Good afternoon, and welcome to Kopin Corporation's conference call to provide a business update and results for the fiscal second quarter ended June 28, 2014. 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 You may access an archived version of the call on Kopin's website at www.kopin.com.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. Please go ahead, sir.

Thank you. Welcome, everyone, and thank you for joining us this afternoon. John will begin today's call with the discussion of our strategy, technology and markets. I will go through the second 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 Wednesday, August 6, 2014, 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 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 it over to John.

Thank you, Richard. Good afternoon, everyone, and thank you for joining us. Yesterday, I returned from a very productive trip to Asia, where I visited a number of technology partners as well as a few large global electronics companies. I must say that there is a very strong excitement and interest in the wearable space everywhere I went. As a reminder, Kopin provides critical components to our customers and partners in the wearable space. For example, our long-term partners, Vuzix and Recon Instruments, all use our optical modules in their wearable assets. We also develop concept systems with our critical components so as to enable our customers to enter the market faster. We find our concept systems are so well received, with having strong interest in actually [ph] licensing our concept systems. Although we are very well versed in many aspects of wearable technologies, we're especially strong in display, optics, ASIC and noise-cancellation speech recognition technology. During our transformation, we're focused on these differentiable products, and we are very pleased with our progress. We now expect those products will be ready by the end of this year, on schedule for the big wearable wave expected to come in 2015. From various discussions with our partners, there's really no longer any doubt that the wearable market applications are going to be huge. I would not go into detail in this call on all the optical and audio products that we're developing. It's suffice it to say that customers are actively working with us in defining these innovative products. However, I would like -- I would love to stress that greater [ph] progress is being made. Our transmissive CyberDisplay products, as I've stated earlier, do provide the tiniest and brightest optical modules for the wearable headsets in which size, weight and power…

Thank you, John. Beginning with our results for the quarter, total revenues for the second quarter of 2014 were $6.9 million compared with $6.1 million for the second quarter of 2013. Revenues from the sales of products for wearable applications increased approximately 100% in the second quarter of 2014 as compared with the same period in 2013. The second quarter 2014 revenues from the sales of products for wearable applications was $1.5 million compared to $800,000 in Q2 of 2013. In the second quarter of 2014, R&D revenues were approximately $2 million as compared to $500,000 in Q2 of 2013. The increase was driven by funded programs with commercial customers for the development of wearable products. In addition, as we previously discussed, we expect revenues from the sale of products for military applications to be stronger than the second half of 2014 as a result of recent orders. Before we go into operating expense, it is important to remember that our expense structure is not tied to the current quarterly revenues or fiscal revenue projections but to our longer-term goals. Cost of goods sold for the second quarter was 84.7% of product revenues compared with 110.6% for the second quarter of last year. The improvement in gross margin reflects a higher percentage of our sales being driven by the higher-margin products. R&D expense in the second quarter of 2014 was $5.1 million compared with $3.7 million for the second quarter of 2013. The increase reflects an increase in costs to develop our wearable and military technologies. SG&A expenses were $4.9 million in both the second quarter of 2014 and '13. Other income and expense was an expense of approximately $1.6 million for the second quarter of 2014 as compared with income of $0.9 million for the same quarter of 2013.…

Thank you, Richard. I just want to reiterate that we believe the market continues to validate our strategy, and the inroads we're making with partners will begin to show in our performance towards the end of 2014 and into 2015. We are clearly in the right place at the right time. Our business model should position us for rapid growth and provide us with higher gross margin products. We look forward to reporting exciting developments on the future calls. And now operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Matt Robison with Wunderlich.

I guess the first question I have for you, John, is it sounds like you're getting maybe inside a 5- to 6-month window towards some equipment that you can talk about in more specifics. Are we -- should we think that, that time frame early next year is being customer prototypes or kind of products that might actually be sold by the customers?

Matthew, it's John Fan. I think that your question is talking about our customers coming out with products next year. They will not be prototypes. Many of them -- quite a few of them will be real products, and I think they will sell well.

Okay. And on the -- maybe, Rich, for you. On the R&D revenue and the expenses, how should we model the repeatability of that big uptick in R&D revenue? Is that going to -- is that just a one-quarter phenomenon? And I guess the same question about the expenses.

No. I mean, I think that the second half of the year will mirror in some respects the first half of the year as far as total revenue. I just don't know whether it's going to be Q3 or Q4, honestly, at this point. We earn it based upon deliveries and achieving certain milestones. So we feel confident that we'll get it done in the year, but again, it's always a question of whether it's -- which quarter.

I see. So maybe we look at it as being towards the back half -- sorry, the fourth quarter after maybe a little less in the third quarter. Is that maybe a reasonable way to look at it?

Honestly, it's all dependent on how the engineers do achieving milestones. So with no other information, I'd say it's 50-50 between third and fourth.

And is it pretty much just military? Or are you getting NRE for commercial applications in that line of revenue?

It's commercial driving it.

It's all commercial, not military, yes.

Okay. Great. And on the expenses, is this kind of the run rate now?

Yes, it's in that range. It's been running about $5 million a quarter.

Our next question comes from the line of Rajvindra Gill with Needham & Company.

This is Josh Buchalter in for Raji. Could you give us -- I think this might have been touched on, but can you give us an insight into gross margins? They've been pretty volatile. And how should we think about modeling that? I don't know if the last question was just on OpEx or gross margins.

Yes, the gross margins have been improving because as we articulated the strategy back last year, 2013, we're moving away from some of the lower-end consumer products to the higher margins. So if you look at it, industrial products are up. The wearable products are up. In the second half, we expect the military products to be up. So those are higher gross margins than maybe some of the legacy stuff that we said that we're going to move out of. So the gross margin should be improving. But ultimately, to get really significant gross margins, it's the volume because we obviously are a fixed cost structure. So you're talking about a few percentage points here and there, but there won't be significant improvements till next year when we get the volume to really pick up.

Yes, at the current situation, we expect wearable will continue to ramp up quickly in 2015.

Yes. All right. And then on wearables, could you maybe speak to some general trends you're seeing in the space and how Pupil displays being received? That's it for me.

Yes, I mean, I just -- obviously, I just came back from the Asia trip. It was actually a quite extended trip. I went to quite a few countries. And overall, the response is actually much better than even we anticipated. Looks like almost every company, electronic companies or smartphone companies, are organizing for wearable. And the reason is actually quite interesting. I did not bring the script today, but what is happening is that people now believe the smartphone -- although smartphones are very good, but they will probably begin to be located in the bag or the suitcase or the briefcase. And then many of the functions of smartphone will be broken up into wearables specifically for certain applications. And it's true for every generation of computers, mainframe to mini computers to PC to smartphone, which is really a small computer. They think functions are going to be breaking up. So this is a huge change, and every company is lining up. They think this is happening. It cannot be stopped. And they also recognize Kopin is well in the lead because we've been there for so long since military days, and we have products which are very differentiable. So I came back very excited about it. Everything seems to be lining up for us now.

Our next question comes from the line of Beth Lilly with GAMCO.

I wanted to just get a little more granularity into as you talk about the end of 2014 launching products, are we -- can you talk about kind of what that will look like in terms of trade shows? Will we start to see those at trade shows, or is this going to be end-of-the-year launching? I mean, give us some visibility into the pipeline.

The -- it's a good question. I think, of course, I want to make it clear that we do not make the final device product. Our customers do. We make component -- critical components, such as the optical engines, audio engines. So our plan is to launch this product. Certainly, you will see that in the CES show. And our customers, many of -- some of our customers will also launch their devices around that time. So I think it is going to be located towards the CES show, which is January next year. So we are talking about maybe 5 months away.

Okay. And then from there, will we start to see your revenues ramp up pretty quickly on the wearable side?

As Rich talked about, our wearable revenue already started ramping up, but I think you will see a much faster uptick in 2015 once the partners release.

Yes. Okay, and the other question I want to ask is in terms of your financial model, if we go out to 2016, 2017, is that when -- is that kind of what you're targeting to be breakeven period, or will you get there quicker?

We haven't given any guidance for '15 or '16 at this point in time.

We have no further questions in queue at this time. I would like to turn the floor back over to management for closing remarks.

Thank you, everyone, for joining us today. We look forward to speaking to you again in the near future. Thank you.