Kopin Corporation — Q3 2023 Form 10-Q
Business context and reporting period. Kopin develops and sells miniature displays, optical lenses, modules and related technologies for defense, industrial and consumer applications, and earns revenue from R&D contracts and licensing. This unaudited report covers the quarter and nine months ended September 30, 2023; comparisons are to periods ended September 24, 2022.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $10.60 million | $11.73 million | $31.82 million | $35.22 million |
| Operating loss | $2.73 million | $4.02 million | $10.39 million | $15.57 million |
| Net loss attributable to Kopin | $2.45 million | $6.15 million | $13.26 million | $13.17 million |
| Basic and diluted loss per share | $0.02 | $0.07 | $0.12 | $0.14 |
| Cash used in operating activities | Not separately stated | Not separately stated | $11.79 million | $15.60 million |
Margins and mix. Product revenue was $5.51 million in Q3 and $19.17 million year to date. Cost of product revenue was 99% of product revenue in Q3 and 93% year to date, versus 97% and 100%, respectively, in the prior periods. R&D revenue was $4.96 million in Q3 and $11.74 million year to date. The filing does not present a consolidated gross margin figure.
Liquidity and balance sheet. At September 30, cash and cash equivalents were $9.60 million, restricted cash $0.50 million, and marketable debt securities $11.61 million; combined, these totaled $21.71 million. Working capital was $29.3 million. Total liabilities were $20.24 million, including $2.77 million of operating lease liabilities; the filing reports no borrowings. Nine-month investing cash use was $7.71 million and financing cash provided was $21.34 million. Stockholders’ equity was $34.37 million.
Material changes versus prior comparable periods
- Q3 revenue declined about 10% year over year; nine-month revenue declined about 10%. Product revenue weakness in defense, industrial and consumer applications was partly offset by higher R&D revenue.
- Defense revenue was $5.00 million in Q3 and $16.48 million year to date, down from $5.85 million and $17.70 million. Management cited lower sales for pilot helmets and thermal weapon sights. Industrial and consumer revenue also declined, including lower 3D metrology, headset and handheld thermal-imager sales.
- R&D revenue rose to $4.96 million in Q3 and $11.74 million year to date. Management attributed the increase in part to a $1.9 million thermal-weapon-sight design sale; certain defense programs shifted from funded development toward production.
- Operating losses narrowed in both comparison periods. The Q3 net loss also improved substantially, partly because the prior-year quarter included a $1.0 million warranty charge and a $2.0 million investment impairment. Nine-month net loss was broadly similar year over year; the 2023 period included $3.3 million of investment impairment, while the 2022 period included a $4.7 million investment gain.
- Cash and marketable securities increased from $12.9 million at December 31, 2022, primarily following the January 2023 equity offering. Kopin issued 17 million common shares and pre-funded warrants for up to 6 million additional shares; gross proceeds were $22.9 million. The filing reports $21.34 million net financing proceeds. Shares outstanding were 114,449,134 as of November 3, 2023.
Outlook, risks and notable items
- Management believes existing cash and cash equivalents will support current operating plans for at least 12 months from issuance of the statements. It cautions that weaker-than-projected results or additional liquidity needs could require further equity financing, expense reductions or a strategic transaction; none is assured. About $41.4 million remained available under the ATM agreement.
- Management expects 2023 capital expenditures of $1.0 million to $2.0 million and continued investment in R&D, including display products, overlay weapon sights and OLED technologies. The filing gives no revenue or profitability guidance and warns that losses and negative operating cash flows may continue.
- The January 2023 LST agreements transferred certain OLED technology rights and two customer development contracts. Kopin received an 18 million-share preferred interest in LST, which it valued at zero, and may receive royalties. Former senior executives and approximately 20 employees joined LST.
- Net contract assets rose 66% from year-end to $5.19 million, primarily reflecting U.S. government fixed-price contracts and defense product revenue recognized over time. Remaining performance obligations were $14.2 million, expected to be recognized over the next 12 months; government-contract amounts are subject to cancellation.
- The BlueRadios litigation remains pending, with trial scheduled for January 22–February 5, 2024. Kopin said it had not concluded a loss was probable and recorded no accrual. The company also cited semiconductor sourcing, customer demand, competition, foreign exchange, staffing, and its ability to achieve positive cash flow and profitability as risks. It does not hedge foreign-exchange exposure.
- Management reported disclosure controls were effective as of September 30, 2023 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the revenue declines in defense, industrial and consumer markets persist, and whether development programs convert to production revenue.
- The timing and cash realization of the $14.2 million remaining performance obligations, including cancellation exposure, and the collectability of receivables; the allowance for credit losses rose to $1.025 million.
- Cash runway relative to operating cash burn, planned R&D and capital expenditures, and any need for additional financing or further dilution.
- The outcome and potential financial exposure of the BlueRadios trial, for which no loss accrual was recorded.
- Further changes in the value of equity investments and any royalties or milestones from the LST arrangements.