SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended April 1, 2000 Commission file number 0-19882 KOPIN CORPORATION ----------------- (Exact name of registrant as specified in its charter) Delaware 04-2833935 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 695 Myles Standish Blvd.,Taunton, MA 02780-1042 ------------------------------------ ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 824-6696 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or l5(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 such filing requirements for the past 90 days. Yes [X] No [ ] Applicable only to corporate issuers: 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 April 30, 2000 ----- -------------------------------- Common Stock, par value $ .01 31,439,755
KOPIN CORPORATION INDEX ----- <TABLE> <CAPTION> Page No. ------- <S> <C> PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets at 3 April 1, 2000 and December 31, 1999 Consolidated Statements of Operations and Comprehensive Income 4 for the three months ended April 1, 2000 and April 3, 1999 Consolidated Statements of Stockholders' Equity for the 5 three months ended April 1, 2000 and April 3, 1999 Consolidated Statements of Cash Flows for the 6 three months ended April 1, 2000 and April 3, 1999 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition 8 and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 </TABLE> 2
KOPIN CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) <TABLE> <CAPTION> April 1, 2000 December 31, 1999 ---------------------- ---------------------- <S> <C> <C> Assets Current assets: Cash and equivalents $ 59,356,626 $ 65,981,848 Marketable securities, at fair value 44,324,709 33,117,555 Accounts receivable, net of allowance of $450,800 Billed 12,041,729 10,547,762 Unbilled 988,220 655,220 Inventory 4,180,838 6,157,195 Prepaid expenses and other current assets 1,247,738 1,651,905 ------------ ------------ Total current assets 122,139,860 118,111,485 Equipment and improvements: Equipment 33,953,600 32,849,431 Leasehold improvements 808,884 808,884 Furniture and fixtures 493,802 459,097 Equipment under construction 8,027,576 7,207,812 ------------ ------------ 43,283,862 41,325,224 Accumulated depreciation and amortization 22,047,496 20,653,963 ------------ ------------ 21,236,366 20,671,261 Other assets 5,942,817 4,352,793 Intangible assets 1,957,778 1,938,190 ------------ ------------ Total assets $151,276,821 $145,073,729 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 6,942,600 $ 7,564,070 Accrued payroll and expenses 1,344,191 990,073 Other accrued liabilities 1,629,632 933,583 Current portion of long-term obligations 1,848,521 2,142,373 ------------ ------------ Total current liabilities 11,764,944 11,630,099 Long-term obligations, less current portion 1,998,817 2,567,100 Minority interest 844,404 809,238 Commitments Stockholders' equity: Preferred stock, par value $.01 per share: Authorized, 3,000 shares; none issued and outstanding - - Common stock, par value $.01 per share: Authorized, 60,000,000 shares; issued, 31,352,803 shares in 2000 and 30,149,362 shares in 1999 313,528 301,494 Additional paid-in capital 190,463,395 186,077,638 Deferred compensation (96,280) (110,035) Accumulated other comprehensive income 426,801 509,725 Deficit (54,438,788) (56,711,530) ------------ ------------ Total stockholders' equity 136,668,656 130,067,292 ------------ ------------ Total liabilities and stockholders' equity $151,276,821 $145,073,729 ============ ============ </TABLE> See notes to consolidated financial statements. 3
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> Three Months Ended ------------------- April 1, 2000 April 3, 1999 --------------- --------------- <S> <C> <C> Revenues: Product revenues $19,310,263 $ 5,984,932 Research and development revenues 429,500 744,664 ----------- ----------- 19,739,763 6,729,596 Expenses: Cost of product revenues 13,977,048 3,930,174 Research and development 3,101,867 1,999,144 Selling, general and administrative 1,626,536 922,930 Other 87,900 87,900 ----------- ----------- 18,793,351 6,940,148 ----------- ----------- Income (loss) from operations 946,412 (210,552) Other income and expense: Interest and other income 1,439,063 534,516 Interest expense (85,886) (118,264) ----------- ----------- Income before minority interest 2,299,589 205,700 Minority interest in (income) loss of subsidiary (26,847) 167 ----------- ----------- Net income $ 2,272,742 $ 205,867 =========== =========== Net income per share: Basic $.07 $.01 =========== =========== Diluted $.07 $.01 =========== =========== Weighted average number of common shares outstanding: Basic 31,001,555 24,776,306 =========== =========== Diluted 34,009,621 26,278,758 =========== =========== </TABLE> CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) <TABLE> <CAPTION> Three Months Ended ------------------- April 1, 2000 April 3, 1999 --------------- --------------- <S> <C> <C> Net income $2,272,742 $205,867 Foreign currency translation adjustments 15,447 (56,516) Unrealized loss on marketable securities, net (98,371) (7,312) ---------- -------- Comprehensive income $2,189,818 $142,039 ========== ======== </TABLE> See notes to consolidated financial statements. 4
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED APRIL 1, 2000 AND APRIL 3, 1999 (UNAUDITED) <TABLE> <CAPTION> Common Stock Additional Accumulated Other ----------------- Paid-in Deferred Comprehensive Shares Amount Capital Compensation Income (Loss) Deficit Total --------- ------ --------- ------------ ------------- ------- ----- <S> <C> <C> <C> <C> <C> <C> <C> Balance, December 31, 1998 12,268,561 $122,686 $108,954,779 ($165,055) $420,812 ($57,486,799) $ 51,846,423 Exercise of stock options 139,736 1,397 424,830 -- -- -- 426,227 Amortization of compensation relating to grant of stock -- -- -- 13,755 -- -- 13,755 options Net unrealized loss on marketable securities -- -- -- -- (7,312) -- (7,312) Foreign currency translation adjustments -- -- -- -- (56,516) -- (56,516) Net income for the three month period ended April 3, 1999 -- -- -- -- -- 205,867 205,867 ---------- -------- ------------ --------- -------- ------------ ------------ Balance, April 3, 1999 12,408,297 $124,083 $109,379,609 ($151,300) $356,984 ($57,280,932) $ 52,428,444 ========== ======== ============ ========= ======== ============ ============ Balance, December 31, 1999 30,149,362 $301,494 $186,077,638 ($110,035) $509,725 ($56,711,530) $130,067,292 Exercise of stock options 1,203,441 12,034 4,385,757 -- -- -- 4,397,791 Amortization of compensation relating to grant of stock -- -- -- 13,755 -- -- 13,755 options Net unrealized loss on marketable securities -- -- -- -- (98,371) -- (98,371) Foreign currency translation adjustments -- -- -- -- 15,447 -- 15,447 Net income for the three month period ended April 1, 2000 -- -- -- -- -- 2,272,742 2,272,742 ---------- -------- ------------ --------- -------- ------------ ------------ Balance, April 1, 2000 31,352,803 $313,528 $190,463,395 ($96,280) $426,801 ($54,438,788) $136,668,656 ========== ======== ============ ========= ======== ============ ============ </TABLE> See notes to consolidated financial statements. 5
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> Three Months Ended ----------------------------- April 1, April 3, 2000 1999 ---------- -------- <S> <C> <C> Cash flows from operating activities: Net income $ 2,272,742 $ 205,867 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,452,503 937,631 Amortization of compensation relating to grant of stock options 13,755 13,755 Decrease in deferred rent - - Minority interest in income (loss) of subsidiary 26,847 (167) Changes in assets and liabilities: Accounts receivable (1,808,816) (2,525,556) Inventory 1,994,298 (527,364) Prepaid expenses and other current assets 408,597 (287,433) Intangible assets (107,488) (46,979) Accounts payable and accrued expenses 328,722 1,539,976 ------------ ----------- Net cash provided by (used in) operating activities 4,581,160 (690,270) ------------ ----------- Cash flows from investing activities: Marketable securities (11,305,525) (1,612,678) Other assets (1,589,900) 215,963 Capital expenditures (1,882,622) (3,302,792) ------------ ----------- Net cash provided by (used in) investing activities (14,778,047) (4,699,507) ------------ ----------- Cash flows from financing activities: Principal payment on long-term obligations (862,135) (597,945) Proceeds from exercise of stock options 4,397,791 426,227 ------------ ----------- Net cash provided by (used in) financing activities 3,535,656 (171,718) ------------ ----------- Effect of exchange rate changes on cash 36,009 (18,385) ------------ ----------- Net decrease in cash and equivalents (6,625,222) (5,579,880) Cash and equivalents, beginning of period 65,981,848 30,807,335 ------------ ----------- Cash and equivalents, end of period $ 59,356,626 $25,227,455 ============ =========== Supplementary information -Interest paid in cash $ 108,391 $ 122,596 </TABLE> See notes to consolidated financial statements. 6
KOPIN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION --------------------- The consolidated financial statements for the three month periods ended April 1, 2000 and April 3, 1999 are unaudited and include all adjustments which, in the opinion of management, are necessary to present fairly the results of operations for the periods then ended. All such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (File No. 0-19882) for the year ended December 31, 1999. 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 consolidated financial statements include the accounts of the Company, its wholly owned subsidiary and Kowon Technology Co., Ltd., a majority owned (65%) subsidiary located in Korea. All intercompany transactions and balances have been eliminated. All shares, income per share, and related information for 1999 give retroactive effect to the 2 for1 stock split effected in the form of a stock dividend for shareholders of record as of December 20, 1999, and effected on December 29, 1999. 2. FOREIGN CURRENCY TRANSLATION ---------------------------- Assets and liabilities of non-U.S. operations are translated into U.S. dollars at period end exchange rates, and revenues and expenses at rates prevailing during the quarter. Resulting translation adjustments are accumulated as part of other comprehensive income and aggregate $528,531 of unrealized gain at April 1, 2000. Transaction gains or losses are recognized in income or loss currently. 3. NET INCOME PER SHARE -------------------- Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares and potential common shares outstanding during the period using the treasury method. Potential common shares have not been included in any periods in which the effect would be anti-dilutive. 4. STOCKHOLDERS' EQUITY -------------------- In October 1999, the Company completed a public offering of 4,600,000 shares of common stock at a price of $16.97 per share. Net proceeds to the Company totaled approximately $73,154,000. 5. RECENT PRONOUNCEMENTS --------------------- The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective for fiscal years commencing after June 15, 2000. SFAS No. 133 requires fair value accounting for all stand-alone derivatives and many derivatives embedded in other financial instruments and contracts. The impact of SFAS No. 133 on us has not yet been determined. 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS - ------------- Kopin is a leading developer and manufacturer of advanced semiconductor materials and miniature flat panel displays. We use our proprietary technology to design, manufacture and market products used in highly demanding commercial wireless communications and high resolution portable applications. Our products enable our customers to develop and market an improved generation of products for these target applications. We have two principal components of revenues: product revenues and research and development revenues. Historically, product revenues have consisted of sales of our Heterojunction Bipolar Transistor ("HBT") transistor wafers. For the three month period ended April 1, 2000, we had product revenues of $19.3 million, or 97.8% of total revenues compared to $6.0, or 88.9% of total revenues for the same period in 1999. We began shipping our CyberDisplay product in 1998. This product line represented 14.9% of our product revenues for the three months ended April 1, 2000 compared to 1.5% for the same period in 1999. Research and development revenues consist primarily of development contracts with agencies of the U.S. government. Management has intensified its efforts on the marketing and sales of its commercial products over the past few years resulting in the decline of research and development revenues as a percentage of total revenues. For the three months ended April 1, 2000, research and development revenues declined to $.4 million, or 2.2% of total revenues compared to $.7 million, or 11.1% of total revenues for the same period in 1999. We believe that research and development revenues will continue to decline on an annual basis as a percentage of total revenues for the near future. RESULTS OF OPERATIONS REVENUES. Our total revenues for the three months ended April 1, 2000 were $19.7 million compared to $6.7 million for the three months ended April 3, 1999, an increase of approximately $13.0 million or 194.0%. Our product revenues were $19.3 million for the three months ended April 1, 2000 compared to $6.0 million for the same period in 1999, an increase of approximately $13.3 million, or 221.7%. Product revenue growth was attributable to an increase in sales of our gallium arsenide products as well as our CyberDisplay products in the three months ended April 1, 2000 compared to the same period in 1999. For the three months ended April 1, 2000, gallium arsenide product sales and CyberDisplay product sales were $16.4 million and $2.9 million, respectively, as compared to $5.9 million and $.1 million, respectively, for the three months ended April 3, 1999. Research and development revenues for the three months ended April 1, 2000 were $.4 million, compared to $.7 million for the same period in 1999, a decrease of .3 million, or 42.9%. Research and development revenues declined primarily due to the expirations of multi-year contracts with the U.S. government. COST OF PRODUCT REVENUES. Cost of product revenues, which is comprised of materials, labor and manufacturing overhead related to our products, was $14.0 million for the three months ended April 1, 2000 compared to $3.9 million for the three months ended April 3, 1999, an increase of $10.1 million, or 259%. The increase in cost of product revenues as a percentage of product revenues in 2000 is primarily due to increased production staffing as we increased production capacity, and increased Cyberdisplay product sales as a percentage of total sales. RESEARCH AND DEVELOPMENT. Research and development expenses (R&D) are incurred under development programs for gallium arsenide and display products in support of internal development programs or programs funded by agencies of the U.S. government. R&D costs include staffing, purchases of materials and laboratory supplies, circuit design costs, fabrication and packaging of display products, and overhead. Funded R&D was $.4 million for the three months ended April 1, 2000 compared to $.9 million for the three months ended April 3, 1999, a decrease of $.5 million, due to reduced expenses caused by the expiration of multi-year contracts with agencies of the U.S. government. Internal R&D was $2.6 million for the three months ended April 1, 2000 compared to $1.1 million during the corresponding period in 1999, an increase of $1.5 million. The increase in internal R&D was primarily the result of development activities related primarily to higher resolution displays. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses (S,G&A) consist of the expenses incurred by our's sales and marketing personnel and related expenses, and administrative and general corporate expenses. S,G&A was $1.6 million for the three months ended April 1, 2000 compared to $.9 million during the corresponding period in 1999, an increase of $.7 million, or 78.8%. The increase in S,G&A for the three months ended April 1, 2000 was primarily due 8
to increases in headcount in the sales and marketing, procurement and accounting staffs in support of our revenue growth. In addition, S,G&A expenses include non-cash charges for compensation expense of $13,755 for both three month periods in 2000 and 1999, relating to the issuance of certain stock options. OTHER. Other expenses, primarily amortization of patents and licenses, were $87,900 for both the three month periods ended April 1, 2000 and April 3, 1999. OTHER INCOME, NET. Other income, net was $1.3 million for the three months ended April 1, 2000 compared to $.4 million during the corresponding period in 1999. Interest income earned during the three months ended April 1, 2000 increased $.9 million, compared to the corresponding period in 1999, due to higher cash balances resulting from the October 1999 equity placement and higher interest rates. LIQUIDITY AND CAPITAL RESOURCES We have financed our operations primarily through public and private placements of its equity securities, research and development contract revenues, and sales of its gallium arsenide and display products. We believe our available cash resources will support our operations and capital needs for at least the next twelve months. As of April 1, 2000, we had cash and equivalents and marketable securities of $103.7 million and working capital of $110.4 million compared to $99.1 million and $106.5 million, respectively, as of December 31, 1999. The increase in cash and equivalents and marketable securities was primarily due to cash provided by operations of $4.6 million and proceeds from the exercise of stock options of $4.4 million, offset by capital and investment expenditures of $3.5 million and principal payments on long-term obligations of $.9 million. The increase in capital expenditures is primarily for our expansion programs to increase manufacturing capacity for our gallium arsenide and display products. We periodically enter into long-term debt arrangements to finance equipment purchases and other activities. As of April 1, 2000, debt obligations totaled $3.8 million, of which $1.8 million is payable in the next twelve months. Our CyberDisplay products are targeted at are large sales volume consumer electronic and wireless communication applications. We believe that in order to obtain customers in these markets, it has been necessary to make significant investments in equipment and infrastructure. We believe that it will be necessary to continue to make significant investments in equipment and development in order to produce current and future CyberDisplay products. As a result of the current cost structure of our CyberDisplay product line, our ability to achieve profitability in that product line depends upon increasing significant sales volumes, automating certain processes and achieving higher gross profit margins. We have not yet produced our CyberDisplay products at volumes necessary to achieve profitability. Accordingly, we may not be able to obtain sufficient sales volumes, or if sufficient sales volumes are achieved, we may not be able to produce our CyberDisplay products at a gross margin which will allow the product line to generate a profit. We lease equipment and our facilities located in Taunton and Westborough, Massachusetts, and Los Gatos, California, under non-cancelable operating leases. Our Taunton leases expire through May 2010. The Westborough lease expires in October 2002, with renewable options for up to two additional years at our election. The Los Gatos lease covers a five year period terminating in 2002. We will make lease payments of approximately $1.4 million per year over the remaining terms of these leases. We expect to expend approximately $30.0 million on capital expenditures over the next twelve months, primarily for the acquisition of equipment relating to the production of our HBT transistors and the manufacturing, packaging and testing of CyberDisplay products, including the establishment of a second manufacturing product facility for our HBT transistor wafers. 9
RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective for fiscal years commencing after June 15, 2000. SFAS No. 133 requires fair value accounting for all stand-alone derivatives and many derivatives embedded in other financial instruments and contracts. The impact of SFAS No. 133 on us has not yet been determined. Certain of the statements contained in this Form 10-Q, including Management's Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements that involve risks and uncertainties. In addition to the risks and uncertainties set forth in this Form 10-Q, other factors that could cause actual results to differ materially include the following: general economic and business conditions and growth in the flat panel display industry and the gallium arsenide integrated circuit and materials industries, the impact of competitive products and pricing, availability of third party components, availability of integrated circuit fabrication facilities, cost and yields associated with production of the Company's CyberDisplay imaging devices and transistor wafers, loss of significant customers, acceptance of the Company's products, continued performance by Kopin and its key customers under strategic relationships, changes in foreign currency exchange rates, and the risk factors and cautionary statements listed from time to time in the Company's periodic reports and registration statements filed with the Securities and Exchange Commission, including but not limited to the Company's Annual Report on Form 10- K for the fiscal year ended December 31, 1999. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- We invest our excess cash in high quality government and corporate financial instruments which bear minimal risk. We believe that the effect, if any, of reasonably possible near-term changes in interest rates on our financial position, results of operations, and cash flows should not be material. We sell our products to customers worldwide. We maintain a reserve for potential credit losses and such losses have been minimal. We are exposed to changes in foreign currency exchange primarily through our translation of our foreign subsidiary's financial position, results of operations, and cash flows and the sale of CyberDisplay products to customers in Asia. PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K None 10
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KOPIN CORPORATION (Registrant) Date: May 16, 2000 By: /s/ John C.C. Fan ---------------------------------- John C.C. Fan President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) Date: May 16, 2000 By: /s/ Richard A. Sneider ---------------------------------- Richard A. Sneider Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 11