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 October 2, 1999 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 -------------- Not Applicable -------------- Former name, former address, and former fiscal year, if changed since last report 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 October 29, 1999 ----- ---------------------------------- Common Stock, par value $ .01 14,955,778
KOPIN CORPORATION INDEX ----- <TABLE> <CAPTION> Page No. ------- <S> <C> PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets at 3 October 2, 1999 and December 31, 1998 Consolidated Statements of Operations and Comprehensive Income (Loss) 4 for the Three and Nine months ended October 2, 1999 and September 26, 1998 Consolidated Statements of Stockholders' Equity for the 5 Nine months ended October 2, 1999 and September 26, 1998 Consolidated Statements of Cash Flows for the 6 Nine months ended October 2, 1999 and September 26, 1998 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 12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 </TABLE> 2
KOPIN CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited) <TABLE> <CAPTION> October 2, 1999 December 31, 1998 --------------- ----------------- <S> <C> <C> ASSETS - ------ Current assets: Cash and equivalents $ 19,297,800 $ 30,807,335 Marketable securities 8,271,206 6,000,883 Accounts receivable, net of allowance of $150,000 Billed 8,842,943 2,743,211 Unbilled 1,447,417 910,787 Inventory 5,621,322 3,337,178 Prepaid expenses and other current assets 1,184,309 743,069 -------------- ------------- Total current assets 44,664,997 44,542,463 Equipment and improvements: Equipment 27,133,518 24,953,456 Leasehold improvements 808,884 808, 884 Furniture and fixtures 435,526 426,084 Equipment under construction 6,996,342 25,131 -------------- ------------- 35,374,270 26,213,555 Accumulated depreciation and amortization 19,583,564 16,867,698 -------------- ------------- 15,790,706 9,345,857 Other assets 6,286,942 6,173,153 Intangible assets 1,799,334 1,844,148 -------------- ------------- Total assets $68,541,979 $61,905,621 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 6,280,646 $ 1,728,596 Accrued payroll and expenses 434,608 541,732 Other accrued liabilities 1,484,074 913,908 Current portion of long-term obligations 1,995,433 1,999,494 -------------- ------------- Total current liabilities 10,194,761 5,183,730 Long-term obligations, less current portion 2,930,980 4,209,474 Minority interest 717,372 665,994 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, 20,000,000 shares; issued, 12,648,147 shares in 1999 and 12,268,561 shares in 1998 126,481 122,686 Additional paid-in capital 111,817,117 108,954,779 Deferred compensation (123,790) (165,055) Accumulated other comprehensive income 367,252 420,812 Deficit (57,488,194) (57,486,799) ------------ ------------ Total stockholders' equity 54,698,866 51,846,423 ------------ ------------ Total liabilities and stockholders' equity $68,541,979 $61,905,621 ============ ============ </TABLE> See notes to consolidated financial statements. 3
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> (unaudited) Three Months Ended Nine Months Ended ------------------ ----------------- October 2, September 26, October 2, September 26, ---------- ------------- ---------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Revenues: Product revenues $ 9,191,188 $ 6,957,162 $23,102,252 $17,284,741 Research and development revenues 545,093 878,745 1,978,026 2,701,650 ----------- ----------- ----------- ----------- 9,736,281 7,835,907 25,080,278 19,986,391 ----------- ----------- ----------- ----------- Costs and expenses: Cost of product revenues 7,162,856 4,126,560 16,984,338 10,361,425 Research and development 1,550,513 2,400,476 4,897,327 7,459,697 Selling, general, and administrative 1,525,932 1,174,315 3,869,929 3,300,442 Other 89,816 97,574 269,091 285,204 ----------- ----------- ----------- ----------- 10,329,117 7,798,925 26,020,685 21,406,768 ----------- ----------- ----------- ----------- Income (loss) from operations (592,836) 36,982 (940,407) (1,420,377) Other income and expense: Interest and other income 374,814 544,707 1,316,450 1,472,291 Interest expense (85,622) (127,432) (301,782) (383,591) ----------- ----------- ----------- ----------- Income (loss) before minority interest (303,644) 454,257 74,261 (331,677) Minority interest in income of (50,141) - (75,656) - subsidiary ----------- ----------- ----------- ----------- Net income (loss) ($ 353,785) $ 454,257 ($ 1,395) ($ 331,677) =========== =========== =========== =========== Net income (loss) per share - Basic ($.03) $.04 $.00 ($.03) =========== =========== =========== =========== Net income (loss) per share - Diluted ($.03) $.03 $.00 ($.03) =========== =========== =========== =========== Weighted average number of common shares outstanding: Basic 12,582,945 12,192,952 12,468,283 12,009,242 =========== =========== =========== =========== Diluted 12,582,945 13,001,328 12,468,283 12,009,242 =========== =========== =========== =========== </TABLE> CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) <TABLE> <CAPTION> (unaudited) Three Months Ended Nine Months Ended ------------------ ----------------- October 2, September 26, October 2, September 26, ---------- ------------- ---------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net income (loss) ($ 353,785) $454,257 ($ 1,395) ($ 331,677) Foreign currency translation adjustments (96,047) (1,939) (45,092) 183,608 Unrealized gain (loss) on marketable securities, net 1,930 11,677 (8,468) 17,678 ---------- -------- --------- ---------- Comprehensive income (loss) ($ 447,902) $463,995 ($ 54,955) ($ 130,391) ========== ======== ========= ========== </TABLE> See notes to consolidated financial statements. 4
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Nine months ended October 2, 1999 and September 26, 1998 (unaudited) <TABLE> <CAPTION> Additional Accumulated Other Common Stock Paid-in Deferred Comprehensive ------------------ Shares Amount Capital Compensation Income (Loss) Deficit Total ------ ------- ------ ------------ ------------ ------- ----- <S> <C> <C> <C> <C> <C> <C> <C> Balance, December 31, 1997 11,122,143 $111,221 $ 90,514,233 ($231,955) ($ 6,001) ($54,518,912) $35,868,586 Issuance of common stock, net of costs of $1,829,000 1,000,000 10,000 17,161,418 -- -- -- 17,171,418 Exercise of stock options 91,526 916 870,948 -- -- -- 871,864 Amortization of compensation relating to grant of stock options -- -- -- 50,175 -- -- 50,175 Net unrealized gain on marketable securities -- -- -- -- 17,678 -- 17,678 Foreign currency translation adjustments -- -- -- -- 183,608 -- 183,608 Net loss for the nine month period ended September 26, 1998 -- -- -- -- -- (331,677) (331,677) ---------- -------- ------------ ---------- -------- ------------ ----------- Balance, September 26, 1998 12,213,669 $122,137 $108,546,599 ($181,780 $195,285 ($54,850,589) $53,831,652 ========== ======== ============ ========== ======== ============ =========== 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 379,586 3,795 2,862,338 -- -- -- 2,866,133 Amortization of compensation relating to grant of stock options -- -- -- 41,265 -- -- 41,265 Net unrealized loss on marketable securities -- -- -- -- (8,468) -- (8,468) Foreign currency translation adjustments -- -- -- -- (45,092) -- (45,092) Net loss for the nine month period ended October 2, 1999 -- -- -- -- -- (1,395) (1,395) ---------- -------- ------------ ---------- -------- ------------ ----------- Balance, October 2, 1999 12,648,147 $126,481 $111,817,117 ($ 123,790 $367,252 ($57,488,194) $54,698,866 ========== ======== ============ ========== ======== ============ =========== </TABLE> See notes to consolidated financial statements. 5
KOPIN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) <TABLE> <CAPTION> Nine Months Ended ----------------- October 2, 1999 September 26, 1998 --------------- ------------------ <S> <C> <C> Cash flows from operating activities: Net loss ($1,395) ($331,677) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,991,349 3,104,277 Amortization of compensation relating to grant of stock options 41,265 50,175 Decrease in deferred rent - (165,166) Minority interest in income of subsidiary 75,656 - Changes in assets and liabilities: Accounts receivable (6,647,744) (1,142,295) Inventory (2,292,815) (999,169) Prepaid expenses and other current assets (443,748) (77,465) Intangible assets (218,886) (381,585) Accounts payable and accrued expenses 5,018,853 691,055 ------------ ----------- Net cash provided by (used in) operating activities (1,477,465) 748,150 ------------ ----------- Cash flows from investing activities: Marketable securities (2,278,791) (2,591,078) Other assets (113,954) (1,051,608) Capital expenditures (9,203,774) (2,770,241) ------------ ----------- Net cash used in investing activities (11,596,519) (6,412,927) ------------ ----------- Cash flows from financing activities: Net proceeds from issuance of common stock - 17,171,418 Net proceeds from issuance of subsidiary stock - 383,583 Principal payment on notes payable - (450,000) Proceeds from long-term obligations - 5,000,000 Principal payment on long-term obligations (1,282,555) (1,648,783) Proceeds from exercise of stock options 2,866,133 871,864 ------------ ----------- Net cash provided by financing activities 1,583,578 21,328,082 ------------ ----------- Effect of exchange rate changes on cash (19,129) (19,901) ------------ ----------- Net increase (decrease) in cash and equivalents (11,509,535) 15,643,404 Cash and equivalents, beginning of period 30,807,335 14,425,400 ------------ ----------- Cash and equivalents, end of period $ 19,297,800 $30,068,804 ============ =========== Supplementary information -Interest paid in cash $327,723 $362,661 </TABLE> See notes to consolidated financial statements. 6
KOPIN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION --------------------- The financial statements for the nine month periods ended October 2, 1999 and September 26, 1998 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. Certain reclassifications have been made to the September 26, 1998 amounts to conform to the 1999 presentation. 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, 1998 and our Form S-3 filed on October 22, 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. 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 the other comprehensive income and aggregate $369,400 of unrealized gain at October 2, 1999. 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 common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of common shares and common share equivalents outstanding during the period using the treasury stock method. Common share equivalents have not been included in any periods that the effect would be anti-dilutive. 4. LONG-TERM OBLIGATIONS --------------------- In March 1998, the Company entered into a $5,000,000 term loan which requires the Company to make quarterly principal payments of $250,000 plus interest at a floating rate based upon LIBOR. This term loan is secured by the Company's accounts receivable. 5. STOCKHOLDERS' EQUITY -------------------- In February 1998, the Company completed a public offering of 2,000,000 shares of common stock at a price of $19.00 per share. Of the total shares sold, 1,000,000 shares were sold by Kopin and the other 1,000,000 shares were sold by a shareholder. Net proceeds to the Company totaled approximately $17,171,000. 6. 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 the Company has not yet been determined. 7
7. SUBSEQUENT EVENT ---------------- On October 27, 1999, the Company completed a public offering of 2,300,000 shares of common stock at a price of $33.94 per share. Net proceeds to the Company from the sale of 2,300,000 shares of common stock totaled approximately $73,200,000. 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 displays. The Company was incorporated in 1984 to further develop and commercialize certain semiconductor expertise developed at MIT. Our primary revenue source since 1995 has been from the sales of our gallium arsenide products, principally our Heterojunction Bipolar Transistor ("HBT") transistor wafers. We have been unprofitable annually since inception and, at October 2, 1999, we had an accumulated deficit of $57,488,194. Results of Operations Revenues. Our total revenues increased $1,900,374 for the three months and $5,093,887 for the nine months ended October 2, 1999 to $9,736,281 and $25,080,278 for the three and nine months ended October 2, 1999 compared to $7,835,907 and $19,986,391 during the corresponding periods in 1998, respectively. This represented 24.3% and 25.5% increases in revenue for the three and nine months ended October 2, 1999, respectively. Our product revenues were $9,191,188 and $23,102,252 for the three and nine months ended October 2, 1999 compared to $6,957,162 and $17,284,741 for the three and nine months ended September 26, 1998, increases of $2,234,026 or 32.1% and $5,817,511 or 33.7%, respectively. The increase in sales of our gallium arsenide products principally resulted from an increase in sales of HBT transistors. Research and development revenues decreased 38.0% to $545,093 for the three months ended October 2, 1999 compared to $878,745 during the corresponding period in 1998 and decreased 26.8% to $1,978,026 for the nine months ended October 2, 1999 compared to $2,701,650 for the same period in the prior year. As a result of the expirations of multi- year contracts with the federal government and our increased emphasis on product revenues, we believe that research and development revenues will decline as a percentage of total revenues for the near future. Cost of Product Revenues. Cost of product revenues, which is comprised of materials, labor and manufacturing overhead related to our products, was $7,162,856 for the three months ended October 2, 1999 compared to $4,126,560 for the same period in the prior year. Cost of product revenues was $16,984,338 for the nine months ended October 2, 1999 compared to $10,361,425 for the same period in the prior year. The increase in cost of product revenues as a percentage of product revenues in 1999 is attributable to increased production staffing as we increase production capacity, re-deploy certain assets and personnel previously involved in development activities to manufacturing activities, and Cyberdisplay sales increase as a percentage of our total sales. Cyberdisplay products have a lower gross margin as compared to gallium arsenide products. (See "Liquidity and Capital Resources.") Research and Development. Research and development expenses (R&D) are incurred under development programs for display devices and products and gallium arsenide products either in support of internal development programs or programs funded by agencies of the federal government. R&D costs include staffing, purchases of materials and laboratory supplies, and overhead. Funded research and development expenses were $923,180 and $2,671,945 for the three and nine months ended October 2, 1999 compared to $983,818 and $3,299,968 for the same periods in the prior year, decreases of $60,638 and $628,023, respectively, associated with reduced subcontractor expenses caused by the expiration of multi-year contracts with agencies of the federal government. Internal research and development expenses were $627,333 and $2,225,382 for the three and nine months ended October 2, 1999 compared to $1,416,658 and $4,332,729 during the corresponding periods in 1998. The decrease in internal R&D was the result as we re-deploy certain assets and personnel from development activities into manufacturing activities. 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 $1,525,932 for the three months ended October 2, 1999 compared to $1,174,315 during the corresponding period in 1998, an increase of $351,617. S,G&A was $3,869,929 for the nine months ended October 2, 1999 compared to $3,300,442 during the corresponding period in 1998, an increase of $569,487. The increase in S,G&A is primarily due to increases in headcount in the sales and marketing staff and significant travel associated with supporting new customer activities. Other. Other expenses were $89,816 and $269,091 for the three and nine months ended October 2, 1999 compared to $97,574 and $285,204 during the corresponding periods in 1998. 9
Other Income, Net. Other income, net was $289,192 and $1,014,668 for the three and nine months ended October 2, 1999 compared to $417,275 and $1,088,700 during the corresponding periods in 1998. The decrease was primarily due to a decrease in interest and other income to $374,814 for the three months ended October 2, 1999 compared to $544,707 for the corresponding period in 1998. Interest and other income was $1,316,450 for the nine months ended October 2, 1999 compared to $1,472,291 in the corresponding period in 1998. The decrease in interest income earned during the three months ended October 2, 1999 was due to lower cash balances available for investing as we fund the expansion of our gallium arsenide and display products manufacturing capacity. Interest expense decreased $41,810 and $81,809 for the three and nine months ended October 2, 1999 from the corresponding periods in 1998 due to the expiration of certain debt obligations. 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. Subsequent to the quarter ended October 2, 1999, we completed a public offering of 2,300,000 shares of common stock at a price of $33.94 per share on October 27, 1999. Net proceeds to us from the sale of 2,300,000 shares of common stock totaled approximately $73,200,000. We believe our available cash resources will support our operations and capital needs. As of October 2, 1999, we had cash and equivalents and marketable securities of $27,569,006 and working capital of $34,470,236 compared to $36,808,218 and $39,358,733, respectively, as of December 31, 1998. The decrease in cash and equivalents and marketable securities was primarily due to cash used in operations of $1,477,465, capital expenditures of $9,203,774, and principal payments on long-term obligations of $1,282,555, offset by proceeds from the exercise of stock options of $2,866,133. 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 various long-term debt arrangements to finance equipment purchases and other activities. As of October 2, 1999, long-term debt obligations totaled $4,926,413, of which $1,995,433 is payable in the next twelve months. The markets the CyberDisplay product is 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. In addition, we have spent approximately $5,000,000 and $7,000,000 annually in 1998 and 1997, respectively, to develop and improve CyberDisplay products. We believe that it will be necessary to continue to make significant investments in equipment and development in order to produce the current CyberDisplay product and later display products. As a result of the current cost structure of the CyberDisplay product line, the ability of the CyberDisplay product line to achieve profitability is dependent upon achieving significant sales volumes and reasonable gross profit margins. We have not yet produced the CyberDisplay product at volumes necessary to achieve profitability. Accordingly, we may not be able to obtain sufficient sales volumes, or if sufficient sales volumes are achieved, produce the CyberDisplay 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. The Taunton lease expires in October 2002. The Westborough lease expires in October 2001, with renewable options for up to three additional years at our election. The Los Gatos lease covers a five year period terminating in 2002. We record costs incurred under operating leases as rent expense and this expense aggregated approximately $1.1 million for 1998. 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 transistor wafers and the manufacturing, packaging and testing of CyberDisplay products, including the establishment of a second manufacturing production facility for our HBT transistor wafers. 10
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 the Company has not yet been determined. Year 2000 The Year 2000 issue refers to the potential for disruption to business activities caused by system failures or miscalculations that are triggered by advancement of date records past the year 1999. For example, if software that uses the calendar year in computations is not ready for the millennial calendar change, it may interpret a 21/st/ century date as a 20th century date (for example, mistaking 2001 for 1901). We have developed plans to address issues related to the impact on its systems from the "Year 2000 Problem". Financial and operational systems are being assessed and plans have been implemented to address systems modification requirements. Utilizing both internal and external resources to address the Year 2000 issue, we expect to be substantially complete with this project by the end of November 1999. The current estimate of total project cost is approximately $700,000, which includes the cost of purchasing certain equipment and software which will be capitalized in accordance with normal policy. The cost of equipment and software account for approximately 30 percent of the total estimated project cost while internal resources, primarily salary costs, are 30 percent of the cost and external resources are the remaining 40 percent. Approximately 90 percent of the total project cost has been spent through October 2, 1999, with remaining amount to be spent in 1999. The plan costs will be paid from cashflow generated from operations. The Year 2000 project will not result in the delay in implementation of any previously planned information technology projects. Our products, which are Year 2000 compliant, require high quality raw materials in order to achieve historical manufacturing yields and performance. We require suppliers to meet stringent quality standards before we will accept their product. We are continually performing an assessment of our key suppliers' Year 2000 readiness and their plans for becoming Year 2000 compliant. Although we have multiple suppliers for each raw material, failure by one or more key suppliers to achieve Year 2000 readiness could impact our ability to produce product at historical levels. In addition, certain critical raw material suppliers allocate capacity to us. Accordingly, there can be no assurance that if one or more suppliers are unable to meet their commitments to us, the remaining suppliers will be able to make-up the shortfall. We are developing of contingency plans, however, there can be no assurance that we will adequately address the Year 2000 problem, that any contingency plans we implement would be adequate to meet our needs without materially impacting our operations, that any such plan would be successful or that our results of operations and financial condition would not be materially and adversely affected by the delays and inefficiencies in conducting operations in an alternative manner. Future Operating Results 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, growth in the gallium arsenide integrated circuit and materials industries, growth in the wireless handset market, 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 device transistors, loss of significant customers, acceptance of the Company's products, continuation of strategic relationships, Year 2000 matters, changes in foreign currency exchange rates, 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, 1998 and our Form S-3 filed on October 22, 1999. 11
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 10.29 1992 Stock Option Amendment 27 Financial Data Schedule (b) Reports on Form 8-K: Item 5. Other Event On September 16, 1999, Kopin filed a report on Form 8-K containing its press release dated September 16, 1999 relating to new digital cameras featuring its color CyberDisplay and anticipated third quarter performance. 12
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: November 16, 1999 By: /s/ John C.C.Fan -------------------------------------- John C.C. Fan President, Chief Executive Officer and Chairman of the Board of Directors Date: November 16, 1999 By: /s/ Richard A. Sneider -------------------------------------- Richard A. Sneider Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 13