Richard A. Sneider - Chief Financial Officer, Principal Accounting Officer and Treasurer John C.C. Fan - Co-Founder, Chairman, Chief Executive Officer and President

Good morning, and welcome to Kopin Corporation's Second Quarter 2013 Financial Results Conference Call. Today's call is being recorded for Internet replay. You may access an archived version of the call on Kopin's website at www.kopin.com. With us today from the company are Chairman and Chief Executive Officer, Dr. John Fan; and Chief Financial Officer, Mr. Richard Sneider. Thank you, Mr. Sneider. Please go ahead, sir.

Thank you. 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. And I will go through the fiscal quarter -- second quarter 2013 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, August 6, 2013, 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 for 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. 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.

Thanks, Rich. Good morning, everyone, and thanks for joining us today. Rich will discuss our financial results with you a bit later. But for now, I would like to give you an update on our business. As I have mentioned in previous calls, our decision is to focus our engineering talent and IT investment in wearable computing and to transform our business model from a more commodity-like business to a solution-based business with higher gross margin potential. Throughout these years -- this year, we have begun to see a number of growing trends in the wearable technology space. We have been very encouraged by the feedbacks we have received from current and prospective partners and customers. We expect to make a number of signing announcements as the year progresses. I want to take some time this morning to discuss some of the positive trends and to comment on where I think the wearable computing market is headed and why I believe when you're positioned to capture the -- capitalize on this emerging technology. With a long history of developing technologies that geared towards wearable computing market, the 3 main aspects of our strategy and directions are very clear. First, our track record of technological innovations in wearable computing and displays have given us an optimum portfolio of critical components and solutions. Our expertise to integrate this technology make us an ideal partner to companies looking to bring wearables to market. Second, we also work closely with our partners to custom engineer and custom develop tailored solutions to accelerate their wearable product developments and to enable their visions for this emerging wearable marketplace. And third, our IP and our expertise allow us to innovate solutions to problems that our partners are unable to solve with their own staff. Whether it is…

Thank you, John. Beginning with the top line, total revenues for the second quarter of 2013 were at $6.1 million compared with $7 million for the second quarter of 2012, primarily reflecting the expected decline in sales of Display products for military applications. Now before we go on to the operating expenses, it is important to remember that our expense structure is not tied to the current quarterly revenues or fiscal year revenue projections, which are our longer-term goals. Cost of goods sold for the second quarter was 111% of product revenues compared with 81.5% for the second quarter of last year. The decrease reflects a decrease in the sale of our Display products for military applications, the accrual of $800,000 for a state job grant repayment, approximately $600,000 for the reserve for excess and obsolete inventory and manufacturing inefficiencies resulting from lower volumes. As you may recall, we received a state jobs grant several years ago, and under the terms of the agreement, our selling of our 3.5 product line triggered repayment. However, there are additional terms which may allow us to keep the funds, so this may be reversed in the future. R&D expense in the second quarter of 2013 was $3.7 million compared with $2.9 million for the second quarter of 2012. The increase reflects an increase in costs to develop wearable computing technologies. SG&A expenses increased from $4.1 million in the second quarter of 2012 to $4.7 million in the second quarter of this year. The increase in SG&A for the second 3 months of 2013 versus the corresponding period in the prior year is primarily related to an increase of approximately $500,000 in patent expenses and other professional fees. Other income and expense net is primarily composed of $285,000 of interest income and approximately $371,000…

Thank you, Rich. Demand is growing for wearable computing products, and I want to assure everyone that Kopin is not standing still waiting for the wave to hit. We're in active discussions with a number of leading technology companies who are looking to us to accelerate and enable their interest in the wearable computing market. We're not in a position to make any announcement today, but we're committed to keep you informed as quickly as we are able to. Our balance sheet is very strong and debt-free. As we transform to a solution- and license-based model, we anticipate we'll produce fast-growing, recurring revenue that will drive high gross margins. Kopin has been a solid leader for many years in exactly the areas that are making the wearables a reality. And our combination of patents, technologies, partnerships and talented employee uniquely position us to ride the wave. We look forward to ongoing discussions with you in the coming months. And now, operator, please open for questions.

[Operator Instructions] Gentlemen, we have no questions in queue at this time.

With that, I'll say thank you, everyone, for joining us today. I look forward to speaking with you again in the near future.

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