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KOPIN CORPORATION (KOPN)
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KOPIN : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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03/23/2018 | 04:06pm CEST

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. The
following discussion contains forward looking information that involves risks
and uncertainties. Our actual results could differ materially from those
anticipated in the forward looking statements as a result of a number of
factors, including the risks discussed in Item 1A "Risk Factors", and elsewhere
in this Annual Report on Form 10-K.
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 believed 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.
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
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. We do not recognize revenue for
products prior to customer acceptance unless we believe the product meets all
customer specifications and 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. We 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 stocking of inventory.
We delay revenue recognition for our estimate of distributor claims of right of
return 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 limited 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 acceptance of the deliverable for each phase has occurred. In some
instances, we 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 that 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.
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

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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 and profits would be negatively impacted.
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 or equity method, whose values are difficult to determine. When
assessing investments in private companies for an other-than-temporary decline
in value, 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.
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
foreign 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.


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On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted
into law and the new legislation contains several key tax provisions that
affected us, including a one-time mandatory transition tax on accumulated
foreign earnings and a reduction of the corporate income tax rate
to 21% effective January 1, 2018, among others. We are required to recognize the
effect of the tax law changes in the period of enactment, such as determining
the transition tax, re-measuring our U.S. deferred tax assets and liabilities as
well as reassessing the net realizability of our deferred tax assets and
liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin
No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB
118"), which allows us to record provisional amounts during a measurement period
not to extend beyond one year of the enactment date. Since the Tax Act was
passed late in the fourth quarter of 2017, and ongoing guidance and accounting
interpretation is expected over the next 12 months, we consider the accounting
of the transition tax, deferred tax re-measurements, and other items to be
incomplete due to the forthcoming guidance and our ongoing analysis of final
year-end data and tax positions. We expect to complete our analysis within the
measurement period in accordance with SAB 118. Please see the notes to these
consolidated financial statements for additional information.
Goodwill and Other Indefinite-Lived Assets
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.
Acquired trade names are assessed as indefinite lived assets if there is no
foreseeable limits on the periods of time over which they are expected to
contribute cash flows. Goodwill and indefinite-lived assets are not amortized,
but are 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. We perform our annual impairment testing at the end of each fiscal
year.
Our annual goodwill impairment test is performed at the reporting unit level. We
have determined our reporting units based on the guidance within ASC Subtopic
350-20. As of December 30, 2017 and December 31, 2016, our reporting units are
the same as our operating segments. Indicators of impairment include, but are
not limited to, the loss of significant business or other significant adverse
changes in industry or market conditions. The Company reviews the carrying
amounts of goodwill and other indefinite-lived assets annually, or when
indications of impairment exist, to determine if such assets may be impaired by
performing a quantitative assessment. We estimate the fair value of our
reporting units using a discounted cash flow model based on our most recent
long-range plan in place at the time of our impairment testing, and compare the
estimated fair value of each reporting unit to its net book value, including
goodwill. Significant changes in these forecasts or the discount rate selected
could affect the estimated fair value of one or more of our reporting units and
could result in a goodwill impairment charge in a future period.
Results of Operations
We are a leading developer, manufacturer and seller of miniature displays,
optical lenses, ASICs (our "components") for sale as individual components or in
headsets we design and sell or license. Our component products are 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: product 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 as a percentage of
total revenue were as follows:
(in millions, except percentages)                          2017      2016   

2015

Research and development revenues                         $ 2.9     $ 1.5     $ 3.9
Research and development revenues as a % of total revenue  10.6 %     6.7 % 

12.1 %


We manufacture transmissive micro-displays and reflective micro-displays. 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-displays 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.
We are in qualification for the U.S. military's Family of Weapon Sights ("FWS")
program. The FWS program has several sub-programs and we are currently proposing
to be a supplier for the FWS-I and FWS-C programs. As part of the qualification
process we are receiving low volume orders for the FWS-I program. The FWS and
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

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and all of the programs we supply product to are subject to the U.S. government
military budget and procurement process. Accordingly, there can be no assurances
we will continue to ship under our military contracts.
Sales of our products to customers that use our products for Wearable
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
Wearable Applications will depend on the demand for our customers' new products,
which we are unable to predict.
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 2017 was a 52 week year,
2016 was a 53 week year and 2015 was a 52 week year. The impact of the 53rd week
in 2016 fiscal year was not material to the Company's results of operations.
Revenues.  Our revenues, which include product sales and amounts earned from
research and development contracts, for fiscal years 2017, 2016 and 2015 by
category, were as follows:
Display Revenue by Application (in millions)  2017      2016      2015
Military                                     $ 13.4    $  5.3    $ 10.2
Industrial                                      5.4       6.3       4.0
Consumer                                        4.4       7.4      12.3
Other                                           1.7       2.1       1.7
Research & Development                          2.9       1.5       3.9
Total                                        $ 27.8    $ 22.6    $ 32.1


Fiscal Year 2017 Compared to Fiscal Year 2016
Sales of our products for Military Applications includes systems used by the
military both in the field and for training and simulation. 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.
Industrial Applications revenue represents customers who purchase our display
products for use in headsets used for applications in public safety, 3D
metrology equipment and training and simulation systems. Revenues from NVIS of
approximately $0.3 million are included in the Industrial category. 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. This program is expected to go into production in
2018.
Historically we have recognized revenue in the period when we have shipped units
of products. For the fiscal year 2018 we will adopt ASU No. 2014-09, Revenue
from Contracts with Customers (Topic 606) and certain revenues may be recorded
on the percentage of completion method using a cost to cost approach. We are
unable to forecast how the implementation of this new method of revenue
recognition will impact comparisons to historical revenue recognition.
International sales represented 41% and 59% of product revenues for 2017 and
2016, 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. 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, Great Britain pound, Korean won 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.

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Fiscal Year 2016 Compared to Fiscal Year 2015
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.
The increase in sales of our product for Industrial Applications in 2016 as
compared to 2015 is the result of an increase in sales of our products to
manufacturers of 3D metrology equipment.
We offer microdisplays, optical lenses, application specific integrated circuits
(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. We refer to the sale of microdisplays,
optical lenses, application specific integrated circuits (ASICs), backlights,
and Whisper™ audio chips as our component sales. We also offer headworn, 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 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
which 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-top 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.
The decrease in the Other Applications is the result of a decrease in sales of
our products for use in recreational gun sights. 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 59% and 32% of product revenues for fiscal years
2016 and 2015, respectively. Our international sales are primarily denominated
in U.S. currency.
Cost of Product Revenues.  Cost of product revenues, which is comprised of
materials, labor and manufacturing overhead related to the production of our
products for fiscal years 2017, 2016 and 2015 were as follows:
(in millions, except percentages)                         2017       2016   

2015

Cost of product revenues                                $ 18.1     $ 17.8     $ 21.5
Cost of product revenues as a % of net product revenues   72.8 %     84.4 % 

76.4 %


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
have higher gross margins than the other products sold during same period in
2016.
Fiscal Year 2016 Compared to Fiscal Year 2015
Cost of product revenues increased as a percentage of revenues in 2016 as
compared to 2015 due to a decrease in the sale of our display products for
military applications, which have higher margins than our other products and
lower overall volume of revenues which results in higher fixed overhead costs
per unit.
Research and Development.  Research and development ("R&D") expenses are
incurred in support of internal display development programs or programs funded
by agencies or prime contractors of the U.S. government and commercial partners.
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 2018, 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 expenses for fiscal years 2017, 2016 and 2015
were as follows:
(in millions)  2017      2016      2015
Funded        $  3.4    $  0.8    $  3.0
Internal        15.5      15.2      14.6
Total         $ 18.9    $ 16.0    $ 17.6



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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. We expect to incur
significant development costs in fiscal year 2018 to commercialize our Wearable
technologies and develop military products.
Fiscal Year 2016 Compared to Fiscal Year 2015
Funded R&D expense for 2016 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.
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. S,G&A expenses for the fiscal years 2017, 2016 and 2015 were as
follows:
(in millions, except percentages)                2017            2016       

2015

Selling, general and administrative expense $ 20.5 $ 17.0

  $      18.1
Selling, general and administrative expense
as a % of total revenue                             73.8 %          74.9 %  

56.6 %


Fiscal Year 2017 Compared to Fiscal Year 2016
S,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 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.
Fiscal Year 2016 Compared to Fiscal Year 2015
The decrease in S,G&A expenses in 2016 as compared to 2015 is primarily
attributable to a decrease in deferred compensation expense, professional fees
and intangible amortization partially offset by an increase in labor costs.
Impairment of Intangible Assets and Goodwill. At December 30, 2017, the Company
performed an impairment analysis of intangible assets and goodwill based on a
comparison of the discounted cash flows to the recorded carrying value of the
goodwill recorded upon the acquisition of NVIS and concluded that the operating
results would not support the carrying value of goodwill. As a result, the
Company recorded an impairment of $0.6 million related to NVIS reporting unit at
December 30, 2017.
Other Income (Expense), Net. Other income (expense), net, is primarily composed
of interest income, foreign currency transaction and remeasurement gains and
losses incurred by our Korean and UK-based subsidiaries and other non-operating
income items. Other income (expense), net, for the fiscal years 2017, 2016 and
2015 were as follows:
(in millions)                2017     2016     2015

Other income (expense), net $ 2.0 $ 0.6 $ 10.4


Fiscal Year 2017 Compared to Fiscal Year 2016
In 2017 and 2016, we recorded $1.0 million and $0.7 million of foreign currency
losses, respectively. 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. 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.
In 2016, we discovered embezzlement at our Korean subsidiary of approximately
$1.6 million which occurred during the period 2011 through 2016. In 2016, we
recorded in Other income (expense), net, embezzlement expense of
approximately $0.5 million representing the total amount of theft loss that
occurred during that period. In 2017, we recognized a recovery of approximately
$0.3 million received from the family of the embezzler as restitution.
Fiscal Year 2016 Compared to Fiscal Year 2015
In 2016, we discovered embezzlement at our Korean subsidiary of approximately
$1.6 million which occurred during the period 2011 through 2016. In 2016, we
recorded in Other income (expense), net, embezzlement expense of
approximately $0.5 million representing the total amount of theft loss that
occurred during that period. For 2016, we recorded $0.7 million of

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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. 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. 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.

Tax benefit (provision)
(in millions)            2017      2016      2015
Tax benefit (provision) $ 3.0    $ (3.1 )   $   -


Fiscal Year 2017 Compared to Fiscal Year 2016
The benefit for income taxes for the fiscal year ended 2017 of $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 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
carryforward that is expected to be utilized 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 $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 of $1.4 million.
For 2018, 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 2018.
Fiscal Year 2016 Compared to Fiscal Year 2015
The provision for income taxes for the fiscal year ended 2016 of $3.1 million
represents $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 of $1.4 million. The benefit for income taxes for the fiscal year
ended 2015 of less than $0.1 million represents the net of state tax and foreign
withholding tax related to closing our Korean facilities.
Net (income) loss attributable to noncontrolling interest.  As of December 30,
2017, we owned approximately 93% of the equity of Kowon and 80% of the equity of
eMDT. 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 in 2016 compared to 2015 is the result
of the change in the results of operations of Kowon and eMDT and for the period
of time during 2015 when we owned 58% of Kopin Software Ltd.
Liquidity and Capital Resources
At December 30, 2017, we had cash and cash equivalents and marketable securities
of $68.8 million and working capital of $67.6 million compared to $77.2
million and $70.0 million, respectively, as of December 31, 2016. The change in
cash and cash equivalents and marketable securities was primarily due to net
outflow of cash used in operating activities of $25.9 million and acquisition of
a company for $3.7 million, offset by cash provided by the sale of 7.6 million
shares of treasury stock for $24.7 million.
As of December 31, 2016, we had cash and cash equivalents and marketable debt
securities of $77.2 million and working capital of $70.0 million compared to
$80.7 million and $89.9 million, respectively, as of December 26, 2015. The
change in cash and cash equivalents and marketable securities was primarily due
to cash used in operating activities of $26.2 million and the repurchase of our
common stock for withholding tax purposes of $0.5 million which was partially
offset by cash received from investing activities 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 and
investment in Kopin Taiwan Corporation and the sale of our Korean subsidiary
plant and land for approximately $8.1 million.

                                       32

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Cash and marketable debt securities held in U.S. dollars at December 30, 2017
were:
Domestic                                                             $ 55,488,190
Foreign                                                                 6,110,496

Subtotal cash and cash equivalents and marketable debt securities 61,598,686 Cash and cash equivalents held in other currencies and converted to U.S. dollars

7,156,998

Total cash and cash equivalents and marketable debt securities $ 68,755,684


We have no plans to repatriate the cash and marketable debt securities held in
our foreign subsidiaries FDD and Kopin Software Ltd. and, as such, we have not
recorded any deferred tax liability with respect to such cash. The manufacturing
operations at our Korean facility, Kowon, have ceased. Kowon has approximately
$12.4 million of cash and cash equivalents at December 30, 2017, which we
anticipate will eventually be remitted to the U.S. and, accordingly, we have
recorded deferred tax liabilities associated with its unremitted earnings.
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.
We expect to expend between $2.0 million and $3.0 million on capital
expenditures over the next twelve months. We own approximately 93% of Kowon, our
Korean subsidiary. The owners of the remaining 7% have expressed a desire to
sell their shares to us. We are evaluating whether to purchase the shares.
The Company has entered into three joint venture agreements and other agreements
some of which are subject to certain closing conditions, including government
approvals. As of December 30, 2017, one of the joint venture agreements had been
executed and the Company made its $1.0 million capital contribution subsequent
to year end. Under certain joint venture agreements, in addition to the
Company's cash contribution, the Company will contribute certain intellectual
property in 2018. Subsequent to year end, the second joint venture agreement had
been executed and the Company expects to make its capital contribution of
approximately $5.3 million in 2018 (the Company's capital contribution under the
agreement is 35.0 million RMB). The Company's third joint venture agreement is
subject to certain closing conditions including government approvals. The
Company expects the third joint venture to be completed in 2018. If the third
joint venture agreement is executed, the Company's contribution will be $2.0
million and certain intellectual property.
Historically, we have financed our operations primarily through public and
private placements of our equity securities and cash generated from operations.
We believe our available cash resources will support our operations and capital
needs for at least the next twelve months. There has been no seasonal pattern to
our sales in fiscal years 2017, 2016 and 2015.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Seasonality
Our revenues have not followed a seasonal pattern for the past three years and
we do not anticipate any seasonal trend to our revenues in 2018.
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.
Inflation
We do not believe our operations have been materially affected by inflation in
the last three fiscal years.

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             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Contractual Obligations
The following is a summary of our contractual payment obligations as of
December 30, 2017:
                                                                Payment due by period
                                Total          Less than 1 year       1-3 Years        3-5 years       More than 5 years
Operating leases            $  5,122,000     $        1,280,000     $  1,956,000     $ 1,531,000     $           355,000
Joint venture contributions    1,000,000              1,000,000                -               -                       -

© Edgar Online, source Glimpses

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Financials ($)
Sales 2018 37,5 M
EBIT 2018 -24,8 M
Net income 2018 -
Debt 2018 -
Yield 2018 -
P/E ratio 2018 -
P/E ratio 2019 -
Capi. / Sales 2018 6,55x
Capi. / Sales 2019 -
Capitalization 246 M
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John C. C. Fan Chairman, President & Chief Executive Officer
Richard A. Sneider CFO, Treasurer & Head-Investor Relations
Hong K. Choi Chief Technology Officer & Vice President
David E. Brook Secretary & Director
Andrew H. Chapman Independent Director
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