UNITED STATES 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 March 30, 2002 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, 2002 ----- -------------------------------- Common Stock, par value $ .01 69,331,549
KOPIN CORPORATION INDEX Page No. ------- PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets at 3 March 30, 2002 and December 31, 2001 Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 30, 2002 and March 31, 2001 4 Consolidated Statements of Stockholders' Equity for the 5 three months ended March 30, 2002 and March 31, 2001 Consolidated Statements of Cash Flows for the 6 three months ended March 30, 2002 and March 31, 2001 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition 9 and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II - OTHER INFORMATION Item 4. Submissions of Matters to a Vote of Security-Holders 11 SIGNATURES 12 2
KOPIN CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited) <TABLE> <CAPTION> March 30, 2002 December 31, 2001 --------------- ----------------- <S> <C> <C> Assets Current assets: Cash and equivalents $ 44,235,872 $ 74,425,853 Marketable securities, at fair value 60,549,251 30,009,300 Accounts receivable, net of allowance of $1,300,000 and $1,350,000 Billed 6,575,461 7,210,570 Unbilled 23,839 33,975 Inventory 7,735,326 8,713,740 Prepaid Taxes 572,863 419,671 Prepaid expenses and other current assets 2,152,685 3,349,729 ------------ ------------ Total current assets 121,845,297 124,162,838 Property, plant and equipment, net 38,425,614 40,813,240 Other assets 24,010,073 24,943,792 Goodwill, net 12,582,383 12,582,383 Intangible assets 1,047,366 1,146,716 ------------ ------------ Total assets $197,910,733 $203,648,969 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 10,706,919 $ 12,040,426 Accrued payroll and expenses 1,030,939 861,733 Other accrued liabilities 3,927,341 4,829,868 ------------ ------------ Total current liabilities 15,665,199 17,732,027 Minority interest 1,799,766 1,585,980 Commitments and contingencies 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, 120,000,000 shares; issued: 69,194,307 shares in 2002 and 69,045,532 shares in 2001 691,943 690,455 Additional paid-in capital 259,615,418 259,141,718 Accumulated other comprehensive loss (3,545,483) (2,369,677) Deficit (76,316,110) (73,131,534) ------------ ------------ Total stockholders' equity 180,445,768 184,330,962 ------------ ------------ Total liabilities and stockholders' equity $197,910,733 $203,648,969 ============ ============ </TABLE> See notes to consolidated financial statements. 3
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended ------------------ March 30, 2002 March 31, 2001 -------------- -------------- Revenues: Product revenues $17,355,889 $14,410,732 Research and development revenues 227,056 562,499 ----------- ----------- 17,582,945 14,973,231 Expenses: Cost of product revenues 14,645,593 16,369,403 Research and development 3,308,745 3,123,233 Selling, general and administrative 3,022,202 3,094,928 Other 265,426 117,257 ----------- ----------- 21,241,966 22,704,821 Loss from operations (3,659,021) (7,731,590) Other income and expense: Interest and other income 708,825 1,113,333 Interest expense (14,232) (91,836) ----------- ----------- Loss before minority interest (2,964,428) (6,710,093) Minority interest in income of subsidiary (220,148) (59,050) ----------- ----------- Net loss ($3,184,576) ($6,769,142) =========== =========== Net loss per share: Basic ($ .05) ($ .10) =========== =========== Diluted ($ .05) ($ .10) =========== =========== Weighted average number of common shares outstanding: Basic 69,163,120 64,886,242 =========== =========== Diluted 69,163,120 64,886,242 =========== =========== CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited) Three Months Ended ------------------ March 30, 2002 March 31, 2001 -------------- -------------- Net loss ($3,184,576) ($6,769,142) Foreign currency translation adjustments (13,035) 33,271 Unrealized gain (loss) on marketable securities, net (1,162,771) 161,764 ----------- ----------- Comprehensive loss ($4,360,382) ($6,574,107) =========== =========== See notes to consolidated financial statements. 4
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Three months ended March 30, 2002 and March 31, 2001 (unaudited) <TABLE> <CAPTION> Accumulated Common Stock Additional Other --------------------- Paid-in Deferred Comprehensive Shares Amount Capital Compensation Income (Loss) Deficit Total ---------- -------- ------- ------------ -------------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> <C> Balance, December 31, 2000 64,681,116 $646,811 $216,274,520 ($55,015) $328,395 ($50,418,146) $166,776,565 Exercise of stock options 251,895 2,519 737,525 -- -- -- 740,044 Amortization of compensation relating to grant of stock -- -- -- 13,755 -- 13,755 options Net unrealized loss on marketable securities, net -- -- -- -- 161,764 -- 161,764 Foreign currency translation adjustments -- -- -- -- 33,271 33,271 Net loss for the three month period ended March 31, 2001 -- -- -- -- -- (6,769,142) (6,769,142) ---------- -------- ------------ ------- ---------- ----------- ------------ Balance, March 31, 2001 64,933,011 $649,330 $217,012,045 ($41,260) $523,430 ($57,187,289) $160,956,256 ========== ======== ============ ======= ========== =========== ============ Balance, December 31, 2001 69,045,532 $690,455 $259,141,718 -- ($2,369,677) ($73,131,534) $184,330,962 Exercise of stock options 148,775 1,488 473,700 -- -- -- 475,188 Net unrealized loss on marketable securities, net -- -- -- -- (1,162,771) -- (1,162,771) Foreign currency translation adjustments -- -- -- -- (13,035) -- (13,035) Net loss for the three month period ended March 30, 2002 -- -- -- -- -- (3,184,576) (3,184,576) ---------- -------- ------------ --------- ---------- ------------ ------------ Balance, March 30, 2002 69,194,307 $691,943 $259,615,418 -- ($3,545,483) ($76,316,110) $180,445,768 ========== ======== ============ ======= ========== =========== ============ </TABLE> See notes to consolidated financial statements. 5
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) <TABLE> <CAPTION> Three months ended ------------------ March 30, 2002 March 31, 2001 ----------------- -------------- <S> <C> <C> Cash flows from operating activities: Net loss ($ 3,184,576) ($ 6,769,142) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,927,831 3,272,742 Amortization of stock option compensation -- 13,755 Minority interest in income of subsidiary 233,183 59,050 Changes in assets and liabilities: Accounts receivable 631,704 5,422,832 Inventory 975,087 (3,299,240) Prepaid expenses and other current assets 1,041,974 (1,398,615) Accounts payable and accrued expenses (2,047,696) (750,880) ----------- ----------- Net cash provided by (used in) operating activities 577,507 (3,449,498) ----------- ----------- Cash flows from investing activities: Marketable securities (30,921,845) (3,620,148) Other assets 139,707 (170,223) Capital expenditures ( 449,122) (1,890,979) ----------- ----------- Net cash used in investing activities (31,231,260) (5,681,350) ----------- ----------- Cash flows from financing activities: Principal payment on long-term obligations -- (250,000) Proceeds from exercise of stock options 475,188 740,044 ----------- ----------- Net cash provided by financing activities 475,188 490,044 ----------- ----------- Effect of exchange rate changes on cash (11,416) (51,386) ----------- ----------- Net decrease in cash and equivalents (30,189,981) (8,692,190) Cash and equivalents, beginning of period 74,425,853 13,332,973 ----------- ----------- Cash and equivalents, end of period $44,235,872 $ 4,640,783 =========== =========== Supplementary information - Interest paid in cash $ -- $ 60,234 </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 March 30, 2002 and March 31, 2001 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 Kopin Corporation's (the "Company's") Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") (File No. 0-19882) for the year ended December 31, 2001. 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 subsidiaries and Kowon Technology Co., Ltd. ("Kowon"), a majority owned (67%) subsidiary located in Korea. All intercompany transactions and balances have been eliminated. 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 $57,184 of unrealized loss at March 30, 2002. Transaction gains or losses are recognized in income or loss currently. 3. NET INCOME (LOSS) PER SHARE --------------------------- Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) 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 consist of outstanding options issued under the Company's stock option plans, and have not been included in any periods where the effect would be anti-dilutive. 4. INVENTORY --------- Inventory is stated at the lower of cost (first in, first out method) or market and consists of the following: March 30, 2002 December 31, 2001 -------------- ----------------- Raw Materials $ 6,294,222 $ 7,583,247 Work in Progress 991,051 900,889 Finished Goods 450,053 229,604 ------------ ------------ Total Inventory $ 7,735,326 $ 8,713,740 ============ ============ 5. OTHER CURRENT AND NON-CURRENT ASSETS ------------------------------------ Other assets consist primarily of marketable and non-marketable securities in various companies. Non-marketable equity securities are carried at cost and aggregated $3,749,000 and $3,890,000 at March 30, 2002 and December 31, 2001, respectively. Non-current marketable securities, which consist primarily of the Company's investment in the common stock of Micrel, Incorporated, are carried at fair-value. The fair-value of non-current marketable securities was $19,824,000 at March 30, 2002. Gross unrecognized losses on non-current marketable securities were $3,215,000 at March 30, 2002. 7
6. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, which is effective January 1, 2002. SFAS No. 142 requires, among other things, a transitional goodwill impairment test. At March 30, 2002 the Company had recorded $12,582,000 and $1,047,000 of Goodwill and Intangible Assets, respectively, which are subject to review under SFAS No. 142. The Company is required to complete its evaluation of the impact of the adoption of SFAS No. 142 by the end of the second quarter of 2002 and has not yet determined the impact of any potential transition adjustment on the Company's recorded goodwill and intangible assets. SFAS No. 142 requires discontinuance of goodwill amortization effective January 1, 2002. Goodwill amortization for the three months ended March 31, 2001 was $531,000. For the first quarter of 2001 net loss was $6,769,000 and adjusted net loss, adding back the goodwill amortization for the period, would have been $6,238,000. The adjusted net loss would have had no impact to the Company's basic and diluted net loss per share. In August, 2001, the FASB released SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective in 2002. SFAS No. 144 establishes standards for accounting for impairment of long-lived assets used by an entity or held for sale, and provides guidance on developing estimates of cash flows and fair values used in measuring impairments. 8
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 our III-V and CyberDisplay products for use in highly demanding commercial wireless communication 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. Product revenues consist of sales of our III-V products, principally gallium arsenide ("GaAs") HBT transistor wafers, and our line of CyberDisplay products. Our GaAs HBT transistor wafers and our CyberDisplay products are used primarily in wireless handsets and camcorders, respectively. For the three month period ended March 30, 2002, we had product revenues of $17.4 million, or 98.9% of total revenues compared to $14.4 million, or 96.0% of total revenues for the same period in 2001. Research and development revenues consist primarily of development contracts with agencies of the U.S. government for advanced displays. For the three months ended March 30, 2002, research and development revenues were $200,000, or 1.1% of total revenues compared to $600,000, or 3.8% of total revenues for the same period in 2001. Results of Operations Revenues. Our total revenues for the three months ended March 30, 2002 were $17.6 million, compared to $15.0 million for the three months ended March 31, 2001. This represented an increase of approximately $2.6 million or 17.3% from the comparable period in 2001. Our product revenues were $17.4 million for the three months ended March 30, 2002 compared to $14.4 million for the same period in 2001, an increase of approximately $3.0 million or 20.8%. For the three months ended March 30, 2002, III-V product sales and CyberDisplay product sales were $7.7 million and $9.7 million, respectively, as compared to $10.8 million and $3.6 million, respectively, for the three months ended March 31, 2001. Research and development revenues for the three months ended March 30, 2002 were $200,000 compared to $600,000 for the same period in 2001. The decrease in III-V product revenues is attributable to lower demand from customers who incorporate our GaAs HBT transistor wafers into components used in wireless handsets. The increase in CyberDisplay product sales is a result of additional design wins from new camcorder customers and increased penetration into the product lines of existing camcorder customers. International sales represented 65% and 47% of revenues for the quarters ended March 30, 2002 and March 31, 2001. The increase is attributable to an increase in sales of CyberDisplay products to consumer electronic manufacturers primarily located in Japan and Korea. Our international sales are 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. We have not taken any protective measures against exchange rate fluctuations, such as purchasing hedging instruments with respect to such fluctuations. Cost of Product Revenues. Cost of product revenues, which is comprised of materials, labor and manufacturing overhead related to our products, was $14.6 million for the three months ended March 30, 2002 compared to $16.4 million during the corresponding period in 2001. This represented a decrease of $1.8 million, or 11.0% for the three months ended March 30, 2002. For the three months ended March 30, 2002 and March 31, 2001, cost of product revenues as a percentage of sales was 84.4% and 114%, respectively. The decrease in cost of product revenues as a percentage of sales for the three month period ending March 30, 2002 as compared to the three month period ending March 31, 2001 was primarily the result of fixed costs being leveraged over a higher sales volume and increased yields in CyberDisplay production as a result of a design change in the display. Research and Development. Research and development expenses (R&D) are incurred under development programs for III-V and CyberDisplay 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, equipment, circuit design costs, fabrication and packaging of display products, and overhead. Funded R&D expense was $800,000 for the three months ended March 30, 2002 compared to $300,000 for the same period in the prior year, an increase of $500,000. Internal R&D expense was $2.5 million for the three months ended March 30, 2002 compared to $2.8 million during the corresponding period in 2001. Selling, General and Administrative. Selling, general and administrative expenses (S,G&A) consist of the expenses incurred by our sales and marketing personnel and related expenses, and administrative and general corporate expenses. S,G&A was $3.0 million for the three months ended March 30, 2002 as compared to $3.1 million during the corresponding period in 2001. The change in S,G&A expense from the corresponding period in the prior year is the net result of discontinuing goodwill 9
amortization of approximately $500,000 per quarter as directed by SFAS No. 142, and an increase in the cost of business insurance. Other. Other expenses, primarily amortization of patents and licenses, were $300,000 for the three month period ended March 30, 2002 compared to $100,000 during the corresponding period in 2001. Other Income, Net. Other income, net, was $700,000 for the three months ended March 30, 2002 compared to $1.0 million during the corresponding period in 2001. The change in other income, net, is a result of less interest income earned due to lower interest rates, partially offset by lower interest expense resulting from the payoff of the Company's long term debt in 2001. Liquidity and Capital Resources We have financed our operations primarily through public and private placements of our equity securities, research and development contract revenues, and sales of our III-V and CyberDisplay products. We believe our available cash resources will support our operations and capital needs for at least the next twelve months. As of March 30, 2002, we had cash and equivalents and marketable securities of $104.8 million and working capital of $106.2 million compared to $104.4 million and $106.4 million, respectively, as of December 31, 2001. The increase in cash and equivalents and marketable securities was primarily due to cash provided from operations of $600,000 and proceeds from the exercise of stock options of $500,000, partially offset by capital and investment expenditures of $500,000. We lease facilities located in Taunton and Westborough, Massachusetts, Los Gatos, California, and Columbia, Maryland, under non-cancelable operating leases. The Taunton leases expire through May 2010. The Westborough lease expires in October 2003. The Los Gatos lease expires in 2002. The Maryland lease expires in 2005. We are currently obligated to make lease payments of approximately $5.1 million over the remaining terms of these leases, however we expect to enter into new leases during 2002 for the Westborough and Los Gatos facilities. We expect to expend approximately $5 million on capital expenditures over the next twelve months, primarily for the acquisition of equipment relating to the production of our III-V and CyberDisplay products. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, which is effective January 1, 2002. SFAS No. 142 requires, among other things, a transitional goodwill impairment test. At March 30, 2002 the Company had recorded $12,582,000 and $1,047,000 of Goodwill and Intangible Assets, respectively, which are subject to review under SFAS No. 142. The Company is required to complete its evaluation of the impact of the adoption of SFAS No. 142 by the end of the second quarter of 2002 and has not yet determined the impact of any potential transition adjustment on the Company's recorded goodwill and intangible assets. SFAS No. 142 requires discontinuance of goodwill amortization effective January 1, 2002. Goodwill amortization for the three months ended March 31, 2001 was $531,000. For the first quarter of 2001 net loss was $6,769,000 and adjusted net loss, adding back the goodwill amortization for the period, would have been $6,238,000. The adjusted net loss would have had no impact to the Company's basic and diluted net loss per share. In August, 2001, the FASB released SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective in 2002. SFAS No. 144 establishes standards for accounting for impairment of long-lived assets used by an entity or held for sale, and provides guidance on developing estimates of cash flows and fair values used in measuring impairments. 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 a number of 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 and the gallium arsenide integrated circuit and materials industries, sales growth of the wireless handset industry, the impact of competitive products and pricing, availability of third party components and wafer substrates, availability of integrated circuit fabrication facilities, cost and yields associated with production of the Company's CyberDisplay imaging devices and HBT transistor wafers, loss of significant customers, acceptance of our products, continuation of 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 our Annual Report on 10K for the fiscal year ended December 31, 2001. 10
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. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS On April 25, 2002, the Company held an Annual Meeting of Stockholders to consider and vote upon the following three proposals: (1) A proposal to elect six (6) directors of the Company to serve until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified. (2) A proposal to ratify an amendment to the Company's 2001 Equity Incentive Plan to increase the number of shares authorized for issuance under the plan. (3) A proposal to ratify the appointment of Deloitte & Touche LLP as independent public accountants of the Company for the current fiscal year. Results with respect to the voting on each of the proposals were as follows: For Withheld Authority ---------- ------------------ Proposal 1: John C.C. Fan 50,125,651 11,398,477 David E. Brook 49,707,454 11,816,674 Andrew H. Chapman 60,569,162 954,966 Morton Collins 60,569,324 954,804 Chi Chia Hsieh 60,223,685 1,300,443 Michael A. Wall 60,552,468 971,660 Proposal 2: 40,894,347 votes for; 20,376,865 votes against; 252,916 abstentions; and 0 broker non-votes. Proposal 3: 60,860,502 votes for; 527,804 votes against; 135,822 abstentions; and 0 broker non-votes. 11
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 14, 2002 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 14, 2002 By: /s/ Richard A. Sneider -------------------------------- Richard A. Sneider Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 12