UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
   
FORM 10-K10-K/A
Amendment No. 1
x☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 201629, 2018
OR
¨☐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)

Delaware04-2833935
(State or other jurisdiction of
of incorporation or organization)organization
(I.R.S. Employer
Identification No.)
  
125 North Drive,WestboroughMA01581-3335
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (508) 870-5959
Registrant’s telephone number, including area code:(508) 870-5959
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:Common Stock, par value $.01 per share
(Title of Class)each class
Trading Symbol(s)Name of each exchange on which registered
NASDAQCommon Stock, par value $0.01KOPNNasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act:None
Securities registered pursuant to Section 12(b) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨☐ No x☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No x☒
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 such filing requirements for the past 90 days. Yes x☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). x☒ Yes ¨☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”,filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer¨☐Accelerated Filerx☒
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. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
As of June 24, 201630, 2018 (the last business day of the registrant's most recent second fiscal quarter), the aggregate market value of outstanding shares of voting stock held by non-affiliates of the registrant was $156,249,466$164,583,000.
As of March 17, 2017, 67,546,3608, 2019, 76,282,062 shares of the registrant’s Common Stock, par value $.01 per share, were issued and outstanding.
   
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement relating

EXPLANATORY NOTE

Kopin Corporation (the "Company" or "Kopin") is filing this Amendment No. 1 on Form 10-K/A (this "Form 10-K/A") to its 2017 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.for the fiscal year ended December 29, 2018, originally filed with the U.S. Securities and Exchange Commission (the "SEC") on March 14, 2019 (the "Original Form 10-K") to update the Report of Independent Registered Public Accounting Firm to indicate that the consolidated balance sheet as of December 30, 2017 was audited. The Report of Independent Registered Public Accounting Firm within the Original Form 10-K omitted that the consolidated balance sheet as of December 30, 2017 was audited.

In addition, the Company is correcting immaterial misstatements it has identified in its previously-issued consolidated financial statements and related financial information for the fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016. The following sections of this Form 10-K/A contain information that has been revised to reflect the corrections:
•Part I, Item 1A. Risk Factors
•Part II, Item 6. Selected Financial Data
•Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
•Part II, Item 8. Financial Statements and Supplementary Data
•Part II, Item 9A. Controls and Procedures
•Part IV, Item 15. Exhibits and Financial Statement Schedules
Lastly, due to a material weakness in our internal control over financial reporting identified as a result of the misstatements discussed above, the Company is amending Part II, Item 9A "Controls and Procedures" with respect to (a) the Company's conclusions regarding the effectiveness of (i) the Company's disclosure controls and procedures and (ii) our internal control over financial reporting, and (b) Deloitte & Touche LLP’s related attestation report on our internal control over financial reporting.
Except as described in this Explanatory Note, the information contained in the Original Form 10-K has not been revised to reflect any subsequent events.
Background
In 2018, the Company liquidated its Korean subsidiary, Kowon. At the time of liquidation the Company owned approximately 93% of the equity of Kowon. The liquidation event was triggered in 2018 by the Company’s decision to not reinvest the net assets generated from Kowon in Korea. Although the Company paid the proper amounts to the noncontrolling interest holder in 2017 and 2018 based on its ownership percentage, the Company has determined that the consolidated financial statements were incorrect because of two prior period errors impacting the amounts previously reported as noncontrolling interest as well as two errors made when recording the effects of the 2018 liquidation.
Effects of the Immaterial Misstatements
A summary of these errors and their impact on the consolidated financial statements are as follows:
1.
The Company improperly calculated the noncontrolling interest amount of Kowon when the Company made equity investments in years prior to 2015. The Company has corrected for this misstatement in the accompanying Consolidated Statements of Stockholders’ Equity, which resulted in a decrease to additional paid-in capital and an increase to noncontrolling interest of $1.2 million as of December 26, 2015. This correction impacted the respective equity categories in the accompanying Consolidated Statements of Stockholders’ Equity and Consolidated Balance Sheets for 2016, 2017 and 2018.
2.
In 2016, upon recognition of a gain on sale of Kowon assets, the Company did not properly allocate the portion of the gain attributable to the noncontrolling interest in the amount of $0.1 million. The Company has corrected for this misstatement in the accompanying 2016 Consolidated Statement of Operations, which consequently impacts the accompanying Consolidated Statements of Stockholders’ Equity by increasing accumulated deficit and increasing noncontrolling interest for $0.1 million as of December 31, 2016.
3.
In 2018, when the Company liquidated Kowon, it was carrying approximately $1.7 million in cumulative translation adjustments ("CTA") related to Kowon's net assets. Approximately $0.4 million of CTA was correctly reclassified into earnings in 2018, however, the remaining $1.3 million was incorrectly reclassified directly to noncontrolling interest to offset cumulative understatement in noncontrolling interest that resulted from the two prior period errors noted above. This caused the net loss in the accompanying 2018 Consolidated Statement of Operations to be overstated by $1.3 million, which the Company has corrected in the accompanying Consolidated Statements of Operations.

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4.
In addition, in connection with the liquidation of Kowon, the Company understated its distribution to the noncontrolling interest holder in the accompanying 2018 Consolidated Statement of Cash Flows by less than $0.1 million, which the Company has corrected in the accompanying Consolidated Statements of Cash Flows.
Internal Control Considerations
On October 17, 2019, the Audit Committee of our Board of Directors (the “Audit Committee”) determined that it would be necessary for the Company to correct certain immaterial misstatements identified in its previously-issued consolidated financial statements. The Audit Committee made this determination following consultation with and upon the recommendation of management. Refer to "Part II. Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Note 18. Correction of Previously Issued Financial Statements included in "Part IV. Item 15 - Exhibits and Financial Statement Schedules" for a more detailed description of the misstatements.
Notwithstanding the existence of the material weakness described in “Part II. Item 9A - Controls and Procedures,” we believe that the consolidated financial statements in this Form 10-K/A fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods, presented, in conformity with generally accepted accounting principles (“GAAP”).


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Part I
Forward Looking Statements

This Annual Report on Form 10-K10-K/A contains forward-looking statements within the meaning of Section 27A of the United States Private Securities Litigation Reform Act of 1995, including, without limitation, statements made relating to our belief that Kopin’s Wearable technology will enable easier1933, as amended (the “Securities Act”), and more convenient accessSection 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the content individuals carrysafe harbor created by such sections. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “could,” “would,” “seeks,” “estimates,” and variations of such words and similar expressions, and the negatives thereof, are intended to identify such forward-looking statements. We caution readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the date made, and advise readers that these forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates, and assumptions by us that are difficult to predict. Various factors, some of which are beyond our control, could cause actual results to differ materially from those expressed in, their smartphones or “inimplied by, such forward-looking statements. All such forward-looking statements, whether written or oral, and whether made by us or on our behalf, are expressly qualified by these cautionary statements and any other cautionary statements which may accompany the cloud”,forward-looking statements. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as may otherwise be required by the federal securities laws.

We have identified the following important factors that could cause actual results to differ materially from those discussed in our forward-looking statements. Such factors may be in addition to the risks described in Part I, Item 1A. “Risk Factors;” Part II, Item 7. “Management’s Discussion and will be embraced by both consumersAnalysis of Financial Condition and commercial users;Results of Operations;” and other parts of this Form 10-K/A. These factors include: our beliefability to continue as a going concern; the material weakness management has identified in our internal control over financial reporting, its conclusion that our understandingdisclosure controls and procedures were not effective as of the needs associated with wearable headset systemsfiscal year ended December 29, 2018, and our customers’ products has been an important reason we have previously been successful in developing customer relationships;ability to remediate that material weakness; our belief thatability to obtain raw materials and other goods as well as services from our system know-how is a compelling reasonsuppliers as needed; our intent to continue focusing our development efforts on proprietary wearable computing systems; the potential for customers to choose usour competitors as their supplier; our belief that small form factor displays will be a critical component in the development of military, consumer electronic and augmented and virtual reality markets must provide high resolution images without compromising the portability of the product;our expectation that we will have negative cash flow from operating activities in 2017;2019; our intention to continue to pursue other U.S. government development contracts for applications that relate to our commercial product applications; our intentionability to prosecute and defend our proprietary technology aggressively;aggressively or successfully; our belief that it is importantability to retain personnel with experience and expertise relevant to our business;our belief that our products are targeted towards markets that are still developing and our competitive strength is creating new technologies;our belief that it is importantability to invest in research and development to achieve profitability even during periods when we are not profitable; our belief that the technical nature of our products and markets demands a commitmentability to close relationships with our customers; our belief that continued introduction ofcontinue to introduce new products in our target markets is essentialmarkets;the degree to our growth;our belief thatwhich our wearable technology will beis embraced by consumers and commercial users; our belief that our ability to develop and expand our wearable technologies and to market and license our concept systems and components will be critical forcomponents; our ability to generate revenue growth and positive cash flow, and reach profitability; our statement that we may make equity investments in companies; our belief that athe strengthening of the U.S. dollar could increaseand its effects on the price of our products in foreign markets; the impact of new regulations and customer demands relating to conflict minerals on customer demands and increased costs relatedminerals; our ability to compliance with such regulations; our belief that our future success will depend primarily uponobtain a competitive advantage in the technical expertise, creative skills and management abilities of our officers and key employees rather than on patent ownership;our belief thatwearable technologies market through our extensive portfolio of patents, trade secrets and non-patented know-how provides us with a competitive advantage in the wearable technologies market;know-how; our belief that our ability to develop components, software and noise canceling technology and innovative headset system designs enhances our opportunity to grow within our targeted markets; smartphone makers’ intent to create products that work as a complement to smartphones or that will eventually replace smartphones with more convenient configurations; the importance of small form factor displays in the development of military, consumer, and industrial products such as thermal weapon sights, safety equipment, virtual and augmented reality gaming, training and simulation products and metrology tools; our belief thatability to successfully offer and market our manufacturing process offers greater miniaturization, higher pixel density, full color capability, lower power consumption, and higher brightness comparedSOLOS smart glasses directly via the Internet; our ability to conventional active matrix LCD manufacturing approaches;offer Golden-i Infinity through value added resellers; the suitability of our properties for our needs for the foreseeable future; our expectation not to pay cash dividends for the foreseeable future and to retain earnings for the development of our businesses; our expectation that we will expend between $2.0between $1.5 million and $3.0 $2.0 million on capital expenditures over the next twelve months; if we do not soon achieve and maintain positive cash flow and profitability, our belief that small form factor displaysfinancial condition will ultimately be materially adversely affected, and we will be a critical componentrequired to reduce expenses, including our investments in theresearch and development of advanced wireless communications systems;or raise additional capital; our belief that wireless smartphone makers are lookingability to create products that work as a complement to the smartphone or to eventually replace the smartphone with more convenient configurations; our belief that we will regain compliance with Nasdaq; our belief that our available cash resources will support our operations and capital needs for at least the next twelve months;months through our available cash resources; our expectation that we will haveincur taxes based on federal alternative minimum tax rules and on our foreign operations in 2017;2019; and our expectation that we will have a state tax provision in 2017; our expectation that the adoption of certain accounting standards will not have a material impact on our financial position or results of operations;our belief that our business is not disproportionately affected by climate change regulations; our belief that our operations have not been materially affected by inflation; and our belief that the effect, if any, of reasonably possible near-term changes in interest rates on our financial position, results of operations, and cash flows should not be material. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate, management's beliefs, and assumptions made by management. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of us. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “could”, “seeks”, “estimates”, and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause or contribute to such differences in outcomes and results include, but are not limited to, those discussed below in Item 1A and those set forth in our other periodic filings filed with the Securities and Exchange Commission. Except as required by law, we do not intend to update any forward-looking statements even if new information becomes available or other events occur in the future.2019.


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Item 1.Business
Introduction

We were incorporated in Delaware in 1984 and are a leading inventor, developer, manufacturer and seller of Wearable technologies which include components and systems.

On January 16, 2013, we completed the sale of our III-V product line, including all of the outstanding equity interest in KTC Wireless, LLC (KTC), a wholly-owned subsidiary of the Company, to IQE KC, LLC (IQE) and IQE plc (Parent, and collectively with IQE, the Buyer). Upon agreement of the final working capital and other adjustments the net purchase price was $70.2 million, and the gain on the sale, net of tax, was $20.1 million. Under the terms of the Purchase Agreement, the final $15 million of the purchase price was received on January 15, 2016.

The components that we offered for sale in 2016 consisted of our proprietary miniature active-matrix liquid crystal displays (AMLCD), liquid crystal on silicon (LCOS) displays, application specific integrated circuits (ASICs), backlights, optical lenses and audio integrated circuits (IC). We refer to our AMLCD as “CyberDisplays” and our audio IC as “Whisper™ Chip". Our transmissive AMLCDs and reflective LCOS micro-displays are manufactured by us in our facilities in Westborough, Massachusetts, USA and Dalgety Bay, Scotland, U.K., respectively, and provide either color or monochrome images and are offered in a variety of sizes and resolutions. The ASICs we offer are designed by us and are the electronic interfaces between our displays and the product 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. Our licensed optical lenses are subject to agreements that have termination dates and are therefore subject to renewals. Our audio technologies are developed internally at our San Jose, California audio lab. The ASICs, optical lenses, and backlights are manufactured by third parties based on our purchase orders. The Whisper Chip is manufactured by third parties based on our purchase orders.

Our components are sold separately or in various levels of integration. For example, we offer a display module which includes an optical lens and backlight contained in either plastic or metal housings, a binocular display module which has two displays, lenses and backlight or a higher-level assembly which has additional components for military applications. Current products which include our components are augmented reality consumer wearable devices for sports and fitness and virtual reality consumer products for recreational and sport drones; military devices such as thermal weapon sights and fighter pilot helmets; and industrial and public safety devices such as fire fighter thermal camera enabled masks. Our reflective display products are also configured as spatial light modulators and are used in industrial equipment for 3D Automated Optical Inspection. We have sold our AMLCD products to Rockwell Collins, Elbit, Raytheon Company, DRS RSTA Inc., BAE Systems (directly and through a third party QiOptiq), and ITT for use in military applications, to Google for consumer wearable products, and to Samsung Electronics Co., Ltd. (Samsung), and Olympus Corporation (Olympus) for digital still cameras.

We have designed and offer systems that are focused on the emerging enterprise and consumer markets for head-worn, hands-free voice and gesture controlled wireless computing and communication devices. Our systems connect via Bluetooth or WiFi to a smartphone or similar device in order to access or transmit information from or to the Internet or devices that are in close proximity. A unique feature of our enterprise systems is the ability to contact a resource, referred to as the “Remote Expert”, who can help in solving problems. The system user and the Remote Expert can be in different locations so while the system user may be in a hazardous outside location the Remote Expert may be in an in-house location. This allows companies that purchase enterprise systems the ability to leverage their in-house experts to the technicians in the field. We currently license our systems under agreements which include a royalty payable to us and a purchase and supply agreement which requires our customer to buy our components for the system. These systems include our components and a variety of commercially available software packages and our proprietary software. Our business model is to license our concept systems or technologies to branded OEM customers who wish to develop and market head-worn products for both mobile enterprise and consumer applications.

In 2016, we began offering Solos™ wearables, an augmented reality wearable headset designed for the consumer fitness market. Solos is our proprietary design and contains our display, optic, and ASIC technologies and internally developed software. Solos is a hands-free head-worn device that allows the user to access information either from the Internet through a smartphone or from the various Bluetooth, WiFi or ANT+ enabled devices. For example, a cyclist user can see the information being provided by the bike sensors such as speed, cadence or watts produced, can access the Internet for GPS location or can access an Internet training application.


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For fiscal years 2016, 2015 and 2014, significant display customers are shown below. The caption “Military Customers in Total” in the table below excludes research and development contracts.
  
Percent of Total
Revenues
Customer 2016 2015 2014
Military Customers in Total 24% 32% 45%
Raytheon Company * 18% 26%
Google Inc. * 22% 11%
Rockwell Collins 12% * *
Shenzhen Oriscape 20% * *
U.S. Government funded research and development contracts 3% 3% 4%
(“*” denotes that the customer's revenues were less than 10% of our total company revenues)


Our fiscal year ends on the last Saturday in December. The fiscal years ended December 31, 2016, December 26, 2015, and December 27, 2014 are referred to herein as fiscal years 2016, 2015 and 2014, respectively. Our principal executive offices are located at 125 North Drive, Westborough, Massachusetts. Our telephone number is (508) 870-5959.
Industry Overview
Wearable Computing/Communicating
The introduction and wide acceptance of the smart-phone has generated advances in many technologies including smaller and cheaper electronic components, voice search engines and wireless 4G networks. Smart phone adoption has also been the catalyst for the development of software for a wide-range of applications. Leveraging off of these advances and the growth of cloud computing a new category of “wearable” products, Smart Headsets, is emerging that provides access to data and these Apps, with some Smart Headsets including the use of voice activated hands-free technology. This emerging category of Wearable Systems can be used for hundreds of different applications by enterprise workers, public safety officials and consumers, bringing ever-increasing productivity, fun and convenience. Through the use of Smart Headsets both workers and consumers can have access to their digital files, the Internet, phone, e-mail etc., enabling an “always connected” work-style and lifestyle. We believe that advances in wearables will continue to make the “always connected” life increasingly convenient and more productive by providing easier access to and control of the information accessible through our electronic devices.

Wearable products also include body-worn devices such as sensors, scanners and terminals which are sold to enterprise markets to improve worker productivity and the consumer market to monitor health and fitness metrics such as heart rate, speed and temperature. The user interface for these devices is typically either a key pad or a touch-screen. Some Wearable products include voice recognition software as an additional feature to allow the user to navigate the device’s interface “hands-free” instead of using a traditional mouse, touch-screen or keypad. We believe wireless smartphone makers are looking to create products that work as a complement to the smartphone or to eventually replace the smartphone with more convenient configurations. Wireless network companies are encouraging the development of more products that utilize their network capacity and other companies are developing products which provide continuous access to social media outlets. In order for the markets for these new products to develop and grow, devices must further advance and application software that exploits the devices new features and functions must be developed. Device improvements include smaller, higher resolution displays, lower power processors, longer-life batteries, compact optics and software including voice recognition and noise cancellation.

Our Solution
Kopin Wearable Technology
Kopin Wearable technology includes component technologies which can be integrated to create products and proprietary headset systems which use voice as the primary user interface and through the use of wireless technologies can contact other users, devices in close proximity or information from the cloud.
Components
The components we offer for sale primarily consist of our displays, backlights, ASICs, optical lenses and our audio IC, Whisper Chip.


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Display Products
Small form factor displays are used in military, consumer, and industrial products such as thermal weapon sights, digital cameras, virtual and augmented reality gaming, training and simulation products and metrology tools. In order for these markets to develop and grow, advances and investment in application software, optics and wireless communications systems with greater bandwidth and increased functionality will be necessary. We believe small form factor displays will be a critical component in the development of these markets as these systems must provide high resolution images without compromising the portability of the product.

There are several display technologies commercially available including transmissive, reflective and emissive. Our principal display products are miniature high density color or monochrome Active Matrix Liquid Crystal Displays (AMLCDs) with resolutions that range from approximately 320 x 240 resolution to 2048 x 2048 resolution and are sold in either a transmissive or reflective format. We sell our displays individually or in combination with our other components assembled in a unit. For example we sell a module unit that includes a single display, backlight and optics in a plastic housing, a binocular display module unit that includes two displays, backlights and optics in a plastic housing or in a Higher-Level Assembly (HLA) that contains a display, light emitting diode based illumination, optics, and electronics in a sealed housing, primarily for military applications.

Our transmissive display products, which we refer to as CyberDisplay™ products, utilize high quality, single crystal on silicon, which is the same high quality silicon used in conventional integrated circuits. This single crystal silicon is not grown on glass; rather, it is first formed on a silicon wafer and patterned into an integrated circuit (including the active matrix, driver circuitry and other logic circuits) in an integrated circuit foundry. These processes enable the manufacture of miniature active matrix circuits, that are comparable or higher resolution displays relative to passive and other active matrix displays that are fabricated on glass. Our foundry partners fabricate integrated circuits for our CyberDisplay displays in their foundries in Taiwan. The fabricated wafers are then returned to our facilities, where we lift the integrated circuits off the silicon wafers and transfer them to glass using our proprietary Wafer Engineering technology. The transferred integrated circuits are then processed, packaged with liquid crystal and assembled into display panels at our Display Manufacturing Center in Westborough, Massachusetts.

Our proprietary technology enables the production of transparent circuits on a transparent substrate, in contrast to conventional silicon circuits, which are on an opaque substrate. Our CyberDisplay products' imaging properties are a result of the inclusion of a liquid crystal layer between the active matrix integrated circuit glass and the transparent cover glass. We believe our manufacturing process offers several advantages over conventional active matrix LCD manufacturing approaches with regard to small form factor displays, including:
Greater miniaturization;
Higher pixel density;
Full color capability;
Lower power consumption; and
Higher brightness

The color CyberDisplay products we sell generate colors by using color filters with a white backlight. Color filter technology is a process in which display pixels are patterned with materials, which selectively absorb or transmit the red, green or blue colors of light.

For military applications which use our CyberDisplay, the display is fabricated, tested and incorporated into a Higher Level Assembly (HLA). We offer a variety of models with varying levels of complexity but common to all models is our display, illuminations source, optics and electronics in a sealed unit.

Our reflective LCOS displays products are miniature high density, dual mode color sequential/monochrome reflective micro displays with resolutions which range from approximately 1280 x 720 pixels (720P) resolution to 2048 x 1536 pixels (QXGA) resolution. These displays are manufactured at our facility in Scotland, U.K. Our reflective displays are based on a proprietary, very high-speed, ferroelectric liquid crystal on silicon (FLCOS) platform. Our digital software and logic based drive electronics combined with the very fast switching binary liquid crystal enables our micro display to process images purely digitally and create red, green and blue gray scale in the time domain. This architecture has major advantages in visual performance over other liquid crystal, organic light-emitting diode and MEMS based technologies: precisely controlled full color or monochrome gray scale is achieved on a matrix of undivided high fill factor pixels, motion artifacts are reduced to an

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insignificant level and there are no sub-pixels, no moving mirrors and no analog conversions to detract from the quality of the image.

The FLCOS device is comprised of two substrates. The first is a pixelated silicon-based CMOS substrate which is manufactured by our foundry partner using conventional silicon integrated circuit lithography processes. The silicon substrate forms the display's backplane, serving as both the active matrix to drive individual pixels and as a reflective mirror. The second substrate is a front glass plate. Between the backplane and the front glass substrate is a ferroelectric liquid crystal material which, when switched, enables the incoming illumination to be modulated.

In 2017 we demonstrated our first emissive display organic light emitting diode (OLED) microdisplay, which we refer to as Lightning™. Lightning is designed to addresses the most challenging technical hurdles with virtual reality systems, including the visible “screen door” effect, which is due to insufficient display resolution, bulky size, and nausea or dizziness from motion-to-photon latency, as well as heat-build-up caused by high power consumption. We combine the one-inch diagonal Lightning OLED microdisplay (which is less than 1/10 the size of direct view displays) with our patented Pantile™ optics (< 30 mm thick) to enable system manufacturers to create much smaller and thinner mobile VR systems. The Lightning OLED microdisplay has almost zero latency (about 10 microseconds) and an industry leading 120-Hz frame rate. At the same time, Lightning’s distinctive design enables low power consumption, even at 120 Hz.

In deciding on the appropriate display for a given application, the AMLCD is typically used in bright light conditions as its brightness can be modulated by increasing the brightness of the backlight. Current OLED technology is not sufficiently bright to compete with a bright ambient environment but the OLED typically has a wider field of view and it is therefore better used in an immersive products environment that blocks out the ambient light.

Optical Lenses and Backlights
We offer a variety of optical lenses some of which we have developed internally and others we license the rights to sell the lenses. We also offer a variety of backlights, some of which we have developed internally and are “off-the-shelf” components. The lenses come in a variety of sizes starting with the smallest being our Pupil, followed by our Pearl, Prism, Pantile, and Pancake lenses. The different sizes of lenses give us and our customers design flexibility when creating headset systems. There is a trade-off between the lens size and the size of the perceived image to the viewer. For example, a Pearl lens will provide the viewer with an image approximately equivalent to what the viewer would see looking at a smartphone, whereas a Prism lens will provide the viewer with an image approximately equivalent to what the viewer would see looking at a tablet. A Pearl lens, however, is smaller than a Prism and would enable a more fashionable design. Therefore, a customer designing a consumer-oriented product may choose a Pearl lens but a customer designing an enterprise-oriented product might choose a Prism Lens. We use third parties to manufacture these lenses.

Whisper Chip
Today, many devices are equipped to use voice as an input or control method for the device. Most users find, however, that today’s speech recognition on their devices is not satisfactory because it does not work reliably in the variety of noise environments we find ourselves in during the course of our days. The root cause of the low reliability is that the noise canceling software used in today’s devices is not always effective. The Whisper Chip addresses this problem. It is designed to enhance the performance of existing audio systems and speech recognition engines by allowing the speaker’s voice to be clearly “heard” by the listener, whether the “listener” is a person or a machine. The Whisper Chip incorporates our Voice Extraction™ Filter (VEF). VEF is a patented approach to singulating the voice signal without distorting it. The Whisper Chip is an all-digital solution that runs at 16MHz, consumes less than 12mW of power and replaces the CODEC so no ADC or DAC is needed. The Whisper Chip is 4 x 4 mm in size and accepts up to four (4) digital microphone inputs. We use third parties to manufacture the Whisper Chip.


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Headset Systems
Our headset systems include:

Consumer-oriented headsets that resemble typical eyeglasses but include voice and audio capabilities allowing the user to communicate with other users;
Augmented reality health and fitness sunglasses, called Solos Smart glasses, that have voice and audio capabilities, a Pupil display module which overlays situational information on the glasses, and
Industrial headset reference design, called Golden-i, which is essentially a complete head-worn computer that includes an optical pod with one of our display products, a microprocessor, battery, camera, memory and various commercially available software packages that we license.

Our headsets receive or transmit data from or to the Internet by interfacing with a smartphone or similar device via WiFi or Bluetooth. They can also receive information from devices in close proximity using ANT+. The display module or optical pod allows users to view the information such as Internet data, emails, text messages, maps or biometric data (heart rate), and situational data (speed, distance traveled, watts produced) at a “normal” size because of our specialized optics. Our industrial headset Golden-i provides the capability of viewing technical diagrams, by enabling the user to zoom in to see finer details or zoom out to see a larger perspective. The Golden-i is equipped with a camera to enable a picture to be taken, video to be streamed or face-to-face communication to occur. The camera enables users to send pictures or stream live video to a remote subject matter expert so that both the user and expert can analyze an issue at the same time and collaboratively identify and implement a solution. Our headsets utilize operating system software we developed.

We believe Kopin’s wearable technology will enable easier and more convenient access to the content individuals carry in their smartphones or “in the cloud” and will be embraced by both consumers and commercial users. For commercial users, we believe increased productivity, safety and improved manufacturing quality through more efficient issue resolution and improved communication will drive adoption. Kopin Wearable reference designs are targeted for markets where the user needs a much greater range of functionality than is typically provided by wireless devices such as handsets, smartphones, tablets or Bluetooth headsets and either due to the requirements of their usage patterns, occupation, or for improved productivity the user is better served with a hands-free display system with voice recognition as the primary interface as opposed to a touchscreen or keyboard.
Strategy
Our commercial product strategy is to invent, develop, manufacture and sell the leading-edge critical components that enable our customers to create differentiated wearable products in their respective markets, to license wearable headset computing system designs to customers who wish to offer products that enable a better “always connected” experience and to offer our Solos Wearables glasses to the health and fitness market. The core products we offer for sale are: displays, optics, and audio chip along with headset system software and compact system designs. Our military strategy is to work primarily with the U.S. military to determine its program needs several years in the future and develop products which meet those needs. Our commercial business model is to enable our customers to move into the market quickly by either licensing our system designs and entering into agreements for the purchase and sale of our components or just selling our components separately. The critical elements of our strategy include:

Broad Portfolio of Intellectual Property. We believe that our extensive portfolio of patents, trade secrets and non-patented know-how provides us with a competitive advantage in the wearable computing industry and we have been accumulating, either by internal efforts or through acquisition, a significant patent and know-how portfolio. We own, exclusively license or have the exclusive right to sublicense approximately 300 patents and patent applications issued and pending worldwide. An important piece of our strategy is to continue to accumulate valuable patented and non-patented technical know-how relating to our micro displays as well as other critical technologies for advanced wearable services.

Maintain Our Technological Leadership.  We are a recognized leader in the design, development and manufacture of high resolution micro displays and modules which incorporate our micro displays with optics and ASICs and, in 2016 we introduced our audio IC, Whisper Chip. In 2017 we introduced our Lightning OLED microdisplay. We believe our ability to develop components, software and noise canceling technology and innovative headset system designs enhances our opportunity to grow within our targeted markets. By continuing to invest in research and development, we are able to add to our expertise as a system and components supplier for our original equipment manufacturer (our “OEM”) customers, and we intend to continue to focus our development efforts on proprietary wearable computing systems.

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Develop Headset Systems. The Wearable device market is just beginning and part of our strategy is to develop headset systems which we will either sell directly or license to our customers in order to facilitate our customers’ design-in process of our components into their finished products. We believe our understanding of the needs associated with wearable headset systems and our customers’ products has been an important reason we have previously been successful in developing customer relationships. We believe our system know-how is a compelling reason customers choose us as their supplier.

Internally Manufactured Products and Use of Third Party Manufacturing. We manufacture our display products in facilities that we lease and manage. Our optical lenses, backlights and ASICs are manufactured by third parties who are only authorized to manufacture and supply to us. We plan on using third parties to manufacture and supply Whisper Chips to us. The use of these third party manufacturers reduces our investments in plant and equipment and working capital for new products and enables us to update designs as trends change.

Strong U.S. Government Program Support. We perform under research and development contracts with U.S. government agencies, such as the U.S. Night Vision Laboratory and the U.S. Department of Defense. Under these contracts, the U.S. Government funds a portion of our efforts to develop next-generation micro-display related technologies. This enables us to supplement our internal research and development budget with additional funding.

Markets and Customers
Wearable products
Our business model is to generate revenues by selling components to customers who develop and manufacture, or distribute, products based on our technology and licensing, for a royalty fee, our system designs and know-how, which includes the operating software and patented product designs, and to sell Solos Wearables directly. We may also receive development fees from customers to help them integrate our technology into their products. The licensing aspect of our business model and sales of Solos Wearables is relatively new and to date the revenues have been de minimis.

Display Products
We currently sell our display products to our customers in various configurations including but not limited to a single display component, a module that includes a display, lens, backlight and focus mechanism and electronics, a binocular display module that includes two displays, lenses, and backlights, and as higher level assemblies or HLA for military customers. An HLA is similar to a module but includes additional components such as an eye cup specific to a military application.

We have sold our AMLCD products to Rockwell Collins, Elbit, Raytheon Company, DRS RSTA Inc., BAE Systems (directly and through a third party QiOptiq), and ITT for use in military applications, to Google for consumer wearable products, and to Samsung Electronics Co., Ltd. (Samsung), and Olympus Corporation (Olympus) for digital still cameras. We have licensed our wearable systems to Motorola Inc. and Fujitsu Limited for enterprise wearable systems.

In order for our display products to function properly in their intended applications, ASICs generally are required. Several companies have designed ASICs to work with our display products and our customers can procure these chip sets directly from the manufacturer or through us.

For fiscal years 2016, 2015 and 2014, sales to military customers, excluding research and development contracts, as a percentage of total revenue were 24%, 32% and 45%, respectively.

For fiscal years 2016, 2015 and 2014, research and development revenues, primarily from multiple contracts with various U.S. governmental agencies, accounted for approximately 7%, 12% and 15%, respectively, of our total revenues.

For additional information with respect to our operating segments including sales and geographical information, see Note 15 to our financial statements for the year ended December 31, 2016, included with this Annual Report on Form 10-K.
Sales and Marketing

Our strategy is to sell our components both directly and through distributors to original equipment manufacturers. We sell our military display products directly to prime contractors of the U.S. government or to foreign companies. For our component

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products we historically have had a few customers who purchase in large volumes and many customers who buy in small volumes as part of their product development efforts. “Large volume” is a relative term. For consumer display customers, purchases may be in the tens of thousands per week, whereas industrial and military customers may purchase less than a hundred per month. We offer our Solos smart headset directly via the Internet and license our other headset system designs to customers who will develop end user products that include our components and software. Other than Solos, our system designs are not finished products because the specific end user case that our customers are targeting are specialized and require deep customer knowledge and customized application software. As a result there are typically additional development efforts which we work with our customers on and we may be reimbursed for these efforts.

We believe that the technical nature of our products and markets demands a commitment to close relationships with our customers. Our sales and marketing staff, assisted by our technical staff and senior management, visit prospective and existing customers worldwide on a regular basis. We believe these contacts are vital to the development of a close, long-term working relationship with our customers, and in obtaining regular forecasts, market updates and information regarding technical and market trends. We also participate in industry specific trade shows and conferences.

Our design and engineering staff are actively involved with customers during all phases of prototype design through production by providing engineering data, up-to-date product application notes, regular follow-up and technical assistance. In most cases, our technical staff work with each customer in the development stage to identify potential improvements to the design of the customer's product in parallel with the customer's effort. We have established a prototype product design group in Scotts Valley, California to assist our military product customers and in San Jose, California to assist our Whisper Chip IC product customers. These groups assist customers with incorporating our technologies and products into our customer's products and to accelerate the design process, achieving cost-effective and manufacturable products, and ensuring a smooth transition into high volume production. Our group in Scotts Valley is also actively involved with research and development contracts for military applications.
Product Development

We believe that continued introduction of new products in our target markets is essential to our growth. Our commercial products tend to have one to three year life cycles. We have assembled a group of highly skilled engineers who work internally as well as with our customers to continue our product development efforts. Our primary development efforts are focused on displays, noise cancellation, optics and headset system designs. For fiscal years 2016, 2015 and 2014 we incurred total research and development expenses of $16.0 million, $17.6 million and $20.7 million, respectively.

Component Products
Our display product development efforts are focused towards continually enhancing the resolution, performance and manufacturability of our display products. A principal focus of this effort is the improvement of manufacturing processes for very small active matrix pixels with our eight-inch manufacturing line. The pixel size of our current transmissive display products ranges from 6.8 to 15 microns. These pixel sizes are much smaller than a pixel size of approximately 100 microns in a typical laptop computer display. The resolutions of our current commercially available display products are 320 x 240, 432 x 240, 640 x 360, 640 x 480, 854 x 480, 800 x 600, 1,280 x 720 and 1,280 x 1,024. In addition, we have demonstrated 2,048 x 2,048 resolution displays in a 0.99-inch diagonal size. We are also working on further decreasing the power consumption of our display products. The pixel size of our current reflective display products ranges from 8.2 to 13.6 microns. The resolutions of our current commercially available reflective display products are 1,280 x 768, 1,280 x 1,024 and 2,048 x 1,536 pixels. Additional display development efforts include expanding the resolutions offered, increasing the quantity of display active matrix pixel arrays processed on each wafer by further reducing the display size, increasing the light throughput of our pixels, increasing manufacturing yields, and increasing the functionality of our HLA products.

We offer components such as our optical lenses, backlights and ASICs, which we have manufactured to our specifications, which we buy and resell. The components which are made to order include either intellectual property we developed or that we license from third parties.

Headset System Design Products
Our headset system efforts are primarily focused on operating and application software development, improving the optics in the display pod and reducing the size and power consumption of the unit and improving the overall fit and style of the system.

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Funded Research and Development
We have entered into 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 commercial and military product applications. Our contracts contain certain milestones relating to technology development and may be terminated prior to completion of funding. Our policy is to retain our proprietary rights with respect to the principal commercial applications of our technology however we are not always able to retain our proprietary rights. To the extent technology development has been funded by a U.S. federal agency, under applicable U.S. federal laws the federal agency that provided the funding has the right to obtain a non-exclusive, non-transferable, irrevocable, fully paid license to practice or have practiced this technology for governmental use. For our commercial development agreements customers often obtain exclusive rights to a particular display or technology that is developed either permanently or for some period of time. Revenues attributable to research and development contracts for fiscal years 2016, 2015 and 2014 totaled $1.5 million, $3.9 million and $4.9 million, respectively.
Competition
Component Products
The commercial display market is highly competitive and is currently dominated by large Asian-based electronics companies including AUO, Himax, LG Display, Samsung, Sharp, Seiko and Sony. The display market consists of multiple segments, each focusing on different end-user applications applying different technologies. Competition in the display field is based on price and performance characteristics, product quality, size and the ability to deliver products in a timely fashion. The success of our display product offerings will also depend upon the adoption of our display products by consumers as an alternative to traditional active matrix LCDs or OLEDs and upon our ability to compete against other types of well-established display products and new emerging display products. Particularly significant is a consumer's willingness to use a near eye display device, as opposed to a direct view display which may be viewed from a distance of several inches to several feet. In addition companies such as Samsung and Oculus are offering products which use a cell phone or a cell phone display to provide the image. Cell phone displays typically have lower resolution and greater image latency than our products but are lower in cost. We cannot be certain that we will be able to compete against these companies and technologies, or that the consumer will accept the use of such eyewear in general or our partners' form factor specifically.

There are also a number of active matrix LCD and alternative display technologies in development and production. These technologies include plasma, organic light emitting diode and virtual retinal displays, some of which target the high performance small form factor display markets in which our military display products are sold. There are many large and small companies that manufacture or have in development products based on these technologies. Our display products will compete with other displays utilizing these and other competing display technologies.

There are many companies whose sole business is the development and manufacture of optical lenses, backlights, ASICs, software and noise cancellation products. These companies may have significantly more intellectual property and experience than we do in the design and development of these components. 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.

Headset Concept Design Products
The markets for our headset systems are targeted at currently used smartphones, laptop computers, personal computers, tablets, ruggedized portable computers referred to as "tough books”and a variety of hand-held devices. This market is extremely competitive and is served by companies such as Panasonic, Toshiba, Dell, HTC, Hewlett Packard, Apple, Sony and Samsung. These companies are substantially larger than Kopin from revenue, cash flow and asset perspectives.

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 through the use of various United States and foreign patents and contractual arrangements. We intend to prosecute and defend our proprietary technology aggressively. Many of our United States patents and applications have counterpart foreign patents, foreign applications or international applications through the Patent Cooperation Treaty. In addition, we have licensed United States patents and some foreign counterparts to these United States patents from MIT.

The process of seeking patent protection can be time consuming and expensive and we cannot be certain that patents will be issued from currently pending or future applications or that our existing patents or any new patents that may be issued will be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us. We may be subject to or

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may initiate contested patent proceedings in the United States Patent and Trademark Office, foreign patent offices or the courts, which can demand significant financial and management resources. Patent applications in the United States typically are maintained in secrecy until they are published about eighteen months after their earliest claim to priority; since publication of discoveries in the scientific and patent literature lags behind actual discoveries, we cannot be certain that we were the first to conceive of inventions covered by pending patent applications or the first to file patent applications on such inventions. We cannot be certain that our pending patent applications or those of our licensors will result in issued patents or that any issued patents will afford protection against a competitor. In addition, we cannot be certain that others will not obtain patents that we would need to license, circumvent or cease manufacturing and sales of products covered by these patents, nor can we be sure that licenses, if needed, would be available to us on favorable terms, if at all.

We cannot be certain that foreign intellectual property laws will protect our intellectual property rights or that others will not independently develop similar products, duplicate our products or design around any patents issued or licensed to us. Our products might infringe upon the patent rights of others, whether existing now or in the future. For the same reasons, the products of others could infringe upon our patent rights. We may be notified, from time to time, that we could be or we are infringing certain patents or other intellectual property rights of others. Litigation, which could be very costly and lead to substantial diversion of our resources, even if the outcome is favorable, may be necessary to enforce our patents or other intellectual property rights or to defend us against claimed infringement of the rights of others. These problems can be particularly severe in foreign countries. In the event of an adverse ruling in litigation against us for patent infringement, we might be required to discontinue the use of certain processes, cease the manufacture, use and sale of infringing products, expend significant resources to develop non-infringing technology or obtain licenses to patents of third parties covering the infringing technology. We cannot be certain that licenses will be obtainable on acceptable terms, if at all, or that damages for infringement will not be assessed or that litigation will not occur. The failure to obtain necessary licenses or other rights or litigation arising out of any such claims could adversely affect our ability to conduct our business as we presently conduct it.

We also attempt to protect our proprietary information with contractual arrangements and under trade secret laws. We believe that our future success will depend primarily upon the technical expertise, creative skills and management abilities of our officers and key employees in addition to patent ownership. Our employees and consultants generally enter into agreements containing provisions with respect to confidentiality and employees generally assign rights to us for inventions made by them while in our employ. Agreements with consultants generally provide that rights to inventions made by them while consulting for us will be assigned to us unless the assignment of rights is prohibited by the terms of any agreements with their regular employers. Agreements with employees, consultants and collaborators contain provisions intended to further protect the confidentiality of our proprietary information. To date, we have had no experience in enforcing these agreements. We cannot be certain that these agreements will not be breached or that we would have adequate remedies for any breaches. Our trade secrets may not be secure from discovery or independent development by competitors.

Government Regulations

We are subject to a variety of federal, state and local governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing process. The failure to comply with present or future regulations could result in fines being imposed on us, suspension of production or cessation of operations. Any failure on our part to control the use of, or adequately restrict the discharge of, hazardous substances, or otherwise comply with environmental regulations, could subject us to significant future liabilities. In addition, we cannot be certain that we or our suppliers have not in the past violated applicable laws or regulations, which violations could result in required remediation or other liabilities. 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 of the chemicals that we import are subject to regulation by the U.S. Government. If we or our suppliers do not comply with applicable laws, we could be subject to adverse government actions and may not be able to import critical supplies.

We are also subject to federal International Traffic in Arms Regulations (ITAR) laws which regulate the export of technical data and export of products to other nations which may use these products for military purposes. The failure to comply with present or future regulations could result in fines being imposed on us, suspension of production, or a cessation of operations. Any failure on our part to control the use of, or adequately restrict the discharge of, hazardous substances, or otherwise comply with environmental regulations, could subject us to significant future liabilities. 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. In addition, we cannot be certain that we have not in the past violated applicable laws or regulations, which violations could result in required remediation or other liabilities.

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We are also subject to federal importation laws which regulate the importation of raw materials and equipment from other nations which are used in our products. The failure to comply with present or future regulations could result in fines being imposed on us, suspension of production, or a cessation of operations.
Investments in Related Businesses

We own 100% of the outstanding common stock of Forth Dimension Displays Ltd. ("FDD") and we consolidate the financial results of FDD within our consolidated financial statements.

We own 80% of the outstanding common stock of e-MDT America ("eMDT") and we consolidate the financial results of eMDT within our consolidated financial statements.

In the fourth quarter of 2016, we signed an agreement to acquire 12.5% of a joint venture for $1 million and the contribution of certain intellectual property. The transaction is subject to closing conditions including government approval.

In the fourth quarter of 2015, we increased our ownership in Kopin Software Ltd. (formerly Intoware Ltd.) from 58% to 100% and acquired 17.5% of a new company by paying GBP 1 to a former employee and transferring the rights of certain software programs to the new company. The former employee is a co-founder of the new company.

We had a 12% interest in KoBrite, and accounted for our ownership interest using the equity method. We recorded equity losses from our investment in KoBrite of $0.1 million and $0.4 million in fiscal years 2014 and 2013, respectively. During the second quarter of 2014, we wrote off our $1.3 million investment in Kobrite.

On January 16, 2013, we completed the sale of our III-V product line, including all of our interest in Kopin Taiwan Corp (KTC). Previously we owned approximately 90% of KTC and consolidated the financial statements of KTC as part of our financial statements. The Buyer renamed KTC to IQE Taiwan. One of our Directors is a chairman of IQE Taiwan and owns approximately 1% of the outstanding common stock of IQE Taiwan.

We may from time to time make further equity investments in these and other companies engaged in certain aspects of the display, electronics, optical and software industries as part of our business strategy. In addition, the wearable computing product market is relatively new and there may be other technologies we need to invest in to enhance our product offering. 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. Three of our Directors have invested in a publicly-held company in which we have invested. The investment is recorded on our consolidated balance sheet at approximately $300,000.
Employees

As of December 31, 2016, our consolidated business employed 167 full-time individuals and 7 part-time individuals. Of these, 10 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, manufacturing and other related technologies. However, our employees are located in the U.S., Europe and Asia and the laws regarding employee relationships are different by jurisdiction. None of our employees are covered by a collective bargaining agreement. We consider relations with our employees to be good.
Sources and Availability of Raw Materials and Components

We rely on third party independent contractors for certain integrated circuit chip sets and other critical raw materials such as special glasses, wafers and chemicals. In addition, our higher-level CyberDisplay assemblies, binocular display module, and other modules include lenses, backlights, printed circuit boards and other components that we purchase from third party suppliers. Some of these third party contractors and suppliers are small companies with limited financial resources. In addition, relative to the commercial market, the military buys 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.


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In addition, we also are subject to rules promulgated by the Securities Exchange Commission (SEC) in 2012 pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that require us to conduct due diligence on and disclose if we are able to determine whether certain materials (including tantalum, tin, gold and tungsten), known as conflict minerals, that originate from mines in the Democratic Republic of the Congo or certain adjoining countries (DRC), are used in our products. The DRC minerals report for a calendar year is due by the second quarter of the following calendar year and we are conducting appropriate diligence measures to comply with such requirements.
Web Availability

We make available free of charge through our website, www.kopin.com, our Annual Reports on Form 10-K and other reports that we file with the SEC, as well as certain of our corporate governance policies, including the charters for the Board of Directors' audit, compensation and nominating and corporate governance committees and our code of ethics, corporate governance guidelines and whistleblower policy. 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.
Executive Officers of the Registrant

The following sets forth certain information with regard to our executive officers as of March 10, 2017 (ages are as of December 31, 2016):
John C.C. Fan, age 73Bor-Yeu Tsaur, age 61
lPresident, Chief Executive Officer and ChairmanlExecutive Vice President—Display Operations
lFounded Kopin in 1984lJoined Kopin in 1997
Richard A. Sneider, age 56Hong Choi, age 65
lTreasurer and Chief Financial OfficerlVice President and Chief Technology Officer
lJoined Kopin in 1998lJoined Kopin in 2000


Item 1A.Risk Factors
Our management has identified a material weakness in our internal control over financial reporting and has concluded that, due to such material weakness, our disclosure controls and procedures were not effective as of the end of our most recent fiscal year, December 29, 2018. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock. As discussed in Item 9A. “Controls and Procedures” in this Form 10-K/A

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, we have re-evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of December 29, 2018 because of a material weakness. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We are committed and are taking steps necessary to remediate the control deficiencies that constituted the material weakness by implementing changes to our internal control over financial reporting. We are in the process of designing and implementing measures to remediate the underlying causes of the control deficiencies that gave rise to the material weakness.
If our stock price continues to remain below $1.00, our common stock may be subject to delisting from The Nasdaq Stock Market. On October 9, 2019, we received a notice from The Nasdaq Stock Market ("Nasdaq") that the Company is not in compliance with Nasdaq's Listing Rule 5450(a)(1), as the minimum bid price of Kopin's common stock has been below $1.00 per share for 30 consecutive business days. The notification of noncompliance has no immediate effect on the listing or trading of Kopin's common stock on the Nasdaq Global Market under the symbol "KOPN." The Company has 180 calendar days, or until April 6, 2020, to achieve compliance with the minimum bid price requirement. To regain compliance, the minimum bid price of Kopin's common stock must meet or exceed $1.00 per share for a minimum ten consecutive business days during this 180-day grace period. The Company's failure to regain compliance during this period could result in delisting. Kopin is presently evaluating various courses of action to regain compliance. There can be no assurance that Kopin will be able to regain compliance with Nasdaq's rule or will otherwise be in compliance with other Nasdaq listing criteria.
We have experienced a history of losses, and have a significant accumulated deficit.In addition, wedeficit, have had negative cash flow from operating activities in 2018, 2017, and 2016, and 2015 and we expect to have negative cash flow from operating activities in 20172019. Since inception, we have incurred significant net operating losses. As of December 31, 2016,29, 2018, we havehad an accumulated deficit of $214.0$271.7 million. At December 31, 2016 (2016)29, 2018 and December 26, 2015 (2015)30, 2017, we had $77.2$37.2 million and $80.7$68.8 million of cash and cash equivalents and marketable securities, respectively. For the years 20162018 and 20152017, net cash used in operating activities was $26.2$28.1 million and $16.9$25.9 million, respectively. The decline in our cash and cash equivalents and marketable securities is partiallyprimarily a result of funding our operating losses, of which a significant component is our investments in research and development investments infor Wearable products. Our products are targeted towards the wearable market, which we believe is still developing and we cannot predict how long the wearable market will take to develop or if our products will be accepted if the market is created.accepted. Accordingly, we believe it is importantplan to continue to invest in research and development even during periods when we are not profitable. Our philosophy and strategiesprofitable, which may result in our incurring losses from operations and negative cash flow. If we do not soon achieve and maintain positive cash flow and profitability, our financial condition will ultimately be materially and adversely affected, and we will be required to raise additional capital. We may not be able to raise any necessary capital on commercially reasonable terms or at all. 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 history of net operating losses and our accumulated deficit raise substantial doubt regarding our ability to continue as a going concern. If we do not continue as a going concern, investors could lose their entire investment. Our history of net operating losses, in addition to our significant accumulated deficit, has raised substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our becoming profitable in the future or to obtain the necessary capital to meet our obligations and repay our liabilities when they become due. Our determination of substantial doubt as going concern could materially limit our ability to raise additional funds through the issuance of equity securities or otherwise. There can be no assurance that we will ever become profitable or continue as a going concern.

The market segment for our Wearable products may not develop or may take longer to develop than we anticipate or may not develop, which may impact our ability to grow revenues. We have developed head-worn, voice and gesture controlled, hands-free cloud computing headset systems whichthat we intend to sell and license to customers and various components for wearable devices whichthat we intend to sell to customers as either a part of the license arrangement or separately. We refer to our headset systems and components sold to customers for use in wearableconsumer applications as our Wearable products. Our success will depend on the acceptance of wearable products by consumers and in particular the widespread adoption of the headset format. We are unable to predict when or if consumers will adopt wearable products. Customers may determine that the headset is not comfortable, weighs too much, costs too much or provides too littleinsufficient functionality. In addition, even if consumers accept the wearable headset products, may be accepted by consumers but Wearable product manufactures may choose to usemanufacture our competitors'competitors’ products. Our success in commercializing our Wearable products is very important in our ability to achieve positive cash flow and profitability. If we are

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unable to commercialize our Wearable products, we may not be ableunable to increase revenues or achieve profitability or positive cash flow.


Our revenues and cash flows could be negatively affected if sales of our Display products for military applications significantly decline. Over the last several years a primary source of our military revenues has been the The sale of our display products to the military for use in thermal weapon sights.sights and avionic helmets have

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been a primary source of our military revenues over the last several years. We currently are designed in certain systems and are in qualification for other certain systems in the Family Weapon Sight (FWS)("FWS") program, which we believe is the next significant government procurement program that useswill use our technology. However these programs are not expected to significantly increase in unit procurement until 2020. We may not be awarded the systems we are in qualification for, and for the systemsystems we are qualified for we may only be awarded a portion of the program.program as the U.S. military looks to have multiple sources when possible. In addition, the government could postpone or cancel the programs. Our ability to generate revenues and cash flow from sales to the U.S. military is dependentdepends on our displayDisplay products being qualified and remaining qualified in the F-35 Strike Fighter, FWS and other U.S. military programs and on the U.S. military funding these programs. We believe the U.S. military is evaluating alternative display technologies for the F-35 Strike Fighter program. Our ability to generate revenues and cash flow from sales to the U.S. military is also dependentdepends on winning contracts in competition againstover our competitors. If we are unable to be qualified into new U.S. military programs, remain qualified in existing programs, or win orders against our competition, or if military programs are not funded, then our ability to generate revenues and achieve profitability and positive cash flow will be negatively impacted.


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 business is characterized by short-term purchase orders and shipment schedules 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. In addition, due to the absence of 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. Moreover, our expense levels and the amounts we invest in capital equipment and new product development costs are based in part on our expectations of future sales and, if our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls. If we fail to accurately forecast our revenues and operating results, our business may not be successful and the price of our common stock may decline. 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. If our quarterly revenues or results of operations fall below expectations of investors or public market analysts, the price of our common stock could fall substantially.

Fluctuations in operating results make financial forecasting difficult and could adversely affect the price of our common stock. Our quarterly and annual revenues and operating results may fluctuate significantly for numerous reasons, including:

The timing of the initial selection of our Wearable technology and display products as components in our customers' new products;
Availability of interface electronics for our display products;
Competitive pressures on selling prices of our products;
The timing and cancellation of customer orders;
Our ability to introduce new products and technologies on a timely basis;
Our ability to successfully reduce costs;
The cancellation of U.S. government contracts; and
Our ability to secure agreements from our major customers for the purchase of our products.

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. If our quarterly revenues or results of operations fall below expectations of investors or public market analysts, the price of our common stock could fall substantially.

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. We depend principally on a Taiwanese foundry for the fabrication of integrated circuits for our display products. In addition, our strategy is to use Chinese foundry services for OLED deposition and processing of OLED displays. We have no long-term contracts with this foundryfoundries and from time to time we have been put on allocation, which means the foundry will limit the amountnumber of wafers they will process for us. If the foundry wasfoundries were to terminate itstheir arrangement with us or become unable to provide the required capacity and quality on a timely basis, we may not be able to manufacture and ship our displayDisplay products or we may be forced to manufacture them in limited quantities until replacement foundry services can be obtained. Furthermore, we cannot assure investors that we would be able to establish alternative manufacturing and packaging relationships on acceptable terms.


Our reliance on this foundrythese foundries involves certain risks, including but not limited to:


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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, tsunami, mudslides, drought, hurricanes and tornadoes.


Due to natural disasters such as earthquakes and typhoons that have occasionally occurred in Taiwan,Asia, many Taiwanese companies, including the Taiwanese foundry we use, have experienced related business interruptions. Our business could suffer significantly if eitherany of the foundries we use had operations which were disrupted for an extended period of time due to natural disaster, political unrest or financial instability.


We depend on third parties to provide integrated circuit chip sets and critical raw materials for use with our headset systems and components and we periodically receive “end of life” notices from suppliers that they will no longer be providing a raw material. We do not manufacture the integrated circuit chip sets whichthat are used to electronically interface between our display products and our customer'scustomers’ products. Instead, we rely on third party independent contractors for these integrated circuit chip sets. We purchase critical raw materials such as special glasses, special SOIsilicon on insulator ("SOI") wafers, LED, adhesives, chemicals, lenses, backlights, printed circuit boards and other components from third party suppliers. Some of these third party contractors and suppliers are small companies with limited financial resources. In addition, relative to the commercial market, the military buys a small number of units, which prevents us from qualifying and buying components economically from multiple vendors. We periodically receive notices from suppliers of our critical raw materials regarding their plans to stop selling thethose raw materials. This requires us to identify another raw material and/or raw material supplier to replace the discontinued item/supplier. Wesupplier, which would then haverequire us to internally re-qualify the product with the new material and we may be required toas well as possibly re-qualify the product with our customer. If any of these third party contractors or suppliers were unable or unwilling to supply these integrated circuit chip sets or critical raw materials to us, whether for business or regulatory reasons, we would be unable to manufacture and sell our display products until a replacement material could be found. We may not be able to find a replacement material or chemical or if we are able to find a replacement material we may be unable to sell our products until they have been qualified both internally and with the customer. Lower volume purchases may make it uneconomical for some of our suppliers to provide the raw materials we need. We cannot assure investors that a replacement third party contractor or supplier could be found on reasonable terms or in a timely manner. Any interruption in our ability to manufacture and distribute our display products could cause our display business to be unsuccessful and the valueprice of investors' investment in usour common stock may decline.


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The markets in which we operate are highly competitive and rapidly changing and we may be unable to compete successfully. 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, Whisper)the Whisper Chip) are also offered by companies whose sole business is thefocuses on that individual component. For example, there are companies whose sole business is to sell optical lenses. Accordingly, our strategy requires us to develop technologies and to compete in multiple markets. Some of our competitors are much larger than we are and have significantly greater financial, development and marketing resources than we do. 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 we canus to new or emerging technologies or changes in customer requirements. They may also devote greater resources to the development, promotion and sale of their products than we do.


Our success will depend substantially upon our ability to enhance our products and technologies and to develop and introduce, on a timely and cost-effective basis, new products and features that meet changing customer requirements and incorporate technological enhancements. If we are unable to develop new products and enhance functionalities or technologies to adapt to these changes, our business will suffer.


Disruptions of our production of our Display products wouldcould adversely affect our operating results.If we were to experience any significant disruption in the operation of our facilities, we would be unable to supply our display products to our customers. Many of our sales contracts include financial penalties for late delivery. In the past, we have experienced several power outages at our facilities, which ranged in duration from one to four days. We have certain critical pieces of equipment necessary to operate the facility whichour facilities that are no longer offered for sale and we may not have service contracts or spare parts for the equipment. Additionally, as we introduce new equipment into our manufacturing processes, our display products could be subject to especially wide variations in manufacturing yields and efficiency. We may experience manufacturing problems that would result in delays in product introduction and delivery or yield fluctuations.



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A disruption to our information technology systems could significantly impact our operations, and impact our revenue and profitability.Our data processing systems are cloud basedcloud-based and hosted by a third party.parties. We also use software packages whichthat are no longer supported by their developer. We have experienced short-term (i.e., a few days) interruptions in our Internet connectivity. An interruption toof the third party systems or in the infrastructure whichthat allows us to connect to the third party systems for an extended period may impactaffect our ability to operate the businessesour business and process transactions, which could result in a decline in sales and affect our ability to achieve or maintain profitability.


If our information technology security systems arewere penetrated and confidential and or proprietary information were taken, we could be subject to fines, law suits and loss of customers. Significantly larger organizations with much greater resources than us have been the victim of cybercrimes. We are routinely sentreceive emails which are probing our Internet security.security, and our Internet security systems have detected outside organizations attempting to install Trojan virus software packages in our systems. We rely on our electronic information systems to perform the routine transactions to run our business. We transact business over the Internet with customers, vendors and our subsidiaries. Wesubsidiaries and have implemented security measures to protect unauthorized access to this information. We have also implemented security policies whichthat limit access via the Internet from the companyCompany to the outside world based on the individual'sindividual’s position in the company.Company. We routinely receive security patches from software providers for the software we use from the software providers.use. Our primary concerns are inappropriate access to personnel information, information covered under the International Traffic in Arms Regulation, product designs and manufacturing information, financial information and our intellectual property, trade secrets and know-how. If our security systems are penetrated and confidential and or proprietary information were taken we could be subject to fines, law suits and loss of customers.


Our headset system is dependentsystems depend on software whichthat we have limited experience in developing, marketing or licensing. Our headset systems include a combination of commercially available software and operating and speech enhancement software that we internally developed or acquired. In addition, we are offering the Whisper Chip, which is an integrated circuit that contains software developed by us. We have little experience in developing, marketing or licensing software. If we are unable to integrate internally developed or acquired software in our headset system, we may not be able to license thesuch designs. The market demand for our headset systems or the products our customers may develop based on our head setheadset systems is dependentdepends on our ability to collaborate with software developers who write application software in order to create utility infor our customer'scustomer’s products. If we are unable to develop, license or acquire software or if we or the market in general does not create a sufficient body of application software, our systems may not be accepted by the market and we may not be able to increase revenues, achieve profitability or positive cash flow.


WeIf we are unable to obtain or maintain existing software license relationships or other relationships relating to the intellectual property rights of others.    Included inwe use, our ability to grow revenue and achieve profitability and positive cash flow may be negatively affected. Our headset concept systems isinclude software whichthat we license from other companies. Should we violate the terms of a license, our license could be canceled. The companiesCompanies may decide to

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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. TheMoreover, the license fees we pay may be increased, which would negatively affect our ability to achieve profitability and positive cash flow. If we are unable to obtain and or maintain existing software license relationships our ability to grow revenue and achieve profitability and positive cash flow may be negatively affected.


Our headset systems use software that we license from other companies (Licensors)("Licensors") and requiresrequire us to access the Licensor'sLicensors’ data centers, and interruptions or delays in service from data center hosting facilities could impair our customer'scustomers’ products. Any damage to, or failure of, theour Licensors’ systems of our Licensors generally could result in interruptions in service to our customers. Interruptions in service to our customers may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their contracts and reduce our ability to attract new customers.


The market for cloud-basedprocess of seeking patent protection can be time consuming and expensive and we cannot be certain that patents will be issued from currently pending or future patent applications may develop more slowly than we expect. Our success will depend, to some extent, on the willingness of businesses to accept cloud-based services for applicationsor that they view as critical to the success of their business. Many companies have invested substantial effort and financial resources to integrate traditional enterprise software into their businesses andour existing patents or any new patents that may be reluctantissued will be sufficient in scope and strength to provide meaningful protection or unwillingany commercial advantage to switchus. We may be subject to a differentor may initiate contested patent or patent application proceedings in the United States Patent and Trademark Office, foreign patent offices or the courts, which can demand significant financial and management resources. Patent applications in the U.S. typically are maintained in secrecy until they are published about 18 months after their earliest claim to migrate thesepriority. As publication of discoveries in the scientific and patent literature lags behind actual discoveries, we cannot be certain that we were the first to conceive of inventions covered by our pending patent applications or the first to cloud-based services. Other factorsfile patent applications on such inventions. We also cannot be certain that may affect market acceptanceour pending patent applications or those of our application include:licensors will result in issued patents or that any issued patents will afford protection against a competitor. In addition, we cannot be certain that others will not obtain patents that we would need to license, circumvent or cease manufacturing and sales of products covered by these patents, nor can we be sure that licenses, if needed, would be available to us on favorable terms, if at all.
the security capabilities, reliability

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We may incur substantial costs in defending our intellectual property and availability of cloud-based services;
our ability to implement upgrades and other changes to our software without disrupting our service;
the level of customization or configuration we offer; and
the price, performance and availability of competing products and services.

The market for these services may not develop further, or may develop more slowly than we expect, either of which would negatively affect our ability to grow revenues, achieve profitability and generate positive cash flow.

We may not be successful in protecting our intellectual property and proprietary rights and we may incur substantial costs in defending our intellectual property.rights. Our success depends in part on our ability to protect our intellectual property and proprietary rights. We have obtained certain domestic and foreign patents and we intend to continue to seek patents on our inventions when appropriate. We also attempt to protect our proprietary information with contractual arrangements and under trade secret laws. Our employees and consultants generally enter into agreements containing provisions with respect to confidentiality and the assignment of rights to us for inventions made by them while in our employ.employ or consulting for us. These measures may not adequately protect our intellectual andproperty or proprietary rights. Existing trade secret, trademark and copyright laws afford only limited protection and our patents could be invalidated, held to be unenforceable or circumvented. Moreover, the laws of certain foreign countries in which our products are or may be manufactured or sold may not fully protectprovide full protection of our intellectual property rights. Misappropriation of our technology and the costs of defending our intellectual property rights from misappropriation could substantially impair our business. If we are unable to protect our intellectual property andor proprietary rights, our business may not be successful and the valueprice of investors' investmentour common stock may decline.

We cannot be certain that foreign intellectual property laws will allow protection of our intellectual property rights or that others will not independently develop similar products, duplicate our products or design around any patents issued or licensed to us. Our products might infringe upon the patent rights of others, whether existing now or in the future. For the same reasons, the products of others could infringe upon our patent rights. We may be notified, from time to time, that we could be or we are infringing certain patents or other intellectual property rights of others. Litigation, which could be very costly and lead to substantial diversion of our resources, even if the outcome is favorable, may be necessary to enforce our patents or other intellectual property rights or to defend us against claimed infringement of the rights of others. These problems can be particularly severe in foreign countries. In the event of an adverse ruling in litigation against us for patent infringement, we might be required to discontinue the use of certain processes, and cease the manufacture, use, importation and/or sale of infringing products, expend significant resources to develop non-infringing technology or obtain licenses to patents of third parties covering the infringing technology. We cannot be certain that licenses will be obtainable on acceptable terms, if at all, or that damages for infringement will not be assessed or that litigation will not occur. The failure to obtain necessary licenses or other rights or litigation arising out of any such claims could adversely affect our ability to conduct our business as we presently conduct it and as we plan to conduct it in the future.

We also attempt to protect our proprietary information with contractual arrangements and under trade secret laws. We believe that our future success will depend primarily upon the technical expertise, creative skills and management abilities of our officers and key employees in addition to patent ownership. Our employees enter into agreements containing provisions with respect to confidentiality and assignment of rights to us for inventions made by them while in our employ. Agreements with consultants generally provide that rights to inventions made by them while consulting for us will be assigned to us unless the assignment of rights is prohibited by the terms of any of their prior agreements. Agreements with employees, consultants and collaborators contain provisions intended to further protect the confidentiality of our proprietary information. To date, we have had no experience in enforcing these agreements. We cannot be certain that these agreements will not be breached or that we would have adequate remedies for any breaches. Our trade secrets may decline.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.


Our products could infringe on the intellectual property rights of others.Companies in the wearable computing and display industries steadfastly pursue and protect their intellectual property rights. This has resulted in considerable and costly litigation to determine the validity and enforceability of patents and claims by third parties of infringement of patents or other intellectual property. Our products could be found to infringe on the intellectual property rights of others. Other companies may hold or obtain patents on inventions or other proprietary rights in technology necessary for our business. Periodically, companies inquire about our products and technology in their attempts to assess whether we violate their intellectual property rights. If we are forced to defend against patent infringement claims, we may face costly litigation, diversion of technical and management personnel, and product shipment delays, even if the allegations of infringement are unwarranted. If there isare one or more successful claims of infringement against us and we are unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, or if we are required to cease using one or more of our business or product names due to a successful trademark infringement claim against us, our business could be adversely affected. We are currently involved in an intellectual property dispute with Blue Radios, Inc., as described under Item 3. Legal Proceedings. If the outcome of such dispute is adverse to us, our business could be adversely affected.
 
Our business could suffer if we lose the services of, or fail to attract, key personnel.    In order toTo 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

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services of one or more key employees, including Dr. John C.C. Fan, our President and Chief Executive Officer, could seriously impede our success. We do not maintain any “key-man” insurance policies on Dr. Fan or any other employees. 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. Competition for highly skilled personnel is intense and there may be only a limited number of persons with the

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requisite skills to serve in these positions. If the display markets experience an upturn, we may need to increase our workforce. Due to the competitive nature of the labor markets in which we operate, we may be unsuccessful in attracting and retaining these personnel. Our inability to attract and retain key personnel could adversely affect our ability to develop and manufacture our products.


Our customers who purchase display products for military applications typically incorporate our products into their products, which are sold to the U.S. government under contracts. U.S. 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. 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 customercustomers' contracts may be terminated for convenience. Federal laws, collectively called the Anti-Deficiency Act, prohibit involving the government in any obligation to pay money before funds have been appropriated for that purpose, unless otherwise allowed by law. Therefore, the Anti-Deficiency Act indirectly regulates how the agency awards our contracts and pays our invoices. Federal government contracts generally contain provisions, and are subject to laws and regulations, that provide the federal government rights and remedies not typically found in commercial contracts, including provisions permitting the federal government to, among other provisions: terminate our existing contracts; modify some of the terms and conditions in our existing contracts; subject the award to protest or challenge by competitors; suspend work under existing multiple year contracts and related delivery orders; and claim rights in technologies and systems invented, developed or produced by us.


The federal government may terminate a contract with us or our customercustomers either “for convenience” (for instance, due to a change in its perceived needs) or if we default due to our failure or the failure of a general or subcontractor to perform under the contract. If the federal government terminates a contract with one of our customercustomers, our contract with our customers generally would entitle us to recover only our incurred or committed costs, settlement expenses and 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. As is common with government contractors, we have experienced occasional performance issues under some of our contracts. 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.


In addition, U.S. government contracts and subcontracts typically involve long purchase and payment cycles, competitive bidding, qualification requirements, delays or changes in funding, extensive specification and performance requirements, price negotiations and milestone requirements. Each U.S. government agency often also maintains its own rules and regulations with which we must comply and which can vary significantly among agencies.


Most of our military 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. 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. In addition, 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” or IDIQ provisions. This means we are bidding a fixed price but are not assured of the quantity the government will buy or when it will buy during the term of the contract. This means we are exposed to the risk of price increases for labor, overhead and raw materials during the term of the contract. 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.
        
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 business is characterized by short-term purchase orders and shipment schedules 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. In addition, due to the absence of 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. Our operating results are difficult to forecast because we are continuing to invest in capital equipment and increasing our operating expenses for new product development. If we fail to accurately forecast our revenues and operating results, our business may not be successful and the value of investors' investment in us may decline.

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If we fail to keep pace with changing technologies, we may lose customers.Rapidly changing customer requirements, evolving technologies and industry standards characterize our industries. To achieve our goals, we need to enhance our existing products and develop and market new products that keep pace with continuing changes in industry standards, requirements and customer preferences. If we cannot keep pace with these changes,We may be unable to bring to market technologies and products that are attractive to our customers, and as a result our business, could suffer.

Fluctuations in operating results make financial forecasting difficultcondition and could adversely affect the price of our common stock. Our quarterly and annual revenues and operating results may fluctuate significantly for numerous reasons, including:
The timing of the initial selection of our Wearable technology and display products as components in our customers' new products;
Availability of interface electronics for our display products;
Competitive pressures on selling prices of our products;
The timing and cancellation of customer orders;
Our ability to introduce new products and technologies on a timely basis;
Our ability to successfully reduce costs;
The cancellation of U.S. government contracts; and
Our ability to secure agreements from our major customers for the purchase of our products.

We typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. Our operating results are difficult to forecast because the markets for our products are developing and we lack historical results from which to project demand.

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. If our quarterly revenues or results of operations fall below expectations of investors or public market analysts, the price of our common stock could fall substantially.may be materially adversely affected.



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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. These laws and regulations affect how we conduct business with our federal government contracts.customers. In complying with these laws and regulations, we may incur additional costs, and non-compliance may also allow for the assignment ofresult in fines and penalties, including contractual damages. Among the more significant laws and regulations affecting our business are the following: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. We engage in international work falling under the jurisdiction of U.S. export control laws. Failure to comply with these control regimes can lead to severe penalties, both civil and criminal, and can include debarment from contracting with the U.S. government.


Our contracting agency customers may review our performance under and compliance with the terms of our federal government contracts. If a government review or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties or administrative sanctions, includingincluding:

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.


Additionally, the False Claims Act provides for potentially substantial civil penalties where, for example, a contractor presents a false or fraudulent claim to the government for payment or approval. ActionsCivil actions under the civil 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).


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If we fail to comply with these laws and regulations, we may also suffer harm to our reputation, which could impair our ability to win awards of contracts in the future or receive renewals of existing contracts. If we are subject to civil andor criminal penalties and administrative sanctions or suffer harm to our reputation, our current business, future prospects, financial condition, or operating results could be materially harmed.


The U.S. government may also revise its procurement practices or adopt new contracting rules and regulations, including cost accounting standards, at any time. 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.


A decline in the U.S. government defense budget, changes in spending or budgetary priorities, prolonged U.S. government shutdown or delays in contract awards may significantly and adversely affect our future revenues, cash flow and financial results. TheIn recent years, U.S. government appropriations have been affected by larger U.S. government budgetary issues and related legislation. In 2011, Congress enacted the Budget Control Act of 2011 enacted 10-year discretionary("BCA"), which established specific limits on annual appropriations for fiscal years ("FY") 2012-2021 and has since been amended a number of times, most recently by the Bipartisan Budget Act of 2018 (“BBA18”). As a result, Department of Defense ("DoD") funding levels have fluctuated over this period and have been difficult to predict. Future spending caps whichlevels are expectedsubject to generate savings fora wide range of outcomes, depending on Congressional action. In addition, in recent years the U.S. government a substantial portionhas been unable to complete its budget process before the end of which comes from Department of Defense baseline spending reductions. There remains much uncertainty about the level of cuts that will be required for governmentits fiscal year, 2016resulting in both a government shutdown and continuing resolutions to extend sufficient funds only for U.S. government agencies to continue operating. Most recently, the federal government was shut down due to lack of funding for over one month between late 2018 and early 2019. Additionally, the national debt has recently threatened to reach the statutory debt ceiling, and such an event in future years could result in the U.S. government defaulting on its debts.

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 impact those cuts willstate of government finances. Significant changes in defense spending or changes in U.S. government priorities, policies and requirements could have on contractors supporting the government. In light of the current uncertainty, we are not able to predict the potential impact of reduced military expendituresa material adverse effect on our Companyresults of operations, financial condition or our financial results.liquidity.


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Customer demands and new regulations related to conflict-free minerals may adversely affect us. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”“Dodd-Frank Act”) imposes new 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. These new requirements could affect the pricing, sourcing and availability of minerals used in the manufacture of semiconductor devices (including our products). We will incurhave incurred additional costs associated with complying with the disclosure requirements, such as costs related to determining the source of any conflict minerals used in our products. Our supply chain is complex and we may be unable to verify the origins for all metals used in our products. We purchase materials from foreign sources and theythat 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. We may also encounter challenges with our customers and stockholders if we are unable to certify that our products are conflict free.conflict-free.


Changes in tax laws, 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, and the United Kingdom. Governments in the jurisdictions in which we operate implement changes to tax laws and regulations periodically. Any implementation of tax laws that fundamentally change 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.

The 2017 United States Tax Cut and Jobs Act (“Tax Act”) significantly changed the taxation of U.S.-based multinational corporations. Our compliance with the Tax Act requires the use of estimates in our financial statements and exercise of significant judgment in accounting for its provisions. The implementation of the Tax Act requires interpretations and implementing regulations by the Internal Revenue Service, as well as state tax authorities. The legislation could be subject to potential amendments and technical corrections, any of which could materially lessen or increase certain adverse impacts of the legislation. As regulations and guidance evolve with respect to the Tax Act, and as we gather information and perform more analysis, our results may differ from previous estimates and may materially affect our financial position.

We may incur significant liabilities if we fail to comply with stringent environmental laws and regulations and the International Traffic in Arms Regulations (ITAR)ITAR, or if we did not comply with these regulations in the past.We are subject to a variety of federal, state and local governmentalgovernment regulations related to the use, storage, discharge and disposal of toxic or otherwiseother hazardous chemicals used in our manufacturing process. We are also subject to federal ITAR laws whichthat regulate the export of technical data and export of products to other nations whichthat may use these products for military purposes. The failure to comply with present or future regulations could result in fines, being imposed on us, suspension of production, or a cessation of operations. Any failure on our part to control the use of, or adequately restrict the discharge of, hazardous substances, or otherwise comply with environmental regulations, could subject us to significant future liabilities. 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. In addition, we cannot be certain that we have not in the past violated applicable laws or regulations in the past, which violations could result in required remediation or other liabilities. 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.


We may be unable to modify our products to meet regulatory or customer requirements.From time to time our display products are subject to new domestic and international requirements, such as the European Union's Restriction on Hazardous Substances (RoHS)("RoHS") Directive. Our customers are requiring that we arecustomers’ terms and conditions require us to be in compliance with “all laws” in their terms and conditions.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.




1811










We may pursuebe unable to successfully integrate new strategic acquisitions and investments, thatwhich could materially adversely affect our business.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. 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. In 2015,2017, 2012 and 2011, we increased our ownershipacquired 100% of the outstanding shares of Kopin Software Ltd to 100%,NVIS, acquired 80% of the outstanding shares of eMDT Inc. and acquired 100% of the outstanding shares of FDD.FDD, respectively. If we are unable to operate Kopin Software Ltd., eMDT, FDD and FDDNVIS profitably, our results of operations will be negatively affected. We perform periodic reviews to determine if these investments are impaired, but such reviews are difficult and rely on significant judgment about the company’s technology, ability to obtain customers, and ability to become cash flow positive and profitable. We may take future impairment charges which will have an adverse impact of on our results of operations.


Investors shouldAdditionally, we are a party to several joint ventures and investments where we may have some influence, but not expectcomplete control. Accordingly, we have limited control over their governance, financial reporting and operations. As a result, we face certain operating, financial and other risks relating to receive dividendsthese investments, including risks related to the financial strength of our joint venture partners, having differing objectives from our partners, compliance risks relating to actions of the joint venture or our partners and the risk that we will be unable to resolve disputes with the joint venture partner. As a result, these investments may not contribute to our earnings or cash flows. In addition, these joint ventures 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. Our business and corporate transactions, including operations through our joint ventures, are subject to laws and regulations applicable to foreign investment in China as well as laws and regulations applicable to foreign-invested enterprises. These laws and regulations frequently change, and their interpretation and enforcement involves 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. In addition, the Chinese legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. 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. 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. If we cannot obtain approval from relevant authorities to engage in businesses that has become prohibited or restricted for foreign investors, we may be forced to sell or restructure such business. 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. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. If we are forced to adjust our corporate structure or business as a result of changes in government policy on foreign investment or changes in the interpretation and application of existing or new laws, our business, financial condition, results of operations and prospects may be harmed. 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 have not paid cashno present intention to pay dividends on our common stock in the past, however,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. We have no present intention to pay dividends on our common stock in the future we may determine it is in the best interest of the stockholders to do so.foreseeable future. Historically, our earnings, if any, have been retained for the development of our businesses. Any recommendation by our Board to pay dividends will depend on many factors, including our financial condition, results of operations, and other factors. 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.


Our stock price may be volatile in the future.The trading price of our common stock has been subject to wide fluctuations in response to quarter-to-quarter variations in results of operations, announcements of technological innovations or new products by us or our competitors, general conditions in the wireless communications, semiconductor and display markets, changes in earnings estimates by analysts or other events or factors. In addition, the public stock markets recently have experienced extreme price and trading volatility. This volatility has significantly affected the market prices of securities of

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many technology companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.


Nasdaq listing matters. Political and economic uncertainty in the European Union could adversely affect our business, results of operations, financial condition and prospects. Credit rating downgrades in certain European countries and/or speculation regarding changes to the composition or viability of the EU create uncertain global economic conditions. On June 23, 2016, the United Kingdom voted to leave the EU. The UK’s vote to voluntarily exit from the EU, generally referred to as the “Brexit,” triggered short-term financial volatility, including a decline in the value of the Great Britain Pound in comparison to both the U.S. dollar and the Euro. In addition, discussions and negotiations to determine the future terms of the UK’s relationship with the EU are ongoing, and the legal and regulatory framework that will be applicable in the UK may change. The ongoing uncertainty could have a negative economic impact and result in further volatility in the markets for several years. The impact of the Brexit referendum and such ongoing uncertainty may result in various economic and financial consequences for businesses operating in the UK, the EU and beyond. We received noticehold significant assets in the UK and operate a UK subsidiary, and the future impacts of the Brexit and the continued uncertainty surrounding the EU could have a material impact on our business, financial condition, results of operations and cash flows.

Changes in government trade policies may increase the cost of our products, which may materially adversely affect our sales or profitability. We depend on Chinese, Taiwanese, and Korean foundries for the manufacture of integrated circuits for our Display products. The U.S. and China have recently engaged in trade negotiations, the outcome of which remains uncertain. In 2018, the U.S. proposed, among other actions, imposing new or higher tariffs on specified imported products originating from NasdaqChina in response to what it characterizes as unfair trade practices, and China has responded by proposing new or higher tariffs on specified products imported from the U.S. In notices published on April 6, 2018 and June 20, 2018, the Office of the United States Trade Representative issued a determination and requests for public comment under Section 301 under the Trade Act of 1974 (the “Notices”) concerning the proposed imposition of an additional 25% tariff on specified products from China, which products comprised approximately $50.0 billion in estimated annual trade value for calendar year 2018. The list of products set forth in the Notices included diodes, integrated circuits and other products that we import from China as part of our supply chain. Tariffs on components that we import from China or other nations that have imposed, or may in the future impose, tariffs would cause our expenses to increase, which would adversely affect our profitability unless we were able to exclude our products from the tariffs or we raise prices for our products, which may result in our products becoming less attractive relative to products offered by our competitors. In addition, future actions or escalations by either the U.S. or China that affect trade relations may also affect our business or that of our suppliers or customers, and we cannot provide any assurances as to whether such actions will occur or the form that they may take. 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.

A protectionist trade environment in either the U.S. or those foreign countries in which we do business, such as a change in the current tariff structures, export compliance or other trade policies, may materially adversely affect our ability to sell our products in foreign markets. To the extent that our listing was deficient due tosales or profitability are affected negatively by any such tariffs or other trade actions, our failure to timely file our Form 10-Q for the third quarterbusiness and results of 2016. On the date of the filing of this Form 10-K, we also filed our Form 10-Q for the third quarter of 2016. We believe that we will regain compliance with Nasdaq with such filing, but we have received no formal notification that we are in compliance with Nasdaq Listing Rule 5250(c)(1). operations may be materially adversely affected.

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Part II
Item 1B.Unresolved Staff Comments
None.
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. The lease expires in 2023. In addition to our Massachusetts facility, we lease a 5,800 square foot design facility in Scotts Valley, California for developing prototypes of products incorporating our CyberDisplay product and a 10,000 square foot facility in San Jose, California which houses our wearable computing Tech center and ASIC development. These facility leases expire in 2018 and 2021, respectively. We also have leases in Japan and Hongkong, which expire in 2017 and 2018 respectively.
FDD, our subsidiary in Scotland, leases 20,000 square feet in Dalgety Bay. This facility’s lease expires in 2019. Kopin Software Ltd., our subsidiary in the United Kingdom, leases a property which occupies an aggregate of 7,000 square feet. This lease expires in 2017.
At this time we believe these properties are suitable for our needs for the foreseeable future.
Item 3.Legal Proceedings
We may engage in legal proceedings arising in the ordinary course of business. Claims, suits, investigations and proceedings are inherently uncertain and it is not possible to predict the ultimate outcome of such matters and our business, financial condition, results of operations or cash flows could be affected in any particular period.
Item 4.Mine Safety Disclosures
Not applicable.

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Part II
Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is traded on the NASDAQ Global Market under the symbol “KOPN.” The following table sets forth, for the quarters indicated, the range of high and low sale prices for the Company’s common stock as reported on the NASDAQ Global Market for the periods indicated.
 High Low
Fiscal Year Ended December 31, 2016   
First Quarter$2.83
 $1.60
Second Quarter2.40
 1.58
Third Quarter2.54
 2.04
Fourth Quarter2.96
 1.99
Fiscal Year Ended December 26, 2015   
First Quarter$4.36
 $3.37
Second Quarter3.77
 3.30
Third Quarter3.45
 2.60
Fourth Quarter3.18
 2.67
As of March 10, 2017, there were approximately 418 stockholders of record of our common stock, which does not reflect those shares held beneficially or those shares held in “street” name.
In the past three years we have not sold any securities which were not registered under the Securities Act. On December 28, 2016 Kopin Corporation agreed to sell 7.6 million unregistered shares of its common stock for an aggregate purchase price of $24.7 million. The transaction is subject to standard closing conditions including governmental approval.
We have not paid cash dividends in the past, nor do we expect to pay cash dividends for the foreseeable future. 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 31, 2016 about shares of the Company’s common stock issuable upon exercise of outstanding options, warrants and rights and available for issuance under our existing equity compensation plans.
Plan Category6.
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) (c)
Equity compensation plans approved by security holders—
$—
563,562
(1)
Equity compensation plans not approved by security holders—
$—
—
(1)Amount includes shares available under the 2010 Equity Incentive Plan.







20







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, 2011. Data points on the graph are annual. Note that historical price performance is not necessarily indicative of future performance.


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Item 6.Selected Financial Data (As Revised)(1)
This information should be read in conjunction with our consolidated financial statements and notes thereto, and our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K. We have revised the prior period amounts for the sale of the III-V product line, which is reflected as discontinued operations.10-K/A.
 Fiscal Year Ended
 2016 2015 2014 2013 2012
 (in thousands, except per share data)
Statement of Operations Data:         
Revenues:         
Net component revenues$21,115
 $28,163
 $26,957
 $20,575
 $31,299
Research and development revenues1,528
 3,891
 4,851
 2,323
 3,343
Total revenues22,643
 32,054
 31,808
 22,898
 34,642
Expenses:         
Cost of component revenues17,814
 21,525
 19,592
 20,655
 22,042
Research and development—funded programs787
 3,006
 5,237
 1,551
 2,178
Research and development—internal15,253
 14,625
 15,499
 15,983
 12,121
Selling, general and administrative16,962
 18,135
 19,909
 19,125
 17,166
Gain on sale of property, plant & equipment(7,701) —
 —
 —
 —
Impairment of intangible assets and goodwill—
 —
 —
 1,511
 1,705
 43,115
 57,291
 60,237
 58,825
 55,212
Loss from operations(20,472) (25,237) (28,429) (35,927) (20,570)
Other income and (expense):         
Interest income658
 758
 966
 1,119
 1,126
Other (expense) income, net(448) (210) 58
 235
 174
Foreign currency transaction (losses) gains(673) 661
 259
 (387) (1,032)
Impairment of investments—
 —
 (1,319) (5,000) —
Loss on remeasurement of investment in Kopin Software Ltd.—
 —
 —
 —
 (558)
Gain on sales of investments1,034
 9,207
 —
 1,899
 856
 571
 10,416
 (36) (2,134) 566
Loss before (provision) benefit for income taxes, equity losses in unconsolidated affiliates and net (income) loss of noncontrolling interest(19,901) (14,821) (28,465) (38,061) (20,004)
Tax (provision) benefit(3,130) 25
 180
 12,933
 (1,099)
Loss before equity losses in unconsolidated affiliates and net (income) loss of noncontrolling interest(23,031) (14,796) (28,285) (25,128) (21,103)
Equity losses in unconsolidated affiliates—
 (47) (386) (625) (680)
Loss from continuing operations$(23,031) $(14,843) $(28,671) $(25,753) $(21,783)
Income from discontinued operations, net of tax—
 —
 —
 20,147
 2,789
Net loss(23,031) (14,843) (28,671) (5,606) (18,994)

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Net (income) loss attributable to the noncontrolling interest(403) 150
 459
 896
 632
Net loss attributable to the controlling interest$(23,434) $(14,693) $(28,212) $(4,710) $(18,362)
Net loss per share:         
Basic:

 

 

 

 

     Continuing operations$(0.37) $(0.23) $(0.45) $(0.40) $(0.33)
     Discontinued operations—
 —
 —
 0.32
 0.04
     Net loss per share:$(0.37) $(0.23) $(0.45) $(0.08) $(0.29)
       Diluted:         
            Continuing operations$(0.37) $(0.23) $(0.45) $(0.40) $(0.33)
            Discontinued operations—
 —
 —
 0.32
 0.04
     Net loss per share:$(0.37) $(0.23) $(0.45) $(0.08) $(0.29)
Weighted average number of common shares outstanding:         
Basic64,046
 63,466
 62,639
 62,348
 63,618
Diluted64,046
 63,466
 62,639
 62,348
 63,618
 Fiscal Year Ended
(in thousands, except per share data)
2018 (2)
 2017 2016 2015 2014
Statement of Operations Data:         
Total revenues$24,465
 $27,841
 $22,643
 $32,054
 $31,808
Loss from operations(39,967) (30,298) (20,473) (25,237) (28,429)
Total non-operating income (expense), net5,514
 1,955
 571
 10,416
 (36)
Tax benefit (provision)(30) 2,963
 (3,130) 25
 180
Net loss(34,482) (25,380) (23,031) (14,843) (28,671)
Net loss attributable to the controlling interest(34,534) (25,240) (23,569) (14,693) (28,212)
Basic and diluted loss per share attributable to Kopin Corporation common stockholders$(0.47) $(0.36) $(0.37) $(0.23) $(0.45)
Weighted average basic and diluted common shares outstanding73,157
 69,915
 64,046
 63,466
 62,639
 
Fiscal Year EndedFiscal Year Ended
2016 2015 2014 2013 2012
(in thousands)
2018 (2)
 2017 2016 2015 2014
Balance Sheet Data:                  
Cash and equivalents and marketable debt securities$77,198
 $80,711
 $90,859
 $112,729
 $92,485
Cash and cash equivalents and marketable debt securities$37,244
 $68,756
 $77,198
 $80,711
 $90,859
Working capital70,028
 89,879
 86,682
 108,369
 106,791
39,037
 67,636
 70,028
 89,879
 86,682
Total assets87,832
 106,060
 122,941
 146,132
 176,209
59,549
 91,322
 87,832
 106,060
 122,941
Long-term obligations247
 298
 311
 329
 946
1,469
 1,839
 247
 298
 311
Total stockholders’ equity74,078
 94,741
 109,847
 134,563
 155,086
$47,862
 $77,380
 $72,742
 $93,539
 $109,847
(1)For discussion of the correcting adjustments, see Note 18 - Correction of Previously Issued Financial Statements.
(2)Effective December 31, 2017, the first day of fiscal year 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) on a modified retrospective basis. As a result of the adoption of this standard, Total revenues, Loss from operations and Total stockholders' equity for fiscal year 2018 in the preceding tables may not be directly comparable to those of prior years. For additional information, refer to Note 1. of the “Notes to Consolidated Financial Statements.”





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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations (As Revised)
Overview
The following discussion should be read in conjunction with our consolidated financial statements and notes to those statements and other financial information appearing elsewhere in this Annual Report on Form 10-K.10-K/A. The following discussion contains forward looking information that involves risks and uncertainties.forward-looking statements. Our actual results could differ materially from those anticipated in the forward lookingforward-looking statements as a result of a number of factors, including the risks discussed in Item 1A “Risk Factors”,Factors,” and elsewhere in this Annual ReportForm 10-K/A. Please refer to our cautionary note on Forward Looking Statements on page 3 of this Form 10-K.10-K/A.
Management's discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition under the percentage-of-completion method, bad debts, inventories, warranty reserves, investment valuations, valuation of stock compensation awards, recoverability of deferred tax assets, liabilities for uncertain tax positions and contingencies. We base our estimates on historical experience and on various other assumptions that are believedwe believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions.
TheWe adopted the Financial Accounting Standards Board’s ("FASB") Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective December 31, 2017 (the first day of our fiscal year 2018) and applied the modified retrospective method. Our results for reporting periods beginning after December 31, 2017 are presented under ASC 606, while prior period amounts have been revised for the impact of discontinued operations dueare not adjusted and continue to the sale of our III-V product line, including our KTC subsidiary. Our financial results for prior periods have also been revised,be reported in accordance with U.S. GAAP, to reflect certain changes to the business and other matters.
our historic accounting policies ASC 605. We believe the following critical accounting policies are most affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Revenue Recognition
Substantially all of our product revenues are either derived from the sales of components for use in military applications or our wearable technology components that can be integrated to create industrial and consumer headset systems. We also have development contracts for the design, manufacture and modification of products for the U.S. government or a prime contractor for the U.S. government or for a customer that sells into the industrial or consumer markets. The Company's contracts with the U.S. government are typically subject to the Federal Acquisition Regulations ("FAR") and are priced based on estimated or actual costs of producing goods. The FAR provides guidance on the types of costs that are allowable in establishing prices for goods provided under U.S. government contracts. The pricing for non-U.S. government contracts is based on the specific negotiations with each customer.
Our fixed-price contracts with the U.S. government or other customers may result in revenue recognized in excess of amounts currently billed. We disclose the excess of revenues over amounts actually billed as Contract assets and unbilled receivables on the balance sheet. Amounts billed and due from our customers are classified as Accounts receivable on the balance sheets. In some instances, the U.S. government retains a small portion of the contract price until completion of the contract. The portion of the payments retained until final contract settlement is not considered a significant financing component because the intent is to protect the customer. For contracts with the U.S. government, we typically receive interim payments either as work progresses or by achieving certain milestones or based on a schedule in the contract. We recognize a liability for these advance payments in excess of revenue if four basic criteria have been met: (1) persuasive evidencerecognized and present it as Contract liabilities and billings in excess of revenue earned on the balance sheets. The advanced payment typically is not considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract and to protect us from the other party failing to adequately complete some or all of its obligations under the contract. For industrial and consumer purchase orders, we typically receive payments within 30 to 60 days of shipments of the product, although for some purchase orders, we may require an arrangement exists; (2) delivery has occurred and services rendered; (3) the price to the buyer is fixed or determinable; and (4) collectability is reasonably assured. We do not recognize revenue for productsadvanced payment prior to customer acceptance unless we believe the product meets all customer specifications and has a history of consistently achieving customer acceptanceshipment of the product. Provisions
To determine the proper revenue recognition method for product returnscontracts with the same customer, we evaluate whether two or more contracts should be combined and allowancesaccounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. For most of our development contracts and contracts with the U.S. government, the customer contracts with us to provide a significant service of integrating a set of components into a single unit. Hence, the entire contract is accounted for as one performance obligation. Less frequently, however, we may promise to provide distinct goods or services within a contract in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction

15





price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. In cases where we sell standard products, the observable standalone sales are recordedused 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.
Commencing in 2018 for certain contracts with the U.S. government, the Company recognizes revenue over time as we perform because of continuous transfer of control to the customer and the lack of an alternative use for the product. The continuous transfer of control to the customer is supported by liability clauses in the same period ascontract that allow the related revenues.U.S. government to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. For contracts with commercial customers, while the contract may have a similar liability clause, our products historically have an alternative use and thus, revenue is recognized at a point in time.
In situations where control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. We analyze historical returns, current economic trends and changes in customer demand and acceptancegenerally use the cost-to-cost approach to measure the extent of product when evaluatingprogress towards completion of the adequacyperformance obligation for our contracts because we believe it best depicts the transfer of sales returns and other allowances. Certain product sales are made to distributors under agreements allowing for a limited right of return on unsold products. Sales to distributors are primarily made for salesassets to the distributors' customers and not for stockingcustomer. Under the cost-to-cost measure approach, the extent of inventory. We delay revenue recognition for our estimate of distributor claims of right of returnprogress towards completion is measured based on unsold products based upon our historical experience with our products and specific analysis of amounts subject to return based upon discussions with our distributors or their customers.
We recognize revenues from long-term research and development government contracts on the percentage-of-completion method of accounting as work is performed, based upon the ratio of costs or hours already incurred to the estimated total cost of completion or hours of work to be performed. Revenue recognized at any point in time is limiteddate to the amount funded by the U.S. government or contracting entity. We recognize revenue for product development and research contracts that have established prices for distinct phases when delivery and acceptancetotal estimated costs at completion of the deliverable for each phase has occurred. In some instances, weperformance obligation. Revenues are contracted to create a deliverable which is anticipated to go into full production. In those cases, we discontinue the percentage-of-completion method after formal qualification of the deliverable has been completed and revenue is then recognized based on the criteria established for sale of products. In certain instances qualification may be achieved and delivery of production units may commence however our customer may have either identified new issues to be resolved or wish to incorporate a newer display technology. In these circumstances new units delivered will continue to be accounted for under the criteria established for sale of products. Under certain of our research and development contracts, we recognize revenue using a milestone methodology.  This revenue is recognized when we achieve specified milestones based on our past performance.
We classify amounts earned on contracts in progress thatrecorded proportionally as costs are in excess of amounts billed as unbilled receivables and we classify amounts received in excess of amounts earned as billings in excess of revenues earned. We invoice based on dates specified in the related agreement or in periodic installments based upon our invoicing cycle. We recognize the entire amount of an estimated ultimate loss in our financial statements at the time the loss on a contract becomes known.incurred.
Accounting for design, development and production contracts requires judgment relative to assessing risks, estimating contract revenues and costs, and making assumptions for schedule and technical issues. Due to the size and nature of the work

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required to be performed on many of our contracts, the estimation of total revenue and cost at completion is complicated and subject to many variables. Contract costs include material, labor and subcontracting costs, as well as an allocation of indirect costs. We have to make assumptions regarding the number of labor hours required to complete a task, the complexity of the work to be performed, the availability and cost of materials, and performance by our subcontractors. For contract change orders, claims or similar items, we apply judgment in estimating the amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization is considered probable. We have accounting policies in place to address these as well as other contractual and business arrangements to properly account for long-term contracts. If our estimate of total contract costs or our determination of whether the customer agrees that a milestone is achieved is incorrect, our revenue could be overstated or understated and the profits wouldor loss reported could be negatively impacted.subject to adjustment.
For our commercial customers, the Company's revenue is recognized when obligations under the terms of a contract with our customer is satisfied and the Company transfers control of the products or services, which is generally upon delivery to the customer. Revenue is recorded as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Provisions for product returns and allowances are reductions in the transaction price and are recorded in the same period as the related revenues. We analyze historical returns, current economic trends and changes in customer demand when evaluating the adequacy of sales returns and other allowances. Certain product sales are made to distributors under agreements allowing for a limited right of return on unsold products. Sales to distributors are primarily made for sales to the distributors' customers and not for stocking of inventory. Sales, value add and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.
The rights and benefits to the Company's intellectual property are conveyed to certain customers through technology license agreements. These agreements may include other performance obligations including the sale of product to the customer. When the license is distinct from other obligations in the agreement, the Company treats the license and other performance obligations as separate performance obligations. Accordingly, the license is recognized at a point in time or over time based on the standalone selling price. The sale of materials is recognized at a point in time, which occurs with the transfer of control of the Company's products or services. In certain instances, the Company is entitled to sales-based royalties under license agreements. These sales-based royalties are recognized when they are earned. Revenues from sales-based royalties under license agreements are shown under Research and development and other revenues on the Company's Consolidated Statements of Operations.

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Inventory
We provide a reserve for estimated obsolete or unmarketable inventory based on assumptions about future demand and market conditions and our production plans. Inventories that are obsolete or slow moving are generally fully reserved (representing the estimated net realizable value) as such information becomes available. Our display products are manufactured based upon production plans whose critical assumptions include non-binding demand forecasts provided by our customers, lead times for raw materials, lead times for wafer foundries to perform circuit processing and yields. If a customer were to cancel an order or actual demand was lower than forecasted demand, we may not be able to sell the excess display inventory and additional reserves would be required. If we were unable to sell the excess inventory, we would establish reserves to reduce the inventory to its estimated realizable value (generally zero).
Investment Valuation
We periodically make equity investments in private companies, accounted for on the cost oras an equity method,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. This update amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted the measurement alternative for equity investments without readily determinable fair values (often referred to as cost method investments) on a prospective basis. When assessing investments in private companies for an other-than-temporary decline in value,impairment, we consider such factors as, among other things,others, the share price from the investee's latest financing round, the performance of the investee in relation to its own operating targets and its business plan, the investee's revenue and cost trends, the liquidity and cash position, including its cash burn rate and market acceptance of the investee's products and services. Because these are private companies which we do not control we may not be able to obtain all of the information we would want in order to make a complete assessment of the investment on a timely basis. Accordingly, our estimates may be revised if other information becomes available at a later date.
In addition to the above, we make investments in government and agency-backed securities and corporate debt securities. For all of our investments we provide for an impairment valuation if we believe a decline in the value of an investment is other-than-temporary, which may have an adverse impact on our results of operations. The determination of whether a decline in value is other-than-temporary requires that we estimate the cash flows we expect to receive from the security. We use publicly available information such as credit ratings and financial information of the entity that issued the security in the development of our expectation of the cash flows to be received. Historically, we have periodically recorded other than temporary impairment losses, however we have not done so recently.
Income Taxes
We have historically incurred domestic operating losses from both a financial reporting and tax return standpoint. We establish valuation allowances if it appears more likely than not that our deferred tax assets will not be realized. These judgments are based on our projections of taxable income and the amount and timing of our tax operating loss carryforwards and other deferred tax assets. Given our federal operating tax loss carryforwards, we do not expect to pay domestic federal taxes in the near term. It is possible that we could pay domestic alternative minimum taxesforeign and state income taxes. We are also subject to foreign taxes from our Korean and U.K. subsidiary operations.
Our income tax provision is based on calculations and assumptions that will be subject to examination by tax authorities. Despite our history of operating losses there can be exposures for state taxes, federal alternative minimum taxes or foreign tax that may be due. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. Should the actual results differ from our estimates, we would have to adjust the income tax provision in the period in which the facts that give rise to the revision become known. Such adjustment could have a material impact on our results of operations. We have historically established valuation allowances against all of our net deferred tax assets because of our history of generating operating losses and restrictions on the use of certain items. Our evaluation of the recoverability of deferred tax assets has also included analysis of the expiration dates of net operating loss carryforwards. In forming our conclusions as to whether the deferred tax assets are more likely than not to be realized we consider the sources of our income and the projected stability of those sources and product life cycles.

On December 22, 2017, the President signed the Tax Cuts and Jobs Act of 2017 (2017 Act) which enacted a wide range of changes to the U.S. corporate income tax system. The 2017 Act reduced the U.S. corporate statutory federal tax rate to 21% effective in 2018, eliminated the domestic manufacturing deduction benefit and introduced other tax base broadening measures, changed rules for expensing and capitalizing business expenditures, established a territorial tax system for foreign earnings as well as a minimum tax on certain foreign earnings, provided for a one-time transition tax on previously

2517











undistributed foreign earnings, and introduced new rules for the treatment of certain foreign income. Also on December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provided companies with additional guidance on how to account for the 2017 Act in their financial statements, allowing companies to use a measurement period. As of December 30, 2017, we made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax on previously undistributed foreign earnings and the Company did not recognize any provisional amounts in the (benefit) provision for income taxes in accordance with SAB 118. As of December 29, 2018, we had finalized our provisional estimates for the remeasurement of our existing U.S. deferred tax balances and the one-time transition tax and did not recognize amounts in the (benefit) provision for income taxes. Please see the “Notes to Consolidated Financial Statements” for additional information.
Goodwill
We account for goodwill in accordance with ASC Topic 350. Under ASC Topic 350, goodwill is considered to have an indefinite life, and is carried at cost. Goodwill is not amortized, but is subject to an annual impairment test, as well as between annual tests when events or circumstances indicate that the carrying value may not be recoverable.
The determination of reporting units under ASC 350 begins with the definition of an operating segment in ASC 280 and takes into account the disaggregation of that operating segment into economically dissimilar components for goodwill impairment testing purposes. The level at which operating performance is reviewed also differs between ASC 280 and ASC 350. The chief operating decision maker ("CODM") is the Company's Chief Executive Officer who reviews operating segments and the segment manager reviews reporting units (components of operating segments). Therefore, a component of an operating segment would not be considered an operating segment under ASC 280 unless the CODM regularly reviews its operating performance. However, that same component might be a reporting unit under ASC 350 if a segment manager regularly reviews its operating performance (and if the other reporting unit criteria are met). Goodwill is evaluated for impairment annually or more often if indicators of a potential impairment are present. The Company performs impairment tests of goodwill at its reporting unit level. The goodwill valuations that are utilized to test these assets for impairment are depending on a number of significant estimates and assumptions, including macroeconomic conditions, overall growth rates, competitive activities, cost containment, Company business plans and the discount rate applied to cash flows. We believe these estimates and assumptions are reasonable and are comparable to those that would be used by other market participants. However, actual events and results could differ substantially from those used in our valuations. To the extent such factors result in a failure to achieve the level of projected cash flows initially used to estimate fair value for purposes of establishing the carrying amount of goodwill and intangibles, we may need to record non-cash impairment charges in the future.  
Results of Operations
On January 16, 2013, we completed the sale of our III-V product line, including all of the outstanding equity interest in KTC Wireless, LLC (KTC) a wholly-owned subsidiary of the Company, to IQE KC, LLC (IQE) and IQE plc (Parent, and collectively with IQE, the Buyer). The aggregate sale purchase price was approximately $70.2 million, after certain adjustments, including working capital adjustments. The gain on the sale, net of tax, was $20.1 million. Under the terms of the purchase agreement, $55 million was paid to us in January 2013, $0.2 million was paid in April 2013 and the remaining $15 million was paid on January 15, 2016.
We are a leading developer, manufacturer and seller of miniature displays, optical lenses, ASICs (our “components”) and software for integration into wearable products for sale as individual components or in headsets we design and sell or license. We use our proprietary semiconductor material technology to design, manufacture and market ourOur component products for useare used in highly demanding high-resolution portable military, enterprise and consumer electronic applications, training and simulation equipment and 3D metrology equipment. Our products enable our customers to develop and market an improved generation of products for these target applications.
We have two principal sources of revenues: componentproduct revenues and research and development revenues. Research and development revenues consist primarily of development contracts with agencies or prime contractors of the U.S. government and commercial enterprises. Research and development revenues were $1.5 million, or 6.7% of total 2016 revenues, $3.9 million, or 12.1% of total 2015 revenues and $4.9 million, or 15.3% of total 2014 revenues.
We manufacture transmissive microdisplays and reflective microdisplays. Our commercial and military transmissive display production is being performed entirely in our Westborough, Massachusetts facility. FDD, our wholly-owned subsidiary, manufactures our reflective micro-displaysmicrodisplays in its facility located in Scotland and it is a reportable segment. In 2017, we introduced Organic Light Emitting Diode (“OLED”) displays which are designed by us and manufactured by third parties for us.
Because our fiscal year ends onWe are in the last Saturday of December every seven years we have a fiscal year with 53 weeks. Our fiscal year 2016 was a 53 week year and 2015 and 2014 were 52 week years.
Fiscal Year 2016 Compared to Fiscal Year 2015
Revenues.    Our revenues, which include product sales and amounts earned from research and development contracts,initial production phase as the display supplier for fiscal years 2016 and 2015, by category, were as follows:
Revenues by Category (in millions)2016 2015
Military Applications$5.3
 $10.2
Wearable Applications7.4
 12.3
Industrial Applications6.3
 4.0
Consumer Applications2.1
 1.7
Research & Development1.5
 3.9
Total$22.6
 $32.1
Sales of our products for military applications decreased in 2016 because of a decrease in demand from the U.S. government, primarily for our products used in Thermal Weapon Sights (TWS) program. We have been qualified in certain weapon systems and are in qualification of other systems associated with theArmy’s Family of Weapon Sight (FWS) program. We have also been qualifiedSights (“FWS”) - Individual program and undergoing qualification for certain US military avionic helmet programs.the FWS - Crew Served variant. We are currently shipping underalso in development for a new series of displays for the LRIP (Low Rate Initial Production) phase of the FWS program and avionicM1A2 program. The FWS, M1A2 and our existing production avionic programs are expected to increase production for the next several years. There are other firms offering products which compete against us in the military programs and all of the programs we supply product to are subject to the USU.S. government military budget and procurement process. Accordingly, there can be no assurances we will continue to ship under our military contracts.

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Sales of our products to customers that use our products for Consumer Applications is a critical part of our strategy to increase revenues and return to profitability and positive cash flow. Our success in selling our products for Consumer Applications will depend on the demand for our customers’ new products, which we are unable to predict.
We offer microdisplays, optical lenses, application specific integrated circuits (ASICs),ASICs, backlights, and Whisper™ audio chips for use in consumer, enterprise and public safety products and systems which are targeted at amongst other areas augmented and virtual reality markets.markets, among other areas. We refer to the sale of microdisplays, optical lenses, application specific integrated circuits (ASICs),ASICs, backlights, and Whisper™ audio chips as our component sales. We also offer headworn,head mounted, voice and gesture controlled, hands-free headset system designs that include our components and software for consumer and enterprise applications. The software technology includes but is not limited to voice and gesture control, noise cancellation, and operating systems. We refer to our components and system designs as Kopin Wearable technologies. Our strategy is to sell the

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components individually or license the headset system designs and sell the various components included in the reference design as part of a supply agreement. Some of the technologies included in our concept systems are components and software whichthat we license from other companies. We believe our ability to develop and expand the Kopin Wearable technologies and to market and license our concept systems and components will be critical for us to achieve revenue growth, positive cash flow and profitability. The markets Kopin Wearable technologies can already be used in have a number of existing product offerings such as ruggedized lap-toplaptop computers and tablets and virtual reality headsets offered by companies such as Samsung, Sony and Oculus. The companies that offer these products are significantly larger than we are.
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 2018 was a 52 week year, 2017 was a 52 week year and 2016 was a 53 week year. The increaseimpact of the 53rd week in 2016 fiscal year was not material to the Company's results of operations.
Revenues.    Our revenues by display application, which include product sales and amounts earned from research and development contracts, for fiscal years 2018, 2017 and 2016 by category, were as follows:
(In thousands)2018 2017 2016
Military$8,724
 $13,438
 $5,338
Industrial6,066
 5,478
 6,296
Consumer4,146
 4,406
 7,418
Research and Development5,254
 2,947
 1,527
Other275
 1,573
 2,064
Total Revenues$24,465
 $27,841
 $22,643
Fiscal Year 2018 Compared to Fiscal Year 2017
Sales of our products for Military applications include systems used by the military both in the field and for training and simulation. Sales of our products for Military applications may be for a one-time purchase order or for programs that run for several years. The decrease in sales of products for Military applications in 2018 compared to 2017 was primarily due to the completion of military programs at our product for subsidiary NVIS in 2017.
Industrial applications revenues represent customers who purchase our display products for use in 2016 as compared to 2015 is the result of an increaseheadsets used for applications in sales of our products to manufacturers ofmanufacturing, distribution, public safety, 3D metrology equipment.equipment and other industrial applications. Our 3D metrology customers are primarily located in Asia and Chinesethey sell to Asian contract manufactures represent a significant market formanufacturers who use the 3D metrology equipment. Accordingly, sales of 3D metrology equipment are tied to the strength of the Chinese manufacturing sector.
machines for quality control purposes. The increase in the Consumer Applications is the result ofIndustrial applications in 2018 compared to 2017 was primarily due to an increase in sales to customers who use our display components in industrial headsets.
Sales of our productsdisplays for Consumer applications is primarily for the use in thermal imaging products, recreational gun sights.rifle and hand-held scopes and drone racing headsets. The decrease in Consumer applications in 2018 compared to 2017 was primarily due to decreased demand for displays and components used in thermal imaging products and drone racing headsets.
Research & Development ("R&D") revenues increased in 2018 as compared to 2017 primarily due to funding for U.S. military programs.
Historically, we have recognized revenue in the period when we have shipped units of products. For the fiscal year 2018, we adopted Topic 606 and Developmentcertain revenues isare being recorded on the resultpercentage of completion method using a decreasecost-to-cost approach. Prior to the adoption of Topic 606, we believe we would have recorded approximately $4.1 million as revenue in funding from2018 and future years, however, with our adoption of Topic 606 the U.S. government partially offset byapproximately $4.1 million was recognized as part of the cumulative effect of initially applying the new revenue standard as an increaseadjustment to the opening balance of retained earnings. The comparative information has not been revised and continues to be reported under the accounting standards in funding by customerseffect for

19





those periods. The Company expects the impact of the adoption of the new standard to develop wearable technologies.be material to the Company's revenues on an ongoing basis.
International sales represented 59% and 32%approximately 41% of product revenues for fiscal years 20162018 and 2015,2017, respectively. Our international sales are primarily denominated in U.S. currency. Consequently, a strengthening of the U.S. dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors' products that are denominated in local currencies, leading towhich could result in a reduction in sales or profitability in those foreign markets. In addition, our Korean subsidiary, Kowon, holds U.S. dollars in order to pay various expenses. As a result, our financial position and results of operations are subject to exchange rate fluctuation in transactional and functional currency. We have not taken any protective measures against exchange rate fluctuations, such as purchasing hedging instruments with respect to such fluctuations, because of the historically stable exchange rate between the Japanese yen, Korean wonGreat Britain pound and the U.S. dollar. Foreign currency translation impact on our results, if material, is described in further detail under "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" section below.
Fiscal Year 2017 Compared to Fiscal Year 2016
The increase in Military Application revenues in 2017 as compared to 2016 is primarily due to incremental revenue from NVIS, who produces virtual reality systems for professional 3D applications. Revenues from NVIS were approximately $9.1 million, of which $8.8 million is included in Military Applications.
Revenues from NVIS of approximately $0.3 million are included in the Industrial applications. Our 3D metrology customers are primarily located in Asia and Chinese contract manufacturers represent a significant market for 3D metrology equipment. Accordingly, sales of 3D metrology equipment are tied to the strength of the Chinese manufacturing sector.
The decrease in Consumer Applications revenues in 2017 as compared to 2016 is primarily because of a decrease in sales to customers who use our products for drone headset applications and a health and fitness application.
Research & Development ("R&D") revenues increased in 2017 as compared to 2016 primarily due to funding for U.S. military programs including the Family of Weapon Sights ("FWS") program.
International sales represented 41% and 59% of product revenues for fiscal years 2017 and 2016, respectively. Our international sales are primarily denominated in U.S. currency.
Cost of ComponentProduct Revenues.
 2016 2015
Cost of component revenues (in millions)$17.8
 $21.5
Cost of component revenues as a % of net component revenues84.4% 76.4%
Cost of componentproduct revenues, which is comprised of materials, labor and manufacturing overhead related to the production of our products for fiscal years 2018, 2017 and 2016 were as follows:
(In thousands, except percentages)2018 2017 2016
Cost of product revenues$15,831
 $18,118
 $17,814
Cost of product revenues as a % of net product revenues82.4% 72.8% 84.4%
Fiscal Year 2018 Compared to Fiscal Year 2017
Cost of product revenues increased as a percentage of revenues in 20162018 as compared to 2015 due to2017 because of a decreasedecline in the salesales of our displaymilitary products, for military applications, which have higher gross margins than the average gross margin of our other products and lower overall volumesold during the same period in 2017.
Fiscal Year 2017 Compared to Fiscal Year 2016
Cost of product revenues decreased as a percentage of revenues in 2017 as compared to 2016 because of an increase in sales of our military products which resultshave higher gross margins than the other products sold during the same period in higher fixed overhead costs per unit.2016.
Research and Development.
(in millions)2016 2015
Funded$0.8
 $3.0
Internal15.2
 14.6
Total$16.0
 $17.6
Research and development (R&D)    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. In fiscal year 2017, our R&D expenditures will be related to our display products, overlay weapon sights and Kopin Wearable technologies. R&D revenues associated with funded programs are presented separately in revenue in the statement of operations. R&D costs include staffing, purchases of materials and laboratory supplies, circuit design costs, fabrication and packaging of display products, and overhead. In fiscal year 2019, we expect our R&D expenditures to be related to our display products and military systems. R&D expenses for fiscal years 2018, 2017 and 2016 were as follows:
(In thousands)2018 2017 2016
Funded$4,892
 $3,365
 $787
Internal12,553
 15,415
 15,253
Total$17,445
 $18,780
 $16,040

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Fiscal Year 2018 Compared to Fiscal Year 2017
Funded R&D expense for 2016 decreased2018 increased as compared to the prior year due to a reductionan increase in programs with customers developingspending for military programs. Internal R&D expense for 2018 decreased as compared to the prior year primarily due to products for Wearable Applications. The decrease occurred because the customers either discontinued the programs or the products movedmoving into the commercialization phase. We expect to incur significant development costs in fiscal year 2019 to develop display products and develop military products.
Fiscal Year 2017 Compared to Fiscal Year 2016
Funded R&D expense for 2017 increased as compared to the prior year due to an increase in spending for military programs. Internal R&D expense for 2017 remained relatively consistent as compared to prior year.
Selling, General and Administrative.    Selling, general and administrative (S,("S,G&A)&A") expenses consist of the expenses incurred by our sales and marketing personnel and related expenses, and administrative and general corporate expenses.

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 S,G&A expenses for the fiscal years 2018, 2017 and 2016 were as follows:
 2016 2015
Selling, general and administrative expense (in millions)$17.0
 $18.1
Selling, general and administrative expense as a % of revenues74.9% 56.6%
(In thousands, except percentages)2018 2017 2016
Selling, general and administrative expense$27,211
 $20,541
 $16,962
Selling, general and administrative expense as a % of total revenue111.2% 73.8% 74.9%
The decrease in Fiscal Year 2018 Compared to Fiscal Year 2017
S,G&A expenses in 2016for 2018 increased as compared to 2015 isthe prior year primarily attributabledue to a decrease in deferred compensation expense, professional fees and intangible amortization partially offset by an increase in labor costs.compensation expenses including increases of $2.6 million in non-cash stock-based compensation, $1.3 million in product promotion, $0.8 million of accrued contingent consideration and $0.8 million of legal expenses and patent maintenance cost.

Fiscal Year 2017 Compared to Fiscal Year 2016
Other IncomeS,G&A for 2017 increased as compared to the prior year, reflecting incremental S,G&A of $1.4 million from our acquisition of NVIS and Expense.a $1.5 million increase in professional fees. The incremental S,G&A from NVIS for 2017 primarily relates to the amortization of intangibles resulting from the acquisition.
Impairment of Goodwill and Intangibles. Goodwill and intangibles are evaluated for impairment annually or more often if indicators of a potential impairment are present. Our annual impairment testing of goodwill is performed separately from our impairment testing of intangibles. The Company performs impairment tests of goodwill at its reporting unit level. The goodwill valuations that are utilized to test these assets for impairment are depending on a number of significant estimates and assumptions, including macroeconomic conditions, overall growth rates, competitive activities, cost containment, Company business plans and the discount rate applied to cash flows. We believe these estimates and assumptions are reasonable and are comparable to those that would be used by other market participants. Impairment of goodwill for the fiscal years 2018, 2017 and 2016 were as follows:
(in millions)2016 2015
Interest income$0.7
 $0.8
Other (expense) and income, net(0.4) (0.2)
Foreign currency transaction (losses) gains(0.7) 0.6
Subtotal(0.4) 1.2
Gain on sales of investments1.0
 9.2
Other income and expense$0.6
 $10.4
(In thousands)2018 2017 2016
Impairment of goodwill$1,417
 $600
 $—

During fiscal 2018, we recognized a $1.4 million goodwill impairment charge related to our NVIS reporting unit and our Kopin Software Ltd. reporting unit. During fiscal year 2017, we recognized a $0.6 million goodwill impairment charge related to our NVIS reporting unit. See Note 5 of the "Notes to Consolidated Financial Statements" for more information.
Impairment of Assets. The Company periodically reviews the carrying value of its long-lived assets to determine if facts and circumstances suggest that they may be impaired or that the amortization or depreciation period may need to be changed. The carrying value of a long-lived asset is considered impaired when the anticipated identifiable undiscounted cash flows from such asset are less than its carrying value. For assets that are to be held and used, impairment is measured based upon the amount by which the carrying amount of the asset exceeds its fair value. Impairment of assets for the fiscal years 2018, 2017 and 2016 were as follows:
(In thousands)2018 2017 2016
Impairment of assets$2,527
 $—
 $—
During fiscal 2018, we recognized a $2.5 million asset impairment charge related to equipment as discussed further in Note 2. of the "Notes to Consolidated Financial Statements."

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Total Other Income (Expense), Net. Other income and expense,(expense), net, as shown above, is primarily composed of interest income, foreign currency transactions andtransaction, remeasurement gains and losses incurred by our Korean and United KingdomUK-based subsidiaries and other non-operating income items. Other income (expense), net, for the fiscal years 2018, 2017 and 2016 were as follows:
 2018 2017 2016
(In thousands)
As Revised (1)
    
Total other income (expense), net$5,514
 $1,955
 $571
1.For discussion of the correcting adjustments, see Note 18 - Correction of Previously Issued Financial Statements
Fiscal Year 2018 Compared to Fiscal Year 2017
In 2018 we recorded $1.2 million of foreign currency gains compared to $1.0 million of foreign currency losses recorded in 2017. In 2018, we recorded a non-cash $2.8 million gain on salesequity investments. In 2018, the Company received $1.0 million of investmentsinsurance proceeds related to the embezzlement at our Korean subsidiary. In 2017, we recorded a non-cash $2.0 million gain on the fair value adjustment of a warrant we received as part of a license of our technology.
Fiscal Year 2017 Compared to Fiscal Year 2016
In 2017 and the impairment of cost based investments. Additionally, in 2016, we recorded $0.5$1.0 million of expense for amounts stolen from Kowon. For 2016, we recordedand $0.7 million of foreign currency losses, as compared to $0.6 million foreign currency gains for 2015. This was primarily attributable to increased fluctuations in the U.S. dollar and GBP exchange rate.respectively. In 2015,2017, we recorded a non-cash $2.0 million gain on the salefair value adjustment of investmentsa warrant we received as part of $9.2 million consistinga license of gains from the sale of investments in Vuzix and Recon of $3.7 million and $5.5 million, respectively.our technology. In 2016, we recorded a final additional gain of $1.0 million on the sale of our investment in Recon as a result of the release of amounts which were held in escrow at the time of the sale.

Tax provision.benefit (provision)
(In thousands)2018 2017 2016
Tax (provision) benefit$(30) $2,963
 $(3,130)
Fiscal Year 2018 Compared to Fiscal Year 2017
The provision for income taxes for the fiscal year ended 20162018 of $3.1less than $0.1 million represents $33,000was due to a change in estimates related to uncertain tax positions and deferred tax liabilities for the Company's former Korean subsidiary. The benefit for income taxes for the fiscal year ended 2017 of state$3.0 million was driven by a reduction in foreign tax $978,000expense for the rate difference on a dividend distribution from the Company's Korean subsidiary of $0.8 million, an increase of uncertain tax for gain on salepositions of $0.2 million, the recognition of $1.1 million of net deferred tax liabilities in connection with the NVIS acquisition, which provided evidence of recoverability of the Korean subsidiary’s building, $671,000 for uncertainCompany's net deferred tax position, which includes potential interestassets that previously carried a full valuation allowance and penaltiesresulted in a reduction in the valuation allowance of $296,000,$1.1 million, a $1.0 million AMT credit that is expected to be refunded in the future and foreign withholding of $1,448,000.  $0.3 million tax benefit related to the Kowon embezzlement loss.
For 2017,2019, we expect to have movement in the foreign withholding tax relating to conversion rate changes. We also expect to have a state tax provision in 2017.
Net (income) loss attributable to noncontrolling interest.    We own approximately 93% of the equity of Kowon and 80% of the equity of eMDT. In the fourth quarter of 2015, we increased our investment in Kopin Software Ltd. from 58% to 100%. Net loss attributable to noncontrolling interest on our consolidated statement of operations represents the portion of the results of operations of our majority owned subsidiaries which is allocated to the shareholders of the equity interests not owned by us. The change in the statement of operations attributable to noncontrolling interest is the result of the change in the results of operations of Kowon, and eMDT for the twelve month period ended December 31, 2016 and for the period of time during 2015 when we owned 58% of Kopin Software Ltd.
(in millions)2016 2015
Kopin Software Ltd.$—
 $0.1
Kowon0.3
 —
eMDT0.1
 —
Total$0.4

$0.1

2019.
Fiscal Year 20152017 Compared to Fiscal Year 20142016
Revenues.    Our revenues, which include product sales and amounts earned from research and development contracts, for fiscal years 2015 and 2014, by category, were as follows:

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Revenues by Category (in millions)2015 2014
Military Applications$10.2
 $14.3
Wearable Applications12.3
 6.2
Industrial Applications4.0
 3.7
Consumer Electronic Applications1.7
 2.8
Research & Development3.9
 4.8
Total$32.1
 $31.8

Sales of our products for military applications decreased in 2015 because of a decrease in demand from the U.S. government, primarily for our products used in thermal weapon sights.
The increase in sales of our product for Industrial applications in 2015 as compared to 2014 is the result of an increase in sales of our products to manufacturers of 3D metrology equipment. Our 3D metrology customers are primarily located in Asia, and Chinese contract manufactures represent a significant market for 3D metrology equipment. Accordingly, sales of 3D metrology equipment are tied to the strength of the Chinese manufacturing sector.
The decrease in the Consumer Applications is the result of a decrease in sales of our products for use in digital still cameras (DSCs). We believe the overall market for DSCs has been declining due to an increase in use of cameras in smartphones. The decrease in Research and Development revenues is the result a decrease in funding from the U.S. government partially offset by an increase in funding by customers to develop wearable technologies.
International sales represented 32% and 38% of product revenues for fiscal years 2015 and 2014, respectively. Our international sales are primarily denominated in U.S. currency. Consequently, a strengthening of the U.S. dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors' products that are denominated in local currencies, leading to a reduction in sales or profitability in those foreign markets. In addition, our Korean subsidiary, Kowon, holds U.S. dollars in order to pay various expenses. As a result, our financial position and results of operations are subject to exchange rate fluctuations in transactional and functional currency. We have not taken any protective measures against exchange rate fluctuations, such as purchasing hedging instruments with respect to such fluctuations, because of the historically stable exchange rate between the Japanese yen, Korean won and the U.S. dollar.
Cost of Product Revenues.
 2015 2014
Cost of component revenues (in millions)$21.5
 $19.6
Cost of product revenues as a % of net component revenues76.4% 72.7%
Cost of component revenues, which is comprised of materials, labor and manufacturing overhead related to the production of our products increased as a percentage of revenues in 2015 as compared to 2014 due to a decrease in the sale of our display products for military applications, which have higher margins than our other products.
Research and Development.
(in millions)2015 2014
Funded$3.0
 $5.2
Internal14.6
 15.5
Total$17.6
 $20.7
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. In fiscal year 2016, our R&D expenditures will be related to our display products, overlay weapon sights and Kopin Wearable technologies. R&D revenues associated with funded programs are presented separately in revenue in the statement of operations. R&D costs include staffing, purchases of materials and laboratory supplies, circuit design costs, fabrication and packaging of display products, and overhead.
Funded R&D expense for 2015 decreased as compared to the prior year due to a reduction in programs with customers developing products for Wearable Applications. The decrease occurred because the customers either discontinued the programs or the products moved into the commercialization phase.

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Selling, General and Administrative.    Selling, general and administrative (S,G&A) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses, and administrative and general corporate expenses.
 2015 2014
Selling, general and administrative expense (in millions)$18.1
 $19.9
Selling, general and administrative expense as a % of revenues56.6% 62.6%
The decrease in S,G&A expenses in 2015 as compared to 2014 is primarily attributable to a decrease in deferred compensation expense, professional fees and intangible amortization partially offset by an increase in patent expense.
Other Income and Expense.
(in millions)2015
 2014
Interest income$0.8
 $0.9
Other (expense) income, net(0.2) 0.1
Foreign currency transaction gains0.6
 0.3
Subtotal1.2

1.3
Gain on sales of investments9.2
 —
Impairment of investments—
 (1.3)
Other income and expense$10.4
 $—
Other income and expense, net, as shown above, is composed of interest income, foreign currency transactions and remeasurement gains and losses incurred by our Korean and United Kingdom subsidiaries, gains on sales of investments and the impairment of cost based investments. Additionally, in 2015, we recorded $0.3 million of expense for amounts stolen from Kowon. For 2015, we recorded $0.6 million of foreign currency gains as compared to $0.3 million foreign currency gains for 2014. This was primarily attributable to increased fluctuations in the U.S. dollar and Korean won currency exchange rate. In 2015, we recorded a gain on the sale of investments of $9.2 million consisting of gains from the sale of investments in Vuzix and Recon of $3.7 million and $5.5 million, respectively. In 2014, we recorded an impairment of $1.3 million related to the write-off of our equity investment in KoBrite and $0.2 million of expense for amounts stolen from Kowon.
Equity losses in unconsolidated affiliates.     Our equity losses in unconsolidated affiliates for 2014 consists of our approximate 12% share of the losses of KoBrite for the first quarter of 2014, incurred prior to writing our investment down to zero in the second quarter. During the twelve months ended December 27, 2014, we funded the operations of one of our investments. The impact of this funding for the twelve month period ended December 27, 2014 was approximately $0.3 million.
Tax provision.The benefit for income taxes for the fiscal year ended 20152017 of $25,000$3.0 million was driven by a reduction in foreign tax expense for the rate difference on a dividend distribution from the Company's Korean subsidiary of $0.8 million, an increase of uncertain tax positions of $0.2 million, the recognition of $1.1 million of net deferred tax liabilities in connection with the NVIS acquisition provided evidence of recoverability of the Company's net deferred tax assets that previously carried a full valuation allowance and resulted in a reduction in the valuation allowance of $1.1 million, a $1.0 million AMT credit that is expected to be refunded in the future and $0.3 million tax benefit related to the Kowon embezzlement loss. The provision for income taxes for the fiscal year ended 2016 of $3.1 million represents the net$0.1 million of state tax, $1.0 million of tax for gain on sale of the Korean subsidiary’s building, $0.7 million for uncertain tax position, which includes potential interest and penalties of $0.3 million, and foreign withholding tax related to closing our Korean facilities. For 2016, we expect to have movement in the foreign withholding tax relating to conversion rate changes. We also expect to have a state tax provision in 2016.of $1.4 million.
Net (income) loss attributable to noncontrolling interest.    We own approximately 93%    As of the equity of Kowon andDecember 29, 2018, we owned 80% of the equity of eMDT. In the fourth quarter of 2015, we increased our investment in Kopin Software Ltd. from 58% to 100%. Net loss attributable to noncontrolling interest on our consolidated statement of operations represents the portion of the results of operations of our majority owned subsidiaries which is allocated to the shareholders of the equity interests not owned by us. The change in net (income) loss attributable to noncontrolling interest in 2017 compared to 2016 is the result of the change in the results of operations of Kowon and eMDT. The change in net (income) loss attributable to noncontrolling interest

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in 2016 compared to 2015 is the result of the change in the results of operations of Kowon and eMDT for the twelve month period ended December 26, 2015 and for the period of time during 2015 when we owned 58% of Kopin Software Ltd.
(in millions)2015
 2014
Kopin Software Ltd.$0.1
 $0.3
eMDT—
 0.1
Total$0.1
 $0.4
Liquidity and Capital Resources

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As ofAt December 31, 2016,29, 2018 and December 30, 2017, we had cash and cash equivalents and marketable debt securities of $77.2$37.2 million and working capital of $70.0$39.0 million compared to $80.7$68.8 million and $89.9$67.6 million, respectively, as of December 26, 2015.respectively. The change in cash and cash equivalents and marketable securities was primarily due to net outflow of cash used in operating activities of $26.2 million and the repurchase of our common stock for withholding tax purposes of $0.5$28.1 million, which was partially offset by cash received from investing activitiesnet inflow of $22.8 million. The cash provided by investing activities was primarily from the receipt of final installment of $15 million from the 2013 sale of our III-V product line$18.8 million. 
At December 30, 2017 and investment in Kopin Taiwan Corporation and the sale of our Korean subsidiary plant and land for approximately $8.1 million.
As of December 26, 2015,31, 2016, we had cash and cash equivalents and marketable debt securities of $80.7$68.8 million and working capital of $89.9$67.6 million compared to $90.9$77.2 million and $86.7$70.0 million, respectively, as of December 27, 2014.respectively. The change in cash and cash equivalents and marketable securities was primarily due to net outflow of cash used in operating activities of $17.1$25.9 million and the repurchaseacquisition of our common stocka company for withholding tax purposes of $1.1$3.7 million, which was partially offset by cash provided by the sale of investments of $9.2 million.
On January 15, 2016, we received the $157.6 million note receivable which was the final payment associated with the sale of our III-V product line and investment in Kopin Taiwan Corporation.
In December 2016 we entered into an agreement with a Chinese company to acquire 7,589,000 shares of unregisteredtreasury stock of the Company for approximately USD $24.7 million. The transaction is subject to standard closing conditions
Cash and government approval.
Cashcash equivalents and marketable debt securities held in U.S. dollars at December 31, 2016 were:at:
Domestic$57,913,388
Foreign9,377,679
Subtotal cash and marketable debt securities67,291,067
Cash and marketable debt securities held in other currencies and converted to U.S. dollars9,906,829
Total cash and marketable debt securities$77,197,896
 December 29,
2018		 December 30,
2017
Domestic locations$36,182,663
 $55,488,190
Foreign locations418,339
 6,110,496
Subtotal cash and cash equivalents and marketable debt securities held in U.S. dollars36,601,002

61,598,686
Cash and cash equivalents held in other currencies and converted to U.S. dollars643,361
 7,156,998
Total cash and cash equivalents and marketable debt securities$37,244,363
 $68,755,684
We have no plans to repatriate the cash and marketable debt securitiescash equivalents held in our foreign subsidiariessubsidiary FDD and subsequent to year end we stopped operations at Kopin Software Ltd. which had no excess cash and, as such, we have not recorded any deferred tax liability. In 2013, we ceasedliability with respect to such cash. The manufacturing operations at our Korean facility, Kowon. Kowon, have ceased and Kowon was liquidated at fiscal year ended 2018. The Company has approximately $17.9$0.4 million of cash and marketable debt securities which we anticipate will eventually be remitted tocash equivalents in Korea at December 29, 2018, in the U.S. and accordingly we haveevent of any tax liabilities are identified. The Company has recorded deferred tax liabilities associatedfor any additional withholding tax that may be due to the Korean government upon Kowon's final tax return acceptance.
In March 2017, we purchased 100% of the outstanding stock of NVIS for $3.7 million. We expect to pay approximately $1.3 million in March 2019 and may be required to pay up to and additional $0.7 million if certain future operating performance milestones are met and the selling shareholders remain employed with its unremitted earnings.NVIS through March 2020. As there is a requirement to remain employed to earn the contingent payments, these contingent payments will be treated as compensation expense.
We expect to expend between $2.0$1.5 million and $3.0$2.0 million on capital expenditures over the next twelve months, primarilymonths.
The Company has entered into an agreement to make a capital contribution of approximately $5.1 million (the Company's capital contribution under the agreement is $35.0 million Chinese Yuan Renminbi). The Company’s ability to make its capital contribution is subject to Chinese laws which include restrictions of direct foreign investment. Accordingly, the Company will need to make the capital contribution through its Chinese subsidiary’s operations.
The Company has incurred net losses of $34.5 million, $25.4 million and $23.0 million for the acquisitionfiscal years ended 2018, 2017 and 2016, respectively, and net cash outflows from operations of equipment$28.1 million, $25.9 million and $26.2 million for the fiscal years ended 2018, 2017 and 2016, respectively. In addition, the Company has continued to support some of our production and research facilities.
As of December 31, 2016, we had substantial tax loss carry-forwards, which may be used to offset future federal taxes due. We may recordexperience a tax provisionsignificant decline in our financial statements but we may be able to offset some or all of the amounts that are payable with our tax loss carry-forwards. We may be subject to alternative minimum taxes, foreign taxes and state income taxes depending on our taxable income and sources of taxable income.
Historically we have financed our operations primarily through public and private placements of our equity securities. Over the past several years we have used ourits cash and cash equivalents and marketable debt securities, on handwhich was primarily a result of funding operating losses, of which a significant component relates to fund the business. We believe our available cash resources will support our operationsCompany’s ongoing investments in the research and capital needs for at leastdevelopment of Wearable products. These negative financial conditions raise substantial doubt regarding the next twelve months.Company’s ability to continue as a going concern.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.

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Seasonality
Our revenues have not followed a seasonal pattern for the past twothree years and we do not anticipate any seasonal trend to our revenues in 2017.2019.
Climate Change
We do not believe there is anything unique to our business which would result in climate change regulations having a disproportional effect on us as compared to U.S. industry overall.

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KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Inflation
We do not believe our operations have been materially affected by inflation in the last three fiscal years.
Contractual Obligations
The following is a summary of our contractual payment obligations for operating leases as of December 31, 2016:
29, 2018:
Contractual ObligationsTotal Less than 1 year 1-3 Years 3-5 years More than 5 years
Operating Lease Obligations$5,746,000
 $1,219,000
 $1,965,000
 $2,361,000
 $201,000
 Payment due by period
 Total Less than 1 year 1-3 Years 4-5 years More than 5 years
Operating leases$4,060,000
 $1,210,000
 $2,649,000
 $201,000
 $—

The Company has entered into an agreement to make a capital contribution of approximately $5.1 million (the Company's capital contribution under the agreement is $35.0 million Chinese Yuan Renminbi). The Company’s ability to make its capital contribution is subject to Chinese laws which include restrictions of direct foreign investment. Accordingly, the Company will need to make the capital contribution through its Chinese subsidiary’s operations.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk
We invest our excess cash in high-quality U.S. government, government-backed (Fannie Mae, FDIC guaranteed bonds and certificates of deposit) and corporate debt instruments, which bear lower levels of relative risk. We believe that the effect, if any, of reasonably possible near-term changes in interest rates on our financial position, results of operations and cash flows should not be material to our cash flows or income. It is possible that interest rate movements would increase our unrecognized gain or loss on interest rate securities. Our portfolio of marketable debt securities is subject to interest rate risk although our intent is to hold securities until maturity. The credit rating of our investments may be affected by the underlying financial health of the guarantors of our investments.
We are exposed to changes in foreign currency exchange rates primarily through our translation of our foreign subsidiary’s financial positions, results of operations, and transaction gains and losses as a result of non-U.S. dollar denominated cash flows related to business activities in Asia and the United Kingdom, and remeasurement of U.S. dollars to the functional currency of our foreign subsidiaries. We are also exposed to the effects of exchange rates in the purchase of certain raw materials whose price is in U.S. dollars but the price on future purchases is subject to change based on the relationship of the Japanese Yen to the U.S. dollar. We do not currently hedge our foreign currency exchange rate risk. We estimate that any market risk associated with our international operations is unlikely to have a material adverse effect on our business, financial condition or results of operation.
We use Silicon wafers but do not enter into forward or futures hedging contracts.
Item 8.Financial Statements and Supplementary Data
The financial statements required by this Item are included in this Report on pages 4529 through 68.64. Reference is made to Item 15 of this Report.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

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Item 9A.Controls and Procedures (As Revised)


Correction of Previously Issued Financial Statements
On October 17, 2019, the Audit Committee of our Board of Directors (the “Audit Committee”) determined that it would be necessary for the Company to correct certain immaterial misstatements identified in its previously-issued consolidated financial statements. The Audit Committee made this determination following consultation with and upon the recommendation of management. Refer to "Part II. Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Note 18. Correction of Previously Issued Financial Statements included in "Part IV. Item 15 - Exhibits and Financial Statement Schedules" for a more detailed description of the misstatements.
Notwithstanding the existence of the material weakness described below, we believe that the revised consolidated financial statements in this Form 10-K/A fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods, presented, in conformity with generally accepted accounting principles (“GAAP”).

Evaluation of Disclosure Controls and Procedures (as revised)

We conducted an evaluationIn connection with filing the Original Form 10-K, management, under the supervision of and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our “disclosuredisclosure controls and procedures” (Disclosure Controls and Procedures),procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of December 31, 2016. The controls evaluation was conducted under the supervision and withend of the participation of management, includingperiod covered by our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer). Disclosure Controls and Procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as thisAnnual Report on Form 10-K is recorded, processed, summarized and reported withinfor the time periods specified in the U.S. Securities and Exchange Commission’s (SEC’s) rules and forms. Disclosure Controls and Procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our quarterly evaluation of Disclosure Controls and Procedures includes an evaluation of some components of our internal control over financial reporting, and internal control over financial reporting is also separately evaluated on an annual basis for purposes of providing the management report which is set forth below.

Conclusion of Evaluation

fiscal year ended December 29, 2018. Based on the Disclosure Controls and Proceduressuch evaluation Kopin’s Chief Executive Officer and Chief Financial Officeras of March 13, 2019, management concluded that, as of the end of such period, our disclosure controls and procedures were effective.
Subsequent to that evaluation, in connection with the correction of certain immaterial misstatements identified in its previously-issued consolidated financial statements for the fiscal year ended December 31, 2016,29, 2018, management reevaluated the

24





effectiveness of our Disclosure Controlsdisclosure controls and Procedures were not effectiveprocedures as a resultof December 29, 2018 and concluded that because of the material weaknesses that existedweakness identified in our internal control over financial reporting described below.

Notwithstanding the material weaknesses discussed below, our Chief Executive Officerdisclosure controls and Chief Financial Officer have concluded that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, resultsprocedures were not effective as of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.December 29, 2018.


Evaluation of Internal Control Over Financial Reporting

Management’sManagement's Annual Report on Internal Control Over Financial Reporting

(as revised)
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and include those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company.

company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made in accordance with authorizations of management and directors of the company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

OurUnder the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 201629, 2018, based on the criteria outlined in Internal Control-Integrated Framework (2013) issuedframework set forth by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on that evaluation as of March 13, 2019, our management concluded that, as of December 29, 2018, internal control over financial reporting was effective based on criteria established in Internal Control-Integrated Framework issued by the COSO.


33





Subsequent to that evaluation, in connection with the correction of certain immaterial misstatements identified in its previously-issued consolidated financial statements for the fiscal year ended December 29, 2018, management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, reevaluated the effectiveness of our internal control over financial reporting based on the criteria established by the COSO. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 29, 2018 because of a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. During the course of our evaluation of the effectiveness of our
Management identified a material weakness in internal control over financial reporting management concluded that the Company did not maintain effective internal control over financial reporting due to the identification of the following material weaknesses as of December 31, 2016:

29, 2018. We did not design and maintain effective controls related to segregation of duties with respect to the establishment of bank accounts, cash disbursements, the cash reconciliation process, and posting of journal entries.

We did not maintain effective controls related to themanagement’s monitoring and oversight of accounting for non-routine transactions. Specifically, our internal controls were not designed effectively to ensure appropriate and financial reporting functions and reviews of financial statements.

While these material weaknesses did not result in any material misstatement of our historical financial statements, they did result in errors in income statement classifications for eachtimely evaluation of the three years inaccounting impact for non-routine transactions, including the period ended December 31, 2016 which were corrected by immaterial restatement of the financial statements included in this Form 10-K.

accounting for non-controlling interest and other investments.
Our independent registered public accounting firm, that audited our consolidated financial statements included in this Form 10-KDeloitte & Touche LLP, has issued an adverse auditreissued their report on the Company’sour internal controls over financial reporting as of December 31, 2016. Thisreporting. Deloitte’s reissued report appears below.on page 27.

Management’s Plan to Remediate the Material Weaknesses

Our Korean subsidiary had stopped production in 2013 and was maintained by a small staff, pending sale of the facilities, which occurred in June of 2016. The Company seal, which was necessary to commit the embezzlement, was removed from local management’s control by December 31, 2016 and now resides with an independent party. Local management must now make requests of the Company’s corporate accounting department to execute transactions. The Company’s corporate accounting department coordinates with the independent party to execute any transactions. In addition enhanced reviews of bank statements, account reconciliations and supporting analysis are being performed by the Company’s corporate accounting department.

Management believes that these efforts will effectively remediate the material weaknesses. However, the material weaknesses in our internal control over financial reporting will not be considered remediated until the new controls are fully implemented, in operation for a sufficient period of time and tested and concluded by management to be designed and operating effectively, and we cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. In addition, as the Company continues to evaluate and work to improve its internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. Management will test and evaluate the implementation of these new processes and internal controls during its 2017 fiscal year to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material error in the Company’s financial statements. Subject to the foregoing, management believes these remediation efforts will be completed by December 30, 2017.


Changes in Internal Control Over Financial Reporting

Except for the control deficienciesmaterial weakness discussed above in this Item 9A that havehas been assessed as a material weaknessesweakness as of December 31, 2016,29, 2018, there were no other changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended December 31, 201629, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



Management’s Plan to Remediate the Material Weakness
We are committed and are taking steps necessary to remediate the control deficiencies that constituted the above material weakness by implementing changes to our internal control over financial reporting. We are in the process of designing and

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implementing measures to remediate the underlying causes of the control deficiencies that gave rise to the material weakness. In addition, we are providing in-house accounting personnel training to ensure that they have the relevant expertise related to the monitoring and oversight of accounting for non-routine transactions. We will continue to monitor the effectiveness of these controls and will make any further changes management determines appropriate.

26







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and the Board of Directors and Stockholders of
Kopin Corporation
Westborough, Massachusetts

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Kopin Corporation and subsidiaries (the “Company”) as of December 31, 2016,29, 2018, based on criteria established in Internal Control-IntegratedControl - Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission. Commission (COSO). In our opinion, because of the effect of the material weakness identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 29, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

In our report dated March 13, 2019, we expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. As described below, a material weakness was subsequently identified as a result of the correction of the previously issued financial statements. Accordingly, management has revised its assessment about the effectiveness of the Company’s internal control over financial reporting and our present opinion on the effectiveness of the Company’s internal control over financial reporting as of December 29, 2018, as expressed herein, is different from that expressed in our previous report.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 29, 2018, of the Company and our report dated March 13, 2019 (November 7, 2019, as to the effects of the errors discussed in Note 18 to the financial statements), expressed an unqualified opinion on those financial statements and included explanatory paragraphs relating to going concern and the Company’s adoption of a new accounting standard.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for theirits assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control overOver Financial Reporting.Reporting (as revised). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of theits inherent limitations, of internal control over financial reporting including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be preventedprevent or detected on a timely basis.detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



27





Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’sCompany’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses haveweakness has been identified and included in management's assessment:

a)ineffective controls related to the segregation of duties over the establishment of bank accounts, cash disbursements, cash reconciliation process and posting of journal entries and,
b)ineffective controls over the monitoring and oversight of financial accounting and reporting functions and reviews of financial statements.

These The Company did not design and maintain effective controls related to management’s monitoring and oversight of accounting for non-routine transactions. This material weaknesses wereweakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2016,29, 2018 of the Company, and this report does not affect our report on such financial statements and the financial statement schedule.statements.

In our opinion, because of the effect of the material weaknesses identified above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.


35





We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2016, of the Company and our report dated March 22, 2017 expressed an unqualified opinion on those financial statements and financial statement schedule.


/s/ Deloitte & Touche LLP


Boston, Massachusetts

March 22, 201713, 2019 (November 7, 2019, as to the effects of the material weakness described in Management’s Annual Report on Internal Control over Financial Reporting (as revised)).




3628








Item 9B.Other Information
None
Part III
Item 10.Directors, Executive Officers and Corporate Governance
The information required under this item is incorporated herein by reference from our Proxy Statement relating to our 2017 Annual Meeting of Stockholders (the “Proxy Statement”). We expect to file the Proxy Statement with the SEC in April, 2017 (and, in any event, no later than 120 days after the close of our last fiscal year), pursuant to SEC Regulation 14A.
Code of Ethics.    We have adopted a Code of Business Conduct and Ethics (the Code) that applies to all of our employees (including our CEO and CFO) and directors. The Code is available on our website at www.kopin.com. We intend to satisfy the disclosure requirement regarding any amendment to or waiver of a provision of the Code applicable to any executive officer or director, by posting such information on our website.
Our corporate governance guidelines, whistleblower policy and the charters of the audit committee, compensation committee and nominating and corporate governance committee of the Board of Directors as well as other corporate governance document materials are available on our website at www.kopin.com under the heading “Investors”, then “Corporate Governance” then “Governance Documents.”
Item 11.Executive Compensation
The information required under this item is contained in our Proxy Statement and is incorporated herein by reference from the Proxy Statement.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference from the Proxy Statement. Refer also to the equity compensation plan information set forth in Part II Item 5 of this Annual Report on Form 10-K.
Item 13.Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference from the Proxy Statement.
Item 14.Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference from the Proxy Statement.

37






Part IV
Item 15.Exhibits and Financial Statement Schedules
(1) Consolidated Financial Statements:
Statements (As Revised)1:
 Page
Report of Independent Registered Public Accounting Firm
4230
  
Consolidated Balance Sheets
4331
  
Consolidated Statements of Operations
4432
  
Consolidated Statements of Comprehensive Loss
4432
  
Consolidated Statements of Stockholders’ Equity
4534
  
Consolidated Statements of Cash Flows
4635
  
Notes to Consolidated Financial Statements
4736

(2) Financial Statement Schedule:
Schedule II—Valuation and Qualifying Accounts
1.
68
The consolidated financial statements have been revised to correct the misstatements described in Note 18 - Correction of Previously Issued Financial Statements.

(2) Financial Statement Schedules:
Financial Statement Schedules other than the one listed above have been omitted because of the absence of conditions under which they areinformation required to be set forth therein is not applicable or because the required information is includedshown in the consolidated financial statementsaccompanying Consolidated Financial Statements or the notes thereto.


(3) ExhibitsExhibits:
The exhibits filed as part of this Form 10-K/A are listed on the exhibit index immediately preceding such exhibits, and is incorporated herein by reference.

 






3829







3.1 Amended and Restated Certificate of Incorporation(2) 
3.2 Amendment to Certificate of Incorporation(5) 
3.3 Amendment to Certificate of Incorporation(5) 
3.4 Fifth Amended and Restated By-laws(8) 
4 Specimen Certificate of Common Stock(1) 
10.1 Form of Employee Agreement with Respect to Inventions and Proprietary Information(1) 
10.2 Kopin Corporation 2001 Equity Incentive Plan(7)* 
10.3 Kopin Corporation 2001 Equity Incentive Plan Amendment(9)* 
10.4 Kopin Corporation 2001 Equity Incentive Plan Amendment(10)* 
10.5 Kopin Corporation 2001 Equity Incentive Plan Amendment(11)* 
10.6 Kopin Corporation 2001 Equity Incentive Plan Amendment(13)* 
10.7 Kopin Corporation 2001 Supplemental Equity Incentive Plan(6)* 
10.8 Form of Key Employee Stock Purchase Agreement(1)* 
10.9 License Agreement by and between the Company and Massachusetts Institute of Technology dated April 22, 1985, as amended(1) 
10.10 Facility Lease, by and between the Company and Massachusetts Technology Park Corporation, dated October 15, 1993(3) 
10.11 Joint Venture Agreement, by and among the Company, Kowon Technology Co., Ltd., and Korean Investors, dated as of March 3, 1998(4) 
10.12 Eighth Amended and Restated Employment Agreement between the Company and Dr. John C.C. Fan, dated as of December 31, 2014(16) 
10.13 Kopin Corporation Form of Stock Option Agreement under 2001 and 2010 Equity Incentive Plans(12)* 
10.14 Kopin Corporation 2001 and 2010 Equity Incentive Plan Form of Restricted Stock Purchase Agreement(12)* 
10.15 Kopin Corporation Fiscal Year 2012 Incentive Bonus Plan*
  
10.16 Kopin Corporation 2010 Equity Incentive Plan(14) 
10.17 Purchase Agreement, dated January 10, 2013, by and among Kopin Corporation, IQE KC, LLC and IQE plc(15) 
21.1 Subsidiaries of Kopin Corporation  
23.1 Consent of Independent Registered Public Accounting Firm  
31.1 Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  
31.2 Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  
32.1 Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
 
32.2 Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
 
101 The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Stockholder's Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text  









39





*
Management contract or compensatory plan required to be filed as an Exhibit to this Annual Report on Form 10-K.
**
This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filing.
(1)Filed as an exhibit to Registration Statement on Form S-1, File No. 33-45853, and incorporated herein by reference.
(2)Filed as an exhibit to Registration Statement on Form S-1, File No. 33-57450, and incorporated herein by reference.
(3)Filed as an exhibit to Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
(4)Filed as an exhibit to Annual Report on Form 10-Q for the quarterly period ended June 27, 1998 and incorporated herein by reference.
(5)Filed as an exhibit to Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2000 and incorporated herein by reference.
(6)Filed as an exhibit to Registration Statement on Form S-8, filed on November 13, 2011 and incorporated herein by reference.
(7)Filed as an appendix to Proxy Statement filed on April 20, 2001 and incorporated herein by reference.
(8)Filed as an exhibit to Current Report on Form 8-K filed on July 18, 2016 and incorporated herein by reference.
(9)Filed as an exhibit to Registration Statement on Form S-8 filed on August 16, 2002 and incorporated herein by reference
(10)Filed as an exhibit to Registration Statement on Form S-8 filed on March 15, 2004 and incorporated herein by reference.
(11)Filed as an exhibit to Registration Statement on Form S-8 filed on May 10, 2004 and incorporated herein by reference.
(12)Filed as an exhibit to Annual Report on Form 10-K for the fiscal year ended December 25, 2004 and incorporated herein by reference.
(13)Filed as an exhibit to Registration Statement on Form S-8 filed on April 15, 2008 and incorporated herein by reference.
(14)Filed with the Company's Definitive Proxy Statement on Schedule 14 filed as of April 5, 2013 and incorporated by reference herein.
(15)Filed as an exhibit to Current Report on Form 8-K on January 10, 2013 and incorporated herein by reference.
(16)Filed as an exhibit to Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2015 and incorporated herein by reference.


40






KOPIN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
42
Consolidated Balance Sheets at December 31, 2016 and December 26, 2015
43
Consolidated Statements of Operations for the years ended December 31, 2016, December 26, 2015, and December  27, 2014
44
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016, December 26, 2015, and December  27, 2014
44
Consolidated Statements of Stockholders’ Equity for the years ended December  31, 2016, December 26, 2015, and December 27, 2014
45
Consolidated Statements of Cash Flows for the years ended December 31, 2016, December  26, 2015, and December 27, 2014
46
Notes to Consolidated Financial Statements
47

41






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors and Stockholders of
Kopin Corporation
Westborough, Massachusetts

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Kopin Corporation and subsidiaries (the “Company”) as of December 31, 201629, 2018 and December 26, 2015, and30, 2017, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2016. Our audits also included29, 2018, and the financial statement schedule listed inrelated notes (collectively referred to as the Index at Item 15(2)“financial statements”). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express anIn our opinion, on the financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2018 and financial statement schedule based on our audits.December 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2018, in conformity with accounting principles generally accepted in the United States of America.

We conducted our auditshave also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the Company’s internal control over financial reporting as of December 29, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2019 (November 7, 2019, as to the effects of the material weakness described in Management’s Annual Report on Internal Control Over Financial Reporting (as revised)), which report expressed an adverse opinion on the Company’s internal control over financial reporting because of a material weakness.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and recurring negative operating cash flows that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company adopted Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers,” using the modified retrospective adoption method on December 31, 2017.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Kopin Corporation and subsidiaries as of December 31, 2016 and December 26, 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 22, 2017 expressed an adverse opinion on the Company’s internal control over financial reporting due to the material weaknesses identified.
/s/ Deloitte & Touche LLP


Boston, Massachusetts

March 22, 201713, 2019 (November 7, 2019, as to the effects of the errors discussed in Note 18 to the financial statements)



We have served as the Company's auditor since at least 1987; however, an earlier year could not be reliably determined.

4230










KOPIN CORPORATION
CONSOLIDATED BALANCE SHEETS
December 29,
2018		 December 30,
2017
December 31,
2016		 December 26,
2015
(As Revised)1
 
(As Revised)1
ASSETS      
Current assets:      
Cash and equivalents$15,822,495
 $19,767,889
Cash and cash equivalents$14,326,347
 $24,848,227
Marketable debt securities, at fair value61,375,401
 60,942,891
22,918,016
 43,907,457
Accounts receivable, net of allowance of $136,000 and $153,000 in 2016 and 2015, respectively1,664,488
 1,487,633
Unbilled receivables34,707
 87,340
Accounts receivable, net of allowance of $304,000 and $149,000 in 2018 and 2017, respectively3,088,360
 3,955,123
Contract assets and unbilled receivables3,089,663
 704,863
Inventory3,302,112
 2,512,473
4,797,238
 5,080,797
Prepaid taxes341,144
 437,586
399,611
 264,352
Prepaid expenses and other current assets853,757
 920,410
784,790
 978,677
Note receivable—
 15,000,000
Total current assets83,394,104
 101,156,222
49,404,025
 79,739,496
Property, plant and equipment, net2,976,006
 2,677,103
2,598,842
 5,077,043
Goodwill844,023
 946,082
331,344
 1,780,247
Intangibles—
 883,636
Other assets618,139
 461,416
1,649,401
 3,842,068
Property and plant held for sale—
 819,263
Equity investments5,565,499
 —
Total assets$87,832,272
 $106,060,086
$59,549,111
 $91,322,490
   
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable$4,355,462
 $3,959,704
$3,921,880
 $4,918,605
Accrued payroll and expenses1,443,976
 1,631,292
3,038,005
 1,636,512
Accrued warranty518,000
 518,000
571,000
 649,000
Billings in excess of revenue earned981,761
 1,407,566
Contract liabilities and billings in excess of revenue earned388,933
 896,479
Other accrued liabilities2,560,144
 2,553,282
1,901,547
 2,066,025
Income tax payable935,364
 —
—
 1,416,892
Deferred tax liabilities2,571,000
 1,207,000
546,000
 520,000
Total current liabilities13,365,707
 11,276,844
10,367,365
 12,103,513
Contract liabilities, noncurrent17,294
 374,171
Asset retirement obligations246,922
 298,463
254,098
 269,877
Commitments and contingencies

 

Other long-term liabilities1,197,533
 1,195,082
Commitments and contingencies (Note 12)


 


Stockholders’ equity:      
Preferred stock, par value $.01 per share: authorized, 3,000 shares; none issued—
 —
—
 —
Common stock, par value $.01 per share: authorized, 120,000,000 shares; issued 79,648,618 shares in 2016 and 78,271,659 shares in 2015; outstanding 64,538,686 in 2016 and 63,977,385 in 2015, respectively766,409
 760,796
Common stock, par value $.01 per share: authorized, 120,000,000 shares; issued 80,735,320 shares in 2018 and 80,201,313 shares in 2017; outstanding 74,008,815 in 2018 and 73,058,783 in 2017, respectively785,220
 775,720
Additional paid-in capital328,524,644
 326,558,527
334,491,397
 329,917,858
Treasury stock (12,102,258 shares in 2016 and 2015, respectively, at cost)(42,741,551) (42,741,551)
Treasury stock (4,513,256 shares in 2018 and 2017, at cost)
(17,238,669) (17,238,669)
Accumulated other comprehensive income1,570,971
 771,774
1,554,587
 3,564,779
Accumulated deficit(214,042,787) (190,608,671)(271,730,661) (240,256,502)
Total Kopin Corporation stockholders’ equity74,077,686
 94,740,875
47,861,874
 76,763,186
Noncontrolling interest141,957
 (256,096)(149,053) 616,661
Total stockholders’ equity74,219,643
 94,484,779
47,712,821
 77,379,847
Total liabilities and stockholders’ equity$87,832,272
 $106,060,086
$59,549,111
 $91,322,490
1.For discussion of the correcting adjustments, see Note 18 - Correction of Previously Issued Financial Statements
See Accompanying Notes to Consolidated Financial Statements.


4331









KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal year ended2016 2015 2014
Revenues:     
Net component revenues$21,115,125
 $28,163,118
 $26,956,741
Research and development revenues1,527,441
 3,891,301
 4,850,724
 22,642,566
 32,054,419
 31,807,465
Expenses:     
Cost of component revenues17,814,271
 21,524,826
 19,592,149
Research and development-funded programs786,867
 3,006,352
 5,236,791
Research and development-internal15,252,794
 14,625,061
 15,499,230
Selling, general and administrative16,961,773
 18,134,580
 19,908,020
Gain on sale of property, plant and equipment(7,700,522) —
 —
 43,115,183
 57,290,819
 60,236,190
Loss from operations(20,472,617) (25,236,400) (28,428,725)
Other income and expense:     
Interest income658,384
 758,153
 966,403
Other (expense) income, net(448,581) (210,488) 58,537
Foreign currency transaction (losses) gains(672,727) 661,192
 258,725
Gain on sales of investments1,034,396
 9,206,919
 —
Impairment of equity and cost investments—
 —
 (1,319,287)
 571,472
 10,415,776
 (35,622)
Loss before (provision) benefit for income taxes, and equity losses in unconsolidated affiliates and net (income) loss of noncontrolling interest(19,901,145) (14,820,624) (28,464,347)
Tax (provision) benefit(3,130,000) 25,000
 180,000
Loss before equity losses in unconsolidated affiliates and net (income) loss of noncontrolling interest(23,031,145) (14,795,624) (28,284,347)
Equity losses in unconsolidated affiliates—
 (47,443) (386,442)
Net loss(23,031,145) (14,843,067) (28,670,789)
Net (income) loss attributable to the noncontrolling interest(402,971) 149,651
 458,745
Net loss attributable to the controlling interest$(23,434,116) $(14,693,416) $(28,212,044)
Net loss per share:     
Basic$(0.37) $(0.23) $(0.45)
Diluted$(0.37) $(0.23) $(0.45)
Weighted average number of common shares outstanding:     
Basic64,045,675
 63,465,797
 62,638,675
Diluted64,045,675
 63,465,797
 62,638,675
 2018 2017 2016
Fiscal year ended
(As Revised)1
   
(As Revised)1
Revenues:     
Net product revenues$19,211,115
 $24,894,805
 $21,115,125
Research and development and other revenues5,253,890
 2,946,685
 1,527,441
Total revenue24,465,005
 27,841,490
 22,642,566
Expenses:     
Cost of product revenues15,831,441
 18,118,418
 17,814,271
Research and development-funded programs4,892,066
 3,364,658
 786,867
Research and development-internal12,553,237
 15,515,057
 15,252,794
Selling, general and administrative27,210,849
 20,541,244
 16,961,773
Impairment of goodwill1,417,470
 600,086
 —
Impairment of assets2,526,669
 —
 —
Gain on sale of property, plant and equipment—
 —
 (7,700,522)
Total operating expenses64,431,732
 58,139,463
 43,115,183
Loss from operations(39,966,727) (30,297,973) (20,472,617)
Non-operating income (expense), net:     
Interest income640,059
 775,626
 658,384
Other income (expense), net855,106
 247,291
 (448,581)
Foreign currency transaction gains (losses)1,169,254
 (1,068,059) (672,727)
Gain on investments2,849,816
 2,000,000
 1,034,396
Total non-operating income5,514,235
 1,954,858
 571,472
Loss before benefit (provision) for income taxes and net loss (income) of noncontrolling interest(34,452,492) (28,343,115) (19,901,145)
Tax (provision) benefit(30,000) 2,963,000
 (3,130,000)
Net loss(34,482,492) (25,380,115) (23,031,145)
Net (income) loss attributable to the noncontrolling interest(51,050) 139,633
 (537,572)
Net loss attributable to Kopin Corporation$(34,533,542) $(25,240,482) $(23,568,717)
Net loss per share:     
Basic and diluted$(0.47) $(0.36) $(0.37)
Weighted average number of common shares outstanding:     
Basic and diluted73,156,545
 69,914,956
 64,045,675
1.For discussion of the correcting adjustments, see Note 18 - Correction of Previously Issued Financial Statements

See Accompanying Notes to Consolidated Financial Statements.


























32




KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 2018 2017 2016
Fiscal year ended
(As Revised)1
   
(As Revised)1
Net loss$(34,482,492) $(25,380,115) $(23,031,145)
Other comprehensive income (loss), net of tax:     
          Foreign currency translation adjustments(1,912,427) 1,921,655
 809,099
          Unrealized holding (loss) gain on marketable securities(264,949) 148,520
 33,464
          Reclassifications of gain (loss) in net loss49,525
 (6,376) (48,284)
Other comprehensive (loss) income, net of tax(2,127,851) 2,063,799
 794,279
Comprehensive loss(36,610,343) (23,316,316) (22,236,866)
Comprehensive loss (income) attributable to the noncontrolling interest66,609
 69,642
 (532,654)
Comprehensive loss attributable to Kopin Corporation$(36,543,734) $(23,246,674) $(22,769,520)

1.For discussion of the correcting adjustments, see Note 18 - Correction of Previously Issued Financial Statements

Fiscal years ended2016 2015 2014
Net loss$(23,031,145) $(14,843,067) $(28,670,789)
Other comprehensive income (loss):     
          Foreign currency translation adjustments809,099
 (1,060,186) (1,102,859)
          Unrealized holding gain (loss) on marketable securities33,464
 104,362
 681,346
          Reclassifications of gains in net loss(48,284) (1,490,776) (6,477)
Other comprehensive income (loss)$794,279
 $(2,446,600) $(427,990)
Comprehensive loss(22,236,866) (17,289,667) (29,098,779)
Comprehensive (gain) loss attributable to the noncontrolling interest(398,051) (91,200) 570,977
Comprehensive loss attributable to the controlling interest$(22,634,917) $(17,380,867) $(28,527,802)


See Accompanying Notes to Consolidated Financial Statements.




4433










KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (As Revised) 1
Common Stock 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Total Kopin
Corporation
Stockholders’
Equity
 
Noncontrolling
interest
 
Total
Stockholders’
Equity
Common Stock 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Total Kopin
Corporation
Stockholders’
Equity
 
Noncontrolling
Interest
 
Total
Stockholders’
Equity
Shares Amount Shares Amount 
Balance December 28, 201374,593,483
 $745,935
 $320,511,458
 $(42,442,932) $3,441,997
 $(147,703,212) $134,553,246
 $9,939
 $134,563,186
Exercise of stock options36,750
 368
 137,445
 —
 —
 —
 137,812
 —
 137,812
Balance at December 26, 201576,079,643
 $760,797
 $325,357,045
 $(42,741,551) $771,774
 $(190,608,671) $93,539,394
 $945,386
 $94,484,780
Vesting of restricted stock736,842
 7,368
 (7,368) —
 —
 —
 —
 —
 —
Stock-based compensation expense—
 —
 2,482,326
 —
 —
 —
 2,482,326
 —
 2,482,326
Other comprehensive income (loss)—
 —
 —
 —
 799,197
 —
 799,197
 (4,918) 794,279
Restricted stock for tax withholding obligations(175,542) (1,756) (508,841) —
 —
 —
 (510,597) —
 (510,597)
Net (loss) income—
 —
 —
 —
 —
 (23,568,717) (23,568,717) 537,572
 (23,031,145)
Balance at December 31, 201676,640,943
 766,409
 327,323,162
 (42,741,551) 1,570,971
 (214,177,388) 72,741,603
 1,478,040
 74,219,643
Vesting of restricted stock843,116
 8,431
 (8,431) —
 —
 —
 —
 —
 —
1,170,847
 11,708
 (11,708) —
 —
 —
 —
 —
 —
Stock-based compensation expense—
 —
 5,059,572
 —
 —
 —
 5,059,572
 —
 5,059,572
—
 —
 3,375,330
 —
 —
 —
 3,375,330
 —
 3,375,330
Other comprehensive income—
 —
 —
 —
 (315,758) —
 (315,758) (112,232) (427,990)—
 —
 —
 —
 1,993,808
 —
 1,993,808
 69,991
 2,063,799
Acquisition of eMDT—
 —
 (101,382) —
 —
 —
 (101,382) 101,382
 —
Restricted stock for tax withholding obligations(290,142) (2,901) (972,968) —
 —
 —
 (975,869) —
 (975,869)(239,752) (2,397) (768,926) —
 —
 —
 (771,323) —
 (771,323)
Treasury stock purchase—
 —
 —
 (298,619) —
 —
 (298,619) —
 (298,619)
Distribution to noncontrolling interest holder—
 —
 —
 —
 —
 —
 —
 (791,737) (791,737)
Sale of unregistered stock—
 —
 —
 25,502,882
 —
 (838,632) 24,664,250
 —
 24,664,250
Net loss—
 —
 —
 —
 —
 (28,212,044) (28,212,044) (458,745) (28,670,789)—
 —
 —
 —
 —
 (25,240,482) (25,240,482) (139,633) (25,380,115)
Balance December 27, 201475,183,207
 751,833
 324,625,694
 (42,741,551) $3,126,239
 (175,915,255) 109,846,959
 (459,656) 109,387,303
Exercise of stock options39,798
 398
 85,649
 —
 —
 —
 86,047
 —
 86,047
Vesting of restricted stock1,226,992
 12,270
 (12,270) —
 —
 —
 —
 —
 —
Stock-based compensation expense—
 —
 3,373,479
 —
 —
 —
 3,373,479
 —
 3,373,479
Other comprehensive loss—
 —
 —
 —
 (2,388,148) —
 (2,388,148) (58,452) (2,446,600)
Acquisition of Kopin Software Limited—
 —
 (445,344) —
 33,683
   (411,661) 411,663
 2
Restricted stock for tax withholding obligations(370,354) (3,704) (1,068,681) —
 —
 —
 (1,072,385) —
 (1,072,385)
Net loss—
 —
 —
 —
 —
 (14,693,416) (14,693,416) (149,651) (14,843,067)
Balance, December 26, 201576,079,643
 760,797
 326,558,527
 (42,741,551) 771,774
 (190,608,671) 94,740,875
 (256,096) 94,484,779
Balance at December 30, 201777,572,038
 775,720
 329,917,858
 (17,238,669) 3,564,779
 (240,256,502) 76,763,186
 616,661
 77,379,847
Vesting of restricted stock736,842
 7,368
 (7,368) —
 

 —
 —
 —
 —
1,093,000
 10,930
 (10,930) —
 —
 —
 —
 —
 —
Stock-based compensation expense—
 —
 2,482,326
 —
 —
 —
 2,482,326
 —
 2,482,326
—
 —
 4,791,054
 —
 —
 —
 4,791,054
 —
 4,791,054
Other comprehensive loss—
 —
 —
 —
 799,197
 —
 799,197
 (4,918) 794,279
—
 —
 —
 —
 (2,010,192) —
 (2,010,192) (117,659) (2,127,851)
Restricted stock for tax withholding obligations(175,542) (1,755) (508,841) —
 —
 —
 (510,596) —
 (510,596)(142,972) (1,430) (206,585) —
 —
 —
 (208,015) —
 (208,015)
Net loss—
 —
 —
 —
 —
 (23,434,116) (23,434,116) 402,971
 (23,031,145)
Balance, December 31, 201676,640,943
 $766,409
 $328,524,644
 $(42,741,551) $1,570,971
 $(214,042,787) $74,077,686
 $141,957
 $74,219,643
Distribution to noncontrolling interest holder—
 —
 —
 —
 —
 —
 —
 (699,105) (699,105)
Adoption of accounting standard (Note 1)—
 —
 —
 —
 —
 3,059,383
 3,059,383
 —
 3,059,383
Net (loss) income—
 —
 —
 —
 —
 (34,533,542) (34,533,542) 51,050
 (34,482,492)
Balance at December 29, 201878,522,066
 $785,220
 $334,491,397
 $(17,238,669) $1,554,587
 $(271,730,661) $47,861,874
 $(149,053) $47,712,821
1.For discussion of the correcting adjustments, see Note 18 - Correction of Previously Issued Financial Statements

See Accompanying Notes to Consolidated Financial Statements.


4534









KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
2018 2017 2016
Fiscal year ended2016 2015 2014
(As Revised)1
    
Cash flows from operating activities:          
Net loss$(23,031,145) $(14,843,067) $(28,670,789)$(34,482,492) $(25,380,115) $(23,031,145)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization993,621
 2,138,982
 3,002,014
1,958,680
 2,501,891
 993,621
Accretion of premium or discount on marketable debt securities130,032
 168,217
 53,437
15,948
 41,364
 130,032
Stock-based compensation2,425,326
 3,145,479
 4,827,772
4,791,054
 2,296,131
 2,425,326
Net gain on investment transactions(1,034,396) (9,206,919) —
(2,849,816) (2,000,000) (1,034,396)
Loss on disposal of equipment—
 180,715
 —
Losses in unconsolidated affiliates—
 —
 102,305
Gain on sale of equipment—
 —
 283,333
Deferred income taxes1,451,858
 (75,000) (230,725)4,185
 (2,421,040) 1,451,858
Foreign currency (gains) losses711,356
 (455,614) (96,819)(1,096,487) 893,260
 711,356
Gain on sale of property and plant(7,700,522) —
 —
Impairment of investments—
 —
 1,319,287
Loss (gain) on sale of property and plant51,159
 —
 (7,700,522)
Impairment of assets2,526,669
 —
 —
Impairment of goodwill1,417,470
 600,086
 —
Change in allowance for bad debt(17,000) (112,500) 63,340
(155,000) 13,000
 (17,000)
Other non-cash items677,330
 1,560,259
 489,332
832,615
 654,694
 677,330
Change in warranty reserves—
 (200,000) —
(79,633) 142,328
 —
Changes in assets and liabilities:          
Accounts receivable(39,629) 2,850,942
 (1,286,407)853,163
 (2,376,593) (39,629)
Contract assets and unbilled receivables865,474
 —
 —
Inventory(1,527,602) (8,484) (1,520,824)(1,656,196) (1,633,027) (1,527,602)
Prepaid expenses and other current assets48,295
 (207,421) 191,367
Prepaid expenses, other current assets and other assets113,015
 (1,084,146) 48,295
Accounts payable and accrued expenses1,163,586
 (2,632,385) 1,829,591
(1,208,848) 1,924,751
 1,163,586
Billings in excess of revenue earned(425,805) 777,247
 38,790
(4,742) (85,282) (425,805)
Net cash used in operating activities(26,174,695) (16,919,549) (19,604,996)(28,103,782) (25,912,698) (26,174,695)
Cash flows from investing activities:          
Proceeds from sale of marketable debt securities50,835,253
 38,055,759
 39,801,276
26,646,078
 37,536,004
 50,835,253
Purchase of marketable debt securities(51,828,988) (22,835,740) (19,867,896)(5,697,329) (19,633,903) (51,828,988)
Proceeds from sale of investments1,034,396
 9,206,919
 —
—
 —
 1,034,396
Proceeds from sale of equipment—
 —
 250,000
Cash paid for acquisition, net of cash acquired(1,000,000) (3,690,047) —
Proceeds from sale of III-V product line15,000,000
 —
 —
—
 —
 15,000,000
Proceeds from sale of property and plant8,106,819
 —
 —
—
 —
 8,106,819
Other assets80,793
 (1,772) (38,134)(8,373) (140,860) 80,793
Capital expenditures(394,897) (1,122,808) (1,489,986)(1,183,131) (2,794,467) (394,897)
Net cash provided by investing activities22,833,376
 23,302,358
 18,655,260
18,757,245
 11,276,727
 22,833,376
Cash flows from financing activities:          
Treasury stock purchases—
 —
 (298,619)
Proceeds from exercise of stock options and warrants—
 86,047
 137,813
Sale of unregistered stock—
 24,664,250
 —
Settlements of restricted stock for tax withholding obligations(510,596) (1,072,385) (975,869)(208,015) (771,323) (510,597)
Net cash used in financing activities(510,596) (986,338) (1,136,675)
Distribution to noncontrolling interest holder(699,105) (791,737) —
Net cash (used in) provided by financing activities(907,120) 23,101,190
 (510,597)
Effect of exchange rate changes on cash(93,479) (264,383) (34,454)(268,223) 560,513
 (93,478)
Net decrease in cash and equivalents(3,945,394) 5,132,088
 (2,120,865)
Cash and equivalents:     
Beginning of year19,767,889
 14,635,801
 16,756,666
End of year$15,822,495
 $19,767,889
 $14,635,801
Net (decrease) increase in cash and cash equivalents(10,521,880) 9,025,732
 (3,945,394)
Cash and cash equivalents at beginning of year24,848,227
 15,822,495
 19,767,889
Cash and cash equivalents at end of year$14,326,347
 $24,848,227
 $15,822,495
Supplemental disclosure of cash flow information:          
Income taxes paid$723,000
 $50,000
 $(18,000)$1,374,000
 $281,000
 $723,000
Supplemental schedule of noncash investing activities:     
Construction in progress included in accrued expenses$—
 $—
 $373,000
—
 212,000
 —
1.For discussion of the correcting adjustments, see Note 18 - Correction of Previously Issued Financial Statements

See Accompanying Notes to Consolidated Financial Statements.



4635








KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.    Summary of Significant Accounting Policies (As Revised)
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As used in these notes, the terms “we,” “us,” “our,” “Kopin” and the “Company” mean Kopin Corporation and its subsidiaries, unless the context indicates another meaning.
Going Concern
The Company has incurred net losses of $34.5 million, $25.4 million and $23.0 million for the fiscal years ended 2018, 2017 and 2016, respectively, and net cash outflows from operations of $28.1 million, $25.9 million and $26.2 million for the fiscal years ended 2018, 2017 and 2016, respectively. In addition, the Company has continued to experience a significant decline in its cash and cash equivalents and marketable debt securities, which was primarily a result of funding operating losses, of which a significant component relates to the Company’s ongoing investments in the research and development of Wearable products. These negative financial conditions raise substantial doubt regarding the Company’s ability to continue as a going concern.
The Company’s products are targeted towards the wearable market, which management believes is still developing and cannot predict how long the wearable market will take to develop or if the Company’s products will be accepted.  Accordingly, 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 accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Fiscal Year
The Company’s fiscal year ends on the last Saturday in December. The fiscal years ended December 29, 2018 and December 30, 2017 includes 52 weeks and December 31, 2016 includes 53 weeks and December 26, 2015 and December 27, 2014 include 52 weeks, and are referred to as fiscal years 2016, 20152018, 2017 and 2014,2016, respectively, herein. The impact of the 53rd week in the 2016 fiscal year was not material to the Company's results of operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries a majority owned 93% subsidiary, Kowon Technology Co., Ltd. (Kowon), located in Korea, and a majority owned 80% subsidiary, eMDT America Inc (eMDT)Inc. ("eMDT"), located in California (collectively the Company). In the fourth quarter of 2015, the Company increased its investment in Kopin Software Ltd. (KSL) (formerly Intoware Ltd.) from 58% to 100%. Net loss attributable to noncontrolling interest in the Company's Consolidated Statement of Operations represents the portion of the results of operations of which is allocated to the shareholders of the equity interests not owned by the Company. All intercompany transactions and balances have been eliminated.
Revenue Recognition - 2018
The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective December 31, 2017 and applied the modified retrospective method. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit. The comparative information has not been revised and continues to be reported under the accounting standards in effect for those periods. The Company expects the impact of the adoption of the new standard to be material to the Company's results of operations on an ongoing basis. Significant changes to the Company's accounting policies as a result of adopting Topic 606 are discussed below.
Substantially all of our product revenues are either derived from the sales of components for use in military applications or our wearable technology components that can be integrated to create industrial and consumer headset systems. We also have development contracts for the design, manufacture and modification of products for the U.S. government or a prime contractor

36



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the U.S. government or for a customer that sells into the industrial or consumer markets. The Company's contracts with the U.S. government are typically subject to the Federal Acquisition Regulations (“FAR”) and are priced based on estimated or actual costs of producing goods. The FAR provides guidance on the types of costs that are allowable in establishing prices for goods provided under U.S. government contracts. The pricing for non-U.S. government contracts is based on the specific negotiations with each customer.
Our fixed-price contracts with the U.S. government or other customers may result in revenue recognized in excess of amounts currently billed. We disclose the excess of revenues over amounts actually billed as Contract assets and unbilled receivables on the balance sheet. Amounts billed and due from our customers are classified as Accounts receivable on the balance sheets. In some instances, the U.S. government retains a small portion of the contract price until completion of the contract. The portion of the payments retained until final contract settlement is not considered a significant financing component because the intent is to protect the customer. For contracts with the U.S. government, we typically receive interim payments either as work progresses or by achieving certain milestones or based on a schedule in the contract. We recognize a liability for these advance payments in excess of revenue recognized and present it as Contract liabilities and billings in excess of revenue earned on the balance sheets. The advanced payment typically is not considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract and to protect us from the other party failing to adequately complete some or all of its obligations under the contract. For industrial and consumer purchase orders, we typically receive payments within 30 to 60 days of shipments of the product, although for some purchase orders, we may require an advanced payment prior to shipment of the product.
To determine the proper revenue recognition method for contracts with the same customer, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. For most of our development contracts and contracts with the U.S government, the customer contracts with us to provide a significant service of integrating a set of components into a single unit. Hence, the entire contract is accounted for as one performance obligation. Less frequently, however, we may promise to provide distinct goods or services within a contract in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. In cases where we sell standard products, the observable standalone sales are used to determine the standalone selling price.
The Company recognizes revenue from a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Commencing in 2018 for certain contracts with the U.S. government, the Company recognizes revenue over time as we perform because of continuous transfer of control to the customer and the lack of an alternative use for the product. The continuous transfer of control to the customer is supported by liability clauses in the contract that allow the U.S. government to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. For contracts with commercial customers, while the contract may have a similar liability clause, our products historically have an alternative use and thus, revenue is recognized at a point in time.
In situations where control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. We generally use the cost-to-cost approach to measure the extent of progress towards completion of the performance obligation for our contracts because we believe it best depicts the transfer of assets to the customer. Under the cost-to-cost measure approach, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.
Accounting for design, development and production contracts requires judgment relative to assessing risks, estimating contract revenues and costs, and making assumptions for schedule and technical issues. Due to the size and nature of the work required to be performed on many of our contracts, the estimation of total revenue and cost at completion is complicated and subject to many variables. Contract costs include material, labor and subcontracting costs, as well as an allocation of indirect costs. We have to make assumptions regarding the number of labor hours required to complete a task, the complexity of the work to be performed, the availability and cost of materials, and performance by our subcontractors. For contract change orders, claims or similar items, we apply judgment in estimating the amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization is considered probable. If our estimate of total contract costs or our determination of whether the customer agrees that a milestone is achieved is incorrect, our revenue could be overstated or understated and the profits or loss reported could be subject to adjustment.

37



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For our commercial customers, the Company's revenue is recognized when obligations under the terms of a contract with our customer is satisfied and the Company transfers control of the products or services, which is generally upon delivery to the customer. Revenue is recorded as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Provisions for product returns and allowances are reductions in the transaction price and are recorded in the same period as the related revenues. We analyze historical returns, current economic trends and changes in customer demand when evaluating the adequacy of sales returns and other allowances. Certain product sales are made to distributors under agreements allowing for a limited right of return on unsold products. Sales to distributors are primarily made for sales to the distributors' customers and not for stocking of inventory. Sales, value add and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.
The rights and benefits to the Company's intellectual property are conveyed to certain customers through technology license agreements. These agreements may include other performance obligations including the sale of product to the customer. When the license is distinct from other obligations in the agreement, the Company treats the license and other performance obligations as separate performance obligations. Accordingly, the license is recognized at a point in time or over time based on the standalone selling price. The sale of materials is recognized at a point in time, which occurs with the transfer of control of the Company's products or services. In certain instances, the Company is entitled to sales-based royalties under license agreements. These sales-based royalties are recognized when they are earned. Revenues from sales-based royalties under license agreements are shown under Research and development and other revenues on the Company's Consolidated Statements of Operations.
The cumulative effect of the changes made to the Company's consolidated December 31, 2017 balance sheet for the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) was as follows:
Balance SheetBalance at December 30, 2017 Adjustments due to Topic 606 Balance at December 31, 2017
Assets     
Contract assets and unbilled receivables$704,863
 $2,850,274
 $3,555,137
Inventory5,080,797
 (1,082,629) 3,998,168
Other assets3,842,068
 400,000
 4,242,068
      
Liabilities     
Contract liabilities and billings in excess of revenue earned1,555,883
 (891,737) 664,146
      
Stockholders’ equity     
Accumulated Deficit1
$(240,256,502) $3,059,383
 $(237,197,119)
1.For discussion of the correcting adjustments, see Note 18 - Correction of Previously Issued Financial Statements
In accordance with the new revenue standard requirements, the impact of adoption on the Company's consolidated statement of operations for the fiscal year 2018 was as follows:
Statement of OperationsAs Reported 
Balances Without Adoption of
Topic 606
 Effect of Change Higher/(Lower)
Net product revenues$19,211,115
 $19,726,901
 $(515,786)
Research and development and other revenues5,253,890
 5,600,066
 (346,176)
Cost of product revenues15,831,441
 16,809,343
 (977,902)
Net loss attributable to Kopin Corporation$(34,533,542) $(34,649,482) $115,940

See Note 14. Segments and Disaggregation of Revenue for additional information regarding the disaggregation of the Company's revenue by major source.
Contract Assets
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.

38



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Contract Liabilities
Contract liabilities consist of advance payments and billings in excess of revenue recognized for the contract.
Performance Obligations
The Company's revenue recognition related to performance obligations that were satisfied at a point in time and over time were as follows:
Fiscal year ended2018 2017 2016
Point in time60% 91% 95%
Over time40% 9% 5%

The value of remaining performance obligations represent the transaction price of orders for which work has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity ("IDIQ")). As of December 29, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was $8.0 million. The Company expects to recognize revenue on the remaining performance obligations of $8.0 million over the next 12 months. The remaining performance obligations represent amounts to be earned under government contracts, which are subject to cancellation.
Revenue Recognition - 2017
We recognize revenue if four basic criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred and services rendered; (3) the price to the buyer is fixed or determinable; and (4) collectability is reasonably assured. The Company doesWe do not recognize revenue for products prior to customer acceptance unless it believeswe believe the product meets all customer specifications and the Company has a history of consistently achieving customer acceptance of the product. Provisions for product returns and allowances are recorded in the same period as the related revenues. The Company analyzesWe analyze historical returns, current economic trends and changes in customer demand and acceptance of product when evaluating the adequacy of sales returns and other allowances. Certain product sales are made to distributors under agreements allowing for a limited right of return on unsold products. Sales to distributors are primarily made for sales to the distributors' customers and not for their stocking of inventory. The Company delaysWe delay revenue recognition for itsour estimate of distributor claims of right of return on unsold products based upon itsour historical experience with the Company’sour products and specific analysis of amounts subject to return based upon discussions with the Company’sour distributors or their customers.
The Company recognizesWe recognize revenues from long-term research and development government contracts on the percentage-of-completion method of accounting as work is performed, based upon the ratio of costs or hours already incurred to the estimated total cost of completion or hours of work to be performed. Revenue recognized at any point in time is limited to the amount funded by the U.S. government or contracting entity. The Company accountsWe recognize revenue for product development and research contracts that have established prices for distinct phases as ifwhen delivery and acceptance of the deliverable for each phase were a separate contract.has occurred. In some instances, the Company iswe are contracted to create a deliverable which is anticipated to be qualified and go into full rate production stages.production. In those cases, we discontinue the revenue recognition methodology will change from the percentage of completionpercentage-of-completion method to the units-of-delivery method as new contracts are received after formal qualification of the deliverable has been completed.completed and revenue is then recognized based on the criteria established for sale of products. In certain instances, qualification may be achieved and delivery of production units may commence however our customer may have either identified new issues to be resolved or wish to incorporate a newer display technology. In these circumstances new units delivered will continue to be accounted for under the criteria established for sale of products. Under certain of itsour research and development contracts, the Company recognizeswe recognize revenue onusing a milestone methodology. This revenue is recognized when the Company achieveswe achieve specified milestones based on itsour past performance.
The Company classifiesWe classify amounts earned on contracts in progress that are in excess of amounts billed as unbilled receivables and classifieswe classify amounts received in excess of amounts earned as billings in excess of revenues earned. The Company invoicesWe invoice based on dates specified in the related agreement or in periodic installments based upon itsour invoicing cycle. The Company recognizesWe recognize the entire amount of an estimated ultimate loss in itsour financial statements at the time the loss on a contract becomes known.
ResearchAccounting for design, development and Development Costsproduction contracts requires judgment relative to assessing risks, estimating contract revenues and costs, and making assumptions for schedule and technical issues. Due to the size and nature of the work required to be performed on many of our contracts, the estimation of total revenue and cost at completion is complicated and subject to many variables. Contract costs include material, labor and subcontracting costs, as well as an allocation of indirect costs. We have to make assumptions regarding the number of labor hours required to complete a task, the complexity of the work to be performed, the availability and cost of materials, and performance by our subcontractors. For contract change orders, claims or similar items, we apply judgment in estimating the amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization is considered probable. We


4739






KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)STATEMENTS (CONTINUED)


have accounting policies in place to address these as well as other contractual and business arrangements to properly account for long-term contracts. If our estimate of total contract costs or our determination of whether the customer agrees that a milestone is achieved is incorrect, our revenue could be overstated and profits would be negatively impacted.
Research and Development Costs
Research and development expenses are incurred in support of internal display product development programs or programs funded by agencies or prime contractors of the U.S. government and commercial partners. Research and development costs include staffing, purchases of materials and laboratory supplies, circuit design costs, fabrication and packaging of experimental display products, and overhead, and are expensed immediately.
Cash and equivalents and Marketable securitiesCash Equivalents
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 United States government and agency backed securities. The Company classifies these marketable debt securities as available-for-saleInventory
Inventories are stated at fair value in “Marketable debt securities, at fair value.” The investment in GCS Holdings is included in "Other Assets" as available-for-sale and 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 determiningstandard cost and calculating realized gains and losses with respectadjusted to marketable debt securities. The gross gains and losses realized related to sales of marketable debt securities were not material during fiscal years 2016, 2015 and 2014.
Inventory
Inventory is stated atapproximate the lower of cost (determined on the first-in,(first-in, first-out method) or net realizable value. The Company adjusts inventory carrying value for estimated obsolescence equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. The Company fully reserves for inventories and non-cancellable purchase orders for inventory deemed obsolete. The Company performs periodic reviews of inventory items to identify excess inventories on hand by comparing on-hand balances to anticipated usage using recent historical activity as well as anticipated or forecasted demand. If estimates of customer demand diminish further or market conditions become less favorable than those projected by the Company, additional inventory adjustments may be required.
We regularly review inventory quantities on-hand and we write down inventory based on excess or obsolete inventories determined primarily by future anticipated demand for our products. Inventory write-downs are measured as the difference between the cost of the inventory and net realizable value, based upon assumptions about future demand, which are inherently difficult to assess and dependent on market conditions. At the point of a loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established basis.
Inventory consists of the following at December 31, 201629, 2018 and December 26, 2015:30, 2017:
 2018 2017
Raw materials$2,548,139
 $2,070,153
Work-in-process1,526,552
 1,829,805
Finished goods722,547
 1,180,839
 $4,797,238
 $5,080,797
 2016 2015
Raw materials$1,986,491
 $844,475
Work-in-process1,186,162
 1,281,891
Finished goods129,459
 386,107
 $3,302,112
 $2,512,473

Property, plantPlant and equipmentEquipment
Property, plant and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, generally 3 to 10 years.years. Leasehold improvements and leased equipment are amortized over the shorter of the term of the lease or the useful life of the improvement or equipment. As discussed below, obligations for asset retirement are accrued at the time property, plant and equipment is initially purchased or as such obligations are generated from use.

Collaborative Arrangements
PropertyThe Company evaluates whether an arrangement is a collaborative arrangement under the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 808, Collaborative Arrangements, at its inception based on the facts and Plant held for sale
Assets held for salecircumstances specific to the arrangement. The Company also reevaluates whether an arrangement qualifies or continues to qualify as a collaborative arrangement whenever there is a change in either the roles of December 26, 2015 consistedthe participants or the participants’ exposure to significant risks and rewards dependent on the ultimate commercial success of landthe endeavor. For those collaborative arrangements where it is determined that the Company is the principal participant, costs incurred and buildings withrevenue generated from third parties are recorded on a cost of $0.8 million which were soldgross basis in the second quarterfinancial statements.

40



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

From time to time, the Company enters into collaborative arrangements for the research and development, manufacture and/or commercialization of 2016.

products. The Company’s collaboration agreements with third parties are performed on a ‘‘best efforts’’ basis with no guarantee of either technological or commercial success.
Product Warranty
The Company generally sells products with a limited warranty of product quality and a limited indemnification of customers against intellectual property infringement claims related to the Company’s products. The Company accrues for known warranty and indemnification issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified issues based on historical activity. Accrued warranty costs and warranty claims are not material in the periods presented.
ExtendedWarranties
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 18 months beyond the standard 12 month warranty. The Company classifies the current portion of extended warranties under contract liabilities and billings in excess of revenue earned and the noncurrent portion of extended warranties under contract liabilities, noncurrent in its consolidated balance sheets. The Company currently has approximately $0.4 million of contract liabilities related to extended warranties at December 29, 2018.
Asset Retirement Obligations
The Company recorded asset retirement obligations (ARO)("ARO") liabilities of$0.2 million and $0.3 million at December 31, 201629, 2018 and December 26, 2015, respectively.30, 2017. This represents the legal obligations associated with retirement of the Company’s assets when the timing and/or method of settling the obligation are conditional on a future event that may or may not be within

48



KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the control of the Company. Changes in ARO liabilities for fiscal years 2018 and 2017 are as follows:
 2018 2017
Beginning balance$269,877
 $246,922
Exchange rate change(15,779) 22,955
Ending balance$254,098
 $269,877
 2016 2015
Beginning balance$298,463
 $311,187
Additions—
 —
Charges—
 —
Exchange rate change(51,541) (12,724)
Ending balance$246,922
 $298,463

Income Taxes
The consolidated financial statements reflect provisions for federal, state, local and foreign income taxes. The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as operating loss and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company provides valuation allowances if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.


Foreign Currency
Assets and liabilities of non-U.S. operations where the functional currency is other than the U.S. dollar are translated from the functional currency into U.S. dollars at year end exchange rates, and revenues and expenses are translated at average rates prevailing during the year. Resulting translation adjustments are accumulated as part of accumulated other comprehensive income. Transaction gains or losses are recognized in income or loss in the period in which they occur.
Net (Loss) IncomeLoss Per Share
Basic net (loss) incomeloss per share is computed using the weighted-average number of shares of common stock outstanding during the period less any unvested restricted shares. Diluted earningsnet loss per common 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 outstanding stock options and 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.period:

41



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2016 2015 2014
Nonvested restricted common stock3,007,674
 2,192,016
 2,551,631
Stock options—
 —
 130,500
Total3,007,674
 2,192,016
 2,682,131

 2018 2017 2016
Nonvested restricted common stock2,213,249
 2,629,274
 3,007,674

Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk other than marketable securities consist principally of trade accounts receivable. Trade receivables are primarily derived from sales to manufacturers of consumer electronic devices and wireless components or military applications. The Company sells its products to customers worldwide and generally does not require collateral. The Company maintains a reserve for potential credit losses.
The Company primarily invests its excess cash in government backed and corporate debt securities that management believes to be of high credit worthiness, which bear lower levels of relative credit risk. The Company relies on rating agencies to ascertain the credit worthiness of its marketable securities and, where applicable, guarantees made by the Federal Deposit Insurance Company. The Company sells its products to customers worldwide and generally does not require collateral. The Company maintains a reserve for potential credit losses.
Fair Value of Financial Instruments
Financial instruments consist of marketable debt securities, accounts receivable and certain current liabilities. These assets (excluding marketable securities which are recorded at fair value) and liabilities are carried at cost, which approximates fair value.

Recognition and Measurement of Financial Assets and Liabilities
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. This standard amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted the measurement alternative for equity investments without readily determinable fair values (often referred to as cost method investments) on a prospective basis. When assessing investments in private companies for impairment, we consider such factors as, among other things, the share price from the investee's latest financing round, the performance of the investee in relation to its own operating targets and its business plan, the investee's revenue and cost trends, the liquidity and cash position, including its cash burn rate and market acceptance of the investee's products and services. Because these are private companies which we do not control we may not be able to obtain all of the information we would want in order to make a complete assessment of the investment on a timely basis. Accordingly, our estimates may be revised if other information becomes available at a later date.
Marketable Debt Securities
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's investment in GCS Holdings is included in "Other Assets" as available-for-sale and 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 fiscal years ended 2018, 2017 and 2016.
Other-than-Temporary Impairments
The Company conducts a review of its marketable debt securities on a quarterly basis for the presence of other-than-temporary impairment ("OTTI"). The Company assesses whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date. Under these circumstances OTTI is considered to have occurred (1) if the Company intends to sell the security before recovery of its amortized cost basis; (2) if it is “more likely than not” the Company will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.
The Company further estimates the amount of OTTI resulting from a decline in the creditworthiness of the issuer (credit-related OTTI) and the amount of non credit-related OTTI. Non credit-related OTTI can be caused by such factors as market illiquidity. Credit-related OTTI is recognized in earnings while non credit-related OTTI on securities not expected to be sold is

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KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)STATEMENTS (CONTINUED)


recognized in other comprehensive income (loss). The Company did not record any OTTI for the fiscal years 2018, 2017 and 2016.
Stock-Based Compensation
The fair value of nonvested restricted common stock awards is generally the quoted price of the Company’s equity shares on the date of grant. The nonvested 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 market condition. The performance criteria primarily consist of the achievement of established milestones. For nonvested restricted common stock awards which solely require the recipient to remain employed with the Company, the stock compensation expense is amortized over the anticipated service period. For nonvested restricted common stock awards which 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 service period. If the performance criteria are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. The Company recognizes compensation costs on a straight-line basis over the requisite service period for time vested awards.

On February 13, 2015, the Company modified the termination dateThe value of certain restricted stock grants previously made to Dr. Fan,that vest based on market conditions is computed on the Company’s President and Chief Executive Officer. In 2011,date of grant using the Company granted Dr. Fan 260,000 shares of restricted stock which will vest upon the first 10 consecutive trading day period following the grant date during which the Company's common stock trades at a price equal to or greater than $5.25 subject to acceleration upon the occurrence of an acceleration event. This grant was originally set to terminate on September 12, 2016. In 2013, the Company granted compensation awards to Dr. Fan that consisted of two grants of 150,000 shares of restricted stock each. One of the grants will vest at the end of the first 10 consecutive trading day period following the grant date during which the Company’s common stock trades at a price per share equal to or greater than $6.00. The other award will vest at the end of the first 10 consecutive trading day period following the grant date during which the Company’s common stock trades at a price per share equal to or greater than $7.00. Both were due to expire in 2023. On December 31, 2014, Dr. Fan entered into a 3-year employment agreement with the Company which expires on December 31, 2017. The Company has amended the three grants to now terminate on December 31, 2017, to be consistent with Dr. Fan's employment agreement.
In 2013, the Company granted a compensation award to its Chief Executive Officer that consisted of a grant of 300,000 shares of restricted stock that would vest upon the Company shipping 25,000 units of a new display. The Company shipped the displays in 2015 and the award vested.
Monte Carlo model. The fair value of stock option awards is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. There were no stock options granted in fiscal years 2016, 20152018, 2017 or 2014.2016.
Comprehensive Loss
Comprehensive loss is the total of net (loss) income and all other non-owner changes in equity including such items as unrealized holding (losses) gains on marketable equity and debt securities classified as available-for-sale and foreign currency translation adjustments.

The components of accumulated other comprehensive income are as follows:
 
Cumulative
Translation
Adjustment
 Unrealized holding (loss) gain on marketable securities Reclassifications of gain (loss) in net loss 
Accumulated Other
Comprehensive
Income
Balance as of December 26, 2015$566,025
 $205,749
 $—
 $771,774
Changes during year814,017
 33,464
 (48,284) 799,197
Balance as of December 31, 20161,380,042
 239,213
 (48,284) 1,570,971
Changes during year1,851,664
 148,520
 (6,376) 1,993,808
Balance as of December 30, 20173,231,706
 387,733
 (54,660) 3,564,779
Changes during year(1,794,768) (264,949) 49,525
 (2,010,192)
Balance as of December 29, 2018$1,436,938
 $122,784
 $(5,135) $1,554,587

Goodwill
We account for goodwill in accordance with ASC Topic 350. Under ASC Topic 350, goodwill is considered to have an indefinite life, and is carried at cost. Goodwill is not amortized, but is subject to an annual impairment test, as well as between annual tests when events or circumstances indicate that the carrying value may not be recoverable.
The determination of reporting units under ASC 350 begins with the definition of an operating segment in ASC 280 and takes into account the disaggregation of that operating segment into economically dissimilar components for goodwill impairment testing purposes. The level at which operating performance is reviewed also differs between ASC 280 and ASC 350. The chief operating decision maker ("CODM") is the Company's Chief Executive Officer who reviews operating segments and the segment manager reviews reporting units (components of operating segments). Therefore, a component of an operating segment would not be considered an operating segment under ASC 280 unless the CODM regularly reviews its operating performance. However, that same component might be a reporting unit under ASC 350 if a segment manager regularly reviews its operating performance (and if the other reporting unit criteria are met). Goodwill is evaluated for impairment annually or more often if indicators of a potential impairment are present. The Company performs impairment tests of goodwill at its reporting unit level. The goodwill valuations that are utilized to test these assets for impairment are depending on a number of significant estimates and assumptions, including macroeconomic conditions, overall growth rates, competitive activities, cost containment, Company business plans and the discount rate applied to cash flows. We believe these estimates and assumptions are reasonable and are comparable to those that would be used by other market participants. However, actual events and results

43



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
Cumulative
Translation
Adjustment
 
Unrealized Holding
 Gain (Loss) on
Marketable
Securities
 Acquisition of Minority Interest in KSL 
Accumulated Other
Comprehensive
Income
Balance as of December 28, 2013$2,524,701
 $917,296
 $—
 $3,441,997
Changes during year(990,626) 674,868
 —
 (315,758)
Balance as of December 27, 20141,534,075
 1,592,164
 —
 3,126,239
Changes during year(1,001,733) (1,386,415) 33,683
 (2,354,465)
Balance as of December 26, 2015532,342
 205,749
 33,683
 771,774
Changes during year814,017
 (14,820) —
 799,197
Balance as of December 31, 2016$1,346,359
 $190,929
 $33,683
 $1,570,971


could differ substantially from those used in our valuations. To the extent such factors result in a failure to achieve the level of projected cash flows initially used to estimate fair value for purposes of establishing the carrying amount of goodwill and intangibles, we may need to record non-cash impairment charges in the future.  
Impairment of Long-Lived Assets
The Company periodically reviews the carrying value of its long-lived assets to determine if facts and circumstances suggest that they may be impaired or that the amortization or depreciation period may need to be changed. The carrying value

50



KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

of a long-lived asset is considered impaired when the anticipated identifiable undiscounted cash flows from such asset are less than its carrying value. For assets that are to be held and used, impairment is measured based upon the amount by which the carrying amount of the asset exceeds its fair value.
Recently Issued Accounting Pronouncements
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In addition, ASU 2014-09 provides guidance on accounting for certain revenue-related costs including, but not limited to, when to capitalize costs associated with obtaining and fulfilling a contract. The standard also requires certain new disclosures.
The Company is required to apply the guidance in ASU 2014-09 after January 1, 2018, including interim periods within that reporting period. The Company is currently evaluating the expected impact of this new guidance on its consolidated financial statements and available adoption methods.
Balance Sheet Reclassification of Deferred Taxes
The Company has adopted ASU 2015-17 prospectively and believes the standard will not have a material effect on its financial position or earnings.
Leases
In February 2016, the FASB issued Accounting Standards Update No. ASU 2016-02, Leases (Topic 842)Leases. Topic 842 supersedes the lease recognition requirements in Accounting Standards Codification Topic 840, "Leases". Under Topic 842,, which requires lessees are required to recognize assetsa right-of-use asset and liabilities on the balance sheetlease liability for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. Topic 842lease arrangements. The new standard is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2018. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and there are certain optional practical expedients that an entity may elect to apply. Full retrospective application is prohibited and early adoption by public entities is permitted. The Company is currently evaluating the expected impact of this new guidance on its consolidated financial statements. The Company has not yet made any decision on the timing of adoption or method of adoption with respect to the optional practical expedients.
Compensation-Stock Compensation
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This guidance is intended to simplify the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, including interim periods within those annual periods, and early application is permitted as of the beginning of an interim or annual reporting period. The Company has evaluated ASU 2016-09 and determined that its early adoption did not have a material effect on its financial position or earnings.

Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230). The standard addresses the classification and presentation of eight specific cash flow issues that currently result in diverse practices. This pronouncement is effective for annual reporting periods beginning after December 15, 2017. The amendments in this ASU should be applied using a retrospective approach. The Company is currently evaluating the expected impact of this new guidance on its consolidated financial statements and available adoption methods.

Financial Instruments- Overall

In January 2016, the FASB issued ASU 2016-01, Financial Instruments- Overall (Sub Topic 825-10). The new standard provides guidance on the recognition and measurement of financial assets and financial liabilities. The guidance amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This standard is

51



KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

effective for fiscal years, and for interim periods within those fiscal years beginning after December 15, 2017. The Company does not expect2018, with early adoption permitted. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows for an additional transition method under the modified retrospective approach for the adoption of Topic 842. The two permitted transition methods are now: (1) to apply the new lease requirements at the beginning of the earliest period presented, and (2) to apply the new lease requirements at the effective date. Under both transition methods there is a cumulative effect adjustment. We intend to adopt the standard on the effective date of December 30, 2018 by applying the new lease requirements at the effective date. We also intend to elect the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows us to carry forward the historical lease classification. We have evaluated the changes from this guidanceASU to our future financial reporting and disclosures, and have designed and implemented related processes and controls to address these changes. We expect the standard will result in the recognition of right-of-use assets of $3.5 million to $4.0 million and lease liabilities of $3.5 million to $4.0 million as of December 30, 2018, with immaterial changes to other balance sheet accounts. The standard will have no impact on our results of operations or liquidity. In addition, new disclosures will be provided to enable users to assess the amount, timing and uncertainty of cash flows arising from leases.
Other new pronouncements issued but not effective until after December 29, 2018 are not expected to have a material effectimpact on itsour financial statements.position, results of operations or liquidity.

Business Combinations

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805). The new guidance clarifies the definition of a business that an entity uses to determine whether a transaction should be accounted for as an asset acquisition (or disposal) or a business combination. The guidance is expected to cause fewer acquired sets of assets (and liabilities) to be identified as businesses. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for transactions that meet certain requirements. The Company is evaluating the impact this standard will have on its financial statements.

Intangibles- Goodwill and Other

In January 2017, the FASB issued ASU 2017-04, Intangibles- Goodwill and Other (Topic 350). The new guidance simplifies the accounting for goodwill impairments by eliminating Step 2 from the goodwill impairment test. The guidance requires, among other things, recognition of an impairment loss when the fair value of a reporting unit exceeds its carrying amount. The loss recognized is limited to the total amount of goodwill allocated to that reporting unit. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is evaluating the impact this standard will have on its financial statements.
2.    Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 31, 201629, 2018 and December 26, 201530, 2017:
 Useful Life 2018 2017
Equipment3-5 years $16,824,384
 $16,811,526
Leasehold improvementsLife of the lease 3,676,775
 3,851,269
Furniture and fixtures3 years 523,736
 531,870
Equipment under construction  436,806
 2,415,957
   21,461,701
 23,610,622
Accumulated depreciation and amortization  (18,862,859) (18,533,579)
Property, plant and equipment, net  $2,598,842
 $5,077,043

 Useful Life 2016 2015
Equipment3-5 years $17,886,124
 $18,765,548
Leasehold improvementsLife of the lease 3,721,176
 3,659,559
Furniture and fixtures3 years 488,802
 789,067
Equipment under construction  88,227
 312,916
   22,184,329
 23,527,090
Accumulated depreciation and amortization  (19,208,323) (20,849,987)
Net property, plant and equipment  $2,976,006
 $2,677,103
In June 2016, the Company's subsidiary Kowon sold its plant and the land on which the plant resided for approximately $8.1 million and recognized a gain of $7.7 million. Kowon had ceased its production activities at the facility in 2013. Other than the sales of the Kowon plant and land there were no material gains or losses on disposals of long-lived assets in fiscal years 2016, 2015 and 2014. Depreciation expense for the fiscal years 20162018, 20152017 and 20142016 was approximately $1.0 million, $1.50.9 million and $2.61 million, respectively.
3.    Other Assets and Note Receivable
Marketable Equity Securities
As of December 31, 2016 and December 26, 2015,During the Company had an investment in GCS Holdings which had a fair market value of $0.3 million and an adjusted cost basis of $0.0 million.

52



KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On February 25, 2015, the Company acquired approximately 251,000 shares of Vuzix common stock through a cashless exercise of warrants. The Company received the warrants in August 2013 as part of a restructuring of debt owed by Vuzix to the Company. Upon receipt of the warrants, the Company should have recorded the value of the warrant of approximately $352,000 in its consolidated financial statements. Subsequently, the Company should have marked to market the warrants at the end of each reporting period. Hadfiscal year 2018, the Company recorded the warrants in its consolidated financial statements and marked to market the warrants as of December 28, 2013 and December 27, 2014, the Company would have recorded gains in its statement of operations of approximately $646,000 and $171,000, respectively. In the first quarter of 2015, the Company recorded the warrants in its consolidated financial statements and as a result recorded a gain of approximately $1.3 million with $817,000 attributed to prior periods. The value of the warrants as of August 2013, December 27, 2014 and December 26, 2015 was determined using the Black-Scholes pricing model. The Company does not believe the unrecorded gains were material to the consolidated financial statements as the loss from operations for the fiscal years ended December 28, 2013 and December 27, 2014 were $35.9 million and $28.4 million, respectively.
Non-Marketable Securities—Equity Method Investments
Equity losses in unconsolidated affiliates recorded in the consolidated statement of operations are as follows:
 2015 2014
KoBrite$—
 $(102,305)
Ask Ziggy$(47,443) $(284,137)
Total$(47,443) $(386,442)
In the second quarter of 2014 the Company wrote-off its $1.3 million investment in KoBrite. Prior to the write-off, the Company accounted for its 12% ownership interest in Kobrite using the equity method. One of the Company’s directors is a member of the Board of Directors of Bright LED, principal investor of KoBrite.
In December 2013, the Company wrote down its investment of $2.5 million in Ask Ziggy. The Company continued to fund Ask Ziggy during the first quarter of year ending December 26, 2015. During the twelve months ended December 28, 2013, the Company recordedasset impairment charges of $2.5 million related to the write-off of a cost based investment. There were no equity method investments in 2016.associated with equipment that either is not currently being utilized or will not be utilized for its remaining useful life and is not recoverable.
The Company had a $15.0 million note receivable as a result

44



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.    Contract Assets and Liabilities
Net contract assets (liabilities) consisted of the salefollowing:
 December 29, 2018 December 31, 2017 $ Change % Change
Contract assets and unbilled receivables$3,089,663
 $3,555,137
 $(465,474) (13)%
Contract liabilities and billings in excess of revenue earned(388,933) (664,146) 275,213
 (41)%
Contract liabilities, noncurrent(17,294) (374,171) 356,877
 (95)%
Net contract assets$2,683,436
 $2,516,820
 $166,616
 7 %

The $0.2 million increase in the Company's net contract assets from December 31, 2017 to December 29, 2018 was primarily due to our fixed-price contracts with the U.S. government that resulted in revenue recognized in excess of its III-V product line and investment in KTC, which was paid on January 15, 2016.

On December 28, 2016 we entered into an agreement to establish a joint venture (JV Agreement-A) in China. Under the terms of the JV Agreement the Company will contribute certain intellectual propertyamounts billed and the equivalentadoption of USD $1 million in Renminbi for a minority equity ownership. The purpose of the joint venture is to develop and market wearable products.

On December 28, 2016 we entered into a joint venture agreement (JV Agreement-B) to establish a strategic relationship with a Chinese company under which the Company and the Chinese Company will provide services for each other and jointly develop and manufacture products and the Chinese company is to acquire 7,589,000 shares of unregistered stock of the Company for approximately USD $24.7 million.

The JV Agreements A and B and the sale of the Company’s stock are both subject to standard closing conditions and government approvals. The transactions related to these agreements were not finalized as of the March 22, 2017.Topic 606.
The Company has a loanrecognized revenue of approximately $0.3 million and $0.4 million related to a non-officer employee for approximately $140,000our contract liabilities at December 31, 20162017 and January 1, 2017, respectively.
The Company did not recognize impairment losses on our contract assets during the years ended December 29, 2018 and December 26, 2015, which is currently due.30, 2017.
4.    Business Combinations
Kopin Software Ltd.In March 2017, we purchased 100% of the outstanding stock of NVIS, Inc. ("NVIS") for $3.7 million. NVIS produces virtual reality systems for 3D applications. Additional payments by the Company of up to $2.0 million may be required if certain future operating performance milestones are met and the selling shareholders remain employed with NVIS through March 2020. As there is a requirement to remain employed to earn the contingent payments, these contingent payments will be treated as compensation expense.
InThe identifiable assets acquired and liabilities assumed at the acquisition date have been recognized at fair value. The allocation of the purchase price as of the acquisition date is as follows:
Cash and marketable securities$2,600
Accounts receivable490,700
Inventory768,400
Other identifiable assets46,800
Order backlog840,000
Customer relationships1,000,000
Developed technology460,000
Trademark portfolio160,000
Current liabilities(480,500)
Net deferred tax liabilities(1,084,000)
Goodwill1,489,000
Total$3,693,000

Goodwill represents the recording of the excess of the purchase price over the fair values of the net tangible assets acquired. No significant adjustments were recorded to the purchase price allocation during the measurement period. During the fourth quarter of 2015,2017, we finalized the Company increased its ownership in Kopin Software Ltd. from 58% to 100% and acquired 17.5% in a new company by paying GBP 1 to a former employee and transferring the rights of certain software programs to the new company. The former employee is a co-founderfair values of the new company. acquired assets and liabilities.
The Company has ascribed an immaterial amount to its investmentidentified intangible assets are being amortized on a straight-line basis over the following lives, in the new company.years:
Order backlog1
Customer relationships2
Developed technology2
Trademark portfolio2


eMDT


5345






KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)STATEMENTS (CONTINUED)


DuringIn conjunction with the second quarter of 2014,acquisition, the Company paidrecorded deferred tax liabilities of approximately $0.3$1.1 million to increase its ownership in eMDT subsidiary increasing its ownership percentage from 51% to 80%. As of December 31, 2016,associated with the Company has an option to acquire the remaining equityfuture non-deductible amortization of the intangible assets. These deferred tax liabilities can be used to offset the Company’s net deferred tax assets. The Company reduced the valuation allowance on its net deferred tax assets in the amount of $1.1 million and such reduction was recognized as a benefit for $200,000.income taxes for 2017. Acquisition expenses were approximately $0.2 million for the fiscal year ended 2017 and were recorded in selling, general and administration expenses.
The following unaudited supplemental pro forma disclosures are provided for the fiscal year ended December 30, 2017. All intercompany transactions have been eliminated.
Fiscal year ended 2017 2016
Revenues $28,477,870
 $25,029,681
Net loss (26,302,840) (23,736,518)
Basic and diluted earnings per share $(0.38) $(0.37)

5.    Goodwill and Intangibles

The Company’sA rollforward of the Company's goodwill balanceby segment is as follows:
 Kopin Industrial Total
Balance, December 31, 2016$844,023
 $—
 $844,023
March 2017 acquisition of NVIS, Inc.—
 1,488,650
 1,488,650
Impairment of goodwill—
 (600,086) (600,086)
Change due to exchange rate fluctuations47,660
 —
 47,660
Balance, December 30, 2017891,683
 888,564
 1,780,247
Impairment of goodwill(528,906) (888,564) (1,417,470)
Change due to exchange rate fluctuations(31,433) —
 (31,433)
Balance, December 29, 2018$331,344
 $—
 $331,344

 Fiscal Year Ended
 December 31, 2016 December 26, 2015
Beginning Balance$946,082
 $976,451
Change due to exchange rate fluctuations(102,059) (30,369)
Ending Balance$844,023
 $946,082
Goodwill is evaluated for impairment annually or more often if indicators of a potential impairment are present. The Company performs impairment tests of goodwill at its reporting unit level. The goodwill valuations that are utilized to test these assets for impairment are depending on a number of significant estimates and assumptions, including macroeconomic conditions, overall growth rates, competitive activities, cost containment, Company conducts its annualbusiness plans and the discount rate applied to cash flows. We believe these estimates and assumptions are reasonable and are comparable to those that would be used by other market participants. However, actual events and results could differ substantially from those used in our valuations. To the extent such factors result in a failure to achieve the level of projected cash flows initially used to estimate fair value for purposes of establishing the carrying amount of goodwill, we may need to record non-cash impairment test oncharges in the last day of each fiscal year unless factors indicate that an impairment may have occurred. As offuture.
At December 31, 2016,29, 2018, the Company performed an impairment analysis of goodwill based on a qualitative analysis whichcomparison of the discounted cash flows to the recorded carrying value of the reporting units, and determined there wasthat the discounted cash flows were not in excess of the carrying value of the NVIS reporting unit. At December 29, 2018, the Company decided to discontinue operations at its wholly-owned subsidiary, Kopin Software Ltd. and expects no future cash flows to support the carrying amount of goodwill. As a result, the Company recorded an impairment of the Company's goodwill. Goodwillgoodwill of $1.4 million at December 29, 2018. The input methods for goodwill are analyzed for impairment on a nonrecurring basis using fair value measurements with unobservable inputs, which is includedLevel 3 in the Kopin reportable segment.fair value hierarchy.
The Company recognized $0.0$0.9 million,, $0.6 $1.6 million and $1.0$0.0 million in amortization expense for the fiscal years ended December 31,2018, 2017 and 2016,, December 26, 2015 and December 27, 2014, respectively, related to intangible assets. At December 29, 2018, the Company has a carrying value of $2.5 million and accumulated amortization of $2.5 million related to intangibles. The intangibles have no remaining useful life.

46



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.    Financial Instruments
Fair Value Measurements
Under accounting guidance, financialFinancial 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 Company’s investments are either held by brokers or in the case of publicly-held corporation, by the Company. The brokers who hold the Company’s investments provide periodic reporting on both the cost and fair value of the securities. The Company performs various procedures to corroborate the fair value provided by the brokers. Debt securities reflected in the table below include investments such as certificates of deposit, commercial paper, corporate bonds, government bonds, and money market fund deposits. When the Company uses observable market prices for identical securities that are traded in less active markets, its debt investments are classified as Level 2. When observable market prices for identical securities are not available, the Company prices the debt investments it owns using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on quotes from brokers. The discounted cash flow model uses observable market inputs, such as US treasury-based yield curves.

54



KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table details the fair value measurements withinof the Company’s financial assets:
   Fair Value Measurement at December 29, 2018 Using:
 Total Level 1         Level 2         Level 3        
Cash and cash equivalents$14,326,347
 $14,326,347
 $—
 $—
U.S. government and agency backed securities12,810,923
 —
 12,810,923
 —
Corporate debt10,107,093
 —
 10,107,093
 —
GCS Holdings288,026
 288,026
 —
 —
Equity Investments5,565,499
 —
 —
 5,565,499
 $43,097,888
 $14,614,373
 $22,918,016
 $5,565,499
   Fair Value Measurement at December 30, 2017 Using:
 Total Level 1         Level 2         Level 3        
Cash and cash equivalents$24,848,227
 $24,848,227
 $—
 $—
U.S. government and agency backed securities34,725,811
 6,927,323
 27,798,488
 —
Corporate debt8,980,906
 —
 8,980,906
 —
Certificates of deposit200,740
 —
 200,740
 —
GCS Holdings478,546
 478,546
 —
 —
Warrant2,000,000
 —
 —
 2,000,000
 $71,234,230
 $32,254,096
 $36,980,134
 $2,000,000

Transfers between levels of the fair value hierarchy are reported at the beginning of the Company’sreporting period in which they occur. 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.
Changes in Level 3 investments are as follows:
 December 30, 2017 Net unrealized gains/(losses) Purchases, issuances and settlements Transfers in and or out of Level 3 December 29, 2018
Equity Investments$—
 $(284,317) $5,849,816
 $—
 $5,565,499
Warrant2,000,000
 (50,184) (1,949,816) —
 —
 $2,000,000
 $(334,501) $3,900,000
 $—
 $5,565,499

Equity Investments
Equity investments rarely traded or not quoted will generally have less (or no) pricing observability and a higher degree of judgment utilized in measuring fair value. Initial measurement of equity investments occurs when an observable price for the equity investment is available. The Company adopted ASU No. 2016-01 and the related amendments on December 31, 2017 (the first day of the Company's fiscal year 2018). This standard amends various aspects of the recognition, measurement, presentation, and disclosure of financial assets:instruments. 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. As a result, these investments will be revalued upon occurrence of an observable price change for similar investments and for impairments.

47



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   Fair Value Measurement at December 31, 2016 Using:
 Total Level 1         Level 2         Level 3        
Money Markets and Cash Equivalents$15,822,495
 $15,822,495
 $—
 $—
U.S. Government Securities36,091,261
 7,144,767
 28,946,494
 —
Corporate Debt7,557,029
 —
 7,557,029
 —
Certificates of Deposit17,727,111
 —
 17,727,111
 —
GCS Holdings331,454
 331,454
 —
 —
 $77,529,350
 $23,298,716
 $54,230,634
 $—

Warrant
The Company had a warrant to acquire up to 15% of the next round of equity offered by a customer as part of the licensing of technology to the customer. The Company exercised the warrant in April 2018.
   Fair Value Measurement at December 26, 2015 Using:
 Total Level 1         Level 2         Level 3        
Money Markets and Cash Equivalents$19,767,889
 $19,767,889
 $—
 $—
U.S. Government Securities46,464,663
 16,381,152
 30,083,511
 —
Corporate Debt6,886,495
 —
 6,886,495
 —
Certificates of Deposit7,591,733
 —
 7,591,733
 —
GCS Holdings232,037
 232,037
 —
 —
 $80,942,817
 $36,381,078
 $44,561,739
 $—
Marketable Debt Securities
The corporate debt consists of floating rate notes with a maturity that is over multiple years but has interest rates whichthat are reset every three months based on the then current three monththen-current three-month London Interbank Offering Rate (3 month Libor)("three-month Libor"). The Company evaluatesvalidates the fair market values of these corporate debtthe financial instruments above by using discounted cash flow models, obtaining independent pricing of the securities or through the use of a model whichthat incorporates the 3 monththree-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.
The carrying amounts of cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short term nature. The carrying amount of accrued liabilities is classified as Level 2 in the fair value hierarchy.
Marketable Debt Securities
Investments in available-for-sale marketable debt securities are as follows at December 31, 201629, 2018 and December 26, 2015:30, 2017:
 Amortized Cost Unrealized Losses Fair Value
 2018 2017 2018 2017 2018 2017
U.S. government and agency backed securities$13,064,418
 $35,014,593
 $(253,495) $(288,782) $12,810,923
 $34,725,811
Corporate debt10,175,084
 8,988,608
 (67,991) (7,702) 10,107,093
 8,980,906
Certificates of deposits—
 201,000
 —
 (260) —
 200,740
Total$23,239,502
 $44,204,201
 $(321,486) $(296,744) $22,918,016
 $43,907,457

 
 Amortized Cost Unrealized Gains Unrealized Losses Fair Value
 2016 2015 2016 2015 2016 2015 2016 2015
U.S. government and agency backed securities$36,343,817
 $46,586,224
 $—
 $—
 $(252,556) $(121,561) $36,091,261
 $46,464,663
Corporate debt and certificates of deposits25,323,428
 14,534,247
 —
 —
 (39,288) (56,019) 25,284,140
 14,478,228
Total$61,667,245
 $61,120,471
 $—
 $—
 $(291,844) $(177,580) $61,375,401
 $60,942,891
The contractual maturity of the Company’s marketable debt securities is as follows at December 31, 2016:
29, 2018:
 
Less than
One year
 
One to
Five years
 Total
U.S. government and agency backed securities$3,741,183
 $9,069,740
 $12,810,923
Corporate debt2,709,074
 7,398,019
 10,107,093
Total$6,450,257
 $16,467,759
 $22,918,016
 
Less than
One year
 
One to
Five years
 
Greater than
Five years
 Total
U.S. government and agency backed securities$14,473,073
 $16,690,738
 $4,927,450
 $36,091,261
Corporate debt and certificates of deposits22,562,101
 2,722,039
 —
 25,284,140
Total$37,035,174
 $19,412,777
 $4,927,450
 $61,375,401

55



KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other-than-Temporary Impairments
The Company reviews its marketable debt securities on a quarterly basis for the presence of other-than-temporary impairment (OTTI).
If the Company determines that an OTTI has occurred it further estimates the amount of OTTI resulting from a decline in the credit worthiness of the issuer (credit-related OTTI) and the amount of non credit-related OTTI. Noncredit-related OTTI can be caused by such factors as market illiquidity. Credit-related OTTI is recognized in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in other comprehensive income (OCI). The Company did not record any OTTI for the fiscal years 2016, 2015 and 2014.
7.    Stockholders’ Equity and Stock-Based Compensation
Sale of Unregistered Common Stock
On April 20, 2017, the Company sold 7,589,000 shares of unregistered common stock to Goertek, Inc. for $24,664,250 ($3.25 per share). This represented approximately 10.1% of Kopin’s total outstanding shares of common stock as of the date of purchase. In addition, Kopin and Goertek have entered into agreements to jointly develop and commercialize a range of technologies and wearable products. Goertek is a leading innovative global technology company headquartered in Weifang, China that designs and manufactures a range of consumer electronics products for brand customers including wearables, virtual and augmented reality headsets, and audio products. The Company has stock-based awards outstandingtransaction was accounted for under two plans. ASC 505-30 "Treasury Stock", and the loss on the sale of the treasury stock of approximately $0.8 million was charged to retained earnings. At completion of the transaction, the U.S. government requested certain information regarding the transaction for the Committee on Foreign Investment. See Note 16. Related Party Transactions for additional discussion around agreements with Goertek.
Restricted Stock Awards
In 20012010, the Company adopted a 20012010 Equity Incentive Plan (the("2010 Equity Plan). The Equity Plan authorized 7,100,000 shares of common stock, to be issued to employees, non-employees, and members of the Board of Directors (the Board). The Equity Plan had a ten year life and therefore no new equity awards may be issued under this plan. In 2010, the Company adopted a 2010 Equity Incentive Plan (the 2010 Equity Plan)Plan") which authorized the issuance of shares of common stock to employees, non-employees, and the Board. The 2010 Equity Plan was a successor to the Company’s 2001 Equity Incentive Plan ("2001 Equity Plan") and has been subsequently amended to increase the number of authorized shares to 11,600,000.14,100,000 as of December 29, 2018. The number of shares authorized under the 2010 Equity Plan is the number of shares approved by the shareholders plus the number of shares of common stock which were available for grant under the 2001 Equity Plan, the number of shares of common stock which were the subject of awards outstanding under the 2001 Equity Plan and are forfeited, terminated, canceled or expire after the adoption of the 2010 Equity Plan and the number of shares of common stock delivered to the Company either in exercise of an 2001 Equity Plan award or in satisfaction of a tax withholding obligation. The option price of statutory incentive stock options shall not be less than 100% of the fair market value of the stock at the date of grant, or in the case of certain statutory incentive stock options, at 110% of the fair market value at the time of the grant. The option price of nonqualified stock options is determined by the Board or Compensation Committee. Options must be exercised within a ten-year period or sooner if so specified within the option agreement. The term and vesting period for restricted stock awards and options granted under the 2010 Equity Plan are determined by the Board’s compensation committee.
The As of December 29, 2018, the Company has approximately 500,0001.7 million shares of common stock authorized and available for issuance under the Company’s 2010 Equity Plan.
In March 2013,
48



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The fair value of non-vested restricted common stock awards is generally the Company’s Board of Directors authorized the repurchasemarket value of the Company’s common stock in open market or negotiated transactions through March 2014. Duringon the period March 2013 through March 2014 the Company purchased 2,241,121 sharesdate of its common stock for $8,290,573.

grant. The Company has no stock options outstanding at December 31, 2016. The intrinsic value of options exercised in 2014 was approximately $26,000. The Company issued warrants to purchase 200,000 shares of the Company’s stock at $3.49 which were exercised on a cashless basis in 2015.
Cash received from option and warrant exercises under all share-based payment arrangements was approximately $0.0 million for fiscal year 2016. No tax benefits were realized during the three year period ended 2016 due to the existence of tax net operating loss carryforwards.
NonVested Restricted Common Stock
The Company has issued shares of nonvestednon-vested restricted common stock to certain employees. Each award requiresawards 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. A summary ofcriteria or the activity for nonvestedCompany’s stock achieving a certain price. For non-vested restricted common stock awards asthat 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.
 Shares 
Weighted
Average
Grant
Fair Value
Outstanding at December 26, 20152,192,016
 $3.82
Granted1,663,000
 2.40
Forfeited(110,500) 3.21
Vested(736,842) 3.17
Outstanding at December 31, 20163,007,674
 3.21
Granted1,152,000
 3.40
Forfeited(465,150) 3.82
Vested(1,065,250) 2.90
Balance at December 30, 20172,629,274
 3.31
Granted1,549,000
 2.25
Forfeited(872,025) 3.78
Vested(1,093,000) 3.05
Balance at December 29, 20182,213,249
 $2.51

On December 31, 20162017 (fiscal year beginning 2018), the Company amended the employment agreement with our CEO Dr. John Fan to expire on December 31, 2020 and changesas part of the amendment issued restricted stock grants. 640,000 shares of restricted stock which will vest upon the first 20 consecutive trading day period following the grant date during which the year then ended is presented below:Company's common stock trades at a price equal to or greater than $5.25, 150,000 shares of restricted stock will vest at the end of the first 20 consecutive trading day period following the grant date during which the Company’s common stock trades at a price per share equal to or greater than $6.00, and 150,000 shares of restricted common stock will vest at the end of the first 20 consecutive trading day period following the grant date during which the Company’s common stock trades at a price per share equal to or greater than $7.00. All of the grants are subject to certain acceleration events and terminate on December 31, 2020.
 For the period ended December 29, 2018
Performance price target$5.25
 $6.00
 $7.00
Expected volatility48.3% 48.3% 48.3%
Interest rate1.97% 1.97% 1.97%
Expected life (years)2
 2
 2
Dividend yield—% —% —%


5649






KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)STATEMENTS (CONTINUED)

 Shares 
Weighted
Average
Grant
Fair Value
Balance, December 26, 20152,192,016
 $3.82
Granted1,663,000
 2.40
Forfeited(110,500) 3.21
Vested(736,842) 3.17
Balance, December 31, 20163,007,674
 $3.21

The forfeitures in 2016 were primarily due to fact that the performance criteria related to these awards were not achieved.
Stock-Based Compensation
The following table summarizes stock-based compensation expense relatedwithin each of the categories below as it relates to employee stock options and nonvestednon-vested restricted common stock awards for the fiscal years 2016, 20152018, 2017 and 20142016 (no tax benefits were recognized):
 2018 2017 2016
Cost of product revenues$418,605
 $490,481
 $561,791
Research and development725,112
 799,485
 527,081
Selling, general and administrative3,647,337
 1,006,165
 1,336,454
Total$4,791,054
 $2,296,131
 $2,425,326

 2016 2015 2014
Cost of component revenues$561,791
 $729,715
 $766,221
Research and development527,081
 776,946
 965,945
Selling, general and administrative1,336,454
 1,638,818
 3,095,606
Total$2,425,326
 $3,145,479
 $4,827,772
Total unrecognizedUnrecognized compensation expense for the nonvestednon-vested restricted common stock as of December 31, 2016 is $5.929, 2018 totaled $3.4 million and is expected to be recognized over a weighted average period of approximately two years.
8.    Concentrations of Risk
Ongoing credit evaluations of customers’ financial condition are performed and collateral, such as letters of credit, are generally not required. The following table depicts the customer’s tradeCustomer’s accounts receivable balance as a percentage of gross trade receivablestotal accounts receivable was as of the end of the year indicated. (Thefollows:
 
Percent of Gross
Accounts Receivable
CustomerDecember 29,
2018		 December 30,
2017
Collins Aerospace11% *
DRS Technologies11% *
Scott Safety* 14%
RealWear, Inc.31% 10%
U.S. Army* 43%
Note: The symbol “*” indicates that accounts receivables from that customer were less than 10% of the Company’s total accounts receivable.)
 
Percent of Gross
Accounts Receivable
Customer2016 2015
Company B19 21
Company D21 15
Company G18 *
Sales to significant non-affiliated customers for fiscal years 20162018, 20152017 and 20142016, as a percentage of total revenues, is shown in the table below. Note the caption “Military Customers in Total” in the table below excludes research and development contracts.as follows:
 
Sales as a Percent
of Total Revenue
 Fiscal Year
Customer2018 2017 2016
Military Customers in Total36% 48% 24%
General Dynamics11% * *
DRS Technologies* 10% *
Collins Aerospace20% 10% 12%
Shenzhen Oriscape* * 20%
U.S. Army* 12% *
Funded Research and Development Contracts20% 11% 7%

Note: The Company sells its displays to Japanese customers through Ryoden Trading Company. (The symbol “*” indicates that sales to that customer were less than 10% of the Company’s total revenues.) The caption "Military Customers in Total" excludes research and development contracts.

50
 
Sales as a Percent
of Total Revenue
 Fiscal Year
Customer2016 2015 2014
Military Customers in Total24 32 45
Company A* 18 26
Company C* 22 11
Company E12 * *
Company F20 * *
Funded Research and Development Contracts7 12 15



57




KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)STATEMENTS (CONTINUED)



9.    Income Taxes
The (benefit) provision (benefit) for income taxes from continuing operations consists of the following for the fiscal years indicated:
 Fiscal Year
 2018 2017 2016
Current     
State$5,000
 $5,000
 $33,000
Foreign25,000
 (568,000) 1,656,000
Total current provision30,000
 (563,000) 1,689,000
Deferred     
Federal(7,307,000) 15,461,000
 (8,718,000)
State(360,000) (493,000) (1,264,000)
Foreign300,000
 (187,000) 2,308,000
Change in valuation allowance7,367,000
 (17,181,000) 9,115,000
Total (benefit) deferred provision—
 (2,400,000) 1,441,000
Total provision (benefit) for income taxes$30,000
 $(2,963,000) $3,130,000

 Fiscal Year
 2016 2015 2014
Current     
Federal$—
 $—
 $—
State33,000
 50,000
 50,000
Foreign1,656,000
 —
 —
Total current provision1,689,000
 50,000
 50,000
Deferred     
Federal(8,718,000) (5,356,000) (9,554,000)
State(1,264,000) (62,000) (1,709,000)
Foreign2,308,000
 188,000
 411,000
Change in valuation allowance9,115,000
 5,155,000
 10,622,000
Total deferred provision (benefit)1,441,000
 (75,000) (230,000)
Total provision (benefit) for income taxes$3,130,000
 $(25,000) $(180,000)
The provision for income taxesfollowing table sets forth the changes in Kopin's balance of unrecognized tax benefits for the fiscal year ended 2016 of $3,130,000 represents $33,000 of state tax, $978,000 of tax for gain on sale of the Korean subsidiary’s building, $671,000 for uncertain tax position, which includes potential penalties of $30,000, interest of $266,000 and foreign withholding of $1,441,000.   ended:

Total
Unrecognized tax benefits at December 26, 2016$374,000
Gross increases—prior year tax positions20,000
Unrecognized tax benefits at December 30, 2017394,000
Gross increases—current year tax positions—
Unrecognized tax benefits at December 29, 2018$394,000

USU.S. GAAP requires applying a 'more likely than not' threshold to the recognition and derecognition of uncertain tax positions either taken or expected to be taken by Kopin's income tax returns. The total amount of our gross tax liability for tax positions that may not be sustained under a 'more likely than not' threshold amounts to $374,000$0.4 million as of December 31, 2016 including interest of $266,000.
29, 2018 and December 30, 2017. Kopin's policy regarding the classification of interest and penalties is to include these amounts as a component of income tax expense. The total amount of accrued interest and penalties related to expense.
The following table sets forth the changes in Kopin's balance ofCompany's unrecognized tax benefits for the year endedwas $0.5 million as of December 31, 2016.29, 2018 and December 30, 2017.
($ in millions)2016
Unrecognized tax benefits- beginning balance$—
Gross increases- prior year tax positions374,000
Gross increases- current year tax positions$—
Gross decreases -FIN 48 liability release$—
Gross decreases- expired statute of limitations—
Unrecognized tax benefits- ending balance$374,000
Net operating losses were not utilized in 20162018, 20152017 and 20142016 to offset federal and state taxes.

51



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The actual income tax (benefit) provision (benefit) reported from operations are different than those which would have been computed by applying the federal statutory tax rate to loss before income tax provision (benefit). provision. A reconciliation of income tax (benefit) provision (benefit) from continuing operations as computed at the U.S. federal statutory income tax rate to the provision for income tax benefit is as follows:

 Fiscal Year
 2018 2017 2016
Tax provision at federal statutory rates$(7,515,000) $(9,884,000) $(6,965,000)
State tax liability5,000
 5,000
 22,000
Foreign deferred tax rate differential(39,000) 15,000
 (678,000)
Foreign withholding301,000
 (771,000) 1,441,000
Outside basis in Kowon, net unremitted earnings(468,000) (2,888,000) 958,000
Permanent items186,000
 774,000
 259,000
Increase in net state operating loss carryforwards(406,000) (300,000) (502,000)
Utilization of net operating losses for U.K. research and development refund—
 —
 (142,000)
Provision to tax return adjustments and tax rate change (1)
(76,000) 24,833,000
 (66,000)
Tax credits239,000
 24,000
 (762,000)
Non-deductible 162M compensation limitations13,000
 199,000
 —
Non-deductible equity compensation290,000
 1,901,000
 (360,000)
Uncertain tax position for transfer pricing91,000
 203,000
 671,000
Other, net45,000
 107,000
 139,000
Change in valuation allowance7,364,000
 (17,181,000) 9,115,000
 $30,000
 $(2,963,000) $3,130,000

(1)Due to the Tax Act which was enacted in December 2017, our U.S. deferred tax assets and liabilities as of December 30, 2017 were re-measured to 21%. The provisional amount recorded related to the remeasurement of our deferred tax balance was approximately $25.1 million of tax expense.
58



KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 Fiscal Year
 2016 2015 2014
Tax provision at federal statutory rates$(6,965,000) $(5,187,000) $(9,964,000)
State tax liability22,000
 33,000
 33,000
Foreign deferred tax rate differential(678,000) 153,000
 371,000
Foreign withholding1,441,000
 (75,000) (196,000)
Outside basis in Kowon, net unremitted earnings958,000
 (180,000) (394,000)
Permanent items259,000
 (402,000) (21,000)
Increase in net state operating loss carryforwards(502,000) (158,000) (177,000)
Utilization of net operating losses for U.K. research and development refund(142,000) 719,000
 1,089,000
Provision to tax return adjustments and state tax rate change(66,000) 264,000
 (516,000)
Tax credits(762,000) (501,000) (610,000)
Non-deductible 162M compensation limitations—
 40,000
 196,000
Non-deductible equity compensation(360,000) (34,000) (687,000)
Uncertain tax position for transfer pricing671,000
 —
 —
Other, net139,000
 148,000
 74,000
Change in valuation allowance9,115,000
 5,155,000
 10,622,000
 $3,130,000
 $(25,000) $(180,000)
Pretax foreign income (losses) from continuing operations werewas approximately $5,368,000, $(968,000) and $(2,588,000)$0.7 million for fiscal years 2016, 2015year ended 2018, pretax foreign loss from continuing operations was approximately $0.4 million for fiscal year ended 2017 and 2014, respectively.pretax foreign income from continuing operations was approximately $5.4 million for fiscal year ended 2016. Deferred income taxes are provided to recognize the effect of temporary differences between tax and financial reporting. Deferred income tax assets and liabilities consist of the following:
 Fiscal Year
 2018 2017
Deferred tax liability:   
Foreign withholding liability$(538,000) $(812,000)
Foreign unremitted earnings—
 (468,000)
Intangible assets—
 (259,000)
Deferred tax assets:   
Federal net operating loss carryforwards41,755,000
 34,555,000
State net operating loss carryforwards3,114,000
 2,708,000
Foreign net operating loss carryforwards1,259,000
 1,500,000
Equity awards444,000
 55,000
Tax credits7,231,000
 7,470,000
Property, plant and equipment640,000
 544,000
Unrealized losses on investments1,848,000
 1,792,000
Other1,707,000
 3,037,000
Net deferred tax assets57,460,000
 50,122,000
Valuation allowance(58,006,000) (50,642,000)
 $(546,000) $(520,000)


52



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 Fiscal Year
 2016 2015
Deferred tax liability:   
       Foreign withholding liability$(2,571,000) $(1,207,000)
       Foreign unremitted earnings(3,659,000) (2,701,000)
Deferred tax assets:   
Federal net operating loss carryforwards46,968,000
 28,984,000
State net operating loss carryforwards2,129,000
 1,913,000
Foreign net operating loss carryforwards1,375,000
 2,430,000
Equity awards2,258,000
 2,249,000
Tax credits7,495,000
 6,768,000
Property, plant and equipment814,000
 1,113,000
Unrealized losses on investments3,535,000
 3,240,000
Other5,823,000
 3,667,000
Net deferred tax assets64,167,000
 46,456,000
Valuation allowance(66,738,000) (47,663,000)
 $(2,571,000) $(1,207,000)

The valuation allowance was approximately $58.0 million and $50.6 million at December 29, 2018 and December 30, 2017, respectively, primarily driven by U.S. net operating loss carryforwards ("NOLs") and tax credits that the Company does not believe will ultimately be realized.
On December 22, 2017, the President signed the Tax Cuts and Jobs Act of 2017 ("2017 Act") which enacted a wide range of changes to the U.S. corporate income tax system. The 2017 Act reduced the U.S. corporate statutory federal tax rate to 21% effective in 2018, eliminated the domestic manufacturing deduction benefit and introduced other tax base broadening measures, changed rules for expensing and capitalizing business expenditures, established a territorial tax system for foreign earnings as well as a minimum tax on certain foreign earnings, provided for a one-time transition tax on previously undistributed foreign earnings, and introduced new rules for the treatment of certain foreign income. Also on December 22, 2017, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 118 (SAB 118), which provided companies with additional guidance on how to account for the 2017 Act in their financial statements, allowing companies to use a measurement period. As of December 31, 201630, 2017, we made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax on previously undistributed foreign earnings and the Company did not recognize any provisional amounts in the (benefit) provision for income taxes in accordance with SAB 118. As of December 29, 2018, we had finalized our provisional estimates for the remeasurement of our existing U.S. deferred tax balances and the one-time transition tax and did not recognize amounts in the (benefit) provision for income taxes.
Deferred tax assets and liabilities—The Company has remeasured certain deferred tax assets and liabilities, excluding those items that will be included on the Company's 2017 tax return, based on the rates the Company expects to realize the deferred tax assets and liabilities at in the future, which is generally 21%. The amount recorded related to the remeasurement of the Company's deferred tax balance was approximately $25.1 million of tax expense. At December 29, 2018, we have finalized our provisional estimate for the remeasurement of our existed deferred tax balances with no additional adjustment.
The Company recorded a reduction in the valuation allowance during 2017 of approximately $1.0 million which was previously recorded against the Company’s AMT credit. The Company expects to receive a refund of $1.0 million from our AMT credit in accordance with the Tax Act and have recorded the receivable in "Other assets" on the Company's consolidated balance sheets at December 29, 2018.
In addition to the changes described above, the 2017 Act imposes a U.S. tax on global intangible low taxed income ("GILTI") that is earned by certain foreign affiliates owned by a U.S. shareholder. The computation of GILTI is generally intended to impose tax on the earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment. The Company has made a policy election to treat future taxes related to GILTI as a current period expense in the reporting period in which the tax is incurred.
Foreign tax effects—The one-time transition tax is based on our total post-1986 earnings and profits (“E&P”) for which the Company has previously deferred U.S. income taxes. The Company is estimating that the Company will not have a provisional requirement amount for our one-time transition tax liability, using an estimated applicable tax rate of 15.5%, resulting in no increase in income tax expense. The Company has not yet completed our calculation of the total post-1986 foreign E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. The Company also expects additional clarifying and interpretative technical guidance to be issued related to the calculation of our one-time transition tax. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax and any additional outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations.
As of December 29, 2018, the Company has available for tax purposes U.S. net operating loss carryforwards (NOLs)NOLs of $134.0198.8 millionexpiring 20212022 through 20362037. The Company has recognized a full valuation allowance on its net deferred tax assets as the Company has concluded that such assets are not more likely than not to be realized. The increasedecrease in valuation allowance during fiscal year 20162018 was primarily due to an increase in U.S. net operating loss carryforwardsa result of $7.7 million generateddecreases in the current yearfederal tax rate as part of the Tax Act and $10.3 milliona reduction in the valuation allowance as a result of deferred tax liabilities assumed as part of the acquisition of NVIS.
The Tax Act imposes a mandatory transition tax on accumulated foreign earnings and eliminates U.S. taxes on foreign subsidiary distribution. As a result, earnings in foreign jurisdictions are available for distribution to the U.S. without incremental U.S. taxes.
Under the provisions of Section 382, certain substantial changes in Kopin’s ownership may limit in the future the amount of net operating loss carryforwards from the adoption of ASU No. 2016-09. The $5.2 million increase in valuation allowance during fiscal year 2015 was primarily duethat could be used annually to an increase in net operating losses. In fiscal year 2016 the Company adopted ASU No. 2016-09 Improvements to Employee Share-Based Payment Accounting. Uponoffset future taxable income and income tax liability.


5953






KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)STATEMENTS (CONTINUED)


the adoption the Company recorded a deferred tax asset of $10.3 million for the tax benefits from stock awards and recorded a valuation allowance against the deferred tax assets until they are realizable.
The Company has suspended operations and terminated the majority of employees at its Korean subsidiary, Kowon. The assets, primarily buildings and land have been sold. It is more likely than not that the Company's share of the net book value of its Korean investment would be repatriated to the U.S. resulting in a Korean withholding tax of $2.6 million. As a result of the Company no longer being permanently reinvested in Korea, a deferred tax liability for the unremitted earnings in the Korean subsidiary has been recorded for $3.7 million.
The Company’s income tax returns have not been examined by the Internal Revenue Service and are subject to examination for all years since 2001. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.
International jurisdictions have statutes of limitations generally ranging from three to seventwenty years after filing of the respective return. Years still open to examination by tax authorities in major jurisdictions include Korea (20082009 onward), Japan (20082009 onward), Hong Kong (20102011 onward) and United Kingdom (20132014 onward). The Company is not currently under examination in these jurisdictions.

60



KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10.    Accrued Warranty
The Company warrants its products against defect for 12 months. 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 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 fiscal years 2016ended 2018, 2017 and 20152016 are as follows:
 Fiscal Year Ended
 December 29,
2018		 December 30,
2017		 December 31,
2016
Beginning balance$649,000
 $518,000
 $518,000
Additions159,000
 328,000
 440,000
Claim and reversals(237,000) (197,000) (440,000)
Ending Balance$571,000
 $649,000
 $518,000
 Fiscal Year Ended 
 December 31,
2016		 December 26,
2015		December 27,
2014
Beginning Balance$518,000
 $716,000
$716,000
Additions440,000
 598,000
798,000
Claim and reversals(440,000) (796,000)(798,000)
Ending Balance$518,000
 $518,000
$716,000

11.    Employee Benefit Plan
The Company has an employee benefit plan pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended. In 20162018, the plan allowed employees to defer an amount of their annual compensation up to a current maximum of $18,00018,500 if they are under the age of 50 and $24,00024,500 if they are over the age of 50. The Company matches 50% of all deferred compensation on the first 6% of each employee’s deferred compensation. The amount charged to operations in connection with this plan was approximately $347,000, $324,000 and $224,000$0.3 million in fiscal years 20162018, 20152017 and 2014, respectively.2016.
12.    Commitments and Contingencies
Leases
The Company leases various facilities. The following is a schedule of minimum rental commitments under non-cancelable operating leases at December 31, 201629, 2018:
Fiscal year ending,Amount
2019$1,210,000
20201,112,000
2021921,000
2022616,000
2023201,000
Thereafter—
Total minimum lease payments$4,060,000

Fiscal Year ending,Amount
2017$1,219,000
20181,031,000
2019934,000
2020902,000
2021843,000
Thereafter817,000
Total minimum lease payments$5,746,000
Amounts incurred under operating leases are recorded as rent expense on a straight-line basisbasis. Total rent expense in the fiscal years ended 2018, 2017 and aggregated2016 were approximately $1.3$1.4 million, in fiscal year 2016$1.5 million and $1.3 million, $1.7respectively.
The Company has entered into an agreement to make a capital contribution of approximately $5.1 million in fiscal year 2015 and $1.7 (the Company's capital contribution under the agreement is $35.0 million in fiscal year 2014 Chinese Yuan Renminbi). The Company’s ability to make its capital contribution is subject to Chinese laws which include restrictions of direct foreign investment. Accordingly, the Company will need to make the capital contribution through its Chinese subsidiary’s operations.



6154






KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)STATEMENTS (CONTINUED)


13.    Litigation
The Company may engage in legal proceedings arising in the ordinary course of business. Claims, suits, investigations and proceedings are inherently uncertain and it is not possible to predict the ultimate outcome of such matters and our business, financial condition, results of operations or cash flows could be affected in any particular period.

BlueRadios, Inc. v. Kopin Corporation, Civil Action No. 16-02052-JLK (D. Col.):
On August 12, 2016, BlueRadios, Inc. ("BlueRadios") filed a complaint in the U.S. District 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 microdisplay products with embedded wireless technology referred to as “Golden-i”. Additionally BlueRadios alleged that the Company 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 seeks monetary, declaratory, and injunctive relief.
On October 11, 2016, the Company filed its Answer and Affirmative Defenses. The parties are in the midst of discovery, with the close of all discovery currently set for June 14, 2019, or 120 days after a claim construction order should one be necessary. A trial date has not yet been set by the Court. 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 29, 2018. 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.


6255






KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)STATEMENTS (CONTINUED)

14. Embezzlement and Immaterial Restatement
During the third quarter of 2016, the Company discovered embezzlement activities at its Korean subsidiary. Based upon the results of forensic investigating procedures, we identified that the embezzlement activities occurred from fiscal year 2011 through fiscal year 2016.

The amounts of the embezzlement by period are as follows:
YearAmount
2016$480,000
2015338,000
2014213,000
Prior to 2014558,000
 $1,589,000
In the annual financial statements for all years prior to 2016, the theft losses had been expensed, although misclassified, as Cost of component revenues or Foreign currency transaction losses. Accordingly, the effects of the embezzlement on all prior years are limited to misclassifications of the expenses within the Consolidated Statements of Operations. The correction of such misclassifications does not change previously reported Net losses or Accumulated deficit.
Although we do not believe such misclassifications are material to previously issued consolidated financial statements, due to the sensitive nature of fraud and, for comparability purposes, we have restated previously issued annual financial statements to reclassify embezzlement losses into other (expense) income net. The effects of the corrections are as follows:

YearCost of component revenuesForeign currency transaction (losses) gainsOther (expense) income, net
2015$(85,000)$(253,000)$(338,000)
2014(46,000)(167,000)(213,000)
The family of the embezzler has contributed certain assets as reparations. In addition, the Company has insurance to cover employee fraud. Whether the Company can collect the insurance and keep the assets is pending civil and criminal investigations against the embezzler. The value of the assets recovered, if any, will be recorded during the period in which settlement is determined to be probable.
15.14.    Segments and Geographical InformationDisaggregation of Revenue (As Revised)
The Company’s chief operating decision maker is its Chief Executive Officer. The Company has determined it has two reportable segments, FDD,Industrial, which includes the manufacturer ofoperations that develop and manufacture its reflective display products and virtual reality systems for test and simulation products, and Kopin, which is comprisedincludes the operations that develop and manufacture its other products.
As noted in Note 1. Summary of Kopin Corporation, Kowon, Kopin Software Ltd.Significant Accounting Policies, effective December 31, 2017, the Company adopted Topic 606 using the modified retrospective method. The comparative information has not been revised and eMDT. (in thousands)continues to be reported under the accounting standards in effect for those periods.

Segment financial results were as follows:
Total Revenue (in thousands)
2018 2017 2016
Kopin$16,981
 $15,942
 $18,733
Industrial9,116
 13,585
 3,909
Eliminations(1,631) (1,685) —
Total$24,465
 $27,841
 $22,643
      
Total Intersegment Revenue (in thousands)
2018 2017 2016
Kopin$—
 $—
 $—
Industrial1,631
 1,685
 —
Total$1,631
 $1,685
 $—
      
 2018 2017 2016
Net Loss Attributable to the Controlling Interest (in thousands)
(As Revised)1
   
(As Revised)1
Kopin$(33,768) $(26,153) $(22,757)
Industrial(766) 1,277
 (812)
Eliminations—
 (364) —
Total$(34,534) $(25,240) $(23,569)
      
Intersegment Loss Attributable to the Controlling Interest (in thousands)
2018 2017 2016
Kopin$—
 $—
 $—
Industrial—
 364
 —
Total$—
 $364
 $—
      
Total Assets (in thousands)
  2018 2017
Kopin  $50,995
 $82,707
Industrial  8,554
 8,615
Total  $59,549
 $91,322

1.For discussion of the correcting adjustments, see Note 18 - Correction of Previously Issued Financial Statements

6356






KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)STATEMENTS (CONTINUED)


Total long-live assets by country at December 29, 2018 and December 30, 2017 were:
Total Long-lived Assets (in thousands)
2018 2017
U.S.$2,101
 $2,456
United Kingdom197
 192
China251
 338
Japan50
 206
Korea—
 1,885
Total$2,599
 $5,077

We disaggregate our revenue from contracts with customers by geographic location and by display application, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

57



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 Kopin FDD Total
2016     
Revenues$18,733
 $3,909
 $22,643
Net loss attributable to the controlling interest(22,623) (812) (23,434)
Total assets86,084
 1,748
 87,832
Long-lived assets2,976
 —
 2,976
2015     
Revenues$28,538
 $3,516
 $32,054
Net loss attributable to the controlling interest(13,429) (1,264) (14,693)
Total assets104,536
 1,524
 106,060
Long-lived assets2,639
 38
 2,677
Property and plant held for sale819
 —
 819
2014     
Revenues$28,333
 $3,474
 $31,807
Net loss attributable to the controlling interest(26,402) (1,810) (28,212)
Total assets121,300
 1,641
 122,941
Long-lived assets4,343
 246
 4,589

GeographicalTotal revenue informationby geographical area for the threefiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016, December 26, 2015 and December 27, 2014 was based on the location of the customers and is as follows: (in thousands)
 2018
 Kopin Industrial Total
(In thousands, except percentages)Revenue % of Total Revenue % of Total Revenue % of Total
U.S.$10,799
 44% $3,637
 15% $14,436
 59%
Other Americas49
 —
 74
 —
 123
 1
Total Americas10,848
 44
 3,712
 15
 14,559
 60
Asia-Pacific4,932
 20
 1,984
 8
 6,916
 28
Europe1,194
 5
 1,754
 7
 2,948
 12
Other7
 —
 35
 —
 42
 —
Total Revenues$16,981
 69% $7,484
 30% $24,465
 100%
            
 2017
 Kopin Industrial Total
(In thousands, except percentages)Revenue % of Total Revenue % of Total Revenue % of Total
U.S.$10,056
 36% $6,484
 23% $16,540
 59%
Other Americas24
 —
 62
 —
 86
 —
Total Americas10,080
 36
 6,545
 24
 16,626
 60
Asia-Pacific4,006
 14
 1,401
 5
 5,406
 19
Europe1,856
 7
 3,954
 14
 5,810
 21
Total Revenues$15,942
 57% $11,900
 43% $27,841
 100%
            
 2016
 Kopin Industrial Total
(In thousands, except percentages)Revenue % of Total Revenue % of Total Revenue % of Total
U.S.$8,847
 39% $390
 2% $9,237
 41%
Other Americas41
 —
 —
 —
 41
 —
Total Americas8,887
 39
 390
 2
 9,278
 41
Asia-Pacific7,588
 33
 2,260
 10
 9,849
 43
Europe2,258
 10
 1,258
 6
 3,516
 16
Total Revenues$18,733
 82% $3,909
 18% $22,643
 100%


58



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 Fiscal Year
 2016 2015 2014
 Revenue % of Total Revenue % of Total Revenue % of Total
US$9,237
 41% $21,758
 68% $19,695
 62%
Other Americas41
 —% 395
 1% 416
 1%
Total Americas9,278
 41% 22,153
 69% 20,111
 63%
Asia-Pacific9,849
 43% 7,160
 22% 8,245
 26%
Europe3,516
 16% 2,741
 9% 3,451
 11%
  Total Revenues$22,643
 100% $32,054
 100% $31,807
 100%



Long-lived assetsTotal revenue by geographic area aredisplay application for the fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016 was as follows: (in thousands)
 2018
(In thousands)Kopin Industrial Total
Military$4,755
 $3,969
 $8,724
Industrial2,969
 3,096
 6,066
Consumer4,146
 —
 4,146
R&D5,035
 219
 5,254
Other75
 200
 275
Total Revenues$16,981
 $7,484
 $24,465
      
 2017
(In thousands)Kopin Industrial Total
Military$4,400
 $9,038
 $13,438
Industrial2,695
 2,783
 5,478
Consumer4,406
 —
 4,406
R&D2,938
 9
 2,947
Other1,503
 69
 1,573
Total Revenues$15,942
 $11,900
 $27,841
      
 2016
(In thousands)Kopin Industrial Total
Military$4,963
 $375
 $5,338
Industrial3,128
 3,168
 6,296
Consumer7,418
 —
 7,418
R&D1,527
 —
 1,527
Other1,697
 367
 2,064
Total Revenues$18,733
 $3,909
 $22,643



59
 Fiscal Years
 2016 2015
United States of America$2,976
 $2,613
United Kingdom—
 64
 $2,976
 $2,677



64




KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)STATEMENTS (CONTINUED)


16.15.    Selected Quarterly Financial Information (Unaudited) (As Revised)
The following tables present Kopin’s quarterly operating results for the fiscal years ended December 31, 201629, 2018 and December 26, 201530, 2017. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited consolidated quarterly results when read in conjunction with Kopin’s audited consolidated financial statements and related notes. These operating results are not necessarily indicative of the results of any future period.
Quarterly Periods During Fiscal Year Ended December 31, 2016:29, 2018:
 Three months
ended
March 26,
2016		 Three months
ended
June 25,
2016 (3)		 Three months ended September 24, 2016 Three months
ended
December 31,
2016 (4)
 (In thousands, except per share data)
Revenue$6,119
 $4,355
 $5,795
 $6,373
Gross profit (2)$1,342
 $(550) $949
 $1,560
Loss from operations$(6,317) $(993) $(6,883) $(6,280)
Net (loss) gain attributable to the controlling interest$(6,932) $(3,194) $(8,117) $(5,190)
Net (loss) gain per share (1):       
Basic$(0.11) $(0.05) $(0.13) $(0.08)
Diluted$(0.11) $(0.05) $(0.13) $(0.08)
Shares used in computing net loss per share from continuing operations:       
Basic63,978
 64,011
 64,048
 64,138
Diluted63,978
 64,011
 64,048
 64,138
(in thousands, except per share data)
Three months
ended
March 31, 2018 (3)
 Three months
ended
June 30, 2018		 Three months
ended
September 29, 2018		 
Three months
ended
December 29, 2018 (4)
Total revenue$5,654
 $5,944
 $5,126
 $7,741
Gross profit (2)
983
 974
 (16) 1,439
Loss from operations(9,792) (8,992) (10,299) (10,884)
Net loss attributable to the controlling interest(5,536) (9,241) (9,791) (9,966)
Net loss per share (1):
       
Basic and diluted$(0.08) $(0.13) $(0.13) $(0.14)
Weighted average number of common shares outstanding:       
Basic and diluted73,078
 73,095
 73,135
 73,317
(1)Net loss per share is computed independently for each of the quarters presented; accordingly, the sum of the quarterly net income per share may not equal the total computed for the year.
(2)Gross profit is defined as net product revenuerevenues less cost of product revenues.
(3)
Includes $7.7$2.9 million impact on net gain attributable to the controlling interestKopin Corporation relating to the gain on sale of a facilityan equity investment for the three month period ended June 25, 2016.March 31, 2018.
(4)
Includes $1.0$1.3 million impact on net gain attributable tofrom correction adjustments. For discussion of the controlling interest relating to the gain on salecorrecting adjustments, see Note 18 - Correction of an investment for the three month period ended December 31, 2016.Previously Issued Financial Statements.
 
Quarterly Periods During Fiscal Year Ended December 26, 2015:30, 2017:
(in thousands, except per share data)Three months
ended
April 1, 2017		 Three months
ended
July 1, 2017		 Three months
ended
September 30, 2017		 
Three months
ended
December 30,
2017 (3)
Total revenue$4,378
 $5,927
 $6,139
 $11,397
Gross profit (2)
816
 862
 1,444
 3,654
Loss from operations(8,663) (8,068) (8,605) (4,962)
Net loss attributable to the controlling interest(7,858) (7,332) (8,247) (1,803)
Net loss per share (1):
       
Basic and diluted$(0.12) $(0.10) $(0.11) $(0.02)
Weighted average number of common shares outstanding:       
Basic and diluted64,539
 70,627
 72,188
 72,349
 Three months
ended
March 28,
2015 (3)		 Three months
ended
June 27,
2015 (4)		 Three months
ended
September 26,
2015		 Three months
ended
December 26,
2015
 (In thousands, except per share data)
Revenue$8,585
 $10,857
 $8,001
 $4,612
Gross profit (2)$1,857
 $3,148
 $1,762
 $(118)
(Loss) income from operations$(5,933) $(5,474) $(5,923) $(7,906)
Net loss attributable to the controlling interest$(3,885) $683
 $(4,720) $(6,771)
Net loss per share from continuing operations (1):       
Basic$(0.06) $0.01
 $(0.07) $(0.11)
Diluted$(0.06) $0.01
 $(0.07) $(0.11)
Shares used in computing net loss per share from continuing operations:       
Basic63,084
 63,066
 63,068
 63,608
Diluted63,084
 65,030
 63,068
 63,608

65



KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


(1)Net loss per share is computed independently for each of the quarters presented; accordingly, the sum of the quarterly net income per share may not equal the total computed for the year.
(2)Gross profit is defined as net component revenueproduct revenues less cost of componentproduct revenues.
(3)Includes $2.1$1.7 million impact on net gain attributable to the controlling interestKopin Corporation relating to the gain on sale of an investmenta warrant for the three month period ended March 28,December 30, 2017.



60



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16.    Related Party Transactions
The Company may from time to time enter into agreements with shareholders, affiliates and other companies engaged in certain aspects of the display, electronics, optical and software industries as part of our business strategy. In addition, the wearable computing product market is relatively new and there may be other technologies the Company needs to purchase from affiliates in order to enhance its product offering.
The Company and Goertek have entered into agreements to jointly develop and commercialize a range of technologies and wearable products. These include: a mutually exclusive supply and manufacturing arrangement for a certain display product for twenty four months after mass production begins; an agreement that provides the Company with the right of first refusal to invest in certain manufacturing capacity for certain products with Goertek; an agreement whereby Goertek will provide system level original equipment manufacturing services for the Company's wearable products; an arrangement whereby the Company will supply display modules for Goertek's virtual reality and augmented reality products; and other agreements related to promotion around certain products as well as providing designs relating to head mounted displays.
The Company and RealWear, Inc. have entered into agreements where the Company has agreed to supply display modules for RealWear, Inc.'s augmented reality products. The Company has also licensed certain intellectual property to RealWear, Inc. and the Company received a 15% warrant in RealWear, Inc.'s next equity offering round, which was exercised in April 2018. The Company also received a $1.5 million license fee for the intellectual property licensed to RealWear, Inc. and the Company is entitled to receive sales-based royalties from RealWear, Inc.
During fiscal years 2018, 2017 and 2016, the Company had the following transactions with related parties:
 2018 2017 2016
 Revenue Purchases Revenue Purchases Revenue Purchases
Goertek$—
 $646,135
 $—
 $727,101
 $—
 $—
RealWear, Inc.1,220,838
 —
 576,644
 —
 —
 —
 $1,220,838
 $646,135
 $576,644
 $727,101
 $—
 $—
At December 29, 2018 and December 30, 2017, the Company had the following receivables and payables with related parties:
 December 29, 2018 December 30, 2017
 Receivables Contract Assets Payables Receivables Payables
Goertek$—
 $—
 $207,530
 $—
 $326,877
RealWear, Inc.1,041,334
 400,000
 —
 414,635
 —
 $1,041,334
 $400,000
 $207,530
 $414,635
 $326,877


17.    Valuation and Qualifying Accounts
The following table sets forth activity in Kopin's allowance for doubtful accounts:
Fiscal year ended:
Balance at
Beginning
of Year
 
Additions
Charged
to
Income
 
Deductions
from
Reserve
 
Balance at
End of
Year
December 31, 2016$153,000
 $—
 $(17,000) $136,000
December 30, 2017136,000
 13,000
 —
 149,000
December 29, 2018$149,000
 $268,000
 $(113,000) $304,000





61



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18.    Correction of Previously Issued Financial Statements
Subsequent to filing its Original Form 10-K, the Company identified that its consolidated financial statements were incorrect because of certain errors impacting noncontrolling interest in connection with its Korean subsidiary Kowon. Accordingly, the accompanying consolidated financial statements as of December 29, 2018 and for the three years in the period ended December 29, 2018, have been revised to correct these errors. A summary of these errors and their impact on the consolidated financial statements are as follows:
1.
The Company improperly calculated the noncontrolling interest amount of Kowon when the Company made equity investments in years prior to 2015. The Company has corrected for this misstatement in the accompanying Consolidated Statements of Stockholders’ Equity, which resulted in a decrease to additional paid-in capital and an increase to noncontrolling interest of $1.2 million as of December 26, 2015. This correction impacted the respective equity categories in the accompanying Consolidated Statements of Stockholders’ Equity and Consolidated Balance Sheets for 2016, 2017 and 2018.
(4)2.Includes $5.5 million impact
In 2016, upon recognition of a gain on netsale of Kowon assets, the Company did not properly allocate the portion of the gain attributable to the controllingnoncontrolling interest relatingin the amount of $0.1 million. The Company has corrected for this misstatement in the accompanying 2016 Consolidated Statement of Operations, which consequently impacts the accompanying Consolidated Statements of Stockholders’ Equity by increasing accumulated deficit and increasing noncontrolling interest for $0.1 million as of December 31, 2016.
3.
In 2018, when the Company liquidated Kowon, it was carrying approximately $1.7 million in cumulative translation adjustments ("CTA") related to Kowon's net assets. Approximately $0.4 million of CTA was correctly reclassified into earnings in 2018, however, the remaining $1.3 million was incorrectly reclassified directly to noncontrolling interest to offset cumulative understatement in noncontrolling interest that resulted from the two prior period errors noted above. This caused the net loss in the accompanying 2018 Consolidated Statement of Operations to be overstated by $1.3 million, which the Company has corrected in the accompanying Consolidated Statements of Operations.
4.
In addition, in connection with the liquidation of Kowon, the Company understated its distribution to the gainnoncontrolling interest holder in the accompanying 2018 Consolidated Statement of Cash Flows by less than $0.1 million, which the Company has corrected in the accompanying Consolidated Statements of Cash Flows.

62



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The effects of these adjustments on the consolidated statements of stockholders’ equity are as follows:
 Addition Paid-in Capital Accumulated Deficit Noncontrolling Interest
 As Previously ReportedAdjustmentAs Revised As Previously ReportedAdjustmentAs Revised As Previously ReportedAdjustmentAs Revised
Balance at December 26, 2015326,558,527
(1,201,482)325,357,045
 (190,608,671)—
(190,608,671) (256,096)1,201,482
945,386
Net (loss) income—
—
—
 (23,434,116)(134,601)(23,568,717) 402,971
134,601
537,572
Balance at December 31, 2016328,524,644
(1,201,482)327,323,162
 (214,042,787)(134,601)(214,177,388) 141,957
1,336,083
1,478,040
Balance at December 30, 2017331,119,340
(1,201,482)329,917,858
 (240,121,901)(134,601)(240,256,502) (719,422)1,336,083
616,661
Distribution to noncontrolling interest holder—
—
—
 —
—
—
 636,978
(1,336,083)(699,105)
Net (loss) income—
—
—
 (35,869,625)1,336,083
(34,533,542) 51,050
—
51,050
Balance at December 29, 2018335,692,879
(1,201,482)334,491,397
 (272,932,143)1,201,482
(271,730,661) (149,053)—
(149,053)




63



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The effects of these adjustments on the consolidated statements of operations are as follows:
 As Previously Reported Adjustment As Revised
2018     
Foreign currency transaction gains (losses)$(166,829) $1,336,083
 $1,169,254
2016     
Net income attributable to noncontrolling interest402,971
 134,601
 537,572
Net loss attributable to Kopin Corporation$(23,434,116) $(134,601) $(23,568,717)

The effects of these adjustments on the consolidated statements of cash flows are as follows:
 As Previously Reported Adjustment As Revised
2018     
Cash flows from operating activities:    
Net loss$(35,818,575) $1,336,083
 $(34,482,492)
Foreign currency (gains) losses177,469
 (1,273,956) (1,096,487)
Cash flows from financing activities     
Distribution to noncontrolling interest holder$(636,978) $(62,127) $(699,105)

The above referenced adjustments do not impact the consolidated statement of operations for the fiscal year ended December 30, 2017 or the consolidated statements of cash flows for the fiscal years ended December 30, 2017 and December 31, 2016.
Although the Company does not believe such misstatements are material to the previously issued consolidated financial statements, for comparability purposes, the Company has revised the previously issued consolidated financial statements to correct the misstatements.


64



Table of Contents

INDEX TO EXHIBITS
Exhibits
3.1
Amended and Restated Certificate of Incorporation filed as an exhibit to Registration Statement on saleForm S-1, File No. 33-57450, and incorporated herein by reference.
3.2

Amendment to Certificate of Incorporation filed as an investmentexhibit to Quarterly Report on Form 10-Q for the three monthquarterly period ended July 1, 2000 and incorporated herein by reference.
3.3

Amendment to Certificate of Incorporation filed as an exhibit to Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2000 and incorporated herein by reference.
3.4

Fifth Amended and Restated By-laws filed as an exhibit to Current Report on Form 8-K filed on July 18, 2016 and incorporated herein by reference.
4
Specimen Certificate of Common Stock filed as an exhibit to Registration Statement on Form S-1, File No. 33-45853, and incorporated herein by reference.
10.1
Form of Employee Agreement with Respect to Inventions and Proprietary Information filed as an exhibit to Registration Statement on Form S-1, File No. 33-45853, and incorporated herein by reference.
10.2*

Kopin Corporation 2001 Equity Incentive Plan filed as an appendix to Proxy Statement filed on April 20, 2001 and incorporated herein by reference. *
10.3*

Kopin Corporation 2001 Equity Incentive Plan Amendment filed as an exhibit to Registration Statement on Form S-8 filed on August 16, 2002 and incorporated herein by reference. *
10.4*

Kopin Corporation 2001 Equity Incentive Plan Amendment filed as an exhibit to Registration Statement on Form S-8 filed on March 15, 2004 and incorporated herein by reference. *
10.5*

Kopin Corporation 2001 Equity Incentive Plan Amendment filed as an exhibit to Registration Statement on Form S-8 filed on May 10, 2004 and incorporated herein by reference. *
10.6*

Kopin Corporation 2001 Equity Incentive Plan Amendment filed as an exhibit to Registration Statement on Form S-8 filed on April 15, 2008 and incorporated herein by reference. *
10.7*

Kopin Corporation 2001 Supplemental Equity Incentive Plan filed as an exhibit to Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2000 and incorporated herein by reference. *
10.8*
Form of Key Employee Stock Purchase Agreement filed as an exhibit to Registration Statement on Form S-1, File No. 33-45853, and incorporated herein by reference. *
10.9
License Agreement by and between the Company and Massachusetts Institute of Technology dated April 22, 1985, as amended, filed as an exhibit to Registration Statement on Form S-1, File No. 33-45853, and incorporated herein by reference.
10.10
Facility Lease, by and between the Company and Massachusetts Technology Park Corporation, dated October 15, 1993 filed as an exhibit to Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
10.11

Joint Venture Agreement, by and among the Company, Kowon Technology Co., Ltd., and Korean Investors, dated as of March 3, 1998 filed as an exhibit to Annual Report on Form 10-Q for the quarterly period ended June 27, 2015.1998 and incorporated herein by reference.
10.12*

Ninth Amended and Restated Employment Agreement between the Company and Dr. John C.C. Fan, dated as of December 31, 2017 *
10.13*

Kopin Corporation Form of Stock Option Agreement under 2001 and 2010 Equity Incentive Plans filed as an exhibit to Annual Report on Form 10-K for the fiscal year ended December 25, 2004 and incorporated herein by reference. *
10.14*

Kopin Corporation 2001 and 2010 Equity Incentive Plan Form of Restricted Stock Purchase Agreement filed as an exhibit to Annual Report on Form 10-K for the fiscal year ended December 25, 2004 and incorporated herein by reference. *
10.15*

Kopin Corporation Fiscal Year 2012 Incentive Bonus Plan filed as an exhibit to Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and incorporated herein by reference. *
10.16

Kopin Corporation 2010 Equity Incentive Plan filed with the Company's Definitive Proxy Statement on Schedule 14 filed as of April 5, 2013 and incorporated by reference herein.
10.17

Purchase Agreement, dated January 10, 2013, by and among Kopin Corporation, IQE KC, LLC and IQE plc filed as an exhibit to Current Report on Form 8-K on January 10, 2013 and incorporated by reference herein.
21.1

Subsidiaries of Kopin Corporation
23.1

Consent of Independent Registered Public Accounting Firm

Immaterial Restatement:

65
As a result


Table of the embezzlement described in Note 14, we have made the following correcting adjustments to the amounts presented in our previously issued quarterly financial information:Contents


Increase (Decrease)
 Three months
ended
March 26,
2016		 Three months
ended
June 25,
2016		 Three months
ended
March 28,
2015		 Three months
ended
June 27,
2015		 Three months
ended
September 26,
2015		 Three months
ended
December 26,
2015
(In thousands)
Gross Profit$11
 $36
 $12
 $21
 $—
 $52
Loss from operations11
 36
 12
 21
 —
 52
Net (loss) gain attributable to the controlling interest(15) (65) (47) (98) (45) 189
31.1

Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2

Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1

Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2

Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.0
The following materials from the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 29, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Stockholder's Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text.
*
Management contract or compensatory plan required to be filed as an Exhibit to this Form 10-K/A.
The correcting adjustments did not result in any changes to previously reported basic and diluted earnings per share.



66







Table of Contents


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 22, 2017
 
KOPIN CORPORATION
   
Dated: November 7, 2019By:
/s/    JOHN C.C. FAN        RICHARD A. SNEIDER
  
John C.C. FanRichard A. Sneider
Chairman of the Board, Chief Executive Officer, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
SignatureTitleDate
/s/    JOHN C.C. FAN 
Chairman of the Board, Chief Executive Officer, President and Director (Principal Executive Officer)March 22, 2017
John C.C. Fan
/s/    JAMES BREWINGTON   
DirectorMarch 22, 2017
James Brewington
/s/    DAVID E. BROOK   
DirectorMarch 22, 2017
David E. Brook
/s/    MORTON COLLINS 
DirectorMarch 22, 2017
Morton Collins
/s/    ANDREW H. CHAPMAN 
DirectorMarch 22, 2017
Andrew H. Chapman
/s/    CHI CHIA HSIEH
DirectorMarch 22, 2017
Chi Chia Hsieh
/s/    MICHAEL J. LANDINE
DirectorMarch 22, 2017
Michael J. Landine
/s/    RICHARD A. SNEIDER
Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)March 22, 2017
Richard A. Sneider





67








KOPIN CORPORATION
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years Ended December 31, 2016, December 26, 2015 and December 27, 2014
Description
Balance at
Beginning
of Year
 
Additions
Charged
to
Income
 
Deductions
from
Reserve
 
Balance at
End of
Year
Reserve deducted from assets—allowance for doubtful accounts:       
2014$202,000
 $81,000
 $(17,000) $266,000
2015266,000
 —
 (113,000) 153,000
2016153,000
 —
 (17,000) 136,000


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INDEX TO EXHIBITS
Exhibits
  
Sequential
page number
 
3.1
 Amended and Restated Certificate of Incorporation(2) 
3.2
 Amendment to Certificate of Incorporation(5) 
3.3
 Amendment to Certificate of Incorporation(5) 
3.4
 Fifth Amended and Restated By-laws(8) 
4
 Specimen Certificate of Common Stock(1) 
10.1
 Form of Employee Agreement with Respect to Inventions and Proprietary Information(1) 
10.2
 Kopin Corporation 2001 Equity Incentive Plan(7)* 
10.3
 Kopin Corporation 2001 Equity Incentive Plan Amendment(9)* 
10.4
 Kopin Corporation 2001 Equity Incentive Plan Amendment(10)* 
10.5
 Kopin Corporation 2001 Equity Incentive Plan Amendment(11)* 
10.6
 Kopin Corporation 2001 Equity Incentive Plan Amendment(13)* 
10.7
 Kopin Corporation 2001 Supplemental Equity Incentive Plan(6)* 
10.8
 Form of Key Employee Stock Purchase Agreement(1)* 
10.9
 License Agreement by and between the Company and Massachusetts Institute of Technology dated April 22, 1985, as amended(1) 
10.10
 Facility Lease, by and between the Company and Massachusetts Technology Park Corporation, dated October 15, 1993(3) 
10.11
 Joint Venture Agreement, by and among the Company, Kowon Technology Co., Ltd., and Korean Investors, dated as of March 3, 1998(4) 
10.12
 Eighth Amended and Restated Employment Agreement between the Company and Dr. John C.C. Fan, dated as of December 31, 2014*
 
10.13
 Kopin Corporation Form of Stock Option Agreement under 2001 and 2010 Equity Incentive Plans(12)* 
10.14
 Kopin Corporation 2001 and 2010 Equity Incentive Plan Form of Restricted Stock Purchase Agreement(12)* 
10.15
 Kopin Corporation Fiscal Year 2012 Incentive Bonus Plan*
  
10.16
 Kopin Corporation 2010 Equity Incentive Plan(14) 
10.17
 Purchase Agreement, dated January 10, 2013, by and among Kopin Corporation, IQE KC, LLC and IQE plc(15) 
21.1
 Subsidiaries of Kopin Corporation  
23.1
 Consent of Independent Registered Public Accounting Firm  
31.1
 Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  
31.2
 Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  
32.1
 Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  
32.2
 Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  
101.0
 The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Stockholder's Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text  



69





*
Management contract or compensatory plan required to be filed as an Exhibit to this Annual Report on Form 10-K.
**
This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filing.
(1)Filed as an exhibit to Registration Statement on Form S-1, File No. 33-45853, and incorporated herein by reference.
(2)Filed as an exhibit to Registration Statement on Form S-1, File No. 33-57450, and incorporated herein by reference.
(3)Filed as an exhibit to Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
(4)Filed as an exhibit to Annual Report on Form 10-Q for the quarterly period ended June 27, 1998 and incorporated herein by reference.
(5)Filed as an exhibit to Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2000 and incorporated herein by reference.
(6)Filed as an exhibit to Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2000 and incorporated herein by reference.
(7)Filed as an appendix to Proxy Statement filed on April 20, 2001 and incorporated herein by reference.
(8)Filed as an exhibit to Current Report on Form 8-K filed on July 18, 2016 and incorporated herein by reference.
(9)Filed as an exhibit to Current Report on Form 8-K filed on December 12, 2008 and incorporated herein by reference.
(10)Filed as an exhibit to Registration Statement on Form S-8 filed on March 15, 2004 and incorporated herein by reference.
(11)Filed as an exhibit to Registration Statement on Form S-8 filed on May 10, 2004 and incorporated herein by reference.
(12)Filed as an exhibit to Annual Report on Form 10-K for the fiscal year ended December 25, 2004 and incorporated herein by reference.
(13)Filed as an exhibit to Registration Statement on Form S-8 filed on April 15, 2008 and incorporated herein by reference.
(14)Filed with the Company's Definitive Proxy Statement on Schedule 14 filed as of April 5, 2013 and incorporated by reference herein.
(15)Filed as an exhibit to Current Report on Form 8-K on January 10, 2013 and incorporated by reference herein.

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