Kopin Corporation (Nasdaq: KOPN) — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022 (53 weeks), compared with fiscal 2021 ended December 25, 2021 (52 weeks). Kopin develops and sells application-specific microdisplays, optical components and subassemblies, and performs customer-funded development, principally for defense, industrial and consumer applications.
Key financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $47.4 million | $45.7 million |
| Operating loss | $21.8 million | $13.8 million |
| Net loss | $19.3 million | $13.5 million |
| Net loss per share, basic and diluted | $0.21 | $0.15 |
| Cash used in operating activities | $17.7 million | $10.7 million |
| Cash, cash equivalents and marketable securities | $12.6 million | $29.3 million |
| Working capital | $16.4 million | $34.7 million |
Product revenue was $32.4 million against product costs of $32.6 million, implying a slightly negative product gross margin. The filing does not provide a consolidated gross margin measure that combines product and development revenue. Cash and marketable securities fell by $16.6 million year over year. Total liabilities were $19.8 million; the filing reports operating lease liabilities of approximately $3.4 million and no off-balance-sheet arrangements. The company reported an accumulated deficit of $338.4 million.
Changes and notable items
- Revenue increased 3.8%, but operating loss widened by $8.0 million and net loss by $5.9 million.
- Defense application revenue rose to $24.8 million from $18.2 million. Industrial/enterprise revenue declined to $6.1 million from $9.7 million; consumer revenue declined to $1.5 million from $1.9 million. R&D revenue was $14.4 million, down slightly from $14.7 million.
- Product costs rose to $32.6 million from $25.1 million. Management cited lower production volumes and manufacturing efficiency, supply interruptions and higher material costs, and quality-related charges. The company recorded $2.1 million of excess-inventory write-offs and increased warranty reserves to $2.0 million from $0.5 million.
- R&D expense increased to $18.7 million from $16.3 million, including $8.4 million of internally funded R&D, primarily for OLED development.
- Other income included a $4.7 million gain from revaluing an equity investment and a $2.0 million impairment charge. Total non-operating income was $2.6 million.
Outlook, risks and contingencies
- Management expected negative operating cash flow in 2023 and estimated liquidity would fund operations at least through the first quarter of 2024, while noting further financing might be needed. The filing also states that cash, cash equivalents and January 2023 offering proceeds were expected to cover current operating plans for at least 12 months from issuance of the financial statements.
- On January 27, 2023, Kopin raised $22.9 million gross, approximately $21.4 million net, through the sale of 17 million common shares and pre-funded warrants for up to 6 million additional shares. This provided liquidity but represents substantial potential dilution.
- In January 2023, Kopin licensed certain OLED technology and transferred development contracts to Lightning Silicon Technology in exchange for a 20% equity interest and royalties on licensed products. Kopin retained OLED rights for specified core markets. The transaction involved the company’s chairman, a former CEO, who founded Lightning Silicon, and other former executives.
- Management cited intermittent semiconductor and raw-material shortages, dependence on foundries in Taiwan and China, geopolitical and supplier risks, inflation, and fixed-price contract cost-overrun exposure. The company reported 2022 quality problems on the FWS-I program that led to shipment suspensions while production processes were modified.
- Revenue and profitability depend on defense program qualification, customer orders and government funding; customer orders are generally short-term and often cancellable. Remaining performance obligations were $19.3 million, expected to be recognized within 12 months, but government contracts may be cancelled.
- BlueRadios litigation remains pending. The court dismissed several claims in 2022 but allowed others to proceed; no trial date had been set. Kopin did not accrue a loss because it had not concluded a loss was probable and estimable.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor was not engaged to provide an opinion on internal control.
Investor verification priorities
- Track cash burn, post-offering liquidity, and whether actual results support management’s stated funding horizon.
- Assess the dilution from the January 2023 share and warrant issuance and any further use of the remaining ATM capacity.
- Monitor product margins, inventory write-offs, warranty claims and resolution of FWS-I quality and shipment issues.
- Verify whether defense program awards, qualifications and customer demand convert into sustained product shipments and cash collections.
- Review the valuation, governance and related-party terms of the Lightning Silicon transaction, and the status of the BlueRadios dispute.