Related Party Transactions (Notes)

12 Months Ended

Dec. 28, 2019

17. 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. ("RealWear") have entered into agreements where the Company has agreed to supply display modules for RealWear's augmented reality products. The Company has also licensed certain intellectual property to RealWear and the Company received a 15% warrant in RealWear'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 and the Company is entitled to receive sales-based royalties from RealWear. In May 2019, the Company has signed an additional agreement to license certain intellectual property to Realwear for $3.5 million license fee and additional sales-based royalties. Of the $3.5 million license fee, $2.5 million was paid upon signing of the license agreement and the other $1.0 million is paid in quarterly installments of $0.25 million. As of December 28, 2019 the remaining receivable balance related to license fee was $0.5 million. Additionally, in the second quarter of 2019, we made an additional equity investment in RealWear of $2.5 million as part of an equity raise by the company. As of December 28, 2019, we own approximately 2.8% of RealWear. In the fourth quarter of 2019 Kopin reviewed the financial condition and other factors of RealWear and as a result, in the fourth quarter of 2019, we recorded an impairment charge of $5.2 million to reduce our investment in RealWear to zero as of December 28, 2019.

On September 30, 2019 the Company entered into an Asset Purchase Agreement (the “Solos Purchase Agreement”) with Solos Technology Limited (“Solos Technology”). Pursuant to the Solos Purchase Agreement, the Company sold and licensed to Solos Technology certain assets of our Solos^TM (“Solos”) product line and Whisper^TM Audio (“Whisper”) technology. As consideration for the transaction the Company received 1,172,000 common shares representing a 20.0% equity stake in Solos Technology’s parent company, Solos Incorporation (“Solos Inc.”). In addition, the Company has agreed to reimburse Solos Technology for sales support provided. Solos Technology has agreed to reimburse the Company for the employees time spent on Solos development. As of December 28, 2019, the Company had $283,000 receivables outstanding from Solos Technology and had a payable of less than $10,000 to Solos Technology.

The Company’s CEO and Chairman, Dr. John C.C. Fan, acquired an individual ownership interest of 15.5% (12.3% fully diluted) of Solos Inc. Two of Dr. Fan’s family members have also invested in Solos Inc., and collectively hold a 37.1% (29.5% fully diluted) ownership interest in Solos Inc.

During fiscal years 2019, 2018 and 2017, the Company had the following transactions with related parties:



	2019				2018				2017
	Revenue		Purchases		Revenue		Purchases		Revenue	Purchases
Goertek	$	—	$	747,154	$	—	$	646,135	—	727,101
RealWear, Inc.	5,778,672		—		1,220,838		—		576,644	—
	$	5,778,672	$	747,154	$	1,220,838	$	646,135	576,644	727,101

At December 28, 2019 and December 29, 2018, the Company had the following receivables and payables with related parties:



	December 28, 2019				December 29, 2018
	Receivables		Payables		Receivables		Contract Assets	Payables
Goertek	$	—	$	—	$	—	—	$	207,530
RealWear, Inc.	646,848		—		1,041,334		400,000	—
	$	646,848	$	—	$	1,041,334	400,000	$	207,530