Quarterly Report for Quarter Ending September 27, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are subject to the safe harbor created by such sections. Words such as "expects," "anticipates," "intends," "plans," "believes," "could," "would," "seeks," "estimates," and variations of such words and similar expressions, and the negatives thereof, are intended to identify such forward-looking statements. We caution readers not to place undue reliance on any such "forward-looking statements," which speak only as of the date made, and advise readers that these forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates, and assumptions by us that are difficult to predict. Various factors, some of which are beyond our control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. All such forward-looking statements, whether written or oral, and whether made by us or on our behalf, are expressly qualified by these cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as may otherwise be required by the federal securities laws.

We have identified the following important factors that could cause actual results to differ materially from those discussed in our forward-looking statements. Such factors may be in addition to the risks described in Part I, Item 1A. "Risk Factors;" Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations;" and other parts of our Annual Report on Form 10-K for the fiscal year ended December 28, 2024, as amended. These factors include: our ability to source semiconductor components and other raw materials used in the manufacturing of our products amidst continued intermittent shortages, including from new and alternative suppliers; our ability to prosecute and defend our proprietary technology aggressively or successfully; our ability to recruit and retain personnel with experience and expertise relevant to our business; our ability to invest in research and development to achieve profitability even during periods when we are not profitable; any disruptions or delays in our supply chains, particularly with respect to semiconductor components, whether resulting from regional or global geopolitical developments, changes imposed by the new U.S. presidential administration, the current U.S. government shutdown, or otherwise; costs and outcomes relating to any disputes, governmental inquiries or investigations, regulatory proceedings, legal proceedings or litigation; our ability to continue to introduce new products in our target markets; our ability to generate revenue growth and positive cash flow, and reach profitability; the strengthening of the U.S. dollar and its effects on the price of our products in foreign markets; the impact of new regulations and customer demands relating to conflict minerals; our ability to obtain a competitive advantage in the wearable technologies market through our extensive portfolio of patents, trade secrets and non-patented know-how; our ability to grow within our targeted markets; the importance of small form factor displays in the development of defense, consumer, and industrial products such as thermal weapon sights, safety equipment, virtual and augmented reality gaming, training and simulation products and metrology tools; the suitability of our properties for our needs for the foreseeable future; and our need to achieve and maintain positive cash flow and profitability.

Overview

We are a leading developer, manufacturer and seller of miniature displays and optical lenses (our "components") for sale as individual displays, components, modules or higher-level subassemblies. We also license our intellectual property through technology license agreements. Our component products are used in highly demanding high-resolution portable defense, enterprise and consumer electronic applications, training and simulation equipment and 3D metrology equipment. Our products enable our customers to develop and market an improved generation of products for these target applications.

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 28, 2024, as amended and our unaudited condensed consolidated financial statements included in this Form 10-Q.

Results of Operations

Our interim period results of operations and period-to-period comparisons of such results may not be indicative of our future operating results. Additionally, we use a fiscal calendar that may result in differences in the number of workdays in the current and comparable prior interim periods and could affect period-to-period comparisons. The following discussion of comparative results of operations among periods should be viewed in this context.

Revenues. For the three and nine months ended September 27, 2025 and September 28, 2024, our revenues by display application, which include product sales and amounts earned from research and development contracts ("R&D"), were as follows:

		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
(In thousands)		September 27, 2025				September 28, 2024				September 27, 2025				September 28, 2024
Defense		$	9,934			$	10,434			$	24,618			$	29,095
Industrial			749				489				2,172				1,883
Medical			1				-				574				-
Consumer and other			9				-				58				25
R&D			1,200				2,268				3,345				4,338
License and royalties			69				129				189				348
Total Revenues		$	11,962			$	13,320			$	30,956			$	35,689

Sales of our products for Defense applications include systems used by the military both in the field and for training and simulation. The decrease in Defense applications revenues in the three months ended September 27, 2025 as compared to the three months ended September 28, 2024 was primarily due to a decrease in revenues from products used in pilot helmets and training and simulation which was partially offset by an increase in sales from products used in thermal weapon sights. The decrease in Defense applications revenues in the nine months ended September 27, 2025 as compared to the nine months ended September 28, 2024 was primarily due to a decrease in revenues from products used in thermal weapon sights, training and simulation, and pilot helmets.

Industrial applications revenue represents customers who purchase our display products for use in 3D automated optical inspection ("3DAOI") equipment and head-mounted displays used for applications in public safety. The increase in Industrial applications revenues for the three and nine months ended September 27, 2025 as compared to the three months ended September 28, 2024 was primarily due to an increase in revenues from products used in a public safety application which was partially offset by a decline in products used for 3D automated optical inspection. We have launched a new product for the 3DAOI and our ability to compete in this market will rely upon acceptance of this product which we are unable to forecast.

Medical revenues in 2025 represent the initial shipments of a head-mounted medical product. There were minimal revenues from the sales of this product in the third quarter of 2025 as the products sold in the first six months of 2025 are being evaluated by ultimate customers.

Sales of our displays for Consumer applications are typically "one-off" purchases from companies or organizations using our products for research and development.

R&D revenues decreased in the three and nine months ended September 27, 2025 as compared to the three and nine months ended September 28, 2024 primarily due to decreases in funding for U.S. defense programs. We were awarded a $15.4 million Other Transaction Agreement ("OTA") from the Office of the Secretary of War ("OSW") through the U.S. Army Contracting Command ("ACC") under the Industrial Base Analysis and Sustainment ("IBAS") program. This contract is for the development of ultra-bright, full-color MicroLED displays optimized for ground soldier augmented reality ("AR") applications. As a result of this contract and other contracts we have received, we believe funded research and development revenues will increase in fiscal year 2026 as compared to fiscal year 2025. This belief is based on assumption of meeting required milestones in these contracts which may be delayed or not met which can affect the timing of revenue recognition.

The decrease in license and royalty revenue in the three and nine months ended September 27, 2025 as compared to the three and nine months ended September 28, 2024 is due to a decrease in royalties earned under IP license agreements for industrial wearable headsets.

Our international revenues, which are primarily our sales of our products into the 3D AOI market and which comprise the majority of our Industrial sales category, represented 3% and 4% of total revenues for the three and nine months ended September 27, 2025, respectively, and 5% and 7% of total revenues for the three and nine months ended September 28, 2024, respectively. These sales are primarily made by Kopin Europe, Ltd. ("KEL") our then wholly-owned Scottish subsidiary as of September 27, 2025 in Asian markets. In October 2025, we sold a 49% interest in KEL to Theon. We expect to expand the operations of KEL through the development of new products. We are unable to forecast when the products would be available, if successfully developed, to generate revenue. We have not taken any protective measures against exchange rate fluctuations, such as purchasing hedging instruments with respect to such fluctuations, because of the historically stable exchange rate between the British Pound Sterling (the functional currency of our U.K. subsidiary) and the U.S. dollar. Foreign currency translation impact on our results, if material, is described in further detail under "Item 3. Quantitative and Qualitative Disclosures About Market Risk" section below.

Cost of Product Revenues. Cost of product revenues, which is comprised of materials, labor and manufacturing overhead related to the production of our products for the three and nine months ended September 27, 2025 and September 28, 2024 were as follows:

		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
(In thousands, except for percentages)		September 27, 2025				September 28, 2024				September 27, 2025				September 28, 2024
Cost of product revenues		$	8,397			$	8,317			$	23,098			$	25,544
Cost of product revenues as a % of net product revenues			79	%			76	%			84	%			82	%

The cost of product revenues as a percentage of net product revenues for the three and nine months ended September 27, 2025, as compared to the three and nine months ended September 28, 2024 increased due to higher costs to manufacture training and simulation products and 3DAOI products which was partially offset by improved efficiency in making products for thermal weapon sights. The increase in cost to manufacture training and simulation and 3DAOI products is due to lower volumes which results in a higher fixed cost per unit.

The United States government is or is in the process of increasing or implementing tariffs on the importation of certain goods. In some cases, our contracts allow us to pass along new or increased tariffs subject to ability to prove the impact of the tariff on the cost of our product. If we are unable to increase our prices due to the implementation or increase in tariff, duties and other taxes our gross margin and overall profitability would be negatively impacted.

The issues associated with the global shortage of semiconductor circuit chips and other raw materials decreased in 2025 as compared to 2024. However, we have identified several semiconductor components which continue to have long lead delivery times. We continue to search for and procure all necessary components from our current vendors and new alternative vendors. In certain situations, we can obtain the components but at a significantly increased cost. The inability to procure a single component will prevent the completion of our product and the ability to sell the product. Our products go through extensive qualification processes and therefore our customers may not accept a replacement component. If we are unable to obtain all necessary components, we may be required to stop production, which would negatively affect our cash flow and results of operations. In addition, we depend on a Taiwanese foundry for the manufacture of integrated circuits for our AMLCD display products and on Chinese, Korean, and European foundries for our OLED display products. If there was a disruption of supply from these foundries it would take a significant period of time to identify, and qualify, if possible, a new source.

Research and Development. R&D expenses are incurred in support of internal display development programs and programs funded by agencies or prime contractors 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. In fiscal year 2025, our R&D expenditures are related to our display products, overlay weapon sight modules and production automation. In addition, in October 2025 we sold a 49% interest in KEL to Theon. We expect to expand the operations of KEL through the development of new products. Funded and internal R&D expenses are combined in research and development expenses in the condensed consolidated statement of operations. R&D expenses for the three and nine months ended September 27, 2025 and September 28, 2024 were as follows:

		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
(In thousands)		September 27, 2025				September 28, 2024				September 27, 2025				September 28, 2024
Funded		$	647			$	1,123			$	1,749			$	2,598
Internal			1,856				1,474				4,815				3,939
Total research and development expense		$	2,503			$	2,597			$	6,564			$	6,537

Funded R&D expense for the three and nine months ended September 27, 2025 decreased as compared to the three and nine months ended September 28, 2024 primarily due to decreased spending on U.S. defense programs and programs previously in development are transitioning into production. Internal R&D expense increased due to an increase in internally developed technology focused on future process improvements. We were awarded a $15.4 million Other Transaction Agreement ("OTA") from the Office of the Secretary of War ("OSW") through the U.S. Army Contracting Command ("ACC") under the Industrial Base Analysis and Sustainment ("IBAS") program. This contract is for the development of ultra-bright, full-color MicroLED displays optimized for ground soldier augmented reality ("AR") applications. As a result of this contract and other contracts we have received we believe funded research and development expenses will increase in fiscal year 2026 as compared to fiscal year 2025.

Selling, General and Administrative. Selling, general and administrative ("S,G&A") expenses consist of the expenses incurred by our sales and marketing personnel and related expenses, and administrative and general corporate expenses. S,G&A expenses for the three and nine months ended September 27, 2025 and September 28, 2024 were as follows:

		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
(In thousands, except for percentages)		September 27, 2025				September 28, 2024				September 27, 2025				September 28, 2024
Selling, general and administration expense		$	1,629			$	5,207			$	11,230			$	19,707
Selling, general and administration expense as a % of revenues			14	%			39	%			36	%			55	%

S,G&A decreased for the three months ended September 27, 2025 as compared to the three months ended September 28, 2024 primarily due to a decrease in accrued legal expenses of approximately $4.0 million partially offset by an increase in non-cash stock-based compensation of $0.2 million. S,G&A decreased for the nine months ended September 27, 2025 as compared to the nine months ended September 28, 2024 primarily due to a decrease in accrued legal expenses of approximately $9.8 million partially offset by an increase in non-cash stock-based compensation of $0.6 million, professional fees of $0.4 million, and labor costs of $0.4 million.

Litigation Damages. Litigation damages of $24.8 million were accrued as of September 28, 2024 as a result of the April 22, 2024 jury verdict that was entered against the Company. On September 5, 2025, Kopin received a judgment from the courts in the BlueRadios litigation awarding BlueRadios $19.7 million in damages but denying a permanent injunction and prejudgment interest. This most recent judgment also provides for the accrual of interest of less than $0.1 million per month until final settlement. As a result, the accrued litigation damages were reduced by $5.1 million in the three months ended September 27, 2025. We also recognized approximately $0.1 million of litigation damages related to the interest on the judgment in the three months ended September 27, 2025.

Other Expense, net. Other expense, net, is primarily composed of interest income, foreign currency transactions, gains on fair value recording of investments and remeasurement gains and losses incurred by our U.K.-based subsidiary and other non-operating income items. Other expense, net, for the three and nine months ended September 27, 2025 and September 28, 2024 were as follows:

		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
(In thousands)		September 27, 2025				September 28, 2024				September 27, 2025				September 28, 2024
Other (expense) income, net		$	(401	)		$	(535	)		$	793			$	(907	)

During the nine months ended September 27, 2025, we sold an investment for a gain of approximately $0.3 million. Interest income increased by less than $0.1 million and approximately $0.4 million for the three and nine months ended September 27, 2025, respectively, as compared to the three and nine months ended September 28, 2024. During the three and nine months ended September 27, 2025, we recorded foreign currency losses of approximately $0.2 and less than $0.1 million, respectively. During the three and nine months ended September 28, 2024, we recorded foreign currency gains of $0.1 million and less than $0.1 million, respectively. Other (expense) income, net includes $0.5 and $1.6 million of impairment losses on equity investments for the nine months ended September 27, 2025 and September 28, 2024, respectively.

Tax Provision. We recorded a provision for income taxes of less than $0.1 million and approximately $0.2 million in the three and nine months ended September 27, 2025, respectively. We recorded a provision for income taxes of approximately $0.1 million in the three and nine months ended September 28, 2024

Net Income (Loss). Net income of $4.1 million and net losses of $4.2 million during the three and nine months ended September 27, 2025, respectively, compared to net losses of $3.5 million and $41.9 million during the three and nine months ended September 28, 2024, respectively. The increase in net income during the three months ended September 27, 2025 compared to the three months ended September 28, 2024 was primarily due to the reduction of the accrued litigation damages and legal fees. The decrease in net loss during the nine months ended September 27, 2025 compared to the nine months ended September 28, 2024 was primarily due to accrued litigation damages and legal fees.

Liquidity and Capital Resources

At September 27, 2025 and December 28, 2024, we had cash and cash equivalents, including restricted cash, and marketable securities of $27.6 million and working capital of $16.9 million compared to $36.6 million and $18.9 million, respectively.

		Nine Months Ended				Nine Months Ended
		September 27, 2025				September 28, 2024
Net cash used for operating activities		$	(7,683,203	)		$	(12,640,553	)
Net cash from (used in) investing activities			20,183,453				(10,434,050	)
Net cash (used in) provided by financing activities			(154,706	)			32,439,631
Effect of exchange rate changes on cash			2,476				4,880
Increase in cash and equivalents		$	12,348,020			$	9,369,908

The increase in cash, cash equivalents, and restricted cash for the nine months ended September 27, 2025 was primarily due to proceeds from the sales of marketable securities of $36.4 million partially offset by purchases of marketable securities of $15.2 million, cash used in operations of $7.7 million, capital expenditures of $1.3 million and proceeds from the sale of an equity investment of $0.3 million. The increase in cash, cash equivalents, and restricted cash for the three months ended September 28, 2024 was primarily due to proceeds from the sale of common stock and pre-funded warrants of $32.4 million and marketable securities of $6.9 million partially offset by purchases of marketable securities of $16.9 million, cash used in operations of $12.6 million, and capital expenditures of $0.3 million. For the nine months ended September 27, 2025, cash used in operating activities consisted of a net loss of $4.2 million, net cash used to fund changes in operating assets and liabilities of $3.0 million, and non-cash charges totaling $0.5 million, which was primarily related to accrued litigation damages offset by stock-based compensation, inventory reserves, depreciation, and investment impairment net of unrealized gains. For the nine months ended September 28, 2024, cash used in operating activities consisted of a net loss from operations of $41.9 million and net cash provided by changes in operating assets and liabilities of $1.9 million partially offset by non-cash charges totaling $31.2 million, which was primarily related to accrued litigation damages, stock-based compensation, investment impairment net of unrealized gains, inventory reserves, and depreciation. We expect that net cash used for or provided by operating activities to fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, the timing of when we recognize revenue, and changes in components of working capital. Our cash and cash equivalents and liquidity could be adversely affected by any amounts that become payable in connection with any adverse results from any litigation we are, or may become, involved in.

Equity offerings

On September 30, 2024, we sold 2,405,000 shares of common stock and received gross proceeds of $1.6 million.

On September 23, 2024, we sold 37,550,000 shares of common stock at a public offering price of $0.65 per share. In addition, in lieu of common stock to certain investors, we offered pre-funded warrants to purchase 4,000,000 shares of our common stock at a purchase price of $0.64 per pre-funded warrant, which equals the public offering price per share of the common stock less the $0.01 exercise price per share of each pre-funded warrant. We received gross proceeds of $27.0 million before deducting underwriting discounts and offering expenses paid by us of $1.8 million. In addition, we granted the underwriters a 30-day option to purchase up to an additional 6,232,500 shares of common stock at the public offering price, less underwriting discounts and commissions.

At-the-market offerings

During the three months ended March 30, 2024, we sold 3,080,000 shares of common stock for gross proceeds of $7,466,755 (average of $2.42 per share) before deducting broker expenses paid by us of approximately $0.2 million, pursuant to our then effective At-The-Market Equity Offering Sales Agreement, dated as of March 5, 2021 (the "ATM Agreement") with Stifel, Nicolaus & Company, Incorporated ("Stifel"), as agent. The ATM Agreement terminated in the three months ended September 28, 2024. On January 24, 2025, the Company entered into a new At-The-Market Equity Offering Sales Agreement with Stifel, Nicolaus & Company, Incorporated ("Stifel"), as agent, for the sale of up to $50 million of securities. Subsequent to April 13, 2025, the Company cannot use the At-The-Market Equity Offering Sales Agreement entered into on January 24, 2025 until such time the Company can utilize Form S-3.

On September 29, 2025, the Company announced that it had entered into a securities purchase agreement (the "Purchase Agreement") for a private investment in public equity financing (the "PIPE") for 19,545,950 shares of its common stock, par value $0.01 per share (the "Shares"). The net proceeds to the Company from the offering were estimated to be approximately $38.1 million, after deducting placement agent fees and commissions and estimated offering expenses payable by the Company. The transaction was consummated on September 30, 2025.

As described in Note 14. Litigation, on September 5, 2025, a post-trial order was entered in the U.S. District Court for the District of Colorado in the matter of BlueRadios, Inc. v. Kopin Corporation, Inc. finding for the plaintiff, BlueRadios, Inc. and awarding approximately $19.7 million in damages but denying a permanent injunction and prejudgment interest. In the second quarter of 2024, the Company had estimated and accrued $24.8 million in probable and reasonably estimable damages for this matter. As a result of the post-trial order, the Company reduced the accrual to $19.7 million and recognized a benefit of $5.1 million for the reduction in the accrual in the condensed consolidated Statements of Operations for the three and nine months ended September 27, 2025. On October 2, 2025, the Company posted a supersedeas bond for the amount of $23.0 million which consisted of the $19.7 million judgement, legal expenses, and interest that would accrue over the expected term of the appeal. To post the bond the Company entered into loan agreements (the "Agreements") with its bank which provides the bank with a security interest in the $23.0 million the Company deposited with the bank. This $23.0 million is to be classified as Restricted Cash. The bank then issued a Letter of Credit (LOC) to a surety company who then issued the bond to the court. The Agreement provides for standard representations and warranties and allows the bank to use the $23.0 million to satisfy the LOC in the event the LOC is called. As of September 27, 2025, the Company has accrued $19.7 million for the judgment within Accrued litigation liability and has accrued approximately $0.1 million in related interest within Other accrued liabilities. On October 7, 2025, the Company filed an appeal of the $19.7 million judgement against the Company in the matter of Blue Radios Inc. v. Kopin Corporation. As of September 27, 2025, the Company has accrued $19.7 million for the judgment within Accrued litigation liability and has accrued approximately $0.1 million in related interest within Other accrued liabilities.

On October 16, 2025, the Company announced that a $15 million strategic investment from Theon International Plc had been completed. Under the terms of the Agreements, Theon acquired a 49% interest in Kopin's subsidiary, Kopin Europe Ltd. for $8.0 million and the parties entered into a licensing and development agreement and funding agreements relating to the joint development of military products. In addition, Theon purchased $7.0 million worth of shares of Series A Convertible Preferred Stock, par value $0.01 per share, of the Company (the "Preferred Stock"). Each share of the Preferred Stock is convertible into shares of common stock, par value $0.01 per share, of the Company (the "Common Stock") at an initial fixed conversion price of $3.00 per share, pursuant to the terms of the Certificate of Designation for Series A Convertible Preferred Stock of the Company (the "Certificate of Designations"). Kopin will have the ability to force the conversion of the preferred stock into common stock once Kopin's common stock trades at $5.50 per share or higher for 10 Trading Days (as defined in the Certificate of Designation) within a 30 consecutive Trading Day period. The Preferred Stock will carry an annual dividend of at the base rate dividend rate of 4%, 2% payable in cash and 2% payable in stock.

We expect to continue to incur significant operating losses and negative cash flow from operations in the foreseeable future. Inclusive within the financial statements for the year ended December 28, 2024 and for the three and six months ended June 28, 2025 we experienced negative cash flow from operation and had limited liquidity resources which has led us to conclude that there was substantial doubt about the Company's ability to continue as a going concern. After the bond related to the Blue Radios, Inc. v. Kopin Corporation, Inc. judgment, we were able to achieve sufficient financing from the PIPE so that liquidity, financial condition, and business projects will be funded. Therefore, we have concluded that the Company will be able to continue as a going concern for at least the next twelve months from the issuance of these financial statements.

The following table presents the components of our cash, cash equivalents, restricted cash and marketable securities held in U.S. dollars as of the dates presented:

		September 27, 2025				December 28, 2024
Domestic locations		$	27,424,773			$	36,491,339
Foreign locations			19,686				56,984
Subtotal cash, cash equivalents, restricted cash and marketable securities held in U.S. dollars			27,444,459				36,548,323
Cash and cash equivalents held in other currencies and converted to U.S. dollars			113,681				81,455
Total cash, cash equivalents, restricted cash and marketable securities		$	27,558,140			$	36,629,778

As discussed in Note 16. Subsequent Events, $23.0 million of the Company's cash balance is to be classified as Restricted Cash.

We have no plans to repatriate the cash and cash equivalents held in our foreign subsidiary KEL.

The manufacturing operations at our Korean facility, Kowon, have ceased and Kowon was liquidated at fiscal year ended 2018. We have recorded deferred tax liabilities for any additional withholding tax that may be due to the Korean government upon Kowon's final tax return acceptance.

We expect to expend between $1.0 million and $2.0 million on capital expenditures in 2025.

Critical Accounting Estimates

Our critical accounting estimates are described in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition" of our Annual Report on Form 10-K for the fiscal year ended December 28, 2024, as amended. There have been no material changes to our critical accounting policies and estimates since December 28, 2024.