Good day, and welcome to the Kopin Corporation First Quarter 2021 Earnings Call. Today’s conference is being recorded. At this time, I would turn the conference over to Mr. 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 about our strategy, technology and market. I will then go to the first quarter results in a high level. John will conclude our prepared remarks, and then we’ll be happy to take your questions. I’d like to remind everyone that during today’s call taking place on Tuesday, May 4, 2021, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on 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 these forward-looking statements made during today’s call. And with that, I will turn the call over to John.

Thank you, Richard. Good morning and thank you for joining us to discuss our first quarter results. I want to start by expressing our wish that you and your families continue to stay well and safe, as we hopefully are closer to the end of this awful pandemic. We are pleased with our strong start to the year. The second continued increasing demand for our customers across multiple segments. Revenue increased approximately 48% in the first quarter of 2021 as compared to the first quarter of 2020 with growth led by our defense production program, and our funded development programs. We now have more than 10 programs in various stages of development, but some of them may not contribute significantly to product revenue for the next year or two. This is by far the strongest defense program portfolio in Kopin’s history. They set the stage well for the coming years. We continue to aggressively pursue additional opportunities in the defense market and expect to make some announcements regarding these opportunities in the coming months. Our R&D activities have been increasing in the past several quarters, reflecting the significant opportunities we see in the augmented and virtual reality space. In particular, our customer-funded R&D revenues jumped more than 80% year-over-year, primarily because of the accelerating interest in our next generation of displays and display technology activities. Additionally, we continue to see strength in our enterprise market segments with strong volume growth in enterprise AR and 3D automatic optical inspection systems, which are recovering nicely following a slowdown in the early days of pandemic. The growth in these areas was offset by a decrease in the public safety sector as municipal government budgets were affected by the pandemic. Our defense revenues in the first quarter of 2021 increase by 42% compared to…

Thank you, John. Turning to our financial results. Total revenues for the first quarter ended March 27, 2021 were $11.7 million compared with $7.9 million for the first quarter of March 28, 2020 a 48% increase year-over-year. Cost of products sold for the first quarter ended March 27, 2021 was $6.4 million, compared with $5.6 million for the first quarter ended March 28, 2020. Gross margin for the first quarter of 2021 was 15% compared with 5% for the first quarter 2020. The increase in gross margin for the three months ended March 27, 2021. As compared to three months, ended March 28, 2020 was primarily due to improved manufacturing efficiencies driven by higher volumes. Research and Development expenses for the first quarter of 2021 were $3.6 million, compared with $2.3 million for the first quarter of 2020, a 52% increase year-over-year. R&D expenses for three months ended March 27, 2020 increased as compared to three months ended March 28, 2020. Primarily due to an increased spending on U.S. funded development programs and internal R&D expenses for over development. Selling, general and administrative expenses were $5.9 million for the first quarter of 2021 compared with $3.4 million for the first quarter of 2020. SG&A expenses for the three months ended March 27, 2021 at approximately $2.4 million of stock-based compensation costs as compared to $89,000 for the same period in 2020. Excluding the non-cash stock based compensation costs SG&A expenses were $3.5 million for the first quarter of 2021 compared with $3.3 million for the first quarter of 2020, a 5% increase year-over-year. Other income expense was income of approximately $37,000 for the first quarter 2021 compared with $87,000 of expense for the first quarter of 2020. During the three months ended March 28, 2021, we recorded $28,000 of foreign…

Thank you. [Operator Instructions] So we will now take our first question from Glenn Mattson from Ladenburg Thalmann. Please go ahead.

Hi, thanks for taking the question and congrats on the great results. So first question the two areas about performance versus my model we’re in the industrial side and the R&D, can you guys give a little more colors that was the industrial bounce back in the fire and safety stuff? Or was it more of the RealWear type end user? And then on the R&D front, I’m curious, is that all government related or some of that – is there any commercial or consumer related R&D revenue?

So mostly, with the industrial headsets folks like RealWear were the strength in the industrial segment as well, including our 3D AOL was very strong in the first quarter. And as far as R&D, the majority of it is defense related, but there is some commercial consumer R&D and that also.

Okay, great, thanks. On the defense side, you’ve been talked about for a while 10 programs in development. So, and I think I’m not sure if you reiterated it this quarter or not. But in the past you said you expect one of those to kind of contribute, initial production volumes, but contribute meaningfully towards the second half. Is that still the case? And when – have you won that yet? Or what would you announce that when you win it or you’re not allowed to or just some thoughts about how that news flow is going to play out over the course of the year?

Yes, so we would actually expect right now our estimate is about three programs in the second half of the year to go into what’s called LRIP, low rate initial production and start providing revenues. It is low rate initial production, and then it would really ramp up in 2022. But our programs are on schedule, as John indicated in his prepared remarks.

Hey, Glenn, we will announce when the time comes and our customer [ph] announce them, so things are going pretty well.

Great. Thanks, John. So moving on to the AR/VR stuff, John, you talked about it being once in a lifetime opportunity. I mean, Kopin has been a part of other opportunities like that in the past, I’m thinking about, like, digital cameras and displays – would you categorize this, as similar to that kind of a situation, maybe even on a scale larger, just based on this versus what you’ve seen through the Kopin’s past?

Very good question, Glenn. I mean, I’ve been preparing this trilogy webinar. And as I prepare for, and I was to say that the opportunity is actually bigger than initially thought, I knew is going to be a good opportunity. Now, I’m almost thinking it could be turned out to be bigger than even a cell phone business. So it could be a $1 trillion business in 15 years. Well, I will talk about that. The first – the second and third, especially the third one where talking about the future, which allowed to speculate, that’s going to be very interesting seminar. I remember that the last seminar we have about 30 minutes of Q&A. It was very active, a lot of people ask questions, and where to cut off because of time’s up. So, we will continue to have very active Q&A session after that webinar. And I think the third one will maybe less predominant to when our Q&A.

Right, Great, thanks. We look forward to that, for sure. And the last question for me, just as on the chip supply side, you’ve said that you guys feel pretty comfortable about the pre orders that you’ve made and things like that, and then you don’t – didn’t have any effects in Q1. But can you just give us a better sense of just the – how concerned investors should be if at all about potential disruptions in supply?

Well, the reality is, we saw an article by the CEO of Intel, and you’re like, what the auto industry is experiencing, you just need one chip missing, and the whole product doesn’t chip. Now, we’re not in that type of situation. We have multiple products. But it is pretty dynamic, and we always think is that there’s some panic in the market. And people are over buying this is somewhat like we saw, frankly, in the tech bubble, where people thought it was going be shortages, and they started stuffing their classes with every chip they could get. And of course, we see people taking the opportunity to raise prices, there’s no doubt about that. But so far, we haven’t had any of our suppliers, say, hey, listen, this is a real big problem. So, we’re monitoring literally on a daily basis. And we’re trying to get into our sub – our vendors to make sure that they’re on top of their suppliers as much as we can.

Okay, great. Congrats again, on the results. I’ll pass it on.

We will now take our next question from Kevin Dede from H.C. Wainwright. Please go ahead.

Good morning gentlemen. Thanks for taking my question. John, could you just talk a little bit more about the Canadian near-to-eye diving display, which display are using there? Is there an extra light source? This may be some more pardon upon color on that?

Yes. Kevin yes, using our micro LCD display and using our special backlight that allows them to see very well. So this is a module that we’ve been providing to other AI applications. So yes, so this one – is just second thing, you obviously has a bag in the water and you have this special teller modules, but they’re doing well and I think the product just came out in the market with that the response is very good. I don’t do diving, so I’ve never tried myself.

Okay. I can’t imagine there’s a huge market for it. But I was just hoping that you could get maybe give us a little more insight. How would you say it compares to the Scott helmet that firefighters use?

As a Scott helmet allow you to see that Scott helmet is not so the different, it has different sensor, the Scott helmet is with different sensors, all those things are not something that you can sell millions per year. Okay. That’s why I say, at the end of the day, you the Holy Grail is consumer base. So, you have to go through defense, and you had to go through enterprise to learn what’s needed, is the biggest explanation from handheld to hands free, so were they happy with opportunity.

Well, yes, no, that’s, sort of the way I was looking at it and how – I mean, what are the features that you see coming from this development and the using of the micro LCD display, as applicable in the consumer market?

Yes. You actually present other [ph] topic talk for next week, which I’m giving the seminar to really look at what’s going on, when you move around a handheld to hands free. A lot of components developed for their handheld, for the cell phones are already there, they usually use all the components they already developed on the cell phone, the problem is that display, you really look at it, because it displays the display to be. And in the early days afterwards to the whole display on your hand, the customer will never accept that in the top a new day, even 30 years ago, when they find that to be the safe model display. For displays right now, you still have that special optic magnifiers especially housing, to take care of the water, to care of the particles, together anything had to be read what our defense business that has a lot of things, but can’t ask it to me, but can’t to be play, what kind of recognize, how things you need so can go into the fire. You can go to the wall or these things we learn. So, I think people not understand this is really the microdisplay module they had to rephrase that has to be have their cellphones is a biggest challenge and we are leading it these areas starting three years ago.

Okay. All right. So granted your discussion and your answer for Glenn’s questions pointed to consumer development in AR/VR, can you be more specific? How are you taking what you’ve done here for the Scott helmet or you’ve done for the diving helmet and what specific kinds of R&D are you doing to develop the consumer side?

Yes. In the consumer side, I think first of all, consumer as we know, I have – I’m a big preacher of the fan side rules. The rule number one is, we have to be human for the second technology. So major things of the human is just put on the [indiscernible] if you had to do by natural, if they small, thin, lightweight, fashionable and so the consumer introduction for reality high glasses is best. And I will talk about that next week. What had the special high class has to come in as consumer and go such classes are coming up. And then you will be radiant available in the next few months ago. And it will be every way, the next 12 months. And after that, you will – you were going to more and more customer applications. So, how is the consumer application starting right now in the few months ago, and it’s going to be there then. So we’ll talk about that, I choose that, I don’t want to give that. Just comes down there [indiscernible].

Okay, John, appreciate that. And thank you for the invitation. And Rich before I let you go, what was the official share count at the end of the quarter and not the average, but the official full payment?

I said, I don’t have that at the top of my head. Wasn’t that number was – it’s pretty close to the average.

Oh, okay. Thank you. Thank you, gentlemen. That’s all my questions.

Yes. We didn’t have a lot of stock activity in the quarter other than what we saw. Yes.

Yes. So, I write, I guess if it’s closed and it was really close to the early part of the quarter, I guess I just have to go look at the date. When’s the queue come out?

Thursday.

Thursday. All right. Thank you, gentlemen.

Thank you.

[Operator Instructions] We’ll now take our next question from Craig Rose from Axiom Asset Management. Please go ahead.

Hello, John.

Hello.

From my point of view, there’s no shortage of R&D dollars spent on products revolving around AR and VR. So when I sued, it’s great that your R&D is up, but the balance is in defense. Where do you see R&D dollars in the future? How high could that go considering everyone’s trying to get where you think the market’s going to go?

Yes. Thank you for the question. The biggest challenge to get into a wearable on the head is as mentioned before is the display and optical system. How do you get good display and optical system on the head? And the display had to be bit tiny, much smarter, much higher resolution can read this to display you have use on the cellphone, and it will not be the same technology is still part of going to be OLED, but not on glass its only on silicon. And now it is quite very clearly in the second display session why he had to be on silicon. So anyway, the biggest research mainly now and all over the world right now is searching for how do you display every pace the touch screen on the head or some kind of display he had to be a microdisplay. They had this advanced special optics, the optics turned out to be a rare Ninja challenge [ph] as Rich just mentioned. We actually not just focus on display. We spent quite a lot of activities now on the optics. We found that our customers, we cannot use any microdisplays and that optics idea, the optics had to magnify that a thousand times, then thousand times. And yet I could keep units very sharp and you had to be very lightweight and very thin. Now, I think maybe it’s system you see or even the Oculus, I think the big wonderful system Oculusthe most recent was the vapor system they still too big and too thick and too heavy. And I would talk about the next week on the Oculussystem. I would dissect quite a few systems in the market right now and keep the pros and cons and I can paint away for the next step.

Okay. If you had to list the challenges in order, it would be optics form factor than the screen?

Screen number one, screen is because it’s really, really high. The number two and it is the whole packaging. How do you assemble it? It actually one thing people don’t know, you’re magnifying 10,000 times. So your housing is not carefully taken look particle vendor on the display. Then it looks like the bolder to you, because like defense activities, we did recognize that being a result of problems and no conical can come out during operation of that assembly. There few people know about it, including even making it less our customer. So, nowadays they just say, please stand up the whole assembly then has the optics chances display and say that’s the housing assembly. And that’s why we’re so many defense industry, they didn’t want to touch it anymore. And I can consumer people do not kind understanding yet, enterprise people know, and I won’t go into detail, almost all enterprise our companies customers have the whole assembly.

Are you at liberty to discuss how many consumer product developers you’re working with now in R&D and maybe the lifecycle of such R&D with those claims?

I think it’s safe to say that, we are or have worked with all the major Silicon Valley guys that are on everybody’s tongue. I mean I think you have to be honest, I’m sure they’re working with everybody else too. This is a big race it’s going to be a huge market. So we have interactions with all of them at this point.

Okay. Thank you very much, guys.

Thank you.

And it appears, there are no further questions at this time. I will pass the call back over to you for any additional or closing remarks.

Thank you for joining us this morning. I would like to remind everyone that we’ll be having our Annual Meeting on May 26, 2021. We should be receiving the proxy vote soon. So please hold. And we are able to attend our Annual Meeting. After the Annual Meeting and noon time, I would give that our trilogy webinar. Thank you.

This concludes today’s call. Thank you for your participation. You may now disconnect.