Greetings, welcome to Kopin Corporation second quarter earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Richard Sneider, CFO. Thank you.
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 second quarter 2018 results at a high level. John will conclude our prepared remarks, we'll be happy to take the questions. I would like to remind everyone that during today's call, taking place on Monday, August sixth, 2018, 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 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, 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. With that, I'll turn the call over to John.
Thank you for joining us this morning to review our continued progress as we maintain our leadership position in providing display and optics to the companies driving the adoption of AR and VR, especially across military, enterprise, and industrial applications. On the consumer side, we're driving the growth ourselves with the commercialization of Solos glasses this quarter. In this lane, Solos, our smart glasses for fitness, became available for purchase on our website. As we have discussed, this new generation of Solos includes the many feedback that we received from users who participated in our Kickstarter campaign last year, as well as from U.S. Olympic cyclists who partnered with us. With the new feature excuse me, incorporated in these Solos, it has been described as the most advanced AR smart glasses available for sports and fitness. Solos offer many unique capabilities that appeal to athletes who cycle or run.
The ability to receive critical performance information on a display that makes it look like the data is floating in front of them. A group communication feature, they can communicate with friends and teammates on group rides or runs. The ability to listen to music without the distraction of headphones, utilizing our innovative audio projection speakers embedded in the Solos. Kopin Pupil display modules and Whisper voice extraction technology make this all possible. Currently, Solos is available on our website, solos-wearables.com. We're also taking steps to establish distribution channels and have entered into agreements with a number of specialized retailers, such as Backcountry, which is a widely-known online fitness retailer. We are also working with b8ta, a new concept in retailing where customers can try and purchase new technology products. Solos will be available in selected locations in b8ta locations.
We're also raising visibility for Solos by partnering with athletes groups. In addition to USA Cycling, we recently announced that Solos is the official smart glasses partner of Ironman, which hosts endurance sports events around the globe. We continue to identify other organizations that can appreciate the unique capabilities of Solos and can help us grow visibility and demand. In the second quarter, we also introduced our second revolutionary product, the Golden-i Infinity, targeted for industrial workers. Golden-i Infinity Smart Screen is the first wearable device that supports Android and Windows 10-based computer solutions. Specifically designed to leverage off the investments already made by large enterprise industrial corporations. Golden-i Infinity added a smart head-mounted display and hands-free voice control to smartphones and mini PCs for improved workers' productivity.
Golden-i Infinity combines Kopin's industry-leading display and Whisper voice extraction technologies to provide a smart screen that's easily controlled by head gesture and voice, even under very noisy working environments. Golden-i Infinity does not require any touch, tapping, or swiping. User simply controlled by voice. Kopin's innovative patent-pending user interface software enables Golden-i Infinity to work with existing applications of host devices right out of the box. No need to create product-specific software. The Golden-i Infinity connects to a worker's smartphone or mini PC via a cable to make the headset lighter and less costly. We have very strong interest for many large industrial corporations, especially in the manufacturing and repair segments. Golden-i Infinity is expected to begin pilot tests in September with Fortune 500 companies and [value- added reseller channels]. And we expect sales starting in the first quarter of 2019.
Similar to the past few quarters, our military business represented the majority of our current revenues. We're encouraged by the recent joint announcement by the Department of Defense and Lockheed Martin about a new agreement for 141 F-35 fighter jets. With Kopin as the sole source providing displays to pilot helmet, the F-35 is a $100 million-plus revenue opportunity for Kopin over multiple years. During this quarter, we became fully qualified for FWS-I program. This is quite a challenging engineering accomplishment. We are manufacturing a viewing assembly for thermal imaging rifle sight that clips directly in front of the rifle's optical base scope. The extremely tight alignment of viewing assembly requires a pointing accuracy to reach and maintain within less than a single pixel during operation. We're delighted that testing and qualifications have finally been completed, and we have now received the first production order.
The units are expected to start shipping this October, which is several months later than we had planned at the beginning of this year. This does not change the size of the opportunity. A over $100 million revenue product for multi-year. Similar to its predecessor, TWS program. In Q2, we commenced development work for the armored vehicle program, which we were recently awarded. This could become another $100 million program. Our objective is to have multiple production orders for various different defense segments, reducing the unevenness of revenue from a single large program. We continue to hear very positive projections from our partners who supply enterprise customers. The AI inflection point does seem to be taking place, which benefits not only our component business, but also the opportunity for our Golden-i Infinity.
We're seeing strong follow-up orders from partners such as Vuzix and RealWear, and look for that to continue for the balance of the year. We see good demand for the OLED 2K by 2K displays. Many of these displays are going to test units for global companies. We're encouraged by the potential demand as these products go from test to production. With the BOE, the OLED factory construction on track and to be completed later on this year, and their plan for pilot production is to begin next year. We believe we'll be able to fulfill the coming demand for OLED displays. While we are making good progress in this quarter in transitioning from development to commercialization of Solos and Golden-i Infinity, it is frustrating that the delays in the military business will slow our plan for revenue growth in the second half of this year.
We now expect revenue to be $30 million-$35 million. About $5 million less than we earlier projected for this year. The orders are now into production. Just that the ramping up schedule is a bit later than planned. As we have discussed many times, the development of a new technology or a new product is often never as fast or as linear as hoped. I also like to stress, we also recognize the need to conserve our financial resources to match with the schedule for the timeline of the emergence of AR and VR industries. The good news is, as we move to next year, our development roadmap will slow considerably. Our expenses will also be reduced. With that, let's turn the call to Rich to review the financial details of this quarter.
Thank you, John. Beginning with the results for the second quarter of 2018, total revenues were $5.9 million compared with $5.9 million for the first quarter of 2017. Our industrial revenues were impacted by lower demand from customers who purchase our products for 3D metrology applications. This decrease was offset by an increase in sales of our products for consumer application. Cost of sales for the second quarter was 78% of product revenues, compared with 83% of second quarter of last year. Gross margins increased slightly due to a higher absorption of overhead costs. R&D expenses in the second quarter of 2018 was $4.5 million, compared with $4.7 million in the second quarter of 2017, essentially flat. SG&A expenses were $6.9 million in the second quarter of 2018, compared with $5.2 million in the second quarter of 2017.
SG&A increased for the three months ended June 30th as compared to the three months ended July 1st, 2017, primarily due to an increase in compensation expenses, including stock-based compensation, product promotion expenses, and information technology expenses, partially offset by consultant usage and patent maintenance fees. Other income expenses was expense of $52,000 in the second quarter of 2018, as compared with income of approximately $800,000 in the second quarter of 2017. The second quarter of 2018 includes approximately $236 of foreign currency losses, as compared with approximately $556,000 of foreign currency gains in the second quarter of 2017. Turning to the bottom line, our net loss attributable to controlling interest for the quarter was approximately $9.2 million, or $0.13 per share, compared with a loss of $7.3 million or $0.10 per share for the second quarter of 2017.
Second quarter amounts of depreciation and stock compensation are attached in the table to the Q2 press release. Turning to 2018, we continue to expect 2018 revenues to be in the range of $30 million-$35 million. We believe operating expenses will be largely flat compared with 2017. We conclude the quarter with approximately $53 million of cash and marketable securities and no long-term debt. The amounts I have just discussed are our current estimates, so I would remind our listeners to review our Form 10-Q for the second quarter, June 30th, 2018, when final amounts are filed. With that, operator, we'll take questions.
If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We will pause for a brief moment to poll for questions. Our first question is Patrick BMetcalf with Newbridge. Please proceed.
Hey, good morning, guys.
Hi.
Hello, John. Can you give me an update on the Lenovo joint venture, the licensing relationship you have there on AR, VR, and possibly MR with that relationship?
The question is on the relationship with Lenovo in the joint venture. The relationship's going strong. They are coming out with AR glass. Not just one. There are several AR glasses for different industries. I think they also announced, also for security, for police security, also a glass. We are providing them not only display, also the Whisper Chip.
Okay. Will that relationship be a licensing relationship?
It is a licensing relationship for equities, yes.
Okay.
We actually have equity in the company. Yeah. Over 10%, yeah.
Your other Chinese licensing agreement with Pico Interactive, where does that stand, and when do you see the product coming to market?
That particular product, they're still developing it, so I do not know exactly when they're ready to introduce it. Yeah.
Okay. Lastly, how is Google Glass holding up in the marketplace? Do you see a chance where they'll be ordering from you again? You talked about a new design win in the last conference call. How's that setting up?
Yes. The question from Patrick is Google Glass. Google Glass has announced earlier this year that they have a good response on their Google Glass. The rest of the situation, I'm afraid that you should ask Google.
Okay. The new design win, any traction there?
There's a lot of activities on AR glasses, especially AR glass. I think the inflection point, as we now notice, is actually arriving. We're seeing a much stronger demand for our components, both especially our display and optics, for the coming year. I think in our recent presentations, I think [inaudible] Rich, he projected a significant increase in the AR glass demand. For now, for our existing customers, but for some new customers coming online.
Okay, great. Whisper Chip. I know you have 30-plus patents surrounding Whisper Chip, both far field, near field. We don't hear anything about Whisper Chip other than the product being in Solos, now in the new Golden-i. Can you give us an idea of how your design wins outside of your current in-house products is looking like? Is there any traction on the Whisper Chip possibly going into a pair of earphones or something else?
The question is about Whisper. It is a very good question. The technology is so new. As I say, we have over 30 patents issued or pending. What we found out is that people look at this technology because it is not noise cancellation. It is a voice extraction. There is no such thing in the market yet. Just look at it. We decided we have to pioneer the applications that show the advantage. Solos and Golden-i are in fact devices that show the advantage. As I say, Golden-i Infinity especially is totally voice control. In addition to that, our partners, for instance, RealWear and Lenovo joint venture are incorporating Whisper. Pretty soon, next year, you will see a whole bunch of devices using Whisper. I think this by themselves will be a huge demo and promoters for our new technology.
Okay, great. You feel very comfortable, confident that you have the right products, the right roadmap to have a successful 2019. This is just a one-quarter blip with the military being pushed out. As far as the commercialization of AR smart glasses, it looks to be right on track for a strong second half.
Yes. Second half and the year beyond. I think we have been planning for that, is that, I remember a few years ago, we had very strong revenue growth from TWS, the earlier thermal gunsight business. I think that told us the best way is to have multiple sources of incomes. In the military, we have multiple programs. Now the FWS, which is now the follow-up for TWS. We have the armor vehicle, and we have the F-35 ramping up. We have multiple sources to dampen out the unevenness. In addition to that, not only are our component businesses are growing, we are providing both Solos and Golden-i next year for the next year growth. Next year, almost all the development programs are finishing up. Products are into the market and provide multiple sources of revenue.
We look towards next year still very optimistically.
Okay, great. John, I see a lot of talk on mixed reality and waveguide sockets out there.
Yeah. Mixed reality is a very interesting thing. It all becomes very clear now, at least clear that mixed reality sits in the middle of AR and VR. I'm now going to give a talk in Asia in September. AR is augmented reality, it allow people to make people more productive, have information on the fingertips. VR really gives you a new dream world, fantasy world, another universe to you. MR is somewhere in the middle. It's more for good simulations, designs, and it lives between, which is very good for enterprise. I think people discover that technology may be a little bit easier than MR, VR. I think that might be the second wave after AI has come out, it'll be MR for enterprise industrial applications. VR will come. They're all coming in stages.
Displays and optics as well as voice are all very needed in those devices.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. We will pause for a brief moment to poll for questions. We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing remarks.
Thank you. Joining us this quarter, we will see you next quarter. Thank you.
This does conclude today's conference. You may disconnect your lines at this time, thank you for your participation.