UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 26, 2021

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

For the transition period from _____ to _____

Commission file number 0-19882

KOPIN CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

Class		Outstanding as of August 3, 2021
Common Stock, par value $0.01		91,490,206

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

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

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

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

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

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

Kopin Corporation

INDEX

		Page No.
Part I – Financial Information

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets at June 26, 2021 (Unaudited) and December 26, 2020	3

	Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 26, 2021 and June 27, 2020	4

	Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three and six months ended June 26, 2021 and June 27, 2020	5

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and six months ended June 26, 2021 and June 27, 2020	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 26, 2021 and June 27, 2020	7

	Notes to Unaudited Condensed Consolidated Financial Statements	8

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	24

Part II – Other Information		25

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

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

Item 6.	Exhibits	26

Signatures		27

Part 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

KOPIN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 26, 2021			December 26, 2020

ASSETS
Current assets:
Cash and equivalents	$	27,359,688		$	17,112,869
Marketable debt securities, at fair value		3,424,592			3,635,681
Accounts receivable, net of allowance of $250,000 in 2021 and $175,000 in 2020		7,443,210			9,260,865
Contract assets and unbilled receivables		3,196,477			3,521,753
Inventory		6,249,403			4,455,756
Prepaid taxes		163,305			205,568
Prepaid expenses and other current assets		2,166,578			1,263,688
Total current assets		50,003,253			39,456,180
Property, plant and equipment, net		1,860,899			1,626,930
Operating lease right-of-use assets		1,258,001			1,780,039
Other assets		162,473			162,473
Equity investments		4,540,210			4,523,525
Total assets	$	57,824,836		$	47,549,147

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,099,714		$	5,606,910
Accrued payroll and expenses		1,979,311			1,977,851
Accrued warranty		977,000			508,000
Contract liabilities and billings in excess of revenues earned		2,076,467			1,493,847
Operating lease liabilities		762,139			982,375
Other accrued liabilities		2,008,173			1,809,495
Customer deposits		2,640,321			3,950,031
Deferred tax liabilities		540,617			554,000
Total current liabilities		16,083,742			16,882,509
Noncurrent contract liabilities and asset retirement obligations		277,846			276,409
Operating lease liabilities, net of current portion		488,392			821,306
Other long-term obligations		1,334,466			1,270,328
Commitments and contingencies (Note 13)		-			-
Stockholders’ equity:
Preferred stock, par value $.01 per share: authorized, 3,000 shares; none issued		-			-
Common stock, par value $.01 per share: authorized, 150,000,000 shares; issued 91,557,666 shares in 2021 and 91,059,407 shares in 2020; outstanding 88,946,489 in 2021 and 85,443,378 in 2020, respectively		890,138			880,075
Additional paid-in capital		351,418,984			341,512,893
Treasury stock (67,460 in 2021 and 2,564,155 shares in 2020, at cost)		(257,652	)		(9,793,946	)
Accumulated other comprehensive income		1,408,387			1,484,434
Accumulated deficit		(313,643,130	)		(305,648,025	)
Total Kopin Corporation stockholders’ equity		39,816,727			28,435,431
Noncontrolling interest		(176,337	)		(136,836	)
Total Kopin Corporation stockholders’ equity		39,640,390			28,298,595
Total liabilities and stockholders’ equity	$	57,824,836		$	47,549,147

See notes to unaudited condensed consolidated financial statements

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended			Three months ended			Six months ended			Six months ended
	June 26, 2021			June 27, 2020			June 26, 2021			June 27, 2020
Revenues:
Net product revenues	$	6,928,819		$	6,670,303		$	14,497,663		$	12,589,509
Research and development and other revenues		2,976,437			2,144,343			7,083,961			4,103,742
Total revenues		9,905,256			8,814,646			21,581,624			16,693,251
Expenses:
Cost of product revenues		6,044,543			4,779,577			12,441,213			10,427,424
Research and development		3,740,253			2,221,154			7,303,553			4,560,902
Selling, general and administration		4,040,979			2,909,366			9,946,685			6,341,457
Total expenses		13,825,775			9,910,097			29,691,451			21,329,783
Loss from operations		(3,920,519	)		(1,095,451	)		(8,109,827	)		(4,636,532	)
Other income (expense):
Interest income		3,541			34,030			12,285			107,436
Other expense, net		(896	)		(49,757	)		(2,045	)		(37,080	)
Foreign currency transaction gains (losses)		100,991			9,995			129,981			(162,998	)
Total other income and expense		103,636			(5,732	)		140,221			(92,642	)
Loss before provision for income taxes and net loss attributable to noncontrolling interest		(3,816,883	)		(1,101,183	)		(7,969,606	)		(4,729,174	)
Tax provision		(32,000	)		(42,000	)		(65,000	)		(71,000	)
Net loss		(3,848,883	)		(1,143,183	)		(8,034,606	)		(4,800,174	)
Net loss attributable to the noncontrolling interest		16			21,642			39,501			83,114
Net loss attributable to Kopin Corporation	$	(3,848,867	)	$	(1,121,541	)	$	(7,995,105	)	$	(4,717,060	)
Net loss per share
Basic and diluted	$	(0.04	)	$	(0.01	)	$	(0.09	)	$	(0.06	)
Weighted average number of common shares outstanding
Basic and diluted		88,815,356			82,569,379			88,096,822			82,552,896

See notes to unaudited condensed consolidated financial statements

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	Three months ended			Three months ended			Six months ended			Six months ended
	June 26, 2021			June 27, 2020			June 26, 2021			June 27, 2020
Net loss	$	(3,848,883	)	$	(1,143,183	)	$	(8,034,606	)	$	(4,800,174	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(26,326	)		(37,035	)		(54,167	)		152,043
Unrealized holding gain (loss) on marketable securities		(30,165	)		95,683			(21,880	)		(182,679	)
Reclassification of holding losses in net loss		—			(11,680	)		—			(21,028	)
Other comprehensive (loss) income, net of tax		(56,491	)		46,968			(76,047	)		(51,664	)
Comprehensive loss		(3,905,374	)		(1,096,215	)		(8,110,653	)		(4,851,838	)
Comprehensive loss attributable to the noncontrolling interest		16			21,642			39,501			83,114
Comprehensive loss attributable to Kopin Corporation	$	(3,905,358	)	$	(1,074,573	)	$	(8,071,152	)	$	(4,768,724	)

See notes to unaudited condensed consolidated financial statements

KOPIN CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

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

	Common Stock				Additional Paid-in			Treasury			Accumulated Other Comprehensive			Accumulated			Total Kopin Corporation Stockholders’			Noncontrolling			Total Stockholders’
	Shares		Amount		Capital			Stock			Income			Deficit			Equity			Interest			Equity
Balance, December 28, 2019		87,049,672	$	870,496	$	344,456,537		$	(17,238,669	)	$	1,757,184		$	(301,236,913	)	$	28,608,635		$	(17,023	)	$	28,591,612
Stock-based compensation expense		-		-		158,465			-			-			-			158,465			-			158,465
Vesting of restricted stock
Vesting of restricted stock, shares
Other comprehensive loss		-		-		-			-			(98,632	)		-			(98,632	)		-			(98,632	)
Net loss		-		-		-			-			-			(3,595,519	)		(3,595,519	)		(61,472	)		(3,656,991	)
Balance, March 28, 2020		87,049,672		870,496		344,615,002			(17,238,669	)		1,658,552			(304,832,432	)		25,072,949			(78,495	)		24,994,454
Stock-based compensation expense		-		-		161,677			-			-			-			161,677			-			161,677
Vesting of restricted stock		60,000		600		(600	)		-			-			-			-			-			-
Other comprehensive Income		-		-		-			-			46,968			-			46,968			-			46,968
Other comprehensive Income (loss)		-		-		-			-			46,968			-			46,968			-			46,968
Net loss		-		-		-			-			-			(1,121,541	)		(1,121,541	)		(21,642	)		(1,143,183	)
Balance, June 27, 2020		87,109,672	$	871,096	$	344,776,079		$	(17,238,669	)	$	1,705,520		$	(305,953,973	)	$	24,160,053		$	(100,137	)	$	24,059,916

See notes to unaudited condensed consolidated financial statements

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six months ended			Six months ended
	June 26, 2021			June 27, 2020
Cash flows from operating activities:
Net loss	$	(8,034,606	)	$	(4,800,174	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		412,031			341,743
Accretion of premium or discount on marketable debt securities		(3,644	)		4,400
Recovery of impairment on marketable debt securities		-			(150,644	)
Stock-based compensation		3,124,675			320,142
Foreign currency losses (gains)		(165,086	)		186,516
Change in allowance for bad debt		69,120			(504,432	)
Write-off of excess inventory		424,328			924,679
Unrealized gain on investments		9,246			-
Loss on disposal of plant and equipment		14,950			-
Deferred income taxes		64,140			58,268
Other non-cash items		468,215			(870	)
Changes in assets and liabilities:
Accounts receivable		2,624,899			(113,412	)
Contract assets		325,276			(1,588,176	)
Inventory		(2,203,925	)		(896,783	)
Prepaid expenses and other current assets		(1,079,691	)		15,507
Accounts payable and accrued expenses		(2,259,398	)		(1,441,710	)
Billings in excess of revenue earned		608,866			885,641
Net cash used in operating activities		(5,600,604	)		(6,759,305	)
Cash flows from investing activities:
Other assets		18,958			266,972
Capital expenditures		(673,575	)		(206,127	)
Proceeds from sale of marketable debt securities		200,000			9,296,550
Net cash (used in) provided by investing activities		(454,617	)		9,357,395
Cash flows from financing activities:
Paycheck protection program loan receipt		-			2,238,000
Paycheck protection program loan repayment		-			(2,070,000	)
Sale of treasury stock, net of costs		16,360,478			-
Settlements of restricted stock for tax withholding obligations		(32,705	)		-
Net cash provided by financing activities		16,327,773			168,000
Effect of exchange rate changes on cash		(25,733	)		(18,517	)
Net increase in cash and cash equivalents		10,246,819			2,747,573
Cash and cash equivalents:
Beginning of period		17,112,869			6,029,247
End of period	$	27,359,688		$	8,776,820

See notes to unaudited condensed consolidated financial statements

KOPIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The condensed consolidated financial statements of Kopin Corporation as of June 26, 2021 and for the three and six month periods ended June 26, 2021 and June 27, 2020 are unaudited and include all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the periods then ended. These condensed consolidated financial statements should be read in conjunction with the Company’s financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The Company reclassified certain prior period amounts to conform to the current period presentation. As used in this report, the terms “we”, “us”, “our”, “Kopin” and the “Company” mean Kopin Corporation and its subsidiaries, unless the context indicates another meaning.

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

2. ACCOUNTING STANDARDS

Accounting Standards Issued But Not Yet Adopted

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

3. CASH AND CASH EQUIVALENTS AND MARKETABLE DEBT SECURITIES

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

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

The Company uses the specific identification method as a basis for determining cost and calculating realized gains and losses with respect to marketable debt securities. The gross gains and losses realized related to sales and maturities of marketable debt securities were not material during the three and six months ended June 26, 2021 and June 27, 2020.

Investments in available-for-sale marketable debt securities were as follows at June 26, 2021 and December 26, 2020:

	Amortized Cost				Unrealized Gains				Fair Value
	2021		2020		2021		2020		2021		2020
U.S. government and agency backed securities	$	1,002,044	$	1,003,941	$	10,256	$	19,179	$	1,012,300	$	1,023,120
Corporate debt		2,400,000		2,603,704		12,292		8,857		2,412,292		2,612,561
Total	$	3,402,044	$	3,607,645	$	22,548	$	28,036	$	3,424,592	$	3,635,681

The contractual maturity of the Company’s marketable debt securities was as follows at June 26, 2021:

SCHEDULE OF MARKETABLE DEBT SECURITIES

	Less than One year		One to Five years		Total
U.S. government and agency backed securities	$	1,012,300	$	—	$	1,012,300
Corporate debt		901,017		1,511,275		2,412,292
Total	$	1,913,317	$	1,511,275	$	3,424,592

4. FAIR VALUE MEASUREMENTS

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

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

			Fair Value Measurement June 26, 2021 Using:
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	27,359,688	$	27,359,688	$	-	$	-
U.S. government securities		1,012,300		-		1,012,300		-
Corporate Debt		2,412,292		-		2,412,292		-
Equity investments		4,540,210		277,499		-		4,262,711
	$	35,324,490	$	27,637,187	$	3,424,592	$	4,262,711

			Fair Value Measurement at December 26, 2020 Using:
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	17,112,869	$	17,112,869	$	-	$	-
U.S. government securities		1,023,120		-		1,023,120		-
Corporate debt		2,612,561		-		2,612,561		-
Equity investments		4,523,525		293,891		-		4,229,634
	$	25,272,075	$	17,406,760	$	3,635,681	$	4,229,634

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

December 26, 2020

Net unrealized gains

Purchases,

issuances and settlements

Transfers in

and or out of

Level 3

June 26, 2021

Equity investments

4,229,634

33,077

4,262,711

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

Marketable Debt Securities

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

Equity Investments

During the three and six months ended June 26, 2021, the Company recorded a less than $0.1 million unrealized gain on an equity interest in a company due to a fluctuation in the foreign exchange rate.

5. INVENTORY

Inventories are stated at standard cost adjusted to approximate the lower of cost (first-in, first-out method) or net realizable value and consist of the following at June 26, 2021 and December 26, 2020:

SCHEDULE OF INVENTORY

	June 26, 2021		December 26, 2020
Raw materials	$	5,470,123	$	3,609,710
Work-in-process		601,180		565,986
Finished goods		178,100		280,060
Total	$	6,249,403	$	4,455,756

6. NET LOSS PER SHARE

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

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

Three Months Ended

Six Months

Ended

Six Months

Ended

June 26, 2021

June 27, 2020

June 26, 2021

June 27, 2020

Non-vested restricted common stock

2,543,717

2,373,874

2,543,717

2,373,874

7. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Registered sale of equity securities

During the three and six months ended June 26, 2021, the Company sold 0.1 million and 2.5 million shares of common stock for gross proceeds of $0.8 million and $16.8 million (average of $6.74 per share), respectively, before deducting broker expenses paid by us of less than $0.1 million and $0.5 million, respectively, pursuant to the Company’s At-The-Market Equity Offering Sales Agreement dated as of February 8, 2019 (the “Previous ATM Agreement”) with Stifel, Nicolaus & Company, Incorporated, (“Stifel”) as agent. The Previous ATM Agreement has since terminated pursuant to its terms as a result of the sale of all the shares subject to such agreement. On March 5, 2021, the Company entered into a new At-The-Market Offering Sales Agreement (the “Current ATM Agreement”) with Stifel under which the Company may sell up to $50 million of its common stock.

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

Non-Vested Restricted Common Stock

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

Restricted stock activity was as follows:

				Weighted Average
	Shares			Grant Fair Value
Balance, December 26, 2020		3,051,874		$	1.67
Granted		1,486,843			3.03
Forfeited		(985,000	)		1.81
Vested		(1,010,000	)		2.44
Balance, June 26, 2021		2,543,717		$	2.11

Stock-Based Compensation

The following table summarizes stock-based compensation expense within each of the categories below as it relates to non-vested restricted common stock awards for the three and six months ended June 26, 2021 and June 27, 2020 (no tax benefits were recognized):

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Cost of product revenues	$	34,789	$	16,226	$	168,573	$	30,246
Research and development		121,012		57,523		215,065		112,655
Selling, general and administrative		358,708		87,885		2,741,037		177,241
Total	$	514,509	$	161,677	$	3,124,675	$	320,142

Unrecognized compensation expense for non-vested restricted common stock as of June 26, 2021 totaled $3.0 million and is expected to be recognized over a weighted average period of approximately 2.6 years.

8. ACCRUED WARRANTY

The Company typically warrants its products against defect for 12 to 18 months, however, for certain products a customer may purchase an extended warranty. A provision for estimated future costs and estimated returns for credit relating to such warranty is recorded in the period when product is shipped and revenue is recognized and is updated as additional information becomes available. The Company’s estimate of future costs to satisfy warranty obligations is based primarily on historical warranty expense experienced and a provision for potential future product failures. Changes in the accrued warranty for the six months ended June 26, 2021 were as follows:

SCHEDULE OF ACCRUED WARRANTY

Balance, December 26, 2020	$	508,000
Additions		546,000
Claims		(77,000	)
Balance, June 26, 2021	$	977,000

Extended Warranties

Deferred revenue represents the purchase of extended warranties by the Company’s customers. The Company recognizes revenue from an extended warranty on the straight-line method over the life of the extended warranty, which is typically 12 to 15 months beyond the standard 12 to 18 month warranty. The Company classifies the current portion of deferred revenue under Contract liabilities and billings in excess of revenues earned in its condensed consolidated balance sheets. At June 26, 2021, the Company had less than $0.1 million of deferred revenue related to extended warranties.

9. INCOME TAXES

The Company recorded a provision for income taxes of less than $0.1 million in the three and six months ended June 26, 2021 and June 27, 2020, respectively. As of June 26, 2021, the Company has available for tax purposes U.S. federal net operating loss carryforwards (“NOLs”) of approximately $160.3 million expiring 2022 through 2037 and $66.4 million that have an unlimited carryover period. The Company has recognized a full valuation allowance on its domestic and certain foreign net deferred tax assets due to the uncertainty of realization of such assets. The Company recognizes both accrued interest and penalties related to its uncertain tax positions related to intercompany loan interest and potential transfer pricing exposure related to its foreign subsidiaries.

10. CONTRACT ASSETS AND LIABILITIES

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

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

Net contract assets (liabilities) consisted of the following:

	June 26, 2021			December 26, 2020			$ Change			% Change
Contract assets —current	$	3,196,477		$	3,521,753		$	(325,276	)		(9	)%
Contract liabilities—current		(2,076,467	)		(1,493,847	)		(582,620	)		39	%
Contract liabilities—noncurrent		(32,460	)	$	(5,069	)	$	(27,391	)		540	%
Net contract assets (liabilities)	$	1,087,550		$	2,022,837		$	(935,287	)		(46	)%

The $0.9 million decrease in the Company’s net contract assets at June 26, 2021 as compared to December 26, 2020 was primarily due to an increase in inventory and other costs associated with government contracts which recognize revenue over time, which was partially offset by an increase in billing in excess of revenue earned.

In the three and six months ended June 26, 2021, the Company recognized revenue of $0.1 million and $1.3 million, respectively, related to our contract liabilities at December 26, 2020. In the three and six months ended June 27, 2020, the Company recognized revenue of $0.6 million, related to our contract liabilities at December 28, 2019.

The Company did not recognize impairment losses on our contract assets in the three and six months ended June 26, 2021 or June 27, 2020.

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:

	Three months ended			Three months ended			Six months ended			Six months ended
	June 26, 2021			June 27, 2020			June 26, 2021			June 27, 2020
Point in time		36	%		39	%		33	%