KOPIN CORP Income Taxes Disclosure

10. Income Taxes

 

The provision for income taxes from continuing operations consists of the following for the fiscal years indicated:

Schedule of Components of Income Tax Expense (Benefit)

		2025				2024
		Fiscal Year
		2025				2024
Current
State		$	—			$	—
Foreign			208,000				170,000
Total current provision			208,000				170,000
Deferred
Federal			(1,562,000	)			(6,902,000	)
State			(407,000	)			(506,000	)
Foreign			1,514,000				(218,000	)
Change in valuation allowance			455,000				7,626,000
Total deferred provision			—				—
Total provision for income taxes		$	208,000			$	170,000

 

The following table sets forth the changes in the Company’s balance of unrecognized tax benefits, including interest and penalties, for the year ended:

 Schedule of Unrecognized Tax Benefit

Changes in the unrecognized tax benefits, including interest and penalties, was as follows:		Fiscal Year Ended
		December 27, 2025				December 28, 2024
Beginning balance		$	1,886,000			$	1,965,000
Additions			208,000				170,000
Foreign exchange increases (decreases)			34,000				(249,000	)
Ending Balance		$	2,128,000			$	1,886,000

 

U.S. GAAP requires applying a ‘more likely than not’ threshold to the recognition and derecognition of uncertain tax positions either taken or expected to be taken on the Company’s income tax returns. The total amount of the Company’s gross tax liability for tax positions that may not be sustained under a ‘more likely than not’ threshold, excluding interest and penalties, amounts to $0.8 million as of December 27, 2025, and December 28, 2024. The Company’s policy regarding the classification of interest and penalties is to include these amounts as a component of income tax expense. The total amount of accrued interest and penalties related to the Company’s unrecognized tax benefits, adjusted for the impact of foreign exchange gains and losses, was $1.3 million and $1.1 million as of December 27, 2025, and December 28, 2024.

  

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

The actual income tax provisions reported from operations are different from those which would have been computed by applying the federal statutory tax rate to loss before income tax provision. A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows:

 

 Schedule of Effective Income Tax Rate Reconciliation

						2025								2024
		Fiscal Year Ended
		December 27, 2025								December 28, 2024
		Amount				Rate				Amount				Rate
US Federal Statutory Rate			579,000				21.0	%			(9,201,000	)			21.1	%
State and Local Income Taxes Net of Federal Income Tax effects			-				0.0	%			-				0.0	%
Foreign Effects
United Kingdom			-				0.0	%			-				0.0	%
Other			-				0.0	%			311,000				-0.7	%
Effect of Changes in Tax law or Rates enacted in Current Period			-				0.0	%			-				0.0	%
Tax Credis			(7,000	)			-0.3	%			98,000				-0.2	%
Uncertain tax positions			412,000				14.9	%			171,000				-0.4	%
Nontaxable or non deductible items
Equity compensation awards			(425,000	)			-15.4	%			(110,000	)			0.3	%
Compensation > $1 million			166,000				6.0	%			-				0.0	%
Non taxable dividends			(33,000	)			-1.2	%			21,000				0.0	%
Deconsolidation tax effects			(1,906,000	)			-69.1	%			-				0.0	%
FMV Preferred Stock forward contract			174,000				6.3	%			-				0.0	%
Other			(33,000	)			-1.2	%			258,000				-0.6	%
Other adjustments
Fed NOL Expiration and true up			(146,000	)			-5.3	%			3,286,000				-7.5	%
Capital loss expiration			-				0.0	%			-				0.0	%
Change in Valuation Allowance			1,427,000				51.7	%			5,336,000				-12.2	%
Total Provision			208,000				7.5	%			170,000				0.0	%

 

The Company incurred tax provisions of $208,000 and $170,000 for the fiscal years ended December 27, 2025, and December 28, 2024, respectively, primarily due to accrual of additional liabilities related to uncertain tax positions associated with transfer pricing with a former foreign subsidiary.

 

In fiscal year 2025 the Company deconsolidated its Kopin Europe, Ltd. Subsidiary. As a result of the deconsolidation the Company’s investment in Kopin Europe, Ltd and its loan receivable from Kopin Europe, Ltd. The entity’s deferred tax assets and offsetting valuation allowance are no longer included in the deferred table. A deferred tax liability was recognized for the book tax difference in the remaining ownership of 51%, the investment in Kopin Europe. No taxable gain or loss was recognized on the deconsolidation as this was not considered a taxable event for tax purposes.

 

The decrease in the federal net operating loss carryforward for fiscal year ended December 28, 2024, was due to the expiration of net operating loss carryforwards partially offset by loss carryforwards generated in Fiscal year December 28, 2024.

 

During the fiscal year ended December 27, 2025, the were no foreign effects due to the deconsolidation or Kopin Europe. For December 28, 2024, the change in the foreign effects categories was attributable to changes in the valuation allowance of deferred tax assets at Kopin Europe Ltd.

 

Pretax income (loss) from operations for the fiscal years ended 2025 and 2024:

Schedule of Pretax Income Loss from Operations

 

		Fiscal Year Ended
		December 27, 2025				December 28, 2024
United States of America		$	3,855,000			$	(42,223,000	)
United Kingdom			(1,096,000	)			(1,485,000	)
Consolidated Balance		$	2,759,000			$	(43,708,000	)

 

Deferred income taxes are provided to recognize the effect of temporary differences between tax and financial reporting. Deferred income tax assets and liabilities consist of the following:

Schedule of Deferred Tax Assets and Liabilities  

		2025				2024
		Fiscal Year
		2025				2024
Deferred tax assets:
Federal net operating loss carryforwards		$	53,643,000			$	47,844,000
State net operating loss carryforwards			9,990,000				8,376,000
Foreign net operating loss carryforwards							1,357,000
Litigation accrual			5,317,000				6,621,000
Equity awards			469,000				321,000
Tax credits			9,758,000				9,751,000
R&D expense amortization			1,446,000				2,860,000
Property, plant and equipment			498,000				630,000
Unrealized (gains) and losses on investments			1,871,000				2,376,000
Inventory reserves			1,217,000				1,498,000
Accrued legal			-				1,571,000
Other			130,000				588,000
Deferred tax assets			84,339,000				83,793,000
Accrued legal			(91,000	)			-
Deferred tax liabilities			(91,000	)			-
Net deferred tax assets			84,248,000				83,793,000
Valuation allowance			(84,248,000	)			(83,793,000	)
Net deferred tax assets			—				—
Deferred tax liability:
Foreign withholding liability			(422,000	)			(414,000	)
Net deferred tax liability		$	(422,000	)		$	(414,000	)

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

Changes in the valuation allowance was as follows:

Schedule of Changes in the Valuation Allowance 

		Fiscal Year Ended
		December 27, 2025				December 28, 2024
Beginning balance		$	83,793,000			$	76,167,000
Additions			455,000				7,626,000
Allowances removed			—				—
Ending Balance		$	84,248,000			$	83,793,000

 

The increase in the federal and state net operating loss carryforward for fiscal year ended December 27, 2025 was due to the loss from operation adjusted for litigation accrual and certain legal expenses being disallowed in computing the taxable loss, prior years research & development expenses that had been capitalized being expensed in fiscal year 2025, and equity compensation tax expense being greater than the amount recorded under U.S.GAAP. In addition to the loss from operations, the higher state net operating loss carryforwards for the fiscal year December 27, 2025 was also due to a change in the mix of sales in the states the Company sold in fiscal 2025 which have different rates than the state the Company is located in.  

 

The valuation allowance was approximately $84.2 million and $83.8 million at December 27, 2025 and December 28, 2024, respectively, primarily driven by U.S. net operating loss carryforwards (“NOLs”) and tax credits. Based on the available evidence it is more likely than not the deferred tax assets will not be realized.

 

As of December 27, 2025, the Company has available for tax purposes NOLs of $120.1 million expiring in 2025 through 2038 and $136.4 million that have an unlimited carryover period however only 80% of taxable income can be offset through the use of NOL’s in a particular year. The Company has recognized a full valuation allowance on its net deferred tax assets as the Company has concluded that such assets are not more likely than not to be realized.

 

 Net operating losses were not utilized in 2025 and 2024 to offset federal and state taxes

 

There were no payments for income taxes for the fiscal years ended December 27, 2025 and December 28, 2024.

 

Under the provisions of Section 382, certain substantial changes in Kopin’s ownership may limit in the future the amount of net operating loss carryforwards that could be used annually to offset future taxable income and income tax liability. During the year end December 27, 2025, Kopin performed a Section 382 review of its net operating loss carryforwards and determined there was no limitation as of December 27, 2025.

 

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. The statute of limitations for assessment by the Internal Revenue Service remains open for all years from 2022 to the present. The Company’s tax attributes related to years prior to 2022 can still be adjusted under audit. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company is not currently under examination in these jurisdictions.

 

International jurisdictions have statutes of limitations generally ranging from three to twenty years after filing of the respective return. Years still open to examination by tax authorities in major jurisdictions include Korea, which is expiring at the end of 2026, Japan (2015 onward) and the United Kingdom (2016 onward). The Company is not currently under examination in these jurisdictions.

 

The One Big Beautiful Bill Act (“OBBB”) was signed into law on July 4, 2025. The OBBB makes changes to U.S. corporate income tax, including immediate expensing of domestic research and development costs, with retroactive application beginning January 1, 2025; reinstating the option to claim 100% accelerated depreciation deductions on qualified property, with retroactive application beginning January 20, 2025; and international tax provisions modifying global intangible low-taxed income (“GILTI”), foreign-derived intangible income (“FDII”), and base erosion and anti-abuse tax (“BEAT”). There is no significant impact from the OBBB on the Company.

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)