Kopin Corp. Reports Operating Results (10-Q)
Kopin Corp. has a market cap of $223.8 million; its shares were traded at around $3.36 with a P/E ratio of 12.5 and P/S ratio of 1.9. KOPN is in the portfolios of Jean-Marie Eveillard of First Eagle Investment Management, LLC, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations: decreased orders as a result of the weak global environment at that time; our expectation that the prices of certain of our products will decline in fiscal year 2010; our expectation that the average selling price of certain of our products for consumer application will decline approximately 5% to 10%; our expectation that the average sales price of our display products for military applications will remain relatively flat for 2010; our expectation that the overall increase or decrease in the average sales price of our display products will be dependent on the sales mix of commercial and military display sales; our expectation that if our display products for consumer electronic applications do not increase or new markets are not identified, we may have to record impairment charges on Kowons long lived assets; our expectation that revenue will be between $120 million and $130 million for fiscal year 2010; our belief that if sales of smart phones do not average growth rate of approximately 35% to 40% over the next five years we may not reach our revenue goals; our belief that if we do not renew certain customer agreements or increase HBT transistor wafer sales to other customers our sales may decline and we may not meet our revenue projections; our expectation that 2010 revenues will primarily be from customers located in the U.S.; our belief that in 2010 sale prices of display products for military applications will remain stable and sales prices of our III-V products for wireless handset applications will decline; our belief that one of the benefits of our display technology is the ability to produce high resolution displays in small form factors; our belief that we will need to increase sales to customers who buy our higher resolution display products, such as the military, or develop new categories, such as eyewear our belief that we may be subject to alternative minimum taxes, foreign taxes and state income taxes; our expectation that we will not receive any additional material amounts from the sales of certaion patents; our expectation that we will expend between $10.0 million and $20.0 million on capital expenditures over the next twelve months; our belief that our available cash resources will support our operations and capital needs for at least the next twelve months; our expectation that our third quarter will be our strongest sales quarter for sales of our displays to customers who use them in consumer electronic applications and sales of our III-V products, followed by our second quarter then our fourth quarter and our first quarter would be our lowest sales quarter; our expectation that we will sell more display products for military applications which we do not expect to have the historical sales trends of our consumer oriented products; our belief that our principle sales of HBT transistors has not demonstrated the seasonal pattern over the last two years that we would expect; our belief 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 to our cash flows or income; our estimate that any market risk associated with our international operations is unlikely to have a material adverse effect on our business, financial condition or results of operation. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate, managements beliefs, and assumptions made by management. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of us. Words such as expects, anticipates, intends, plans, believes, could, seeks, estimates, and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause or contribute to such differences in outcomes and results include, but are not limited to, those set forth in our other periodic filings filed with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended December 26, 2009.
We have two principal sources of revenues: product revenues and research and development revenues. Product revenues consist of sales of our CyberDisplay products and our III-V products, principally gallium arsenide (GaAs) HBT transistor wafers. Research and development revenues consist primarily of development contracts with agencies of the U.S. government. For the three and six months ended June 26, 2010, research and development revenues were $1.1 million and $2.6 million respectively. This contrasted with $2.1 million and $3.0 million for the corresponding period in 2009.
The back-end packaging manufacturing process of our displays which are sold for consumer applications is performed at Kowon. Kowon had a net loss of approximately $0.1 million from operations for the six months ended June 26, 2010. If sales of our display products for consumer electronic applications do not increase or new markets are not identified, we may have to record impairment charges on Kowons long lived assets, which are recorded in our financial statements at $2.8 million at June 26, 2010.
In fiscal year 2008 we entered into an agreement wherein we agreed to sell certain patents we were no longer using, to a party which would attempt to sub-license the patents. Under the terms of the agreement the amount we would receive for the sale of the patents was a percentage of any license fees, after expenses, from the sublicense. For the six months ended June 26, 2010 and June 27, 2009, we recorded $0.2 and $4.1 million, respectively, of license fees from the sale of these patents. We do not expect to receive any additional material amounts from the sales of these patents.
Tax(provision). For the three and six months ended June 26, 2010 we recorded a provision for income taxes of $180,000 and $93,000, respectively, compared to provisions of $367,000 and $636,000 for the three and six month periods ended June 27, 2009. Our provision for income taxes is comprised of our estimated alternative minimum tax and state income tax liabilities on our domestic taxable earnings and estimated foreign taxes due on our Korean and Taiwanese subsidiaries taxable earnings.
As of June 26, 2010, we had cash and equivalents and marketable securities of $115.3 million and working capital of $139.5 million compared to $114.5 million and $134.2 million, respectively, as of December 26, 2009. The change in cash and equivalents and marketable securities was primarily due to cash generated from operating activities of $1.1 million and proceeds from investment sales of $4.2 million, partially offset by investments in capital equipment and other assets of approximately $4.3 million.
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