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Turnaround Letter
Out-of-Favor Stocks with Real Value

November 13, 2023

Restoring Buy rating to Kopin Corp (KOPN)

Today, we are moving shares of Kopin Corp (KOPN) from Suspended to Buy.

With the release of Kopin’s third-quarter results, 10Q and related conference call, our reason for suspending the shares has been resolved. We are restoring the shares to Buy along with our original $5.00 price target.

Kopin reported a highly encouraging quarter that indicated progress with its new product development and the rationalization of its operations. Orders were strong, with a book/bill ratio of 2:1 (indicating that new orders booked were twice the amount of invoices billed), including follow-on orders on two major weapons programs. The gross margin increased by 17 percentage points due to a shift to more profitable products and services, price increases and better cost management. Kopin is closer to achieving its goal of becoming cash flow break-even. The company remains debt-free, with nearly $22 million in cash. Management said that their production, order cover and pricing for 2024 will continue to improve.

The company is incurring elevated legal defense expenses in advance of a patent lawsuit trial in January or February 2024. While several of the lawsuit’s claims have been dismissed by the court and Kopin has enough confidence in prevailing that it has not set aside any reserves, the outcome remains an unknown.

The company’s efforts to build and monetize its technology are working. Not only are new orders growing but its pipeline of new customers and innovative products is ramping as well, all supported by tighter discipline. Management provided more details about its technology and product roadmap – this is the ultimate driver of value for the shares and appears highly encouraging, although there remains a wide spread between a roadmap and profits.

All-in, the turnaround is making strong progress in the early stages of its turnaround.

In the quarter, revenues of $10.6 billion fell 10% but were in-line with estimates. The net loss of $(0.02)/share compared to a $(0.07)/share loss and was better than the $(0.04) consensus estimate.

Bruce Kaser has more than 25 years of value investing experience in managing institutional portfolios, mutual funds and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company.