KOPN 10-K & 10-Q changes, risk factors and insider trading

We operate in a changing global environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect our financial condition, results of operations, cash flows, and competitive position. Accordingly, our business and financial results are subject to a number of risks and uncertainties, including those set forth below. Additional risks and uncertainties that are not currently known to us or that we currently do not believe to be material may also negatively affect our business and financial results. The risk factors set forth below describe what we believe to be the material risks and uncertainties related to our financial condition, results of operations, cash flows, and competitive position. We have included the risk factors below without any reflection on the relative importance of, or likelihood of, any particular risk factor.

We have experienced a history of losses, have a significant accumulated deficit, have had negative cash flow from operating activities in fiscal years 2024, 2023,2025 and 2022, 2024, and expect to have negative cash flow from operating activities in fiscal year 2025.2026. Since inception, we have incurred significant net operating losses. As of December 28,27, 2024,2025, we had an accumulated deficit of $402.0 $399.5 million. At December 28,27, 20242025 and December 30, 2023,28, 2024, we had $36.6$61.6 million and $17.9$36.6 million of cash and cash equivalents, including restricted cash, and marketable securities, respectively. For the years 20242025 and 2023,2024, net cash used in operating activities was $14.2 $15.5 million and $15.3$14.2 million, respectively. The increase in our cash and cash equivalents and marketable securities is primarily due to gross proceeds of $33.9 million received from the sale of 43.0 million shares of common stock and the pre-funded warrants to purchase up to 4,000,000 shares of common stock at a public offering price of $0.65 per share.share, Weand havenet accruedproceeds $24.8of approximately $38.1 million for a litigation issue and asfrom a resultprivate weplacement havefundraising concludedactivity thatfor there19,545,950 shares isof substantialits doubtcommon aboutstock, ourpar abilityvalue to$0.1 continueper asshare at a going concern within one year following the issuanceprice of this$2.10 annualper report.share, We plan to continue to invest in research and development even during periods when we are not profitable, which may result in our incurring losses from operations and negative cash flow. If we do not soon achieve and maintain positive cash flow and profitability, our financial condition will ultimately be materially and adversely affected, and we will be required to raise additional capital. We may not be able to raise any necessary capital on commercially reasonable terms or at all. If we fail to achieve or maintain profitability on a quarterly or annual basis within the timeframe expected by investors, the market price of our common stock may decline.

Raising additional funds by issuing securities may cause dilution to our existing stockholders or restrict our operations. To the extent that we raise additional capital by issuing equity securities, the share ownership of existing stockholders will be diluted. The terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our shares to decline. We may sell shares or other securities in other offerings at a price per share that is less than the prices per share paid by other investors, and investors purchasing shares of our common stock or other securities in the future could have rights superior to existing stockholders. The sale of additional equity or convertible securities would dilute all of our stockholders, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders.

The Sarbanes-Oxley Act of 2002 and SEC rules require that management annually report on the effectiveness of our internal control over financial financial reporting and our disclosure controls and procedures. As more fully described within Item 9A, “Controls and Procedures,” of this Annual Report on Form 10-K, inmanagement determined that the fourth quarter of 2024 management identified material weaknesses in internal control over financial reporting previously identified in our 2024 Annual Report on Form 10-K had not been fully remediated and identified an additional material weakness in internal control over financial reporting. As a result, our Chief Executive Officer and Chief Financial Officer concluded that our internal controls over financial reporting were not effective as of December 28,27, 2024.2025. The specific material weaknesses are described in Part II - Item 9A. “Controls and Procedures” of this 2024Annual Report on Form 10-K in “Management’s Report on Internal Control over Financial Reporting.” A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected. We cannot assure you that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in material misstatements in our financial statements, which could cause us to fail to meet our reporting obligations or cause investors to lose confidence in our reported financial information, leading to a decline in our stock price. The material weaknesses did not result in any identified misstatements to the December 28, 2024, audited financial statements, nor with respect to the financial statements for any previously reported period.

We are in the process of developing and implementing our remediation plan for the identified material weaknesses, and we expect that this work will continue in 2025.2026. There can be no assurance, however, as to when the remediation plan will be fully developed, when it will be fully implemented and/or the cost of its implementation. Until our remediation plan is fully implemented, we will continue to devote significant time and attention to these efforts. If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there is a risk that we will be unable to timely file future periodic reports with the SEC and/or that our future financial statements could contain undetected errors. Until the remediation plan is complete and implemented, we will rely upon additional interim control procedures prescribed by management, including the utilization of manual mitigating control procedures to help ensure that we fairly state our financial statements in all material respects. However, the establishment of these interim controls does not provide the same degree of assurance as a fully remediated control environment. For more information relating to our internal control over financial reporting and disclosure controls and procedures, and the remediation plan that we have undertaken, see Part II - Item 9A. “Controls and Procedures” of this 2024Annual Report on Form 10-K.

We may be unable to manufacture our products cost effectively to meet contractual specifications or customer requirements. Our products are required to meet specifications agreed to in purchase orders and related agreements with our customers. Our ability to produce products which meet these specifications is dependent on anumerous number of factors includingincluding, but not limited toto, our manufacturing processes and our vendors providing raw materials that meet the specifications we have agreed to with them. In addition, while there may be agreement with our customers on the specifications there may be ambiguity with the method to measure compliance with meeting the specifications. When we commence production of new products, we normally go through a period of low production efficiency as we modify our production processes for higher volume outputoutput, andresulting trainin morehigher production employees on how to make the product. Low production efficiency means that the cost to make the product is more than what we anticipated when we accepted the purchase order from the customer.costs. In addition, after we commence selling our products customers may request changes to the products which may also result in the low production efficiency starting again.efficiency. We currently have several new products and new product configurations going to production. If the products we deliver are found to have undetected defects or latent defects whenupon we ship them,shipment, we may incur the cost to recall the products. Product recalls and product liability and warranty claims can result in significant damages and costs, including fines, as well as other harm to our business. If we are unable to manufacture our products cost effectively, our revenue and ability to obtain profitability will be adversely affected.

Our revenues and cash flows could be negatively affected if sales of our display products for defense applications significantly decline or the current defense development programs are either cancelled or ultimately do not result in future product sales. The sale of our display products to the military for use in thermal weapon sights and avionic helmets has been a primary source of our defense revenues and cash flows over the last several years. We currently are included in the Family Weapon Sight (“FWS”) Individual program and the Joint Strike Fighter (F-35) jet fighter program. In 2023 and 2024, we experienced quality issues with the products we supplied for the FWS-I program. These quality issues resulted in suspension of shipments to our customer at various times during 2023 and 2024 as we made modifications to our production processes. We are continuing to make modifications to our production processes as we resolve certain issues. We are in development and qualification of additional defense programs related to avionic helmets, armored vehicles and soldier rifle scopes. Our ability to generate revenues and cash flow from sales to the U.S. military and our customers depends on our Display products remaining qualified in the F-35 Joint Strike Fighter, FWS and other U.S. defense programs, our customers continuing to serve as the suppliers for those programs, and on the U.S. Government/military funding these programs. We may not be awarded contracts for the systems we are in qualification for, and for the systems we are qualified for, we may only be awarded a portion of the program as the U.S. military looks to have multiple sources when possible. Even if our products qualify for these programs, the U.S. Government can opt to change suppliers, in which case demand for our products could be negatively affected. In addition, the government could postpone or cancel these programs. We believe the DoDDoW is evaluating alternative display technologies for the F-35 Strike Fighter program and other defense programs, and we will need to develop and qualify any replacement display technologies. Our ability to generate revenues and cash flow from sales to the U.S. military also depends on winning contracts over our competitors. If we are unable to be qualified into new U.S. defense programs, remain qualified in existing programs, or win orders against our competition, or if defense programs are not funded, then our ability to generate revenues and achieve profitability and positive cash flow will be materially and negatively impacted.

A decline in the U.S. Government defense budget, changes in spending or budgetary priorities, a prolonged U.S. Government shutdown or delays in contract awards may significantly and adversely affect our future revenues, cash flow and financial results. In addition to the Anti-Deficiency Act, in recent years U.S. Government appropriations have been affected by larger U.S. Government budgetary issues, including reductions or shifts in the capital resources or government funding, and related legislation. As a result, DoDDoW funding levels have fluctuated and have been difficult to predict. Future spending levels are subject to a wide range of factors, including Congressional action and changes to governmental policies and programs, including loans, grants, guarantees and other subsidies, and changes to government spending policies, including shifts in funding priorities. In addition, in recent years the U.S. Government has been unable to complete its budget process before the end of its fiscal year, resulting in both a government shutdown and continuing resolutions to extend sufficient funds only for U.S. Government agencies to continue operating. Additionally, Most recently,if the federal government was shut down due to a lack of funding for over one month between late 2018 and early 2019. Additionally, the national debt has recently threatened to reachreaches the statutory debt ceiling in 2024,future years, and such an event in future yearsit could result in the U.S. Government defaulting on its debts.

Most of our defense sales are on a fixed-price basis, which could subject us to losses if there are cost overruns. Under a fixed-price contract, we receive only the amount indicated in the contract, regardless of the actual cost to produce the goods. While firm fixed-price contracts allow us to benefit from potential cost savings, they also expose us to the risk of cost overruns. If the initial estimates that we use to calculate the sales price and the cost of performing the work prove to be incorrect, we could incur losses. We have had situations where we have underestimated the cost of a program and incurred losses in fulfilling the contract. As discussed above, we are seeing a global shortage of semiconductors and other raw materials which is resulting in a significant increase in some raw material prices. In addition, the U.S. recently experienced inflation levels not seen in many years which drove higher labor costs and there is an expectation that tariffs may result in additional inflation in the future. Some of our contracts have specific provisions relating to cost, scheduling, and performance. If we fail to meet the terms specified in those contracts, then our cost to perform the work could increase, which would adversely affect our financial position and results of operations. Some of the contracts we bid on have Indefinite Delivery, Indefinite Quantity (“IDIQ”) provisions. This means we are bidding a fixed price but are not assured of the quantity the government will buy or when it will buy during the term of the contract. This means we are exposed to the risk of price increases for labor, overhead and raw materials during the term of the contract. We may incur losses on fixed-price and IDIQ contracts that we had expected to be profitable, or such contracts may be less profitable than expected, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Changes in government trade policies may increase the cost of our products, which may materially adversely affect our sales or profitability. 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. In recent years the U.S. has imposed, among other actions, new or higher tariffs, including those that have been or may be imposed by the newcurrent presidential administration in the U.S. on specified imported products originating from China in response to what it characterizes as unfair trade practices, and China has responded by proposing or implementing new or higher tariffs on specified products imported from the U.S. Tariffs on components that we import from China or other nations that have imposed, or may in the future impose, tariffs have in some cases and may in the future cause our expenses to increase, which would adversely affect our profitability unless we were able to exclude our products from the tariffs or we raise prices for our products, which may result in our products becoming less attractive relative to products offered by our competitors. In addition, tariffs and international trade arrangements may continue to change, potentially without warning and to an extent that is difficult to predict. Accordingly, future actions or escalations by either the U.S. or China that affect trade relations may also affect our business or that of our suppliers or customers, and we cannot provide any assurances as to whether such actions will occur or the form that they may take. Moreover, it is uncertain to what extent, if any, the U.S. tariffs on components that we import from China will affect the Taiwanese foundries on which we depend, in part because many Taiwanese foundries conduct parts of their manufacturing in China. Kopin has completed and continues to transition several OLED device deposition steps to European supply chain partners for U.S. DoDDoW source of supply requirements and duplicity to reduce the risk of Chinese supply and potential tariffs.

Our business business and financial performance may be adversely affected by cyber-attacks on information technology infrastructure and products, as well as changes in cybersecurity and if our information technology security systems were infiltrated and confidential and/or proprietary proprietary information were taken, we could be subject to fines, lawsuits and loss of customers. Significantly larger organizations with much greater resources than us have been the victim of cybercrimes. We routinely receive emails probing our Internet security, and our Internet security systems have detected outside organizations attempting to install Trojan virus software packages in our systems. We rely on our electronic information systems to perform routine transactions to run our business. We transact business over the Internet with customers, vendors and our subsidiaries and have implemented security measures to protect against unauthorized access to this information. We have also implemented security policies that limit access via the Internet from the Company to the outside world based on the individual’s position in the Company. We routinely receive security patches from software providers for the software we use. Our primary concerns are inappropriate access to personnel information, information covered under the International Traffic in Arms Regulation, product designs and manufacturing information, financial information and our intellectual property, trade secrets and know-how. Our business may be impacted by disruptions to our own or third-party information technology (“IT”) infrastructure, which could result from, among other causes, cyberattacks on or failures of such infrastructure or compromises to its physical security. Cybersecurity threats are continuously evolving and include, but are not limited to, both attacks on our IT infrastructure and attacks on the IT infrastructure of our customers, suppliers, subcontractors and other third parties with whom we do business routinely, both on premises and in the cloud, attempting to gain unauthorized access to our confidential, proprietary, or otherwise protected information, classified information, or information relating to our employees, customers and other third parties, or to disrupt our systems or the systems of third parties. We are also exposed to the risk of insider threat attacks. Any such attacks could disrupt our systems or those of third parties, impact business operations, result in unauthorized release of confidential, proprietary, or otherwise protected information, and corrupt our data or that of third parties. The threats we face are continuously evolving and vary in degree of severity and sophistication. These threats include advanced persistent threats from highly organized adversaries, including but not limited to cyber criminals, nation states and so-called hacktivists, particularly those adverse to the security interests of the U.S. and its allies, which target us and other defense contractors. These types of threats are related to the geopolitical environment and have, therefore, grown in number due to recent geopolitical conflicts. In addition, because of the rapid pace of technological change, we and our customers, suppliers, subcontractors and other third parties with whom we conduct business continue to rely on legacy systems and software, which can be more vulnerable to cyber threats and attacks. Moreover, we, like other companies, see an unprecedented number of previously unknown vulnerabilities, for which there are no known mitigations being revealed by new attacks. Further, the sophistication, availability and use of artificial intelligence by threat actors present an increased level of risk. Due to the evolving threat landscape, we have experienced and expect to continue to experience more frequent and increasingly advanced cyber-attacks. In addition, changes in domestic and international cybersecurity-related laws and regulations have expanded cybersecurity-related compliance requirements, and cybersecurity regulatory enforcement activity has grown. We expect the regulatory environment to continue to evolve, and staying apace with these regulatory changes could increase our operational and compliance expenditures and those of our suppliers, and lead to new or additional information technology and product development expenses. We also face reputational, litigation and financial risks in relation to potential required disclosures and increased risk of enforcement. We continue to make investments and adopt measures designed to enhance our protection, detection, response, and recovery capabilities, and to mitigate potential risks to our technology, products, services and operations from potential cybersecurity threats, as well as to comply with evolving regulations. However, given the unpredictability, nature and scope of cyber-attacks, it is possible that we are unable to defend against all cyber-attacks, that potential vulnerabilities could go undetected and persist in the environment for an extended period, or that we may otherwise be unable to mitigate customer losses and other potential consequences of these attacks. In some cases, we must rely on the safeguards put in place by our customers, suppliers, subcontractors and other third parties to protect against and report cyber threats and attacks. We could potentially be subject to production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the compromise of confidential information, intellectual property or otherwise protected information, misappropriation, destruction or corruption of data, security breaches, other manipulation or improper use of our or third-party systems, networks or products, financial losses from remedial actions, loss of business, or potential liability, penalties, fines and/or damage to our reputation. Any of these could have a material adverse effect on our competitive position, results of operations, financial condition or liquidity. Due to the evolving nature of such risks, the impact of any potential incident cannot be predicted.

Supply shortages have and could continue to impair the quality, reduce the availability or increase the cost of raw materials, which could harm our business. We rely on third-party independent contractors for certain integrated circuit chip sets, backlights, and other critical raw materials such as special glasses, wafers, and chemicals. Lead times for the parts and components that we order vary significantly and depend on factors such as manufacturing cycle times, manufacturing yields, and the availability of raw materials used to produce the parts or components. The semiconductor industry has been and continues to experience a shortage of semiconductor components. We have experienced intermittent shortages of raw materials, which has affected our ability to manufacture and ship units. These shortages have also resulted in an increase in the cost of raw materials and semiconductor components. Our products sold for defense applications go through an expensive and long qualification period before the government will acceptaccepts the products. Once the product for a defense application is accepted there are restrictions on our ability to substitute a different raw material or component for the one used in the qualification of the product. If these shortages were to further affect our supply of raw materials, our ability to manufacture and distribute our products could continue to be adversely affected, which in turn would adversely affect our results of operations or financial condition.

Geopolitical tensions and any conflicts resulting therefrom may negatively affect our ability to source materials and components required to manufacture manufacture our products. We depend principally on a Taiwanese foundry for the fabrication of integrated circuits for our AMLCD defense display products. We use a Chinese foundry for the deposition process in creating our OLED displays. Our reliance on these foundries involves several risks, including reduced control over availability, capacity utilization, delivery schedules, manufacturing yields, and costs. Geopolitical changes in China-Taiwan or China-U.S. relations could disrupt these foundries’ operations and cause these risks to materialize, which would adversely affect our ability to manufacture our display products. If these foundries were to become unable to provide the required capacity, services or quality on a timely basis due to a military or other form of conflict, geopolitical tensions, including in Ukraine, the Middle East, China, Taiwan and other regions, financial market volatility and disruption, inflationary concerns, changes in tax laws and regulations, interest and currency exchange rates, uncertain economic conditions in the United States and abroad, and additionaluncertainties with respect to tariffs, including those imposed or that may be imposed by the newcurrent presidential administration in the U.S., or other reasons relating thereto, we may not be able to manufacture and ship our display products, or we may be forced to manufacture them in limited quantities until replacement foundry services can be obtained. Furthermore, we cannot assure that we would be able to establish alternative manufacturing and packaging relationships on acceptable terms or at all.

We are in the process of transitioning from using a Chinese deposition foundry to a European foundry for certain OLED products for defense applications. We depend principally on a Chinese foundry for the deposition process in creating our OLED displaysdisplays, but we are in the process of having the deposition process performed by a European foundry. If we are unsuccessful in executing our transition plan or if the transition is significantly delayed, our ability to manufacture and distribute our products could continue to be adversely affected, which in turn would adversely affect our results of operations or financial condition.

We generally do not have long-term contracts with our customers, which makes forecasting our revenues and operating results difficult. We generally do not enter into long-term agreements with our customers obligating them to purchase our products. Our business is characterized by short-term purchase orders with shipment schedules within one year, and we generally permit orders to be cancelled or rescheduled before before shipment without significant penalty. As a result, our customers may cease purchasing our products at any time, which makes forecasting our revenues difficult. In addition, due to the absence of a substantial non-cancellable backlog, we typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The uncertainty ofabout product orders makes it difficult for us to forecast our sales and allocate our resources in a manner consistent with our actual sales. Moreover, our expense levels and the amounts we invest in capital equipment and new product development costs are based in part on our expectations of future sales and, if our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls, and our results of operations and financial condition could be materially adversely affected.

Our customers who purchase display products for defense applications typically incorporate our products into their products, which are sold to the U.S. Government under contracts. U.S. Government contracts generally are not fully funded at inception and may be terminated or modified prior to completion, which could adversely affect our business. Congress funds much of the federal budget on an annual basis, and Congress often does not provide agencies with all the money requested in their budget. Many of our customers’ contracts cover multiple years and, as such, are not fully funded at the contract award. If appropriations from Congress or a U.S. Government agency chooses to spend money on other programs, including as a result of changes to governmental policies and programs imposed or that may be imposed by the new presidential administration in the U.S.,change, our customers’ contracts may be terminated for convenience. The Anti-Deficiency Act prohibits involving the government in any obligation to pay money before funds have been appropriated for that purpose, unless otherwise allowed by law. Therefore, the Anti-Deficiency Act indirectly regulates how agencies award our contracts and pay our invoices. Federal government contracts generally contain provisions that provide the federal government rights and remedies not typically found in commercial contracts, including provisions permitting the federal government to, among other things: terminate our existing contracts; modify some of the terms and conditions in our existing contracts; subject the award to protest or challenge by competitors; suspend work under existing multiple year contracts and related delivery orders; and claim rights in technologies and systems invented, developed or produced by us.

We may be unable to adequately control purchase pricing of certain critical materials, which may materially adversely affect our sales or profitability. We have no long-term pricing contracts on foundry wafers and certain other materials that represent a significant portion of our product bill of material costs. We cannot provide assurance against supplier price increases that negatively impact on the cost of producing products, which may adversely affect sales or profitability. Finding and/or qualifying a more cost-effective replacement supplier may take significant time.

The markets in which we operate are highly competitive and rapidly changing and we may be unable to compete successfully. There are several companies that develop or may develop products that compete in our targetedtarget markets. The individual components that we offer for sale (displays, optical lenses, backlights and ASICs) are also offered by companies whose sole business focuses on that individual component. For example, there are companies whose sole business is to sell optical lenses. Accordingly, our strategy requires us to develop technologies and to compete in multiple markets. Some of our competitors are much larger than we are and have significantly greater financial, development and marketing resources than we do. The competition in these markets could adversely affect our operating results by reducing the volume of the products we sell or the prices we can charge. These competitors may be able to respond more rapidly than us to new or emerging technologies, including artificial intelligence technologies, or changes in customer requirements. They may also devote greater resources to the development, promotion and sale of their products than we do.

Our success will depend substantially upon our ability to enhance our products and technologies and to develop and introduce, on a timely and cost-effective basis, new products and features that meet changing customer requirements and incorporate technological enhancements. For example, we believe there is a growing demand for microLED display products and if microLEDs can be successfully commercialized they may reduce demand for our AMLCD and OLED displays. We are investing in the development of microLED displaydisplays and the cost of such development we believe will be substantial. We are competing against larger companies with greater resources than us in the development of microLED displays. If we are unable to develop new products and enhance functionalities or technologies to adapt to these changes or secure any necessary regulatory approvals to roll out such new technologies on a timely basis, our business may suffer. In addition, our use of new or emerging technologies, such as artificial intelligence, may result in substantial integration and maintenance costs and may expose us to additional risks. For example, the content, analyses, or recommendations generated by artificial intelligence programs, if deficient, inaccurate, inaccurate, or biased, could adversely impact our business, financial condition, and operational results, as well as our reputation. Moreover, ethical concerns associated with artificial intelligence could lead to brand damage, competitive disadvantages, or legal repercussions. Any problems with our implementation or use of artificial intelligence or other technological advancements could also negatively impact on our business or results of our operations.

Disruptions of our production could adversely affect our operating results. If we were to experience any significant disruption in the operation of our facilities, we would be unable to supply our products to our customers. Many of our sales contracts include financial penalties for late delivery. In the past, we have experienced power outages at our facilities, which ranged in duration from one to four days. We have certain critical pieces of equipment necessary to operate our facilities that are no longer offered for salesale, and we may not have service contracts or spare parts for the equipment. Additionally, as we introduce new equipment into our manufacturing processes, our display products could be subject to especially wide variations in manufacturing yields and efficiency. We may experience manufacturing problems that would result in delays in product introduction and delivery or yield fluctuations.

A disruption to our information technology systems could significantly impact on our operations, revenue and profitability. Our data processing systems and our Enterprise Resource Planning (“ERP”) software are cloud-based and hosted by third parties. We also use software packages that are no longer supported by their developer. We have experienced short-term (i.e., a few days) interruptions in our Internet connection. An interruption of the third-party systems or the infrastructure that allows us to connect to the third-party systems for an extended period may affect our ability to operate our business and process transactions, which could result in a decline in sales and affect our ability to achieve or maintain profitability.

We may not achieve some or all of the anticipated benefits of our equity investments. On December 28,27, 2024,2025, we had equity investments in companies totallingtotaling $3.6$12.4 million, where we have limited, if any, control over their governance, financial reporting and operations. As a result, we face certain operating, financial and other risks relating to these investments, including risks related to the financial strength of the investments. We are required to periodically review the value of these investments for impairment. For example, in the third quarter of 2024,2025, we reviewed the financial condition and other factors of our investment in a customer and as a result, we recorded an impairment charge of $0.7$0.4 million to reduce the carrying value of our investment. These investments may not contribute to our earnings or cash flows.flow. In addition, these investments may be required to raise additional capital, which may result in our ownership percentage being decreased.

If we are unable to obtain or maintain existing software license relationships or other relationships relating to the intellectual property we use, our ability to grow revenue and achieve profitability and positive cash flow may be negatively affected. Our headset systems include software that we license from other companies. Should we violate the terms of a license, our license could be cancelled. Companies may decide to stop supporting the software we license,are licensing, or new versions of the software may not be compatible with our software, which would require us to rewrite our software, which we may not be able to do. Moreover, the license fees we pay may be increased, which would negatively affect our ability to achieve profitability and positive cash flow.

We may incur substantial costs in defending our intellectual property and may not be successful in protecting our intellectual property and proprietary rights. Our success depends in part on our ability to protect our intellectual property and proprietary rights. We rely on a combination of patents, trademarks, copyrights, trade secrets, nondisclosure agreements, IT security systems, internal controls and compliance systems, and other measures to protect our intellectual property. We also rely on nondisclosure agreements, confidentiality obligations in contracts, IT security systems, and other measures to protect certain customer and supplier information and intellectual property that we have in our possession or to which we have access. We have obtained certain domestic and foreign patentspatents, and we intend to continue to seek patents on our inventions when appropriate. We also attempt to protect our proprietary information with contractual arrangements and under trade secret laws. Our employees and consultants generally enter into agreements containing provisions with respect to confidentiality and the assignment of rights to us for inventions made by them while in our employ or consulting for us. These measures may not adequately protect our intellectual property or proprietary rights. Existing trade secret, trademark and copyright laws afford only limited protectionprotection, and our patents could be invalidated, held to be unenforceable or circumvented. Moreover, the laws of certain foreign countries in which our products are or may be manufactured or sold may not provide full protection of our intellectual property rights. Misappropriation of our technology and the costs of defending our intellectual property rights from misappropriation could substantially impair our business. If we are unable to protect our intellectual property or proprietary rights, our business may not be successful, and the price of our common stock may decline.

Our business could suffer if we fail to recruit and retain key personnel. To continue to provide quality products in our rapidly rapidly changing business, we believe it is important to retain and recruit personnel with experience and expertise relevant to our business. Our success depends in large part upon several key management and technical employees. The loss of the services of one or more key employees, including Mr. Murray, our President and Chief Executive Officer, could seriously impede our success. We do not maintain any “key-man” insurance policies on Mr. Murray or any other employees. In addition, due to the level of technical and marketing expertise necessary to support our existing and new customers, our success will depend upon our ability to recruit and retain highly skilled management, technical, and sales and marketing personnel. Competition for highly skilled personnel is intense and there may be only a limited number of people with the requisite skills to serve in these positions. Due to the competitive nature of the labor markets in which we operate, we may be unsuccessful in attracting and retaining these personnel. Our inability to attract and retain key personnel could adversely affect our ability to develop and manufacture our products.

If we fail to keep pace with changing technologies, we may lose customers. Rapidly changing customer requirements and evolving technologies and industry standards characterize our industries. To achieve our goals, we need to enhance our existing products and develop and market new products that keep pace with continuing changes in industry standards, requirements and customer preferences.industry. We may be unable to bring to market technologies and products that are attractive to our customers, and as a result, our business, financial condition and results of operations may be materially adversely affected.

We may incur significant liabilities if we fail to comply with stringent environmental laws and regulations and the ITAR, or if we did not comply with these regulations in the past. We are subject to a variety of federal, state and local government regulations related to the use, storage, discharge and disposal of toxic or other hazardous chemicals used in our manufacturing process. We are also subject to federal International Traffic in Arms Regulations (“ITAR”) laws that regulate the export of technical data and export of products to other nations that may use these products for defense purposes. Failure to comply with present or future regulations could result in fines, suspension of production, or a cessation of operations. Any failure on our part to control the use of, or adequately restrict restrict the discharge of, hazardous substances, or otherwise comply with environmental regulations, could subject us to significant future liabilities. Any failure on our part to obtain any required licenses for the export of technical data and/or export of our products or to otherwise comply with ITAR, could subject us to significant future liabilities. In addition, we cannot be certain that we have not violated applicable laws or regulations in the past, which violations could result in required remediation or other liabilities. We also cannot be certain that past use or disposal of environmentally sensitive materials in conformity with the existing environmental laws and regulations will protect us from required remediation or other liabilities under current or future environmental laws or regulations.

We may be unable to modify our products to meet regulatory or customer requirements. From time to time our products display productsare subject are subject to new domestic and international requirements, such as the European Union’s Restriction on Hazardous Substances Directive. Our customers’ terms and conditions require us to follow “all laws.” If we are unable to comply with these regulations, we may not be permitted to ship our products, which would adversely affect our revenue and ability to maintain profitability. In addition, if we are found to be in violation of laws, we may be subject to fines and penalties.

We may be unable to successfully integrate new strategic acquisitions and investments, which could materially adversely affect our business, business, results of operations and financial condition. In the past, we have made, and in the future, we may make acquisitions of, and investments in, businesses, products and technologies that could complement or expand our business. If we identify an acquisition candidate, weWe may not be able to successfully integrate thefuture acquired businesses, productsassets or technologies into our existing business and products. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, amortization expenses and write-downs of acquired assets.

Changes in China’s laws, legal protections or government policies on foreign investment in China may harm our business. Our Chinese Chinese investments are subject to laws and regulations applicable to foreign investment in China as well as laws and regulations applicable applicable to foreign-invested enterprises. These laws and regulations frequently change, including as a result of the new current presidential administration in the U.S., and their interpretation and enforcement involve uncertainties that could limit the legal protections available to us. Regulations and rules on foreign investments in China impose restrictions on the means that a foreign investor like us may apply to facilitate corporate transactions we may undertake. In addition, the Chinese legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. If any of our past operations are deemed to be non-compliant with Chinese law, we may be subject to penalties. For instance, under the catalogue for the Guidance of Foreign Investment Industries, some industries are categorized as sectors that are encouraged, restricted or prohibited for foreign investment. As the Catalogue for the Guidance of Foreign Investment Industries is updated every few years, there can be no assurance that China’s government will not change its policies in a manner that would render part or all of our investment to fall within the restricted or prohibited categories. If we cannot obtain approval from relevant authorities to engage in businesses that have become prohibited or restricted for foreign investors, we may be forced to sell our investment if possible. Moreover, uncertainties in the Chinese legal system may impede our ability to enforce contracts with our business partners, customers and suppliers, or otherwise pursue claims in litigation to recover damages or loss of property, which could adversely affect our business and operations.

Our fixed-price contracts with the U.S. Government or other customers may result in revenue recognized in excess of amounts currently billed. We disclose the excess of revenues over amounts actually billed as Contract assets and unbilled receivables on the balance sheet. Amounts billed and due from our customers are classified as Accounts receivable on the balance sheets. In some instances, the U.S. Government retains a small portion of the contract price until completion of the contract. The portion of the payments retained until final contract settlement is not considered a significant financing component because the intent is to protect the customer. For contracts with the U.S. Government, we typically receive interim payments either as work progresses, by achieving certain milestones or based on a schedule in the contract. We recognize a liability for these advance payments in excess of revenue recognized and present it as Contract liabilities and billings in excess of revenue earned on the balance sheets. Advanced payment typically is not considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract and to protect us from the other party failing to adequately complete some or all of its obligations under the contract. For industrial and consumer purchase orders, we typically receive payments within 30 to 60 days of shipment of the product, although for some purchase orders, we may require advanced payment prior to shipment of the product.

Accounting for design, development and production contracts requires judgment relative to assessing risks, estimating contract revenues and costs and making assumptions for schedule and technical issues. Due to the size and nature of the work required to be performed onin many of our contracts, the estimation of total revenue and cost at completion is complicated and subject to many variables. Contract costs include material, labor and subcontracting costs, as well as an allocation of indirect costs. We have to make assumptions regarding the number of labor hours required to complete a task, the complexity of the work to be performed, the availability and cost of materials and performance by our subcontractors. For contract change orders, claims or similar items, we apply judgment in estimating the amounts and assessing the potential for realization. These amounts are only included in the contract value when they can be reliably estimated and realization is considered probable. If our estimate of total contract costs or our determination of whether the customer agrees that a milestone achievement is incorrect, our revenue could be overstated or understated and the profits or loss reported could be subject to adjustment.

For our commercial customers, the Company’s revenue is recognized when obligations under the terms of a contract with our customer are satisfied and the Company transfers control of the products or performsperform services, which is upon delivery of the product to the customer or performance of the services. Revenue is recorded as the amount of consideration we expect to receive in exchange for transferring transferring goods or providing services. Provisions for product returns and allowances are reductions in the transaction price and are recorded in the same period as the related revenues. We analyze historical returns, current economic trends and changes in customer demand when evaluating the adequacy of sales returns and other allowances. Certain product sales are made to distributors under agreements allowing for a limited right of return on unsold products. Sales to distributors are primarily made for sales to the distributors’ customers and not for stocking of inventory. Sales, value add and other taxes we collect concurrentconcurrently with revenue-producing activities are excluded from revenue.

The Company also licenses its intellectual property (“IP”) through technology license agreements which provides the customer the right to use our IP as it exists at a point in time. These agreements may include other performance obligations including the sale of productproducts to the customer. The satisfaction of the Company’s performance obligation, and related recognition of revenue, occurs when the IP is delivered to the customer, the license period has begun and there are no additional performance obligations in the agreement. When the license is distinct from other obligations in the agreement, the Company treats the license and other performance obligations as separate performance obligations. Accordingly, the license is recognized at a point in time or over time based on the standalone selling price. Under certain license agreements, we may receive royalties based on the sales of the licensed product. We recognize royalty revenue upon the later of when the related sales occur, or when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Under our current license agreements for which a royalty exists, we have recorded revenue when the related sales by our customer occursoccur because the performance obligation related to the delivery of the license to the customer has been satisfied.

We periodically make equity investments in private companies, accounted for as an equity investment, whose values are difficult to determine. When assessing investments in private companies for impairment, we consider such factors as, among others, the share price from the investee’s latest financing round, the performance of the investee in relation to its own operating targets and its business plan, the investee’s revenue and cost trends, the liquidity and cash position, including its cash burn rate and market acceptance of the investee’s products and services. Because these are private companies that we do not control we may not be able to obtain all of the information we would want in order to make a complete assessment of the investment on a timely basis. Accordingly, our estimates may be revised if other information becomes available at a later date.

We manufacture Active-matrix Liquid Crystal (“AMLCD”) transmissivetransmissive. and Liquid Crystal on Silicon (“LCOS”) reflective microdisplays. Our AMLCD display production is being performed entirely in our Westborough, Massachusetts facility. KEL, our wholly owned subsidiary,KEL manufactures our LCOS microdisplays in its facility located in Scotland. Our OLED displays are designed by us with silicon wafer and manufactured OLED depostion by third partiesparties, and forfinal us.assembly and test by us or in some instances by our deposition partners.

Because our fiscal year ends on the last Saturday of December, every seven years we have a fiscal year with 53 weeks. Our fiscal years 2025 and 2024 and 2023 were 52-week years and fiscal year 2022 was a 53-week year.years.

Revenues. Our revenues by display application, which include product sales and amounts earned from research and development contracts, for fiscal years 2024, 20232025 and 20222024 by category, were as follows:

Sales of our products for Defense applications include systems used by the military both in the field and for training and simulation. Sales of our products for Defense applications may be for a one-time purchase or for programs that run for several years. Revenues from product sales to defense customers increaseddecreased in 20242025 compared to 2023,2024, primarily due to ana increasedecrease in shipments of our products for thermal weapon weapon sight applications that was partially offset by a decrease in sales of our products for defense pilot helmets.applications.

Industrial applications revenues represent customers who purchase our display products for use in headsets used for manufacturing, distribution, distribution, public safety, 3D metrology equipment and other industrial applications. Our 3D metrology customers are primarily located in AsiaAsia, and they sell to AsianAsia-based contract manufacturers who use the 3D metrology machines for quality control purposes. The decrease in Industrial/Enterprise applications revenues in 2024 compared to 2023 was primarily due to a decrease in sales to customers who use our display components in 3D metrology equipment and industrial headsets.applications Overmarket has seen new entrants over the last few years, we believe our customers have been using lower priced and lower quality display products in their 3D AOI machines to compensate for lower demand, which has resultedled into moreincreased price competition. We have are introducingintroduced lower priced products in 2025 to increasecompete sales,with our competitors, but ifwe unit demand remains flat or decreases, our revenues fromexpect this market trend will decline.continue and hence we are focusing our product and selling efforts on other more attractive market segments.

Sales of our displays for Consumer applications are primarily for use in thermal imaging products, recreational rifle and hand-held scopes. The decrease in Consumer applications in 20242025 compared to 20232024 was primarily due to a decrease in sales of our displays for consumer applications which was partially the result of our focusingre-focusing the Company’s sales and marketing efforts on defense applications in 2023.applications.

R&D revenues decreased in 20242025 as compared to 20232024 primarily due to decreasedthe fundingtiming forof displayboth technology,starts armoredof vehiclenew targeting systems and other weapon system development for U.S. defense programs,programs and medicalcompletion headsetof development.our existing programs. This variance falls within the normal ebb and flow of funded programs. These contracts typically reimburse us for direct costs and allocated overhead and selling, general and administrative costs and in some cases profit. In 20242025 and 2023,2024, our R&D revenues exceeded funded R&D expenses by approximately $2.2$1.1 million and $6.3$2.2 million, respectively.

International product sales represented approximately 6% and 13%5% of product revenues for 20242025 and 2023, respectively.2024. We categorize our revenues as either domestic or international based upon the delivery destination of our product. For example, if the customer is located in Asia or if a U.S. customer has its Asian contract manufacturer order product from us and we deliver the product to Asia, we categorize both these sales as international. In addition, if we earn royalties on sales from a customer, the royalties are categorized as domestic or international based on how the product revenues are categorized. Our international sales decreased in 20242025 as compared to 20232024 due mainly to a decrease in sales of our products for 3D metrology application by our subsidiary, Kopin Europe Ltd., our OLED displays for consumer applications and industrial headset products manufactured overseas.Ltd. Our international sales are primarily denominated in U.S. dollars. Consequently, a strengthening of the U.S. dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors’ products that are denominated in local currencies, which could result in a reduction in sales or profitability in those foreign markets. As a result, our financial position and results of operations are subject to exchange rate fluctuation in transactional and functional currency. 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 Japanese yen, Great Britain pound and the U.S. dollar. Foreign currency translation impact on our results, if material, is described in further detail under “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” section below.

Cost of Product Revenues. Cost of product revenues, which isare comprised of materials, labor and manufacturing overhead related to the production of our products for fiscal years 2024, 20232025 and 20222024 were as follows:

Cost of product revenues decreasedincreased as a percentage of revenues in 20242025 as compared to 20232024 primarily due to increasedlower unitoverhead volumeabsorption due to lower total product volume, as well as higher one-time write downs of thermalobsolete materials that offset gains in operational weaponefficiencies. sightsAdditionally, the margin improvements from higherefficiency salesgains inwithin 2024 as compared to 2023 which resulted in a lower fixed overhead cost per unit. The margin improvement fromour thermal weapon sights wasproduct line were partially offset by lower margin contribution from industrial and training and simulation revenues due to their declinelower in2025 sales. The Company also implemented several programs and hired additional employees to improve manufacturing quality and and efficiencies.efficiency.

The United States government is or is in the process of increasing or implementing tariffs on the importation of certain goods. In some cases, 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,tariffs, duties and other taxes our gross margin and overall profitability wouldwill be negatively impacted. Furthermore, order intake along with certain programmatic revenue recognition was hindered by several government shutdowns that imposed significant delays to our 2025 plan. Several expected orders and subsequent revenue recognition have been delayed into 2026 due to substantial backlogs within the contracting pipeline.

The issues associated with the global shortage of semiconductor circuit chips and other raw materials decreased in 20242025 as compared to 2023 and 2022.2024. 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 from new alternative vendors. In certain situations, we canmay obtain theprocure alternative components butor procure them at a significantlyan 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 may not accept a replacement component. We are unable to determine if we will be able to obtain all necessary components for fiscal 2025.2026. 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.

Research and Development. Research and development (“R&D”) expenses are incurred in support of internal display development programs or 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 allocated overhead. In fiscal year 2024,2025, our Funded R&D expenditures were primarily related to our display products and defense systemssystems, and our Internal R&D was primarily related to the development of OLED displays. R&D expenses for fiscal years 2024, 20232025 and 20222024 were as follows:

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses, and administrative and general corporate expenses. SG&A expenses for the fiscal years 2024, 20232025 and 20222024 were as follows:

SG&A for 20232025 increased asdecreased compared to 20222024 primarily due to ana increasedecrease of approximately $5.0$6.4 million in legal and professional fees and $1.0 $0.1 million in non-cash stock-based compensation, partially offset by a $1.3 million decrease in compensation and benefits.professional fees.

Total Non-operating Income (Expense). Non-operating Income. Non-operatingIncome (expense) income is primarily composed of interest income, revaluation and impairment of equity investments, foreign currency transactions, remeasurementgain gainsdue to the Deconsolidation of Kopin Europe Ltd, as defined and lossesdiscussed incurredin byNote our UK-based subsidiaries1. and other non-operating non-operating income items. Non-operating income (expense) income for the fiscal years 2024, 20232025 and 20222024 were as follows:

In 2024, 2025, we recorded $1.6$11.1 million gain on deconsolidation and $0.8 million of impairment losses on equity investments. In 2023,2024, we recorded $3.3$1.6 million of impairment losses on on equity investments. In 2024,2025, we recorded $0.2$0.3 million ofin foreign currency gains compared to $0.2 million of foreign currency lossesgains recorded recorded in 2023.2024.

On September 23, 2024, we sold 37,550,000 shares of common stock and pre-funded warrants to purchase up to 4,000,000 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 warrants,warrant, forwhich 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 the us of $1.8 million. TheIn offeringaddition, pricewe ofgranted the pre-fundedunderwriters warranta equals30-day option to purchase up to an additional 6,232,500 shares of common stock at the public offering price per share of the common stockprice, less theunderwriting $0.01discounts perand share exercise price of each pre-funded warrant.commissions.

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 per share) before deducting broker expenses paid by us of approximately $0.2 million, pursuant to our then effective At-The-Market Equity Equity Offering Sales Agreement, dated as of March 5, 2021 (the “ATM Agreement”) with Stifel, Nicolaus & Company, Incorporated Incorporated (“Stifel”), as agent. The ATM Agreement terminated in the three months ended March 30, 2024. On January 24, 2025 2025, we 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 year end, the Company cannot use the ATM Agreement entered into on January 24, 2025 until such time the Company can utilize Form S-3.

We have incurredhad net lossesincome of of $2.6 million in fiscal year 2025 and a net loss of $43.9 million, $19.7 million and $19.3 million for thein fiscal yearsyear 2024, 2023 and 2022, respectively, and net cash outflows from operations of $14.2 million, $15.3 $15.5 million and $17.7$14.2 million for the fiscal years ended 2024, 20232025 and 2022, 2024, respectively. Our net cash outflows from operations were partially a result of funding our ongoing investments in research and development which we believe will continue. WeHowever, havethe Company raised approximately $45.8 million during the fiscal year ended December 27, 2025, through the issuance of common stock, pre-funded warrants and preferred stock. Moreover, the Company has posted a bond to satisfy the court’s verdict of $19.7 million in damages and anticipated accrued interest in the pastmatter soldof equityBlueRadios securitiesvs. throughKopin anCorporation, at-the-marketInc. offeringshould the Company’s appeal be unsuccessful (refer to Note 14 of our consolidated financial statements for more information). As of December 27, 2025, the Company had $36.4 million cash and incash the traditionalequivalents fashion(excluding ofrestricted significantcash), equity offerings. Aswhich the Company believes is unablesufficient to concludesupport its that a favorable outcome in this litigation is probableoperations and duesatisfy toits obligations for at least the net losses and negative cash flows from operations, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern fornext twelve months from the issuancedate of these financialthis statements.filing. Excluding a possible adverse result of the litigation discussed in Note 12 of the consolidated financial statements, weWe estimate we will have sufficient liquidity to fund operations at least through the end of the second quarter of 2026.2027. Nonetheless, Nonetheless, we monitor the capital markets on an ongoing basis and may consider raising capital if favorable market conditions develop. If our actual results are less than projected or we need to raise capital for additional liquidity, we may be required to do additional equity financings, financing, reduce expenses or enter into a strategic transaction. However, we can make no assurance that we will be able to raise additional capital, reduce expenses sufficiently, or enter into a strategic transaction on terms acceptable to us, or at all.all

Revenues. For the three and six months ended MarchJune 28,27, 2026 and MarchJune 29,28, 2025, our revenues by display application, which include product sales and and amounts earned from research and development contracts (“R&D”), were as follows:

Sales of our products for Defense applications include systems used by the military both in the field and for training and simulation. Sales of our products for Defense applications may be for a one-time purchase or for programs that run for several years. Revenues from product sales to defense customers decreasedincreased in the three months ended MarchJune 28,27, 2026 as compared to the three months ended MarchJune 29,28, 2025, primarily due to lowerhigher production volumes of our products for thermal weapon sight applications and liquid crystal displays. The decrease in Defense applications revenues in the six months ended June 27, 2026 as compared to the six months ended June 28, 2025 was primarily related to a decrease in revenue from products used in thermal weapon sights and liquid crystal displays.

Industrial applications revenues represent customers who purchase our display products for use in headsets used for manufacturing, distribution, public safety, 3D metrology equipment and other industrial applications. Our 3D metrology customers are primarily located in Asia, and they sell to Asia-based contract manufacturers who use the 3D metrology machines for quality control purposes. The industrial applications market has seen new entrants over the last few years, which has led to increased price competition. We have introduced lower priced products in 2025 to compete with our competitors, but we expect this trend will continue and hence we are focusing our product and selling efforts on on other more attractive market segments.

R&D revenues increased slightly in the three and six months ended MarchJune 28,27, 2026 as compared to the three and six months ended MarchJune 29,28, 2025 primarily due due to the timingCompany’s ofprogress bothon startsthe ofPhase new2 programsOff-the-Visor Heads-Up Display program with the U.S. Army and completiondue of our existing programs. This variance falls withinto the normalstart ebbof the development program with Fabric.AI entered into on April 27, 2026 to develop and flowcommercialize certain GPU to GPU connectivity technologies. of funded programs. These contracts typically reimburse us for direct costs and allocated overhead and selling, general and administrative costs and in some cases profit.

The slight decreaseincrease in license and royalty revenue in the three months ended MarchJune 28,27, 2026 as compared to the three months ended MarchJune 29,28, 2025 is due to a decreaseincrease in royalties earned under IP license agreements for industrial wearable headsets.

Grant revenues increased in the three and six months ended MarchJune 28,27, 2026 as compared to the three and six months ended MarchJune 29,28, 2025 in connection with the Company’s government grant, awarded in the fourth quarter of 2025, for the development of ultra-bright, full color MicroLED displays optimized for ground soldier augmented reality applications.

Collaboration revenues increased in the three and six months ended MarchJune 28,27, 2026 as compared to the three and six months ended MarchJune 29,28, 2025 as a result of the Company’s strategic partnership, initiated in the fourth quarter of 2025, to develop the next generation clip on with augmented reality and thermal integration capabilities based on the Company’s micro-display technology.

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 six months ended MarchJune 28,27, 2026 and MarchJune 29,28, 2025 were as follows:

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 2026, we expect our R&D expenditures to be related to our display products, overlay weapon sights and OLED display technologies. R&D expenses for the three and six months ended MarchJune 28,27, 2026 and MarchJune 29,28, 2025 were as follows:

Funded R&D expense for the three and six months ended MarchJune 29,27, 2026 increased as compared to the three and six months ended MarchJune 29,28, 2025 primarily due to the Company’s government grant for the development of ultra-bright, full color MicroLED displays optimized for ground soldier augmented reality applications. Funded R&D expense includes costs related to grant and collaboration income. Internal R&D expense decreased for the three and six month ended June 27, 2026 as compared to the three and six months ended June 28, 2025 decreasedprimarily due to anlower increaselabor inhours processspent improvements.on internal research and development activities.

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses, and administrative and general corporate expenses. SG&A expenses for the three and six months ended MarchJune 28,27, 2026 and MarchJune 29,28, 2025 were as follows:

SG&A increased for the three and six months ended MarchJune 28,27, 2026 as compared to the three and six months ended MarchJune 29,28, 2025 primarily due to increases in professional fees and accrued performance-based compensation.

Other Income, net. Other income, net, is primarily composed of interest income, foreign currency transactions, gains on fair value recording recording of investments and other non-operating income items. Other income, net, for the three and six months ended MarchJune 27, 2026 and June 28, 20262025 and March 29, 2025 were as follows:

During the three and six months ended MarchJune 28,27, 2026, we had a gaingains on an investmentinvestments of approximately $2.3 million.million and $4.6 million, respectively. During the three months ended March 29,June 2025,27, we sold an investment for a gain of approximately $0.3 million and had2026, interest income ofdecreased approximately $0.4$0.2 million.million compared to the three months ended June 27, 2025.

NetTax Loss.Provision. We incurredrecorded a netbenefit lossfor income taxes of $3.8approximately $2.1 million duringin the three months ended MarchJune 28,27, 2026 compareddue to a net lossthe expiration of $3.1the statute of limitation of an uncertain tax position. We recorded a provision for income taxes of approximately $0.1 million duringfor the three and six months ended MarchJune 29,28, 2025.

On MarchJune 28,27, 2026 and December 27, 2025, we had cash and cash equivalents, including restricted cash, and marketable securities of $59.5$50.3 million and working capitalcapital, excluding restricted cash, of $25.6$17.5 million compared to $61.6 million and $33.6 million, respectively.

For the threesix months ended MarchJune 27, 2026 and June 28, 2026,2025, cash used in operating activities consisted primarily of a net losslosses from operations of $3.8$2.9 million and net cash$8.3 frommillion changes in operating assets and liabilities of $4.7 million, which were partially offset by non-cash charges totaling $1.8 million, which was primarily related to stock-based compensation, and depreciation.respectively. For the threesix months ended MarchJune 28,27, 2026, net cash used in investing activities in the amount of $1.3$5.1 million consisted of capital expenditures. For the threesix months ended MarchJune 29,28, 2025 cash provided by investing activities was primarily related to net proceeds from the sale of marketable securities. 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,results 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 involved in. The change in financing activities was the settlements of restricted stock for tax witholding obligations for $1.1 million.

On October 16, 2025, the Company completed a $15 million strategic investment with Theon 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 iswas 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”). The Company will havehad the ability to force the conversion of the preferred stock into common stock once the Company’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 carrycarried an annual dividend of at the base rate dividend rate of 4%, 2% payable in cash and 2% payable in stock. With the close of this transaction, Kopin Europe Ltd. was deconsolidated from the Company’s consolidated financial statements. The consolidated statement of operations therefore includes nine months and sixteen days of activity related to Kopin Europe Ltd. The assets and liabilities of Kopin Europe Ltd. are no longer included within the Company’s consolidated balance sheets. Any discussions related to results, operations, and accounting policies associated with Kopin Europe Ltd. are referring to the current period through this transaction and prior periods as consolidated.

The domestic locations balance of $59.5$50.3 million and $61.6 million for the period ended MarchJune 28,27, 2026 and fiscal year ended 2025 includes $25.4 million and $25.3 million of restricted cash as of June 27, 2026 and December 27, 2025 respectively, that is not available for current operating use.

The manufacturing operations at our Korean facility, Kowon, have ceased and Kowon was liquidated at fiscal year ended 2018. WeAs haveof December 27, 2025 we had recorded deferred tax liabilities for any additional withholding tax that may be due to the Korean government upon Kowon’s final tax return acceptance. The statue of limitations expired during the three months ended June 27, 2026 and reversed the deferred acceptance.tax liability of $2.1 million as of June 27, 2026.

We expect to expend between $3.0$5.0 million and $5.0$6.5 million on capital expenditures in the second half of 2026.

We had net income of $0.8 million and a net loss of $3.8$2.9 million for the three and six months ended MarchJune 28,27, 2026 and a net loss of $3.1 $2.6 million in fiscal year 2025, and net cash outflows used in operations of $0.8$5.1 million and $3.4$15.5 million for the threesix months ended March 28,June 27, 2026 and for the fiscal year ended 2025, respectively. Moreover, the Company has posted a bond to satisfy the court’s verdict of $19.7 million in damages and anticipated accrued interest in the matter of BlueRadios vs. Kopin Corporation, Inc. should the Company’s appeal be unsuccessful (refer to Note 1617 of our consolidated financial statements for more information). As of MarchJune 28,27, 2026, the Company had $34.1$24.9 million of cash and cash equivalents (excluding restricted cash), which the Company believes is sufficient to support its operations and satisfy its obligations for at least the next twelve months from the issuance of these financial statements. We estimate we will have sufficient liquidity to fund operations into the thirdfourth quarter of 2027. Nonetheless, we monitor the capital markets on an ongoing basis and may consider raising capital if favorable market conditions develop. If our actual results are less than projected or we need to raise capital for additional liquidity, we may be required to do additional equity financing, reduce expenses or enter into a strategic transaction. However, we can make no assurance that we will be able to raise additional capital, reduce expenses sufficiently, or enter into a strategic transaction on terms acceptable to us, or at all.