Kopin Corporation Stock

Good evening, everyone, and welcome to the Kopin Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, and the earnings press release accompanying this conference call was issued earlier today.

Before we get started, I'd like to remind everyone that during today's call, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on the company's current expectations, projections, beliefs and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Potential risks include, but are not limited to, demand for our products, operating results of our subsidiaries, market conditions and other factors discussed in our most recent annual report on Form 10-K and other documents filed with the Securities and Exchange Commission. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven inaccurate, and there can be no assurance that the results will be realized. The company undertakes no obligation to update the forward-looking statements made during today's call.

Kopin Corporation's Chief Executive Officer, Michael Murray, will begin today's call with an overview of Kopin's strategic progress and business development during the second quarter and the period that has followed. Following Michael, Kopin's CFO, Erich Manz, will review the company's second quarter 2026 financial results.

I would now like to turn the conference over to Michael Murray. Michael, the floor is yours.

Well, thank you very much, operator, and good afternoon to everyone, and welcome to our second quarter 2026 earnings call. The second quarter and the weeks that followed show Kopin executing on every one of the priorities we laid out at the beginning of this year. We delivered major technical and manufacturing milestones in our U.S. Army color microLED program. We converted our entry into FPV drone markets into multiple new prototype orders tied to the U.S. government's drone dominance program, and we continue to make disciplined strategic investments in our U.S. engineering and manufacturing footprint, including a new optics and photonics design center in Dallas, Texas.

Today, I will walk you through 3 areas. First, the 3 major milestones in our color microLED program under the IBAS initiative and what they mean for domestic manufacturing of microLED displays and microLED-based transceivers and co-packaged optics. Second, the accelerating momentum for Sentinel FPV as the drone dominance program moves toward Gauntlet 2 awards. And third, our strategic investments, the Dallas Design Center, our continued onshoring of OLED manufacturing and our Neural I/o road map with Fabric.AI and how they position Kopin for long-term, sustainable and most importantly, profitable growth.

First, let me start with our microLED program. In July, we announced 3 major milestone achievements: our color microLED development program under the U.S. government Industrial Base Analysis and Sustainment, or IBAS program. These accomplishments represent significant progress towards establishing a fully U.S.-based microLED display manufacturing capability that advances towards next-generation soldier vision systems.

First, let's discuss some performance. We achieved over 150,000 nits of single-panel full-color brightness, exceeding the program's threshold target. This is the level of brightness required for daytime readable, full-color augmented reality in the field, and it's an early result, planned improvements are expected to push this brightness even higher.

Second, integration. We made successful early integration progress translating our color microLED technology into U.S. Army ground soldier vision applications. This brings Kopin closer to enabling full soldier-borne systems, such as Soldier Borne Mission Command, or SBMC, where lightweight, high-brightness, full-color microLED displays are essential for real-time situational awareness, digital overlays, and mission execution.

And third, manufacturing. We received several custom-made tools which we are in the process of installation, like our new microLED bonding equipment at our Westborough headquarters. This advanced system enables the precise attachment of the microLED array to the digital backplane, an essential step in microLED production and a foundational requirement for scaling domestic manufacturing.

With these milestones achieved, we expect to transition to manufacturing product in mid-2027, positioning Kopin as a key U.S. supplier of next-generation microLED display technology. Programs like SBMC could enable hundreds of millions of dollars in revenues for Kopin over the life of the program, and these milestones are the building blocks of that significant opportunity.

I also want to underscore how pleased the U.S. Army is with our progress. We are meeting, and in several areas, exceeding the milestones laid out under the program, and that performance is exactly what positions Kopin to gain access to future programs of record like Soldier Borne Mission Command and many others. This is exactly the strategy we laid out when we received the $15.4 million IBAS award in September of 2025. Develop the technology, onshore the manufacturing, and convert that capability into long-duration U.S. defense programs. We are executing that plan on schedule, and our Phase 1 SBIR award for full color, smaller format microLED displays continues to progress in parallel as well, which is focused on advancing our tactical weapon-mounted sights and other weapon and head-mounted programs and systems as well.

And importantly, everything I've just described is being built in the United States by Kopin employees in facilities we control, a durable competitive advantage in a procurement environment that is increasingly mandating trusted domestic sources for critical components.

And the pull for this technology extends well beyond the Army program. We are seeing strong demand signals from a number of international customers for our color microLED across other applications, including heads-up displays, weapon sights, and helmet-mounted systems, which reinforces our conviction that color microLED is a platform technology which will reach far beyond any single program. Furthermore, every advancement that we make into our IBAS and color microLED platforms is directly and uniquely attributable to our Neural I/o AI infrastructure transceivers, near-package optics, and co-packaged optic chipset advancements.

In several conversations with prospective customers, it is clear that the lack of advancement in microLEDs in AI infrastructure applications is due to 3 critical technology issues, which are our competition and our customers who are trying to develop this technology internally are struggling with. And they happen to be the issues Kopin is uniquely capable of solving and have solved in our past. Firstly, yields. Placing millions to hundreds of thousands of individual microLEDs is exceptionally difficult to do, either in a display or a transceiver configuration. Kopin has a device in production which has 16 million individual LEDs in a 0.5-inch display.

Kopin has several years of experience and several ways of increasing yields, which makes our technology and capability unique versus our competition in displays, and these techniques are transferable to our transceiver portfolio as well. This capability will allow Kopin to place the most amount of LEDs into 1 square millimeter than any other company in the world, which will unlock significant bandwidths for the AI GPU, CPU, and memory markets. We plan on announcing more about this capability very soon.

The second technology hurdle is collimating the light of each pixel so that crosstalk and interference is kept to a minimum. Kopin has pioneered several optical solutions in the display market, which are also transferable and valuable in solving issues like dispersion and collimation of light sources. Truly a difficult problem to solve.

Lastly, and potentially more importantly, AI factories cannot go down for maintenance or because a transceiver fails. Kopin's customers use our technology in the worst possible ways, in the worst possible environments, and expect our technology to work for over a decade of service. When I ask potential customers about their lifetime test data, longevity of supply, and the commissioning of optical systems, Kopin has years of experience in this area, which our new customers and partners value greatly. Often, they value our technology and our answers in these areas. I will add further commentary on our Neural I/o progress shortly.

Now, turning to Sentinel FPV. In late June, we announced that we received multiple new prototype orders from customers evaluating Sentinel as a core part of their offering for the U.S. government's one-way attack, or OWA, drone initiative. Many of these customers are active contenders in the Pentagon's Drone Dominance Program, or DDP, a major initiative aimed at strengthening domestic leadership in small drone and FPV capabilities while reducing reliance on foreign-made FPV technologies. As a reminder, first-person viewers are headsets that visually put the drone pilot in the cockpit, if you will, of the drone, enabling full real-time control of the drone as if they were onboard. Customers are selecting Sentinel for evaluation because of its unique combination of dual situational awareness, extremely low weight, and U.S.-based production and defense-ready performance.

Dual situational awareness remains our clearest differentiator. Unlike traditional FPV goggles that fully block the operator's peripheral view, Sentinel delivers high clarity, low latency drone imagery while preserving the operator's awareness of their proximity and surroundings, a major advantage for both safety and mobility. The scale of this opportunity is quite significant. DDP winners have the potential to require tens of thousands of FPV goggles, and volume orders are expected to begin in late Q4, immediately following the DDP Phase 2 evaluations and awards, with requirements for immediate delivery as awards are issued.

Each of our current prototype engagements represents the potential for significant volume production, and we are preparing our U.S. production capabilities to meet the demand with speed and precision, supported by the in-house OLED manufacturing capability we announced in May. We continue to pursue additional strategic partnerships with drone manufacturers and system integrators seeking high-performance, U.S.-built, first-person view solutions, and we expect the domestic FPV ecosystem to remain one of the fastest-moving opportunities through the balance of 2026.

More broadly, we are seeing strong demand signals from drone customers both inside and outside the Drone Dominance Program, a clear indicator of significant growth we expect in this market next year. In fact, we are currently negotiating several large production orders for 2027, and we will update you on those engagements as they convert.

Turning to our core defense business. It also remains active throughout the quarter. In May, we showcased our newest advanced soldier vision technologies at SOF Week 2026, generating strong engagement across the special operations community. Later that month, we hosted the Minneapolis stop of our 2026 Technology Demo Days tour, with Boston happening as of today. We continued executing against the awards we announced earlier this year, including the $21.5 million follow-on thermal imaging product and production contract. Our European helmet-mounted display programs, our DarkWAVE development order with Theon, and other initial Sentinel FPV production orders. To date, we have received over $45 million of orders in 2026.

As a reminder, many of our defense programs have Congressional budget demands through 2030, and several of our contracts are sole source or Indefinite Delivery, Indefinite Quantity, or IDIQ, which provides additional upside flexibility above what is currently on order, as well as recurring revenue and forecastable, sustainable growth for several years.

On the operations side, both phases of our optical automation program remain operational and on track to deliver approximately $1 million in annual operating expense savings while adding to overall production capacity as they reach full utilization. A truly excellent job by our operations team.

Now, to our strategic investments. In June, we announced plans to open a new optics and photonics design center in Dallas, Texas, scheduled to open before the end of this year. Dallas is one of the nation's leading hubs for optical data communication, and this facility places Kopin at the center of a growing ecosystem of high-performance computing, data transport, and photonics innovation. The center will include new optics and photonics lab space, a dedicated design and engineering center, advanced R&D capabilities focused on Neural I/o, and manufacturing capacity for Neural I/o and application-specific optical solutions as well. It strengthens our domestic engineering capabilities, deepens our expertise, and accelerates our ability to deliver next-generation Neural I/o systems to customers across the AI infrastructure landscape.

Stepping back, Kopin remains focused on delivering application-specific solutions, displays and optics to our chosen markets with a clear focus on defense, medical, consumer, and AI infrastructure. The addition of AI infrastructure is a natural one for Kopin. The industry's growing need for optical transceivers and co-packaged optics sits squarely within our core capabilities because we have the specialization in silicon optical systems and have done so for several years. It also builds directly on our display expertise. We will continue to design and manufacture microLED and our patented bidirectional displays, but we are now applying that same expertise to build microLEDs that transmit data rather than images. This is not a trivial step forward, but it is one Kopin is uniquely positioned to take. Given our microLED devices already in production, our color microLED development, and the IBAS funding that is building the production line to support all of our near-term manufacturing needs. This puts Kopin in a very specific and unique advantage in the marketplace.

Our collaboration with Fabric.AI continues to advance on the roadmap we described last quarter, with a $15 million initial development order funding a demonstrable chiplet that we expect to compete by the end of 2026. As Fabric.AI CEO, Josh Silverman said in our June announcement, "Having the advanced optics, R&D, and manufacturing under one U.S.-based roof lets us move from design to customer deployment far faster." I couldn't agree more.

Our Neural I/o project with Fabric.AI is on track, and we expect to demonstrate the capability of the platform at CES in January 2027, with a clear path to production anchored by a 1.6 terabit per second transceiver solution.

Turning quickly to commercial engagement, which is quickly accelerating alongside this technology. During the period, we signed several new nondisclosure agreements, and more notably, several of them are with current NVIDIA NVLink partners who are interested in working with Kopin and Fabric, not only on our current chipset, but also on our newly formed roadmap of devices. We are also beginning to see new early-stage interest from potential quantum computing and semiconductor customers and manufacturers alike.

In parallel, Kopin continues to engage with other U.S.-based defense and government agencies on bespoke versions of Neural I/o chipsets tailored to their specific needs, solutions that must be manufactured here in the United States. To help lead this emerging ecosystem, Kopin and Fabric recently released the first of what will be many AI interconnect white papers and formed several new technology developments, which we will discuss at later times.

On the OLED side specifically, we received several new OLED orders from the international customers this quarter. That incremental demand on top of the OLED requirements generated by our FPV drone programs affirms our decision to bring OLED deposition in-house, and we expect our own OLED deposition line to come online early in 2027. Taken together, these investments reflect the same discipline we have described all year. We are comfortable with our cash position, and we are deploying capital against clearly identified, quantifiable customer demand in microLED, in FPV, in OLED, and in AI infrastructure.

To summarize, the second quarter of 2026 showed Kopin executing across every growth platform. We delivered 3 major microLED milestones under our IBAS program and kept our domestic manufacturing roadmap on schedule for mid-2027 production. We converted our recent entry into the FPV drone market into multiple new prototype orders tied to the Drone Dominance Program. We committed to a new optics and photonics design center in Dallas to accelerate our Neural I/o platform. These new platforms, DarkWAVE, Sentinel FPV, Neural I/o, and color microLED, are multi-customer products serving global markets, not single-customer custom programs. That is what makes our forward-looking recurring revenue more balanced and forecastable. And we did this all while maintaining a strong balance sheet and the discipline that has defined our capital deployment.

I'll now turn the call over to our CFO, Erich Manz, to review our second quarter 2026 financial results in further detail. Erich, over to you.

Thank you, Michael, and good afternoon, everybody. As Michael outlined, the second quarter and the weeks that followed reflect the business that is executing across each of its growth platforms. From my perspective as CFO, the most important theme this quarter is a continued translation of our strategic investments into identifiable program-level demand across our IBAS microLED program, Sentinel FPV, and our emerging AI infrastructure opportunity. And to be clear, when we speak about the momentum in front of us, we are not referring to a single product line or a single growth initiative. What we are seeing is progress on multiple fronts, opportunities we have deliberately prepared for and are ready to execute upon as they scale. This breadth is a key part of why our model is beginning to show operational leverage. As revenue continues to grow across several platforms and we maintain stable operating expenses, our operating profile strengthens in a way consistent with other high-growth technology companies.

Before I turn to the numbers, there is one operational point I am particularly proud of. This quarter marked our fourth consecutive quarter of exemplary on-time, in-full delivery and quality performance, a direct reflection of the maturity and discipline our operations team has built. With that context, I'll now walk through our second quarter 2026 financial results in more detail.

Total revenue for the second quarter ended June 27, 2026, were $12.7 million as compared to $8.5 million for the second quarter ended June 28, 2025, a 51% year-over-year increase primarily reflects grant revenue recognized under our U.S. government microLED award, collaboration revenue from our development program with Fabric.AI, our strategic AR thermal clip-on partnership, and higher research and development revenue on our Phase 2 OptiVISOR heads-up display program with the U.S. Army.

Product revenue for the second quarter were $7.6 million, a slight increase when compared to $7.5 million in the year-ago period. Higher defense revenues from thermal weapon sight applications and liquid crystal displays were largely offset by lower industrial application revenues.

Nonproduct revenue were $5.1 million in the second quarter of 2026 as it compared to $1 million in the second quarter of 2025. The increase was primarily driven by grant revenue recognized in connection with our government award for the development of ultra-bright, full-color microLED displays optimized for ground soldier augmented reality applications, collaboration revenue from our development program with Fabric.AI to develop a commercialized GPU-to-GPU connectivity technologies together with our strategic partnership to develop a next-generation clip-on with augmented reality and thermal integration capabilities and higher research and development revenue on our Phase 2 OptiVISOR heads-up display program with the U.S. Army.

Cost of product revenues for the second quarter of 2026 were $6.6 million or 86% of net product revenues as it compared to $7.1 million or 94% of net product revenues for the second quarter of 2025. The improvement as a percentage of net product revenues was primarily attributable to product mix.

Research and development expenses for the second quarter of 2026 were $4.5 million as compared to $1.9 million for the second quarter of 2025. The increase was primarily driven by higher funded research and development costs in connection with our government award for the development of ultra-bright, full-color microLED displays optimized for ground soldier augmented reality applications, partially offset by lower internal research and development spend on fewer labor hours.

Selling and general administrative expenses were $5.1 million in the second quarter of 2026 as compared to $4.9 million in the second quarter of 2025. The increase was primarily driven due to higher professional fees and accrued performance-based compensation. Taken together, our internal R&D and SG&A results underscore a theme that we've been committed to for the past several quarters: maintaining operating expenses at a relatively stable level while our revenue base continues to expand. This discipline will continue to move our operating margin trajectory in line with benchmarks for high-growth technology companies. We said we would drive leverage growth, and that commitment is being delivered. As our top line continues to scale through 2026 and beyond, we expect this operating leverage to strengthen further, supporting our pathway to sustainable profitability.

Loss from operations for the second quarter of 2026 narrowed to $3.5 million as it compared to $5.5 million in the second quarter of 2025.

Net income attributable to common stockholders was $0.9 million or $0.00 per share as compared to a net loss of $5.2 million or a loss of $0.03 per share in the second quarter of 2025. The improvement primarily reflects higher total revenues, a $1.9 million increase in other income net, driven largely by approximately $2.3 million of gains on investments and $2.1 million in income tax benefit recorded in connection with the expiration of a statute of limitations on an uncertain tax position.

As of June 2026, we had cash and cash equivalents of $24.3 million, with total cash, restricted cash, and marketable securities of $50.3 million, inclusive of $26 million of restricted cash, of which $24.2 million collateralizes the superseded bond posted in connection with the BlueRadios litigation appeal. With respect to the legacy litigation, we do not expect any further updates on our federal appeal approximately mid-2027.

Turning to our outlook, reflecting the order momentum across the business for 2026, we continue to expect a solid second half exceeding our prior guidance. Importantly, we expect to begin generating GAAP profitability and positive free cash flow in our fourth quarter of this year. As we look farther ahead, we are increasingly optimistic about our revenue trajectory into 2027 as the growth trends we are seeing in 2026 appear positioned to continue into next year.

And with that, I'll turn the call back over to Michael for closing remarks.

Thank you very much, Erich. Before we open up for questions, I wanted to leave you with this. The second quarter demonstrated that Kopin's strategy is working. Our color microLED milestones keep us on track for domestic production in mid-2027. Sentinel FPV is converting into real program traction as Drone Dominance Program accelerates. Our new Dallas Design Center expands our capacity to deliver Neural I/o for AI infrastructure, and our core defense franchise continues to provide a durable foundation underneath it all.

What sets Kopin apart is relatively straightforward. We are the only company in the world manufacturing 4 types of microdisplays, the inventors of bidirectional microdisplays, the sole source provider on several Department of War programs of record with many years of sustained production ahead, and our technology platform is now being deployed across some of the fastest-growing segments in defense and AI infrastructure.

We believe the second half of 2026 will begin to demonstrate the full potential of everything we've built thus far, and we're continuing to build on our momentum in all markets as we see continue and continue to execute on our strategic plan.

And with that, operator, we can open the call to a few questions.

[Operator Instructions] Our first question comes from the line of Josh Sullivan with JonesTrading.

With the planned demo of Neural I/o at CES in '27, can you just give us a little more color on what we should expect to see or what proof points are going to be on display?

Sure. So in my recent conversations with customers last week in California, what they're looking to see is, whether or not we can transmit bits and receive bits in real-time, and how fast we can do that. So our demonstrator with Fabric.AI is going to demonstrate just that. We will be sending bits, receiving bits, and I will not go into all the details because I do not want to ruin the surprise. But we'll be performing that demonstration for a number of potential customers, and it will be a full transceiver tile. That tile that we will be showing will also show how we are going to take that tile and move it down the topology into semiconductor sizes and then achieve the 1.6 terabits per second that the specification requires.

So we're really excited about it. It's on track. And the first pull of optical data that we've received is very exciting. We showed it to a number of customers last week, or potential customers, and they were blown away with our current performance already. And that was our first pull of optical data. So super excited.

Yes. Great. And then, I guess, what has inbound interest from potential partners been since the first AI interconnect white paper was released? And maybe what questions do those inbound parties have that might be answered in some of the white papers to come?

You bet. Great question. So rough order of magnitude, we've received over 200 -- roughly 200 or more, individual downloads of the white paper thus far. What was striking about it, Josh, is the number of companies that I didn't expect to see there. I can't mention them, but they're the belts and suspenders of the AI infrastructure, folks that build the racks, folks that build the back planes, companies that are not necessarily semiconductor companies, but are full OEMs of racks and back planes that go in those racks. So that was really interesting, number one.

Number two, we had a lot of downloads of the white paper and requests for further information on our transmit side. What we've learned in the industry is that, actually, Kopin has a fantastic transmit. We're learning about the receive side of the transceiver. And a lot of companies are really struggling with that. So there were some major Tier 1 OEMs that downloaded the white paper and immediately contacted us for meetings, which I was on the West Coast last week meeting with some of the largest companies in the world. And what we've learned is, we've got a great transmitter and a great potential component here in our Neural I/o. So very exciting. Very happy with the response on the white paper. You should expect probably 4 more white papers over the course of the next calendar year.

Your next question comes from the line of Jon Siegmann with Stifel.

Congratulations on the progress on the IBAS microLED. Can you maybe just talk about what remaining catalysts we might see for the remaining year? You had earlier talked about potential follow-on funding for some capacity, and just was seeing if that was still on track.

Sure. So we're pleased that the Army is pleased with our progress. We're still working very hard to meet further milestones, which we expect to in Q4 of this year. So I think we have another 3 milestones to finish off this year, and that will put us in great position to provide the industry and the government with samples next year of the color microLED. So those are the next milestones that we have, and the team is working very hard to execute on those.

We do expect and hope that we'll see further IBAS funding for potentially other devices as well. We're now thinking that microLED will have its home in other applications, not just Soldier Borne Mission Command type of vision systems or thermal weapon sites or night vision goggles. We're actually seeing some other demand from the Army for other devices. So it's too early to talk about those as potential wins for us just yet. But there is active conversation going on for further IBAS funding.

And if I could just slip in one for Erich as well. The $45 million in orders year-to-date, that is really helpful. But there has been some changes in what you report in your financials with your remaining performance obligations. I think that was related to the deconsolidation of Europe. Can you just maybe reconcile what those changes were with the numbers you're reporting today?

Yes, sure. We continue to lose the consolidation for the time being. It's not a significant revenue loss to us right now, but when we remeasure, we end up with a deconsolidation on a forecasted number for Kopin Europe, and that resulted in approximately $1.4 million worth of a loss this quarter.

But on the backlog specifically. Your backlog was down in Q1 versus Q4. You got that large targeting order after the quarter. I was just wondering how to reconcile some of these backlog numbers.

Yes, I'm not sure about the reconciliation on the backlog, Jon.

We'll follow-up afterwards.

Your next question comes from the line of Alex Fuhrman with Lucid Capital Markets.

Can you tell me about what investments need to be made in order to scale production of Sentinel FPV, and how long those investments will take? And then any sense on when you might know how many units could be associated with the Drone Dominance Program?

Sure. Thanks, Alex. So the major investment was actually purchasing the OLED deposition tool, which we did this year. We've talked about that, that's under a $10 million number, and those payments are spread out over a number of quarters. That's the major investment in capital and volume capacity.

The rest of the eye pieces that we need to manufacture were well within our current CapEx and OpEx to do so. And that's the big reason why we moved to buying our own deposition, it's just going to be more profitable to do so.

And lastly, the second part of your question, we expect to see more orders by the end of this year. Gauntlet 2 goes off shortly, and we've been seeing the Pentagon actually place orders relatively quickly. But then there is a translation between them placing orders and our customers placing orders on us. So by the end of Q4, we should have a very good order book around our Sentinel FPV for 2026, and certainly we'll still be taking orders in the early part of 2027, as well.

Okay. That's really helpful. And then on Sentinel, it's really interesting that you're one of the only FPV goggles that enables peripheral vision. It seems like that would be a really important feature on the battlefield. How is it that you're able to accomplish that when others can't? Is that primarily a matter of the level of brightness on the display? Or are there other factors that contribute to that?

Oh, great question. It boils down to what I talk about all the time, which is application-specific optical solutions. And in that specific application, we chose to have a nonoccluded version, meaning we don't fully cover the pilot's eyes or the warfighter's eyes, because we believe that he or she will want to see their feet and keep their eyes on the rifle and eyes on the horizon for any threats. And that's really to make sure that the drone team, which is usually a team of 4, 1 pilot, 1 gunner and 2 kind of security personnel. We want to be able to reduce that level of personnel and create a better and safer environment for the pilot themselves. So that was the insight that we put into the program. But many of the goggles are coming from more consumer type of applications where you can sit in a chair and fly your drone. So that's where the headsets are coming from today, but that's not where they're going to be coming from in the future.

Your next question comes from the line of Austin Moeller with Canaccord Genuity.

So just my first question here, how should we be thinking about the market or the TAM opportunity for the microLED transmitter component within the AI data center infrastructure space versus the receiver side?

Oh, great question. Thanks, Austin. Good seeing you today. So when I think about the market for our AI infrastructure platform, I think about it in 3 chunks or 3 different markets. The first market is our transceiver portfolio, which we would consider near-package optics. These transceivers will sit likely between 2 other chips as an example in the data path or between 2 boards as an example in the data path.

The second part of the market that we consider is a co-packaged optic. This is where our microLED structures will sit with inside some other semiconductor company's product. That is a very different type of architecture. And in some cases, what we're learning is, customers really, really like our transmit, which is a microLED, and they have an abundance of receiver technologies that they have at their fingertips. The receivers themselves come from things like photodiodes from cameras, where there's been trillions of dollars of investment in camera technology. Meanwhile, the transmit side on the microLEDs, not that much investment. Very hard to do, but very important in a transceiver. So what we're hearing from the major semiconductor companies is, focus on your transmit side for co-package optics. We'll still provide a transceiver, which means transmit and receive in co-package optics, but we're very strong on the transmit side. So that's the second part of the market.

The third part of the market that actually is emerging for Kopin is because we'll have our own production line of microLEDs by the end of this year. Many companies are asking us, and some of them are competitors, by the way, or people we would consider a competitor, if Kopin would be their fab, would be their fabrication partner to build their microLEDs for their solutions because they know that we're very good at it. So those are the 3 parts of the market that I think about segmenting the market. And if we think about the total addressable market, it's $63 billion just in the United States and the $20 billion to $30 billion market by 2035. And we think we're very well positioned to capture a little bit of that, which would go a long way.

Okay. And as far as the manufacturing facility, you're going to initially be building these microLEDs for the AI infrastructure market on that Soldier Borne Mission Command production line. Obviously, it sounds like you've a lot more demand out there than you have production capacity right now. So at what point might you start looking at building out additional capacity? What kind of customer signals have to be sent first? And could they provide some of that customer-funded CapEx or R&D to make that happen?

Absolutely. And that's starting to form up right now. To be clear, our priority is the IBAS award in Soldier Borne Mission Command. That is critical for our future and funding a lot of our learning and development.

Secondly, the government is actually quite happy that we're going to provide them with lower cost because of our utilization of their power production line will go up because we'll be shipping AI infrastructure microLEDs. It actually benefits the government. So when we told them, they were quite happy with that.

And then lastly, and interestingly, the more we produce in our production line, the quicker, better, faster our yields will become. And at that point in time, once we have a clear yield number, we'll be able to understand how many wafers we're going to have to start and what our yields will be, and therefore, how many devices will come off our production line.

For displays, we have a very good understanding of that. For this co-packaged optic, near-package optic, as well as potentially other foundry services that we're engaged in negotiations on, TBD. We're learning as we go. And there are several companies that are willing to support us in helping us grow that capacity. Moreover, the government is also willing to work with us to grow that capacity because they too need U.S.-based optics for co-package and near-package optic. Last week there was, I guess, an edict, I'm not quite sure if it was legal or not, but the U.S. government has now required AI infrastructure companies to no longer buy Chinese-made optical interconnects. And that trend is going to continue. So we think the government will be there to support us with volumes if we need it, and we think industry will be there to support us with more volume if we need it. But I don't think we'll make that decision until about this time next year.

Your next question comes from the line of Jaeson Schmidt with Lake Street Capital Markets.

Michael, just want to follow-up on your comments on the strong international demand, and I guess specifically, can you update us on how things are progressing with Theon and how your European business is tracking?

You bet. Thanks, Jaeson. Firstly, with Theon, things are going well. Specifically here in the United States, we're making progress with them. We're also making progress with them in Europe with DarkWAVE. We just completed the $1 million order that they gave us to adapt the connector for DarkWAVE to connect to Theon's night vision goggle. So that's just been completed. They're in testing now. I expect that testing to go well, and hopefully we'll move to production rather quickly. But they just got their new prototypes, I believe, and are testing them now.

Secondly, we're working with Theon on a number of different opportunities, mainly around displays. So that activity is ongoing, and the 2 companies are working well together. In fact, I was with Theon about a month ago in Greece for a few weeks, and we're definitely seeing new opportunities that I don't think we would have seen before, Jaeson. In fact, I know we would not have seen them before. And this relationship is opening those doors, specifically in NATO.

Got it. No, that's helpful. And then just as a follow-up, I know there's a lot of moving parts with the revenue mix, but how should we think about gross margin trending the rest of this year?

Yes, I think the gross margin story is going to be a good one as we progress through the rest of this year and into next. We certainly see improvement in this quarter, and we're expecting that to continue. We look at it from the perspective of our fixed cost profile, and absorption of those costs, which is exactly what we have been saying right along. Our fixed costs are not moving. The volume in the business is what is actually driving the margins to be improved.

Your next question is from Christian Schwab with Craig-Hallum Capital Group.

Erich, you talked about exceeding previous guidance in the second half of the year. I think your guidance last quarter for the year was $52 million to $60 million. Do you have a bracket of guidance that you're anticipating for the year now?

We're looking at exceeding the numbers that we last announced. We're not providing anything today as far as an initial guidance, official guidance number or range. But we're looking at least exceeding what we had put out before.

Okay. That's fair. And then as we think about some of the bigger opportunities, Michael, do you anticipate -- can you give us a range? The Sentinel one, the first-person view drone opportunity seems like it could be very strong in '27. Can you give us some color of the range of opportunities that could represent in 2027?

I will try my best. Christian, thanks for the question. It's exciting. It's at least -- it's definitely tens of millions of dollars in new customer orders and deliveries that we would expect in 2027. The scale could double that, quite frankly, depending on who wins the most in the Drone Dominance Gauntlet, provides us a different mix. What I mean by that is, there are some companies that we're partnered with that may not win the next round of Gauntlet or get a certain amount of volume. So our challenge is to get as many as we can, and play the spread. So, we know that we've achieved several of the top 5 so far. They're using Sentinel as we speak, and they're getting awards. So, we're really dependent upon them. So that's the scale that we're seeing. It's in the tens of millions of dollars next year, and it really is dependent on who wins.

Yes, that's fair. And then as we look at IBAS and SBMC, and the lines being ready, would you expect to, or would you be disappointed if you didn't get, would you expect revenue in calendar 2027 from either or combined?

We do. I think we're well on track. My confidence is growing daily. I think the Army's confidence is growing daily. And I think once we have our sample of color microLED in front of the major primes, I think their confidence will also be exceptionally high. And at the very least, we'll see awards next year. We'll likely see some volume or at least initial low rate, initial production in 2027. But the main production for the program is still slated for 2028.

Great. And then lastly, just on the Neural I/o platform, would you anticipate that from the numerous different opportunities that you highlighted, that you would have production orders and revenue from the Neural I/o platform in 2027?

I don't think production in '27 will happen, in terms of revenue. I think we're considering moving to monolithic IC development sooner than we had planned because we're getting a significant amount of confidence and customer interest to do so. My tentativeness and Fabric.AI's tentativeness initially was, can we build this? Is this something that we can build? And I think the answer is coming back as clearly yes. And is this something that our customers would want? That demand signal is clearly yes. So the consideration right now is, do we move more quickly to a monolithic IC development and tape out sooner than we had originally planned? And that's a conversation that we need to have with Fabric.AI very soon here.

But in terms of production revenue for 2027, I doubt it. It would likely be 2028. But we would see development revenue, and R&D orders or development orders in 2027. We expect that to be in the $20 million to $30 million type of range for a chip like that.

So if I just sum those 3 up plus a little bit more success with Theon weapons and Collins and DarkWAVE and health care, we're on the cusp of substantial revenue growth in '27. Is that fair?

Yes, it's fair. We're really excited about it, Christian. I've got the team preparing for SOX compliance, and we do have $100 million in sight for 2028, for sure. It is a potential for 2027, albeit a small potential, but we're having the team prepare for SOX compliance in 2027 just in case.

Your last question comes from the line of Martin Yang with Oppenheimer and Company.

So a quick question on OLED. Once you have your in-house tools ready online for '27, how do you think that could impact your profitability?

Yes, great question, and thanks, Martin. Good to hear your voice. I think, definitely because we're vertically integrated, Martin, we use our own OLEDs in our own devices like DarkWAVE and the medical headset, et cetera. We'll just be cannibalizing our own devices that we currently have deposition in Europe with, and reducing that margin stacking that we're paying for right now. So whenever we deposit OLED in our European partners, we're paying them margin, which we will enjoy moving forward with our own OLED deposition. So we think we'll see at least 15 points of gross margin improvement next year by depositing our own OLED. In fact, I think that's a low number. If it's that low, I'll be disappointed, but I think that's a good bottom level of savings or increased gross margin for next year.

Got it. A follow-up, if I may. Can you maybe briefly talk about the capacity we'll bring online once fully ramped? Do you have the capacity to go fully in-house, or do you still need some portion of outsourcing capabilities?

For OLED, Martin?

Yes.

No, we'll be fine internal. The system that we have will be able to produce, at least for the foreseeable future, the demand that we have for first-person viewer drones and several other programs. Yes, we'll be fine on OLED deposition capacity, at least for 2027 and 2028.

One last thing, Martin. To add capacity to our OLED production line, it's actually quite easy and not that expensive. We would just add another reactor, probably another node to our reactor, which increases our throughput. I think it's by about 10%. So it's a very flexible system, one that we can expand and grow our volumes without spending a lot of CapEx.

This now concludes our question-and- answer session. I would like to turn the floor back over to CEO, Michael Murray, for closing comments.

Thank you, operator, and thank you to everyone for joining us today. And a big thank you to the employees of Kopin and our operations team for delivering a great quarter and 4 quarters in a row of excellent quality. Thank you for doing everything I've asked you to do. Take care, everyone.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

We have a tremendous opportunity for growth at this company. Our expectation is that at the end of this year, the company will be profitable. We're growing into our CapEx structure. The United States government is investing in the company. We have a tremendous order book as we sit here today with some of the best customers in the world, market-leading and market-making customers in the world. Our European growth is being fueled by Theon International. We have great partners in Ondas and Unusual Machines, and we're winning in the drone dominance competition because of our capability that we provide these flyers and pilots to see their terrain and score well in the drone dominance competition. And we're the only company in the United States that has LCD, OLED, microLED and LCOS manufacturing all under the same roof, roughly speaking.

So we have a great platform for growth. I think the AI infrastructure market for Kopin could be 25% to 50% of our revenue next year and the year after, it could be as much as our defense revenue in 2028 based on some of the opportunity levels that we're seeing.

Kopin. Corp. is a leading provider of advanced optical systems and microdisplay technologies for the industrial, medical, consumer, defense and now the data AI infrastructure markets. CEO, Michael Murray, is here to tell us about Kopin and the new opportunities in the AI infrastructure market and ongoing defense opportunities.

I'm Martin Gagel with Market Radius Research. This is neither a recommendation nor investment advice. Michael, thank you for having us -- having you here on the show today, and you've got some nice news as well out this morning to kick it off with.

Well, Martin, thank you very much for having us back. We had a great first impression when we talked earlier this year and looking forward to updating the audience on some of the great progress Kopin has made recently and talk about some of the things that we're expecting for the second half of this year.

Yes, we talked about specifically a little briefer on the AI data center market when you first announced that, but we didn't get a chance to sort of the broader picture of Kopin, what you're all about. So I'm looking forward to stepping back a bit and really learning about Kopin and your vision beyond imagination. So why don't you take it away, and we'll take it from there.

We do, Martin. So firstly and foremostly, thank you for having us. And to those folks that don't know me, I've been the CEO, Chairman and President of Kopin for over 3 years now, approaching my fourth year in its entirety. I succeed Dr. John Fan, who started this company over 40 years ago out of MIT Lincoln Labs. The company has had a significant turnaround over the course of the last 3 years, mainly due to focus. When I took over the company, we have tremendous technology, a wealth of ambition here. But I think what the company really lacked was a definitive focus. We were very much focused on what was called the Metaverse back when I joined the company. And I looked across the markets that we were serving and saw that there were tremendous opportunities in certain markets that were closer to us that we could make more money on more quickly, and there were just more focused growth opportunities for the company.

So with that, we changed the strategy over 3 years ago. We're now in our second phase of that strategy. And I'm happy to report that things seem to be moving along quite well as the markets that we hoped we were going to move towards Kopin are moving towards Kopin, and we're helping to shape those markets with the market makers in each of those markets. And I'm going to talk about that here today.

So -- but before I go on, right now, the company is just finishing up our quarter, so I won't be talking about too many financial metrics other than to say the company has no debt, no warrants on the balance sheet. As of the last posting on 427, we had over $60 million in cash and about 181 employees, which is currently growing due to some significant orders that we've received specific to our AI GPU strategy. So we're going to talk a little bit more about that today. We'll also talk about drones. Everyone wants to hear about drones and what we're doing in that space. So I'm going to double-click on drones, and I'm going to double-click on our AI GPU infrastructure play with our friends over at Fabric.AI.

So essentially, the company is based around our microdisplay portfolio. Who we are is a semiconductor development and optics company. These tiny little TVs are semiconductors. We build them in a semiconductor flow. And what I mean by that is we have a clean room here in Massachusetts as well as in Dalgety Bay, Scotland. And we recently purchased an entire OLED deposition capability that's going here in the United States because of the demand that we're seeing in first-person viewer drones as well as the demand in thermal weapon sights going up for OLED as well as other applications where OLED happens to be the better display for certain applications.

Now not all displays will solve all problems. As an example, LCDs, which we still build here in the United States up here in Westborough, is still a great solution for thermal weapon site as an example, because it's very robust. It can withstand tremendous shock like a weapon firing as a perfect example. OLEDs are a little bit more difficult, but we're getting there. We've learned how to design those into thermal weapon sights, and we're now building those here or we'll be building them here in Massachusetts. Also, we've been contracted by the United States government to build microLEDs here in the United States. And the reason why it's not obvious to many investors, microOLED and LED specifically are 2 very specific technologies that allow you to see farther at lower power consumption and with better color and contrast. So LCD is going to be phased out over time. It's going to take a while. OLED is going to come up and then microLED is the vanguard technology.

Now I'm going to pause on microLED for a moment. MicroLEDs act a lot like lasers. They can transmit data as well. And this is something that you're seeing in the industry, whether it be NVIDIA as an example or our friends over at Marvell, who have been doing some work in this area with one of our competitors as an example. MicroLEDs happen to be a great technology to transmit data over short periods of distance. So I'm going to talk about that a little bit more in coming slides.

Okay. So with that in mind, Kopin has expanded our customer base with the Tier 1 customers that are market makers. As an example, we partnered with Theon International, which is when you think about NATO. When you think about NATO, thermal weapon sights and night vision goggles, you should be thinking Theon. That's who their biggest customer is, and they own about 60% of NATO's market share of thermal weapon sights and night vision goggles. Both of those technologies require displays, and we'll be building those displays with them for them in our European location as well as here in the United States. We also have a tremendous relationship with folks like Wilcox, Lockheed Martin, Leonardo DRS, who's our largest customer and a number of other customers that we're going to add to this list by the end of this quarter. And we'll talk a little bit more about that in a second.

So I want to show you today our 5 pillars of growth. Many people have been asking me, how did I think about reshaping the company and what our focus is going to be and why the market is now coming to Kopin and why we're being successful with it. So when you think about the 5 pillars here, it's all based on being able to build this technology right here in the United States and why that's fundamentally important to the sovereign nature of our defense organizations. So when you think about mobile vision systems, these are fixed wing aircraft. We have a huge franchise in one of the aircraft specifically that's classified here in the United States.

We have 3 generations of displays going into that aircraft. I can't talk about which one it is, but it's getting tremendous orders through the European and Southeast Asian markets. And that's great for Kopin because in the actual helmet itself, there are 2 displays. But what's not obvious to a lot of investors is in those other regions, not in the United States, where in the United States, you have 1 pilot and 1 plane. In these other areas, you will have 1 plane, potentially 5 pilots or 4 pilots or 3 pilots that also have 2 helmets. So that's why our international sales is going up, not down.

Also, we've been able to secure several new orders in fixed wing and rotary wing in Europe for the first time. We've been very much focused on growing our European business. As Europe and NATO starts to spend more sovereign dollars, we had to pivot and change our Dalgety Bay location to focus more on defense. And I'm very, very pleased to say that our progress in Europe has been exponential this year. We've already announced several awards that will be going through our European location starting next year, which is fantastic news.

One of the other growth pillars that I was very focused on when I joined Kopin is the Soldier Borne Systems pillar of growth. So many of you have heard about Soldier Borne Mission Command, which is the old IVAS program. We've been working on several different solutions and several different partners in that program with our microLED capability, which the United States Army has invested in Kopin to build that technology here in the United States. And that is a color microLED that will be available by the end of 2027 for insertion into the program '28 when it goes into production. And I'm pleased to say that's well on track.

Secondly, we've been working with the U.S. government to put in a color microLED production line here in the United States, and that, too, is on track. So we'll be one of the only companies, potentially the only company with our own microLED production line here in the United States. And that same production line can not only build our microLED solutions, whether it be monochrome or color, but it can also build our Neural I/o technology, which is our AI interface technology, and it can come off the same production line. That is a huge advantage over all of our competitors. The fact that we'll be able to go to our own production line and basically tweak the recipes that we need to tweak to make this technology work, and we know how to do that better than any company in the world, in my view.

We'll talk a little bit about first-person viewer drones. This morning, we announced that we've received several new orders from folks that are participating in the drone dominance competition. Right now, we've had several awards from the top 10 in the drone dominance competition. We're also partnering with folks like Ondas and UMAC who are great partners of Kopin to bring first-person viewer technologies and displays to them here in the United States. The FTC as well as the U.S. Army has required every program to have non-Chinese displays and optics and electronics in it. And that's creating a huge opportunity for Kopin to provide U.S.-based microdisplays, optics and drive electronics to first-person viewer drones.

And our Sentinel program, the Sentinel FPV program is very unique in that it's bidirectional and situational aware. What I mean by that is you can still see out and outside of the iBox. So if you're an operator in the field of work, you still want to be able to see your feet so you can run, shoot and operate a drone at the same time. And this swivels off the helmet or what we call off the visor. So we're getting tremendous opportunities for that technology, and it just makes a lot of sense for the U.S. Army to go with a solution like that, while we're still working with the predominant manufacturers in this industry like Ondas and UMAC on solutions that they'll bring to market as well. So huge volume capability and opportunity for Kopin so much so that it made better sense for us to buy our own OLED deposition line, and we'll install that in the first half of 2027. So significant amount of volume that we're expecting for first-person viewer drones.

So the next market that I'm going to spend some time on is our AI infrastructure and co-packaged optic capability. This is an area that we think we have a significant market leadership position in because we've already been producing microLEDs in production that fly in aircraft as we speak. So we're going to double-click on that a little bit later.

So here are some areas that I'm very proud to talk about. When you look at this slide, what's changed is the orders. And whenever I see new orders on the slide, it always brings a smile to my face as an investor. But we've announced new pilot helmet awards recently, new thermal weapon sight awards recently and several U.S. aircraft rotary wing aircraft awards as well as European rotary aircraft awards in Q1. DarkWAVE is a technology that we partnered with Theon International, and that is an area where we're also receiving awards, right now, we expect to go into production in Q4. And then, of course, we've already received and announced several new orders in our Sentinel FPV headset.

So what this slide should tell you as an investor, I hope, is that when Kopin spends money in advanced research and development for things like DarkWAVE or Sentinel, et cetera, that we're actually getting that investment back in spades and our new investment in new technologies is starting to pay us back.

So with that, just a brief update with our Soldier Borne Mission Command, our color microLED. We are progressing quite well. I think the program management team has done a wonderful job here. We're on target with our color microLED, and this is something that the Army has awarded Kopin. And for folks that don't or aren't aware, this is a $350 million to $500 million contract to Kopin if and when we get an insertion into the program with our color microLED. And this will add tremendous power consumption, reductions in the system, true color, excellent contrast and certainly the best image for our war fighters to go into the battle with. So we're very proud of our progress so far, but we have a lot more to do.

Okay. I'm going to touch on a few things here. But when we think about the overall market for color microLEDs, just here in the United States, it's a $1 billion serviceable available market. And remember, you have to build this technology United States to be able to support these programs. And right now, Kopin is the only company with a microLED production line coming online to my knowledge. And that gives us a tremendous advantage in the marketplace. We also expect further IVAS funding either this year or next year to help us complete and add more capacity to our production line and potentially other devices as well. So right now, we are working with the Army on other microLEDs for other applications, whether it be a smaller resolution or higher resolution device, and those discussions are ongoing. And furthermore, Theon has funded us to build a NATO version of that microLED once and if we're ready to do so, and they have some requirements for us. So that's ongoing as we speak.

So let's talk a little bit about why we think we're going to be successful in the optical interconnect and co-packaged optic market. Right now, we have a 2K x 2K, which is 16 million pixels or lanes or channels on 1-inch device. That is very difficult to build. That's why many microLED companies that are trying to get into co-packaged optics, as an example, are failing. They're going through the same lessons learned that we went through over the course of the last several years. We've also spent over $50 million in developing this technology for the Department of War, certain aircraft programs, et cetera. So we've learned a lot in building microLEDs, and we've patented much of this technology. And we have some interesting ways of doing what we do to make the yields and dispersion effects be improved.

So with that, we've received a $15 million Research and Development order from our friends over at Fabric.AI. We're developing a parallel chipset, which will achieve 1.6 terabits per second transmit and receive. Those prototypes will be available next year, but we're going to demonstrate this capability this year, if not by the first part of 2027. So I'm going to talk about why. Why this is important? And when you think about transmitting data at terabit levels, many people would want to use lasers, which is an opportunity if you're transmitting data over a distance that's quite long. However, from a chip-to-chip perspective or a board-to-board perspective, lasers just aren't necessarily the best solution because they're too power hungry, they're too physically large, but they can solve the bandwidth problem.

Now currently, the technology that is used is copper SerDes. Unfortunately, copper, if you push it that hard to 1.6 terabits or 3.2 terabits, it heats up too much to the point where is costing the average consumer and customer too much. So that gives microLEDs a really interesting in-between opportunity. We're not quite a laser. We're definitely faster and cheaper than copper interconnects, and we're not as hot, but we can't go as far as lasers as an example. So one of the other things that I think investors don't necessarily value with our technology is that it's field programmable.

Now if you're the United States government that already has a tremendous amount of AI infrastructure in place, you don't want to start ripping and replacing all of the gear because, a, it's already working; b, you've already paid for it; and c, you may not necessarily need every component that's coming out. But field programmability and field programmable I/O is a tremendous opportunity for these types of customers that don't want to rip and replace their AI GPUs.

Lastly, one of the interesting things that we're focused on that may not be completely obvious to folks is that we're very much focused on the United States government and Department of Defense in their AI infrastructure centers. one, because we build this technology in the United States; two, that rip and replace greenfield versus brownfield opportunity that I just talked about, but also getting AI closer to the battlefield is uniquely important. And what we're seeing in Iran right now is the closer you can get your AI, the quicker the decisions you can make and the more accessible AI will be to the battlefield. So to do that, we have to reduce power consumption. And because of the issues around copper, pulling all that copper out, pulling all the cost to cool it out and adding microLEDs for GPU-to-GPU technology, GPU to memory as well as board to board, we think we can remove 17 to 20 kilowatts per rack per month which is tens of thousands of dollars of savings in electricity.

So very huge opportunity for us. The United States government is very interested in working with Kopin. We're actively working to create some projects for 2026 and 2027, and we expect there'll be more information on that soon. So just to let you know, Kopin does not need more CapEx to grow into this market. We're actually growing into the CapEx that we already have. We inherited or I inherited 3 very large manufacturing plants that are underutilized. And now we're starting to utilize those fabrication plants, specifically in Dalgety Bay for a lot of this back-end processing. So as we fill up these fabs, our utilization rate goes up, our absorption rates go up and our profitability also goes up. And that's why we're projecting to be profitable by the end of this year, which is in advance of what we were saying earlier just simply because of the amount of orders that we received in the first half of this year.

So with that, this is the team. We are adding to it. We just announced a small design center in Dallas, Texas for our optical team. It just so happens that Dallas is a great place for photonics and optical engineers, and we have to go where the talent is. So a little bit of CapEx and OpEx that we're going to spend there, not much, but it's because we have orders from customers to fulfill those orders that we need those engineers in that spot. So a great team. We're focused. We have excellent customers. The markets are coming to us and the strategy is starting to avail itself now.

So with that, I'll open up to some questions, Martin.

The defense market has always had a challenge of very long product development cycles. And we're seeing that in the Ukraine where rapid evolution of products is key. Are you seeing the U.S. government or any governments or defense programs in general, getting better at speeding up that development cycle, which would pull revenues in faster or sooner for you?

Yes and no. I hate to do that to you. It's a horrible answer. Yes, in some areas, we've learned, as an example, on this page alone, several different things. As an example, Kopin had a massive opportunity with the Abrams Tank program called the SEP v4 until the Abrams Tank went to Ukraine and sank because it was too heavy. So now the industry is starting to learn that size, weight and power consumption really, really matters as well as gas consumption.

So yes, we're starting to speed up and learn more quickly. We're also learning that next-generation interceptor missiles need to be different because we'll be shooting different things and as well as having a first-person viewer drone capability that allows you to still see your feet and your peripheral vision is really important. So yes, I think the United States Army is learning quicker than ever before. I'm very encouraged with the talent that I see in the United States Army and a lot of the divisions that are developing this technology. And certainly, Martin, what an IVAS award means for us, that's the industrial base analysis and sustainment. What that means is the U.S. government is looking at technologies for the industrial base, meaning how do we produce here in the United States for the United States, that's critically important. And thankfully, they're learning more quickly and investing that money now.

I think there's areas where Europe, quite frankly, is struggling. We see Europe still trying to do things the old ways and companies like Theon are just growing exponentially because of their pace, Martin. And that's one of the reasons why we liked partnering with them is they're moving very quickly in Europe and Southeast Asia, and Europe isn't moving quickly enough. Ukraine certainly is moving quickly. However, the rest of Europe isn't. And I think the United States now is definitely catching stride and investing in the right ways in the right places.

The displays in the big macro sense, the display industry is dominated by big Korean and Chinese manufacturers of TVs and computer displays. And those are all about scale. You're targeting niche markets. How scale dependent are you in getting good traction in your markets?

Yes. Great question, actually. We took the approach that customers that we have -- let me scroll up here, like the big primes as an example, they don't want to get smart, Martin, on microdisplays, optics and drive electronics. They're big metal vendors. Their core competencies are in other areas. So we took the approach of more application-specific solutions where we're adding more than just the lens as an example, for your glasses, you don't go into lens crafters and just buy the lens, you buy the lens, the IPs, the holders and your prescription. And that strategy has worked very well for us, specifically as an example, with our Sentinel FPV program.

Sentinel is not a product. It's a platform. You can tweak it, you can change its color, you can change its connector for whatever solution you want to provide. But the eye pieces themselves, the display optics and drive electronics, that's very much within our gift to commoditize and build here. So that's where we've been focused our automation and capacity is in building those types of architectures so that we can rinse and repeat them many, many times.

Now what caught us a little bit off guard, and I'll be the first one to put my hand up here, is the demand that we're seeing for displays now here in the United States. We were thinking that OLED would have somewhat more of a traditional ramp-up for us with things like our first-person viewer and some of the thermal weapon sights that we're seeing, and that demand curve became a demand step. So it wasn't a nice curve. It was a demand digital step. So we had to add more capacity because our current European suppliers wouldn't be able to keep up. And secondly, it was financially more viable for us to put OLED deposition here in the United States and utilize that and capitalize it here in our fabrication plant here.

So from an OLED perspective, we're in very good shape for demand. MicroLED, we're already considering adding capacity as soon as the microLED production line gets operational, we'll likely add more modules and nodes to it to produce more because we're just seeing a significant demand curve, and that demand curve is very near field.

On the consumer side of things, do you see a lot of opportunities for in the AR/VR consumer eyeglasses, the Meta glasses, that type of thing?

Yes. It's been fits and starts with consumer. I think even the consumer companies would tell you that Meta has a 100 for 100 strategy. I was on a panel with Meta and a few other folks recently at SID Week. And their view, which is, I think, very interesting is there's going to be a low-cost part of the market. And you're seeing that with Meta's glasses coming out, Google, et cetera. So this basis of lower-cost AI headsets and glasses are seeding the market. And I think what you're going to see then is the Apples of the world, the more integrated type of glasses come later.

If you recall, what I said at the beginning of the call is we were focused on the Metaverse first and Apple Vision Pro, et cetera. And I think the market realized is we don't want a $3,000 headset right now. The apps aren't there to spend $3,000, $4,000 for glasses as an example. So let's go low cost first, build up the applications and then the big $2,000, $3,000 type of eyewear will come out from those companies. And where Kopin is focused is in truly differentiated technology like our neural display technology. We demonstrated this over 2 years ago. We invented it. This is a bidirectional microdisplay. It actually has a camera that's looking back at your eye. I use camera as a layman's term, but it's actually using the pixels of the display to do eye tracking as an example, while you're still seeing an image that reduces cameras that are doing eye tracking, the power consumption and processing that you need.

And what we learned from the market is that they don't want that technology in an OLED display. They want that technology in a microLED display because OLEDs right now are not bright enough for the daytime use where you use smart glasses most often is in daytime use. Therefore, LCOS and microLEDs are going to win the day in things like the Google Glass, Meta glasses, Apple glasses, et cetera. So microLEDs are required for those applications just strictly for the brightness. Therefore, we need to build a neural display in a microLED and/or work with a partner in Korea or Japan that can license that technology from us for one of those big 3 on the West Coast and build it in their $1 billion microLED fab as an example.

You design and build components as well as larger assemblies. Do you see yourself expanding the, say, the footprint or the size of the assembly, getting more into the full display headset itself? Or how big of a footprint, call it, do you see your opportunity?

Yes, it's a great question. We don't want to compete with our customers. And we want to be somewhat agnostic since we have this great opportunity to support multiple different customers in multiple different ways. Where I think we want to automate and focus first, at least in the near term, Martin, is the display manufacturing have to have it here in the United States, and we have to be great at it. And we are, and we're getting better, and we're expanding that footprint with OLED and microLED, which is fantastic.

But secondly, optics. Marrying that microdisplay with the right optic is tremendously difficult, and our customers don't want to do it. They want us to do it. And then wrapping that optic around with some sort of plastic or housing, then they get a module that they can plug in and play and go off and add value in the way that they want to add value. So we see that in the first-person viewer drone market as an example, with all these customers competing against each other, whether it be on the motors that they use, the distances that they have, the airframes that they have, they don't want to necessarily compete on the headset. They want someone else to do that for them, right?

So I'm not going to produce a product in that space. I'm going to produce a solution that's 80% of the way there and you, Martin, can tweak on that paint a different color, make it a different connector for your helmet system, as an example, or make it a full goggle. It's up to you. But the fundamental LCD, OLED, microLED or LCOS plus the optic drive electronic and some sort of housing, that should come out of the Kopin manufacturing plant fully and completely warrantied and ready to go.

You mentioned earlier that some of your systems are field programmable. Could you explain what you mean by that?

Yes. So part of why and how we build microLEDs, there's some reasons we have programmability in those systems. I'm not going to go into it because it's a significant advantage for us. But having that programmability will allow us to do different things in the market. As an example, let's say you have an NVIDIA H200 chip sitting on one rack. And in your I/O card, you want to be able to talk to a legacy Intel chip, right, as an example. One is new, the other one is old. Our ability to program our chip to an H200 NVLink and then the receive side, an Intel custom interface as an example, allows us to talk to both of those systems and transmit data over optics, right? But we won't know what we're going to have to talk to in a brownfield already installed environment.

So what this allows you to do is take older architecture and bolt on new architecture as long as the I/O interface cards have our chip in it. And we've heard that from the United States government that, that is their largest sphere of having to rip and replace every time NVIDIA comes out with a new GPU or Intel comes out with a new CPU, but they have to rip and replace their I/O cards. Well, if the I/O card is already programmable, and your chip is programmable, then you have the ability to program that interface and use that old technology where it is and how it is, but still link those boards using optics as an example. So that's one of the reasons why we do it that way. There's a significant amount of capability that we actually do through software to make those LEDs behave and also things that we can do for redundancy as an example, of those LEDs because to place 16 million LEDs, 16 million on the size of my thumb perfectly is really hard to do.

Go ask some of the customers that are out there that are getting investments from folks like Marvell or NVIDIA or whomever, putting 16 million LEDs on the size of your thumb perfectly every time is really hard to do. And that's why they're finding out that a lot of these technologies that they promised for microLEDs have not come to fruition yet because they've not gone through the growing pains that we have building this type of technology, and we've built it for several years, and it's being flown in an aircraft today. So we know how to do this better than I think anyone in the United States, period full stop.

So much of AI build-out is on new build, new data centers and so forth. It sounds like you're also positioning this as a retrofit market where -- so you're not just looking at the future growth, it's -- you can sort of look back in time and have gain opportunities from what's already installed. Do I have that right?

You have it exactly right. And we have a very exciting road map. I want to make sure that people understand we're not a one and done with Neural I/o. We have a full co-packaged optic road map that I think is 2 years further advanced than the leaders in the industry here in the United States. We're not ready to talk about it yet. But again, when I start talking about the ability to put 16 million pixels on a 1-inch chip with micro lenses and controlled dispersion, I think we're about 2 to 3 years advanced than everybody else in the industry. Folks just haven't really realized it yet because we haven't really been talking about it that much.

When Marvell came out with their announcement, it kind of pushed my hand to announce what we were doing with Fabric.AI. And I think this new technology called Neural I/o, which is that transceiver chip, it's a receive and transmit Martin. I think our road map, I think we're now contemplating maybe just focusing on the transmit side because we do it so well. And we know that the other players in the industry are really struggling with transmit. The receive side of that data is actually fairly well known. The science is well known on this. And there's many companies on the receiver side of optics, but not too many on the transmit side that can do what we do, which is 16 million pixels on a 1-inch substrate. We're thinking that we can get well over 3.2 terabits per second of data near term. We're not talking years. We're talking near term. And I think 10 terabits per second is definitely in our view.

So we think we can do it, and we have a significant amount of capability on the transmit side but we're learning on the receiver side. And I think Neural I/o is going to prove a lot this year that we can do a tremendous amount of capability in this space with technology that we have here already.

Not to get too nerdy here and technical. Each of those 16 million emitters is sending it out its own data stream. And then those 16 million individual bits going across are then collated, let's say, at the receiving end and then made sort of a coherent data package?

I think slow and wide, meaning if you have a laser as an example, you have to run that laser because it's one line as fast as you can. Many, many lines, you can transmit data in parses, meaning in pieces or you can transmit tremendous amounts of data at the same time across multiple different lines. So your bandwidth is exceptionally large. So think slow and wide. Now we're able to do that. We invented the bidirectional microdisplay 2 years ago, if you remember what I said, we knew that we could transmit data back and forth at the same time. Our challenge is how much receive can we do.

On the transmit side, we know that we can outperform pretty much any company in the United States and the world today on the transmit side. It's the receive side that we're doing a lot of learning and development on. But yes, essentially, each of those lanes would drive data to and from the microLED. Now our ability to program those LEDs specifically by LED we literally can control 1 LED with 1 pixel or 1 register in our programmable backplane so that as an example, let's say you have 1 LED out of the 16 million that isn't working, then what do you do, right? That's a problem. For us, it's not a problem. We just program, we program it out and we use another LED. That's one application that we have figured out that nobody else has, and everyone is struggling with the yields because of that, it's a very simple solution for us.

So programmability is critical for us. The ability to transmit at 1.8 million foot lamberts as a degree of brightness as an example, 1.8 million foot lamberts will blind you, literally blind you. So where -- again, I come back to the market, many people that I talked to recently are talking about we're going to kill copper. We're not going to kill copper with this technology. It's an and technology. There'll be copper SerDes, folks like Credo do that very, very well, highly competent company. They're focused on that. Copper will still exist for a long, long time. But it was there when I started engineering Martin. So it's been there a while. And then there's lasers, right? Lasers are great for longer haul and higher frequencies. But in the middle, chip-to-chip, board to board, there's a better solution than those 2, and that happens to be a microLED. It's less cost. It's more effective, high bandwidth, programmable, low cost to build and certainly much, much less power consumption than either of those 2 solutions. And the mean time between failure is actually better with a microLED than it is a laser.

So for all these reasons, microLEDs are very well suited for chip-to-chip, GPU to memory as an example, and then board to board. Rack-to-rack, getting a little more difficult for a microLED. You might want to add a cable plus the microLED, which is what Microsoft is doing as an example, that's publicly known. But for us, we're very focused on the short-range chip-to-chip, board-to-board because that's where I think microLEDs are going to have their day.

What is the size of the FABC market?

The FABC market, I think it's -- so Fabric.AI is called FABC, that's their ticker on NASDAQ. Great company. What Fabric, as I understand it, is going to be -- this isn't going to be their only product and only company that they partner with. They're very focused on solving the 4 big pillars of issues around AI infrastructure. And James and Josh are focused on bringing other companies like Kopin into the Fabric fold. But if you just think of the market spaces out there for transceiver companies, like as an example, Credo, I think, is $12 billion or $20 billion and the Fabric.AI market share or market size is about $30 million.

The arbitrage between the 2 is so massive that I think Fabric's ability to grow share price is exceptional. It's massive. It's just massive. Especially if we get this chip right, and they get one customer, that stock price is going to run. So I think the market potential at Fabric.AI, if they do the right things is exponential. Just think of it as a play between the market size that it is today and what you see with Credo or Marvell. That's the opportunity that I see in Fabric.AI and Kopin for that matter. It's an arbitrage even valued at $1 billion Kopin, if you go back to that slide that I had, this one and look at the market opportunity in these markets in the United States with a fabrication plant that nobody else has and capability that nobody else has, and we're already in the market, these market opportunities and the numbers that were put up here by 2030 are very real for us.

And I think our growth trajectory over the course of the next 3 years is exponential. So I plan on addressing that with the market over the course of this year as we see our order book start to fill up and I see that Fabric.AI's order book starts to fill up, we start partnering with more AI infrastructure companies together. And I see Fabric bringing in other companies like Kopin that has bespoke technology. I think both market values of both companies right now are underserved by a lot. So we're very excited that we're positioning ourselves for great growth.

Do you think -- we talked about sort of the adoption curve and the product development cycle in the military side. On the data center side, I'm presuming they're, let's say, maybe less risk averse, they're willing to try these newer technologies. Do you see it being a long cycle once the product is developed for it to get adopted and tried out in data centers?

It's a good question. I actually see the defense industry really wanting this technology first, again, because they have the biggest need and they have this addressable market, Martin, that I think a lot of investors don't realize. The United States government is the second largest buyer of AI infrastructure behind the hyperscalers. They're the second largest. And more importantly, the chips that go into the U.S. government cannot be built in China. So all these other companies that wouldn't necessarily compete with Kopin like the Marvell's and Credo's of the world, as an example, they're going off and building their chips in China or Taiwan. We're building our chips here in the United States for Fabric.AI as an example, for the Department of War, for NIST, for DISA, for 3-letter agencies and 4-letter agencies.

So I see them really wanting this technology now because we also solve that big problem, Martin. Brownfield and greenfield coming together so that you can use the next H200 without ripping and replacing everything that's out there or the A300, whatever it might be, that co-packaged optic side of that is a different equation.

So let's talk about the co-packaged optic size for a second. The ability to support a co-packaged optic from Kopin is actually very unique for us. Because we do the transmit side so well and our pixel sizes are far smaller than anybody else's, and I understand this to be true, our next competitor's pixel size is like 25 microns to 50 microns. We're below 10 today. That means we can put more LEDs in a smaller space, run them faster at a cooler level, lower power consumption. So our ability to put together a 3.2 terabit co-packaged optic for transmit is far advanced than everybody else's. I think instead of 3.2, we should jump straight to 10 and we're debating that right now. I think there's no reason to go to 10 terabits right now because the GPUs can't run that fast. So that's where we are in the industry, and I don't think people have really figured that out yet.

Are there more opportunities for partnerships with you and product development? Or is it more just finding end customers to buy it for integration?

We've been focused on execution right now, Martin. We don't even have a salesperson selling the stuff yet. So when we're ready and we're coming soon, we have a full road map. We have a demonstrable chipset that we'll have by the end of this year that customers can use and test and what have you. But until you really have something that customers can test, it's difficult to engage. But we do have several customers. There are semiconductor companies that have signed NDAs with both Kopin and Fabric.AI to be early adopters and testers of Neural I/o.

On the co-packaged optics side, we really haven't been addressing the market yet. We're waiting to see how our test chips come back. But from a co-packaged optic perspective, if you're building LEDs anyway, how many can you build on 1 millimeter is the question. And our answer is we can build a lot more than people think we can, and they're faster than they think they are. So when we're ready, we'll go out to the market and hopefully sign 2, maybe 3 partners that one will hopefully be a semiconductor company and then the other will be an infrastructure company that we can work with. And then the third, obviously, is going to be the United States government.

No matter what we do, we'll have a United States government customer for this technology because we'll be able to take more risk with them. They'll be willing to fund that risk. And I think that's great for Kopin investors is that the technology risk on Neural I/o as an example, is purely borne by the United States government and fabric. That's it. So we'll have a chipset funded by those 2 entities as opposed to Kopin's own internal research and development. And that's a huge thing. That's a big difference that I bring in from my background versus where Kopin was is that we're working with our customers and our partners to fund this technology development with them and for them so that they get what they need as opposed to us giving them what they think they need. And that's been a huge change in the culture of Kopin.

I have several questions here in the audience regarding revenue outlook potential there. I mean, can you reiterate what your official guidance is potential upside or sort of revenue opportunity? Like obviously, you have to tread lightly on what you say here, but what can you say?

I can say we -- it's difficult to talk right now because we're just finishing our quarter. But we're doing well this year. I think next year, our growth potential is more exciting than I think people realize. Potentially, I was a little shocked actually, happily so. But I think where we want to be by 2028 is going to be very significant revenue growth, and we'll definitely surpass $100 million is my goal. So I think we'll see how Q2 shapes up and get that announced. We announced in August. And at that point in time, I'll take a judgment of whether or not we're going to raise our guidance for this year and next or not. But right now, we are very focused on just delivering on our order book, increasing our order book and closing the quarter. That's about all I can say today.

So -- but what your general expectation is, I would guess, maybe in late '27 and then in '28, that's when the inflection could potentially really kick in on the revenues?

I think so. I think we're going to have a good year this year. We guided $52 million to $60 million this year, which is a good step-up from last year. Last year was a little depressed, Martin, because of the government shutdown in Q4 that hurt us. No one expected it to be that bad. But I think this year, we'll definitely hit our guidance in my view. And if things keep percolating here, we'll see where we end up at the end of Q2 and whether or not we want to adjust our guidance for this year and next year. But I do foresee next year being a significant growth year for us.

In fact, when I started, we started talking about $75 million for next year. Actually, it's right here, so I can talk about that. $75 million to $100 million next year is still well within our scope. And I'm happy to report we're getting the orders. And that's what really fuels me is if we're getting the orders and the order book is growing the way that it is, I have a high degree of confidence that we'll be in that $75 million to $100 million mark next year.

Can you give an update on Blue Radios?

Yes. Update is -- it's in federal appeal as we speak. Documents have been entered on both sides, and we'll wait and see the outcome of the federal appeal. I don't have any time line for when that's going to be resolved.

We need to wrap it up here, Michael. We've been 50 minutes going here. And thank you for your time. Any final thoughts or comments or ideas to leave investors and viewers with at this point?

Yes. I think, firstly and foremostly, we have a tremendous opportunity for growth at this company. Our expectation is that at the end of this year, the company will be profitable. We're growing into our CapEx structure. The United States government is investing in the company. We have a tremendous order book as we sit here today with some of the best customers in the world, market-leading and market-making customers in the world. Our European growth is being fueled by Theon International. We have great partners in Ondas and Unusual Machines, and we're winning in the drone dominance competition because of our capability that we provide these flyers and pilots to see their terrain and score well in the drone dominance competition.

And we're the only company in the United States that has LCD, OLED, microLED and LCOS manufacturing, all under the same roof, roughly speaking. So we have a great platform for growth. I think the AI infrastructure market for Kopin could be 25% to 50% of our revenue next year and the year after, it could be as much as our defense revenue in 2028 based on some of the opportunity levels that we're seeing. So exciting opportunities for growth for the company. And yes, look for more during our Q2 announcements.

Michael, thank you very much. Greatly appreciate it. Talk to you again soon.

Thank you very much, Martin.

Good morning, everyone, and welcome to the Kopin Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions]

This conference is being recorded today, and the earnings press release accompanying this conference call was issued earlier today. Before we get started, I'd like to remind everyone that during today's call, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on the company's current expectations, projections, beliefs and estimates and are subject to a number of risks and uncertainties that cause actual results to differ materially from those forward-looking statements.

Potential risks include, but are not limited to, demand for our products, operating results of our subsidiaries, market conditions and other factors discussed in our most recent annual report on Form 10-K and other documents filed with the Securities and Exchange Commission.

Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven inaccurate, and there can be no assurances that the results will be realized. The company undertakes no obligation to update the forward-looking statements made during today's call.

Kopin Corporation's Chief Executive Officer, Michael Murray, will begin today's call with an overview of Kopin's strategic progress and business developments during the first quarter and the period that has followed. Following Michael, Kopin's CFO, Erich Manz, will review the company's first quarter 2026 financial results.

I would now like to turn the conference over to Michael Murray. Michael, the floor is yours.

Thank you very much, operator, and good morning to everyone, and welcome to our first quarter 2026 earnings call. The first quarter and subsequent weeks marks one of the most exciting stretches in Kopin's history. We continue to grow our defense order book across the United States and Europe. We also advanced our MicroLED technology platforms and announced a strategic collaboration with Fabric.AI that we believe meaningfully expands the long-term opportunity set and sustainable acceleration of revenue growth for Kopin.

Today, I'll walk you through 3 areas: first, the Fabric.AI collaboration and the launch of our jointly developed Neural I/o optical interconnect technology for AI infrastructure. Second, our continued momentum across all global defense markets, including new orders our entry into first-person viewer drone technologies and the major thermal imaging follow-on contract awarded subsequent to quarter end; and third, our strategic investments, including bringing OLED microdisplay manufacturing in-house at our Westborough headquarter facility here in the United States and how we're positioning the defense business for the long-term exponential and sustainable revenue growth at higher profit margins.

First, let me start with the most consequential announcement we have made this year. Recently, we announced a strategic collaboration with Fabric.AI, an AI infrastructure development company, building the advanced core capabilities for AI factories that power large-scale artificial intelligence workloads. Together, Kopin and Fabric.AI are joining development of a new product family we call Neural I/o that is designed to dramatically increase bandwidth speeds, decrease power consumption and importantly, lower overall operational costs of currently operating data centers and new data centers alike.

Neural I/o is built on Kopin's proprietary MicroLED technology and our patented bidirectional neural display architecture. What we have done is repurpose programmable MicroLED pixels as ultra-high-speed optical transceivers, devices that move data at extremely high bandwidth using photons of light instead of electrons traveling through copper wires. This matters for one simple reason. Today, data center equipment and GPUs relies on dense copper interconnections to talk to each other. And those copper interconnections are now the binding constraint on AI data center performance and power consumption.

AI factories are running into the limits of what copper can do, both in terms of bandwidth and in terms of the energy required to push data and cool the systems. Neural I/o is designed to break through those limits. By using each MicroLED pixel as a high-speed optical transmitter, we are designing chip-to-chip, board-to-board and rack-to-rack communications that target the same functional outcome as copper while consuming a fraction of the power.

To use the words of Matt Kimball, principal analyst at Moor Insights and Strategy, well, the ability to enable connectivity that delivers the full throughput of an accelerator without taxing the power budget has been a persistent challenge in the industry. And Kopin and Fabric.AI's Neural I/o built on MicroLED technology presents a unique and compelling value proposition. Moreover, this marks a completely new era in data transmission, bandwidth and designing of electronic systems and [indiscernible].

Several recent articles estimate that the AI infrastructure optical transceiver market is expected to reach between $69 billion to $90 billion by 2030. Of that total spending, the United States Department of Defense and Government Systems is the second largest consumer of this technology behind the traditional hyperscaler markets. This is why Kopin and Fabric.AI decided to focus on each of these individual markets separately. This relationship was forged with a clear intent of relentless focus on addressing this massive market in the right ways with the right people to promote exponential and profitable growth with the proper resources required.

Kopin will support the absolute and clear requirements of the United States Government and Department of War for U.S. production of AI chips and chipsets. With our U.S.-based MicroLED production line, we are installing as part of our Industrial Base Analysis and Sustainment Act Award, or IBAS award, this custom design production line will support the Neural I/o family of chipsets for the United States Department of War and government customers. Fabric.AI chipsets and our new color MicroLED products for programs like soldier-borne mission command and many others will also be produced on this production line, and I will expand on that more later.

Under our agreement with Fabric.AI and in addition to the $15 million initial purchase order to fund the demonstrable chipset, which we expect to be completed by the end of 2026, Kopin owns 19.9% of Fabric.AI and Kopin is their exclusive manufacturer of Neural I/o chipsets. The collaboration combines our deep expertise in MicroLED materials, process development, yield optimization and manufacturing with Fabric.AI's system-level design and go-to-market focus on hyperscaler AI infrastructure. We believe this is a true technology partnership. Kopin brings the enabling hardware. And together, we are building an infrastructure layer that AI data centers will require to scale for years to come.

In addition to our 19.9% equity stake in Fabric.AI, Kopin's shareholders have direct exposure to the upside of this opportunity beyond the manufacturing economics. Fabric.AI has raised the required capital to fund this development and staff the business appropriately as Kopin completes the Neural I/o prototypes.

We will share more on the development road map and customer engagements as it advances in later calls. Infrastructure is being deployed at an unprecedented pace and the bottlenecks created by traditional copper interconnects are precisely the kind of problem our technology is well suited to solving. We believe this collaboration dramatically expands Kopin's market opportunity and positions us as a strategic enabler in the next wave of AI acceleration, and it fits very well within our core skill sets and capabilities leading MicroLED development and manufacturing here in the United States. While there are competitors attempting to develop their own solutions like Kopin, most are start-ups and have never produced this technology previously. Others are established firms in the copper or fiber optic transceiver markets, which have not produced this technology previously either which provides Kopin a significant market advantage from a timing, yield and quality perspective since we are actively producing this technology today.

Now turning to defense. Our first quarter and the period since reflects continued strong order momentum across our core programs and meaningful expansion into new ones. Let me walk through the highlights chronologically. In January, our strategic partnership with Theon International produced its first order on DarkWAVE platform, a $1 million development order to bring the 960p OLED DarkWAVE module to production readiness. This is a significant opportunity and milestone because DarkWAVE enables users of traditional monochrome night vision goggles to upgrade them as a retrofit with full color, augmented reality, enabled symbology and full motion digital interface and interlacing feeds, including drone imagery.

Our DarkWAVE module is the foundation of Theon's upcoming DARK-I eye product. With more than 2 million estimated NVGs in use globally and a global NVG market projected to grow from $8.6 billion in 2025 to $12.9 billion in 2030, DarkWAVE targets a very large aftermarket opportunity. And because the system is ITAR-free, it opens up a new global market for both companies.

In February, we announced 2 new European helmet-mounted display orders. First, a $2 million microdisplay production order from a Tier 1 European defense contractor for a rotary-wing helmet-mounted display system; and second, a $3.6 million purchase order from an advanced avionic helmet-mounted display system to be integrated into a rotary-wing military aircraft from yet another European defense customer. Together, these awards bring our pilot helmet-mounted display order book above $10 million and underscore the strength of our display solutions across both U.S. and European defense aviation.

Indeed, our European business plan and focus is starting to provide new customers and applications, which will only increase our order book, provide more global business independence and stability while increasing our European facility absorption rates. In March, we were awarded a Phase 1 SBIR contract from the United States government to advance new full color yet smaller format MicroLED display technology, purpose designed for soldier-borne and weapon sight applications. This is the second MicroLED-focused U.S. Army award we received in the past 6 months, and it builds directly on the existing $15.4 million IBAS contract awarded in September of 2025, which is focused on developing domestic production capabilities for our MicroLED displays.

The MicroLED architecture under development is engineered to deliver the brightness, ruggedness and power efficiency required for next-generation weapon sights, helmet-mounted visual information systems and other precise targeting devices, the kind of capability that scales across multiple defense programs.

In April, we announced our entry into the first-person viewer drone market with the launch of our Sentinel FPV product. Drone pilots need high-resolution headsets connected to the cameras on the drones to control it as if they were in "the pilot seat" of the drone. We received an initial $3.2 million order with potential delivery of up to 40,000 goggles by the end of 2028. What makes Sentinel unique is something we call Dual Situational Awareness or Dual SA. Like traditional FPV goggles that fully block out the operator's peripheral view, Sentinel is engineered to deliver high-definition drone imagery while preserving the user's peripheral awareness of their surroundings. No other FPV goggle on the market provides this level of hands-free integration awareness. In field trials, drone pilots love the demonstrated dramatic improvements in survivability, mission effectiveness, pilot dexterity and safety that Sentinel provides.

We believe this technology has potential to redefine what a tactical FPV system looks like. and we're actively engaged with additional drone and FPV companies to integrate Sentinel into their platforms. Further, this technology is built in the United States, which is mandated by the FTC and the Department of War. Also, subsequent to quarter end, we announced a $21.5 million follow-on production contract from a major U.S. prime to manufacture custom thermal-imaging eyepieces and assemblies for a manportable thermal weapon system. This award expands our growing backlog and reinforces Kopin's role as a trusted U.S.-based supplier of mission-critical vision systems for the war fighter. With more than 400,000 mission-critical solutions delivered across multiple generations of defense programs, this contract is a strong vote of confidence in our manufacturing capability and our ability to deliver American-made technology that performs in the harshest of environments.

Taken together, the orders we've announced over the last several months, DarkWAVE with Theon, the European HMD awards, the SBIR for Soldier-Borne MicroLED, Sentinel FPV and the $21 million thermal-imaging follow-on award reflects both the durability of recurring order rates of our existing defense business and the confidence of our government, North American and new European prime contractor customers have in the new product lines we are bringing to market.

As a reminder, many of our defense programs have congressional budget demands through 2030 and several of our contracts are sole sourced indefinite demand and indefinite delivery or IDIQ, which provides additional upside flexibility above what is currently on order, recurring revenue and forecastability and sustainability for several years.

Now I want to spend a few minutes in the third area, as I mentioned at the top of the call on our strategic investments and what they tell you about how we are deploying our cash. After quarter end, we announced the purchase of a state-of-the-art OLED Deposition System and related equipment to establish full-scale OLED microdisplay production at our Westborough headquartered facility.

For the past several years, Kopin has operated under a fabless OLED production model, leveraging external partners. The reason we are bringing this capability in-house now is straightforward. We are experiencing a substantial quantifiable and qualified surge in customer demand for fully U.S.-built OLED microdisplays, particularly for FPV systems like Sentinel, thermal weapon sights and other soldier-borne mission-critical defense applications.

Bringing OLED manufacturing capability in-house gives us greater speed, flexibility and cost efficiency to respond to that demand. We will continue to leverage our established Asian manufacturing partners for consumer and medical applications that do not have a domestic production requirement, and we will continue to use our European OLED deposition partner for NATO-aligned defense programs as well.

The U.S. OLED capability is additive, specifically to support the U.S. defense market. I want to be very clear about the message this investment is intended to send, which is that we are comfortable with our cash position and our facility footprint to deliver this increased demand. The capital we raised in 2025 was raised with this level of growth and investment in mind. The OLED deposition decision is exactly the kind of investment that strengthens our defense business going forward. It expands sovereign supply chain options for our defense customers. It improves our control over quality, lead times and pricing, and it complements our existing U.S. manufacturing capabilities for AMLCD, FLCoS, MicroLED and now OLED.

Kopin remains the only company in the United States manufacturing 4 types of microdisplays, optics and soon photonics for the U.S. defense customers who are increasingly demanding and in some cases, must, by law, purchase from trusted domestic producers for critical components. Clearly, Kopin is answering that call.

Turning to the operations side. Our investments in automation continue to deliver meaningful improvements in throughput, quality, consistency and cost efficiencies. Both phases of our optical automation program are now operational, and we expect these investments to deliver about $1 million in annual operating expense savings and add to overall production capacity as they reach full utilization.

From an advanced technology perspective, our neural display technology continues to advance, and as noted earlier, has now extended beyond defense and industrial display applications into AI infrastructure through our collaboration with Fabric.AI and our Neural I/o initiatives.

The neural display platform leverages advanced processing and AI-enabled backplane and offers display optimization to enhance image quality, reduce power consumption and improves overall user experience across the markets we serve. This display technology has several of the largest consumer companies interested in it for AI-enabled smart glasses. And we are now working to create a partnership to deliver neural display as a MicroLED device rather than an OLED device, which is the current demonstrable device as it stands today.

Furthermore, as I mentioned earlier, Neural I/o transceiver is not just a single-chip strategy. It will be a family of devices focused on application-specific solutions within the AI GPU, CPU and memory architecture of an existing data center and new data centers alike. These new chipsets will be developed with several of the largest semiconductor and AI infrastructure companies in the world, several of whom are actively engaged with Kopin to work on these solutions. And one of the only manufacturers in the world capable of producing 4 types of microdisplays and now AI interconnection chipset solutions within the United States, Kopin maintains a unique competitive advantage that enables us to deliver the right technology for the customer-specific application in defense, industrial, medical and now AI infrastructure applications.

So to summarize, the first quarter of 2026, together with the events we've announced subsequent to quarter end, represent a meaningful inflection point for Kopin. We extend our MicroLED and neural display platforms into AI infrastructure through our Fabric.AI collaboration. We have launched several new products and received initial orders with DarkWAVE to bring full color to the enormous monochrome night vision goggle market and with Sentinel FPV for the massively expanding global drone goggle market as well. These new activities speak to the disciplined productivity of our internal research and development spending as these new technologies are attracting new customers and new market segments for Kopin. These new platforms enable Kopin to sell these products to multiple customers globally and are not just a custom product for just a single customer, making our forward-looking recurring revenue more balanced and forecastable.

Within the quarter, we grew our defense backlog with a $21.5 million thermal-imaging follow-on order, a $3.2 million initial Sentinel FPV order, over $5 million of new European HMD awards, a Phase 1 SBIR for soldier-borne MicroLEDs and the first DarkWAVE order from Theon. We invested in our strategic priorities by committing to bringing full-scale OLED microdisplay manufacturing in-house in Westborough, and we did all of this while maintaining a strong balance sheet.

Consequently, we reiterate our 2026 revenue guidance range of $52 million to $60 million, which we believe remains appropriate and conservative given the order momentum we are seeing across both our existing defense business and our newer growth programs. As more programs and awards are converted into shippable orders and as our newer programs ramp, we expect to provide further updates throughout the year.

I'll now turn the call over to our CFO, Erich Manz, to review our first quarter 2026 financial results in further detail. Erich?

Thank you, Michael, and good morning, everyone. As Michael, outlined in the first quarter subsequent events represent a meaningful shift in Kopin's trajectory. From my perspective as CFO, what is particularly compelling is how clearly we are seeing our strategic investments begin to translate into tangible commercial momentum across both our core defense programs and our emerging opportunities in AI infrastructure.

The combination of expanding defense orders, entry into new product categories like Sentinel FPV and the strategic collaboration with Fabric.AI gives us increasing confidence that we are building a more durable, diversified and scalable revenue base. Just as importantly, we are doing so while maintaining a disciplined approach to capital deployment and a strong balance sheet.

An important financial implication of this momentum is how it positions us to better utilize our existing manufacturing footprint. As volumes increase across multiple programs, we expect to more effectively absorb fixed costs with our facilities that have historically weighed on our cost structures. In other words, improved factory utilization and a broader mix of production programs should translate into better overhead absorption, margin expansion and a more efficient operating model over time. The investments we've made, whether in MicroLED innovation, automation, bringing OLED manufacturing in-house are not theoretical. They are directly aligned with identified demand signals from our customers and are designed to enhance throughput, improve cost efficiency, strengthen our control over both quality and delivery and minimize risk. In short, we believe the progress you are seeing is new, not just incremental. It reflects a fundamental step forward in the company's growth profile, cost structure and operating leverage.

With that context, I'll now walk through the first quarter 2026 financial results in more detail. Total revenue for the first quarter ended March 28, 2026, were $10.6 million as compared to $10.5 million for the first quarter ended March 29, 2025. The slight year-over-year increase reflects new award and collaboration revenue contributions from the company's $15.4 million government MicroLED award and strategic AR/thermal clip-on partnership, which more than offset the decline in product revenues.

Product revenues for the first quarter were $5.4 million as compared to $9.2 million in the year ago period. The year-over-year decrease was primarily due to lower period shipments of products for thermal weapon sight applications and liquid crystal displays. Nonproduct revenues were $5.1 million (sic) [ $5.2 million ] in the first quarter of 2026 as compared to $1.3 million in the first quarter of 2025. The increase was primarily driven by award revenue recognized in connection with the company's government award for the development of ultra bright full color MicroLED displays optimized for ground soldier augmented reality applications, together with collaboration revenue from a strategic partnership to develop a next-generation clip-on with augmented reality and thermal integration capabilities.

Cost of product revenues for the first quarter of 2026 were $5.6 million or 103% of net product revenues as compared to $7.6 million or 83% of net product revenues for the first quarter of 2025. The increase as a percentage of net product revenues was primarily attributable to reduced production efficiency on a lower revenue base.

Research and development expenses for the first quarter of 2026 were $4.9 million as compared to $2.1 million for the first quarter of 2025. The R&D expense increase was primarily due to the aforementioned government award for the development of ultrabright full-color MicroLED display optimized for ground soldier augmented reality applications, offset by increases in process improvements.

Selling, general and administrative expenses were $6 million for the first quarter of 2026 as compared to $4.7 million in the first quarter of 2025. The increase was primarily due to increases in professional fees and accrued performance-based compensation. As of March 28, 2026, the customer had -- the company had cash and cash equivalents of $34 million, total cash, restricted and marketable securities of $59.5 million, inclusive of $25.3 million of restricted cash bonded against the BlueRadios litigation appeal. Following the deconsolidation of Kopin Europe in October of 2025, the company's reported cash position is wholly domestic and the company's analysis supports that its current liquidity is sufficient to fund operations through at least the end of the second quarter of 2027 and beyond.

On a final note, there will be another filing of more administrative nature today unrelated to earnings. This is to move from an S-1 registration to a Form S-3 registration. To be clear to the investors, there is no offering with this. It's technically reregistering shares from the PIPE last fall.

And with that, I'll turn the call back over to Michael for closing remarks.

Thank you, Erich. Before we open up for questions, I want to leave you with this.

Our progress in 2026 year-to-date represents a meaningful step forward in Kopin's strategic evolution, the second phase of our transformation plan. We extended our core MicroLED and neural display platform into AI infrastructure through our collaboration with Fabric.AI. We grew our defense order book across the U.S. and Europe and entered into the high-growth FPV drone market. We grew our defense order book and clearly have differentiated products like Sentinel FPV. We invested behind our defense business with a major commitment to U.S. OLED microdisplay manufacturing, and we did so while maintaining a strong balance sheet.

What sets Kopin apart is very straightforward. We are the only company in the world manufacturing 4 types of microdisplays, the inventors of the bidirectional AI-enabled microdisplay, and we are the sole source provider on several Department of War programs of record that have many years of sustained production ahead of us, and our technology platform is now being deployed across some of the fastest-growing market segments in defense and soon AI infrastructure. We believe 2026 is the year this company begins to demonstrate the full potential of everything we have built, and we are just getting started.

And with that, operator, I'll open the call for some questions.

[Operator Instructions] We take the first question from the line of Jaeson Schmidt from Lake Street Capital Markets.

Michael, just a clarification on the guidance. I know you reiterated the full year outlook. Does that include the Fabric.AI order?

It does. Yes. We're being very conservative on the forecast, Jaeson. We want to make sure that we're able to support the current order book as well as the new AI infrastructure chipset. So that's a very conservative forecast for this year.

Got you. And then just as a follow-up, going off your comments on the surge in OLED demand. Just curious if you could update us what you're seeing from the F-35 pilot helmet segment.

Sure. So I can't go into too much detail. As folks are aware, Kopin has a customer in a fixed wing application that we've been supporting with our LCD technology. Our LCD business this year is increasing somewhat marginally. However, our OLED development, we expect to be in low rate initial production by the end of this year, maybe into Q or the first half of next year in OLED specifically, Jaeson. So we're expecting to see new OLED orders for that platform, I'd say, by the end of this year. The forecast that we've seen is larger than expected, and I can't go into too much more detail than that.

We take the next question from the line of Jon Siegmann from Stifel.

Really appreciate all the great news, a lot of positive developments. Just a follow-up on the guide, just to make sure we understand it correctly. It seem like all the defense developments really covered what you had in mind when you previously spoke to us and then Fabric.AI seemed incremental to it. Just is there any -- are you anticipating any delays this year on anything that you previously expected? Or just any kind of negative things that's now embedded in the guide?

No, I think we're being uber conservative. We want to make sure that we're able to achieve our forecast and overcome the forecast that we've given. And I think there's definite upside in the forecast that we've given. But nothing negative. We don't see any pullbacks. I think we're probably a little gun-shy from the government shutdowns in Q3 and Q4 of last year. So we want to make sure that we overcome the forecast that we put out this year.

Okay. Appreciate that. And then on the CapEx, excited to see you deploying some of that your comments, you're confident that you have the capacity to support that. Can you talk a little bit about just what we're going to expect this year in terms of total CapEx and any kind of timing for these investments?

Great question. So the OLED deposition line that we're going to install in Westborough has the benefit of being able to use the back-end processing machinery that we already have or will be installing as part of our IBAS award. So the overall CapEx is far less than I would say most people think for this OLED deposition line. But we think the CapEx that we're going to spend this year is roughly around $5 million over the course of the year and about the same roughly for next year.

We take the next question from the line of Christian Schwab from Craig-Hallum Capital Group.

Great. On the -- Michael, on the first-person view, the Sentinel first-person view, the opportunity there seems, in particular, quite massive here in the United States. I think the government has already approved 1 million -- I think these are the rough numbers, 1 million drone units with roughly 1/3 of them supposed to be first-person view in the next potential budget from the government takes that to $3 million with roughly the same type of percentage of units for first-person view. So given your strength there with peripheral awareness and the complexity of the goggles that were under the assumption that you made for that kind of suggests that the price of something like that would probably approach roughly $1,000. Is that in the ballpark, meaning that if you ship 40,000 of them, the order you have in hand with the drone dominance awards already approved is a massive tailwind for the company. Am I thinking about that correctly?

Indeed, you are. Christian, I would have not spent the money to put in an OLED deposition line if we didn't see tremendous demand from very real customers that we vetted and are participating in these conversations with the Department of War. And I think your assumptions are correct. The numbers that we're seeing as congressional line items of record are 1 million drones in the budget this year and 1/3 of those will be first-person view, 3 million in 2027, '28 time frame, 1/3 of those will be first-person viewers. And out of the drone dominance competition, we can confidently say that we're in several of them with our Sentinel product, either selling displays or selling a display with an optic or selling a full Sentinel device.

So we have 3 different ways that we can claim revenue in first-person view drones. But for the audience, I think I was corrected by one of our teammates here and how I was thinking about drones. And the words are very sharp, so I apologize for that. But the words are this Drones are the new bullets and first-person viewers are the gun. And that stuck with me, and that shaped my thinking around the volume potential here in the United States for first-person viewer goggles for the displays and optics that are required with them and the fact that they have to be, by law, built here in the United States and they cannot use Chinese materials, even glass or OLED materials itself. So that provides Kopin with a very unique opportunity for growth. And our customers that know now that we have our own OLED deposition machine coming and will be operational around this time next year, producing panels for them are very excited that Kopin will be in this market and definitely driving efficiencies and price and full integrated application-specific solutions for them. So very exciting times for us.

Thank you for the explanation point on that clarity. My second question comes back to MicroLEDs use for short-range data center links to replace copper. Obviously, massive efficiency and higher speeds than copper, cooling needs, energy costs, et cetera, et cetera. Some of the competitors who are also engaging in this technology have significantly greater scale. Can you kind of walk us through -- I think you kind of hinted at it with quality, yield and technology and expertise of manufacturing. But can you kind of walk us through your history of producing MicroLEDs for critical technology and very complex cases that they're used currently in the defense industry that gives you confidence that you'll be able to ramp this successfully and kind of show -- I think you hinted that working with a couple of large U.S.-based semiconductor companies already engaged with you, your confidence of proving this out.

Yes. So I'll start with Kopin has MicroLEDs in production today. And they're very difficult, Christian, to manufacture. I think if you were to ask the companies that have either acquired start-ups or have tried to build MicroLEDs before that aren't focused on it or specializing in it. It is very difficult technology to make. As an example, in our 2K x 2K monochrome device, there are 16 million individual subpixels that we have to get perfect to be able to deliver that device. That is a tremendous amount of engineering and capability. And to be able to manufacture that at scale is something that Kopin has worked very diligently on for years.

And I think our competitors are figuring out that it's not just throwing a bunch of LEDs onto a backplane. It is very difficult technology to build. And they're struggling with it, and we see them struggling with it. Many of them have approached Kopin to help. So we know how to build this technology. We build it today. It is in production, flying in an aircraft today. And we invented the bidirectional microdisplay 2 years ago. In fact, we demonstrated it actively. We can demonstrate neural display, which is a bidirectional display today. We demonstrate our MicroLED that has 1.8 million foot-lamberts of brightness, which is about 6.8-ish million nits of brightness, which is basically the level of a laser, and we produce that and demonstrate it today.

So we have all the pieces. And more importantly, the Department of War is funding Kopin to build a high-rate MicroLED production line right here in the United States, and that production line will be capable of millions of units. So we're in a very good position to be early in this market. to lead this market. And we have great relationships and funding now to deliver that technology very early. And I think it's going to be a huge revenue driver for us this year of at least $15 million. Next year, at least $25 million is what we're seeing right now, potentially up to $50 million of revenue. And the year after that, I think this chipset could be larger than our entire defense business. That's my personal opinion. So very large opportunity set for us where we have a unique skill set to deliver it, and we're here in the United States focused on the #2 consumer of AI infrastructure, which is the Department of War and the U.S. government.

We take the next question from the line of Josh Sullivan from JonesTrading.

Just a follow-up on the commercial interconnect opportunity here. What do you see as the big gating factors for large-scale adoption? Or what are we going to see publicly over the next 12 to 18 months? You just gave out some guidance figures there or some target figures, I'll call them. But curious what we're going to see publicly kind of from the technology front that shows us that the market is indeed walking towards large-scale adoption.

Great question, Josh, and welcome to the call and the team. Firstly, you're seeing significant investment from the largest GPU manufacturers in the world. I think it's fair to say NVIDIA has spent over $6 billion in this optical interconnect space over the last few months. We're seeing other GPU, CPU memory companies invest in the same into many start-up companies that are out there. And M&A is prevalent right now in this space. I think what we're going to see is demonstrable systems this year, at least from Kopin and Fabric.AI that will demonstrate the capability of moving photons faster, quicker, cheaper at lower power consumption and lower overall costs than that of copper or fiber optics.

And for us, more specifically, where we fit isn't everywhere. It's very much focused on chip-to-chip board-to-board and rack to rack. That's where MicroLEDs, I think, will find their home because of our ability to transmit data over certain lengths. So I think you're going to see the market start to segment between those areas of chip-to-chip, board-to-board and rack-to-rack. I think the differentiating factor is rack-to-rack and then rack to external racks or floors where fiber optics are going to be used more predominantly. And then from a copper interconnect perspective, I think that market is going to start to shrink very rapidly as these new technologies get adopted next year and certainly into 2028.

Got it. And then just given DOWs investment in your high rate production line, how quickly does the defense and intelligence market move and are there any funding line items that we can point to in the budget or elsewhere that might show that we're seeing some advancement as well?

You bet. So right now, Kopin is actively working with multiple 4-letter agencies to align funding. As an example, NIST has a BAA funding line with multiple billions of dollars listed on it. Also, the CHIPS Act also has many billions of dollars available for AI infrastructure available. And we are actively working with those funding agencies and funding lines as we sit here today.

And then just one last one on the retrofit opportunity. How do you -- am I clear on that? And then just how does that maybe play out?

Great question. So either by luck or by intelligence, I'm not sure which one, Kopin's MicroLED product is programmable. So one of the things that I started when I joined Kopin is software-defined everything. And if we're able to use a programmable MicroLED to interface to the brownfield, meaning already existing AI infrastructure, meaning an H100 or an older CPU as an example, and we're able to interface to those CPUs or GPU boards either in a board-to-board configuration as an example or rack-to-rack configuration, we can program our chip to talk to the brownfield, the existing equipment and then our receiver side will be talking through programmability to the new chip, potentially an H200 or B300 or whatever it might be, and that programmability sets us apart as well. And we're doing so because a lot of the customers that we talk to do not want to rip and replace their entire system.

A, it works; b, it's very difficult to change; and c, it's already paid for. So we want to be very flexible, but we can always move to more of an ASIC platform to remove the cost of programmability, but I don't think that's the right thing to do right now. I think getting programmable MicroLEDs called Neural I/o to our customers and in our customers' hands will further the adoption rate and allow that adoption rate to increase more exponentially if it's programmable.

[Operator Instructions]

We take the next question from the line of Austin Moeller from Canaccord Genuity.

So just my first question here. If we think about the market opportunity for Neural I/o optical transceivers and data centers, do you expect to yield the highest margins within the U.S. domestic market, particularly for DOW or intelligence community data centers? Or are you also looking overseas to data centers in like Europe and the Middle East where you could potentially enter those markets? And do you think you'd have favorable margins there?

Great question. So yes, in the United States, I think Kopin is very unique in our focus. And going back to a question that I get asked all the time, why Fabric.AI? And Austin, Fabric is there to focus on the hyperscaler markets and staff appropriately with the people that know that market and understand that market.

While Kopin understands the defense, Department of War and the government market specific to 4-letter agencies, et cetera, we know how to talk to those folks. We sell to those folks today, and we're actively engaged in that market. And I think we're a very unique supplier in this case since the Department of War is paying for this production line in the first place, they get the benefit of not only paying for that production line, but as we utilize it with Neural I/o, it brings down our costs and increases our absorption rate of that production line for our color MicroLED program, which the government wins twice in that case. So yes, I think there's better margins in the United States government and defense industry for this technology. In terms of European and Southeast Asia and NATO, quite frankly, we haven't reached a partnership yet. We're not engaged in those conversations yet, and we are working to have some partnership discussions with folks that are in that market and can support us in those areas, but we're not there yet.

Okay. And if I shift over to talk about Sentinel FPV, -- if we think about the opportunity within like drone dominance, the $54.6 billion for drone autonomous working group and then U.S. domestic headsets for like commercial drone applications, are there any drones that the headsets would not be compatible with like fiber optic drones versus ones that are wireless and use computer vision?

If it has a camera on it and is controlled, we can use Sentinel FPV. The question becomes is, do you need to use a headset versus a panel? And if it's for the smaller drone sets, the individual strikers, as an example, what we're seeing is that the war fighter wants to be able to have that first-person viewer on their helmet and be able to remove it or at least look through it and have that dual situational awareness that we talked about and the ability to flip up that headset so they can fight. So in terms of the soldier-worn, soldier-born type of system, I think we have a great product in Sentinel, and it would be used for the vast majority of those drones. The specific to the 1 million to 3 million drones, we think 1/3 of those will be using first-person viewers that are either helmet-mounted or glass mounted on the face.

Ladies and gentlemen, as there are no further questions, I will now hand the conference over to Michael Murray for his closing comments.

Wonderful, operator. Thank you very much, and thank you to everyone joining us today. We appreciate your continued support and look forward to updating you on our progress in the months to come. If you have any further questions, please feel free to reach out to our IR firm, MZ Group, who would be happy to answer them and/or set a call with management for a follow-up. Thank you all very much. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.

Good morning, everyone, and welcome to the Kopin Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Friday, March 27, 2026, and the earnings press release accompanying this conference call was issued earlier this morning.

Before we get started, I'd like to remind everyone that during today's call, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on the company's current expectations, projections, beliefs and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those forward-looking statements.

Potential risks include, but are not limited to, demand for our products, operating results of our subsidiaries, market conditions and other factors discussed in our most recent annual report on Form 10-K and other documents filed with the Securities and Exchange Commission.

Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven inaccurate, and there can be no assurances that the results will be realized. The company undertakes no obligation to update the forward-looking statements made during today's call.

Kopin Corporation's Chief Executive Officer, Michael Murray, will begin today's call with an overview of Kopin's strategic progress and business developments. Following Michael, Kopin's CFO, Erich Manz, will review the company's fourth quarter 2025 unaudited preliminary financial results.

I would now like to turn the conference over to Michael Murray. Michael, the floor is yours.

Thank you, operator, and good morning to everyone, and welcome to our fourth quarter and full year 2025 earnings call.

I want to start by saying that 2025 was a truly transformational year for Kopin. We made significant progress on our strategic initiatives, strengthened our balance sheet with $56 million in capital from strategic and institutional investors, advanced our defense programs and established partnerships that we believe will drive meaningful growth for years to come.

Like many other firms, our fourth quarter revenues were impacted by the government shutdown and the associated procurement and milestone recognition delays were deeper than anticipated. However, our underlying business fundamentals and long-term growth pipeline remain exceptionally strong. Indeed, due to geopolitical conflicts and tensions, we are already experiencing increased demand and order signals for our products and solutions to feel confident that we can recover quickly from this isolated event, which was outside of our control.

Over the past 3 years, we have fundamentally transformed Kopin from a legacy microdisplay company into a strategically positioned, vertically integrated and advanced technology platform company. The first phase of our transformation plan included an assembled new management team, reconstituting our Board of Directors, reorganizing our engineering teams, greatly improving our manufacturing facility and processes resulting in some of the highest and most consistent customer satisfaction, quality control and employee survey scores ever in our company history.

Our capital structure is in a far better place than it was even 12 months ago. And now we have the partnerships, the capital and the technological capabilities to invest aggressively in the people, technologies and production capacity needed to significantly accelerate our growth trajectory.

Now let me walk you through each of these areas in more detail. When it pertains to strategic partnerships and global expansion, 2025 was a pivotal year for Kopin, as we executed on several transformational strategic initiatives. First, our ONE Kopin initiative integrated 3 separate businesses into one, creating parenting advantages, reduce costs and focus the company on our collective goals. Our fab-light strategy completed its next phase as we expanded our OLED deposition partnerships to U.S. DoD and European-approved suppliers. This has created a significant surge in OLED demand for the company, and we continue to gain share in this market space.

We're also executed on time and full initiatives exceptionally well, and our customer scorecards reflect our excellent performance and in turn, we are seeing increased levels of new opportunities to reward our efforts. We also executed on our European expansion with our partnership with Theon International, which we announced in August. This engagement has opened the door to the rapidly expanding and growing European, Southeast Asian and NATO defense markets. Sales with Theon have commenced and we are executing on our aggressive 3-year strategic plan for revenue and technology sharing.

Theon reached across Europe, Southeast Asia and NATO markets, gives us immediate access to the defense budgets that are expanding significantly in response to evolving global security threats. We are making good progress on joint development initiatives and expect this partnership to become an increasingly meaningful contributor to our revenue base this year and more significantly next year.

Theon International is a critical relationship for Kopin. They develop and manufacture cutting-edge night vision and thermal imaging systems for defense and security applications with a truly global footprint spanning more than 50 countries. Theon started its operations in 1997 and today occupies a leading role in the sector, thanks to its international presence and is one of the fastest-growing companies in Europe. Their production of night vision and thermal imaging systems aligns perfectly with our microdisplay technologies and capabilities.

Increased defense budgets across NATO member states and the need for enhanced situational awareness and nighttime operations, border security and counterterrorism missions are primary drivers of significant growth expectations, especially across Europe. Our increased focus in Europe has already started to pay off as we've announced 3 new contracts with 3 new European customers in just the first quarter of 2026 alone, which will grow our European business significantly this year and potentially double next year.

As governments worldwide are investing in modernization efforts and advanced night vision technologies, innovations such as thermal imaging, augmented reality data overlays, digital night vision and the use of high-resolution sensors are improving performance, durability and cost effectiveness, thus expanding the range of applications where our joint solutions can compete effectively. Kopin and Theon together are uniquely positioned to capture those opportunities.

In addition, our partnerships with Ondas Holdings and unusual machines have positioned us to capitalize on the explosive growth in the U.S. drone market. The U.S. Army has signaled its intent to procure over 1 million drones in the coming years, which is only further accelerated due to the recent geopolitical developments such as the ongoing conflict in Iran. And the first-person drone market is projected to grow from under $300 million to $1.2 billion by 2030, a 31% compound annual growth rate.

We continue to advance these partnerships and are encouraged by the pace of the development activity and we have partnered with several of the top drone dominance companies in the industry today. The defense drone market represents a significant opportunity for our display and optical technologies, and we expect to announce several new customer orders this year.

I'm going to touch on the defense programs and give you an update there. Our defense programs continue to represent the core of our business and our strength and strongest growth driver. We continue to supply Thermal Weapon Sight programs, which remain core to our revenue and on SBMC, formerly known as IVAS, the $22 billion Army program now under Anduril, continues to progress prime contractor selections and critical technology acquisition areas and wins are expected.

Our IBAS-funded color microLED program is positioned and progressing well, and we've continued to support multiple armored vehicles, aircraft HUDs and helmet systems and next-generation weapon sight systems and programs across the Department of War. Again, our first color microLED is being designed with the Army, for the Army for this end application in mind.

Soldier Borne Mission Command is also an all-encompassing program that includes software, hardware and networking elements designed to give soldiers the tools that deliver the right information quickly and intuitively as warfare evolves and increases in complexity.

The U.S. Army has selected a third prime contractor to provide early demonstrable hardware in 2026 and 2027 and followed by a second phase of demonstrations and production selection awards in 2027. Along with prime contractor selections, we expect wins for critical technology acquisition areas where Kopin fits in to follow a similar path. This represents a generational opportunity for Kopin, and we're actively engaged with the relevant stakeholders to ensure our technology is well positioned for selection. Furthermore, we have negotiated a similar microLED product with Theon and the European market as part of our strategic investment, which opens an additional addressable market outside of the United States.

$15.4 million color microLED award through the IBAS program remains a landmark win representing a $1 billion serviceable available market in the United States alone for Kopin. With similar product negotiated for Theon and the European market, this is an exceptional opportunity for growth. Development is progressing on schedule, and our customer engagement remains strong. We believe our color microLED technology and growing portfolio of devices will be a significant growth driver as we move towards production in the coming years.

Given the long-term nature of many of our existing programs and the contract wins throughout 2025, our current pipeline remains exceptionally strong. As a reminder, several of our programs have congressional budget demands through 2030 and several of our contracts are indefinite demand, indefinite quantity, or IDIQ, which allows for even greater revenue than we currently have on order or are forecasting.

Increasing geopolitical tensions mean defense spending is unlikely to decrease and the way wars are fought is evolving rapidly. Soldiers in the field are tasked with needing more information sooner to assess threat levels and make the best decisions for themselves and their teams. Our products and technologies can help to make our soldiers and the soldiers of our allies safer, meaning more men and women in uniform make at home. We believe we can begin meaningful accelerated growth over the next several years as the only manufacturer in the world of 4 different types of microdisplays.

Our technologies and desire to provide application-specific optical solutions means we can meaningfully capture more orders and demand across some of the fastest-growing segments in defense and other applications. And we are partnered with global players in the field to do so.

Now to touch on our technology and operational progress. On the operational front, our investment into automation is delivering meaningful results. Both phases of our optical automation program are now operational, and we're seeing meaningful improvements in the throughput, quality consistency and cost efficiency from that investment. We expect these automation investments to deliver over $1 million in annual operating expense savings as they reach full utilization.

Turning to some advanced technology. Our NeuralDisplay technology continues to advance and has proven that a microdisplay is not just a display but a bidirectional sensing system providing and consuming images and data at the same time. NeuralDisplay technology represents a meaningful leap forward in how information is presented to the end user. By leveraging advanced processing and display optimization, NeuralDisplay has the potential to significantly enhance image quality, reduce power consumption and improve the overall user experience for both defense and commercial applications. We are encouraged by the interest we see from customers and expect to provide more substantial updates as we progress through the development milestones for this year.

As the only manufacturer in the world producing 4 types of microdisplays being microLED, AMLCD, LCOS and OLED and the inventor of a fifth type, which is NeuralDisplay, we maintain a unique competitive advantage that positions us well across multiple defense and industrial applications. And we continue to see exciting new applications for our microdisplays and sensing technologies which I look forward to providing updates on very, very soon.

Now let's look at 2025 year-end review and talk a little bit about 2026 outlook. To summarize, 2025 was a year of significant transformation for the company. We brought in new leadership with our CFO, Erich Manz, added experienced Board members, established the transformative Theon partnership, won the landmark IBAS color microLED program, raised $56 million in capital to remove going concern doubt, funded our growth and invested in automation to improve quality and efficiency. I am more excited and encouraged about our outlook today than I ever have been before or since I joined the company.

We are in a completely different company and space today. And I would argue we are far better and more sustainable than we ever have been before. This offers tremendous and significant growth potential for Kopin. I believe we are on the cusp of meaningful changes at Kopin. I'm incredibly proud of the team for navigating an environment which has so much change over a short period of time. There have been a lot of distractions, but our team has kept heads down and focused on the company's mission, direction and potential.

Now looking ahead to 2026, we now enter the second phase of our transformation plan. The first phase was fix, focus and grow. Our second phase is accelerate, expand and innovate. Acceleration of our revenue growth within our current customer base and markets and new ones to support long-term sustainable growth and profitability, acceleration of time to market with new technologies, proof of concepts and production, expand our customer reach, solution depth and concentration, expand our geographic reach and partnerships to help us grow and importantly, expand our product portfolios.

Innovation is core to our capability at Kopin. And this year, the market will see several new technologies and announcements in new and exciting markets that will accelerate our revenue, expand our customer base and balance our business dependencies.

Our priorities are clear: execute on defense programs, grow our Theon partnership revenues and advance our microLED technology towards production and deliver profitable growth. While the government shutdown created an unexpected and longer headwind than expected in Q4 and we expect some degree of continued impact in Q1 2026, we are confident that our strategic positioning and strong pipeline will drive meaningful revenue recovery as government operations normalize. To this end, we are providing a conservative guidance for 2026 of between $52 million to $60 million in revenue for 2026.

I will now turn the call over to our CFO, Erich Manz, to review our fourth quarter 2025 financial results in further detail. Erich?

Thank you, Michael. Before I begin, I'd like to note that the financial results we are discussing today are unaudited. And while subject to finalization, we do not expect any material changes. We'll be filing our 10-K for the 2025 fiscal year in the coming days, which will supplement the unaudited financial results outlined below.

As Michael mentioned, our fourth quarter results came in softer than expected, driven by the factors he outlined. I would also note that our reported results reflect the deconsolidation of our U.K. entity in the fourth quarter due to technical accounting considerations that were the result of a fourth quarter investment in that entity.

The deconsolidation was not a significant factor in the quarter's operating results. And while it does impact comparability, we expect this to be temporary in nature and anticipate reconsolidating the entity in the near term. Importantly, the softness of the quarter does not reflect the change in the underlying direction of the business or in our level of conviction. From my perspective and based on what I've seen since joining the company, is making a meaningful progress in positioning itself for the next phase of growth. We are continuing to build momentum in transitioning the business with a clear focus on strengthening our financial foundation, improving operational execution and aligning our resources around the opportunities we believe will drive sustainable long-term growth.

This is my first full quarter as CFO. I've been focused on gaining an understanding of the business, our opportunities and our internal structure to support growth. As we progress into the new year, the focus of my team is strengthening our financial reporting, improving operational visibility and supporting Kopin's strategic growth initiatives.

With that context, let me walk through the financial results for the quarter. Total revenues for the fourth quarter ended December 27, 2025, were $8.4 million as compared to $14.6 million for the fourth quarter ended December 28, 2024. The year-over-year decrease in revenues was primarily attributed to the government shutdown and associated procurement delays, which impacted timing of expected program orders, product shipments and contract activity during the quarter.

Product revenues for the fourth quarter were $5.6 million as compared to $12.6 million in the year ago period. The decrease was primarily due to government shutdown related delays in product orders and several of our end customers experienced, resulting in lower orders and shipments of products for U.S. defense applications.

Standard training and simulation order flow, which can ship within the same quarter was seasonally lower than expected as well. Product order flow has since returned to anticipated levels, while new European product orders have exceeded forecast.

Non-product revenues, which are defined as funded R&D, collaborative agreement and grant revenues, were $2.5 million in the fourth quarter of 2025 as compared to $1.7 million in the fourth quarter of 2024. The increase was primarily driven by the IBAS color microLED development program. However, revenue and research awards were lower due to delays.

Several of these new contracts have been awarded with several others still expected. Cost of product revenue for the fourth quarter of 2025 was $4.7 million or 83% of net product revenues as compared to $10.7 million or 84% of net product revenues for the fourth quarter of 2024. The decrease in cost of product revenue as a percentage of net product revenues was primarily attributable to changes in product mix. Actions taken throughout the year with regards to quality, cost containment and automation allowed for similar results to the comparative period even with the reduced volume.

Research and development expenses for the fourth quarter of 2025 were $3.5 million as compared to $3.2 million for the fourth quarter of 2024. The increase is not material and the company considers it to be within the range of normal quarterly fluctuations. This spending level ensures continued investments in internally funded technology development, including new technology, process improvements and microLED advancements.

Selling, general and administrative expenses were $4.5 million in the fourth quarter of 2025 as compared to $3.1 million in the fourth quarter of 2024. The increase was primarily due to higher professional fees and outside services associated with the capital raise and strategic partnership transactions completed during the quarter, partially offset by lower incentive compensation costs.

As of December 27, 2025, the company had cash and cash equivalents of $37.8 million. The bonded cash of $23 million is presented as a long-term asset. And as a result of the deconsolidation of Kopin Europe previously mentioned, it was approximately $8 million of cash that will not be shown within the consolidated results. Our cash position has improved primarily driven by the completion of $56 million in private placements from strategic and institutional investors.

With that, I'll turn the call back over to Michael for closing remarks.

Thanks, Erich. Before we open up to questions, I want to leave you with this. The government shutdown was an unforeseen and unexpected speed bump, not a roadblock or a trend. Our balance sheet is the strongest it's ever been. Our partnerships with Theon and the U.S. defense contractors are generating real activity, and our defense pipeline is both deep and durable.

What sets Kopin apart is straightforward. We are the only company in the world manufacturing 4 types of microdisplays, and we embed to the fifth. And we are the sole-source provider on several programs of record within the Department of War and now NATO.

Every product we build, whether it goes into a weapon sight, a helmet-mounted display or an armored vehicle system exists to keep soldiers safer and more effective. Our surgical headsets produce better patient outcomes and our next-generation technology will enable advances in other markets as well. That mission drives every decision we make, and it's why we've aligned ourselves with the government agencies we have, the Pentagon, NATO and Tier 1 defense primes and partners globally who share that commitment. And there's more to come and soon.

We believe 2026 will be the year this company begins to demonstrate our full potential of everything we built thus far. And I'm encouraged to say that I'm looking forward to 2026 and 2027 as we pivot this company towards our second phase of our transformation plan.

And with that, operator, we'll open the call to questions.

[Operator Instructions] And we'll take our first question today from Jonathan Siegmann with Stifel.

Can you maybe highlight what your backlog is as of December 31st and the remaining performance obligations. You ended the third quarter with a pretty high. Just wanted to see how that trended given revenues were lower.

Yes. So at the end of the year, backlogs were in the range of, I believe, $37 million, and we're expecting to book very soon several larger orders. We're talking tens of millions of dollars in the next, I'd say, 8 weeks that are deliverable for this year. So we walked into 2026 with a very decent backlog cover and order cover to hit our revenue growth.

Great. Yes, much improved relative to 12 months ago. And then in September, you had previously expected the microLED program to be -- the development program to be finished this year. Did the delays from Q4 extend that into '27? Or can we still expect that to be actually completed this year?

So we are working towards completion for this year with the milestones that we originally had. Not sure at this point if that will drip into 2027. But from a technical point of view, the milestones that we've achieved and the technical program is well on track. However, we're unsure how the Army will respond to their testing. But from what we can control, our technical milestones are on track and actually a little bit ahead of schedule.

Our next question comes from Jaeson Schmidt with Lake Street.

Just following up on the SBMC program. Good to see that the milestones are on track. Curious how we should be thinking about potential capacity needs as you get better line of sight to that program ramping?

Fantastic question. Thanks, Jaeson. So part of this program under the Industrial Base Analysis and Sustainment Act, Jaeson, is to build the capacity here in the United States. And one of the milestones that we've reached within this quarter is we have selected certain tooling equipment, and we have purchased that equipment for our production line. We believe that we can service the requirements for SBMC as well as other programs with this production line that we're implementing right now within Kopin. And we have some exciting news coming around how we are going to optimize our throughput of that production line and some other interesting things that we're going to be doing with the facilities here in the United States for that volume specifically.

Currently, we do not need any further CapEx to invest, to hit the volumes for SBMC and our new pilot heads-up displays as well as some of the thermal weapon sight displays that we're also targeting as being microLEDs. So there is further IBAS award money that we are expecting to grow our backlog -- or pardon me, our capacity but we are not clear on when that money may or may not come at this point.

Got you. That's helpful. And then just as a follow-up, regarding the automation initiatives, I know you mentioned $1 million in annualized savings at full utilization. When do you expect that to be achieved?

We're actually starting to see it now, starting to wash through our OpEx, Jaeson, as we speak. And we have some good data that we can share offline to show the cost savings, the scrap savings and the throughput increases that our automation has provided us. Much of this automation is in camera systems for testing devices, whether it be a thermal weapon sight or a display. So we're seeing that OpEx savings right now as we speak, and this will be the first year that we can actually show quarter-over-quarter results on the automation side of things.

Our next question comes from Austin Moeller with Canaccord.

So I was just going to ask about how you view the commercial market opportunity in the United States for drones now that the FCC has put the DJI ban in place?

[indiscernible] would be the word. Where we fit in, Austin, and thanks for the question, is in the first-person viewers. So we've already been demonstrating our DVAS technology, which is a monocle that swings off of a helmet that you can actually view drone information as well as our dark wave capability, which also allows you to view drone information. So those 2 technologies we're seeing increased demand for because of the drone market. But in the first-person viewer controller market, because of the FTC, we're seeing companies that normally would buy their devices out of China, come to Kopin and ask us please just redesign this with your displays and optics, period, full stop.

So we have a number of those activities going on right now. We expect to have some meaningful results to share by Q3, and we have several massive drone companies that are working with us right now. And some of the volumes that they're talking about, Austin, are anywhere between 60,000 to 100,000 first-person viewers, which is 120,000 to 240,000 microdisplays and optics for Kopin that we would put through the facility starting Q3, Q4 of this year. So we're absolutely seeing an increased demand in that area for sure.

Okay. And how do you think about the $450 billion reconciliation bill that's being talked about for this year to be passed before the midterms. How much do you think might be allocated specifically for microdisplays and optics? I guess how do you think about the timing and cadence of contract award opportunities out of that should it be passed?

We've been very active on Capitol Hill, specifically with our local congressmen and senators. Firstly, for additional monies through the IBAS award office, I've been very vocal that we've requested between $10 million to $50 million of additional IBAS funding for our expansion and we've been, I think, successful. We have not seen what will come out of the budget, obviously, but we expect to see that around September, Austin. Furthermore, we are seeing much more demand for defense systems in Soldier Borne systems, meaning Thermal Weapon Sight, night vision goggles, certainly the next generation of capabilities in that area, and we are squarely focused in that. And the Department of War has clearly stated that Kopin is the partner of choice for that technology.

So we're absolutely enthused with what the budget is looking like right now for us, and we are very active on Capitol Hill to make sure that, that industrial base money comes to Kopin, and we can grow that production line that we spoke about earlier to the highest performance as well as throughput. So we're also seeing increased demands and budgeting in Europe as well, which is now we're active in discussions directly with NATO. So we think that's going to prove positive for the company.

Our next question comes from Christian Schwab with Craig-Hallum.

I'm wondering if you could elaborate a little bit more regarding a few mentions regarding new markets and new technologies. And are these opportunities outside the defense industry? I'm just kind of wondering if you could give any further clarity of what you're hinting at? Or am I reading that wrong?

I am trying not to. I'm very excited about the new technology that we've been developing. We've been very quiet about how we spend our internal research and development, Christian, for a reason. I think the 2 programs that we're going to announce this year will be very shocking to the market. They are new markets. They are new devices and new technology areas for the company. And I was hoping that we would be able to speak about them today and during our demo days in New York City, which is next week, unfortunately, they're not ready yet to talk about, but we will be announcing 2 new products and product lines in 2 new markets this year. Thanks, Christian. I wish I could talk about it more, but we'll have to wait.

At this time, there are no further questions in queue. I will now turn the meeting back to Michael Murray.

Thank you, operator, and thank you to everyone for joining us today. We appreciate your continued support and look forward to updating you on our progress in the months to come. If you have any further questions, please feel free to reach out to our IR firm, MZ Group, who would be happy to answer them and schedule calls if need be. Thank you very much for joining, and we appreciate your support. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may now disconnect your line at this time, and have a wonderful day.

Good morning, everyone, and welcome to the Kopin Corporation's Third Quarter 2025 Earnings Call. Please note that this event is being recorded. At this time, I would like to turn the conference call over to Brian Prenoveau, Investor Relations for Kopin. Please go ahead.

Thank you, and good morning, everyone.

Before we get started, I'd like to remind everyone that during today's call, taking place on November 12, 2025, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on the company's current expectations, projections, beliefs and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Potential risks include, but are not limited to, demand for our products, operating results of our subsidiaries, market conditions and other factors discussed in our most recent annual report on Form 10-K and other documents filed with the Securities and Exchange Commission.

Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven inaccurate, and there can be no assurances that the results will be realized. The company undertakes no obligation to update the forward-looking statements made during today's call.

In addition, references may be made to certain non-generally accepted accounting principles or non-GAAP measures, for which you should refer to the appropriate disclaimers and reconciliations in the company's SEC filings and press releases.

Kopin Corporation's Chief Executive Officer, Michael Murray, will begin today's call with an overview of Kopin's progress within the company's strategy. Following Michael, Kopin's CFO, Erich Manz, will review the company's third quarter 2025 financial results. I would now like to turn the conference over to Michael Murray. Michael, please go ahead.

Thank you, Brian. Good morning to everyone, and welcome to our third quarter earnings call. Firstly, thank you to all the men and women of our armed services and those of our allies for your service. We deeply, deeply appreciate it.

It's been an exceptionally busy quarter at Kopin, and we believe some of the best and most exciting opportunities still lay ahead of us. We're happy to be joined by Erich Manz, our new CFO, who officially started on September 2, it's been a baptism by fire for Erich. But we're excited he's on board. Erich joins us from Allegro MicroSystems, where he has spent the last 27 years in various financial and accounting and leadership roles. We're excited to have Erich on board as we believe these are truly transformational times for Kopin. I'll let Erich provide more on his background prior to discussing third quarter financials.

Kopin is in a completely, completely different position today than it was even recently as our second quarter 2025 earnings call. Since that time, we have entered into strategic partnerships with well-known, well-respected and global organizations like Ondas Holdings, Unusual Machines and our friends at Theon International. We have won several new multimillion-dollar research, development and production awards and further solidified our balance sheet also.

Theon International is a critical relationship for Kopin as they develop and manufacture cutting-edge night vision and thermal imaging systems for defense and security applications with a global footprint. Theon started its operations in 1997 and today occupies a leading role in this sector, thanks to its international presence. Theon's production of night vision and thermal imaging systems aligns perfectly with our microdisplays and optical technologies. And I was fortunate enough to be able to speak and introduce Kopin to their investor base in Greece last week.

Increased defense budgets and the need for enhanced situational awareness in nighttime and daytime operations, border security and counterterrorism missions are primary drivers of significant growth expectations, especially in Europe, Southeast Asia and NATO countries alike. Governments worldwide are investing in modernization efforts and advance night and daytime vision technologies. Innovations such as thermal imaging, augmented reality, data overlays, digital night vision and the use of high-resolution sensors are improving performance, durability and cost effectiveness, thus, expanding applications, demand and serviceable available markets. Kopin and Theon together can take advantage of those needs.

Turning to Unusual Machines who manufactures and sells drones and components by brands like Fatshark, the leader in first-person viewer drone controls, ultra-low-latency video goggles for drone pilots as well. They also retail small acrobatic FPV drones and equipment directly to consumers through their curated Rotor Riot e-commerce store, through subsidiaries, American Robotics, Airobototics, Apeiro Motion, Ondas, offers the Optimus System, the first U.S. FAA-certified small UAS for automated aerial security and data capture, the Iron Drone Raider and autonomous counter-UAS platform and Apeiro's advanced ground robotics and tethered UAV systems, supported by innovative navigation and communications technologies.

Again, our microdisplay products and technologies are well aligned to pair with the growing drone UAV market and their collective strategic investment into Kopin brings confidence in our ability to create value for them with them.

Just last week, it was reported that the U.S. Army aims to buy at least 1 million drones in the next 2 or 3 years and could acquire anywhere from 0.5 million drones to millions of them annually, compared to approximately 50,000 annually today. It was estimated that Russia and Ukraine each build 4 million drones annually. China can and will likely produce 8 million drones annually. The ratio between drones and first-person viewers is roughly 4:1 as we understand it.

The first person drone market is growing very quickly. This was a small niche market just a few years ago. As recently as last year, it was estimated to be a total market of under $300 million. By 2030, it's estimated that the first person drone market could be as much as $1.2 billion, representing an annual -- compound annual growth rate of around 31%. Suffice to say, we believe we can begin meaningful acceleration growth over the next several years as the only manufacturer in the world of four different types of microdisplays that can provide sovereign sourced displays for the U.S. and NATO defense requirements.

Our technologies and desire to provide application-specific optical solutions means we can meaningfully capture more orders and demand for some of the fastest-growing industries in defense and we are partnering with global players in these respective fields.

Through the U.S. Department of Defense, we are excited about several opportunities to supply new or existing programs across the military. Our current opportunity pipeline of factored opportunities we are pursuing just surpassed $1 billion. As we continue to supply the current thermal weapon sights, aviation, heads-up displays and advancing our new aftermarket upgrade capabilities with our FLYHT certified monochrome MicroLED, which we just announced. We are also dedicating more focus on armored vehicle applications as well with the advancement of tank and armored vehicle programs as they are now becoming more clearly defined.

The largest of these opportunities is clearly the extension of the IBAS program, which is now referred to as Soldier Borne Mission Command or SBMC. This is the $22 billion Army program that was recently taken over by Anduril. SBMC is an all-encompassing program that has software, hardware and networking elements. As warfare evolves and increases in complexity, having tools that deliver the right information quickly and intuitively becomes increasingly urgent. The U.S. Army selected two prime contractors to provide early demonstrable hardware in 2026, followed by a second phase of demonstrations and production selection awards in 2027.

Along with prime selections, we expect wins for critical technology acquisition areas as well, where Kopin fits into to follow a similar path. As a reminder, Kopin was recently awarded a $15.4 million color microLED award through the industrial-based Analysis and Sustainment Act which will allow for Kopin to design, develop and manufacture a sovereign built, color microLED developed by the Army, for the Army, for applications like SBMC, daytime AR applications and several weapon-sight platforms offering Kopin an additional $1 billion serviceable available market just for the United States alone.

Furthermore, we have negotiated an $8 million research and development order for a similar product for Theon International and the European markets as part of our strategic investment as well. Given the long-term nature of many of our existing programs and the contract wins so far in 2025, our current pipeline is very strong, and our confidence to hit our revenue and profitability goals in '27 and '28 are quite high.

As a reminder, several of our programs have congressional budget demands through 2030 and several of the program contracts we have are indefinite demand or indefinite quantity, or IDIQs which allows for even greater revenue demands than we currently have on order.

Increasing geopolitical tensions mean defense spending is unlikely to decrease and the way wars are fought is evolving. Soldiers in the field are tasked with needing more information sooner to assess level, threats and how to make the best decisions for themselves and their teams. How our products and technologies can help to make soldiers and the soldiers of our allies safer, meaning more men and women in uniform will make it home. This is our ethos. This is what we focus on.

Obviously, we have market tailwinds that can propel us to significant growth over the next several years and maybe even decades. I'm also proud of how we positioned ourselves to take advantage of those trade wins and tailwinds. Kopin has almost completely transformed as a company from when I first started just three years ago. We have a clear and focused strategy, a new management team and Board of Directors. Quality issues in our manufacturing facility have largely been fixed, and we have some of the highest quality scores in our history and very strong relationships with our current customers, and we are actively attracting new customers as well.

Our website and logo have been updated and modernized. Our capital structure today is in far better shape than it was even just 3 months ago. We have the partnerships and capital to invest aggressively in our people, our technologies and capabilities to significantly ramp growth and production capacity.

Further, we've received a lower-than-expected final judgment in our legacy lawsuit in Colorado. Recently, we posted the cash bond required for our federal appeal of the case, which we continue to believe has the potential to further and significantly reduce that liability even more greatly once the case is heard. There have been some trying times over the last few years, but I'm more excited about our outlook today than I ever have been since I joined.

We are a completely different company today, and I would argue, a far better and sustainable one that offers significant growth potential, and I believe we're on the cusp of big changes at Kopin in the not-too-distant future.

Overall, I'm just incredibly proud of the team for navigating an environment with so much change over a short period of time. Indeed, they have executed on everything I've asked them to do. There have been a lot of distractions as well, but our team have kept focused on controlling what we can control without letting these distractions impact our company's mission direction and potential.

I'll now turn the call over to our CFO, Erich Manz, to review our results from the third quarter in further detail. Erich?

Thanks, Michael. I want to begin by thanking Kopin's Board of Directors, Michael Murray and members of our management team for the opportunity to step into this role at such a pivotal time and for their support in making these first weeks both productive and inspiring. In my short time here, it's been exciting to see how much progress is already underway, confirming the strength of Kopin's direction and the solid foundation in place for future growth. It's clear that Kopin is advancing on multiple fronts, strategically, operationally and financially, and I'm excited to contribute to that continued success.

We solidified and stabilized our balance sheet through strong backing of our strategic investors, providing the financial flexibility and stability to execute our growth plans with confidence. At the same time, we're maintaining a disciplined focus on the P&L, driving top line growth while continuing to strengthen our path towards profitability. Our new partnership in Europe expands our access to key markets and positions us for continued growth globally. And with recent design wins from U.S. military, we're strengthening our domestic footprint and reinforcing Kopin's reputation as a trusted defense technology partner. Looking ahead, I'm encouraged by the alignment across our teams and our focus on executing the financial and strategic priorities that will drive long-term value for our shareholders.

With that, let's turn to our financial results for the quarter. Total revenues from Q3 2025 were $12 million versus $13.3 million for the prior year. Product revenues for the third quarter ended September 27, 2025, were $10.7 million compared to $10.9 million in the third quarter of 2024. The decrease 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.

In the third quarter of 2025, funded research and development revenues decreased to $1.2 million from $2.3 million in Q3 2024, primarily due to the timing of completed projects and a focus on programs moved to production. Cost of product revenue for the third quarter of 2025 was $8.4 million or 79% of net product revenues, compared with $8.3 million or 76% of net product revenues for the third quarter of 2024. The increase was due to higher cost to manufacturer training and simulation products and 3D AOI products, which are partially offset by improved efficiency in making products for thermal weapon sights.

R&D expenses for the third quarter of 2025 were $2.5 million, a decrease of $0.1 million from the same quarter last year. The decrease is primarily due to decreased spending on U.S. defense programs and programs previously in development are transitioning into production. SG&A expenses were $1.6 million in the third quarter of 2025 compared to $5.2 million in the third quarter of 2024. SG&A decreased due to a decrease in accrued legal expenses, partially offset by an increase in noncash stock compensation.

Turning to the bottom line. Net income for the third quarter of 2025 was $4.1 million or $0.02 per share compared with a net loss of $3.5 million or $0.03 per share for the third quarter of 2024. It should be noted that Q3 2025 net income included a $5.1 million add-back for a reduction in litigation accruals. Net cash used in operating activities was $7.7 million in the first 9 months of 2025.

Our balance sheet and cash position is as strong as ever post Q3. We ended the third quarter with $26.5 million in cash, which is not significantly different than the prior quarter. However, subsequent to the quarter end, although we posted a $23 million bond for an appealable lawsuit, we were able to raise $41 million with several strategic and institutional investors and completed a $15 million transaction with an individual strategic investor, which significantly improved our overall cash position.

As a result, at the end of Q3, with this funding in place, the company was able to remove any significant doubt regarding the ability to operate as a global concern. Listeners should review our Form 10-Q for the quarter ended September 27, 2025, for any possible adjustments and additional disclosures.

And with that, I'll turn the call back over to Michael for closing remarks, and we'll take your questions.

Thanks very much, Erich. Our products and technology can be applied to a variety of industries across the landscape. But we have chosen to focus on the areas we think will have the highest demand and growth opportunities and provide the clearest path to profitability. With our market-leading strategic partners, we are in a great position to take advantage of their growth and accelerate our own. The geopolitical landscape and increasing tensions mean that more defense departments around the world are looking at their budgets and capabilities and assessing where they need to invest. Much of the time, it's pointing towards better vision and data to get to soldiers to make better decisions and safer decisions, Kopin can be a major solution to some of those challenges.

We believe we are at an exciting inflection point for the company. There's no doubt that our future is continuously growing and becoming brighter every day.

With that, operator, we'll open up the call to any questions.

[Operator Instructions] We'll take our first question from George Gianarikas with Canaccord Genuity.

Welcome, Erich. I'd like to start maybe on something you didn't talk about this time is neural display. Maybe any developments there, any progress you've made in that product?

Yes, absolutely. So at AUSA, we demonstrated a first-person viewer, bidirectional, human in the loop microdisplay, which we call neural display that controlled a drone application with your eye. Imagine, if you will, a soldier on the battlefield with a daytime hub like our DayVAS solution or DarkWAVE solution being able to still fire their weapon while looking through a daytime or nighttime AR application and controlling a drone and moving that drone just with their eyes and never taking their eyes off the battlefield. And that is a critical technology area for the United States government.

Neural display is demonstrable. We will be investing in it over the course of the next few years. And we will have a road map that has neural display coming right behind our color microLED development that we're embarking upon now. Thanks, George.

And maybe just as a follow-up, just some blocking and tackling as a follow-up. In terms of just how we should think about your quarterly OpEx, particularly with Blue Radios seemingly behind you, can you sort of help us understand what the spending should look like over the next several quarters?

I don't think the spending is going to be much different than what we've seen. We know we have some headwinds there in the OpEx area, but we will be growing into that. That's the objective.

Our next question comes from Jaeson Schmidt with Lake Street.

Michael, it obviously sounds like you're seeing some really nice momentum and expanding pipeline. I know you noted a pretty significant number as far as what is in that potential pipeline and acknowledging sort of these IDIQ contracts could make it a little difficult. But how should we think about probably kind of 1- or 2-year out pipeline or backlog? And can you help us kind of size some of these near-term opportunities?

So as we sit here today, Kopin has roughly 80% of the backlog required to hit our plan for 2026. We see visibility on our three major programs until 2027 to 2030. And those programs are thermal weapon sight programs, our aviation helmet programs and one other program that is actually on the medical side. So those three programs, we have very strong visibility, at least for the next 2 years, Jaeson. The task for Kopin right now is to build upon those programs, also intercept whatever the next generation programs will be. As an example, in our aviation head-worn application, as you know, we have an LCD product, we have an OLED product and a microLED product, I can say that. So we're building upon that foundation.

We do think those programs have life until 2027 at least, but we're not resting on them alone. We need more programs like them that will continue for the next decade. And we think there are several like Soldier Borne Mission Command, like our DarkWAVE product, like the DayVAS product and several of the first-person viewer products that we're developing right now that will carry us through, I'd say, the next 2 to 3 years of growth. So we're very confident in our backlog. We're also very confident in some of the new programs that we're working on. I hope that's helpful.

Yes, that's really helpful. And then just as a follow-up, curious if you could update us on sort of the Kopin One initiatives and automation and where those initiatives are? And if kind of Q4 will be sort of the end of all those being implemented?

Great question. I'm remiss in updating you. So Kopin One, I would say, is fully integrated at this point. Everyone is under the Kopin umbrella. So that's number one. And our HR team has done a fantastic job with that transition as it is a cultural one. So that would be number one. Number two, just to touch on our fab-lite model. I haven't briefed on that in several quarters. But as you know, we embarked on a fab-lite strategy, which is sourcing the best wafers and deposition technologies worldwide and focusing on U.S. DoD and NATO applications, specifically. And that transition has been a great one. We're almost fully complete, and I expect to be complete by the end of this year.

From an automation perspective, we have put in our first wave of automation back in June. It is now operational. It is working. We're seeing efficiencies and quality increases with that. The second phase does go in, in December this year, and we're hopeful that, that will add OpEx savings as well throughout the course of next year and add throughput capability to the fab. So we're not planning on any material changes in headcount. It's the ability for us to have higher throughput of the fab for next year, and we're fairly confident that's going to go well.

Our next question comes from Glenn Mattson with Ladenburg Thalmann.

Congrats on the results. Could you just dive into the pilot, the aviation heads-up display issue that came up this quarter, just as is it a onetime timing thing? Or just a little background on that.

I'm not sure, Glenn. Can you explain that a little bit more? There was no issue.

In the press release, I think you guys highlighted that the pilot headsets was one of the reasons why military was down year-over-year, so just curious about that.

Yes. I see the question. So no, that was just a manufacturing to demand push from this quarter to next, just a timing issue.

Okay. Yes. And I'm not sure you kind of touched on the SG&A, but it was down significantly sequentially. I know the lawsuit expenses came out. Is this the run rate? Or was there some onetime items that caused it to be lower this quarter?

Yes. No, thank you. No, it was not going to be the new run rate. The cost there from an SG&A perspective will go back to a more normalized trend. There were onetime events, the litigation move of $5.1 million, and we had other legal fee expenses. The accruals for those came down as well fairly significantly.

One other thing on OpEx, I think this goes to potentially George's question. But from an appeal standpoint, we are not expecting a run rate like we've seen on legal expenses. This is a onetime and I stress, onetime expense, which we're already incurring, which we expect to be around $500,000 of expense to appeal the judgment in Colorado. So we expect our SG&A to hold at a more normalized level throughout 2026 where you're kind of seeing it now in that range. So I hope that provides better color.

Yes. And then, Michael, curious, I think there's -- well, maybe you said it before, but just being medical being such a big aspect of your kind of confidence for the next 2 years out, could you -- is that HD Medical partnership? Or is there something else going on there that you could help explain?

Yes. So first things first, HM DMD is growing. They are creating more of a pipeline of their own. It's now public knowledge that they have signed an agreement with Carl Zeiss, who I understand is one of the world's leaders in that specific field of advanced surgical vision systems. And we're also working with HM DMD on potential other products in the medical market, which we're not talking about just yet. But we do believe that there's more of a portfolio of medical products.

And one of the other things, just from a growth standpoint, Glenn, we do see -- and I mentioned this in my prepared remarks, we do see increased inbound requests for armored vehicle weapon sights and armored vehicle head-mounted systems across the globe. And we're working on several projects globally in armored vehicle projects, which we're also excited to see have come back into focus.

We will move next with Jonathan Siegmann with Stifel.

So a lot of good news you announced in Europe. As investors, we're going to have a view of revenues that you disaggregate from Europe as well as I presume a new equity, a minority interest line. Can you just maybe talk level set how we should think about the pace of improvement? Just what is the capacity in Europe or just anything about how the improvement there will develop would be great?

Absolutely. It's exciting and great question. Thanks, Jon. We have 0 revenue, roughly speaking, in Europe in defense today. And we already have agreements for $8 million of development with Theon for a color microLED for Europe, Southeast Asia and NATO, one. Two, we expect orders for our DarkWAVE strategy in Europe. We've been competing on several bids together with Theon. And we are hopeful for research and development contract for DarkWAVE to be developed with Theon for their end markets, which they enjoy a significant market share in Europe and specifically with NATO countries.

So we think we're going to expand our European business exceptionally quickly in 2026. But the real revenue growth rate starts in '27 and '28, where you'll see tens of millions of revenue in 2027 and 2028 in Europe. So starting from 0, we'll be in the single high millions for next year of revenue from research and development and production, followed by tens of millions of revenue in '27 and '28.

That's great. That's great. And we'll see orders from Europe? Or is that going to be not needle movers in 2026?

We will definitely see orders from Europe potentially in Q4 of this year. I have a high degree of confidence in that.

Good luck with the rest of the year.

[Operator Instructions] We will move next with Christian Schwab with Craig Hallum.

I just wanted to follow up on the U.S. Army SBMC program. It wasn't cystal clear on what I heard, sorry. But I think you talked about seeing a $1 billion opportunity TAM with the U.S. Army alone is that program coupled with the new expanded number of drone opportunities or units that the U.S. army wants to procure on a yearly basis. That seems significantly bigger than I guess we were previously thinking. Can you expand upon when material revenue from both of those initiatives would begin to hit? I know you kind of talked about the end of '26 maybe program awards and ramps in revenue in '27 and '28, but it's a substantial number. I'm just wondering when we should be thinking that could move to revenue?

Sure. So let me take the first part. The pipeline of opportunities we have currently, 40% of it, roughly speaking, is Soldier Borne Mission Command and programs around Soldier Borne Mission Command. I can't go into too much detail around that. But that would be the production Soldier Borne Mission Command opportunity level. It's about 40% of that $1 billion. The rest of the $1 billion opportunity pipeline that we have is a combination of armored vehicle programs, advanced night vision goggle programs as well as thermal weapon sight programs or next-generation thermal weapon sight programs. So that's the mix of that $1 billion.

Of course, there's medical in there, too, but it's much smaller. So I hope that gives you a sense of the scale of opportunities that we're looking at. With regard to Soldier Board Mission Command specifically, to remind folks, there are two prime contractors competing. One is Anduril Meta. The other is Rivet, which is a Palantir based or not based but funded company. And below that, there were two selections for critical technology acquisition areas. Kopin was one of those selections to develop a sovereign-based, color microLED technology here in the United States for programs like Soldier Borne Mission Command, next-generation thermal weapon sights and goggles and that technology development is the $15.4 million contract award that we received already.

We're expecting to receive further investments from the U.S. Army to develop this technology in 2026. I've already mentioned that would be in several tens of thousands or pardon me, several tens of millions of dollars of investment in 2026 or production in 2027 and our goal is to have our device be designed into Soldier Borne Mission Command applications for production in 2027. But our goal and our task is to create a demonstrable color MicroLED for that to happen. And yes, there is another competitor, as I've mentioned previously, that also received an award. They have not gone public, so we're not going to mention them, but that's how we get to production in Soldier Borne Mission Command.

And that production color microLED is being designed by the Army with Kopin for the Army specifically in Soldier Borne Mission Command type applications. I hope that clarifies things for you.

And again, welcome, Christian. I do want to take a point to welcome Jon at Stifel and Christian at Craig-Hallum. Welcome to our analyst team.

Thank you. And this will conclude our Q&A session. I will now turn the call over to CEO, Michael Murray, for closing remarks.

Thank you, operator. I hope you all leave the call today with the impression that this is a new day, a new Kopin and a new opportunity for the company. Whether the application is a thermal weapon sight, a head-mounted display or a high refresh display in armored vehicles, the goal is the same, to provide our allies and our troops, the ability to see their adversary before they are seen. If we're able to do that, our troops will come home first and safely. Providing the same technology to surgeons worldwide will also save lives. And this is a responsibility that we take very seriously for those reasons.

And we have partnered with Tier 1 defense and medical contractors and that's why we are the sole source provider of microdisplays for several programs of record within the Department of Defense and worldwide leading medical device manufacturers as well.

Again, thank you for your time today, and thank you for your investment in Kopin. Have a great day.

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.