Good day, and welcome to the Kopin Corporation First Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Richard Sneider, Chief Financial Officer. Please go ahead, sir.

Thank you, Operator. Welcome, everyone, and thank you for joining us this morning. John will begin today's call with a discussion of our strategy, technology, and markets. I will go through the first quarter results at a high level. John will conclude our prepared remarks, and then we'll be happy to take your questions. I would like to remind everyone that during today's call, taking place on Tuesday, May 5, 2020, 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 with our subsidiaries, market conditions, and other factors discussed in our most annual report on Form 10-K and other documents filed with the Securities and Exchange Commission. The company undertakes no obligation to update the forward-looking statements made during today's call. And with that, I'll turn the call over to John.

Good morning, and thank you for joining us to discuss our first quarter results. Given the unprecedented circumstances we are facing, I want to start by expressing my hope that all of you and your families are staying safe and well. Before I discuss our strong start to the year, I first want to review our response to COVID-19 and how it has impacted our business. Like all companies, in March, we quickly shifted our employees to remote work where possible. Our teams adjusted quickly and that structure has worked well. But as a defense-related company, we have many employees considered essential, and they have continued to work every day. I cannot tell you how grateful I am to this group, their positive attitude, and their commitment to see Kopin succeed. While our AMLCD products are making a Class 10 cleanroom, which provides an inherent level of safety and protection with masks, gloves, and goggles, we did take extra precautions. The COVID situation has varied and is directly responsible for a strong first quarter, and the momentum was carried into the second quarter. We have had a very good start to the year with demand holding steady. Our suppliers keep us in stock with only a few minor bumps and interruptions. Our dedicated employees keep the business on track and are performing. We are very pleased with the results. In particular, our defense business is strong, with product revenues increasing 144%. In the enterprise sector, our core applications area has slowed recently. Others have remained strong, particularly for safety. Our total revenue increased about 42% compared with the first quarter of 2019. In addition, we have reduced our R&D and SG&A expenses by 49% and continue to look at ways to streamline our cost structure. We expect momentum to continue in the second quarter, barring any surprises from either customers or suppliers or unless there is some unexpected change in the circumstances with the workforce related to COVID. We continue to shift under our two defense production programs: the FWS-I program and the F-35 Joint Strike Fighter program. We recently announced another four on order for the F-35 program, which now includes shipments into 2021. The fifth highest F-35 jet was delivered in March, with the DoD expected to purchase a minimum of 2,400 jets over the life cycle of the program. There are also international markets for the F-35. The U.S. airlines are expected to purchase hundreds of jets in the coming years. So it is still really early days in Kopin's monetization of the F-35 profile opportunity. We also see continued progress on our defense-related development programs where we have more than ten programs in various stages of development. While some of them may not contribute significantly to product revenues for the next year or two, it is by far the strongest defense program portfolio in our history. Our interests here are for the program to evolve into full-scale production programs that utilize our technologies. In almost all these programs, our micro-displays are the only space chosen. As previously mentioned, we have streamlined our internal R&D activities to focus on our core micro-display business. In particular, our current R&D investments are primarily focused on our organic light-emitting diode, or OLED displays. At the Consumer Electronics Show in January, we demonstrated the world's first monochrome double-stack OLED, which emits more than 20,000 nits. We also demonstrated our early samples of the world's first full-color 2.6k, 1.3-inch diagonal OLED displays using our proprietary double-stack technology. In addition, in the first quarter, we received our full production order for our OLED backside wafers, which we expect to begin shipping in late second quarter of 2020. An interesting effect of the COVID-19 situation, wearable headset customers see their products being used in hospitals and in areas of high infections by medical and public-safety responders. Enterprises are accelerating their use of AR as companies look for ways to train people and work collaboratively in a socially distant environment. Remote collaboration and remote training are all gaining acceptance. These applications are demonstrating the power of technology in allowing collaborative responses by minimizing the number of people on site. The global pandemic is driving increased interest in AR and VR technology for all customer segments: defense, enterprise, and consumers. Interest from a number of customers in this area has remained very strong for our micro-displays, particularly for our micro OLED displays. It is not clear at this time how quickly this customer engagement will converge to prior levels. While we are experiencing unusually high sales risk, we believe our strong defense business, OLED micro-displays development activities, and continued emphasis on efficiently managing our cost structure will carry our momentum into the second quarter. Now I'll return the call to Rich.

Thank you, John. Turning to our financial results. Total revenues for the first quarter of 2020 were $7.9 million compared to $5.5 million for the first quarter of 2019, an increase of 42%. Cost of goods sold for the first quarter of 2020 was $5.6 million or 95% of product revenues compared with $5.9 million or 127% for the first quarter of last year. The decrease in cost of product revenues for the three months ended March 28, 2020, compared to the three months ended March 30, 2019, was primarily due to improved manufacturing yields and higher volumes, which reduced fixed costs per unit at our U.S. plant, partially offset by lower manufacturing efficiencies at our Scotland plant, caused by some supply issues. R&D expenses in the first quarter of 2020 were $2.3 million compared with $5 million in the first quarter of 2019. The lower R&D costs for the first quarter of 2020 compared to the prior year were a result of the curtailment of certain programs. SG&A expenses were $3.4 million in the first quarter of 2020 compared to $6.3 million in the first quarter of 2019. The decrease was primarily due to a reduction in compensation expenses, including stock-based compensation, bad-debt expense, professional fees, information technology expenses, and the accretion of the endless continued consideration. Other income/expense was an expense of approximately $86,000 for the first quarter of 2020 compared with $300,000 of income for the first quarter of 2019. During the three months ended March 28, 2020, we recorded $200,000 of foreign currency losses compared to $200,000 of foreign currency gains for the three months ended March 30, 2019. Turning to the bottom line, our net loss attributable to controlling interest for the quarter was approximately $3.6 million or $0.04 per share compared with a net loss of $11.3 million or $0.15 per share in the first quarter of 2019, a 68% improvement. Cash and marketable securities were approximately $17.6 million at March 28, 2020, compared with $21.8 million at December 28, 2019. Subsequent to the end of the quarter, we received a $2.1 million Payment Protection Plan loan under the CARES Act, which is not included in the $17.6 million cash position as of March 2020. We currently do not have plans on raising additional capital. First quarter amounts for depreciation and stock compensation are attached in the table to the Q1 press release. The amounts discussed above are based on current estimates, and listeners should review our Form 10-Q for the first quarter of 2020 for any possible changes and additional disclosures. Finally, with regards to the NASDAQ minimum listing requirements, we have until December 2020 to regain compliance.

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

It's great to see the positive results. I have a couple of questions regarding the enterprise side. Firstly, can the thermal-imaging technology you have be used to assess people from a distance when they have high temperatures? Is there a chance for increased demand in that area? Secondly, I'm interested in understanding more about the fire and safety sector and its significance to first responders. I know it contributed notably to Q4 revenue, so I'd like to know how that compares to other industrial applications in the current quarter.

So we have talked to some of our customers, and there are folks experimenting with thermal applications as kind of a first line of defense when people are coming into a building to identify their temperatures and so on and so forth. I don't know if any of that was actually implemented, but they have talked about that extensively. And sorry, man, what was the second piece of the question?

Yes, sure. Can you elaborate on the difference between the first responders, like firemen, and the more industrial applications on the enterprise side?

In both the fourth quarter of last year and the first quarter of this year, we experienced a significant increase in volume for that application. As we will mention in the 10-Q tomorrow when we file it, we do not expect the run rate from the first quarter to be sustained throughout the year. I'm not sure if it was just them addressing some supply chain issues or something else, but it was a very strong quarter for that application.

Okay. I'm curious about the gross margin, which decreased slightly sequentially. As the business becomes more focused on defense, can you discuss the gross margin outlook for the remainder of the year?

Yes. We continue to see yield improvements during the course of the year, and hopefully, higher volumes and all of that will result in improved gross margins. The product revenues were slightly down in the quarter sequentially, which is why the gross margin was down slightly sequentially. It's the fixed cost per unit aspect of it.

Right. Great. And then just on last on sales and marketing. Do you expect that this level is kind of a baseline from here? Do you expect it to grow significantly as you try and penetrate more enterprise allocations, things like that?

Yes. That $3.8 million to $4 million is the baseline we are aiming for. The variable is stock compensation, which can be influenced by the stock price. However, on a cash basis, we anticipate it to be at that level.

It appears we have no further questions at this time. I'd like to turn the conference back to Dr. John Fan for any additional or closing remarks.

Thank you for joining us this morning, and I hope to talk to you in the next call. Bye, bye.

And that does conclude today's conference. We thank you for your participation. You may now disconnect.