SecProbe.io

Document

VIA EDGAR

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, N.E., Mail Stop 3561

Washington, D.C. 20549

Attention: Martin James, Senior Assistant Chief Accountant

David Burton

Re: Kopin Corporation

Form 10-K for the Fiscal Year Ended December 29, 2018

Filed March 14, 2019

Form 10-Q for the Quarterly Period Ended June 29, 2019

Filed August 8, 2019

File No. 000-19882

Gentlemen:

This letter is submitted on behalf of Kopin Corporation (the "Company" or "Kopin") in response to the comments of the staff of the Division of Corporation Finance of the Securities and Exchange Commission (the "Staff") as set forth in your letter to Richard Sneider dated September 5, 2019 with respect to the Company's Form 10-K for the fiscal year ended December 29, 2018 and the Company's Form 10-Q for the quarterly period ended June 29, 2019 (the "Comment Letter"). For reference purposes, the text of your letter has been reproduced herein with responses below each numbered comment.

Form 10-K for Fiscal Year Ended December 29, 2018

Report of Independent Registered Public Accounting Firm, page 38

1.

The first paragraph of your auditors' report does not indicate that the consolidated balance sheet as of December 30, 2017 was audited even though in the same paragraph your auditors also opine on your financial position as of that date. Please amend your Form 10-K to include a report from your auditors that correctly identifies the date of each balance sheet audited. Refer to paragraph .08 of AS 3101.

Response 1:

In response to the Staff's comment, the Company will file a Form 10-K/A to include an auditor's report indicating that the consolidated balance sheet as of December 30, 2017 was also audited.

Consolidated Statements of Stockholders' Equity, page 42

2.

Please describe to us the circumstances surrounding the distributions to the noncontrolling interest holder in 2017 and 2018. Tell us why, while both amounts are shown as outgoing cash flows from financing activities on page 43, on this statement the distribution in 2017 is shown as a reduction of the noncontrolling interest and the 2018 distribution is presented as an increase to the noncontrolling interest.

Response 2:

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 decision of the Company 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, in considering the response to the Staff’s question in comment 2, we have determined that the Company’s 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.

(1)

The noncontrolling interest amount shown in the Company’s consolidated financial statements as of December 26, 2015 was understated by $1.2 million because the Company improperly calculated the noncontrolling interest amount of Kowon when the Company made equity investments in years prior to 2015. The calculation error only applied to common stock and additional paid-in capital of the subsidiary and not to the amount of operating results which were correctly apportioned between the Company and noncontrolling interest.

(2)

In 2016, upon recognition of a gain on the sale of Kowon's assets the Company improperly calculated the allocation of the gain on the disposal to the noncontrolling interest. The Company did not properly allocate the portion of the gain attributable to the noncontrolling interest in the amount of $0.1 million. Had the Company done so, the net operating results allocated to noncontrolling interest would have been $0.1 million higher and the amount allocated to the Company would have been $0.1 million lower in the 2016 Consolidated Statement of Operations.

(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 accordance with ASC 830-30, however, the remaining $1.3 million was incorrectly reclassified directly to noncontrolling interest to offset cumulative understatement in noncontrolling interest that resulted from the prior period errors noted above. This caused the net loss in the 2018 Consolidated Statement of Operations to be overstated by $1.3 million.

(4)

In addition, in connection with the liquidation of Kowon, the Company understated its distribution to the noncontrolling interest holder in the 2018 Consolidated Statement of Cash Flows by less than $0.1 million.

In considering the errors above, Kopin has concluded that its presentation of noncontrolling interest in its financial statements for the periods prior to the liquidation of Kowon was understated by approximately $1.3 million and the fiscal year 2018 Consolidated Statement of Operations reported a net loss that was overstated by approximately $1.3 million. Management has evaluated these errors within the context of SEC Staff Accounting Bulletin No. 99, Materiality ("SAB 99") and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements ("SAB 108"). Management has assessed, using both quantitative and qualitative factors, the impact of these errors on the previously reported financial statements. Based on the analysis below, management has concluded that these errors are not material to the consolidated financial statements taken as a whole for any balance sheets, statements of operations, statements of comprehensive loss, statements of stockholders' equity or statements of cash flows presented in the Company’s 2018 annual report on Form 10-K.

In addition, management, including the Chief Executive Officer and Chief Financial Officer, took steps to re-evaluate the Company’s internal control over financial reporting in light of the errors identified above. Management concluded that the Company’s control over the accounting and reporting for non-routine transactions was not operating effectively as of December 29, 2018. Management concluded that this deficiency is a material weakness. This determination was reached after a full evaluation of this control deficiency including consideration of all errors known to relate to this deficient control as of December 29, 2018. As such, management has concluded that its internal control over financial reporting was not effective as of December 29, 2018. Consequently, the Company will revise its annual report on internal control over financial reporting in Item 9A. Controls and Procedures in an amendment on Form 10-K/A.

Notwithstanding the Company's conclusion that these errors are immaterial, because the Company intends to amend its previously filed 2018 annual report on Form 10-K in order to (1) correct the auditor's report as noted above in Response 1 and (2) revise its annual report on internal control over financial reporting, we believe it is prudent to correct these errors in our previously filed financial statements in that same amendment on Form 10-K/A. Outlined below is a summary of the materiality analysis that has been prepared by management.

Materiality Analysis

Staff Accounting Bulletin No. 99

The SEC's SAB 99 states that a matter is material if there is a "substantial likelihood that a reasonable person would consider it important" in making an investment decision. In addition, SAB 99 also states that “quantifying, in percentage terms, the magnitude of a misstatement is only the beginning of an analysis of materiality” and that the factual context in which the user of financial statements would view the financial statement item must also be evaluated. The standard in such a situation is the fundamental materiality test set forth by the U.S. Supreme Court of whether there is “a substantial likelihood that the…fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information available” in addition to consideration of the qualitative factors set forth in SAB 99 and other Staff guidance.1

The following analysis considers both quantitative and qualitative factors in assessing materiality of the errors in the calculation of net loss, noncontrolling interest and net loss attributable to the Company on Kopin's consolidated financial statements in connection with using the corrected methodology.

Quantitative Assessment

Our quantitative review considered the impact of the errors in calculating noncontrolling interest for the period from 2015 through 2018 and for each period affected starting with the earliest period presented in our most recent annual report on Form 10-K for the fiscal year ended December 29, 2018:

2015 - earliest period presented

As Reported

December 26, 2015

Prior Period Adjustments

As Revised

December 26, 2015

Effect of Adjustments as % of Revised Balances

Common Stock

$

760,797

$

—

$

760,797

—

%

Additional paid-in capital

326,558,527

(1,201,482

)

325,357,045

(0.4

)%

Treasury Stock

(42,741,551

)

—

(42,741,551

)

—

%

Accumulated other comprehensive income

771,774

—

771,774

—

%

Accumulated deficit

(190,608,671

)

—

(190,608,671

)

—

%

Total Kopin Corporation stockholders' equity

94,740,876

(1,201,482

)

93,539,394

(1.3

)%

Noncontrolling interest

(256,096

)

1,201,482

945,386

(469.2

)%

Total stockholders' equity

$

94,484,780

$

—

$

94,484,780

—

%

___________________________

1 TSC Industries v. Northway, Inc., 426 U.S. 438, 449 (1976).

2016:

As Reported December 31, 2016

Prior Period Adjustments

Adjustments

As Revised

December 31, 2016

Effect of Adjustments as % of Revised Balances

Common Stock

$

766,409

$

—

$

—

$

766,409

—

%

Additional paid-in capital

328,524,644

(1,201,482

)

—

327,323,162

(0.4

)%

Treasury Stock

(42,741,551

)

—

—

(42,741,551

)

—

%

Accumulated other comprehensive income

1,570,971

—

—

1,570,971

—

%

Accumulated deficit

(214,042,787

)

—

(134,601

)

(214,177,388

)

0.1

%

Total Kopin Corporation stockholders' equity

74,077,686

(1,201,482

)

(134,601

)

72,741,603

(1.8

)%

Noncontrolling interest

141,957

1,201,482

134,601

1,478,040

941.2

%

Total stockholders' equity

$

74,219,643

$

—

$

—

$

74,219,643

—

%

2017:

As Reported December 30, 2017

Prior Period Adjustments

As Revised

December 30, 2017

Effect of Adjustments as % of Revised Balances

Common Stock

$

775,720

$

—

$

775,720

—

%

Additional paid-in capital

331,119,340

(1,201,482

)

329,917,858

(0.4

)%

Treasury Stock

(17,238,669

)

—

(17,238,669

)

—

%

Accumulated other comprehensive income

3,564,779

—

3,564,779

—

%

Accumulated deficit

(240,121,901

)

(134,601

)

(240,256,502

)

0.1

%

Total Kopin Corporation stockholders' equity

78,099,269

(1,336,083

)

76,763,186

(1.7

)%

Noncontrolling interest

(719,422

)

1,336,083

616,661

(185.7

)%

Total stockholders' equity

$

77,379,847

$

—

$

77,379,847

—

%

2018:

As Reported December 29, 2018

Prior Period Adjustments

Adjustments

As Revised

December 29, 2018

Effect of Adjustments as % of Revised Balances

Common Stock

$

785,220

$

—

$

—

$

785,220

—

%

Additional paid-in capital

335,692,879

(1,201,482

)

—

334,491,397

(0.4

)%

Treasury Stock

(17,238,669

)

—

—

(17,238,669

)

—

%

Accumulated other comprehensive income

1,554,587

—

—

1,554,587

—

%

Accumulated deficit

(272,932,143

)

(134,601

)

1,336,083

$

(271,730,661

)

(0.4

)%

Total Kopin Corporation stockholders' equity

47,861,874

(1,336,083

)

1,336,083

47,861,874

—

%

Noncontrolling interest

(149,053

)

1,336,083

(1,336,083

)

(149,053

)

—

%

Total stockholders' equity

$

47,712,821

$

—

$

—

$

47,712,821

—

%

Our quantitative review considered the impact of the errors in calculating net loss and net loss attributable to Kopin Corporation for the years affected:

For the fiscal year ended December 31, 2016:

Fiscal year ended

As Reported

Adjustments

As Revised

Effect of Adjustments as % of Revised Balances

Net loss

$

(23,031,145

)

$

—

$

(23,031,145

)

—

%

Net (income) loss attributable to the noncontrolling interest

(402,971

)

(134,601

)

(537,572

)

33.4

%

Net loss attributable to Kopin Corporation

$

(23,434,116

)

$

(134,601

)

$

(23,568,717

)

0.6

%

Net loss per share:

Basic and diluted

$

(0.37

)

$

—

$

(0.37

)

—

%

Weighted average number of common shares outstanding

Basic and diluted

64,045,675

64,045,675

—

%

For the fiscal year ended December 29, 2018:

Fiscal year ended

As Reported

Adjustments

As Revised

Effect of Adjustments as % of Revised Balances

Foreign currency transaction (loss) gains

$

(166,829

)

$

1,336,083

$

1,169,254

(800.9

)%

Net loss

(35,818,575

)

1,336,083

(34,482,492

)

(3.7

)%

Net (income) loss attributable to the noncontrolling interest

(51,050

)

—

(51,050

)

—

%

Net loss attributable to Kopin Corporation

$

(35,869,625

)

$

1,336,083

$

(34,533,542

)

(3.7

)%

Net loss per share:

Basic and diluted

$

(0.49

)

$

0.02

$

(0.47

)

(4.1

)%

Weighted average number of common shares outstanding

Basic and diluted

73,156,545

73,156,545

—

%

Quantitative Conclusion

There was no impact to the Company's total stockholder's equity for the years ended December 29, 2018, December 30, 2017, December 31, 2016 and December 26, 2015. In the fiscal year ended December 31, 2016, there was a $0.1 million or 0.6% increase to net loss attributable to Kopin. There was no impact to the net loss per basic and diluted share for the fiscal year ended December 31, 2016. In the fiscal year ended December 29, 2018, there was a $1.3 million or 3.7% decrease in net loss attributable to Kopin and net loss per basic and diluted share decreased by $0.02 or 4.1%. Based on management's review of the impact to the consolidated balance sheets and consolidated statements of operations, there are no significant changes in trends from the immaterial adjustments.

Based on SAB 99 and SAB 108 guidance, the Company concluded that these errors are not quantitatively material to the reported consolidated financial statements in any of the three years in the period ended December 29, 2018.

Qualitative Analysis

Management also analyzed the impact of these errors from a qualitative perspective. In doing so management considered both the overall qualitative criteria listed in SAB 99 and additional specific qualitative factors directly applicable to the impact of these errors for users of its financial statements. With respect to the overall qualitative criteria listed in SAB 99, management concluded the following:

•

the errors did not have any impact on, nor mask a change in, our earnings trends in any historical period impacted;

•

the errors did not change a loss into income or vice versa;

•

the errors did not have any impact on compliance with any regulatory requirements;

•

the errors did not affect compliance with debt covenants or any other contractual requirements;

•

the errors did not have the effect of increasing management’