John Fan - Chairman and Chief Executive Officer Richard Sneider - Chief Financial Officer.

Matt Robison - Wunderlich Securities.

Good afternoon and welcome to Kopin Corporation's Fourth Quarter 2015 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 You may access an archived version of the call on Kopin’s website at www.kopin.com.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 C.C. Fan; and Chief Financial Officer, Mr.

Richard Sneider. Please go ahead, Mr. Sneider. .

Welcome everyone and thank you for joining us this afternoon. John will begin today's call with a discussion of our strategy, technology and markets. I will go through the 2015 fiscal fourth quarter and year end 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 Thursday, March 03, 2016, we will make some 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 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..

Good afternoon everyone and thank you for joining our call this afternoon. Let me start by saying that, we had a very successful 2015.

And exceeded both our technical and financial goals that we outlined at the beginning of 2015, on technology and product developments and made good progress and the results of development assets will demonstrate very successfully in 2016 CES in January.

In 2015, we reached agreements with two tier-1 companies in the enterprise and consumer markets bringing the total to five tier-1 companies offering products with Kopin size. During the year, we just started beginning shipping the asset for heavy enterprise applications which has been well received in Japan.

We also started initial shipments to a tier-1 customer for health and fitness and this product was introduced at CES this January. Adding these two companies to Recon not accountable with Intel, Motorola and Google who was again a 10% customer in 2015 for us. We actually have a industry-leading customer base on which to grow.

In the military, we were designing with the F-35 fighter jet helmet as a source of – supplier that shipment to ramp in 2016 and continue for many years. This helmet, a high performance VR helmets and in fact, we are supplying our displays to close to 100% works on all military avionic helmets in the world other than Russia and China.

We also had a solid year in demand for our Thermal Weapon Sights as this TWS program is transitioning to the FWS. Here F means Family of Weapon Sights. This is a good time to discuss the general state of AR and VR and to highlight our current strategy. We have been a strong believer that AR and VR market will be huge.

We also believe that ultimate wearables will be a asset since our brain, eyes, mouth; ears are all on our head. However, the big challenge is to develop a good useful headset especially for consumers. For military enterprise applications, this ergonomics, fashion requirements are more relax and the uses are much more clear.

We are extensively involved in training, and simulation military AI headsets. We are also extensively involved in the avionics AI headset as I mentioned before earlier. Believe me, those headsets are large, handy, and do not look anything something that you would like to wear.

In fact, most of them are treated to – computer and huge factories or line power sources. Let me continue to talk about military and enterprise world. In the military, this is a very important market for us which expect F-35 strikes higher production to really ramp in this year.

The F-35 is expected to have a life cycle over 10 years and this is a huge significant win for us with the revenues of $4 million and $5 million range per year. For the first couple of years ramping to about $10 million annually and over $100 million of revenues for us over its projected life cycle, just one program.

We are also competing for two other new pilots, the FWS-I and FWS-CS which are integrated Night Vision Systems. Kopin is well positioned to win both of those projects, because our success in the thermal weapon side. The US government have indicated, its plan to award the FWS-I in the early summer rewarding revenues starting in 2017.

The FWS-CS is expected to be awarded later this year with a two year development program followed by volume production. With the award one or these two programs to produce over $100 million for us over their projected life cycle. Loss of a thermal partnership application of Kopin content in enterprise smart headsets in this year.

In fact, another tier-1 company is going to introduce security system at the system and they decide and testing it now. We anticipate it will begin selling in the second half of this year. Now back to consumer. The consumer especially for low – consumers.

We must find a good entry point because hurdles are higher, much higher, which makes that why the consumer market has been slower to take off. We believe this new category or light weight consumer assets should be focused on narrow vertical markets and not on general consumer at this time. Two vertical markets are appeared to gain traction.

One is AR Smart Eyewear for health and [Indiscernible]. Currently, these smart eyewears are focused for cyclists. We are involved with all the top leading products for cyclists assets and with our Solo coming on December, our position will be even stronger.

The other vertical market for consumer is AR headsets and VR headsets for controlling – or connecting with phones. Currently, these headsets are focused on racing drones and we believe the market will broaden to other drone related activities. We expect the interest in drones will continue to increase and our low - will continue to grow.

Our customers for racing drones are projecting revenue growth in the range of 20% to 40% a year for the next few years. These two vertical segments have now gained some traction and over 100,000 headsets in each segment have been sold in the last couple of years and the market is growing.

So these are good examples for our markets for consumer headsets. We are delighted to stress again that our market share in these two vertical segments are close to 100%. Back to market size, the wearable, eventually is going to be very large and this is expected to be about $170 billion industry by 2020.

Just for our headsets, Goldman Sachs recently published a report they project a minimum of $25 billion VR and VR market by 2025. Calling it the next great computing platform, Goldman sees AR and VR have the opportunity to display market ranging from video to real state to education, to healthcare and engineering. It is the ideal opportunity for Kopin.

I would like to stress again that the CES this January, 15 Kopin enabled products were shown by our partners and of course, we have introduced our own Solo headset. Our solo design headsets leverage Kopin’s many years of experience and knowledge of headsets.

So largely for many years of working with our military we knew we have to make a system, especially for our consumer markets as attractive something a user would like – want to wear. They also have to be very light weight with long battery life, useful in bright sun light.

The unique writer community has really greeted the Solos very strongly at the CES. And they sign up on the most technologically advanced Smart Eyewear.

Solo allows and enables writers to maximize real-time data without compromising their writing, utilize the world’s smallest see through optical module, our innovative pupil optical module with high resolution near eye replication.

Solos was recently showcased at IDN Conference focused on use for analytics for spots and pigments and again, the response was very encouraging. A second tier announcement by Kopin at CES was the introduction of the Whisper audio chip.

Whisper chip enhance the performance of the all existing audio systems and speech recognition systems especially in very noisy environments.

The interest level at CES for our Whisper was overwhelming and I had many meetings with potential customers, which is important for now our Whisper technology and chip are useful for many applications not just for smart headsets and verticals.

This might be a key element to transform touch user interface to voice interface and believe this transformation is a must for – we are currently working with many developer systems with key customers and expect to begin shipping Whisper chips in the second half of this year.

We will also introduce a battery based on a revolutionary lithium ION technology that can really enhance the battery capacity which is essential feature for wearable headsets. This wearable technology has been developed in partnership with Hitachi Maxell in Japan. This is a new type of lithium ION battery.

It’s used – they use silicon instead of carbon in the anode. Consensus effect the potential performance enhancement is very exciting and revolutionary. Hitachi Maxell is currently going through qualification.

The timing of the launch of such a batter product will be determined by Hitachi Maxell’s progress and their goal is to qualify and start shipping in 2016. Perhaps, most important with all the new exciting opportunities for Kopin we will be very conservative with our cash. So we have the financial strength to fund our plans.

We ended the year with $21 million in cash and cash equivalents and early in this year, we collected additional, the final $15 million payment on a sales of our 35 product line.

So, Kopin is posed and ready for the acceleration of the wearable market with our leadership position in all the three key market segments, military, enterprise and now in consumer. We are very excited by the year ahead. We now – we could turn the call to Rich to discuss our 2015 results in greater detail. .

Thank you, John. Beginning with the results for the quarter, total revenues for the fourth quarter of 2015 were $4.6 million compared with $10.6 million for the fourth quarter of 2014. The decrease in quarter year-over-year was primarily driven by anticipated decline in sales of our products used in thermal weapon sights.

Cost of goods sold for the fourth quarter was 104% of product revenues compared with 69.1% for the fourth quarter of last year. The decline was due to the fact that military products have higher gross margins as compared to our other products and overall lower volumes resulted in under absorption of fixed cost.

R&D expenses in the fourth quarter of 2015 were $3.9 million compared to $5.7 million in the fourth quarter of 2014. The decline in R&D expense year-over-year was primarily driven by lower funded R&D expense as customers move into production phase.

SG&A expenses were $4 million for the fourth quarter of 2015, compared to $5 million in the fourth quarter of 2014. The decrease in the fourth quarter of 2015 as compared to the same quarter in 2014 was primarily due to a decrease in stock-based compensation expense and warranty costs.

Other income and expense was income of $895,000 for the fourth quarter of 2015 as compared with $600,000 for the fourth quarter of 2014. The fourth quarter of 2015 included approximately $1.2 million from the sale of an investment.

The fourth quarter of 2015 also includes approximately $600,000 of foreign currency losses as compared with approximately $300,000 of foreign currency gain in 2014.

Turning to the bottom-line, our net loss for the quarter was approximately $7 million or $0.11 per share, compared with a net loss of $5.3 million or $0.08 per share for the fourth quarter of 2014. Turning to results for the full year, total revenues for 2015 was $32.1 million, compared with $31.8 million for 2014.

Revenues from the sale of products for military applications declined from $14.3 million in 2014, $10.2 million in 2015, as a result of the anticipated decline in products in sales of our products for use in thermal weapon sights. Sales of our products for wearable applications increased from $6.2 million in 2014 to $12.3 million in 2015.

Cost of goods sold for 2015 was 76.7% of product revenues compared with 72.9% for 2014. The decline was due to the fact that military products have higher gross margins as compared with other products and again the under absorbed overhead in the fourth quarter. R&D expenses in 2015 was $17.6 million, compared with $20.7 million in 2014.

The decline in R&D expense year-over-year was primarily driven by lower funded R&D expense and again as I mentioned customers moved into production phase. SG&A expenses were $18.1 million for 2015 compared to $19.9 million in 2014.

The decrease in 2015 as compared to 2014 was primarily due to an increase in professional fees and stock-based compensation expenses. Other income expense was $10.5 million for 2015, as compared to $10,000 for 2014.

2015 included approximately $9.2 million from the gain of sales and investments, whereas 2014 include an impairment of an investment of $1.3 million. 2015 included approximately $400,000 of foreign currency gains as compared to approximately $100,000 of foreign currency gains in 2014.

Turning to the bottom-line, our net loss for 2015 was $14.7 million or $0.23 per share, compared with a net loss of $28.2 million or $0.45 per share for 2014. 10% customers for 2015 were Raytheon at 18% and Google at approximately 22%.

Fourth quarter and year end amounts of depreciation and stock compensation are attached to the tables of Q4 and year end press release. In the fourth quarter of 2015, we filed for 11 patents, we had 4 patents granted, bringing our total patent portfolio to over 300 patents and patent pending, that which have been awarded within the last three years.

Turning to 2016, we are not providing any guidance due to the lack of visibility and currently in any new developing market like wearable.

However, just to give you a sense of how we see the year developing we expect revenue to be back-end loaded as some of our partnerships John discussed ramp up during the year along with the sale of Solos and Whisper chips. We believe operating expenses will remain largely flat with 2015, although we expect movement within the line item.

As John mentioned, we concluded the year with approximately $80 million of cash from marketable securities and received the final $15 million payment from the sale of our 35 and KTC business in January of 2016. We have no long-term debt and we continue to be in a very strong cash and marketable security position to execute our strategy.

And with that, I will turn it back over to John. .

So, we – thank you very much, Rich. We are now ready for Q&A..

[Operator Instructions] Our first question is from Matt Robison of Wunderlich Securities. Please go ahead..

Okay, thanks for taking the question.

John, on the SiMax and Whisper, which one is more of a gating item for – which one is going to be in production first do you think?.

The question is – Whisper is actually ready for production in the summer, that part is basically done. The SiMax, it depends on the certification, as you know, leaking battery certification is because it’s wearable especially they are challenging. So, production that goes, so and that is expected to be done this year..

So, but that’s a critical – that’s in a critical path for Solos, isn’t it?.

Well, of course, Solos are planning to use that battery, but we will obviously have back up in that..

Okay..

To make sure that mission introduction is starting in this year..

Rich, I heard the explanation for the funded R&D decline, I think a level you haven’t seen some – I think 2013, is there – are the necessarily you have already the military projects like providing in that kind of revenue later this year?.

So, the FWS-I which was individual, we have been receiving some funding already and there will be some more next year. But that goes into production, low rate production, they call it LRIP in the second half of this year.

The FWS-C we expect the award – we are hoping the award in the second half of the year that will go through two years of development. So there will development funds associated with that for two years and then it will go to production. .

Do you have any more commercial activity in the pipeline that might boost that revenue?.

We have a number of commercial opportunities going on right now. But as John said, a lot of our technology development, the heavy lifting has been complete, so it’s really working through the customer. .

Yes, we have a very, very active designing activity right now..

Okay, and you have mentioned the F-35 $4.5 million a year, I didn’t catch when that would start?.

So, we would expect that over the next couple of years to be in the range of $4 million to $5 million, not $4.5 million, but $4 million to $5 million. And then it starts ramping up and by 2020, you are in excess of $10 million a year. .

I’m sorry I heard that wrong.

So, two years from now for it to get to the $4 million to $5 million level?.

No, no, we would expect $4 million to $5 million level this year and then next year ramping up a little bit more then another final year ramp and then by 2020 you are over $10 million a year. .

Okay and can you tell us what the operating cash flow and CapEx were during the fourth quarter?.

Operating cash flow, net cash provided by operating activities was a use of $6.8 million and CapEx was di minimus, it’s about $129,000. .

Now that – that level of operating cash slice is a bit more severe than you’ve had in quite a while.

Anything particularly noteworthy there?.

No, I mean, I think, obviously it’s reflective of the decline in the thermal weapon sight sales in the fourth quarter. So, the fourth quarter we burn more cash. We will be running at a rate of about $4 million to $5 million a quarter and the fourth quarter came in at to over $7 million, so, approximately $7 million.

So, and that was really just a decline in the sales. .

And so, to the bottoms-up on the interest and other income almost $900,000 that was – can you kind of breakdown that interest versus Forex and gain for the quarter?.

For the quarter, - let me tell you the – actually I have that in my script, I just put away, so I have that – let me get back to you in a second, Matt, I don’t know do you have any other questions..

I’ll let somebody else ask a question, I’ll come back. Thanks..

[Operator Instructions] And our next question is from Matt Robison from Wunderlich. Please go ahead..

First of all, John, you said it’s essentially ready now, but you said, you don’t expect that to be available, I guess, for another three months.

Is that right?.

Matt, which one you want to talk about, the Whisper?.

Yes..

The Whisper is a chip that’s being designing and people going to – will help prepare audio write it down using Whisper..

Okay, so the silicon is ready now, it’s now getting fully functional silicon now?.

Yes, it’s fully functional, so the final chip is ready..

Okay, you are just waiting for your customer volume and then the – at CES, it seemed like Solos was waiting for Whisper and/or SiMax and you are talking about back-up and to the battery. So….

And at CES, Whisper chip was not fully certified, it is now remaining well and then the battery offer – CES we were also waiting for the battery to be certified and that’s not certified yet. .

So, what’s holding up? If Whisper is ready, then you are waiting for the battery, that’s what you are waiting for Solos now?.

Well, Solos we have - obviously have all of the things that goes through, but even the battery we have a back up trying to fine, so we are….

Yes, it just seems like it was pretty close to being ready at the first of the year..

Yes, the Hitachi Maxwell guys which was into with that yet he was raising about the battery, but everything else, everything have – goes through certification..

Thanks, for giving the time, Rich?.

Yes, for the fourth quarter, other income was $895,000 composed of a $1.2 million gain from the sale of an investment. $600,000 foreign currency loss and the difference is interest income. .

Thanks a lot..

And if there are no further questions, I would like to turn it back over to management for any closing remarks..

Yes, we are very excited by our progress in 2015. The agreements we have reached with Tier-1 wearable customers around the globe are on track. Now our cash position is even better than we planned. We are now working very hard on production introductions and designing. These are out top objectives this year and I hope to talk to you guys soon. Thank you. .

Thank you. This concludes today's teleconference. You may disconnect your lines and have a wonderful evening..