Good day, welcome to the Kopin Corporation first quarter 2021 earnings call. Today's conference is being recorded. At this time, I will turn the conference over to Mr. Richard Sneider, Chief Financial Officer. Please go ahead, sir.
Thank you, operator. Welcome everyone. Thank you for joining us this morning. John will begin today's call with a discussion on our strategy, technology, and market. I will go through the first quarter results at a high level. John will conclude our prepared remarks and w e'll be happy to take the questions. I'd like to remind everyone that during today's call taking place on Tuesday, May 4th, 2021, 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. Potent ial 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 these forward-looking statements made during today's call. With that, I'll 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, reflecting continued increasing demand from our customers across multiple segments. Revenue increased by approximately 40% in the first quarter of 2021 as compared to the first quarter of 2020, with growth led by our Defense production programs and our funded development programs.
We now have more than 10 programs in various stages of development. While 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, and it sets 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're seeing in the augmented and virtual reality space.
In particular, our customer-funded R&D revenue 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 automated optical inspection systems, which are recovering nicely following a slowdown in the early days of the 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 increased by 42% compared to the first quarter of 2020. Our Defense revenues continue to be driven by FWS-I thermal weapon sight and the F-35 fighter jet program.
We expect these two Defense programs, which are still quite early in their product phases, to continue as core components of our revenue in the coming years. We also remain on track to transition several more products to early low-rate production this year. We expect the revenues beginning in the second half. As mentioned, Kopin has over 10 Defense programs in various stages of development. These programs are all using our microdisplays and are increasingly utilizing our specialized optical systems in ruggedized assemblies . We believe we're the sole source supplier for most of these programs.
All our Defense programs are either AR or VR applications, and Kopin continues to explore additional AR and VR applications in Defense, Industrial, and Consumer areas. One example is in the first quarter of 2021. We announced that Kopin CyberDisplay WQVGA, QVGA display backlight modules, and A230 driver ICs are now incorporated into the Canada-based Shearwater wearable near-eye remote display diving computer. This product is our near to eye display for underwater divers and provide critical dive information, including depth, dive time, compass, and breathable gas levels.
This is just one example of the many areas of the market finding a solution to a need using Kopin microdisplay product. It's the only microdisplay company in the world with product and technology solutions utilizing each of the leading microdisplay technologies: OLED, microLEDs, LCDs, as well as LCOS. Kopin is uniquely- positioned to offer the right technology solution for the expanding markets and applications for AR and VR. As mentioned last quarter, we received our first production order from a U.S.-based customer and began shipment of our 720p tandem panning view stack ColorMax all OLED microdisplay with high brightness and brilliant color fidelity, combined with very low power consumption.
This new technology represents a milestone for Kopin, as we exhibit a record 7,000 nits of brightness with a much lower power than previous technology. This is a huge achievement for the OLED microdisplay. We continue to ship our 720p micro OLED display to our customer in Q1. Meanwhile, we continue to innovate and improve further our OLED technology to meet the market demands. In addition to our customer-based R&D activities, we have been increasing our R&D spending to meet the requirements of AR and VR. We believe this is a once in a decade opportunity, as the device will expand from handheld to hands-free devices. Kopin will be ready to meet the market demand.
Finally, we are highlighting our long history and leadership in wearables in a three-part webinar series entitled AR and VR: The Paradigm Shift to Smart Glasses Starts Now, hosted by Insight Media. The first segment, called AR/VR: The Past, was held on April 27th, and now is available on YouTube. It was very well received, with over 500 registrants and I must apologize, we were oversubscribed for the live event, which was unfortunately limited to 300 attendees. Not everyone who want to attend live connected. The webinar, however, was recorded right away, and we did provide a link to the recording to all the registration, people shortly afterwards.
We have since increased the capacity for live participation in the next two sessions. In part two of this trilogy, to be held on May 12th, we'll focus on the present. We will tackle the current state of the art, analyzing interesting success stories today and concluding that the tipping point has arrived for some markets to begin mass adoption. In part three, to be held on May 26th, we'll focus on the future.
We'll look to the next stages of AR/VR smartglass products, offering a roadmap to develop products with the right form factor, technology, performance, features, and cost to succeed in this exciting transformation. We'll present our views of the next three to five years without grading from the lessons we learned from all these past and present AR and VR products in the marketplace. We will then speculate how to get to the ultimate Consumer-based smartglass.
T his will be the Holy Grail. Really, one can learn so much from what the Defense system have been doing. Do join us in the next two webinars. You will not be disappointed. Registration links and replays can be found on our website, as well as on Insight website. In short, we're continuing to make great progress in executing our strategy, and it's showing in our performance. The market conditions are favorable, as AR and VR are gaining strong traction throughout the past year. We believe Kopin is in great position to capitalize on this growing trend. With this, I will turn this call to Rich.
Thank you, John. Turning to our financial results. Total revenues for the first quarter ended March 27th, 2021 were $11.7 million, compared with $7.9 million for the first quarter of March 28th, 2020, a 48% increase year-over-year. Cost of products sold for the first quarter ended March 27th, 2021, were $6.4 million, compared with $5.6 million for the first quarter ended March 28th, 2020. Gross margin for the first quarter of 2021 was 15%, compared with 5% for the first quarter of 2020. The increase in gross margin for the three months ending March 27th, 2021, as compared to three months ended March 28th, 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 expense for the three months ended March 27th, 2021, increased as compared to the three months ended March 28th, 2020, primarily due to an increased spending on U.S.-funded development programs and internal R&D expenses for OLED development. Selling, general, and administration 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 27th, 2021, had 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 cost, 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 of 2021, compared with $87,000 of expense for the first quarter of 2020. During the three months ending March 28th, 2021, we recorded $28,000 of foreign currency gains, as compared to $172,000 of foreign currency losses for the three months ended March 28th, 2020. Turning to the bottom line, our net loss attributable to Kopin Corporation for the first quarter of 2021 was $4.1 million or $0.05 per share, compared with a net loss attributable to Kopin Corporation of $3.6 million or $0.04 per share for the first quarter of 2020.
Non-GAAP net loss attributable to Kopin Corporation for the first quarter of 2021 was $1.8 million or $0.02 per share, compared with non-GAAP net loss attributable to Kopin Corporation of $3.5 million or $0.04 per share for the first quarter of 2020. Kopin's cash and marketable securities were approximately $35.6 million at March 27th, 2021, as compared to $20.7 million at December 26, 2020. During the quarter ending March 27th, 2021, we issued 2.4 million shares under our then existing at the market or ATM program and generated $15.5 million in net cash proceeds, which concluded our $20 million ATM program.
First quarter amounts for depreciation stock compensation expense are attached in the table to Q1 press release. The amounts discussed above are our current estimates. Listeners should review our Form 10-Q for the first quarter 2021 for any possible changes and additional disclosures. Finally, I would like to address the global semiconductor shortage. Kopin did not experience any significant effects caused by the shortage in the first quarter of 2021. We have been proactive in our actions and communications with our semiconductor suppliers and have placed orders well into the future. We continue to monitor this current dynamic environment and manage accordingly. Operator, we will now take questions.
Thank you. If you would like to ask a question, please signal by pressing star one on the telepone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow signal to reach our equipment. Again, press star one to ask a question. We'll now pause just one moment. 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. First question, the two areas of outperformance versus my model were in the Industrial side and the R&D. Can I just get a little more color? Was the Industrial bounce back in the fire and safety stuff, or was it more the RealWear type end user? On the R&D front, I'm curious, is that all government- related or is there any commercial or Consumer related R&D revenue?
Mostly with the Industrial headsets, folks like RealWear were the strength in the Industrial segment, including our 3D AOI was very strong in the first quarter. As far as R&D, the majority of it is Defense related, but there is some commercial Consumer R&D in that also.
Okay. Great. Thanks. On the Defense side, you've talked about for a while, 10 programs in development. I'm not sure if you reiterated it this quarter or not. 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? Have you won that yet? Would you announce that when you win it, or are you not allowed to? Just some thoughts about how that news flow is going to play out over the course of the year.
Yeah. 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, then it would really ramp up in 2022. Our programs are on schedule, as John indicated in his prepared remarks.
Glenn, we will announce when the time's up and as time's there and our customer allows us to announce them. Things are going pretty well.
Great. Thanks, John. Moving on to the AR/VR stuff, John, you talked about it being a once in a lifetime opportunity. Kopin has been a part of other opportunities like that in the past. I'm thinking about digital cameras and displays-
HBT.
...things like that.
Yeah.
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 Kopin's past?
Very good question, Glenn. I've been preparing this trilogy webinar, and as I prepared for that, and I would just say that the opportunity is actually bigger than I initially thought. I knew it was going to be a good opportunity. Now I'm more thinking it could turn out to be bigger than even the cell phone business. It could be a trillion-dollar business in 15 years. I will talk about that in the second and third one, especially the third one, where it talk about the future, which I allow to speculate.
That's going to be a very interesting seminar. Remember that the last seminar, we have about 30 minutes of Q&A. It was very active. A lot of people asked questions. We had to cut off because the time's up. We will continue to have very active Q&A session after the webinar, and I think the third one, we might even have to prolong it to a one-hour Q&A.
Great. Thanks. We look forward to that for sure. The last question from me just is 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 that you didn't have any effects in Q1. Can you just give us a better sense of just 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 what the auto industry has experienced is you just need one chip missing, and the whole product doesn't ship. Now, we're not in that type of situation. We have multiple products. It is pretty dynamic. What we think is that there's some panic in the market, and people are overbuying. This is somewhat like we saw, frankly, in the tech bubble, where people thought there was going to be shortages, and they started stuffing their closets with every chip they could get.
Of course, we see people taking the opportunity to raise prices. There's no doubt about that. So far, we haven't had any of our suppliers say, "Hey, listen, this is a real big problem." We're monitoring it literally on a daily basis, and we're trying to get into 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 day, gentlemen. Thanks for taking my question. John, could you just talk a little bit more about the Canadian near-eye diving display? Which display are you using there? Is there an extra light source? Just maybe some more, pardon the pun, color on that.
Kevin, they are using our micro-LCD display and using a special backlight that allows them to see very well. This is a module that we'll be providing to other AR applications. For this one, it's a special thing. You obviously have to dive in the water. They have the special type of modules. They're doing well, and I think the product just came out in the market. I heard that the response was very good. I don't do diving, so I've never tried myself.
Okay. Look, I can't imagine there's a huge market for it, but I was just hoping that you could maybe give us a little more insight. How would you say it compares to the Scott helmet that the firefighters use?
The Scott helmet allows you to see in the dark, through the smoke. This one is not. It's different. It has different sensor. The Scott helmet has a different sensor. 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, the Holy Grail is Consumer base. You have to go through Defense, and you have to go through Enterprise to learn what's needed. This is a major transformation from handheld to hands-free. We're very happy with the opportunity.
Well, yeah. No, that's sort of the way I was looking at it. 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?
Yeah. Steve, you are actually presenting half the talk for next week, which I'm giving the seminar, too. If you really look at what's going on when you move from handheld to hands-free, a lot of components developed for the handheld, for the cell phones, are already there, and you should use all the components that are already developed on the cell phone. The problem is the display. If you really look at it's just the display. The display is too big. In the early days, Oculus put the whole display on your head. The Consumer would never accept that.
The DARPA knew that even 30 years ago when they funded to do the display, smaller display. Small display is not enough. You still have to have that special optics magnifier and special housing to take care of the water, take care of the particles, take care of anything. Beware what our Defense business taught us a lot of things. What kind of optics you need, what kind of displays you need, what kind of ruggedized housing you need, so you can go into the fire, you can go to the water. All these things we learned. I think people do not understand that it's really the microdisplay module that has to replace the touch screen that you have, the cell phone, is the biggest challenge. We are leading this area, starting 30 years ago.
Okay. All right. Granted your discussion, your answers for Glenn's questions pointed to Consumer development and AR/VR. Can you be more specific? How are you taking what you've done here for the Scott helmet, what you've done for the diving helmet, and what specific kinds of R&D are you doing to develop the Consumer side?
In the Consumer side, I think first of all, Consumer, as you well know, I'm a big preacher of the Fab 5 rules. Rule number one is you have to be human first, and second is technology. Major thing of the human is you put on the head, it should be some kind of like eyeglasses. It has to be very natural, it has to be very small, thin, lightweight, fashionable. The Consumer introduction for this kind of augmented reality eyeglasses is very special. I will talk about that next week. What are the special eyeglasses that come in for the Consumer?
Those first kind of glasses are coming out, and it's already available a few months ago. It will be everywhere the next 12 months. After that, you will go into more and more Consumer applications. I would say Consumer applications is starting right now in a few months ago, and it's going to be very big. We'll talk about that on Tuesday. I don't want to give the talk today. Just come join us. It will be a very exciting time.
Okay, John, appreciate that. Rich, before I let you go, what was the official share count at the end of the quarter? Not the average, but the official full count.
Honestly, I don't have that at the top of my head, what the number was. It's pretty close to the average.
Oh, okay. Thank you. Thank you, gentlemen. Thank you for taking my questions.
Yeah, we didn't have a lot of stock activity in the quarter other than what we sold. Yeah.
Yeah, right, I guess if it's close, then it was really close to the yearly part of the quarter. I guess. I just have to go look at the date.
Yeah.
When does the Q come out?
Thursday.
Thursday. All righty. Thank you, gentlemen.
Thank you.
Just a reminder, if you'd like to ask a question, please press star one on your telephone keypad. We will now take our next question from Craig Rose from Axiom Asset Management. Please go ahead.
Hello, John. From my point of view, there's no shortage of R&D dollars being spent on products revolving around AR and VR. When I see that 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?
Yeah. Thank you for the question. The biggest challenge to getting the wearable on the head, as mentioned before, is the display and optical system. How do you get good display and optical system on your head? That display has to be very tiny, much smaller, much higher resolution than really the display you have used on the cell phone. It will not be the same technology. It's still probably going to be OLED, but it's not only on glass, it's OLED on silicon. I will describe very clearly in the second display session why it has to be on silicon.
Anyway, the biggest research money now and all over the world right now is searching for how do you display and replace the touch screen on your head with some kind of display. It had to be a microdisplay, and it had to be very special optics. The optics turned out to be a very major challenge. As Richard then mentioned, we actually not just focus on display. We spend quite a lot of activities now on the optics. We found out our customers really cannot use any microdisplays unless the optics are there.
The optics had to magnify that 1,000 times, 10,000 times, and they had to keep image very sharp, and they had to be very lightweight and very thin. I think there are many systems you see for use, even the Oculus, I think it's a very wonderful system, the Oculus. The most recent one is a very good system, but it's still too big and too thick and too heavy. I will talk about that next week on the Oculus system. I would dissect quite a few systems in the market right now and give the pros and cons and actually paint the ways for the next step.
Okay. If you had to list the challenges in order, it would be optics, form factor, then the screen?
Screen, number one. Screen is because it's really, really high tech. Optics is number two. The third is the whole packaging. How do you assemble it? There's actually one thing people don't know. You're magnifying sometimes 10,000 times. If your housing is not carefully taken, a little particle land on your display, then it looks like a boulder to you. Because of our Defense activities, we recognize and have been already solved those problems. No particle can come out during operation of the assembly.
Very few people know about it, including even many of our customers. Nowadays they just say, "Please, send us the whole assembly." Send us the optics, send the display. Send us the housing assembly. That's why with so many Defense industry, they don't want to touch it anymore. I think Consumer people do not quite understand it yet. Enterprise people know. I won't go into detail. Almost all our Enterprise customers buy 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 life cycle of such R&D with those clients?
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 think let's 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. We have interactions with all of them at this point.
Okay. Thank you very much, guys.
Thank you.
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 will be having our annual meeting on May 26th, 2021. You should be receiving your proxy vote soon, so please vote, and you'll be able to attend our annual meeting. After the annual meeting at noontime, I will give the third part of our trilogy webinar. Thank you.
This concludes today's call. Thank you for your participation. You may disconnect.