Kopin Corporation — FY2019 Form 10-K
Business context and reporting period. This annual report covers the 52-week fiscal year ended December 28, 2019. Kopin develops and sells miniature displays, components and subassemblies, principally for military and industrial uses, alongside research and development contracts and technology licenses. In 2019 it shifted toward display products, sold and licensed its Solos and Whisper assets, and reported one operating segment.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $29.5 million | $24.5 million |
| Net product revenue | $20.3 million | $19.2 million |
| Operating loss | $26.4 million | $40.0 million |
| Net loss attributable to Kopin | $29.5 million | $34.5 million |
| Loss per share, diluted | $0.37 | $0.47 |
| Cash used in operating activities | $21.0 million | $28.1 million |
| Cash and marketable debt securities | $21.8 million | $37.2 million |
| Working capital | $22.5 million | $39.0 million |
- Cost of product revenue was $20.9 million, exceeding net product revenue; product gross margin was approximately negative 3.0%, versus positive 17.6% in FY2018. Management cited lower yields during initial Family of Weapon Sights production and inventory obsolescence.
- Research and development expense totaled $13.3 million, down from $17.4 million; selling, general and administrative expense was $21.3 million, down from $27.2 million.
- No conventional borrowing debt is identified in the supplied filing text. Operating lease liabilities totaled approximately $2.8 million, including $1.0 million current and $1.8 million noncurrent.
- Quarter ended December 28, 2019: revenue $8.7 million, gross profit $1.2 million, operating loss $3.6 million, and net loss attributable to Kopin $7.3 million.
Changes versus prior period and unusual items
- Revenue increased 21% year over year. Industrial application revenue rose to $9.7 million from $6.1 million; military revenue was essentially flat at $8.7 million. Consumer revenue declined to $1.8 million from $4.1 million, primarily due to lower demand for drone-racing headset components.
- Research and development and other revenue increased to $9.2 million from $5.3 million, including a $3.5 million one-time RealWear IP license fee. License and royalty revenue totaled $4.3 million.
- FY2019 non-operating expense included a $5.2 million impairment that reduced Kopin’s RealWear investment to zero, partly offset by investment gains. Total non-operating expense was $2.9 million, compared with $5.5 million of non-operating income in FY2018.
- Kopin received a 20% equity interest in Solos Inc. for the Solos and Whisper assets and recorded a $0.6 million gain. It may receive single-digit royalties on Solos product sales for three years after commercial production begins; the equity stake may be diluted if it does not participate in future financings after Solos raises $7.5 million.
- Kopin raised approximately $8.0 million gross through common-stock offerings in 2019. Outstanding shares increased; the filing reports 82.5 million shares outstanding at fiscal year-end.
Outlook, risks and contingencies
- Management expects negative operating cash flow in 2020, forecasts $1.5 million to $2.0 million in capital expenditures, and estimates available liquidity will fund operations at least through the end of 2020. The filing nevertheless states that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Additional equity financing, cost reductions or a strategic transaction may be needed; none is assured.
- Management expects significant 2020 development spending on OLED and military products. Remaining performance obligations were $9.3 million, expected to be recognized over the next 12 months, but relate to government contracts subject to cancellation.
- Key risks include dependence on a limited number of foundries and suppliers, customer concentration and cancellable orders, military procurement and funding, product yield and qualification, and the still-developing wearable market. The filing also flags potential coronavirus-related supply-chain and demand disruption in 2020.
- Disclosure controls and internal control over financial reporting were deemed ineffective at December 28, 2019 due to an unremediated material weakness in oversight of accounting for non-routine transactions, including investments and noncontrolling interests. The auditor issued an adverse opinion on internal controls but an unqualified opinion on the financial statements.
- Nasdaq had notified Kopin that its share price was below the $1 minimum bid requirement, with an April 6, 2020 deadline to regain compliance. Stockholders approved a reverse-split authorization in March 2020; the filing gives no assurance this would restore compliance.
- BlueRadios litigation involving contract, trade-secret and patent ownership allegations remained pending. Kopin said a loss was not considered probable and recorded no accrual; no trial date had been set.
Important facts for investors to verify
- Whether operating cash burn moderates and liquidity remains sufficient without further dilution or material cost reductions.
- Whether military-program production yields improve and the company secures program qualifications and orders.
- Whether OLED products reach commercial scale and generate meaningful revenue, and whether supplier capacity and costs are reliable.
- The durability of revenue excluding the one-time RealWear license fee, customer concentration, and any future RealWear royalties or recoveries.
- Progress remediating the material weakness, Nasdaq listing compliance, and developments in the BlueRadios case.