Welcome everyone, 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 2019 results at a high level. John will conclude our prepared remarks. Then we'll be happy to take the questions. I would like to remind everyone that during today's call taking place on Tuesday, May 7th, 2019, 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, 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, are not limited to, demand for our products, operating results of our subsidiaries, market conditions, 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. With that, I'll turn it over to John.
Thank you, Richard. Thank you for joining us this morning to review our first quarter results. It has been a good start to 2019. Our sales to enterprise customers were solid. We were pleased with how the year is shaping up in December. As the momentum reinforces, the enterprises are fully embracing the value of augmented reality, AR. A very important development for Kopin is that we have received a large follow-up order from the tier 1 company we mentioned last quarter, which was an early mover for AR. You may remember that we have shipped 5,000 displays to that company in 2018. We have been waiting for them to announce their next generation AR smart glasses targeted to enterprises. While this announcement is still pending, we received an additional, significantly larger purchase order. We just began shipping through that order.
Companies like Boeing, GE, DHL, and Volkswagen all see the value of headsets provided to their customer or to their workers in places like factories, plants, and warehouses. As their sole display supplier, we look for these key customer to help drive our enterprise business. Their sales growth goes beyond these customer, as we're receiving increasing orders and forecasts for many of our other enterprise partners. AR's ability to boost productivity, reduce costs, and improve working conditions is driving business for Kopin partners such as RealWear and Vuzix. Because of this increasing demand forecasts, we expect to triple the number of displays we ship to enterprise customer in 2019. We're optimistic the industry trends will allow the consumer market to match the enterprise market in the coming years. As we have previously discussed, the VR market could grow rapidly with 5G.
Micro OLED displays will be display of choice for VR because of their superior performance. For VR and AR, micro OLED display will also be very desirable if these OLED displays can achieve very high brightness. For the current 1,000 nits to about 4,000-5,000 nits. This increase will enable innovative optical designs. For example, the VR headset can be made much thinner. Recently, significant new technical approaches have been identified. We believe such a large increase could be obtained in production quantities sometime next year. In fact, even higher brightness, up to maybe 8,000-10,000 nits, might also eventually be possible in micro OLED displays. Today, one of the major challenges for micro OLED display has been the lack of OLED deposition factories for volume production.
This will change since the $150 million manufacturing facility being built by our joint venture partner, BOE, is tracking to plan. Their initial results are encouraging. We believe the BOE factory facility and other factories, which are also coming online, will help drive interest in developing consumer applications and systems by creating a cost-effective supply chain that can take advantage of the promise of 5G. In my recent trips to China and Asia, I saw increased investment in AR/VR. We're optimistic this view, especially around consumer AR and VR, will spread to the U.S. in the coming years. Our own consumer headset, Solos for cyclists, was perhaps a bit ahead of schedule and ahead of the market. While we continue to work to increase the distribution channel, we wrote down some of the inventories in Q1, specifically the older generation products.
Our military business, again, met plan in the first quarter, primarily due to shipments of displays embedded in the helmets attached to the F-35 fighter jets. I know I have discussed the F-35 program various times before. It's not only a key element of our current military business, it is a good example of a successful military program and how it develops. We moved through the early design cycles to meet the very demanding specifications in the F-35. We worked through the low rate initial production stage. We now went on to volume production, where we are today. The global demand for the F-35 fighter jet will keep on increasing. We look at this program as one of our core military business, and we expect to be shipping into this program for years to come.
We're working through the same process with the Family of Weapon Sights program. As discussed, the FWS-I program is now in production and shipping. The FWS-CS program in the mid-stage of development. We expect it to move into production in 2020. Our newest program is developing display systems for armored vehicles. This is a brand-new design win. We will reach full production in 18 months or so. As we continue to pursue other military programs, our experience in working with the Defense Department is invaluable and should benefit Kopin as the defense budgets increase. In addition, our company's long experience with defense system companies, our excellent track record with them is also a critical factor in our leadership in this industry. For example, in two consecutive years, we received top platinum award from Collins Aerospace, who makes the F-35 helmets.
The platinum awards are only awarded to less than 2% of their suppliers. Our consistent delivery performance provide confidence to our customers looking for a reliable supplier of innovative and recognized display products. While we expand our military footprint and benefit from the acceleration of the enterprise market, especially with Kopin's position as a leading supplier of displays to this market, we're realistic that our business model needs to match the current state of the market. In the first quarter, we commenced a strategic realignment of the company. This included steps to review all our operations and to consolidate programs and reduce costs wherever possible. After years of development and investment, most of our programs are now ready for commercialization. We're being very thoughtful and deliberate as we decide which programs will move to monetization. In the first quarter, we took some financial charges as part of this strategy.
We'll continue to review elements of our operating structure over the coming months and expect to make additional steps, including further reductions to our expense structure throughout this year. We also raised approximately $8 million net in Q to strengthen our balance sheet and provide additional financial flexibility as we undertake this review of our business. In summary, we are off to a very good start of the year. We're growing our core business by taking careful steps in reviewing our operations and monetizing our technology and products so as to successfully position Kopin for the long term. Now I turn the call to Rich.
Thank you, John. For the quarter, total revenues for the first quarter of 2019 were $5.5 million compared with $5.7 million for the first quarter of 2018. While revenues for Q1 were essentially flat, the makeup of revenue changed year-over-year. In the first quarter of 2018, our subsidiary, NVIS, contributed approximately $1 million of revenues for programs that were ending. In the first quarter of 2019, industrial wearable revenues and military R&D revenues increased approximately $1 million. I would also remind listeners that under ASC 606 revenue standards, revenue recognition for our military programs, specifically FWS and F-35, is not tied to shipments, but a model that includes the levels of WIP and finished goods inventory. Cost of goods sold for the first quarter of 2019 was $5.9 million, or 127% of product revenues, compared with $4.1 million, or 81%, for the first quarter of last year.
Included in cost of product revenues for Q1 2019 is $1.2 million of write-off of excess inventory. Included in the write-off, as John noted, was a charge for older versions of Solos. R&D expense in the first quarter of 2019 was $5 million, compared with $4.5 million in the first quarter of 2018. Included in R&D for the quarter ended March 30th, 2019, is approximately $500,000 of materials associated with development programs, which are being curtailed as part of the program John discussed to consolidate programs. SG&A expenses were $6.3 million in the first quarter of 2019, compared to $6.9 million in the first quarter of 2018, primarily due to a decrease in compensation expense, including stock-based compensation and amortization of intangible assets. Other income expense was an expense of approximately $300,000 in the first quarter of 2019, compared with $4.3 million for the first quarter of 2018.
During the three months ended March 30, 2019, and March 31, 2018, we recorded about $200,000 of foreign currency gains. Other income for the period in 2018 reflects a gain of $2.9 million from the transfer of intellectual property in exchange for equity interest in an investment, along with $1 million of insurance proceeds. Turning to the bottom line, our net loss attributable to controlling interest for the quarter was approximately $11.3 million, or $0.15 per share, compared with a net loss of $5.5 million, or $0.08 per share for the first quarter of 2018. First quarter amounts for depreciation stock compensation expense are attached to a table to the Q1 press release. As previously announced during the quarter, we completed the sale of approximately 8 million shares of our stock for approximately $8.8 million of gross proceeds.
Our weighted average shares for the balance of the year will be approximately 83 million. In addition, in Q1 2019, we adopted ASC 842, which is the new lease recognition standard. It resulted in lease assets and related liabilities being put on the balance sheet, and there was a de minimis P&L impact. The amounts discussed above are based on our current estimates, and listeners should review our Form 10-K for the first quarter of 2019 for any possible changes or additional disclosures. With that, we'll take questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Glenn Mattson with Ladenburg Thalmann. Please proceed with your question.
Hi. Good morning. Thanks for taking the questions. Curious, John, good news on the follow-on order from the tier 1. I guess perhaps we would've thought there might've been an announcement from that tier 1 at this point as far as making an announcement on the product. I just wonder, do you have any sense of the timing of when they're going to release this? Just kind of, can you give us a better idea of the order flow as it progresses throughout the year?
Good morning, Glenn. We're obviously also anxious for the announcement. We do not know exactly why the announcement has been delayed. We certainly do not impact us. We certainly got this very significantly large order, and we actually now expect another order coming in. It's not impacting us. I still believe the announcement will be quite imminent. We just hold our horses and wait.
Okay, will it be a steady kind of revenue rec over the course of the year on these orders, or is there kind of a back half surge, or how does that play into the model?
Well, I obviously cannot really describe in details, but it will be a more steady order. It is a RealWear production.
Okay, great.
I may be able to make a comment. I think that certainly our customer is very optimistic about their response from the customers.
Okay, great. Rich, could you give us an idea of the spend reduction as it plays out the rest of the year, given the program you put in place this quarter?
Last year our OpEx was between $11 million and $12 million per quarter. We would expect that to continue to drop each quarter throughout the rest of the year.
Okay, great. I'll get back in the queue. Thanks, guys.
Thank you. Our next question comes from the line of Jeff Bernstein with Cowen. Please proceed with your question.
Hi. Good morning, guys. Just on the AR orders, I think you had talked about 100,000 units this year. Are we still on track for that? Is there upside to that, downside to that?
Right now, as John said in his prepared remarks, last year we did around 30,000 units, and we expect that to triple. That's the 90,000, 100,000 number that you just referenced. As John said in his prepared remarks, the forecasts from our customers have been very bullish. We've seen some of our customers like RealWear, have had a number of significant announcements with guys like Shell, Colgate-Palmolive, et cetera. As John just said, the Tier 1 customer has been sampling their product for a period of time, and the response has been very strong. We're hoping our numbers are conservative.
Okay, great. The Tier 1 customer, are they currently making an AR unit with two of your displays, or is there more than one model, and one has two of your displays in it?
I think I can only answer it this way. The customer we're talking about using one of our display in each system.
Got you. Okay. I'm just wondering, the Golden-i Infinity design, has that ever gotten any traction, or what are the plans for that?
As we've discussed with still sampling it and the initial response from some of the customers we're talking to intimately are very positive. The whole overall enterprise market is getting pretty hot. Everybody now understands the value of the systems to them. It's no longer a curiosity. It is a booming business.
Got you. Okay, great. You mentioned you wrote down inventory of old design Solos, implying that there's a new design of Solos. What's different there, et cetera?
Joshua, that's a very good question. You're so alert. Unfortunately, we cannot reveal the new design which obviously, we're very excited about.
Okay. That's a new product that's coming.
It's interesting product, yeah.
Okay. I believe on the military side, you guys were engaged with Elbit on a multi-mission helmet for various aircraft. Any progress there? What can you tell us about that?
Yeah, that's the common helmet program. We're in development with Elbit. It's on track as far as we know.
Yeah, I think to add, we may have already announced when the design wins, but yeah, we're doing well with the program right now. Yeah.
Okay. Lastly, you talked about some new technology to be applied in the OLED space. Did you say you thought that you could be delivering that mid next year, or is that mid this year?
Next year, in production quantities. I think the key matter is how do you take those very advanced technology into a production kind of readiness. It is a very long way, but we are very optimistic that sometime next year, those very innovative design can be put into production.
Is that Kopin technology, or is that a new material like gallium nitride or something? Give us a little more information on that.
It's something that I think we will try to bring into production. My mental feeling is, like everything else, if you always rely on the previous one, the technology is actually making real rapid improvement right now. We shall see.
Is that your-
We're certainly a big part of it. Yeah. We're a big part of it.
You're a big part of it. Okay. Lastly, you had talked about a OLED design for a Tier 1 for BOE. How has that progressed?
Could you repeat the question, Joshua? I just want to make sure that I got the right question.
Yeah. At a conference recently, you talked about having an OLED design from a Tier 1 to be made at the BOE factory. I just wanted to get an update on that.
Yeah. Okay. That was a design. We have a program with a Tier 1 consumer product company. That's going on track. That's all I can comment on it. They are, I would say, they're a secretive program, yeah.
Okay, great. Thanks so much.
Thank you. Our next question comes from the line of Matthew Galinko with National Securities. Please proceed with your question.
Hey, good morning. Thanks for taking my question. I guess, firstly, did the half a million chunk of R&D expense that relates to curtail programs, is that a one-time charge or is that something that's going to be recurring at all?
The size and the amount is unusual for us. I'm always reluctant saying it's a one-time charge. We're always evaluating programs on a continuous basis and inventory levels. Every quarter there's some adjustment for obsolete inventory of some sort. In the R&D sector for that size, it's a very unusual amount and not something that we would expect to typically reoccur.
Okay, fair enough. On the potential refresh of your consumer product, are there going to be any changes to how you bring the product to market or any potential for increased investment in your go-to-market spend on that over the course of 2019 as you're going through this cost realignment process?
Yeah. I'll make a comment there, I think, Matt, as I said in my remarks earlier, we're looking at all aspects of our business and deciding where we will consolidate our programs and a different commercialization strategy right now. We really consider a whole bunch of different strategies, and at this point, I really don't think we can comment any further today.
Got it. Okay. Maybe just one more. You highlighted, and I think you have in the past, you've talked about 5G as kind of an enabler for VR. Can you talk about that in maybe a little bit more depth and maybe particularly relating it to, you're talking about bringing kind of OLED volumes up, maybe 2020 timeframe to sort of enable that market from an improved supply chain perspective. How does 5G come in and enable it, and what do you see the timeframe for that?
Well, very good question, Matt. I think we had a special workshop actually, discussions at the CES meeting a few months ago on 5G. 5G actually allows, as you know, 5G can go as much as 10 times faster than 4G. It really allows mobile, mobility. Allows everything that you could do on desktop or kind of a stationary environment will be extremely mobile. That's where really the personal wearable becomes very strong. 5G, in some way, also can allow you to have extremely fast streaming, so all the sports, TV, and other events can be streamed to you at a moment's notice, as well as we all know, driverless cars and everything. They will be creating business that you and I probably cannot dream about today.
Regardless, what it is, because it's five times faster wireless, it is more mobile, and that's where more wearable. The key matter is, what do you really need to do it? I think the wearable case, one key thing is voice is going to be important and so is display. A small micro display is very critical, and Kopin is very strong in both.
Got it. Thank you.
Thank you. Our next question comes from the line of Patrick Metcalf with NewBridge Securities. Please proceed with your question.
Hey, good morning, guys.
Morning.
Good morning.
Good morning.
Okay, this is the first I heard of a new Solos coming out. Is the new Solos going to be more specific to the cycling market, or is it going to be broader to the consumer market or to the enterprise market? Can you give us a little detail on how you're going to go about that?
We really can't describe too much about it as the plan is being formulated. It is more tailored towards general consumer market instead of cyclists.
Okay, great. Being that you're cutting costs drastically, I would assume that you're going to go to market maybe with a different strategy than you did Solos One?
It is fair to assume that.
Okay, great. John, I got the chance to see you host the MIT Media Lab in January to show up, and you had a company by the name of Google presenting, that actually highlighted customers like Boeing, GE, DHL on the screen. They were the first one to bring out a device. The follow-on order that you received, is it much bigger than the 5,000 units you received in Q3 of last year?
Yes.
Okay, great. I saw this past week or couple of weeks, Qualcomm come out with a PR that they got 10,000 units of RealWear's units, HMT-1, ordered for them. At that point in time, it just struck me as very odd because when I listen to you guys talk about your Whisper Chip technology, you say you win all the bake-offs against Qualcomm, Maxim, and others. However, these purchasing managers never get fired going with Qualcomm. If Qualcomm is supporting RealWear's HMT-1, which I really consider the core competency of the HMT-1 is Whisper, because it works at decibels that other voice technologies do not work at. To me, Qualcomm supporting Whisper technology, can you give me some feedback on that?
I mean, Qualcomm makes processors go to HMT-1. We always use a Qualcomm processor in our design. Remember that RealWear license our headset. They license more than just Whisper. They will license our display module. They license the whole design of the HMT-1 was our design. We license it to them, we get royalties on it. It has a Qualcomm chip inside from day one.
Well, my point is, the Whisper chip is more of a software type of product than a hardware product. I'm thinking you had a great relationship with Qualcomm with the HBT design in there, in the early 2000s, late '90s. I'm thinking Qualcomm is looking at the Whisper chip, possibly to license that. Is that a possibility that someone like Qualcomm could license Whisper? Is that far-fetched, like, it doesn't match?
Well, I think you asked a generic question about, is the Whisper technology, which is, of course, technology. It can go into a chip, it can go to a processor, it can be licensed, it could be further developed into other products. Our answer is it's definitely true in all the aspects of it. We're looking at all aspects of it. It is a very wonderful technology. I think people will appreciate more and more of it as voice become more and more important.
Okay, great. Have you made any progress on getting someone to license that? Do you have any list of potential licensees coming forward, or is this something that's going to be years away?
I don't know whether we have patience for years away, but we obviously are working on many aspects of it. As I said earlier, we'll consider a whole bunch of different strategy at this point, and I cannot comment any further comment on this.
Okay.
Just stay tuned.
Okay. Well, my last question is surrounding RealWear. Okay. I noticed RealWear has applied for about 11 patents, all software related, actually more artificial intelligence, AI, intended. I know we have a user interface that we licensed to RealWear. If they start applying more layers of software on that user interface, like maybe make it a software platform where they can license it out to other players, okay, even a Qualcomm, do we still get royalties if that was to happen, like a scenario like that was to happen?
Well, that part really goes to IP now. Of course, how much the IP is embedded in that previous IP. That part, we will leave with the IP lawyers. Suffice to say, we have some very fundamental patents.
Okay, great. Lastly, RealWear licenses Golden-i. Why not have RealWear license Solos for the enterprise? Very cool design. You can dummy it up, where it could be used in the outdoor type of environment. The Golden-i Infinity, why not license that to them as well and help boost our revenues very quickly with less spend? Is that a possibility?
Again, it boils down to what we just said. We're looking at all aspects of our strategy at this point. Yeah.
Okay. Thank you. I hope we see something sooner than later.
Okay. Thank you.
Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.
Well, thank you for joining us this morning. I also want to remind everybody we have an annual meeting coming up on May 21st, and hope to see you guys at the meeting. As well as please vote your votes for us. Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.