminated or modified prior to completion, which could adversely affect our business. Congress funds much of the federal budget on an annual basis, and Congress often does not provide agencies with all the money requested in their budget.
In addition, due to the level of technical and marketing expertise necessary to support our existing and new customers, our success will depend upon our ability to attract and retain highly skilled management, technical, and sales and marketing personnel.
In addition, due to the level of technical and marketing expertise necessary to support our existing and new customers, our success will depend upon our ability to recruit and retain highly skilled management, technical, and sales and marketing personnel.
To continue to provide quality products in our rapidly changing business, we believe it is important to retain personnel with experience and expertise relevant to our business. Our success depends in large part upon a number of key management and technical employees. The loss of the services of one or more key employees, including Mr.
To continue to provide quality products in our rapidly changing business, we believe it is important to retain personnel with experience and expertise relevant to our business. Our success depends in large part upon several key management and technical employees. The loss of the services of one or more key employees, including Mr.
We also use software packages that are no longer supported by their developer. We have experienced short-term (i.e., a few days) interruptions in our Internet connectivity.
We also use software packages that are no longer supported by their developer. We have experienced short-term (i.e., a few days) interruptions in our Internet connection.
The competition in these markets could adversely affect our operating results by reducing the volume of the products we sell or the prices we can charge. These competitors may be able to respond more rapidly than us to new or emerging technologies or changes in customer requirements.
The competition in these markets could adversely affect our operating results by reducing the volume of the products we sell or the prices we can charge. These competitors may be able to respond more rapidly than us to new or emerging technologies, including artificial intelligence technologies, or changes in customer requirements.
Civil actions under the False Claims Act may be brought by the government or by other persons on behalf of the government (who may then share a portion of any recovery).
Civil actions under the False Claims Act may be brought by the government or by other people on behalf of the government (who may then share a portion of any recovery).
We also cannot be certain that past use or disposal of environmentally sensitive materials in conformity with then existing environmental laws and regulations will protect us from required remediation or other liabilities under current or future environmental laws or regulations. 24 We may be unable to modify our products to meet regulatory or customer requirements.
We also cannot be certain that past use or disposal of environmentally sensitive materials in conformity with the existing environmental laws and regulations will protect us from required remediation or other liabilities under current or future environmental laws or regulations. 21 We may be unable to modify our products to meet regulatory or customer requirements.
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.
Accounting for design, development and production contracts requires judgment related 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 complex and subject to many variables.
There are a number of companies that develop or may develop products that compete in our targeted markets. The individual components that we offer for sale (displays, optical lenses, backlights and ASICs) are also offered by companies whose sole business focuses on that individual component. For example, there are companies whose sole business is to sell optical lenses.
There are several companies that develop or may develop products that compete in our targeted markets. The individual components that we offer for sale (displays, optical lenses, backlights and ASICs) are also offered by companies whose sole business focuses on that individual component. For example, there are companies whose sole business is to sell optical lenses.
If we fail to meet the terms specified in those contracts, then our cost to perform the work could increase, which would adversely affect our financial position and results of operations. Some of the contracts we bid on have Indefinite Delivery, Indefinite Quantity (“IDIQ”) provisions.
Some of our contracts have specific provisions relating to cost, scheduling, and performance. If we fail to meet the terms specified in those contracts, then our cost to perform the work could increase, which would adversely affect our financial position and results of operations. Some of the contracts we bid on have Indefinite Delivery, Indefinite Quantity (“IDIQ”) provisions.
If any of our past operations are deemed to be non-compliant with Chinese law, we may be subject to penalties and our business and operations may be adversely affected. For instance, under the catalogue for the Guidance of Foreign Investment Industries, some industries are categorized as sectors that are encouraged, restricted or prohibited for foreign investment.
If any of our past operations are deemed to be non-compliant with Chinese law, we may be subject to penalties. For instance, under the catalogue for the Guidance of Foreign Investment Industries, some industries are categorized as sectors that are encouraged, restricted or prohibited for foreign investment.
In addition, as a result of the rapid pace of technological change, we and our customers, suppliers, subcontractors and other third parties with whom we conduct business continue to rely on legacy systems and software, which can be more vulnerable to cyber threats and attacks.
In addition, because of the rapid pace of technological change, we and our customers, suppliers, subcontractors and other third parties with whom we conduct business continue to rely on legacy systems and software, which can be more vulnerable to cyber threats and attacks.
Any implementation of tax laws that fundamentally changes the taxation of corporations in the U.S. or in the foreign jurisdictions in which we operate could materially affect our effective tax rate and could have a significant adverse impact on our financial results.
Governments in the jurisdictions in which we operate implement changes to tax laws and regulations periodically. Any implementation of tax laws that fundamentally changes the taxation of corporations in the U.S. or in the foreign jurisdictions in which we operate could materially affect our effective tax rate and could have a significant adverse impact on our financial results.
We have no present intention to pay dividends on our common stock in the foreseeable future and, consequently, your only opportunity to achieve a return on your investment during that time is if the price of our common stock appreciates. Historically, our earnings, if any, have been retained for the development of our businesses.
We do not intend to pay dividends on our common stock in the foreseeable future and, consequently, your only opportunity to achieve a return on your investment during that time is if the price of our common stock appreciates. Historically, our earnings, if any, have been retained for the development of our businesses.
The increase in our cash and cash equivalents and marketable securities is primarily due to gross proceeds of $22.9 million received from the sale of 17,000,000 shares of common stock and the pre-funded warrants to purchase up to 6,000,000 shares of common stock at a public offering price of $0.99 per share.
The increase in our cash and cash equivalents and marketable securities is primarily due to gross proceeds of $33.9 million received from the sale of 43.0 million shares of common stock and the pre-funded warrants to purchase up to 4,000,000 shares of common stock at a public offering price of $0.65 per share.
Should we violate the terms of a license, our license could be canceled. Companies may decide to stop supporting the software we license, or new versions of the software may not be compatible with our software, which would require us to rewrite our software, which we may not be able to do.
Companies may decide to stop supporting the software we license, or new versions of the software may not be compatible with our software, which would require us to rewrite our software, which we may not be able to do.
Our supply chain is complex, and we may be unable to verify the origins of all metals used in our products. We purchase materials from foreign sources that may not cooperate and provide us with the necessary information to allow us to comply with the Dodd-Frank Act. This may require us to find alternative sources, which could delay product shipments.
Our supply chain is complex, and we may be unable to verify the origins of all the metals used in our products. We purchase materials from foreign sources that may not cooperate and provide us with the necessary information to allow us to comply with the Dodd-Frank Act.
In recent years the U.S. has imposed, among other actions, new or higher tariffs on specified imported products originating from China in response to what it characterizes as unfair trade practices, and China has responded by proposing or implementing new or higher tariffs on specified products imported from the U.S.
In recent years the U.S. has imposed, among other actions, new or higher tariffs, including those that have been or may be imposed by the new presidential administration in the U.S. on specified imported products originating from China in response to what it characterizes as unfair trade practices, and China has responded by proposing or implementing new or higher tariffs on specified products imported from the U.S.
Our customers’ terms and conditions require us to be in compliance with “all laws.” If we are unable to comply with these regulations, we may not be permitted to ship our products, which would adversely affect our revenue and ability to maintain profitability.
Our customers’ terms and conditions require us to follow “all laws.” If we are unable to comply with these regulations, we may not be permitted to ship our products, which would adversely affect our revenue and ability to maintain profitability. In addition, if we are found to be in violation of laws, we may be subject to fines and penalties.
Our trade secrets may not be secure from discovery or independent development by competitors, in which case we may not be able to rely on these trade secrets to prevent our competitors from using them. 23 Our business could suffer if we lose the services of, or fail to attract, key personnel.
Our trade secrets may not be secure from discovery or independent development by competitors, in which case we may not be able to rely on these trade secrets to prevent our competitors from using them. 20 Our business could suffer if we fail to recruit and retain key personnel.
Any of these could have a material adverse effect on our competitive position, results of operations, financial condition or liquidity. Due to the evolving nature of such risks, the impact of any potential incident cannot be predicted. We may not achieve some or all of the anticipated benefits of our equity investments.
Any of these could have a material adverse effect on our competitive position, results of operations, financial condition or liquidity. Due to the evolving nature of such risks, the impact of any potential incident cannot be predicted.
As of December 30, 2023, we had an accumulated deficit of $358.2 million. At December 30, 2023 and December 31, 2022, we had $17.9 million and $12.6 million of cash and cash equivalents, including restricted cash, and marketable debt securities, respectively. For the years 2023 and 2022, net cash used in operating activities was $15.3 million and $17.7 million, respectively.
As of December 28, 2024, we had an accumulated deficit of $402.0 million. At December 28, 2024 and December 30, 2023, we had $36.6 million and $17.9 million of cash and cash equivalents, including restricted cash, and marketable securities, respectively. For the years 2024 and 2023, net cash used in operating activities was $14.2 million and $15.3 million, respectively.
Moreover, uncertainties in the Chinese legal system may impede our ability to enforce contracts with our business partners, customers and suppliers, or otherwise pursue claims in litigation to recover damages or loss of property, which could adversely affect our business and operations. 25 Raising additional funds by issuing securities may cause dilution to our existing stockholders or restrict our operations.
Moreover, uncertainties in the Chinese legal system may impede our ability to enforce contracts with our business partners, customers and suppliers, or otherwise pursue claims in litigation to recover damages or loss of property, which could adversely affect our business and operations.
We must comply with laws and regulations relating to the formation, administration and performance of federal government contracts. These laws and regulations affect how we conduct business with our federal government customers. In complying with these laws and regulations, we may incur additional costs, and non-compliance may result in fines and penalties, including contractual damages.
These laws and regulations affect how we conduct business with our federal government customers. In complying with these laws and regulations, we may incur additional costs, and non-compliance may result in fines and penalties, including contractual damages.
If our revenues and costs require adjustment, our stock price could decline. A decline in the U.S. Government defense budget, changes in spending or budgetary priorities, a prolonged U.S. Government shutdown or delays in contract awards may significantly and adversely affect our future revenues, cash flow and financial results . In addition to the Anti-Deficiency Act, in recent years U.S.
Government defense budget, changes in spending or budgetary priorities, a prolonged U.S. Government shutdown or delays in contract awards may significantly and adversely affect our future revenues, cash flow and financial results . In addition to the Anti-Deficiency Act, in recent years U.S. Government appropriations have been affected by larger U.S.
If we are unable to be qualified into new U.S. defense programs, remain qualified in existing programs, or win orders against our competition, or if defense programs are not funded, then our ability to generate revenues and achieve profitability and positive cash flow will be materially and negatively impacted. 16 Our investments in the development and sale of OLED microdisplays may not be successful, which may materially adversely affect our sales, profitability and cash flow.
If we are unable to be qualified into new U.S. defense programs, remain qualified in existing programs, or win orders against our competition, or if defense programs are not funded, then our ability to generate revenues and achieve profitability and positive cash flow will be materially and negatively impacted. A decline in the U.S.
We may incur losses on fixed-price and IDIQ contracts that we had expected to be profitable, or such contracts may be less profitable than expected, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. 17 The widespread outbreak of an illness, communicable disease, or any other public health crisis could adversely affect our business, results of operations and financial condition.
We may incur losses on fixed-price and IDIQ contracts that we had expected to be profitable, or such contracts may be less profitable than expected, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Many of our sales contracts include financial penalties for late delivery. In the past, we have experienced power outages at our facilities, which ranged in duration from one to four days.
If we were to experience any significant disruption in the operation of our facilities, we would be unable to supply our products to our customers. Many of our sales contracts include financial penalties for late delivery. In the past, we have experienced power outages at our facilities, which ranged in duration from one to four days.
Moreover, it is uncertain to what extent, if any, the U.S. tariffs on components that we import from China will affect the Taiwanese foundries on which we depend, in part because many Taiwanese foundries conduct parts of their manufacturing in China.
Moreover, it is uncertain to what extent, if any, the U.S. tariffs on components that we import from China will affect the Taiwanese foundries on which we depend, in part because many Taiwanese foundries conduct parts of their manufacturing in China. Kopin has completed and continues to transition several OLED device deposition steps to European supply chain partners for U.S.
Accordingly, if the price of our common stock declines in the foreseeable future, you will incur a loss on your investment, without the likelihood that this loss will be offset in part or at all by potential future cash dividends.
Accordingly, if the price of our common stock declines in the foreseeable future, you will incur a loss on your investment, without the likelihood that this loss will be offset in part or at all by potential future cash dividends. As a publicly traded company, we are subject to a significant body of regulation, including the Sarbanes-Oxley Act of 2002.
We generally do not have long-term contracts with our customers, which makes forecasting our revenues and operating results difficult. We generally do not enter into long-term agreements with our customers obligating them to purchase our products.
To the extent any of these events occur, our operations and financial results could be adversely affected. We generally do not have long-term contracts with our customers, which makes forecasting our revenues and operating results difficult. We generally do not enter into long-term agreements with our customers obligating them to purchase our products.
Our reliance on these foundries involves certain risks, including but not limited to: ● Lack of control over production capacity and delivery schedules; ● Limited control over quality assurance, manufacturing yields and production costs; ● The risks associated with international commerce, including unexpected changes in legal and regulatory requirements, changes in tariffs and trade policies and political and economic instability; and ● Natural disasters such as earthquakes, tsunamis, mudslides, drought, hurricanes and tornadoes.
Our reliance on these foundries involves certain risks, including but not limited to: ● Lack of control over production capacity and delivery schedules; ● Limited control over quality assurance, manufacturing yields and production costs; ● The risks associated with international commerce, including unexpected changes in legal and regulatory requirements supply chain interruptions or increased costs, changes in tariffs and trade policies, including those imposed or that may be imposed by the new presidential administration in the U.S., and political and economic instability, international hostilities and resulting sanctions, acts of terrorism and governmental restrictions, inflation, trade relationships and military and political alliances; and ● Natural disasters such as earthquakes, tsunamis, mudslides, drought, hurricanes and tornadoes.
To the extent that our sales or profitability are affected negatively by any such tariffs or other trade actions, our business and results of operations may be materially adversely affected. As a publicly traded company, we are subject to a significant body of regulation, including the Sarbanes-Oxley Act of 2002.
To the extent that our sales or profitability are affected negatively by any such tariffs or other trade actions, our business and results of operations may be materially adversely affected.
These laws and regulations frequently change, and their interpretation and enforcement involve uncertainties that could limit the legal protections available to us. Regulations and rules on foreign investments in China impose restrictions on the means that a foreign investor like us may apply to facilitate corporate transactions we may undertake.
Regulations and rules on foreign investments in China impose restrictions on the means that a foreign investor like us may apply to facilitate corporate transactions we may undertake.
Historically, we have sold products that incorporate our proprietary AMLCDs. We believe that for certain applications OLED microdisplays have performance advantages and we have received future display product needs from some customers that plan to switch from AMCLDs to OLED microdisplays in the next two to three years.
We believe that for certain applications, OLED microdisplays have performance advantages and we have received future display product needs from some customers that plan to switch from AMCLDs to OLED microdisplays in the next two to three years. We are in the process of designing and developing OLED microdisplays and establishing foundry relationships to manufacture them.
If we are unsuccessful in executing our transition plan or if the transition is significantly delayed, our ability to manufacture and distribute our products could continue to be adversely affected, which in turn would adversely affect our results of operations or financial condition.
If we are unsuccessful in executing our transition plan or if the transition is significantly delayed, our ability to manufacture and distribute our products could continue to be adversely affected, which in turn would adversely affect our results of operations or financial condition. 14 Our business, results of operations and financial condition could be adversely affected by events beyond our control, such as natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events.
Many of our customers’ contracts cover multiple years and, as such, are not fully funded at contract award. If Congress or a U.S. Government agency chooses to spend money on other programs, our customers’ contracts may be terminated for convenience.
Many of our customers’ contracts cover multiple years and, as such, are not fully funded at the contract award. If Congress or a U.S.
If we are unable to obtain or maintain existing software license relationships or other relationships relating to the intellectual property we use, our ability to grow revenue and achieve profitability and positive cash flow may be negatively affected. Our headset systems include software that we license from other companies.
In addition, these investments may be required to raise additional capital, which may result in our ownership percentage being decreased. If we are unable to obtain or maintain existing software license relationships or other relationships relating to the intellectual property we use, our ability to grow revenue and achieve profitability and positive cash flow may be negatively affected.
We are required to periodically review the value of these investments for impairment. For example, in the second quarter of 2023, we reviewed the financial condition and other factors of our investment in a customer and as a result, we recorded an impairment charge of $3.1 million to reduce the carrying value of our investment.
For example, in the third quarter of 2024, we reviewed the financial condition and other factors of our investment in a customer and as a result, we recorded an impairment charge of $0.7 million to reduce the carrying value of our investment. These investments may not contribute to our earnings or cash flows.
At December 30, 2023, we had equity investments in companies totaling $4.7 million, where we have limited, if any, control over their governance, financial reporting and operations. As a result, we face certain operating, financial and other risks relating to these investments, including risks related to the financial strength of the investments.
Additionally, we have several investments where we may have limited, if any, control over their governance, financial reporting, and operations. As a result, we face certain operating, financial and other risks relating to these investments, including risks related to the financial strength of the investments. As a result, these investments may not contribute to our earnings or cash flows.
We rely on third-party independent contractors for certain integrated circuit chip sets, backlights, and other critical raw materials such as special glasses, wafers, and chemicals.
Supply shortages have and could continue to impair the quality, reduce the availability or increase the cost of raw materials, which could harm our business. We rely on third-party independent contractors for certain integrated circuit chip sets, backlights, and other critical raw materials such as special glasses, wafers, and chemicals.
We may also encounter challenges with our customers and stockholders if we are unable to certify that our products are conflict-free. Changes in tax laws, an unfavorable resolution of tax examinations, or exposure to additional tax liabilities could have a material adverse effect on our results of operations, financial condition and liquidity.
Changes in tax laws, an unfavorable resolution of tax examinations, or exposure to additional tax liabilities could have a material adverse effect on our results of operations, financial condition and liquidity. We are subject to taxes in the U.S., Korea, China and the United Kingdom.
In the past, we have made, and in the future, we may make acquisitions of, and investments in, businesses, products and technologies that could complement or expand our business. If we identify an acquisition candidate, we may not be able to successfully integrate the acquired businesses, products or technologies into our existing business and products.
We may be unable to successfully integrate new strategic acquisitions and investments, which could materially adversely affect our business, results of operations and financial condition. In the past, we have made, and in the future, we may make acquisitions of, and investments in, businesses, products and technologies that could complement or expand our business.
The sale of additional equity or convertible securities would dilute all of our stockholders and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders.
The sale of additional equity or convertible securities would dilute all of our stockholders, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders. Management has identified material weaknesses in our internal controls over financial reporting, and we may be unable to develop, implement and maintain appropriate controls in future periods.
We are in the process of designing and developing OLED microdisplays and establishing foundry relationships to manufacture them. We expect to make additional monetary investments in their commercialization, though our plan is to outsource their production. We have little experience in production outsourcing.
We expect to make additional monetary investments in their commercialization, though our plan is to outsource their production. We have little experience in production outsourcing. If we are unsuccessful in designing and developing OLED microdisplays or if we are unable to find cost-effective third-party production partners, our sales and profitability may be negatively affected.
These investments may not contribute to our earnings or cash flows. In addition, these investments may be required to raise additional capital, which may result in our ownership percentage being decreased.
In addition, these investments may be required to raise additional capital, which may result in our ownership percentage being decreased. Changes in China’s laws, legal protections or government policies on foreign investment in China may harm our business.
If we fail to achieve or maintain profitability on a quarterly or annual basis within the timeframe expected by investors, the market price of our common stock may decline. Our products could infringe on the intellectual property rights of others. Companies in the display industry steadfastly pursue and protect their intellectual property rights.
If we fail to achieve or maintain profitability on a quarterly or annual basis within the timeframe expected by investors, the market price of our common stock may decline. Raising additional funds by issuing securities may cause dilution to our existing stockholders or restrict our operations.
If we are unsuccessful in designing and developing OLED microdisplays or if we are unable to find cost-effective third-party production partners, our sales and profitability may be negatively affected. Supply shortages have and could continue to impair the quality, reduce the availability or increase the cost of raw materials, which could harm our business.
We expect to make additional monetary investments in their commercialization, though our plan is to outsource their production. We have little experience in production outsourcing. If we are unsuccessful in designing and developing OLED microdisplays or if we are unable to find cost-effective third-party production partners, our sales and profitability may be negatively affected.
Government appropriations have been affected by larger U.S. Government budgetary issues and related legislation. As a result, DoD funding levels have fluctuated and have been difficult to predict. Future spending levels are subject to a wide range of factors, including Congressional action. In addition, in recent years the U.S.
Future spending levels are subject to a wide range of factors, including Congressional action and changes to governmental policies and programs, including loans, grants, guarantees and other subsidies, and changes to government spending policies, including shifts in funding priorities. In addition, in recent years the U.S.
If we cannot obtain approval from relevant authorities to engage in businesses that have become prohibited or restricted for foreign investors, we may be forced to sell or restructure such businesses. Furthermore, China’s government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance.
If we cannot obtain approval from relevant authorities to engage in businesses that have become prohibited or restricted for foreign investors, we may be forced to sell our investment if possible.
Most of our defense sales are on a fixed-price basis, which could subject us to losses if there are cost overruns. Under a fixed-price contract, we receive only the amount indicated in the contract, regardless of the actual cost to produce the goods.
Under a fixed-price contract, we receive only the amount indicated in the contract, regardless of the actual cost to produce the goods. While firm fixed-price contracts allow us to benefit from potential cost savings, they also expose us to the risk of cost overruns.
As a result, we face certain operating, financial and other risks relating to these investments, including risks related to the financial strength of the investments. As a result, these investments may not contribute to our earnings or cash flows. In addition, these investments may be required to raise additional capital, which may result in our ownership percentage being decreased.
As a result, we face certain operating, financial and other risks relating to these investments, including risks related to the financial strength of the investments. We are required to periodically review the value of these investments for impairment.
Government priorities, policies and requirements could have a material adverse effect on our results of operations, financial condition or liquidity. If we fail to comply with complex procurement laws and regulations, we could lose business and be liable for various penalties or sanctions.
If our revenues and costs require adjustment, our stock price could decline. If we fail to comply with complex procurement laws and regulations, we could lose business and be liable for various penalties or sanctions. We must comply with laws and regulations relating to the formation, administration and performance of federal government contracts.
Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, amortization expenses and write-downs of acquired assets. Additionally, we have several investments where we may have limited, if any, control over their governance, financial reporting, and operations.
If we identify an acquisition candidate, we may not be able to successfully integrate the acquired businesses, products or technologies into our existing business and products. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, amortization expenses and write-downs of acquired assets.
While firm fixed-price contracts allow us to benefit from potential cost savings, they also expose us to the risk of cost overruns. If the initial estimates that we use to calculate the sales price and the cost to perform the work prove to be incorrect, we could incur losses.
If the initial estimates that we use to calculate the sales price and the cost of performing the work prove to be incorrect, we could incur losses. We have had situations where we have underestimated the cost of a program and incurred losses in fulfilling the contract.
We have had situations where we have underestimated the cost of a program and incurred losses in fulfilling the contract. As discussed above, we are seeing a global shortage of semiconductors and other raw materials which is resulting in a significant increase in some raw material prices.
As discussed above, we are seeing a global shortage of semiconductors and other raw materials which is resulting in a significant increase in some raw material prices. In addition, the U.S. recently experienced inflation levels not seen in many years which drove higher labor costs and there is an expectation that tariffs may result in additional inflation in the future.

… 47 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

4 edited+2 added−0 removed12 unchanged
Biggest changeOur enterprise cybersecurity program aligns with the National Institute of Standards and Technology (NIST) standards, among others. The program includes processes and controls for the deployment of new IT systems by the Company and controls over new and existing system operations.
Biggest changeOur management of cybersecurity risks to the Company is integrated into our Company-wide enterprise risk management program. Our enterprise cybersecurity program aligns with the National Institute of Standards and Technology (NIST) standards, among others. The program includes processes and controls for the deployment of new IT systems by the Company and controls over new and existing system operations.
Cybersecurity threats also include attempts to infiltrate our products or services, including attacks targeting the security, confidentiality, integrity and/or availability of the hardware, software and information installed, stored or transmitted in our products, including after the purchase of those products and when they are incorporated into third-party products, facilities, or infrastructure.
Cybersecurity threats also include attempts to infiltrate our products or services, including attacks targeting security, confidentiality, integrity and/or availability of the hardware, software and information installed, stored or transmitted in our products, including after the purchase of those products and when they are incorporated into third-party products, facilities, or infrastructure.
We use these assessments to supplement our own evaluation of the overall health of our program and target improvement areas. Board Oversight and Management’s Role Our Board of Directors has primary oversight responsibility for enterprise cybersecurity risks. The Audit Committee also considers enterprise cybersecurity risks in connection with its financial and compliance risk oversight role.
We use these assessments to supplement our own evaluation of the overall health of our program and target improvement areas. Board Oversight and Management’s Role Our Board of Directors has primary responsibility for enterprise cybersecurity risks. The Audit Committee also considers enterprise cybersecurity risks in connection with its financial and compliance risk oversight role.
We engage third party service providers to expand the capabilities and capacity of our cybersecurity program, including for design, monitoring and testing of the program’s risk prevention and protection measures, and process execution including incident detection, investigation, analysis and response, eradication, and recovery. 27 Program Assessment. We continuously evaluate and seek to improve and mature our cybersecurity processes.
We engage third party service providers to expand the capabilities and capacity of our cybersecurity program, including for design, monitoring and testing of the program’s risk prevention and protection measures, and process execution including incident detection, investigation, analysis and response, eradication, and recovery. Oversight of Third-Party Risk.
Added
To mitigate risks related to the use of third party service providers, we have developed processes to evaluate and identify any risks from cybersecurity threats associated with the use of their tools or services and monitor third party service providers ongoing compliance with our cybersecurity standards.
Added
This approach is designed to oversee and manage risks related to data breaches or other security incidents originating from third parties. 23 Program Assessment We continuously evaluate and seek to improve and mature our cybersecurity processes.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed0 unchanged
Biggest changeFDD, our subsidiary in Scotland, leases 20,000 square feet in Dalgety Bay, 5,000 square feet of which is contiguous environmentally controlled production clean rooms operated between Class 10 and Class 10,000 levels. FDD also leases an office in Berlin, Germany. At this time, we believe these properties are suitable for our needs for the foreseeable future.
Biggest changeKEL, our subsidiary in Scotland, leases 20,000 square feet in Dalgety Bay, 5,000 square feet of which is contiguous environmentally controlled production clean rooms operated between Class 10 and Class 10,000 levels. KEL also leases an office in Berlin, Germany. At this time, we believe these properties are suitable for business needs for the foreseeable future.
Item 2. Properties We lease our 74,000 square foot production facility in Westborough, Massachusetts, 10,000 square feet of which is contiguous environmentally controlled production clean rooms operated between Class 10 and Class 1,000 levels. NVIS, our subsidiary in Reston, Virginia, leases 6,100 square feet in Reston.
Item 2. Properties We lease our 74,000 square foot production facility in Westborough, Massachusetts, 10,000 square feet of which is contiguous environmentally controlled production clean rooms operated between Class 10 and Class 1,000 levels. Kopin Virginia, Inc., our subsidiary in Reston, Virginia, leases 6,100 square feet in Reston.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

3 edited+7 added−2 removed5 unchanged
Biggest changeDistrict Court for the District of Colorado (“the Court”), alleging that the Company breached a contract between it and BlueRadios concerning an alleged joint venture between the Company and BlueRadios to design, develop and commercialize micro-display products with embedded wireless technology referred to as “Golden-i” breached the covenant of good faith and fair dealing associated with that contract, breached its fiduciary duty to BlueRadios, and misappropriated trade secrets owned by BlueRadios in violation of Colorado law (C.R.S. § 7-74-104(4)) and the Defend Trade Secrets Act (18 U.S.C. § 1836(b)(1)).
Biggest changeDistrict Court for the District of Colorado, alleging that the Company breached a contract between it and BlueRadios concerning a joint venture between the Company and BlueRadios to design, develop and commercialize micro-display products with embedded wireless technology referred to as “Golden-i,” breached the covenant of good faith and fair dealing associated with that contract, breached its fiduciary duty to BlueRadios, and misappropriated trade secrets owned by BlueRadios in violation of Colorado law (C.R.S. § 7-74-104(4)) and the Defend Trade Secrets Act (18 U.S.C. § 1836(b)(1)).
BlueRadios further alleges that the Company was unjustly enriched by its alleged misconduct, BlueRadios is entitled to an accounting to determine the amount of profits obtained by the Company as a result of its alleged misconduct, and the inventorship on at least ten patents or patent applications owned by the Company need to be corrected to list BlueRadios’ employees as inventors and thereby list BlueRadios as co-assignees of the patents.
BlueRadios further alleged that the Company was unjustly enriched by its alleged misconduct, BlueRadios is entitled to an accounting to determine the amount of profits obtained by the Company as a result of its alleged misconduct, and the inventorship on at least ten patents or patent applications owned by the Company need to be corrected to list BlueRadios’ employees as inventors and thereby list BlueRadios as co-assignees of the patents.
On August 3, 2022, the Court granted the Company’s Motion for Partial Summary Judgment by dismissing counts 3, 6, 7, punitive damages under count 2, and count 8 as it relates to patent applications, and denying the motion as it relates to counts 1, 4, and 5, and the remainder of counts 2 and 8.
On August 3, 2022, the Court granted the Company’s Motion for Partial Summary Judgment by dismissing counts 3, 6, 7, the claim for punitive damages under count 2, and count 8 as it relates to patent applications and by denying the motion as it relates to counts 1, 4, and 5, and the remainder of counts 2 and 8.
Removed
Additional factual and expert discovery ordered by The Court has been completed. A trial date has been set by the Court for March 20, 2024. The Company has not concluded a loss from this matter is probable; therefore, we have not recorded an accrual for litigation or claims related to this matter for the period ended December 30, 2023.
Added
The Court also ordered discovery reopened for certain limited purposes. A trial date was set by the Court for January 22 to February 5, 2024 but then re-scheduled for March 20 to April 16, 2024.
Removed
The Company will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable.
Added
On Monday, April 22, 2024, after a four week trial, a jury verdict was entered finding for BlueRadios and awarding approximately $5.1 million in damages as well as recommending $19.7 million in disgorgement and exemplary damages.
Added
While no final judgment has been issued by the Court, the Court will take that recommendation under advisement and will rule in its final judgment on the final amount after post-trial briefing.
Added
On May 22, 2024, the Company filed its Motion for Judgment as a Matter of Law or in the alternative for a New Trial, as well as two submissions arguing that the disgorgement and exemplary damages should not be awarded.
Added
That same day, BlueRadios filed motions seeking a permanent injunction prohibiting Kopin from selling any products that incorporate BlueRadios’ trade secrets, over $10 million in pre-judgment interest, and over $10 million in attorneys’ fees and costs. Briefing on those issues concluded on June 26, 2024.
Added
On September 25, 2024, the Company filed a supplemental brief on issue preclusion arguing that BlueRadios’ claims were untimely because of findings of fact made in BlueRadios, Inc. v. Hamilton, Brook, Smith & Reynolds, P.C. , No. 1:21-cv-10488-DJC, ECF 268 (D. Mass. Sept. 18, 2024). That supplemental briefing concluded on October 29, 2024.
Added
The Company is currently considering an appeal of any final judgment.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+0 added−0 removed1 unchanged
Biggest changePlan 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) (b) Equity compensation plans approved by security holders 1,931,767 $ 1.65 5, 809,910 (1) Equity compensation plans not approved by security holders — $ — — (1) Amount includes shares available under the 2020 Equity Incentive Plan. 29 Company Stock Performance The following graph shows a five-year comparison of cumulative total shareholder return for the Company, the Nasdaq US Benchmark TR Index and the S&P 500 Information Technology index.
Biggest changePlan 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) (b) Equity compensation plans approved by security holders 4,833,611 $ 1.19 4,913,621 (1) Equity compensation plans not approved by security holders — $ — — (1) Amount includes shares available under the 2020 Equity Incentive Plan. 25 Company Stock Performance The following graph shows a five-year comparison of cumulative total shareholder return for the Company, the Nasdaq US Benchmark TR Index and the S&P 500 Information Technology index.
The graph assumes $100 was invested in each of the Company’s common stock, the Nasdaq US Benchmark TR Index and the S&P 500 Information Technology index on December 31, 2017 . Data points on the graph are annual. Note that historical price performance is not necessarily indicative of future performance. 30
The graph assumes $100 was invested in each of the Company’s common stock, the Nasdaq US Benchmark TR Index and the S&P 500 Information Technology index on December 31, 2017. Data points on the graph are annual. Note that historical price performance is not necessarily indicative of future performance. 26
We anticipate that earnings, if any, will be retained for the development of our businesses. Equity Compensation Plan Information The following table sets forth information as of December 30, 2023 about shares of the Company’s common stock issuable upon the exercise of outstanding options, warrants and rights and available for issuance under our existing equity compensation plans.
We anticipate that earnings, if any, will be retained for the development of our businesses. Equity Compensation Plan Information The following table sets forth information as of December 28, 2024 about shares of the Company’s common stock issuable upon the exercise of outstanding options, warrants and rights and available for issuance under our existing equity compensation plans.
As of March 7, 2024, there were approximately 291 shareholders of record of our common stock, which does not reflect those shares held beneficially or those shares held in “street” name. We have not paid cash dividends in the past, nor do we expect to pay cash dividends for the foreseeable future.
As of March 7, 2025, there were approximately 292 shareholders of record of our common stock, which does not reflect those shares held beneficially or those shares held in “street” name. We have not paid cash dividends in the past, nor do we expect to pay cash dividends for the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

51 edited+14 added−27 removed47 unchanged
Biggest changeFiscal Year 2022 Compared to Fiscal Year 2021 In 2022 we recorded a gain of $4.7 million resulting from the revaluation of an equity investment. In 2022 we recorded a $2.0 million impairment charge on an equity investment. Also in 2022, we recorded $0.3 million of foreign currency losses compared to $0.1 million of foreign currency gains recorded in 2021.
Biggest changeIn 2023, we recorded $3.3 million of impairment losses on equity investments. In 2024, we recorded $0.2 million of foreign currency gains compared to $0.2 million of foreign currency losses recorded in 2023. Fiscal Year 2023 Compared to Fiscal Year 2022 In 2023, we recorded $3.3 million of impairment losses on equity investments.
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.
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.
Industrial/Enterprise applications revenues represent customers who purchase our display products for use in headsets used for manufacturing, distribution, public safety, 3D metrology equipment and other industrial applications. Our 3D metrology customers are primarily located in Asia and they sell to Asian contract manufacturers who use the 3D metrology machines for quality control purposes.
Industrial applications revenues represent customers who purchase our display products for use in headsets used for manufacturing, distribution, public safety, 3D metrology equipment and other industrial applications. Our 3D metrology customers are primarily located in Asia and they sell to Asian contract manufacturers who use the 3D metrology machines for quality control purposes.
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.
In situations where control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. We 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.
Accordingly, there can be no assurances we will continue to ship under our defense contracts. 34 Predicting our R&D revenue and related trends is challenging because we have limited ability to forecast whether we will be awarded additional R&D contracts in the future as such awards depend on the U.S. military budget and priorities.
Accordingly, there can be no assurances we will continue to ship under our defense contracts. 29 Predicting our R&D revenue and related trends is challenging because we have limited ability to forecast whether we will be awarded additional R&D contracts in the future as such awards depend on the U.S. military budget and priorities.
In the second quarter of 2022, we sold 1.5 million shares of common stock and 0.2 million shares of treasury stock for gross proceeds of $2.1 million (average of $1.26 per share) before deducting broker expenses paid by us of less than $0.1 million and in the third quarter of 2022, the Company sold 675,000 shares of common stock for gross proceeds of approximately $0.9 million (average of $1.27 per share) before deducting broker expenses paid by us of less than $0.1 million, pursuant to the Current ATM Agreement.
In the second quarter of 2022, we sold 1.5 million shares of common stock and 0.2 million shares of treasury stock for gross proceeds of $2.1 million (average of $1.26 per share) before deducting broker expenses paid by us of less than $0.1 million and in the third quarter of 2022, the Company sold 675,000 shares of common stock for gross proceeds of approximately $0.9 million (average of $1.27 per share) before deducting broker expenses paid by us of less than $0.1 million, pursuant to an ATM Agreement.
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 2023, our Funded R&D expenditures were primarily related to our display products and defense systems and our Internal R&D was primarily related to the development of OLED displays.
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 2024, our Funded R&D expenditures were primarily related to our display products and defense systems and our Internal R&D was primarily related to the development of OLED displays.
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 market offering and in the traditional fashion of significant equity offerings.
Our net cash outflows from operations were 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-market offering and in the traditional fashion of significant equity offerings.
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.
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. 28 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 upon delivery of the product to the customer or performance of the services.
Seasonality Our revenues have not followed a seasonal pattern for the past three years and we do not anticipate any seasonal trend to our revenues in 2024. Contractual Obligations Under our former CEO’s (“Dr. Fan”) employment agreement, commencing in January 2023, Dr.
Seasonality Our revenues have not followed a seasonal pattern for the past three years and we do not anticipate any seasonal trend to our revenues in 2025. Contractual Obligations Under our former CEO’s (“Dr. Fan”) employment agreement, commencing in January 2023, Dr.
Fiscal Year 2022 Compared to Fiscal Year 2021 The provision for income taxes for the fiscal years ended 2022 and 2021 of approximately $(0.1) million was due to the accretion of additional potential liabilities related to uncertain tax positions and deferred tax liabilities for the Company’s former Korean subsidiary. Net loss attributable to noncontrolling interest.
Fiscal Year 2023 Compared to Fiscal Year 2022 The provision for income taxes for the fiscal years ended 2023 and 2022 of approximately $(0.2) million and $(0.1) million, respectively, was due to the accretion of additional potential liabilities related to uncertain tax positions and deferred tax liabilities for the Company’s former Korean subsidiary. Net loss attributable to noncontrolling interest.
Because our fiscal year ends on the last Saturday of December, every seven years we have a fiscal year with 53 weeks. Our fiscal year 2023 was a 52-week year, 2022 was a 53-week year and 2021 was a 52-week year. Revenues.
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 2024 and 2023 were 52-week years and fiscal year 2022 was a 53-week year. Revenues.
Internal R&D expense for 2022 increased as compared to the prior year primarily due to increased OLED development. Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses, and administrative and general corporate expenses.
Internal R&D expense for 2023 decreased as compared to the prior year primarily due to decreased OLED development. Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses, and administrative and general corporate expenses.
Tax provision (In thousands) 2023 2022 2021 Tax provision $ (156 ) $ (144 ) $ (129 ) Fiscal Year 2023 Compared to Fiscal Year 2022 The provision for income taxes for the fiscal years ended 2023 and 2022 of approximately $(0.2) million and $(0.1) million, respectively, was due to the accretion of additional potential liabilities related to uncertain tax positions and deferred tax liabilities for the Company’s former Korean subsidiary.
Tax provision (In thousands) 2024 2023 2022 Tax provision $ (170 ) $ (156 ) $ (144 ) Fiscal Year 2024 Compared to Fiscal Year 2023 The provision for income taxes for the fiscal years ended 2024 and 2023 of approximately $(0.2) million was due to the accretion of additional potential liabilities related to uncertain tax positions and deferred tax liabilities for the Company’s former Korean subsidiary.
Our international sales decreased in 2023 as compared to 2022 due to a decrease in sales of our products for 3D metrology application by our subsidiary, FDD, our OLED displays for consumer applications and industrial headset products manufactured overseas. Our international sales are primarily denominated in U.S. dollars.
Our international sales decreased in 2024 as compared to 2023 due to a decrease in sales of our products for 3D metrology application by our subsidiary, Kopin Europe Ltd., our OLED displays for consumer applications and industrial headset products manufactured overseas. Our international sales are primarily denominated in U.S. dollars.
Non-operating (expense) income for the fiscal years 2023, 2022 and 2021 were as follows: (In thousands) 2023 2022 2021 Total non-operating (expense) income $ (2,415 ) $ 2,608 $ 436 Fiscal Year 2023 Compared to Fiscal Year 2022 In 2023, we recorded $3.3 million of impairment losses on equity investments.
Non-operating (expense) income for the fiscal years 2024, 2023 and 2022 were as follows: (In thousands) 2024 2023 2022 Total non-operating (expense) income $ (599 ) $ (2,415 ) $ 2,608 Fiscal Year 2024 Compared to Fiscal Year 2023 In 2024, we recorded $1.6 million of impairment losses on equity investments.
Revenues from product sales to defense customers decreased in 2023 compared to 2022, primarily due to a decrease in shipments of our products for thermal weapon sight applications that was partially offset by an increase in sales of our products for defense pilot helmets and training and simulation programs.
Revenues from product sales to defense customers increased in 2024 compared to 2023, primarily due to an increase in shipments of our products for thermal weapon sight applications that was partially offset by a decrease in sales of our products for defense pilot helmets.
R&D expenses for fiscal years 2023, 2022 and 2021 were as follows: (In thousands) 2023 2022 2021 Funded $ 7,177 $ 10,280 $ 9,976 Internal 3,600 8,388 6,312 Total $ 10,777 $ 18,668 $ 16,288 Fiscal Year 2023 Compared to Fiscal Year 2022 Funded R&D expense for 2023 decreased as compared to 2022 primarily due to the completion of contracts for defense programs awarded prior to 2023.
R&D expenses for fiscal years 2024, 2023 and 2022 were as follows: (In thousands) 2024 2023 2022 Funded $ 3,802 $ 7,177 $ 10,280 Internal 5,833 3,600 8,388 Total $ 9,635 $ 10,777 $ 18,668 Fiscal Year 2024 Compared to Fiscal Year 2023 Funded R&D expense for 2024 decreased as compared to 2023 primarily due to the completion of contracts for defense programs awarded prior to 2024.
We have recorded deferred tax liabilities for any additional withholding tax that may be due to the Korean government upon Kowon’s final tax return acceptance. 40 We have incurred net losses of $19.7 million, $19.3 million and $13.4 million for the 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 fiscal years ended 2023, 2022 and 2021, respectively.
We have recorded deferred tax liabilities for any additional withholding tax that may be due to the Korean government upon Kowon’s final tax return acceptance. 35 We have incurred net losses of $43.9 million, $19.7 million and $19.3 million for the fiscal years 2024, 2023 and 2022, respectively, and net cash outflows from operations of $14.2 million, $15.3 million and $17.7 million for the fiscal years ended 2024, 2023 and 2022, respectively.
The change in net loss attributable to noncontrolling interest in 2023 compared to 2022 was less than $0.1 million and in 2022 compared to 2021 was less than $0.1 million and was the result of operations of eMDT. 39 Liquidity and Capital Resources At December 30, 2023 and December 31, 2022, we had cash and cash equivalents, including restricted cash, and marketable securities of $17.9 million and working capital of $24.0 million compared to $12.6 million and $16.4 million, respectively.
The change in net loss attributable to noncontrolling interest in 2024 compared to 2023 was $0 and in 2023 compared to 2022 was less than $0.1 million and was the result of operations of eMDT. 34 Liquidity and Capital Resources At December 28, 2024 and December 30, 2023, we had cash and cash equivalents, including restricted cash, and marketable securities of $36.6 million and working capital of $18.9 million compared to $17.9 million and $24.0 million, respectively.
We categorize our revenues as either domestic or international based upon the delivery destination of our product. For example, if the customer is located in Asia or if a U.S. customer has its Asian contract manufacturer order product from us and we deliver the product to Asia, we categorize both these sales as international.
For example, if the customer is located in Asia or if a U.S. customer has its Asian contract manufacturer order product from us and we deliver the product to Asia, we categorize both these sales as international.
SG&A expenses for the fiscal years 2023, 2022 and 2021 were as follows: (In thousands, except percentages) 2023 2022 2021 Selling, general and administrative expense $ 21,842 $ 17,965 $ 18,101 Selling, general and administrative expense as a % of total revenue 54.1 % 37.9 % 39.6 % Fiscal Year 2023 Compared to Fiscal Year 2022 SG&A for 2023 increased as compared to 2022 primarily due to an increase of approximately $5.0 million in legal and professional fees and $1.0 million in non-cash stock-based compensation, partially offset by a $1.3 million decrease in compensation and benefits.
SG&A expenses for the fiscal years 2024, 2023 and 2022 were as follows: (In thousands, except percentages) 2024 2023 2022 Selling, general and administrative expense $ 22,845 $ 21,842 $ 17,965 Selling, general and administrative expense as a % of total revenue 45.4 % 54.1 % 37.9 % Fiscal Year 2024 Compared to Fiscal Year 2023 SG&A for 2024 increased as compared to 2023 primarily due to an increase of approximately $1.4 million in legal and professional fees and $0.2 million in excise taxes, partially offset by $0.4 million lower bad debt expense and $0.2 million decrease in non-cash stock-based compensation.
The decrease in Consumer applications in 2023 compared to 2022 was primarily due to a decrease in sales of our OLED displays for consumer applications.
Revenues from product sales for consumer applications decreased in 2023 compared to 2022 primarily due to a decrease in sales of our OLED displays for consumer applications.
Our international sales decreased in 2022 as compared to 2021 due to a decrease in sales of our products for 3D metrology application by our subsidiary, FDD and industrial headset products manufactured overseas. 36 Cost of Product Revenues.
Our international sales decreased in 2023 as compared to 2022 due to a decrease in sales of our products for 3D metrology application by our subsidiary, KEL, our OLED displays for consumer applications and industrial headset products manufactured overseas. 31 Cost of Product Revenues.
Our revenues by display application, which include product sales and amounts earned from research and development contracts, for fiscal years 2023, 2022 and 2021 by category, were as follows: (In thousands) 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 Fiscal Year 2023 Compared to Fiscal Year 2022 Sales of our products for Defense applications include systems used by the military both in the field and for training and simulation.
Our revenues by display application, which include product sales and amounts earned from research and development contracts, for fiscal years 2024, 2023 and 2022 by category, were as follows: (In thousands) 2024 2023 2022 Defense $ 41,249 $ 22,615 $ 24,780 Industrial 2,200 2,736 6,136 Consumer 25 573 1,497 Medical 103 — — Other product 320 13 7 R&D 5,996 13,455 14,357 License and royalties 442 1,002 624 Total Revenues $ 50,335 $ 40,394 $ 47,401 Fiscal Year 2024 Compared to Fiscal Year 2023 Sales of our products for Defense applications include systems used by the military both in the field and for training and simulation.
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 2024.
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 2025.
Cost of product revenues, which is comprised of materials, labor and manufacturing overhead related to the production of our products for fiscal years 2023, 2022 and 2021 were as follows: (In thousands, except percentages) 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 % Fiscal Year 2023 Compared to Fiscal Year 2022 Cost of product revenues decreased as a percentage of revenues in 2023 as compared to 2022 primarily due to increased sales of higher margin products for defense applications in 2023 versus 2022 and lower sales of lower margin products from defense applications in 2023 versus 2022.
Cost of product revenues, which is comprised of materials, labor and manufacturing overhead related to the production of our products for fiscal years 2024, 2023 and 2022 were as follows: (In thousands, except percentages) 2024 2023 2022 Cost of product revenues $ 36,164 $ 24,952 $ 32,559 Cost of product revenues as a % of net product revenues 83.0 % 96.2 % 100 % Fiscal Year 2024 Compared to Fiscal Year 2023 Cost of product revenues decreased as a percentage of revenues in 2024 as compared to 2023 primarily due to increased unit volume of thermal weapon sights from higher sales in 2024 as compared to 2023 which resulted in a lower fixed overhead cost per unit.
We are also in development for new display systems for armored vehicles and a medical headset for surgeons. Our existing and new production programs are expected to increase production for the next several years.
Army’s Family of Weapon Sights-Individual and Joint Strike Fighter F-35 programs. We are also in development for new display systems for armored vehicles and a medical headset for surgeons. Our existing and new production programs are expected to increase production for the next several years.
The following table presents the components of our cash, cash equivalents, restricted cash and marketable debt securities held in U.S. dollars as of the dates presented: December 30, 2023 December 31, 2022 Domestic locations $ 17,725,979 $ 11,778,324 Foreign locations 95,547 629,793 Subtotal cash, cash equivalents, restricted cash and marketable debt securities held in U.S. dollars 17,821,526 12,408,117 Cash and cash equivalents held in other currencies and converted to U.S. dollars 81,159 239,539 Total cash, cash equivalents, restricted cash and marketable debt securities $ 17,902,685 $ 12,647,656 We have no plans to repatriate the cash and cash equivalents held in our foreign subsidiary FDD.
The following table presents the components of our cash, cash equivalents, restricted cash and marketable securities held in U.S. dollars as of the dates presented: December 28, 2024 December 30, 2023 Domestic locations $ 36,491,339 $ 17,725,979 Foreign locations 56,984 95,547 Subtotal cash, cash equivalents, restricted cash and marketable securities held in U.S. dollars 36,548,323 17,821,526 Cash and cash equivalents held in other currencies and converted to U.S. dollars 81,455 81,159 Total cash, cash equivalents, restricted cash and marketable securities $ 36,629,778 $ 17,902,685 We have no plans to repatriate the cash and cash equivalents held in our foreign subsidiary KEL.
We estimate we will have sufficient liquidity to fund operations at least through the first quarter of 2025. Nonetheless, we monitor the capital markets on an ongoing basis and may consider raising capital if favorable market conditions develop.
Excluding a possible adverse result of the litigation discussed in Note 12 of the consolidated financial statements, we estimate we will have sufficient liquidity to fund operations at least through the second quarter of 2026. Nonetheless, we monitor the capital markets on an ongoing basis and may consider raising capital if favorable market conditions develop.
The decrease in Industrial/Enterprise applications revenues in 2023 compared to 2022 was primarily due to a decrease in sales to customers who use our display components in 3D metrology equipment and industrial headsets. Sales of our displays for Consumer applications are primarily for use in thermal imaging products, recreational rifle and hand-held scopes.
The decrease in Industrial/Enterprise applications revenues in 2024 compared to 2023 was primarily due to a decrease in sales to customers who use our display components in 3D metrology equipment and industrial headsets.
Fan (or in the event of his death prior to completion of all installments to his surviving spouse, or if none to his estate) would receive $1,500,000 in twenty-four (24) equal monthly installments. As of December 30, 2023, we owed Dr. Fan $750,000 which will be paid in equal monthly installments during 2024. In addition, under Dr.
Fan (or in the event of his death prior to completion of all installments to his surviving spouse, or if none to his estate) would receive $1,500,000 in twenty-four (24) equal monthly installments. As of December 28, 2024, the monthly installments have been paid. In addition, under Dr. Fan’s employment agreement he receives $40,000 per year through 2033.
R&D revenues consist primarily of development contracts with agencies or prime contractors of the U.S. Government and commercial enterprises. We manufacture Active-matrix Liquid Crystal (“AMLCD”) transmissive and Liquid Crystal on Silicon (“LCOS”) reflective microdisplays. Our AMLCD display production is being performed entirely in our Westborough, Massachusetts facility.
Results of Operations We have two principal sources of revenues: product revenues and research and development (“R&D”) revenues. R&D revenues consist primarily of development contracts with agencies or prime contractors of the U.S. Government and commercial enterprises. We manufacture Active-matrix Liquid Crystal (“AMLCD”) transmissive and Liquid Crystal on Silicon (“LCOS”) reflective microdisplays.
Fiscal Year 2022 Compared to Fiscal Year 2021 SG&A for 2022 decreased as compared to 2021 primarily due to a decrease of approximately $2.9 million in non-cash stock-based compensation, partially offset by a $0.8 million increase in compensation and benefits and $1.4 million of higher professional fees. 38 Total Non-operating (Expense) Income.
Fiscal Year 2023 Compared to Fiscal Year 2022 SG&A for 2023 increased as compared to 2022 primarily due to an increase of approximately $5.0 million in legal and professional fees and $1.0 million in non-cash stock-based compensation, partially offset by a $1.3 million decrease in compensation and benefits. Litigation Damages Fiscal year 2024.
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.
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, and investment valuations.
We continue to search for and procure all necessary components from our current vendors and new alternative vendors. In certain situations, we can obtain the components but at 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.
However, we have identified several semiconductor components which continue to have long lead delivery times. We continue to search for and procure all necessary components from our current vendors and new alternative vendors. In certain situations, we can obtain the components but at a significantly increased cost.
The decrease in Industrial/Enterprise applications revenues in 2022 compared to 2021 was primarily due to a decrease in sales to customers who use our display components in 3D metrology equipment and industrial headsets. Sales of our displays for Consumer applications are primarily for use in thermal imaging products, recreational rifle and hand-held scopes.
Revenues from product sales for industrial/enterprise applications decreased in 2023 compared to 2022 primarily due to a decrease in sales to customers who use our display components in 3D metrology equipment and industrial headsets.
The gross proceeds of these transactions were $22.9 million, before deducting underwriting discounts and offering expenses paid by us of $1.5 million. At December 30, 2023, we had available $41.4 million for sale of common stock under the Current ATM Agreement.
The gross proceeds of these transactions were $22.9 million, before deducting underwriting discounts and offering expenses paid by us of $1.5 million.
In the first quarter of fiscal year 2021, we sold 2.4 million shares of common stock for gross proceeds of $16 million (average of $6.66 per share), before deducting broker expenses paid by us of $0.5 million pursuant to the Company’s At-The-Market Equity Offering Sales Agreement dated as of February 8, 2019 (the “Previous ATM Agreement”) with Stifel, Nicolaus & Company, Incorporated, (“Stifel”) as agent.
At-the-market offerings During the three months ended March 30, 2024, we sold 3,080,000 shares of common stock for gross proceeds of $7,466,755 (average of $2.42 per share) before deducting broker expenses paid by us of approximately $0.2 million, pursuant to our then effective At-The-Market Equity Offering Sales Agreement, dated as of March 5, 2021 (the “ATM Agreement”) with Stifel, Nicolaus & Company, Incorporated (“Stifel”), as agent.
Internal R&D expense for 2023 decreased as compared to the prior year primarily due to decreased OLED development. 37 Fiscal Year 2022 Compared to Fiscal Year 2021 Funded R&D expense for 2022 increased as compared to 2021 primarily due to an increase in the number of defense related contracts we have been awarded.
Internal R&D expense for 2024 increased as compared to the prior year primarily due to increases in display development costs and costs incurred to establish European foundry services. 32 Fiscal Year 2023 Compared to Fiscal Year 2022 Funded R&D expense for 2023 decreased as compared to 2022 primarily due to the completion of contracts for defense programs awarded prior to 2023.
FDD, our wholly-owned subsidiary, manufactures our LCOS microdisplays in its facility located in Scotland. Our OLED displays are designed by us and manufactured by third parties for us. We are a display supplier for the U.S. Army’s Family of Weapon Sights-Individual and Joint Strike Fighter F-35 programs and are undergoing qualification for the FWS - Crew Served variant.
Our AMLCD display production is being performed entirely in our Westborough, Massachusetts facility. KEL, our wholly owned subsidiary, manufactures our LCOS 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.
Fiscal Year 2022 Compared to Fiscal Year 2021 Cost of product revenues increased as a percentage of revenues in 2022 as compared to 2021 primarily due to lower production volumes in the second and third quarters of fiscal year 2022.
Fiscal Year 2023 Compared to Fiscal Year 2022 Cost of product revenues decreased as a percentage of revenues in 2023 as compared to 2022 primarily due to increased sales of higher margin products for defense applications in 2023 versus 2022 and lower sales of lower margin products from defense applications in 2023 versus 2022.
The decrease in license and royalty revenue in 2022 compared to 2021 is due to lower royalties earned under IP license agreements for industrial wearable headsets. International product sales represented approximately 22% and 38% of product revenues for 2022 and 2021, respectively.
In 2024 and 2023, our R&D revenues exceeded funded R&D expenses by approximately $2.2 million and $6.3 million, respectively. The decrease in license and royalty revenue in 2024 compared to 2023 is due to a decrease in royalties earned under IP license agreements for industrial wearable headsets.
Fan’s employment agreement he receives $40,000 per year through 2033. The following is a summary of our contractual lease payment obligations as of December 30, 2023: Payment due by period Total Less than 1 year 1-3 Years 4-5 years More than 5 years Operating Lease Obligations $ 2,844,590 795,884 1,847,373 201,333 — 41
The following is a summary of our contractual lease payment obligations as of December 28, 2024: Payment due by period Total Less than 1 year 1-3 Years 4-5 years More than 5 years Operating Lease Obligations $ 2,372,040 768,841 1,603,199 — — 36
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 industrial and consumer purchase orders, we typically receive payments within 30 to 60 days of shipment of the product, although for some purchase orders, we may require advanced payment prior to shipment of the product. 27 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.
In the fourth quarter of 2022, gross margins declined due to lower absorption of costs as we reduced production to make process changes in manufacturing the products. 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.
The Company also implemented several programs and hired additional employees to improve manufacturing quality and efficiency. Research and Development. 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.
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.
Investment Valuation We periodically make equity investments in private companies, accounted for as an equity investment, whose values are difficult to determine.
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 Equity Offering Sales Agreement (the “Current ATM Agreement”) with Stifel under which we may sell up to $50 million of our common stock .
The ATM Agreement terminated in the three months ended March 30, 2024. On January 24, 2025 we entered into a new At-The-Market Equity Offering Sales Agreement with Stifel, Nicolaus & Company, Incorporated (“Stifel”), as agent, for the sale of up to $50 million of securities.
Sales of our products for Defense applications may be for a one-time purchase or for programs that run for several years. Revenues from product sales to defense customers increased in 2022 compared to 2021, primarily due to an increase in shipments of our products into the FWS- Individual, Joint Strike Fighter and training and simulation programs.
Quantitative and Qualitative Disclosures About Market Risk” section below. 30 Fiscal Year 2023 Compared to Fiscal Year 2022 Revenues from product sales to defense customers decreased in 2023 compared to 2022, primarily due to a decrease in shipments of our products for thermal weapon sight applications that was partially offset by an increase in sales of our products for defense pilot helmets and training and simulation programs.
In the third quarter of 2021, we sold 0.6 million shares of common stock for gross proceeds of $4.8 million (average of $8.06 per share), before deducting broker expenses paid by us of $0.1 million under the Current ATM Agreement.
On September 23, 2024, we sold 37,550,000 shares of common stock and pre-funded warrants to purchase up to 4,000,000 shares of common stock at a public offering price of $0.64 per pre-funded warrants, for gross proceeds of $27.0 million before deducting underwriting discounts and offering expenses paid by the us of $1.8 million.
These contracts typically reimburse us for direct costs and allocated overhead and selling, general and administrative costs and in some cases profit. In 2022 and 2021, our R&D revenues exceeded funded R&D expenses by approximately $4.1 million and $4.7 million, respectively.
R&D revenues decreased in 2024 as compared to 2023 primarily due to decreased funding for display technology, armored vehicle targeting systems and other weapon system development for U.S. defense programs, and medical headset development. These contracts typically reimburse us for direct costs and allocated overhead and selling, general and administrative costs and in some cases profit.
Removed
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.
Added
Over the last few years, we believe our customers have been using lower priced and lower quality display products in their 3D AOI machines to compensate for lower demand, which has resulted in more price competition.
Removed
For industrial and consumer purchase orders, we typically receive payments within 30 to 60 days of shipment of the product, although for some purchase orders, we may require 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.
Added
We are introducing lower priced products in 2025 to increase sales, but if unit demand remains flat or decreases, our revenues from this market will decline. Sales of our displays for Consumer applications are primarily for use in thermal imaging products, recreational rifle and hand-held scopes.
Removed
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.
Added
The decrease in Consumer applications in 2024 compared to 2023 was primarily due to a decrease in sales of our displays for consumer applications which was partially the result of our focusing the Company’s sales and marketing efforts on defense applications in 2023.
Removed
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.
Added
International product sales represented approximately 6% and 13% of product revenues for 2024 and 2023, respectively. We categorize our revenues as either domestic or international based upon the delivery destination of our product.
Removed
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.
Added
Foreign currency translation impact on our results, if material, is described in further detail under “Item 7A.
Removed
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.
Added
The margin improvement from thermal weapon sights was partially offset by lower margin contribution from industrial and training and simulation revenues due to their decline in sales. The Company also implemented several programs and hired additional employees to improve manufacturing quality and efficiencies.
Removed
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 time for wafer foundries to perform circuit processing and yields.
Added
The United States government is or is in the process of increasing or implementing tariffs on the importation of certain goods. In some cases, our contracts allow us to pass along new or increased tariffs subject to ability to prove the impact of the tariff on the cost of our product.
Removed
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).
Added
If we are unable to increase our prices due to the implementation or increase in tariff, duties and other taxes our gross margin and overall profitability would be negatively impacted. The issues associated with the global shortage of semiconductor circuit chips and other raw materials decreased in 2024 as compared to 2023 and 2022.
Removed
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.
Added
Litigation damages were accrued as a result of the April 22, 2024 jury verdict that was entered against the Company awarding approximately $5.1 million in damages as well as recommending $19.7 million in disgorgement and exemplary damages. 33 Total Non-operating (Expense) Income.
Removed
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.
Added
The change in cash and cash equivalents and marketable securities was primarily due to the sale of common stock and prefunded warrants of $1.5 million in the fourth quarter of 2024, $25.2 million in the third quarter of 2024 and $7.2 million in the first quarter of 2024 which was partially offset by cash used in operations of $14.2 million.
Removed
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.
Added
Our cash and cash equivalents and liquidity could be adversely affected by any amounts that become payable in connection with any adverse results from any litigation we are, or may become, involved in. Equity offerings On September 30, 2024, we sold 2,405,000 shares of common stock and received gross proceeds of $1.5 million.
Removed
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.
Added
The offering price of the pre-funded warrant equals the public offering price per share of the common stock less the $0.01 per share exercise price of each pre-funded warrant.
Removed
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.
Added
Subsequent to year end, the Company cannot use the ATM Agreement entered into on January 24, 2025 until such time the Company can utilize Form S-3.
Removed
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.
Added
As the Company is unable to conclude that a favorable outcome in this litigation is probable and due to the net losses and negative cash flows from operations, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance of these financial statements.
Removed
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.

… 12 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+0 added−0 removed5 unchanged
Biggest changeWe estimate that any market risk associated with our international operations or investments is unlikely to have a material adverse effect on our business, financial condition or results of operation. Our portfolio of marketable debt securities is subject to interest rate risk although our intent is to hold securities until maturity.
Biggest changeWe estimate that any market risk associated with our international operations or investments is unlikely to have a material adverse effect on our business, financial condition or results of operation. Our portfolio of marketable securities is subject to interest rate risk although our intent is to hold securities until maturity.

Other KOPN 10-K year-over-year comparisons