Kopin Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 24, 2022; comparisons are to the periods ended September 25, 2021. Kopin develops and sells miniature displays and optical components and licenses related intellectual property for defense, industrial/enterprise, and consumer applications. Results are unaudited.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $11.73 million | $10.89 million | $35.22 million | $32.47 million |
| Operating loss | $4.02 million | $2.05 million | $15.57 million | $10.16 million |
| Net loss attributable to Kopin | $6.15 million | $2.13 million | $13.17 million | $10.12 million |
| Loss per share, basic and diluted | $0.07 | $0.02 | $0.14 | $0.11 |
- Q3 revenue rose 8%; nine-month revenue rose 8%. Product revenue was $8.25 million in Q3 and $23.77 million year to date. Nine-month R&D and other revenue was $11.45 million.
- Product gross margin was approximately 3% in Q3 and effectively zero for the first nine months, versus 22% and 17%, respectively, in 2021. Management attributed the deterioration to supply-related inefficiencies, higher material costs, and a roughly $1.0 million warranty charge.
- Q3 operating expenses were $15.75 million, up from $12.93 million. Nine-month expenses were $50.78 million, up from $42.62 million, including higher R&D costs.
- Q3 included a $2.0 million impairment charge on an equity investment. Nine-month other income included a $4.7 million first-quarter investment remeasurement gain, partly offset by the Q3 impairment. These investment items affect comparisons of net loss.
Liquidity, cash flow, and capital
- At September 24, 2022, cash and equivalents were $9.63 million and marketable debt securities were $5.38 million, totaling $15.00 million, down from $29.30 million at December 25, 2021. Working capital was $21.4 million versus $34.7 million.
- Nine-month operating cash outflow was $15.60 million, compared with $9.05 million in 2021. Investing cash outflow was $4.12 million; financing cash inflow was $2.76 million. Cash declined by $17.16 million over the period.
- Total liabilities were $19.27 million, including $3.52 million of operating lease liabilities. The filing reports no conventional borrowing or debt balance.
- Kopin issued shares through its ATM program for about $2.9 million gross proceeds during the nine months; approximately $41.4 million remained available under the program. Capital expenditures were $0.64 million for the period; management expected full-year 2022 capex of $1–2 million.
Business changes and management commentary
- Defense revenue rose to $5.85 million for Q3 and $17.70 million for nine months, mainly from higher thermal weapon-sight shipments. Industrial revenue fell to $1.73 million for Q3 and $4.89 million year to date, with weaker headset and 3D metrology demand and component shortages. Consumer revenue was mixed: higher in Q3 but lower year to date, reflecting sporadic OLED orders. Nine-month R&D revenue increased, while Q3 R&D revenue declined as some customer programs moved into production.
- Supply shortages and price increases for semiconductors and other raw materials disrupted production and shipments. Kopin was redesigning certain products for alternative components; management warned disruptions could continue into Q4 2022 and beyond.
- Management cited operational improvements and curtailment of certain development programs as cash-preservation measures. It estimated liquidity would fund operations at least through Q4 2023, but stated that failure to meet projections could require further expense reductions, additional equity financing, or a strategic transaction.
- In October 2022, Kopin entered an agreement to invest $2.0 million in an Asian company, subject to completion of a development agreement and other actions; the investment was expected in Q4 2022.
Risks, contingencies, and unusual items
- The company disclosed that operating losses and cash outflows initially raised substantial doubt about its ability to continue as a going concern. Management’s liquidity estimate depends on projected results and planned cash-preservation actions; there is no assurance these will be sufficient.
- Kopin depends principally on a Taiwanese foundry for integrated circuits used in defense displays. The filing added geopolitical disruption involving China-Taiwan relations as a risk, alongside continuing semiconductor shortages and supplier dependence.
- The BlueRadios litigation remains pending. In August 2022, the court dismissed several claims and parts of others, but claims remain; no trial date was set. Kopin said a loss was not considered probable and recorded no accrual.
- Foreign-exchange exposure is not hedged. Remaining performance obligations were $20.6 million, expected to be recognized over the next 12 months, but government contracts may be canceled.
Most important facts for investors to verify
- Whether cash burn, operational improvements, and development-program reductions support the stated liquidity runway through Q4 2023.
- Whether component availability, supplier quality, and manufacturing efficiency improve enough to restore product margins and fulfill shipments.
- Whether customer demand—particularly defense, industrial wearables, metrology, and OLED—supports revenue growth and converts remaining performance obligations into recognized revenue and cash.
- The valuation and subsequent performance of equity investments, and the effects of investment gains or impairments on reported earnings.
- The status and potential financial exposure of the BlueRadios case, and the terms and completion of the planned $2.0 million Asian investment.
- Share-count and dilution figures: the balance sheet reports 92.6 million shares outstanding at September 24, while the cover reports 95.1 million as of October 28, 2022.