Kopin Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended July 1, 2023; comparisons are to the periods ended June 25, 2022. Amounts below are U.S. dollars.
Business context
Kopin develops and sells miniature displays, optical lenses, modules and related products for defense, industrial and consumer applications, and earns revenue from research and development (R&D), licenses and royalties. The company reports as one operating segment.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $10.46 million | $11.91 million | $21.22 million | $23.49 million |
| Operating loss | $4.84 million | $5.47 million | $7.66 million | $11.55 million |
| Net loss attributable to Kopin | $8.18 million | $5.65 million | $10.81 million | $7.02 million |
| Loss per share, basic and diluted | $0.07 | $0.06 | $0.10 | $0.08 |
- Q2 revenue declined about 12%; first-half revenue declined about 10%. Product revenue fell to $6.01 million in Q2 and $13.67 million in the first half.
- Q2 product gross profit was approximately $0.31 million, or 5% of product revenue, versus $1.10 million, or 12%, in the prior-year quarter. First-half product gross profit was approximately $1.34 million, or 10% of product revenue, versus a $0.18 million loss, or negative 1%, a year earlier.
- Operating losses narrowed, but net losses increased, primarily because Q2 2023 included $3.33 million of investment losses, including an approximately $3.1 million impairment. The prior-year first half included a $4.7 million investment gain.
- Cash used in operating activities was $7.99 million in the first half, compared with $11.44 million in the prior-year period. Cash and cash equivalents were $10.11 million; marketable debt securities were $15.56 million. Together these totaled $25.67 million at July 1, 2023, versus $12.65 million at year-end 2022. Working capital was $31.0 million.
- The company reported no conventional borrowing balance in the supplied statements. Operating lease liabilities totaled $2.98 million ($0.80 million current). Total liabilities were $19.44 million and stockholders’ equity was $35.93 million.
Material changes and notable items
- Defense revenue declined in Q2, mainly due to lower sales for pilot helmets and thermal weapon sights. Industrial and consumer revenue also decreased. Q2 R&D revenue rose, but first-half R&D revenue fell as certain defense programs moved from development to production.
- SG&A increased to $6.47 million in Q2 from $4.33 million, and to $11.11 million in the first half from $8.79 million. Kopin cited legal, stock-compensation and credit-loss expenses. Its allowance for credit losses rose to $1.10 million from $0.30 million at year-end.
- In January 2023, Kopin sold 17 million common shares and issued pre-funded warrants for up to 6 million additional shares, receiving approximately $21.3 million net proceeds. This strengthened liquidity but increased potential shareholder dilution.
- Kopin transferred certain OLED technology and two customer development contracts to Lightning Silicon Technology (LST), receiving an equity interest and potential royalties. The LST shares were assigned no fair value by Kopin at the transaction date and at July 1, 2023. Former executives and approximately 20 employees joined LST.
Outlook, risks and contingencies
- Management believes available cash and cash equivalents will support current operating plans for at least 12 months from issuance of the financial statements. It cautions that weaker-than-projected results could require further equity financing, expense reductions or a strategic transaction; none is assured. The company may consider raising capital when conditions are favorable.
- Kopin expects 2023 capital expenditures of $1 million to $2 million and expects to continue investing in R&D, even during unprofitable periods. Management warns that continued losses and negative operating cash flow could require expense reductions or additional capital.
- Remaining performance obligations were $14.6 million, expected to be recognized over the next 12 months; government contracts may be canceled.
- Risks include semiconductor and raw-material availability, customer program transitions, foreign-exchange movements, competition and the ability to reach profitability. Kopin does not currently hedge foreign-currency risk.
- BlueRadios litigation remains pending, with trial scheduled for January 22–February 5, 2024. Kopin said a loss was not considered probable and recorded no accrual; the filing does not quantify potential exposure.
Important facts for investors to verify
- Whether revenue and product margins recover as defense programs transition to production, and how customer demand develops across defense, industrial and consumer markets.
- Whether operating cash use and losses remain consistent with management’s 12-month liquidity assessment, including the effects of future financing or spending decisions.
- The status and potential dilution from the pre-funded warrants and any additional equity issuance.
- The valuation and performance of equity investments after the 2023 impairment, and any future royalties or milestones under the LST agreements.
- Developments in the BlueRadios case and any change in the likelihood or estimability of a loss.