UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 25, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 0-19882

KOPIN CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		04-2833935
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)

125 North Drive, Westborough, MA		01581-3335
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (508) 870-5959

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01		KOPN		Nasdaq Capital Market

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding as of August 3, 2022
Common Stock, par value $0.01		93,637,360

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

Kopin Corporation

INDEX

		Page No.
Part I – Financial Information

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets at June 25, 2022 (Unaudited) and December 25, 2021	3

	Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 25, 2022 and June 26, 2021	4

	Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three and six months ended June 25, 2022 and June 26, 2021	5

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and six months ended June 25, 2022 and June 26, 2021	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 25, 2022 and June 26, 2021	7

	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	24

Part II – Other Information		25

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 6.	Exhibits	26

Signatures		27

Part 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

KOPIN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 25, 2022			December 25, 2021

ASSETS
Current assets:
Cash and cash equivalents	$	13,630,219		$	26,787,931
Marketable debt securities, at fair value		4,927,793			2,507,535
Accounts receivable, net of allowance of $136,000 in 2022 and $150,000 in 2021		7,048,635			12,113,070
Contract assets and unbilled receivables		5,268,754			2,299,392
Inventory		6,926,489			6,581,139
Prepaid taxes		170,124			160,599
Prepaid expenses and other current assets		2,091,509			1,758,079
Total current assets		40,063,523			52,207,745
Property, plant and equipment, net		1,738,962			1,888,963
Operating lease right-of-use assets		3,766,602			3,828,066
Other assets		170,932			170,932
Equity investments		9,831,592			4,912,022
Total assets	$	55,571,611		$	63,007,728

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,860,573		$	5,483,970
Accrued payroll and expenses		2,319,713			2,413,744
Accrued warranty		969,000			517,000
Contract liabilities and billings in excess of revenues earned		3,047,208			4,063,031
Operating lease liabilities		767,440			701,204
Other accrued liabilities		1,698,129			1,202,635
Customer deposits		806,040			2,638,103
Deferred tax liabilities		472,569			513,417
Total current liabilities		14,940,672			17,533,104

Noncurrent contract liabilities and asset retirement obligations		250,844			288,634
Operating lease liabilities, net of current portion		2,973,259			3,108,236
Other long-term liabilities		2,015,890			2,450,897
Total liabilities		20,180,665			23,380,871
Commitments and contingencies (Note 13)		-
Stockholders’ equity:
Preferred stock, par value $.01 per share: authorized, 3,000 shares; none issued		-			-
Common stock, par value $.01 per share: authorized, 150,000,000 shares; issued 93,627,360 shares in 2022 and 92,146,761 shares in 2021; outstanding 91,802,637 in 2022 and 89,988,528 in 2021		918,025			900,691
Additional paid-in capital		359,552,311			356,931,157
Treasury stock (80,641 shares in 2021, at cost)		-			(366,110	)
Accumulated other comprehensive income		1,193,695			1,414,351
Accumulated deficit		(326,100,471	)		(319,080,898	)
Total Kopin Corporation stockholders’ equity		35,563,560			39,799,191
Noncontrolling interest		(172,614	)		(172,334	)
Total Kopin Corporation stockholders’ equity		35,390,946			39,626,857
Total liabilities and stockholders’ equity	$	55,571,611		$	63,007,728

See notes to unaudited condensed consolidated financial statements

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	June 25, 2022			June 26, 2021			June 25, 2022			June 26, 2021
	Three months ended			Three months ended			Six months ended			Six months ended
	June 25, 2022			June 26, 2021			June 25, 2022			June 26, 2021
Revenues:
Net product revenues	$	9,003,658		$	6,928,819		$	15,511,186		$	14,497,663
Research and development and other revenues		2,905,374			2,976,437			7,976,268			7,083,961
Total revenues		11,909,032			9,905,256			23,487,454			21,581,624
Expenses:
Cost of product revenues		7,906,250			6,044,543			15,689,129			12,441,213
Research and development		5,145,375			3,740,253			10,553,988			7,303,553
Selling, general and administration		4,327,468			4,040,979			8,792,016			9,946,685
Total expenses		17,379,093			13,825,775			35,035,133			29,691,451
Loss from operations		(5,470,061	)		(3,920,519	)		(11,547,679	)		(8,109,827	)
Other (expense) income
Interest income		12,552			3,541			19,532			12,285
Other expense, net		(3,586	)		(896	)		(4,727	)		(2,045	)
Gain on investments		—			—			4,700,000			—
Foreign currency transaction (losses) gains		(150,094	)		100,991			(114,979	)		129,981
Total other (expense) income		(141,128	)		103,636			4,599,826			140,221
Loss before provision for income taxes and net loss attributable to noncontrolling interest		(5,611,189	)		(3,816,883	)		(6,947,853	)		(7,969,606	)
Tax provision		(36,000	)		(32,000	)		(72,000	)		(65,000	)
Net loss		(5,647,189	)		(3,848,883	)		(7,019,853	)		(8,034,606	)
Net loss attributable to the noncontrolling interest		257			16			280			39,501
Net loss attributable to Kopin Corporation	$	(5,646,932	)	$	(3,848,867	)	$	(7,019,573	)	$	(7,995,105	)
Net loss per share
Basic and diluted	$	(0.06	)	$	(0.04	)	$	(0.08	)	$	(0.09	)
Weighted average number of common shares outstanding
Basic and diluted		90,300,999			88,815,356			90,211,742			88,096,822

See notes to unaudited condensed consolidated financial statements

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	June 25, 2022			June 26, 2021			June 25, 2022			June 26, 2021
	Three months ended			Three months ended			Six months ended			Six months ended
	June 25, 2022			June 26, 2021			June 25, 2022			June 26, 2021
Net loss	$	(5,647,189	)	$	(3,848,883	)	$	(7,019,853	)	$	(8,034,606	)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		(35,421	)		(26,326	)		(41,353	)		(54,167	)
Unrealized holding loss on marketable securities		(71,329	)		(30,165	)		(178,779	)		(21,880	)
Reclassification of holding losses in net loss		—			—			(522	)		—
Other comprehensive loss, net of tax		(106,750	)		(56,491	)		(220,654	)		(76,047	)
Comprehensive loss		(5,753,939	)		(3,905,374	)		(7,240,507	)		(8,110,653	)
Comprehensive loss attributable to the noncontrolling interest		257			16			280			39,501
Comprehensive loss attributable to Kopin Corporation	$	(5,753,682	)	$	(3,905,358	)	$	(7,240,227	)	$	(8,071,152	)

See notes to unaudited condensed consolidated financial statements

KOPIN CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Common Stock				Additional Paid-in			Treasury			Accumulated Other Comprehensive			Accumulated			Total Kopin Corporation Stockholders’			Noncontrolling			Total Stockholders’
	Shares		Amount		Capital			Stock			Income			Deficit			Equity			Interest			Equity
Balance, December 25, 2021		90,069,169	$	900,691	$	356,931,157		$	(366,110	)	$	1,414,351		$	(319,080,898	)	$	39,799,191		$	(172,334	)	$	39,626,857
Stock-based compensation expense		-		-		656,073			-			-			-			656,073			-			656,073
Vesting of restricted stock		154,421		1,544		(1,544	)		-			-			-			-			-			-
Restricted stock for tax withholding obligations		-		-		-			(95,613	)		-			-			(95,613	)		-			(95,613	)
Other comprehensive loss		-		-		-			-			(113,906	)		-			(113,906	)		-			(113,906	)
Net loss		-		-		-			-			-			(1,372,641	)		(1,372,641	)		(23	)		(1,372,664	)
Balance, March 26, 2022		90,223,590		902,235		357,585,686			(461,723	)		1,300,445			(320,453,539	)		38,873,104			(172,357	)		38,700,747
Stock-based compensation expense		-		-		417,033			-			-			-			417,033			-			417,033
Vesting of restricted stock		50,000		500		(500	)		-			-			-			-			-			-
Sale of registered stock		1,529,047		15,290		1,550,092			461,723			-			-			2,027,105			-			2,027,105
Other comprehensive loss		-		-		-			-			(106,750	)		-			(106,750	)		-			(106,750	)
Net loss		-		-		-			-			-			(5,646,932	)		(5,646,932	)		(257	)		(5,647,189	)
Balance, June 25, 2022		91,802,637	$	918,025	$	359,552,311		$	-		$	1,193,695		$	(326,100,471	)	$	35,563,560		$	(172,614	)	$	35,390,946

	Common Stock						Additional Paid-in			Treasury			Accumulated Other Comprehensive			Accumulated			Total Kopin Corporation Stockholders’			Noncontrolling			Total Stockholders’
	Shares			Amount			Capital			Stock			Income			Deficit			Equity			Interest			Equity
Balance, December 26, 2020		88,007,535		$	880,075		$	341,512,893		$	(9,793,946	)	$	1,484,434		$	(305,648,025	)	$	28,435,431		$	(136,836	)	$	28,298,595
Stock-based compensation expense		-			-			2,610,166			-			-			-			2,610,166			-			2,610,166
Vesting of restricted stock		950,000			9,500			(9,500	)		-			-			-			-			-			-
Sale of registered stock		-			-			6,336,470			9,183,614			-			-			15,520,084			-			15,520,084
Restricted stock for tax withholding obligations		(3,586	)		(37	)		(32,668	)		-			-			-			(32,705	)		-			(32,705	)
Other comprehensive loss		-			-			-			-			(19,556	)		-			(19,556	)		-			(19,556	)
Net loss		-			-			-			-			-			(4,146,238	)		(4,146,238	)		(39,485	)		(4,185,723	)
Balance, March 27, 2021		88,953,949			889,538			350,417,361			(610,332	)		1,464,878			(309,794,263	)		42,367,182			(176,321	)		42,190,861
Stock-based compensation expense		-			-			514,509			-			-			-			514,509			-			514,509
Vesting of restricted stock		60,000			600			(600	)		-			-			-			-			-			-
Sale of registered stock		-			-			487,714			352,680			-			-			840,394			-			840,394
Other comprehensive loss		-			-			-			-			(56,491	)		-			(56,491	)		-			(56,491	)
Net loss		-			-			-			-			-			(3,848,867	)		(3,848,867	)		(16	)		(3,848,883	)
Balance, June 26, 2021		89,013,949		$	890,138		$	351,418,984			$  (257,652 )		$	1,408,387			$  (313,643,130	)	$	39,816,727		$	(176,337	)	$	39,640,390

See notes to unaudited condensed consolidated financial statements

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six months ended			Six months ended
	June 25, 2022			June 26, 2021
Cash flows from operating activities:
Net loss	$	(7,019,853	)	$	(8,034,606	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		535,253			412,031
Accretion of premium or discount on marketable debt securities		128			(3,644	)
Stock-based compensation		1,073,106			3,124,675
Foreign currency losses (gains)		124,741			(165,086	)
Change in allowance for bad debt		(5,576	)		69,120
Write-off of excess inventory		1,454,688			424,328
Unrealized (gains) losses on investments		(4,700,000	)		9,246
Loss on disposal of property and plant		202,670			14,950
Deferred income taxes		71,672			64,140
Other non-cash items		453,072			468,215
Changes in assets and liabilities:
Accounts receivable		6,106,734			2,624,899
Contract assets		(3,126,437	)		325,276
Inventory		(1,892,935	)		(2,203,925	)
Prepaid expenses and other current assets		(393,939	)		(1,079,691
Accounts payable and accrued expenses		(3,296,577	)		(2,259,398	)
Billings in excess of revenue earned		(1,023,859	)		608,866
Net cash used in operating activities		(11,437,112	)		(5,600,604	)
Cash flows from investing activities:
Other assets		4,337			18,958
Capital expenditures		(604,944	)		(673,575	)
Equity investment purchase		(499,998	)		—
Proceeds from sale of marketable debt securities		1,000,000			200,000
Purchases of marketable debt securities		(3,500,030	)		—
Net cash used in investing activities		(3,600,635	)		(454,617	)
Cash flows from financing activities:
Sale of treasury stock, net of costs		461,723			16,360,478
Settlements of restricted stock for tax withholding obligations		(95,613	)		(32,705	)
Issuance of common stock, net of costs		1,565,382			—
Net cash provided by financing activities		1,931,492			16,327,773
Effect of exchange rate changes on cash		(51,457	)		(25,733	)
Net (decrease) increase in cash and cash equivalents		(13,157,712	)		10,246,819
Cash and cash equivalents:
Beginning of period		26,787,931			17,112,869
End of period	$	13,630,219		$	27,359,688

See notes to unaudited condensed consolidated financial statements

KOPIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The condensed consolidated financial statements of Kopin Corporation as of June 25, 2022 and for the three and six month periods ended June 25, 2022 and June 26, 2021 are unaudited and include all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the periods then ended. These condensed consolidated financial statements should be read in conjunction with the Company’s financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. As used in this report, the terms “we,” “us,” “our,” “Kopin” and the “Company” mean Kopin Corporation and its subsidiaries, unless the context indicates another meaning.

The Company’s products are targeted towards the defense and industrial/enterprise wearable markets. Management believes the industrial wearable market is still developing and cannot predict how long it will take to develop or if the Company’s products will be accepted. In addition, the Company’s current strategy is to continue to invest in research and development, even during unprofitable periods, which may result in the Company continuing to incur net losses and negative cash flows from operations. If the Company is unable to achieve and maintain positive cash flows and profitability in the foreseeable future, its financial condition may ultimately be materially adversely affected such that management may be required to reduce operating expenses, including investments in research and development, or raise additional capital. While there can be no assurance the Company will be able to successfully reduce operating expenses or raise additional capital, management believes its historical success in managing cash flows and obtaining capital will continue in the foreseeable future.

The Company has incurred net losses of $7.0 million and $13.4 million for the six month period ended June 25, 2022 and for the fiscal year ended December 25, 2021, respectively, and net cash outflows from operations of $11.4 million and $10.7 million for the six month period ended June 25, 2022 and for the fiscal year ended December 25, 2021, respectively. The Company’s net cash outflows from operations were partially a result of funding its ongoing investments in research and development which management believes will continue. The Company has in the past sold equity securities through an At The Money program and in the traditional fashion of significant equity offerings. Management estimates the Company will have sufficient liquidity to fund operations at least through Q3 2023. Nonetheless, management monitors the capital markets on an ongoing basis and may consider raising capital if favorable market conditions develop. If the Company’s actual results are less than projected or the Company needs to raise capital for additional liquidity, the Company may be required to do additional equity financings, reduce expenses or enter into a strategic transaction. However, management can make no assurance that the Company will be able to raise additional capital, reduce expenses sufficiently, or enter into a strategic transaction on terms acceptable to the Company, or at all.

2. ACCOUNTING STANDARDS

Accounting Standards Issued But Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. In November 2019, the FASB issued ASU 2019-10 that has extended the effective date of ASU 2016-13 for Smaller Reporting Entities to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently evaluating ASU 2016-13 and its impact on our consolidated financial statements.

3. CASH AND CASH EQUIVALENTS AND MARKETABLE DEBT SECURITIES

The Company considers all highly liquid, short-term debt instruments with original maturities of three months or less to be cash equivalents.

Marketable debt securities consist primarily of commercial paper, medium-term corporate notes, and U.S. government and agency backed securities. The Company classifies these marketable debt securities as available-for-sale at fair value in “Marketable debt securities, at fair value.” The Company records the amortization of premium and accretion of discounts on marketable debt securities in the results of operations.

The Company uses the specific identification method as a basis for determining cost and calculating realized gains and losses with respect to marketable debt securities. The gross gains and losses realized related to sales and maturities of marketable debt securities were not material during the three and six months ended June 25, 2022 and June 26, 2021.

Investments in available-for-sale marketable debt securities were as follows at June 25, 2022 and December 25, 2021:

	Amortized Cost				Unrealized (Losses) Gains					Fair Value
	2022		2021		2022			2021		2022		2021
U.S. government and agency backed securities	$	2,500,006	$	1,000,128	$	(69,001	)	$	522	$	2,431,005	$	1,000,650
Corporate debt and certificates of deposit		2,500,024		1,500,000		(3,236	)		6,885		2,496,788		1,506,885
Total	$	5,000,030	$	2,500,128	$	(72,237	)	$	7,407	$	4,927,793	$	2,507,535

The contractual maturity of the Company’s marketable debt securities was as follows at June 25, 2022:

SCHEDULE OF MARKETABLE DEBT SECURITIES

	Less than One year		One to Five years		Total
U.S. government and agency backed securities	$	—	$	2,431,005	$	2,431,005
Corporate debt and certificates of deposit		2,496,788		—		2,496,788
Total	$	2,496,788	$	2,431,005	$	4,927,793

4. FAIR VALUE MEASUREMENTS

Financial instruments are categorized as Level 1, Level 2 or Level 3 based upon the method by which their fair value is computed. An investment is categorized as Level 1 when its fair value is based on unadjusted quoted prices in active markets for identical assets that the Company has the ability to access at the measurement date. An investment is categorized as Level 2 if its fair market value is based on quoted market prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, based on observable inputs such as interest rates, yield curves, or derived from or corroborated by observable market data by correlation or other means. An investment is categorized as Level 3 if its fair value is based on assumptions developed by the Company about what a market participant would use in pricing the assets.

The following table details the fair value measurements of the Company’s financial assets:


			Fair Value Measurement at June 25, 2022 Using:
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	13,630,219	$	13,630,219	$	-	$	—
U.S. government securities		2,431,005		—		2,431,005		—
Corporate debt		1,499,360		—		1,499,360		—
Certificates of deposit		997,428		997,428		—		—
Equity investments		9,831,592		196,516		—		9,635,076
	$	28,389,604	$	14,824,163	$	3,930,365	$	9,635,076


			Fair Value Measurement at December 25, 2021 Using:
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	26,787,931	$	26,787,931	$	—	$	—
U.S. government securities		1,000,650		—		1,000,650		—
Corporate debt		1,506,885		—		1,506,885		—
Equity investments		4,912,022		296,173		—		4,615,849
	$	34,207,488	$	27,084,104	$	2,507,535	$	4,615,849

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. Changes in Level 3 investments were as follows:

December 25, 2021

Net unrealized gains

Purchases,

issuances and settlements

Transfers in

and or out of

Level 3

June 25, 2022

Equity investments

4,615,849

4,519,229

499,998

—

9,635,076

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short-term nature. If accrued liabilities were carried at fair value, these would be classified as Level 2 in the fair value hierarchy.

Marketable Debt Securities

Corporate debt consists of floating rate notes with a maturity that is over multiple years but has interest rates that are reset every three months based on the then-current three-month London Interbank Offering Rate (“three-month Libor”). The Company validates the fair market values of the financial instruments above by using discounted cash flow models, obtaining independent pricing of the securities or through the use of a model that incorporates the three-month Libor, the credit default swap rate of the issuer and the bid and ask price spread of the same or similar investments which are traded on several markets.

Equity Investments

From 2017 through 2019, the Company made several equity investments in a customer. In the fourth quarter of 2019, the Company reviewed the financial condition and other factors of the customer and, as a result, recorded an impairment charge of $5.2 million to reduce its investment in the customer to zero as of December 28, 2019. In the first quarter of 2022 the customer raised additional equity capital and based on an observable price change of the customer’s share prices and terms of the equity sale the Company remeasured the fair market value of its investment and recorded a gain of $4.7 million. As of June 25, 2022, the Company owned an approximate 2.3% interest in this investment.

During the three and six months ended June 25, 2022, the Company recorded less than $0.1 million and $0.2 million, respectively, of unrealized losses on an equity interest in a company due to a fluctuation in the foreign exchange rate.

5. INVENTORY

Inventories are stated at standard cost adjusted to approximate the lower of cost (first-in, first-out method) or net realizable value and consist of the following at June 25, 2022 and December 25, 2021:

SCHEDULE OF INVENTORY


	June 25, 2022		December 25, 2021
Raw materials	$	4,698,312	$	5,044,334
Work-in-process		1,539,388		1,032,519
Finished goods		688,789		504,286
Total	$	6,926,489	$	6,581,139

6. NET LOSS PER SHARE

Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period less any unvested restricted shares. Diluted net loss per share is calculated using weighted-average shares outstanding and contingently issuable shares, less weighted-average shares reacquired during the period. The net outstanding shares are adjusted for the dilutive effect of shares issuable upon the assumed conversion of the Company’s common stock equivalents, which consist of unvested restricted stock.

The following were not included in weighted-average common shares outstanding-diluted because they are anti-dilutive or performance conditions have not been met at the end of the period:

Three Months Ended

Six Months

Ended

Six Months
Ended

June 25, 2022

June 26, 2021

June 25, 2022

June 26, 2021

Non-vested restricted common stock

1,824,723

2,543,717

1,824,723

2,543,717

7. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Registered sale of equity securities

During the three months ended June 25, 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, pursuant to the Company’s At-The-Market Equity Offering Sales Agreement dated as of March 5, 2021 (the” ATM Agreement”) with Stifel, Nicolaus & Company, Incorporated, (“Stifel”) as agent, under which we may sell up to $50 million of our common stock. The Company has approximately $41.4 million worth of common stock remaining available for sale under the ATM Agreement.

During the three and six months ended June 26, 2021, the Company sold 0.1 million and 2.5 million shares of common stock for gross proceeds of $0.8 million and $16.8 million (average of $6.74 per share), respectively, before deducting broker expenses paid by us of less than $0.1 million and $0.5 million, respectively, pursuant to the Company’s At-The-Market Equity Offering Sales Agreement dated as of February 8, 2019 (the “Previous ATM Agreement”) with Stifel as agent. The Previous ATM Agreement has since terminated pursuant to its terms as a result of the sale of all the shares subject to such agreement.

On June 28, 2021 (the first business day of our fiscal third quarter), we sold 0.6 million shares of common stock for gross proceeds of $4.8 million (average of $8.06 per share), before deducting broker expenses paid by us of less than $0.2 million, pursuant to the ATM Agreement.

Non-Vested Restricted Common Stock

The fair value of non-vested restricted common stock awards is generally the market value of the Company’s common stock on the date of grant. The non-vested restricted common stock awards require the employee to fulfill certain obligations, including remaining employed by the Company for one, two or four years (the vesting period) and in certain cases also require meeting either performance criteria or the Company’s stock achieving a certain price. For non-vested restricted common stock awards that solely require the recipient to remain employed with the Company, the stock compensation expense is amortized over the anticipated service period. For non-vested restricted common stock awards that require the achievement of performance criteria, the Company reviews the probability of achieving the performance goals on a periodic basis. If the Company determines that it is probable that the performance criteria will be achieved, the amount of compensation cost derived for the performance goal is amortized over the anticipated service period. If the performance criteria are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed.

Restricted stock activity for the six months ended June 25, 2022 was as follows:

				Weighted Average
	Shares			Grant Fair Value
Balance, December 25, 2021		2,077,592		$	2.90
Granted		186,500			1.53
Forfeited		(234,948	)		2.61
Vested		(204,421	)		3.80
Balance, June 25, 2022		1,824,723		$	2.70

Stock-Based Compensation

The following table summarizes stock-based compensation expense within each of the categories below as it relates to non-vested restricted common stock awards for the three and six months ended June 25, 2022 and June 26, 2021 (no tax benefits were recognized):


	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Cost of product revenues	$	11,713	$	34,789	$	78,381	$	168,573
Research and development		108,347		121,012		255,726		215,065
Selling, general and administrative		296,973		358,708		738,999		2,741,037
Total	$	417,033	$	514,509	$	1,073,106	$	3,124,675

Unrecognized compensation expense for non-vested restricted common stock as of June 25, 2022 totaled $3.0 million and is expected to be recognized over a weighted average period of approximately 3.0 years.

8. ACCRUED WARRANTY

The Company typically warrants its products against defect for 12 to 18 months, however, for certain products a customer may purchase an extended warranty. A provision for estimated future costs and estimated returns for credit relating to such warranty is recorded in the period when product is shipped and revenue is recognized and is updated as additional information becomes available. The Company’s estimate of future costs to satisfy warranty obligations is based primarily on historical warranty expense experienced and a provision for potential future product failures. Changes in the accrued warranty for the six months ended June 25, 2022 were as follows:

SCHEDULE OF ACCRUED WARRANTY


Balance, December 25, 2021	$	517,000
Additions		1,037,000
Claims		(585,000	)
Balance, June 25, 2022	$	969,000

Extended Warranties

Deferred revenue represents the purchase of extended warranties by the Company’s customers. The Company recognizes revenue from an extended warranty on the straight-line method over the life of the extended warranty, which is typically 12 to 15 months beyond the standard 12 to 18 month warranty. The Company classifies the current portion of deferred revenue under Contract liabilities and billings in excess of revenues earned in its condensed consolidated balance sheets. At June 25, 2022, the Company had less than $0.1 million of deferred revenue related to extended warranties.

9. INCOME TAXES

The Company recorded a provision for income taxes of less than $0.1 million in each of the three and six months ended June 25, 2022 and June 26, 2021, respectively. As of June 25, 2022, the Company has available for tax purposes U.S. federal net operating loss carryforwards (“NOLs”) of approximately $160.3 million expiring 2022 through 2037 and $82.4 million that have an unlimited carryover period. The Company has recognized a full valuation allowance on its domestic and certain foreign net deferred tax assets due to the uncertainty of realization of such assets. The Company recognizes both accrued interest and penalties related to its uncertain tax positions related to intercompany loan interest and potential transfer pricing exposure related to its foreign subsidiaries.

10. CONTRACT ASSETS AND LIABILITIES

Contract assets include unbilled amounts typically resulting from sales under contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized from customer arrangements, including licensing, exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net realizable value. Contract assets are generally classified as current. The Company classifies the noncurrent portion of contract assets under other assets in its condensed consolidated balance sheets.

Contract liabilities consist of advance payments and billings in excess of cost incurred and deferred revenue.

Net contract assets (liabilities) consisted of the following:

	June 25, 2022			December 25, 2021			$ Change		% Change
Contract assets —current	$	5,268,754		$	2,299,392		$	2,969,362		129	%
Contract liabilities—current		(3,047,208	)		(4,063,031	)		1,015,823		(25	)%
Contract liabilities—noncurrent		(5,371	)		(20,664	)		15,293		(74	)%
Net contract assets (liabilities)	$	2,216,175		$	(1,784,303	)	$	4,000,478		(224	)%

The $4.0 million increase in the Company’s net contract assets (liabilities) at June 25, 2022 as compare

SEC Form 10-Q filed by Kopin Corporation