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Financial Instruments

12 Months Ended

Dec. 30, 2023

Investments, All Other Investments [Abstract]

Financial Instruments

5. Financial Instruments

Fair Value Measurements

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

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

		Total				Level 1				Level 2				Level 3
						Fair Value Measurement at December 30, 2023 Using:
		Total				Level 1				Level 2				Level 3
Cash equivalents		$	5,079,605			$	5,079,605			$	—			$	—
U.S. Government and agency backed securities			4,474,375				—				4,474,375				—
Certificates of deposit			7,717,625				7,717,625				—				—
Equity Investments			4,688,522				174,178				—				4,514,344
		$	21,960,127			$	12,971,408			$	4,474,375			$	4,514,344

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

		Total				Level 1				Level 2				Level 3
						Fair Value Measurement at December 31, 2022 Using:
		Total				Level 1				Level 2				Level 3
Cash equivalents		$	5,933,386			$	5,933,386			$	—			$	—
U.S. Government and agency backed securities			2,397,730				—				2,397,730				—
Corporate debt			1,500,445				—				1,500,445				—
Certificates of deposit			490,603				490,603				—				—
Equity Investments			7,721,206				213,016				—				7,508,190
		$	18,043,370			$	6,637,005			$	3,898,175			$	7,508,190

The carrying amounts of cash and cash equivalents, restricted cash, 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 31, 2022				Unrealized losses				Purchases, issuances and settlements				December 30, 2023
Equity investments		$	7,508,190			$	(3,433,300	)		$	439,454			$	4,514,344

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 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. The Company has limited, if any, control over their governance, financial reporting and operations. The Company relies on the financial reporting provided by these investments in order to evaluate them for possible impairment. As a result, the Company faces certain operating, financial and other risks relating to these investments, including risks related to the financial strength of the investments.

On January 5, 2023, the Company entered into a Technology License Agreement and an Asset Purchase Agreement (the “LST Agreements”) with Lightning Silicon Technology, Inc. (“LST”). Pursuant to the LST Agreements, the Company issued a license to LST for certain technology associated with its Organic Light Emitting Technology, transferred in-process development contracts with two customers and accounts receivables that the Company had previously determined were not collectible. The technology license agreement provides for Kopin to transfer certain patents to LST if LST achieves certain milestones, however upon transfer Kopin will receive a license to the technology. To the extent LST makes improvements to the technology licensed from Kopin, Kopin will receive a license for these improvements for certain markets. Kopin is not obligated to provide any additional funding support to LST. As consideration for the transaction, the Company received 18,000,000 common shares representing a 20.0% equity stake in LST. The Company will also receive a royalty based on unit sales of products that utilize the technology licensed. Drs. John Fan, the Company’s former President and CEO and former Chairman of the Board, Boryeu Tsaur, a former Executive Vice President of the Company and Hong Choi, the Company’s former Chief Technology Officer terminated their employment with the Company and became investors in and members of the management team of LST. Dr. Fan is the Founder of LST. As a result of this transaction, in 2022 the Company wrote off the two operating lease assets associated with facilities used for the development of the Company’s organic light emitting diode (OLED) products. The Company has recorded its investment in LST at $0 as of December 30, 2023.

The Company has an equity interest in a company which it acquired through purchasing capital and contributing certain intellectual property totaling $3.9 million by December 26, 2020. In the third quarter of 2022, the Company reviewed the financial condition of its equity interest in the company and, as a result of valuing the investment through discounted cash flow and guideline public company methods, recorded an impairment charge of $2.0 million to reduce the value of its investment. For the years ended December 30, 2023, December 31, 2022 and December 25, 2021, the Company recorded approximately $0.2 million, $0.3 million and $0.1 million of unrealized losses on this equity investment, respectively, due to a fluctuation in the foreign exchange rate. As of December 30, 2023, the Company owned an approximate 10% interest in this investment and the carrying value of this equity investment was $1.5 million at December 30, 2023 and $1.6 million at December 31, 2022.

The Company has an investment in RealWear Inc. (RealWear) which had been reduced to $0 due to an impairment analysis. In the first quarter of 2022, RealWear raised additional equity capital and based on an observable price change of the customer’s share prices and terms of the equity sale, the Company remeasured the fair market value of its investment and recorded a gain of $4.7 million. In the second quarter of 2022, the Company made an additional equity investment of $0.5 million. In the second quarter of 2023, the Company received shares valued at approximately $0.4 million as payment of royalties. In the second quarter of 2023, the Company reviewed the financial condition and an observable price point in an equity transaction, and as a result, the Company recorded an impairment charge of $3.1 million to reduce the value of the investment to $2.5 million. As of December 30, 2023, the Company owned an approximate 3.3% interest in this investment.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On September 30, 2019 the Company entered into an Asset Purchase Agreement (the “Solos Purchase Agreement”) pursuant to which the Company sold and licensed certain assets of the Company’s Solos^TM (“Solos”) product line and Whisper^TMAudio (“Whisper”) technology. As consideration for the transaction the Company received a 20.0% equity stake in Solos Incorporation (“Solos Inc.”). The Company’s 20.0% equity stake will be maintained until Solos Inc. has raised a total of $7.5 million in equity financing. The Company will also receive a royalty in the single digits on the net sales amount of Solos products for a three-year period, after the commencement of commercial production. The Company has performed the analysis and identified Solos Technology as a variable interest entity that should not be consolidated by Kopin, as Kopin is not the primary beneficiary of the entity. Kopin is not obligated to provide any additional funding support to Solos Inc., and its potential loss exposure is the value of the investment recorded on its books. Based on the price paid for equity by the other 80.0% owners of Solos Inc., volatility based on a peer group and assumptions about the risk-free interest rate, the Company estimated the fair value of its equity holdings at $0.6 million and in 2019 recorded a $0.6 million gain on its investment for this equity transaction as the basis of assets transferred was zero. In the second quarter of 2023, the Company reviewed the financial condition and other factors of the customer and, as a result, the Company recorded an impairment charge of $0.2 million to reduce its investment in the customer to $0.2 million. The investment balance is $0.2 million as of December 30, 2023.

Marketable Debt Securities

The Company’s corporate debt consists of floating rate notes with a maturity that is over multiple years but has interest rates that are reset every three months based on the then-current three-month London Interbank Offering Rate (“three-month Libor”). The Company validates the fair market values of the financial instruments above by using discounted cash flow models, obtaining independent pricing of the securities or through the use of a model that incorporates the three-month Libor, the credit default swap rate of the issuer and the bid and ask price spread of the same or similar investments which are traded on several markets. The restricted cash balance at December 30, 2023 is invested in a certificate of deposit and is classified as a Corporate debt available-for-sale marketable debt security. Investments in available-for-sale marketable debt securities are as follows at December 30, 2023 and December 31, 2022:

		Amortized Cost								Unrealized Losses								Fair Value
		2023				2022				2023				2022				2023				2022
U.S. Government and agency backed securities		$	4,500,030			$	2,500,006			$	(25,655	)		$	(102,276	)		$	4,474,375			$	2,397,730
Corporate debt			7,750,174				2,000,012				(32,549	)			(8,964	)			7,717,625				1,991,048
Total		$	12,250,204			$	4,500,018			$	(58,204	)		$	(111,240	)		$	12,192,000			$	4,388,778

The contractual maturity of the Company’s marketable debt securities is as follows at December 30, 2023:

Schedule of Contractual Maturity

		Less than One year				One to Five years				Total
U.S. Government and agency backed securities		$	2,989,195			$	1,485,180			$	4,474,375
Corporate debt			4,240,445				3,477,180				7,717,625
Total		$	7,229,640			$	4,962,360			$	12,192,000