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 31, 2001 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, 2001 ----- -------------------------------- Common Stock, par value $.01 64,931,888
KOPIN CORPORATION INDEX ----- Page No. ------- PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets at March 31, 2001 and 3 December 31, 2000 Consolidated Statements of Operations and Comprehensive 4 Income (Loss) for the three months ended March 31, 2001 and April 1, 2000 Consolidated Statements of Stockholders' Equity for the 5 three months ended March 31, 2001 and April 1, 2000 Consolidated Statements of Cash Flows for the three 6 months ended March 31, 2001 and April 1, 2000 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial 8 Condition 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 2
KOPIN CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) <TABLE> <CAPTION> March 31, 2001 December 31, 2000 ---------------- ----------------- <S> <C> <C> Assets Current assets: Cash and equivalents $ 4,640,782 $ 13,332,973 Marketable securities, at fair value 63,662,306 59,847,124 Accounts receivable, net of allowance of $550,000 Billed 8,517,585 14,365,808 Unbilled 864,787 467,540 Inventory 8,978,377 5,711,617 Refundable Taxes 4,626,650 5,505,000 Prepaid expenses and other current assets 6,607,856 4,336,724 ------------ ------------ Total current assets 97,898,344 103,566,786 Equipment and improvements: Land 739,143 758,393 Buildings 1,702,557 1,749,589 Equipment 51,008,622 48,598,638 Leasehold improvements 2,399,831 2,410,651 Furniture and fixtures 524,638 515,750 Equipment under construction 19,281,265 19,993,112 ------------ ------------ 75,656,056 74,026,133 Accumulated depreciation and amortization 27,404,821 24,935,045 ------------ ------------ 48,251,235 49,091,088 Other assets 15,688,128 15,521,801 Goodwill, net 14,345,438 14,748,366 Intangible assets 1,347,416 1,562,629 ------------ ------------ Total assets $177,530,560 $184,490,670 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 9,531,914 $ 9,892,554 Accrued payroll and expenses 827,833 1,398,353 Other accrued liabilities 2,927,763 2,938,434 Current portion of long-term obligations 1,000,000 1,000,000 ------------ ------------ Total current liabilities 14,287,510 15,229,341 Long-term obligations, less current portion 1,000,000 1,250,000 Minority interest 1,286,794 1,234,764 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: 64,933,011 shares in 2001 and 64,681,116 shares in 2000 649,330 646,811 Additional paid-in capital 217,012,045 216,274,520 Deferred compensation (41,260) (55,015) Accumulated other comprehensive income 523,430 328,395 Deficit (57,187,289) (50,418,146) ------------ ------------ Total stockholders' equity 160,956,256 166,776,565 ------------ ------------ Total liabilities and stockholders' equity $177,530,560 $184,490,670 ============ ============ </TABLE> See notes to consolidated financial statements. 3
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended ------------------ March 31, 2001 April 1, 2000 -------------- ------------- Revenues: Product revenues $ 14,410,732 $ 19,310,263 Research and development revenues 562,499 429,500 ------------ ------------ 14,973,231 19,739,763 Expenses: Cost of product revenues 16,369,403 13,977,048 Research and development 3,123,233 3,101,867 Selling, general and administrative 3,094,928 1,626,536 Other 117,257 87,900 ------------ ----------- 22,704,821 18,793,351 ------------ ----------- Income (loss) from operations (7,731,590) 946,412 Other income and expense: Interest and other income 1,113,333 1,439,063 Interest expense (91,836) (85,886) ------------ ----------- Income (loss) before minority interest (6,710,093) 2,299,589 Minority interest in income of subsidiary (59,050) (26,847) ------------ ----------- Net income (loss) ($6,769,142) $ 2,272,742 ============ =========== Net income (loss) per share: Basic ($ .10) $.04 ============ =========== Diluted ($ .10) $.03 ============ =========== Weighted average number of common shares outstanding: Basic 64,886,242 62,003,110 ============ =========== Diluted 64,886,242 68,019,242 ============ =========== CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Three Months Ended ------------------ March 31, 2001 April 1, 2000 -------------- -------------- Net income (loss) ($6,769,142) $2,272,742 Foreign currency translation 33,271 15,447 adjustments Unrealized gain (loss) on marketable securities, net 161,764 (98,371) ----------- ---------- Comprehensive income (loss) ($6,574,107) $2,189,818 =========== ========== See notes to consolidated financial statements. 4
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 2001 AND APRIL 1, 2000 (UNAUDITED) <TABLE> <CAPTION> Accumulated Common Stock Additional Other ------------------- Paid-in Deferred Comprehensive Shares Amount Capital Compensation Income Deficit Total ---------- -------- ------------ ------------ ----------- ------------- ------------ <S> <C> <C> <C> <C> <C> <C> <C> 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, net -- -- -- -- (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 ========== ======== ============ ========= ======== ============ ============ 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 $160,956,256 ========== ======== ============ ========= ======== ============ ============ </TABLE> See notes to consolidated financial statements. 5
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three months ended ------------------ March 31, 2001 April 1, 2000 -------------- ------------- Cash flows from operating activities: Net income (loss) ($ 6,769,142) $ 2,272,742 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 3,057,527 1,452,503 Amortization of compensation relating to grant of stock options 13,755 13,755 Minority interest in income of subsidiary 59,050 26,847 Changes in assets and liabilities: Accounts receivable 5,422,832 (1,808,816) Inventory (3,299,240) 1,994,298 Prepaid expenses and other current assets (1,398,615) 408,597 Intangible assets 215,213 (107,488) Accounts payable and accrued expenses (750,880) 328,722 ------------ ------------ Net cash provided by (used in) operating activities (3,449,498) 4,581,160 ------------ ------------ Cash flows from investing activities: Marketable securities (3,620,148) (11,305,525) Other assets (170,223) (1,589,900) Capital expenditures (1,890,979) (1,882,622) ------------ ------------ Net cash used in investing activities (5,681,350) (14,778,047) ------------ ------------ Cash flows from financing activities: Principal payment on long-term obligations (250,000) (862,135) Proceeds from exercise of stock options 740,044 4,397,791 ------------ ------------ Net cash provided by financing activities 490,444 3,535,656 ------------ ------------ Effect of exchange rate changes on cash (51,386) 36,009 ------------ ------------ Net increase (decrease) in cash and equivalents (8,692,190) (6,625,222) Cash and equivalents, beginning of period 13,332,973 65,981,848 ------------ ------------ Cash and equivalents, end of period 4,640,783 $ 59,356,626 ============ ============ Supplementary information - Interest paid in cash $ 108,391 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 31, 2001 and April 1, 2000 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, 2000. 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. ("Kowon"), a majority owned (67%) subsidiary located in Korea. All inter-company transactions and balances have been eliminated. All share data, income per share, and related information for 2000 and 2001 give retroactive effect to the 2 for 1 stock split effected in the form of a stock dividend for shareholders of record as of June 30, 2000, which was effected on July 12, 2000. All share data, income per share, and related information for 2000 was also given retroactive effect to the 2 for 1 stock split effected in the form of a stock dividend for shareholders of record as of December 20, 1999, which was 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 $49,510 of unrealized gain at March 31, 2001. 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. 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 did not have a material effect on financial position or results of operations. The Securities and Exchange Commission ("SEC") has released staff accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", which sets forth their views regarding revenue recognition. The Company believes its revenue recognition practices are in compliance with this bulletin. 5. SUBSEQUENT EVENT ---------------- On May 4, 2001 Micrel Incorporated ("Micrel") announced that it had agreed to acquire Kendin Communication, Inc., subject to customary closing conditions including pending anti-trust review under the Hart Scott Rodino act. In connection with the transaction Kopin will exchange its approximately 20% interest in Kendin for approximately 1,100,000 shares of Micrel. 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 III-V products which principally consist of our Heterojunction Bipolar Transistor ("HBT") transistors. For the three month period ended March 31, 2001, we had product revenues of $14.4 million, or 96.2% of total revenues compared to $19.3 million, or 97.8% of total revenues for the same period in 2000. We began shipping our CyberDisplay product in 1998. This product line represented 25% of our product revenues for the three months ended March 31, 2001 compared to 14.9% for the same period in 2000. Research and development revenues consist primarily of development contracts with agencies of the U.S. government. For the three months ended March 31, 2001, research and development revenues were $.5 million, or 3.8% of total revenues compared to $.4 million, or 2.2% of total revenues for the same period in 2000. RESULTS OF OPERATIONS REVENUES. Our total revenues for the three months ended March 31, 2001 were $15.0 million, compared to $19.7 million for the three months ended April, 2000. This represented a decrease of approximately $4.7 million or 23.9% from the comparable period in 2000. Our product revenues were $14.4 million for the three months ended March 31, 2001 compared to $19.3 million for the same period in 2000, a decrease of approximately $4.9 million or 25.4%. For the three months ended March 31, 2001, III-V product sales and CyberDisplay product sales were $10.8 million and $3.6 million, respectively, as compared to $16.4 million and $2.9 million, respectively, for the three months ended April 1, 2000. Research and development revenues for the three months ended March 31, 2001 were $.5 million compared to $.4 million for the same period in 2000. For the year ending December 31, 2001 we expect a decline in III-V product revenues as a result of worldwide inventory accumulation in the supply chain of wireless handsets and related components. In addition industry analysts believe there will be a slowing of worldwide sales growth rates of wireless handsets which may decrease the rate of consumption of the inventory in the supply chain. COST OF PRODUCT REVENUES. Cost of product revenues, which is comprised of materials, labor and manufacturing overhead related to our products, was $16.4 million for the three months ended March 31, 2001 compared to $14.0 million during the corresponding period in 2000. This represented an increase of $2.4 million, or 17.1% for the three months ended March 31, 2001. Cost of product revenues for the three months ended March 31, 2001 and April 1, 2000 was 114% and 72.4%, respectively. For the three months ended March 31, 2001 and April 1, 2000, cost of product revenues as a percentage of sales was 109% and 70.8%, respectively. The increase in cost of product revenues as a percentage of sales for the three month period March 31, 2001 as compared to the three month period April 1, 2000 was primarily the result of fixed costs being leveraged over a lower sales volume. RESEARCH AND DEVELOPMENT. Research and development expenses (R&D) are incurred under development programs for III-V 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 $.3 million for the three months ended March 31, 2001 compared to $.4 million for the same period in the prior year, a decrease of $.1 million. Internal R&D was $2.8 million for the three months ended March 31, 2001 compared to $2.6 million during the corresponding period in 2000. 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 $3.1 million for the three months ended March 31, 2001 and $1.6 million during the corresponding period in 2000. The increase in S,G&A was primarily due to the increase in goodwill amortization of $.5 million, resulting from the purchase of Super Epitaxial Products, Inc., depreciation expense of $.2 million and legal and patent maintenance of $.6 million. In addition, S,G&A expenses include non-cash charges for compensation expense of $13,755 for both three month periods ended March 31, 2001 and April 1,2000, relating to the issuance of certain stock options. OTHER. Other expenses, primarily amortization of patents and licenses, were $.1 million for the three month periods ended March 31, 2001 compared to $.1 million during the corresponding period in 2000. 8
OTHER INCOME, NET. Other income, net was $1.0 million for the three months ended March 31, 2001 compared to $1.3 million during the corresponding period in 2000. Interest income earned during the three months ended March 31, 2001 was $1.1 million. 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 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 March 31, 2001, we had cash and equivalents and marketable securities of $68.1 million and working capital of $83.4 million compared to $73.2 million and $110.4 million, respectively, as of April 1, 2000. The decrease in cash and equivalents and marketable securities was primarily due to cash used in operations of $3.5 million, capital and investment expenditures of $2.0 million and principal payments on long-term obligations of $.25 million, partially offset by proceeds from the exercise of stock options of $.7 million. The increase in capital expenditures is primarily for our expansion programs to increase manufacturing capacity for our III-V and display products. We periodically enter into long-term debt arrangements to finance equipment purchases and other activities. As of March 31, 2001, debt obligations totaled $2.0 million, of which $1.0 million is payable in the next twelve months. On May 4, 2001, Micrel Incorporated ("Micrel") announced that it had agreed to acquire Kendin Communication, Inc. ("Kendin"), subject to customary closing conditions including pending anti-trust review under the Hart Scott Rodino act. In connection with the transaction Kopin will exchange its approximately 20% interest in Kendin for approximately 1,100,000 shares of Micrel. Our CyberDisplay products are targeted at 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 achieving significant sales volumes and 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 our facilities located in Taunton and Westborough, Massachusetts, Los Gatos, California, and Columbia, Maryland, under non-cancelable operating leases. The Taunton leases expire in May 2002 and 2010. The Westborough lease expires in October 2003, with renewable options for up to one additional year at our election. The Los Gatos lease covers a five year period terminating in November, 2002. We will make lease payments of approximately $6.1 million per year over the remaining terms of these leases. We expect to expend approximately $10 million on capital expenditures over the next twelve months, primarily for the acquisition of equipment relating to the production of our III-V products and the manufacturing, packaging and testing of CyberDisplay products. 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 did not have a material effect on financial position or results of operations. The Securities and Exchange Commission ("SEC") has released staff accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", which sets forth their views regarding revenue recognition. The Company believes its revenue recognition practices are substantially in compliance with this bulletin. 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 amount of worldwide inventory of wireless handsets and related components, the impact of competitive products and pricing, availability of third party components and wafer substrates, availability of integrated circuit fabrication 9
facilities, cost and yields associated with production of our CyberDisplay imaging devices and HBT transistor wafers, successful completion and operation of our second gallium arsenide fabrication facility, loss of significant customers, acceptance of our products, continuation of strategic relationships, changes in foreign currency exchange rates, the closing conditions upon which the completion of the acquisition of Kendin are subjected, factors which may affect the value of the shares of Micrel to be received in the merger and the risk factors and cautionary statements listed from time to time in our periodic reports and registration statements filed with the Securities and Exchange Commission, including but not limited to our Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 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 5. Other Events On March 7, 2001, Kopin filed a report on Form 8-K containing its press release dated February 15, 2001 relating to Kopin's financial results for the fourth quarter and year ended December 31, 2000. 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, 2001 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, 2001 By: /s/ Richard A. Sneider ---------------------- Richard A. Sneider Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 10