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

Thank you. Good morning, everyone. Before we get started, I'd like to remind everyone that today's call is taking place on August 12, 2025. We'll 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 as amended 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. Paul and Michael, Kopin's CFO, Rich Sneider, will review the company's second quarter 2025 financial results. I would now like to turn the conference over to Michael Murray. Michael?

Thank you, Brian. Good morning to everyone, and welcome to our second quarter earnings call. It's been quite a busy and transformational time at Kopin and we believe some of our best and most exciting opportunities still lie ahead of us. We recently announced the hiring of Erich Manz as our new CFO, who will officially start on September 2. Erich joins us from Allegro MicroSystems, where he spent the last 27 years in various financial, accounting and leadership roles. We're excited to have Erich onboard as we believe these are truly transformative times here at Kopin. As I hope you all saw yesterday, we announced a $15 million strategic investment from Theon International, a global developer and manufacturer of advanced thermal imaging and night vision systems for global defense and thermal imaging markets. Due to ongoing military conflicts, rising uncertainty and the approved increase in European defense spending, Kopin and Theon decided that this strategic partnership can drive increased revenue, market share and technology developments in Europe, Southeast Asia and with NATO allies specifically. Furthermore, there are large pursuits here in the United States that may make sense for both companies to pursue as well. With Theon's expertise in night vision sensors and systems, coupled with Kopin's capabilities in all four types of microdisplays and optical assemblies, we collectively believe the combination will bring the most advanced technology to market sooner at a lower price and within sovereign content required to be successful together on much larger pursuits and contracts globally. It has been reported that the European nations and NATO allies will spend over $1 trillion in defense spending, which makes this region critical for our growth and ambitions. Theon is a market maker, a leading defense firm and is one of the fastest-growing companies in Europe for the second year in a row. Theon, which is publicly traded on the Amsterdam Stock Exchange, focuses on developing and delivering mission-critical thermal weapon sights, night vision and sensing systems to many countries in Europe, Southeast Asia and NATO. Their growth has been astounding with over a 50% compound annual growth rate in the last six years, resulting in revenues of over USD 381 million last year. Now, as the only manufacturer in the United States of four types of microdisplays, we feel we are in a very unique position to capitalize on macro trends across the globe and grow our business, and we believe the investment by Theon will further help us achieve this. Part of the investment will go towards our facility in Dalgety Bay, Scotland. This facility supports manufacturing and sales for Europe, Southeast Asia and now NATO-specific countries, enabling collaborative innovations across key global regions. Kopin and Theon will have a nonexclusive licensing and development agreement for several of our technologies and products. The second part of the investment by Theon is in the form of preferred shares. These shares will have a fixed conversion price of $3 and a forced conversion price of $4.50 if the stock trades above that level for 10 days in a 30-day window. With this agreement, we expect sales with Theon to commence in the fourth quarter of this year. Kopin and Theon have developed and agreed upon an aggressive three-year strategic plan for revenue, technology sharing, and growth, which makes both companies stronger, more profitable and competitive together. Importantly, our firms will be able to partner together and compete on much larger projects and contracts, higher up the value chain. Global defense contractors and integrators are looking for more than simple commodity products to plug into systems. They want application-specific solutions tailored to their individual needs and products. Now turning to the second quarter of 2025. Specifically, we did not meet our expectations. This was largely the result of government budget uncertainty and subsequent customer confidence that was reduced, which created a sales vacuum in the second quarter. However, we are very pleased to report that the order book is recovering, and many of those orders will be fulfilled in the third quarter. As an example, standard products for 3D AOI and training and simulation devices were delayed and will be recognized in the third quarter as well as the fourth quarter. Additionally, we had several million dollars worth of orders expected in the second quarter, which we expect to announce shortly, and we expect to announce several significant research and development awards shortly as well. Although there were some roadblocks to recognizing revenue in the second quarter, we continue to make substantial progress for the long-term health and growth of the company. Within the quarter, we introduced our first phase of optical inspection, which is now up and running. We expect to introduce the second phase by the end of this year, which we believe will save the company significant operating expenses in the second half of 2025 while increasing our overall throughput and inspection quality as well. We are holding our quality rates at a much higher, more consistent and more predictable level. Recently, we received the best overall quality level from all three of our top customers since I joined Kopin almost three years ago. On the technology front, Kopin's latest AI-enabled neural display hardware prototype built on OLED technology with MicroLED capability now enables eye image capture, gaze tracking and dynamic controls. This breakthrough delivers valuable insights into the requirements of custom optics, and we continue to focus on future developments. Key discoveries address design challenges and optimize performance, propelling ongoing innovation. As Kopin continues refining this design, the next steps will be to focus on enhancing silicon architectures to improve color accuracy, brightness and sensor sensitivity. These upgrades will further bolster the neural display's capability and propel development toward the next generation of innovative display technology. We demonstrated the technology for the first time in a wearable headset live at the AWE show in Long Beach and during our very successful technology roadshow in June. During the second quarter, Kopin received a contract to illustrate what technical requirements a color MicroLED microdisplay will be needed for the next-generation soldier vision systems, including head-mounted see-through displays, handheld devices, platform-mounted systems and advanced weapon systems like the next-generation squad weapon fire. The soldier display trade study focuses on identifying ultra-bright MicroLED trade-offs to optimize see-through XR applications, prioritizing daytime readable displays that are brighter, more efficient, and capable of delivering clear visibility across diverse lighting conditions from intense daylight to overcast starlight. Our research in the monochrome and color MicroLED displays for aviation, automotive, and soldier systems continue, and we expect to advance the monochrome display into full-rate production soon, while we continue to advance our color MicroLED strategy for aviation, land, and soldier-worn systems as well. Through the U.S. Department of Defense, we are excited about several opportunities to supply our existing programs across the military. We continue to supply several types of advanced thermal weapon sights, and we are dedicating more focus on armored vehicles as well as within the advancements of recently announced research and development into the next generation of electric armored vehicle programs. The largest of these opportunities is clearly IVAS, which is now referred to as Soldier Borne Mission Command or SBMC. This $22 billion Army program was recently novated 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. We expect prime contractors to be selected soon for this technology upgrade to the existing IVAS platform, which we believe will continue until SBMC becomes available. Along with the prime contractor selections, we expect announcements and awards for critical technology acquisition areas where Kopin fits into to be announced shortly as well. Given the long-term nature of many of the existing programs and the contract wins so far for 2025, our current pipeline is very strong and growing. As a reminder, several of our programs have congressional budget demands through 2030 and several of the program contracts we have are indefinite demand and indefinite quantity, or IDIQs, which allow for even greater revenue demands than we currently have on order. Now, 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 threat levels and how to make the best decisions for themselves and their teams. Our products and technology can help make our soldiers and the soldiers of our allies safer, meaning more men and women in uniform make it home safe. I am truly excited about yesterday's announcement with Theon and what this means for the future of Kopin as a player on the global scale. Furthermore, Theon has announced other key investments and acquisitions that will also help Kopin and Theon be successful in our new ambitions and business plans. I'll now turn the call over to our CFO, Rich Sneider, to review our results from the second quarter and full year in further detail.

Thank you, Michael. Turning to our financial results for the second quarter. Total revenues from Q2 '25 were $8.5 million versus $12.3 million for the prior year. The decrease was primarily related to the government budgeting process that impacted orders from several customers. Product revenues for the second quarter of '25 were $7.5 million compared to $11.1 million in the second quarter of '24. In the second quarter of '25, funded research and development revenues decreased by $900,000 from $1.2 million in Q2 '24, primarily because of the completion and development of our CR3 medical headset. Cost of product revenues for the second quarter of '25 was $7.1 million or 94% of net product revenues compared to $8.7 million or 79% of net product revenues for the second quarter of '24. The decrease in cost of product revenues was primarily the result of lower sales, which were insufficient to absorb fixed costs. R&D expenses for the second quarter of '25 were $1.9 million, an increase of approximately $100,000 from the year-ago quarter. Customer-funded R&D expenses decreased approximately $200,000, and internal R&D expenses increased by $300,000. Funded R&D decreased largely due to development programs moving into full production, the CR3 program I mentioned previously, and internal R&D increased due to the transition of displays to Europe and automating our production line. SG&A expenses were $7.9 million in the second quarter of '25 compared to $7.3 million in the second quarter of '24. The decrease was primarily due to a decrease in legal fees of approximately $2.8 million. Turning to the bottom line, the net loss for the second quarter of '25 was $5.2 million or $0.03 per share compared with a net loss of $5.9 million or $0.05 per share for the second quarter of '24. Net cash used in operating activities was $7.6 million for the first half of '25. Listeners should review the 10-Q for the quarter ended June 28 for additional disclosures. And with that, I'll turn the call back over to Michael for closing remarks, and we'll take your questions.

Thanks, Rich. Before concluding my prepared remarks and moving to Q&A, I'd like to take a moment to thank Rich for his decades of hard work at Kopin. Rich joined Kopin in 1998 and has been through many ups and many downs over his 26 years with the company. Rich has helped me tremendously in the almost three years that I've been at Kopin as both a financial adviser and a friend due to his deep knowledge of the company. His operational knowledge and his relationships with all of the people here at Kopin are invaluable. The Kopin team is going to miss him dearly. We wish him the best wherever his path takes him next. As a leading provider of application-specific optical solutions for high-performance and mission-critical virtual reality and augmented reality applications, we have a unique opportunity in front of us. Our products and our technology can be applied to a variety of industries across the landscape, but we have chosen to focus on a few, which we think have the greatest and highest demand and growth opportunities for return and provide the clearest path to profitability. We believe we're at an exciting inflection point for the company. With our existing products, technologies and customers, we believe we are in a great position to continue supplying defense departments across the world with the tools and applications to make their jobs safer. I believe the best is yet to come. The improvements the team has made in a relatively short period of time is truly commendable and we're not done yet. We're just getting started. Operator, we can open the call for questions.

We'll take our first question from Jaeson Schmidt with Lake Street.

Just want to start on the Theon investment news. Michael, you mentioned that you expect to see sales start in Q4. But can you help us think about the sort of the size of this opportunity longer term? Obviously, they're a massive company, and it seems like a great way to address some of the international markets, but how should we think about the size?

Sure. There's a number of pieces of our opportunity with Theon. The first piece is an internal spend. As you know, Theon acquires a tremendous amount of microdisplays. In their announcement, they didn't mention one of our competitors in OLED, and they have a supply agreement with them for a number of years. But we do expect to receive some of the internal spend in OLED. We don't make every OLED display. Our competitors don't make every OLED display we make, but there are several opportunities for us to supply OLED as well as LCD, and of course, MicroLED internal within Theon, so that's number one. But the big opportunity with Theon is actually our application-specific solutions like DayVAS and DarkWAVE. Theon has a significant franchise in night vision goggles in Southeast Asia as well as Europe. And with our DayVAS and DarkWAVE strategy, we think these are great products for Theon to take to market with Kopin. I think that was a real driving factor for their investment. Our plan is to build those systems in Europe for European customers. So we think that's going to be the first level of investment and revenue that we'll see in Q4 is in those application-specific solutions for Theon's customers that they already have. Then thirdly, we have several pursuits that we want to engage on that are fairly near term to the companies, specifically in Europe. We expect to see some research and development dollars flow through this relationship in Q4.

Got you. And then I know you mentioned it's nonexclusive from a tech standpoint. Do they get any sort of priority when it comes to your capacity?

Yes, that's a great question. Currently, in Dalgety Bay, which mainly concentrates on our FL costs and 3D AOI markets, we plan to optimize that facility significantly, enhancing our absorption rate and cost structure. First, we will prioritize application-specific solutions to boost the fab utilization rate in both Dalgety Bay and potentially Reston, Virginia. We aim to advance the intellectual property surrounding DarkWAVE, DayVAS, and some of our display technologies through Dalgety Bay. In Reston, we will collaborate with Theon to develop targeted U.S.-based solutions. We believe that our fabs' utilization rates will increase significantly due to this partnership, positively impacting our bottom line. From an intellectual property and capacity standpoint, our focus is on enhancing input into both the Reston facility and Dalgety Bay.

Okay. That makes sense. And then last one for me, and I'll jump back into the queue. Maybe I missed it, but did you give a sort of book-to-bill number or bookings number in Q2?

Q2 was a positive book-to-bill, although it wasn't as high as we had expected or hoped. Much of the bookings that we missed were actually within the quarter turns, meaning book ship orders that we could turn within the quarter as well as some of the funded research and development orders that we were expecting. It was a positive book-to-bill in Q2, probably because the revenue wasn't as exciting as we thought it was going to be. But having said that, Jaeson, I'm happy to report that we've received the vast majority of the orders that we were expecting, and we still have about $20 million of funded research and development orders that we have a high degree of expectation that will come in the second half of 2025.

Okay. Really helpful.

Thanks, Jaeson.

We'll take our next question from Glenn Mattson with Ladenburg.

Apologies for switching between calls, but could you discuss the progress made in reorganizing manufacturing and implementing automation? Specifically, how much of that has been completed, if it's finished, and what potential impact do you anticipate on gross margin going forward?

You bet. Thanks, Glenn. In Q2, we introduced our optical inspection solutions into the fab. Those are now up and running. We expect to receive $1 million to $1.5 million of operation expense recovery in the second half from that automation. Our second phase of automation for the plant will go in by the end of this year. We have fairly significant amounts of capital that has already been spent that we'll introduce into the fab by Q4, end of Q4, and we expect to see around $1 million of OpEx reduction from that over the course of 2026.

Great. That's helpful. And with this new partnership with Theon, who were they using previously for the same type of work they're going to be contracting the new JV for? Just curious on who you're replacing there in that process.

Yes. I think hard to say. That's more of a question for Theon. But our focus is developing new technology around our OLED, our MicroLED as well as some LCD technologies, quite frankly. I think LCD is still a very strong technology for thermal weapon sights based on its robustness. But our real goal is to take some of our application-specific solutions like DayVAS and DarkWAVE to production in Europe and build those systems in Europe. So that's the goal. I think Theon and Kopin are very much aligned. The CEO of Theon, Christianos, is very focused and driven on keeping technology for Europe in Europe and so am I. So I think that's the main goal for both companies.

Great. Congrats on that new development.

Yes. And one other point to make, Glenn, when I started with the firm almost three years ago, we put a lot of effort into moving our OLED production line, if you recall, into Europe at that point in time. So now Kopin is able to develop, design and ship OLED from Europe to Europe and to Greece to Theon without it touching the United States, which is a big advantage for Theon and our customers in Europe. So that proved to be a wise move for the firm. That's something that we will certainly support with Theon, and we will take the next step, which is building those application-specific solutions in Dalgety Bay for Theon and for other customers. Again, that will increase our utilization rate and decrease costs in Dalgety Bay.

Great. Take care.

Yes. Thanks, Glenn.

It appears we have no further questions at this time. I will now turn the program back over to Michael Murray for any additional or closing remarks.

Thank you, operator. Thank you all for joining the call today. Whether the application is a weapon sight, a helmet mounted display or a high refresh display in armored vehicles, the goal is the same: to increase the safety of the soldier using it. We take that responsibility seriously, and that's one of the reasons we have focused on partnering with Tier 1 defense contractors. That's why we are the sole source provider of microdisplays for several programs of record within the Department of Defense. Moreover, this new partnership with Theon is truly a transformational note for the company in our milestone, our progress and our evolution. Thank you all for joining. I look forward to speaking with you next quarter.

This concludes today's program. Thank you for your participation. You may disconnect at any time.