UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR l5(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 29, 2001
Commission file number 0-19882
KOPIN CORPORATION
-----------------
(Exact name of registrant as specified in its charter)
Delaware 04-2833935
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
695 Myles Standish Blvd., Taunton, MA 02780-1042
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 824-6696
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or l5(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of October 27, 2001
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Common Stock, par value $.01 65,422,952
KOPIN CORPORATION
INDEX
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Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at 3
September 29, 2001 and December 31, 2000
Consolidated Statements of Operations and Comprehensive 4
Income (Loss) for the three and nine months ended September
29, 2001 and September 30, 2000
Consolidated Statements of Stockholders' Equity for the 5
nine months ended September 29, 2001 and September 30, 2000
Consolidated Statements of Cash Flows for the 6
nine months ended September 29, 2001 and September 30, 2000
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II - OTHER INFORMATION
Item 5. Other Matters 14
SIGNATURES 15
2
KOPIN CORPORATION
CONSOLIDATED BALANCE SHEETS
September 29, 2001 December 31, 2000
----------------------- ----------------------
(unaudited)
Assets
Current assets:
Cash and equivalents $ 2,613,731 $ 13,332,973
Marketable securities, at fair value 62,629,257 59,847,124
Accounts receivable, net of allowance of $1,050,000 and $450,000
Billed 6,169,229 14,365,808
Unbilled 312,252 467,540
Inventory 8,444,364 5,711,617
Refundable taxes - 5,505,000
Prepaid expenses and other current assets 3,317,024 4,336,724
------------ ------------
Total current assets 83,485,857 103,566,786
Equipment and improvements:
Land 735,246 758,393
Buildings 1,768,185 1,749,589
Equipment 48,813,541 48,598,638
Leasehold improvements 13,187,401 2,410,651
Furniture and fixtures 561,826 515,750
Equipment under construction 8,710,590 19,993,112
------------ ------------
73,776,789 74,026,133
Accumulated depreciation and amortization 30,226,180 24,935,045
------------ ------------
43,550,609 49,091,088
Other assets 23,935,541 15,521,801
Goodwill, net of accumulated amortization of $1,593,936 and $413,517 13,282,814 14,748,366
Intangible assets, net of accumulated amortization of $1,783,383 and $1,582,683 1,213,616 1,562,629
------------ ------------
Total assets $165,468,437 $184,490,670
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 10,432,003 $ 9,892,554
Accrued payroll and expenses 1,717,887 1,398,353
Other accrued liabilities 4,070,890 2,938,434
Current portion of long-term obligations 1,500,000 1,000,000
------------ ------------
Total current liabilities 17,720,780 15,229,341
Long-term obligations, less current portion - 1,250,000
Minority interest 1,469,121 1,234,764
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share: Authorized, 3,000 shares;
none issued and outstanding - -
Common stock, par value $.01 per share: Authorized, 120,000,000 shares;
issued, 65,396,446 shares in 2001 and 64,681,116 shares in 2000 653,964 646,811
Additional paid-in capital 218,771,410 216,274,520
Deferred compensation (13,750) (55,015)
Accumulated other comprehensive income (loss) (7,062,932) 328,395
Deficit (66,070,156) (50,418,146)
------------ ------------
Total stockholders' equity 146,278,536 166,776,565
------------ ------------
Total liabilities and stockholders' equity $165,468,437 $184,490,670
============ ============
See notes to consolidated financial statements.
3
KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
------------------- ------------------
September 29, September 30, September 29, September 30,
2001 2000 2001 2000
--------------- ----------------- --------------- ---------------
Revenues:
Product revenues $ 11,973,948 $23,279,680 $ 35,461,180 $66,922,088
Research and development revenues 288,767 551,051 1,012,791 1,043,050
------------ ----------- -------------- -----------
12,262,715 23,830,731 36,473,971 67,965,138
Expenses:
Cost of product revenues 15,786,776 17,643,127 47,437,823 48,450,166
Research and development 3,716,779 1,713,681 11,081,651 6,241,616
Selling, general and administrative 3,120,778 1,520,358 11,869,557 6,501,474
Other 120,907 66,900 283,166 466,974
Impairment charges - - 5,341,784 -
------------ ----------- -------------- -----------
22,745,240 20,944,066 76,013,981 61,660,230
------------ ----------- -------------- -----------
Income (loss) from operations (10,482,525) 2,886,665 (39,540,010) 6,304,908
Other income and expense:
Interest and other income 1,499,005 1,446,321 24,445,606 4,331,890
Interest expense (126,981) (94,290) (307,280) (280,336)
------------ ----------- -------------- -----------
Income (loss) before minority interest (9,110,501) 4,238,696 (15,401,684) 10,356,462
Minority interest in income of (124,033) ( 47,414) (250,326) (77,263)
subsidiary ------------ ----------- -------------- -----------
Net income (loss) $ (9,234,534) $ 4,191,282 $ (15,652,010) $10,279,199
============ =========== ============== ===========
Net income (loss) per share:
Basic ($ .14) $.07 ($ .24) $.16
============ =========== ============== ===========
Diluted ($ .14) $.06 ($ .24) $.15
============ =========== ============== ===========
Weighted average number of common
shares outstanding:
Basic 65,211,380 63,237,559 65,069,273 62,759,293
============ =========== ============== ===========
Diluted 65,211,380 67,278,717 65,069,273 67,714,654
============ =========== ============== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
Three Months Ended Nine Months Ended
------------------- -------------------
September 29, September 30, September 29, September 30,
2001 2000 2001 2000
---------------- -------------- ---------------- ---------------
Net income (loss) $ (9,234,534) $4,191,282 $ (15,652,010) $10,279,199
Foreign currency translation (20,765) (3,551) (32,718) 2,100
adjustments
Unrealized gain (loss) on marketable (11,064,997) 74,141 (7,358,609) (42,061)
securities, net ------------- ---------- ------------- -----------
Comprehensive income (loss) $ (20,320,296) $4,261,872 $ (23,043,337) $10,239,238
============= ========== ============= ===========
See notes to consolidated financial statements.
4
KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
(UNAUDITED)
Accumulated
Common Stock Additional Other
-------------------- Paid-in Deferred Comprehensive
Shares Amount Capital Compensation Income (Loss) Deficit Total
---------- -------- ------------ ------------ -------------- ------------ ------------
Balance, December 31, 1999 60,298,724 $602,987 $185,776,145 $(110,035) $ 509,725 $(56,711,530) $130,067,292
Exercise of stock options 3,120,073 31,201 6,373,575 -- -- -- 6,404,776
Amortization of compensation
relating to grant of stock -- -- -- 41,265 -- -- 41,265
options
Net unrealized loss on marketable
securities -- -- -- -- (42,061) -- (42,061)
Foreign currency translation
adjustments -- -- -- -- 2,100 -- 2,100
Net income for the nine month
period ended September 30, 2000 -- -- -- -- -- 10,279,199 10,279,199
---------- -------- ------------ --------- ------------ ------------ ------------
Balance, September 30, 2000 63,418,797 $634,188 $192,149,720 $ (68,770) $ 469,764 $(46,432,331) $146,752,571
========== ======== ============ ========= ============ ============ ============
Balance, December 31, 2000 64,681,116 $646,811 $216,274,520 $ (55,015) $ 328,395 $(50,418,146) $166,776,565
Exercise of stock options 715,330 7,153 2,496,890 -- -- -- 2,504,043
Amortization of compensation
relating to grant of stock -- -- -- 41,265 -- -- 41,265
options
Net unrealized loss on marketable
securities -- -- -- -- (7,358,609) -- (7,358,609)
Foreign currency translation
adjustments -- -- -- -- (32,718) -- (32,718)
Net loss for the nine month
period ended September 29, 2001 -- -- -- -- -- (15,652,010) (15,652,010)
---------- -------- ------------ --------- ------------ ------------ ------------
Balance, September 29, 2001 65,396,446 $653,964 $218,771,410 $ (13,750) $ (7,062,932) $(66,070,156) $146,278,536
========== ======== ============ ========= ============ ============ ============
See notes to consolidated financial statements.
5
KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
-----------------
September 29, 2001 September 30, 2000
------------------ ------------------
Cash flows from operating activities:
Net income (loss) $ (15,652,010) $ 10,279,199
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 9,442,752 5,508,197
Amortization of compensation relating to grant
of stock options 41,265 41,265
Minority interest in income of subsidiary 275,794 77,263
Impairment Charge 5,341,784 -
Net gain on investment activity (20,882,383) -
Changes in assets and liabilities:
Accounts receivable 8,313,123 (5,623,823)
Inventory (3,112,548) 1,670,298
Prepaid expenses and other current assets 6,517,157 221,186
Intangible assets 148,313 (158,312)
Accounts payable and accrued expenses 1,897,068 (717,795)
------------- ------------
Net cash provided by (used in) operating activities (7,669,685) 11,297,478
------------- ------------
Cash flows from investing activities:
Marketable securities (2,879,958) (17,987,169)
Other assets 5,172,909 (5,581,295)
Capital expenditures (7,032,548) (22,998,551)
------------- ------------
Net cash used in investing activities (4,739,597) (46,567,015)
------------- ------------
Cash flows from financing activities:
Principal payment on long-term obligations (750,000) (1,677,586)
Issuance of stock by subsidiary - 507,101
Proceeds from exercise of stock options 2,504,043 6,404,776
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Net cash provided by financing activities 1,754,043 5,234,291
------------- ------------
Effect of exchange rate changes on cash (64,003) 28,600
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Net decrease in cash and equivalents (10,719,242) (30,006,646)
Cash and equivalents, beginning of period 13,332,973 65,981,848
------------- ------------
Cash and equivalents, end of period $ 2,613,731 $ 35,975,202
============= ============
Supplementary information -Interest paid in cash $ 141,812 $ 271,766
See notes to consolidated financial statements.
6
KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The consolidated financial statements for the nine month periods ended September
29, 2001 and September 30, 2000 are unaudited and include all adjustments which,
in the opinion of management, are necessary to present fairly the results of
operations for the periods then ended. All such adjustments, except for
adjustments described below, are of a normal recurring nature. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission
(the "SEC") (File No. 0-19882) for the year ended December 31, 2000.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for any other
interim period or for a full fiscal year.
The consolidated financial statements include the accounts of the Company, its
wholly owned subsidiaries and Kowon Technology Co., Ltd. ("Kowon"), a majority
owned (67%) subsidiary located in Korea. All intercompany transactions and
balances have been eliminated.
2. FOREIGN CURRENCY TRANSLATION
----------------------------
Assets and liabilities of non-U.S. operations are translated into U.S. dollars
at period end exchange rates, and revenues and expenses at rates prevailing
during the quarter. Resulting translation adjustments are accumulated as part of
other comprehensive income and aggregate $10,033 of unrealized gain at September
29, 2001. Transaction gains or losses are recognized in income or loss
currently.
3. NET INCOME PER SHARE
--------------------
Basic net income (loss) per share is computed using the weighted average number
of shares of common stock outstanding during the period. Diluted net income per
share is computed using the weighted average number of common shares and
potential common shares outstanding during the period using the treasury method.
Potential common shares consist of outstanding options issued under the
Company's stock option plans, and have not been included in any periods where
the effect would be anti-dilutive.
4. INVENTORY
---------
Inventory is stated at the lower of cost (first in, first out method) or market
and consists of the following:
September 29, 2001 December 31, 2000
------------------ -----------------
Raw materials $7,015,304 $4,396,631
Work in progress 1,145,937 1,016,146
Finished Goods 283,123 298,840
========== ==========
Total Inventory $8,444,364 $5,711,617
========== ==========
7
5. OTHER ASSETS
------------
Other assets consist primarily of marketable and non-marketable equity
securities in various companies and notes receivable. Non-marketable equity
securities are carried at cost and aggregate $7,354,000 and $14,864,000 at
September 29, 2001 and December 31, 2000 respectively. At December 31, 2000 the
Company had a 20% interest in Kendin Communications, Inc. (Kendin), which was
accounted for using the equity method. The carrying value of this investment at
December 31, 2000 was $3,170,000. During the quarter ended June 30, 2001 the
Company exchanged its interest in Kendin for shares of Micrel Incorporated
(Micrel), as part of Micrel's acquisition of Kendin, and recorded a net gain of
$24,900,000 on the exchange. Following this transaction, the Company
discontinued the use of the equity method to account for this investment. Also
during the quarter ended June 30, 2001 the Company recorded a $4,000,000 write-
down of certain non-marketable securities as a result of a more than temporary
decline in their value.
Non-current marketable securities, which consist primarily of the investment in
Micrel stock, are carried at fair-value. The fair-value of non-current
marketable securities was $16,021,000 at September 29, 2001. Gross unrecognized
losses on non-current marketable securities were $7,294,000 at September 29,
2001.
The net gain recognized resulting from the gain on exchange of investment and
write-down of certain non-marketable securities is included in interest and
other income for the nine months ended September 29, 2001.
6. RECENT ACCOUNTING PRONOUNCEMENTS
---------------------------------
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for fiscal years
commencing after June 15, 2000. SFAS No. 133 requires fair value accounting for
all stand-alone derivatives and many derivatives embedded in other financial
instruments and contracts. SFAS No. 133 did not have a material effect on our
financial position or results of operations.
The SEC has released Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements", which sets forth their views regarding revenue
recognition. The Company believes its revenue recognition practices are in
compliance with this bulletin.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method
of accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. The Company does not believe the
adoption of SFAS 141 will have a significant impact on its financial statements.
Also in July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective
January 1, 2002. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. The Company has not yet completed its evaluation of the
impact the adoption of SFAS 142 will have on our financial statements.
7. IMPAIRMENT CHARGE
-----------------
As a result of the decline in the Company's revenues during the three months
ended June 30, 2001, the Company has assessed the recoverability of certain
equipment used in its manufacturing operations. This equipment consists
primarily of older manufacturing machines, utilized in the Company's III-V
business. Because of softened current demand for the Company's wafer products,
the machines in question are currently not used in manufacturing operations.
Based on forecasts developed by the Company, the Company does not believe that
these machines will be placed back into service in the foreseeable future; the
Company anticipates that these machines will be replaced by newer, more
efficient equipment before demand will recover. As a result of this analysis,
and other analyses pertaining to the impact of the change in business
conditions, the Company recorded a charge of $5,342,000 in the quarter ended
June 30, 2001, representing the remaining un-amortized cost of the identified
equipment, and other costs.
8
8. IN PROCESS RESEARCH AND DEVELOPMENT
-----------------------------------
During the quarter ended December 31, 2000 the Company expensed $5,300,000
million associated with in-process research and development technologies which
had not yet reached technological feasibility, and had no alternative uses,
acquired as part of the acquisition of Super Epitaxial Products, Inc. in October
2000.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Kopin is a leading developer and manufacturer of advanced semiconductor
materials and miniature flat panel displays. We use our proprietary technology
to design, manufacture and market products used in highly demanding commercial
wireless communications and high resolution portable applications. Our products
enable our customers to develop and market an improved generation of products
for these target applications.
We have two principal components of revenues: product revenues and research
and development revenues. Historically, product revenues have consisted of sales
of our III-V products, principally our Heterojunction Bipolar Transistor ("HBT")
transistor wafers, and our CyberDisplay products. For the nine month period
ended September 29, 2001, we had product revenues of $35.5 million, or 97.2% of
total revenues compared to $66.9 million, or 98.5% of total revenues for the
same period in 2000.
Research and development revenues consist primarily of development contracts
with agencies of the U.S. government. For the nine months ended September 29,
2001, research and development revenues were $1.0 million, or 2.8% of total
revenues compared to $1.0 million, or 1.5% of total revenues for the same period
in 2000.
RESULTS OF OPERATIONS
REVENUES. Our total revenues for the three and nine months ended September 29,
2001 were $12.3 million and $36.5 million, respectively, compared to $23.8
million and $67.9 million during the corresponding periods in 2000. This
represents a decrease of approximately $11.6 million and $31.5 million for the
three and nine months ended September 29, 2001, respectively. Our product
revenues were $12.0 million and $35.5 million for the three and nine months
ended September, 2001, compared to $23.3 million and $66.9 million for the same
periods in 2000, decreases of approximately $11.3 million and $31.5 million
respectively. For the nine months ended September 29, 2001, III-V and
CyberDisplay product sales were $20.2 million and $15.2 million, respectively,
as compared to $53.8 million and $13.1 million, respectively, for the nine
months ended September 30, 2000. The decrease in III-V product revenues resulted
from a decline in demand from customers who buy our HBT transistor wafers for
integration into components used in wireless handsets. For the year ending
December 31, 2001 we expect a decline in III-V product revenues as a result of
worldwide inventory accumulation in the supply chain of wireless handsets and
related components. In addition, industry analysts believe there will be a
slowing of worldwide sales growth rates of wireless handsets, which may decrease
the rate of consumption of the inventory in the supply chain. Research and
development revenues for the three and nine months ended September 29, 2001 were
$.3 million and $1.0 million compared to $.6 million and $1.0 million for the
same period in 2000.
COST OF PRODUCT REVENUES. Cost of product revenues, which is comprised of
materials, labor and manufacturing overhead related to our products, was $16.1
million and $47.7 million for the three and nine months ended September 29, 2001
compared to $17.6 million and $48.5 million during the corresponding periods in
2000. For the nine months ended September 29, 2001 and September 30, 2000, cost
of product revenues as a percentage of product sales was 134.5% and 71.3%,
respectively. The increase in cost of product revenues as a percentage of sales
is a result of the fixed cost nature of our business, whereby expenses did not
decline at the same rate as the decline in sales, particularly III-V product
sales and related expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses (R&D) are incurred
in support of internal III-V and display product development programs or
programs funded by agencies of the U.S. government, and commercial partners. R&D
costs include staffing, purchases of materials and laboratory supplies, circuit
design costs, fabrication and packaging of display products, and overhead.
Funded R&D was $.6 million and $1.7 million for the three and nine months ended
September 29, 2001 compared to $.3 million and $.9 million for the same periods
in the prior year, increases of $.3 million and $.8 million, respectively.
Internal R&D was $3.1 million and $9.4 million for the three and nine months
ended September 29, 2001 compared to $1.4 million and $5.3 million during the
corresponding periods in 2000. The increase in internal R&D was primarily the
result of III-V development programs.
10
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses (S,G&A) consist of the expenses incurred by our sales and marketing
personnel and related expenses, and administrative and general corporate
expenses. S,G&A was $3.1 million for the three months ended September 29, 2001
compared to $1.5 million during the corresponding period in 2000, an increase of
$1.6 million, or 105.3%. S,G&A was $11.9 million for the nine months ended
September 29, 2001 compared to $6.5 million during the corresponding period in
2000, an increase of $5.4 million, or 82.60%. The year to year increase in S,G&A
was primarily due to an increase in goodwill amortization of $1.6 million,
resulting from the purchase of Super Epitaxial Products, Inc., in October, 2000,
bad debt expense of $1.0 million, depreciation expense of $.8 million and legal
and patent maintenance of $1.6 million. In addition, S,G&A expenses include non-
cash charges for compensation expense of $41,265 for both nine month periods in
2001 and 2000, relating to the issuance of certain stock options.
OTHER. Other expenses, primarily amortization of patents and licenses, were
$.1 million and $.3 million for the three and nine month periods ended September
29, 2001 compared to $.1 million and $.5 million during the corresponding
periods in 2000.
OTHER INCOME, NET. Other income, net was $1.4 million and $24.1 million for
the three and nine months ended September 29, 2001 compared to $1.4 million and
$4.1 million during the corresponding period in 2000. During the three month
period ended June 30, 2001 we exchanged our interest in Kendin Communications,
Inc. (Kendin) for shares of Micrel, Incorporated (Micrel) as a result of
Micrel's acquisition of Kendin. We have recorded a net gain of $20.9 million as
a result of this exchange and the write-down of certain investments in
semiconductor companies due to a more than temporary decline in their value
during the quarter ended June 30, 2001. During the quarter ended September 29,
2001 we sold a portion of the Micrel shares for $6.5 million, which had a cost
basis of $5.9 million. This resulted in a gain of $.6 million which is included
in Other Income, Net. Also in this quarter we marked to market our remaining
investment in Micrel classified as an available-for-sale security, which
resulted in an unrealized loss of $7.3 million. This loss was recorded as a
component of Accumulated Other Comprehensive Income in Stockholders' Equity.
IMPAIRMENT CHARGE. As a result of the decline in the Company's revenues during
the three months ended June 30, 2001, the Company assessed the recoverability of
certain equipment used in its manufacturing operations. This equipment consists
primarily of older manufacturing machines, utilized in the Company's III-V
business. Because of softened current demand for the Company's wafer products,
the machines in question are currently not used in manufacturing operations.
Based on forecasts developed by the Company, the Company does not believe that
these machines will be placed back into service in the foreseeable future; the
Company anticipates that these machines will be replaced by newer, more
efficient equipment before demand will recover. As a result of this analysis,
and other analysis pertaining to the impact of the change in business
conditions, the Company recorded a charge of $5,342,000 in the quarter ended
June 30, 2001, representing the remaining un-amortized cost of the identified
equipment, and other costs.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through public and private
placements of our equity securities, research and development contract revenues,
and sales of our III-V and CyberDisplay products. We believe our available cash
resources will support our operations and capital needs for at least the next
twelve months.
As of September 29, 2001, we had cash and equivalents and marketable
securities of $65.2 million and working capital of $65.8 million compared to
$73.2 million and $88.3 million, respectively, as of December 31, 2000. The
decrease in cash and equivalents and marketable securities was primarily due to
net capital and investment expenditures of $4.7 million, principal payments on
long-term obligations of $.75 million, and cash used by operations of $7.7
million, partially offset by proceeds from the exercise of stock options of $2.5
million. Other sources of cash during the period were accounts receivable, which
have declined due to the decrease in revenues, and refundable taxes, which were
collected in cash during the nine months ended September 29, 2001.
We periodically enter into long-term debt arrangements to finance equipment
purchases and other activities. As of September 29, 2001, debt obligations
totaled $1.5 million, which is payable in the next twelve months.
Our CyberDisplay products are targeted at large sales volume consumer
electronic and wireless communication applications. We believe that in order to
obtain customers in these markets, it has been necessary to make significant
11
investments in equipment and infrastructure. We believe that it will be
necessary to continue to make significant investments in equipment and
development in order to produce current and future CyberDisplay products. As a
result of the current cost structure of our CyberDisplay product line, our
ability to achieve profitability in that product line depends upon achieving
significant sales volumes and higher gross profit margins. We have not yet
produced our CyberDisplay products at volumes necessary to achieve
profitability. Accordingly, we may not be able to obtain sufficient sales
volumes, or if sufficient sales volumes are achieved, we may not be able to
produce our CyberDisplay products at a gross margin which will allow the product
line to generate a profit.
We lease our facilities located in Taunton and Westborough, Massachusetts, and
Los Gatos, California, and Columbia, Maryland, under non-cancelable operating
leases. The Taunton leases expire through May 2010. The Westborough lease
expires in October 2003, with renewable options for up to two additional years
at our election. The Los Gatos lease covers a five year period terminating in
2002. The Maryland lease expires in 2005. We will make lease payments of
approximately $1.4 million per year over the remaining terms of these leases.
We expect to expend approximately $10.0 million on capital expenditures over
the next twelve months, primarily for the acquisition of equipment relating to
the production of our III-V products and the manufacturing, packaging and
testing of CyberDisplay products.
12
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for fiscal years
commencing after June 15, 2000. SFAS No. 133 requires fair value accounting for
all stand-alone derivatives and many derivatives embedded in other financial
instruments and contracts. The impact of to us of SFAS No. 133 had no material
effect on financial position or results of operations.
The Securities and Exchange Commission ("SEC") has released staff accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements", which sets
forth their views regarding revenue recognition. The Company believes its
revenue recognition practices are substantially in compliance with this
bulletin.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase
method of accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. The Company does not believe that
the adoption of SFAS 141 will have a significant impact on its financial
statements.
Also in July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is
effective January 1, 2002. SFAS 142 requires, among other things, the
discontinuance of goodwill amortization. The Company has not yet completed its
evaluation of the impact that the adoption of SFAS 142 will have on its
financial statements.
In August, 2001, the FASB released SFAS No. 144 ("SFAS 144"), "Accounting for
the Impairment or Disposal of Long-Lived Assets", which is effective in 2002.
SFAS 144 establishes standards for accounting for impairment of long-lived
assets used by an entity or held for sale, and provides guidance on developing
estimates of cash flows and fair values used in measuring impairments. The
Company has not yet completed its evaluation of the impact the adoption of SFAS
144 will have on its financial statements.
Certain of the statements contained in this Form 10-Q including Management's
Discussion and Analysis of Financial Condition and Results of Operations, are
forward-looking statements that involve a number of risks and uncertainties. In
addition to the risks and uncertainties set forth in this Form 10-Q, other
factors that could cause actual results to differ materially include the
following: general economic and business conditions and growth in the flat panel
display and the gallium arsenide integrated circuit and materials industries,
sales growth of the wireless handset industry, the impact of competitive
products and pricing, availability of third party components and wafer
substrates, availability of integrated circuit fabrication facilities, cost and
yields associated with production of the Company's CyberDisplay imaging devices
and HBT transistor wafers, successful completion and operation of our second
gallium arsenide fabrication facility, loss of significant customers, acceptance
of our products, continuation of strategic relationships, changes in foreign
currency exchange rates, and the risk factors and cautionary statements listed
from time to time in the Company's periodic reports and registration statements
filed with the Securities and Exchange Commission, including but not limited to
our Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
We invest our excess cash in high quality government and corporate financial
instruments which bear minimal risk. We believe that the effect, if any, of
reasonably possible near-term changes in interest rates on our financial
position, results of operations, and cash flows should not be material. We sell
our products to customers worldwide. We maintain a reserve for potential credit
losses and such losses have been minimal. We are exposed to changes in foreign
currency exchange primarily through our translation of our foreign subsidiary's
financial position, results of operations, and cash flows and the sale of
CyberDisplay products to customers in Asia. Currency rate changes have not had
a significant impact on operations to date, and had foreign currency rates
changed by 10% during any period presented, the impact would not have been
material to the consolidated financial statements.
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PART II. OTHER INFORMATION
Item 5. OTHER
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In August 2001, the officers of the registrant have adopted "plans" under Rule
10b5-1 of the Securities Exchange Act of 1934, as amended, which provide for the
periodic sales of shares of the Registrant's common stock.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KOPIN CORPORATION
(Registrant)
Date: November 6, 2001 By: /s/ John C.C. Fan
-----------------
John C.C. Fan
President, Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Date: November 6, 2001 By: /s/ Richard A. Sneider
----------------------
Richard A. Sneider
Treasurer and Chief Financial Officer
(Principal Financial and Accounting
Officer)
15