WELL, OUR NEXT STOCK RECOMMENDATION WAS INCUBATED BEFORE INCUBATORS WERE ON ANYONE S RADAR.

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2 ORIGINAL PUBLICATION DATE JUNE 5, 2015 IN OUR RECENT TRAINING, WE TALKED ABOUT HOW TECHNOLOGY INCUBATORS ARE CRITICAL IN HELPING SMALL, STARTUP TECH COMPANIES GET AHEAD OF THEIR COMPETITORS (AND THE MARKET) BY PROVIDING THE ESSENTIAL RESOURCES AND SERVICES THAT A COMPANY NEEDS TO SUCCEED. WELL, OUR NEXT STOCK RECOMMENDATION WAS INCUBATED BEFORE INCUBATORS WERE ON ANYONE S RADAR. YOU SEE, PRIOR TO THE RISE OF TODAY S WEALTHY INDIVIDUALS AND FOR-PROFIT COMPANIES AS PROMINENT TECH INCUBATORS, THE BEST INCUBATORS OF TECHNOLOGY COMPANIES WERE AMERICA S MOST PRESTIGIOUS UNIVERSITIES. AND THAT S WHERE OUR NEW PICK COMES FROM. IT ALSO HAPPENS TO BE A LEADER IN ONE OF TODAY S MOST EXPLOSIVE TECH INDUSTRIES 2

3 Billions Up for Grabs From the Next Forced Adoption Technology Founded in 1984, Kopin Corporation (KOPN) was spun out of the Massachusetts Institute of Technology, carrying 30 patents related to nanotechnology. That foundation, plus venture capital funding, allowed Kopin to grow its initial business designing specialized microchips for the communications industry. But the company has since sold that business in order to fund product development for one of the biggest opportunities in history wearable technology. Just like mobile technology exploded into our lives a decade ago, wearable devices are now gatecrashing the tech scene. With smartwatches, fitness trackers like Fitbit, headsets, and even clothes these days, Juniper Research says wearable tech will be a $19-billion industry by To put that in perspective, the market was worth just $1.4 billion in And smartwatch sales alone hit $1.2 billion last year. In short, there s no shred of doubt that the wearables market is headed exponentially higher. As it does and as wearable products become ubiquitous more and more companies will have to offer competitive products to keep up with the demand from both consumers and businesses alike. 3

4 This is exactly the kind of forced adoption we look for when identifying the most attractive technology companies. And Kopin is superbly positioned to provide the technology behind this forced adoption of wearable devices. From being a niche maker of wearable products, it s now ready to evolve into an arms dealer for all the companies behind the mass adoption of this disruptive technology. In keeping with the golden rule of tech companies these days to innovate or die, Kopin has transitioned to this new reality. Having previously enjoyed robust business by making optics technology for digital cameras, it quickly adjusted its business model as the popularity of standalone cameras declined. Golden-i Golden Clarity These days and true to its nanotechnology roots Kopin designs and manufactures very small components for wearable technology. For example, tiny video displays that can be placed in the corner of a pair of eyeglasses or even right onto a lens, as well as microphones. That s why you won t see its products on the forthcoming Oculus Rift virtual reality device, since that large headset is designed to be worn while sitting next to a computer. No Kopin s products are for wearing out and about the true wearable tech market. Its lead product is called the Golden-i. It s an optical display used in smart glasses or high-tech headsets. 4

5 The product produces sharp images with so much brightness and clarity that they can be seen during the day in full sunlight. Let s review the company s business as it stands now and where it s going next Military-Grade Strength Kopin makes a variety of its products in a rugged version. Meaning, they can be dropped, rained on, exposed to high heat, and even shot at. So currently, these products are primarily aimed at military use. For example, the company just received an order from the U.S. Navy for its highbrightness color SXGA screens. They ll be used for MH-60 helicopter pilots helmet-mounted displays. A 31-Year Wearable Warrior Kopin has a long and well-respected history in the wearables market. In fact, the company was already well-positioned in the market before it even really existed. It started off by making optical equipment for space applications, and its products were on IBM s wearable computer in 1996! Talk about being ahead of its time! That successful past means that Kopin is already prepared for the future it s just been waiting for everyone else s technology to catch up. Now that it finally has, Kopin s future is bright. This follows an order for Kopin s monochrome SXGA displays for F-35 fighter jets that the company announced in April. It s also shipping products to the military that allow soldiers to aim their weapons better, giving them a battlefield edge and protecting civilian lives. 5

6 Why is the military using Kopin s products? Well, besides their rugged qualities the high brightness of the company s LCD color displays provide crucial quality and reliability to pilots under extreme conditions. They ve become the display of choice for augmented reality applications, where high brightness is required to provide color that s easy to read in full sunlight conditions, according to Kopin s Vice-President of Government Programs, Bill Maffucci. Our displays provide industry-leading brightness levels that are significantly higher than competing technologies, allowing pilots to maintain situational awareness in extreme operating environments. Kopin s superior technology explains why its military applications make up half the firm s revenue. And the company is still expanding its military product range. But it s not just targeting military applications. Kopin s designers are using their expertise in military-grade technology to develop strong civilian products, as well. Transitioning to a Wearable Future Kopin is poised to slide into the consumer wearables revolution with ease. In fact, it s been shipping civilian-use wearable technology products for years. Yet with very low consumer adoption for such products, the sales numbers have always been small. 6

7 With the world now embracing this technology, though, Kopin is sitting pretty. The company is transitioning its business in order to take full advantage of this massive market, as well. Case in point: Having previously had a profitable division making a specialized silicon wafer for wireless transmission products, Kopin sold this division to raise capital for an even brighter future in optical wearable products. Granted, this wearables business is still small, representing only $12.7 million of total revenue. But it s growing According to Morgan Stanley, the total number of wearable technology products will surge by over 150% per year. And by as early as next year, the total market will be worth $170 billion, according to Cowen & Co. That s up from a mere $1.5 billion last year. Even if the company captures a small slice of that $170-billion pie, it would generate tremendous growth. And with Kopin s leading position in the headset market, it s positioned to be one of the most important component suppliers to the booming wearables market. Ensuring Business through constant evolution of products Kopin released its Golden-i product in 2011, and it s been improving it ever since. It s also complemented the technology with two new optical products, called Pupil and Pearl. Each offers better resolution, more brightness, and a more immersive experience than the one before. However, wearable smart glasses consist of much more than the optical component, of course. So Kopin has developed, acquired, or partnered with other firms in order to gain technology for other parts of augmented reality wearables. One of them is voice recognition. The company believes voice will replace touch as the primary input for wearable technology, even for devices that are paired with smartphones. 7

8 Consider: As the first commercially available wearable virtual reality (VR) and augmented reality (AR) glasses ship this summer, Kopin products will be on most of them. Vuzix s M100 Smart Glasses product is just one example. And once AR and VR build momentum in both industrial and consumer devices, a much longer list of suppliers will line up at Kopin s door asking for its rugged products. The company has already scored development contracts with firms like Google, Samsung, and Raytheon. What We re Looking for from Kopin The seeds of Kopin s success have already been sown. Now the name of the game over the next few quarters requires a few key developments Key #1: Sell, Sell, Sell. With wearable technology taking off, we re looking for Kopin to ramp up its relatively low sales base from here. It s in good shape to do so, too, having built relationships with developers of augmented reality headsets, including Vuzix, Motorola Mobility, and Asian companies that are developing various products. However, a sales boost will require Kopin s customers to have successful introductions of commercial headsets. The company says those introductions are imminent. Kopin predicts mass production of headsets and components for the business market starting this quarter. Increased shipments of devices for consumers won t be far behind. Kopin has a full headset design team, so if a company has a great idea for an augmented reality headset, they need not go through all the steps of designing the headset itself. It can just have Kopin do that work, while it focuses time and capital on whatever killer app it s developed. 8

9 Key #2: New Customers. Along with sales to existing clients, we re looking to see Kopin sign new customers. The first successful augmented reality headsets will trigger a huge onslaught of competing products from startups and established companies alike. We want Kopin to be striking deals with these companies, supplying solutions that allow them to get to market quickly. Key #3: Improved Technology. Kopin is already well-positioned in the wearable technology space. But in a rapidly evolving field, we expect the company to further develop its technology. The market will change a lot over the next few years and Kopin must help drive that change. That means better optics, more immersive experiences, advanced voice recognition, stronger connectivity, improved software, superior headset designs everything. It s a big challenge for a company of Kopin s size, but its healthy cash reserves ($87.1 million) should allow the firm to do it. I wouldn t be surprised to see a small acquisition or two in order to give it a jumpstart on a technology that s working in the marketplace. We re Targeting a Price Double With strong foundations and successes already achieved in what is now a massively growing industry and a ton of cash to fund R&D and make acquisitions Kopin couldn t be in a better place right now to push its technology forward. In fact, fully one-third of Kopin s current market value is reflected in cash or short-term government bonds. So in a sense, we re getting the company for two-thirds of its current price and funding its future with the other third. Action to Take: BUY Kopin Corporation (KOPN) at market. I believe the growth possibilities are outstanding here, and I m looking for the stock to double from current levels. 9

10 Ahead of the tape, Louis Basenese Chief Technology Analyst, VentureCap Strategist 10

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