Kopin Corporation

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Kopin Corporation

200 John Hancock Road
Taunton, Massachusetts 02780
U.S.A.
Telephone: (508) 24-6696
Fax: (508) 824-6958
Web site: http://www.kopin.com

Public Company
Incorporated: 1984 Employees: 379 Sales: $90.3 million (2005)
Stock Exchanges: NASDAQ Ticker Symbol: KOPN
NAIC: 541710 Research and Development in the Physical, Engineering, and Life Sciences

Kopin Corporation is a Taunton, Massachusetts-based developer and manufacturer of high-performance transistor wafers and ultra small active matrix liquid crystal displays (AMLCDS), both of which rely on nanotechnology. The company's heterojunction bipolar transistors (HBT) are called III-V products because the raw materials are drawn from the III and V columns of the periodic table of elements, including Indium Phosphide, Gallium Nitride, and Gallium Arsenide-based substrates. Unlike silicon-based transistors that are laid out horizontally, HBTs are constructed vertically, atomic layer by atomic layer, by means of Metalorganic Chemical Vapor Deposition production growth processes. The resulting transistors are smaller, faster, and need less power than conventional transistors, making them ideal for use in such electronic items as cellular phones and other wireless and high-speed communication applications.

One in three wireless handsets in the world rely on Kopin's HBTs. The company's CyberDisplay AMLCD product relies on nanotechnology to produce what the company calls CyberLites, light emitting diodes grown on sapphire substrates. They can be turned off and on and change colors to produce monochrome and color displays that are less than one-inch in size vertically. The images can be magnified to produce images comparable to what can be found on a 20-inch display. The product offers high resolution, bright images, quick performance, and low power consumption. CyberDisplay is found in camcorders, digital camera viewfinders, wireless devices, virtual reality gaming, simulation, and surgical headgear. Kopin's roster of customers include a large number of major corporations, including JVC, Konica Minolta, Panasonic, Samsung Electronics, Boeing, Kaiser Electronics, and Raytheon. Kopin is a publicly trade company listed on the NASDAQ.

FOUNDER RAISED IN POST-WORLD WAR II HONG KONG

Kopin was founded by its long-time President, Chief Executive Officer, and Chairman Dr. John C. C. Fan and his research colleagues. He was born in Shanghai, China, during World War II, and was raised in Hong Kong. At the age of 18 he came to the United States in the early 1960s to study electrical engineering at the University of California at Berkeley. After receiving his undergraduate degree, he relocated to the East Coast, earning master's and doctorate degrees in applied physics at Harvard University. Upon graduation in 1972 Fan was planning to return to California when he elected instead to accept a research post at Lincoln Laboratory, a Massachusetts Institute of Technology outpost in the Boston suburb of Lincoln.

Lincoln Laboratory had been founded in 1951, funded by the military but run by MIT, to apply science and advanced technology to matters of national security, in particular air defense. Over the years, the lab's purview expanded to include such areas as communications, space surveillance, and air traffic control. Lincoln was an applied research lab, as opposed to basic research, meaning that the focus of its scientists was to develop products from their research efforts. It was no surprise, therefore, that Lincoln encouraged the commercial exploitation of products that arose from the defense research. Over the years, scores of start-up companies were spawned at Lincoln.

Fan's research focus at Lincoln was semiconductors, crystalline structures that had both conducting and insulating properties, and could be chemically manipulated to control the flow of electric current in electronic components. Working in the lab's Electronic Materials Group, he researched semiconductor materials, including alloys of dissimilar materials, in hopes of finding the ideal one to produce the best performance for a specific application. As he told the Providence Journal in a 2000 profile, it was like genetic engineering, taking "the good things" from each material and leaving the "bad things." Fan had an opportunity to see how genetic engineers approached their research because they could be found splicing genes in a nearby lab. Fan decided to apply comparable splicing techniques to bring together desirable materials. It became known as wafer engineering, and as the technology gained an international reputation, venture capitalists soon took notice. "VCs were making money from companies like Genentech and Amgen, so people began to see that you could make money from gene slicing," Fan told Mass High Tech. He continued, "So they thought, 'Maybe we can make money splicing materials.'" Venrock Associates, the venture capital arm of the Rockefeller family which maintained an office in Cambridge, Massachusetts, began urging Fan and his research colleagues to leave Lincoln and start a company to exploit their findings commercially. In 1984 he was won over and Kopin Corporation was incorporated in Delaware. According to Providence Journal, "Kopin is an amalgam of the Chinese words Ko and Pin, which, loosely translated, mean a good product for a fair price."

Fan and his team had not yet set up shop when they were contacted by Massachusetts Governor Michael Dukakis who invited Fan to pay him a visit. "Somehow he had heard of this new technology we were working on, this new way to make integrated circuits," Fan recalled for Providence Journal, continuing, "and so I went over to the State House and he told me he wanted me to go down to Taunton to have a look." In Taunton was an industrial park where the governor hoped Kopin would locate. A manufacturing town that had come upon hard times, Taunton was attempting a comeback through the Myles Standish Industrial Park launched by area businessmen. Fan was offered tax breaks to move there, but he was also attracted to the site for other reasons, as he explained to Providence Journal: "There was no traffic, housing was much cheaper and there was a plentiful supply of labor from New Bedford, Fall River and Providence. And you could still get back to Boston quite easily."

Kopin established its operations at the Industrial Park. Initial funds of $300,000 came from Venrock and another venture capital firm, Cardinal Partners, based in Princeton, New Jersey. According to Providence Journal, "When Kopin moved into the park, Fan said, he had with him a group of about 30 scientists, including 'seven or eight' from MIT. The new company licensed the wafer-engineering Fan and his team had developed at Lincoln and related technology in 1985, and then spent the next half-dozen years on additional research, Fan said, and then, 'in the early '90s,' the focus narrowed to product selection and manufacturing processes."

COMPANY PERSPECTIVES

The company's breakthroughs have produced a host of efficient, compact and powerful products that are transforming the way people see, hear and communicate. The recurring themes throughout our products are small size, low power consumption, high quality, superior performance, enabling the next generation of consumer and industrial mobile products.

GOING PUBLIC: 1992

During this incubation stage, Kopin continued to raise the money needed to fund research. In a second round of funding in April 1987, the company received another $8 million. New backers included State Farm Insurance; Boston-based Charles River Ventures; BancBoston Ventures, the venture capital investment arm of Fleet-Boston Financial; and Eberstadt Fleming Inc. (a VC firm that had recently been created by the merger of New York investment bank F. Eberstadt & Company and Robert Fleming Holdings Ltd., a major British merchant bank). Kopin then went public in April 1992, with an IPO that raised $15 million. Later in the year Kopin sold another $2.6 million of common stock in a private placement with AT&T State Street.

By the early 1990s, Kopin was generating modest revenues from government contracts and the sale of electronic circuits, but major corporations were well aware of the company's work, increasingly impressed by the demonstrations it presented. In addition to using wafer technology to produce advanced integrated circuits, Kopin was also working on flat panel displays by essentially creating transparent integrated circuits. "At engineering school," Fan told Computer Design in 1994, "I learned that any material, if made thin enough, will transmit light. LCD's based on thin, single-crystal silicon—the mainstay of most integrated circuits—are transparent." In 1994 Kopin demonstrated what it called a Smart Slide, developed in conjunction with Lincoln, a high resolution, full color imaging device. Although it was not yet a commercially viable technology, Smart Slide was impressive enough to convince the likes of Boeing, Rockwell International, the Defense Advanced Research Projects Agency (DARPA), and the U.S. Department of Commerce to either buy stock or award the company research grants. DARPA, for example, gave Kopin $3 million in research money to pursue its display technology for use in a helmet mounted vision system for the military, and in 1994 the company landed a further $2 million from the Department of Defense to accelerate the development of video-speed AMLCDs. Along the way, starting in 1994, Kopin became an investor itself by buying an interest in Forte Technologies, Inc., a developer of virtual reality head-mounted systems for gaming and other entertainment markets. Kopin eventually gained a majority stake in Forte, but the investment failed to pan out. Forte filed for Chapter 11 bankruptcy protection in 1997 and its assets were subsequently sold.

On a parallel track, Kopin continued to work on HBT transistor wafers, and in 1995 launched its first commercially successful product on the market. The advanced wafers quickly found a market with manufacturers of cellular phones, other wireless products, and ultra-portable products. Product revenues jumped from $2.8 million in 1994 to $7.2 million in 1995 and $11.7 million in 1997. Another revenue stream began contributing to the balance sheet in April 1997 when Kopin introduced CyberDisplay, the smallest display on the market. It used a lens and backlight to produce larger high resolution images.

Kopin again tapped the public equity market in February 1998, netting close to $17.8 million. Although the company had yet to turn a profit—it would lose nearly $3 million in 1998, even as total revenues increased from $16.4 million in 1997 to $26.9 million—it had plenty of cash on hand to continue to develop its innovative products and carve out an increasing market share. Over the course of 1998, Kopin continued to improve manufacturing yields of Cyber-Display and the production capacity of its transistor wafers.

Kopin prospered further in 1999, as once again it was able to complete a public offering of stock, this time raising $73.2 million. Demand was so strong for its Gallium Arsenide HBT transistors that the company launched a $15 million expansion of the Taunton facility. The year also brought with it the first consumer product to incorporate the CyberDisplay, a viewfinder in a JVC camcorder. Panasonic soon signed up as another Cyber-Display customer in a deal announced in January 2000. In addition to those notable milestones, Kopin enjoyed a record year financially. Revenues totaled $38.7 million and for the first time in company history Kopin recorded a full year profit: $775,269.

KEY DATES

1984:: The company is founded.
1992:: Kopin makes its initial public offering of stock.
1995:: HBT transistor wafers are introduced.
1997:: CyberDisplay is introduced.
2000:: Kopin acquires Super Epitaxial Products, Inc.
2002:: CyberLite is introduced.

STOCK PRICE SURGE: 2000

Kopin began the new century flying high. The price of its stock took off after the Panasonic deal was announced. Worth around $40 per share at the start of 2000, Kopin stock approached the $100 mark by early February. Kopin also bolstered its semiconductor materials business by acquiring Super Epitaxial Products, Inc., a company with expertise in gallium nitride that added complementary technology that could lead to new optoelectronic products. In 2001 Kopin also introduced indium phosphide HBTs, the next-generation in HBTs. The technology was especially suited for increasing the bandwidth of fiber optic networks, and Kopin began collaborating with the likes of Rockwell to produce high-speed components using the new transistors to increase fiber optic network performance. Kopin's CyberDisplay business also continued to grow, as the company added more major customers, including Samsung Electronic Co. and Panasonic. For the year 2000, sales more than doubled to $92.6 million and net income soared to $6.3 million.

Kopin's momentum was stunted in 2001 due to a sluggish economy and other factors that resulted in what some described as a "perfect tech storm." The Cyber-Display business continued to grow, with sales improving from $18.98 million in 2000 to $22.2 million in 2001, but that could not make up for the collapse in HBT sales. For the year Kopin recorded total revenues of $50.3 million and a net loss of $22.7 million. The company did its best to control costs while continuing to invest in research and development, and given that it had no long-term debt and held $104 million in cash and marketable securities, Kopin was in a strong position to wait out poor market conditions.

CyberDisplay sales continue to grow at a robust clip in 2002, increasing 87 percent to $44.1 million, and as a result total revenues rebounded to $76.8 million. But once again the company lost money, although the $31.9 million loss it reported was inflated by the adoption of new accounting standards and investment transactions. More important for the company's long-term success was the introduction of CyberLite, a new high-brightness light-emitting diode. Revenues held steady in 2003, when Kopin lost another $7.7 million, mostly due to the development of CyberLite. While revenues increased to $87.3 million in 2004, Kopin recorded a net loss of $13.8 million, again related to investments in Cyberlite. In 2005 the company returned to profitability, netting $11.7 million on revenues of $90.3 million, with HBTs leading the way for a change. The company introduced a new generation of HBT transistors, the GAIN-HBT, especially suited for the advanced cell phones coming onto the market. Also in 2005 Kopin introduced its Digital iVision products for mobile video applications, a young market expected to grow as video eyewear—essentially small movie screens on glasses—became more commonplace and gained in popularity. Kopin appeared well positioned to enjoy even stronger results in the years to come.