Good morning, and welcome to the eMagin Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note, that this event is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Lucas, President and Chief Financial Officer. Please go ahead, sir.

Thanks. Good morning, everyone. We're very glad to have you join us today for our fourth quarter 2018 earnings conference call. During today's call, we may make forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the company's current expectations, projections and beliefs, and are subject to a number of risks and uncertainties. Such statements include references to projections of future revenues, plans for product development and production, the company's ability to ramp up production, future contracts and agreements, product benefits, operations, future financing, liquidity and capital resources, as well as statements containing words like believe, expect, plan, target, et cetera. You should not place undue reliance on these forward-looking statements, because they involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. Please refer to our earnings release for the fourth quarter 2018, our 2018 Form 10-K, and the Company's filings with the Securities and Exchange Commission for information concerning factors that could cause actual results to differ materially from those expressed or implied by such statements. We undertake no obligation to update or revise any forward-looking statements to reflect future events or circumstances. With that, I would like to turn the call over to Andrew Sculley, CEO.

Thanks Jeff. Good morning, everyone and thanks for joining us on our fourth quarter and year-end conference call. 2018 was a good year for us in many respects; we saw the resurgence in demand from the military, both in the U.S. and abroad for our microdisplays, and are actively engaged in many next-generation programs. We continue to make progress on our strategic initiatives and have continued to demonstrate both the advancement and superiority of our OLED direct patterning technology, meeting and exceeding current requirements of our customers. However, before I talk more about that, I want to discuss our fourth quarter operational issue. As you all know, we are producing very specialized and highly technical displays on silicon wafers. We have made a concerted effort to improve and streamline our manufacturing processes which we believe is critical to our future success. We have also improved and upgraded our equipment and have highly experienced people managing the process. Late in the fourth quarter, we had a very reliable, but key tool down for a part failure. Our part vendor took longer to replace the part than expected, this shutdown impacted our volumes for the quarter. Importantly, this did not impact any of our U.S. military programs. At the same time, we were installing and qualifying a new tool, although this startup hurt our yield in the quarter, it is running well now and solves a key production bottleneck. We have fixed the issues and believe we have made the necessary improvements to minimize the risk of future recurrences. This did, however, impact Q4 and we'll also have an impact in the first quarter of 2019. So despite this recent issue, we have refined our production processes and expect to continue to make progress. Our production throughput is increasing. In 2018, we received $830,000 of funding from the U.S. Army for these efforts, and are pursuing additional awards to fund production improvements and expand capacity. Now let me discuss some of the most significant accomplishments this past year. We have further optimized our direct patterning and have surpassed 5,000 nits threshold requirements of the Tier 1 companies for their AR/VR applications in commercial and consumer products, and have satisfied requirements of several pending military programs. To date, we have demonstrated over 7,000 nits brightness in full-color. Our target for 2019 is 10,000 nits in full-color by the end of the year. On a longer term basis, we are targeting over 25,000 nits in full-color which meets our military customers future requirements. This brightness capability allows for greater power efficiency and longer lifetimes when operated at conventional luminance. It also gives us a significant advantage in consumer and commercial/industrial applications as it enables the OEMs to utilize our displays with less efficient and less expensive optics. Hence, these improvements will result in great benefits to all applications. We have discussed in the past the issues surrounding the F-35 Helmet. Our development efforts to support this program accelerated during 2018. Under contract from Collins Aerospace, we designed, manufactured and delivered the initial displays which are being installed in helmets for flight tests scheduled in 2019. We will continue to deliver displays throughout 2019 and we'll work closely with Collins Aerospace team to prepare for limited rate production currently scheduled for 2020. We were also informed that Lockheed Martin's F-35 test pilot, Tony "Brick" Wilson, was quoted that the eMagin displays not only reduces green glow, but it completely does away with it. This is a very exciting endorsement for us, and we look forward to our continued work on the F-35 Helmet Mounted Display systems. Our military business remains robust and we are supporting several very significant programs. In particular, I wanted to highlight the U.S. Army Enhanced Night Vision Goggle, Binocular Program. We are supporting multiple prime contractors with display deliveries for pre-production units, and are also providing engineering support for the program. It is anticipated that this program will commence production in 2019, and that the overall acquisition objective by the army is for 190,000 systems. Turning to our work with Tier 1 consumer product companies, we received approval of our design for a prototype display featuring a 4k x 4k resolution that will be combined with our direct patterning technology resulting in very high brightness and very high resolution display. In an headset, this display is capable of a wide fielded view with no screen-door effect. We believe this will be the display needed for an immersive VR. As we mentioned last quarter, our wafer design was released to our foundry partner to manufacture the silicon wafers. We received our first shipments in December for testing and evaluation. We expect to complete displays incorporating our direct patterning technology in the third quarter of 2019, after which the customer will evaluate and test the displays. We continue to have productive discussions with potential partners to meet the demands of mass production. We have redesigned our direct patterning equipment; the design is being implemented by our vendor, the new equipment will increase throughput by about 3x. It also will significantly improve the display lifetime, although we still believe the timeline for mainstream AR/VR remains delayed, our technology will be ready when the demand is there and we will continue to innovate and improve the technology. Looking ahead to 2019, I believe we are well positioned entering the year. Our backlog at the end of 2018 was approximately $10.6 million in products ordered for delivery by December 31, 2019, an increase of about $800,000 over the prior year. We have made equipment purchases over the past few quarters which we believe will improve the reliability of our manufacturing processes, and as the only U.S. manufacturer of OLED microdisplays, we continue to work closely with the Department of Defense to receive further funding for production enhancements. So with this is mind, I will turn the call over to Jeff who will give us the financial review, and also discuss the progress in our base business.

Thanks Andrew. I will now review our financial results in greater detail. Speaking to a few highlights in 2018, revenue growth for the year was solid driven by strengthening demand trends in our military and aviation business, as well as the contribution from our commercial markets. Our product gross margins shows solid improvement for the first nine months of 2018 versus the prior year period before the impact of the production issue in the fourth quarter. We have as Andrew noted, implemented remedial measures and expect yields to improve and production capacity to increase during the first and second quarters of 2019. Selling, general and administrative expenses or SG&A for 2018 remain relatively stable with only at 3% year -over -year increase and essentially flat year-over-year in the fourth quarter of 2018. Finally, backlog and trends remained strong and above $10 million during the year. Revenue for 2018 was $26.2 million, up 19% over 2017. For the fourth quarter, total revenue of $5.4 million compared to $6.4 million a year ago period. Despite the customer wins we experienced during the year, production yields and output in the fourth quarter were negatively impacted by manufacturing related issues which occurred during that quarter. As far as the components of revenue, on an annual basis product revenue in 2018 totaled $23.3 million, representing a 25% increase from $18.7 million in 2017; primarily due to continued growth from new U.S. and foreign military programs, as well as the ramp up of existing programs. This is a comparison to 2017 when product revenue was impacted by the wind down of certain military programs. R&D contract revenues totaled approximately $2.9 million as compared to $3.3 million in 2017. The decrease in R&D contract revenue, which is primarily the result of the completion during late 2017 early 2018 of several commercial and U.S. government R&D contracts, and the adjustments to reflect changes in estimated total contract costs. For the fourth quarter, product revenue totaled $5.2 million in 2018 versus $5.6 million in the prior year quarter. The decline was a result of the manufacturing related issues mentioned previously. R&D contract revenues totaled approximately $240,000 in the fourth quarter of 2018 versus $787,000 in the fourth quarter of 2017 reflecting the completion of contracts earlier in 2018 and adjustments to reflect changes in the estimated total contract costs. Gross margin for 2018 was 15%, down from 23% in 2017. The decline in gross margin for the year was primarily due to an impairment charge of $2.7 million related to the consumer night vision business recognized in the second quarter and the fourth quarter production issues previously discussed. Excluding the $2.7 million impairment charge, the overall gross margin was 25% reflecting higher production volumes and improved yields for the year as a whole. In the fourth quarter 2018, the Company reported a gross loss of $471,000 compared to a gross profit of $1.8 million in the fourth quarter of 2017; the decrease in gross profit was primarily related to the previously mentioned manufacturing related issues, and as a result, lower production volumes. Now moving to our expenses; for the full year of 2018 operating expenses including R&D expenses were $15.7 million compared to $13.9 million in 2017. The majority of the increase was due to higher R&D expenses for company funded work related to the company's direct patterning technology product and process development, resources expended on improving manufacturing processes and higher spending during the first quarter of 2018 on professional services related to contract negotiations with prospective consumer electronics and manufacturing partners. In the fourth quarter of 2018, operating expenses including R&D expenses were $3.7 million compared to $3.4 million in the fourth quarter of 2017. The increase in operating expenses was due to higher company funded R&D expenses, primarily for work on the company's direct patterning technology and associated process development, as well as funding for improved manufacturing processes. SG&A expenses were flat at $2 million year-over-year for the period. Operating loss for the full year 2018 was $11.7 million versus $8.7 million in 2017. Net loss for the full year 2018 including $2.2 million recorded as income from the change in the fair value of the warrant liability was $9.6 million or $0.21 per diluted share, this compared to a net loss of $7.8 million in 2017 which included a $1.1 million impact from the change in the fair value of the warrant liability and an income tax benefit of $200,000 or $0.23 per diluted share. Operating loss for the fourth quarter of 2018 was $4.2 million compared to $1.6 million in the fourth quarter of 2017. Net loss for the fourth quarter of 2018 was $2.5 million or $0.05 per diluted share including the impact of $1.8 million related to the change in the fair value of the warrant liability; this compared to a net loss of $875,000 or $0.03 per diluted share in the fourth quarter of 2017 which included the impact of $616,000 related to the change in the fair value of the warrant liability and an income tax benefit of $212,000. Our non-GAAP EBITDA for the full year was negative $9 million in 2018 and negative $6.3 million in 2017. For the fourth quarter, non-GAAP EBITDA was negative $3.6 million in 2018 in comparison to negative $1 million in the fourth quarter of 2017. For both, the fourth quarter and the full year results, the increase in the year-over-year EBITDA loss reflected an increase in net loss and the impact of change in the fair value of common stock warrant liabilities. Turning to the balance sheet; at December 31, 2018, the Company had $3.4 million of cash, cash equivalents in investments as compared to $3.5 million at December 31, 2017. There were no net borrowings outstanding under the Company's asset-based loan facility and there was unused borrowing availability of $4.1 million at December 31, 2018. As a reminder, the Company received net proceeds of $11.9 million in January 2018 from a public offering of common stock and warrants. In addition, in a concurrent private placement was closed on February 18, 2018, certain directors and officers purchased common stock and warrants totaling $300,000. In conclusion, despite the production related issues in the fourth quarter, we believe we remain well positioned to deliver improving financial results. In 2018, we further expanded our military and aviation market share and grew our commercial presence. We are in over 20 plus U.S. programs of record which speaks to the breadth and depth of our military revenues. We sold over 80 customers this past year and supplied products for over 20 new programs. We continue to work closely with the government to receive further funding for production enhancements and believe we are well positioned for future awards as the only manufacturer of microdisplays in The United States. And we ended 2019 with a backlog of $10.6 million in products. With that, we'll turn it back to the operator for questions.

[Operator Instructions] And the first question will come from Kevin Dede of H.C. Wainwright. Please go ahead with your question.

Andrew, would you mind just to dive in a little bit on - on the production issue. What tools specifically - clearly, you spent some money on some new stuff; can you give us some sort of view to that? And the mitigation effort too, I think that's pretty key - I'm sure you've spent a ton of time looking at potential bottlenecks and part failures, and I'm wondering if you've considered holding certain critical items in the inventory, maybe just a little of your thinking on those issues?

I won't tell you the specific tool because we have some things that are proprietary, but it's not a very complex tool and actually it hadn't gone down for about 10 years, and we do regular maintenance on it. But it is one of the bottleneck tools, and we have taken the effort over the last number of years to actually spend money and replace the bottleneck tools with additional capacity, and the idea here is that you can have more uptime for the tools, and if there should be an issue, you obviously have another tool to take over. And we've done that now with a number of tools spending money last year 2018 to do that. We've also added significant maintenance coverage; so what I mean is, 24/7 we have a maintenance guy there who can handle this. And we're taking steps as well with vendors of critical tools to bring in service contracts that are upping the speed at which the vendor can come to us. So we have taken that. On the part side; this in particular, we hadn't had trouble with it for 20 years or 10 years, and again, you remember that we do take it down for regular maintenance. Just one particular part, the part vendor had trouble getting it to us fast as we have a contract with them; so we are taking that spare part and we're looking at others that maybe - would have the same problem, and we're adding that to our inventory. And as you know, we have done that before. So we feel very good now, we still need in 2019 to look at additional bottleneck tools but just for your information, the one that went down, maybe that's a couple of hundred thousand dollars. So it's not a significant expenditure tool.

Let me add a little bit to that, Kevin. You know, we - Andrew underscore the complexity of our manufacturing processes when he - you know, when he spoke, and it's clearly the greatest challenge and it's our primary focus, and we principally in pursuing now our plan for several months to really address the issues focusing not only on a critical point of failure as we experienced in the fourth quarter, yields, throughput, quality, despairs that Andrew mentioned; also in a very selected basis, inventory for our customers. So we've been working on this quite a while now. I mean, it's frustrating though at times when our efforts are offended by a single event as we experienced. But we are making progress though in this area.

So Andrew, Jeff could - can you quantify what you think you've lost? Do you think it was in the - on the top line; do you think it's in the $2 million range or as high as $3 million? And what do you think that translates to in the current March quarter, now that it's almost over?

Yes, we - I can speak just generally because normally we don't go for not going to that level of detail. It was less than $1 million in terms of the impact on the top line, it obviously had a more dramatic impact on our costs overall, in part because we've recognized that we have commitments to our customers, we have to meet those commitments; and even though we had to incur additional expenses to do that, we clearly had our obligation with our key customers. So it was less than that in the fourth quarter, it has had some bearing in this quarter offset to a degree by the fact that there has been a little bit of catch up in this quarter from what was experienced - the shortfall that we had last quarter. So there is a little bit of an impact this quarter, but clearly, the greatest impact by far was what happened in the fourth quarter.

Congrats on being able to talk to Collins Aerospace directly. You mentioned that the F-35 headset goes through testing this year and then LRIP next year. Did I understand that correctly?

Yes, we think that the end of this year it'll start LRIP and into 2020.

So, I'm wondering if there are further development dollars associated with the testing through this current year. And then, I know in the past, Andrew, you've spoken to similar program for helicopters; can you give us an update on where you think that stands?

By the way, just to further expand upon Andrew's comment here. We are right now delivering on IOC our initial operational capability, and we're fulfilling our requirements there. There is some work being done in connection by the contract on that front. When the actual LRIP is going to happen, we can't say exactly, we've been given some information that Andrew pointed out. But I do want to be clear, that there has been discussions about that happening, be at some point next year, but that all depends on how the IOC progresses.

Your comments on additional funding is; yes, we - we're interested in some additional funding and we are talking to the company about that.

Two more then I'll pass it over. Just on the 4k x 4k, I understand that you're actually expecting samples back from a fab. Is that the way to think about that?

No, actually what we're doing now is testing the back plane with our normal process of white OLED. And then what we will do is, remember I mentioned that the direct patterning equipment is out for our redesign and it's being remanufactured by the vendor. And then when we get that back we will put our direct patterning OLED on the 4k, and that's why it will take some time to do that.

Well, we're manufacturing.

Yes. I'm sorry Andrew, would you mind just walking me through your time, your expected timeline again?

Yes, so we have the sample here, the wafer is here right now. We put white OLED on it and we're testing it. And the - we keep in contact with the customer once a week, and the next step is to put direct patterning RGB OLED on it to get the high brightness. The equipment for direct patterning is at a vendor location, putting in our new redesign; that will come back to us and then we will put direct pattern after we get the equipment up and running, make sure it works because we don't want to waste the wafers. Then we'll put direct patterning on and that will be in the third quarter of this year.

Well, congrats on that. That's a big milestone. Our last question; you both referenced exclusive positioning as an OLED manufacturer to military, and I think Jeff you said 20 plus U.S. programs. I'm wondering, if you could add some color on things that you might see coming around the corner from other branches of service, whether it be the Navy, the Marine Core or the Air Force?

Well, the - we do have other things coming forth. The one thing that you might have read about is there is an RFI out in the news that - about OLED manufacturing.

Yes, so that's an RFI or request for information. I presume that's what you're speaking to. And let me just tell people in on that, actually. It is publicly available on BizDevOps, the government website. But it speaks to the criticality of our OLED micro-technology to the U.S. military establishment. And so what this request for information is that you'd say on - it's part of the defense production at our Title 3 program, which some of you may know is focused on strengthening the manufacturing and defense industrial base. And as we rose, I think a little while back out of concern for declining U.S. manufacturing base. So, anyways it's exciting for us because what it does is it focuses on critical technologies, solar single source capacity constraint supply, and it's a means of actually government is providing or looking - considering providing funding to some of these key technologies which they're arguing that our technology falls under that. This could be a great opportunity for us. As a candidate for this as a matter of fact we would argue that we are the only company with U.S. manufacturing of OLED microdisplays, and as the only company that produces OLED microdisplays that meets deployment requirements demanded by the military. We believe we are the only company that can really meet the specifications of this opportunity here, this request for information. So if - if or when it does materialize, it could be substantial funding for us, and could have a very material impact on our business and position us for growth; both for advancing our direct patterning technology, and also for dramatically reducing our product cost. And so to us it's pretty exciting because you could involve additional OLED deposition equipment, it will enable us to further address these areas of a single point failure that we talked about before and lead to a dramatic equipment effectiveness here in terms of yield improvements and higher throughput. So if that is what you're speaking to, and I presume it is, Kevin, we think it's pretty exciting for us and we're going to be pursuing that quite vigorously.

I'll just add one other thing just to give you some feeling. We work on direct patterning, it's something that no one else can do it, our high PPI. And the military needs this in both, the ground soldier and aviation, and with a - supported a ManTech program, that's manufacturing technology; we passed that with flying colors and the rating we got was we have a pilot line demonstration, successful pilot line demonstration and that we're ready for a low rate production. So that fits very well with this RFI.

So for us this is a very big deal.

I guess it's probably too early to know for certain but is there - has anyone floated any dollar signs around and given you any indication of what that award could mean and when it might start?

We can't, there has been some discussion about that. I don't think it's - we're limited really to share those amounts right now but it is very substantial. And while we've gotten a fair amount of funding in the past, that past funding pays we believe the comparison to what's going to be available here. In terms of the timing, it's hard to say how Washington works but we've been sort of involved in this and pursuing this for some time now, and I think we would expect some solutions - I will guess over the next year or so.

I just have one other thing about that success we had on the ManTech program we actually got an award from the U.S. government given our success. So we feel very good about this.

The next question will be from Mike Malouf of Craig-Hallum Capital Group. Please go ahead.

I'm wondering if we could just try and drill down a little bit more on the milestones with regards to the AR/VR sector. It sounds like things are progressing, but can you talk a little bit more about manufacturing partner expectations? And is there some specifics that you're expecting throughout the year?

So we are working with a few companies very diligently on a mass production. They are display companies that should might - might understand. Then also wafer foundry, there is interest there and we're actively pursuing a result that would give us the capability for mass production on the AR/VR first commercial side, and in the end, the consumer side; and it's progressing well, it's complicated and it's also - the delay in the AR/VR market is affecting the speed as well, but we're very confident that there is great interest in this market, both because we talk to those companies involved in AR/VR and they tell us what they need, and our 4k x 4k display actually satisfies many of those needs. And the companies talking to us on how do you get to mass production, is - they are very interested in this, we've given step-by-step what tools you need, when you need them, how much they cost, how much space they take, etcetera; so we've gone into great detail here. And I think it should continue over this year, and of course, when the mass production is needed that's when we believe we need to have this deal done. We are excited about it.

No, you should be. I think that previously you'd sort of thought that that perhaps would happen this summer time but it looks like the AR/VR market is still being pushed out a little bit to the right; is that a fair assumption?

And we do have a market forecasts, our best forecasts are we're talking to the actual companies. A little more color would be a one company that we've talked to in the past has come back to us and said to us that I'd like you to - instead of talking about now, what can you give us now what can you give us a down the road in terms of a display. And strikingly interesting to us is those facts that they gave us are very similar to the ones we're doing. So our desire would be that that 4k x 4k display that we have designed now and is in testing, that is the display that other companies can use.

[Operator Instructions] The next question will be from [John Pearson], a Private Investor. Please go ahead.

Thanks for taking my call, Jeff and Andrew. I guess my first question is, I wanted to ask about if you have the 4k x 4k design, and let's say you don't get a manufacturing partner for a while yet, would you be able to generate any revenue from that display with your current manufacturing line?

The answer - there is two answers to your question. One of them is, certainly we can put white OLED with color filters on it, that's not an issue for us. And by the way, just so you know, technically we had to work to be able to do that, and I'd be happy to explain in more detail but not on this call. We had to work to be able to do that and we can do it, we've proven it. And the other thing though is the real desire for our direct customer on this, either one that's funding it is for high brightness; and in that case we can make it and will make it when the tools come back in the third quarter. On the other hand, you have to ask about can you make enormous volume on our current line; no, and that's why a mass production partner - and this RFI we talked about earlier would be very helpful to us or it's needed. So we can make samples, absolutely.

But I guess there is not necessarily a smaller customer - a smaller demand that you might be able to satisfy in the meantime while we're waiting for a manufacturing deal?

I think a smaller demand is absolutely - actually their customers, they were kind of surprised about interested in this.

Okay.

And there are smaller volumes.

So have you been discussing with - I think you mentioned, you have been discussing in greater detail as far as what the equipment will be needed; is that discussion been with a particular manufacturer?

We've actually told a couple of them. And when we say what equipment, we've been in this business a long time, almost 20 years for me; so we know what equipment we need and we can design it, and estimate it's cost and timing to get it to production, and that's what we have done.

So has one manufacturing company actually come to the forefront as far as being the one that you would probably make a deal with? Do you have - I guess I'm asking, do you have a favorite one picked out and you're just waiting for the timing of the market?

Well, we can't say that one will be successful and the other won't, so I don't want to say a favorite on this call. We're actually pushing hard on the ones that are talking to us. It's absolutely critical not to let anything slide. So there are a couple of favorites, right, not a big number.

I have a question on the ENVG III; I'm wondering is - and if that has been overshadowed by the ENVG Binocular program or are you actually fulfilling orders on ENVG III this year?

Yes, we are fulfilling our orders on ENVG III. It's unique to have the next-generation come so quickly, we think the volumes for ENVG Binocular will be much higher than ENVG III.

But the program is going and we're happy.

We're delivering on both, but we are very excited about ENVG B.

And as we mentioned, 190,000 is a big number for us.

Did ENVG III get cut short because of the Binocular program?

I don't know that that is the case. You could argue that that's the case but it's up to the military, they always like to modernize, that's why ENVG II is here, now III, and now Binocular. It's just a little faster and we're happy with that.

I will say that the combination of the B and the III; for us, we definitely benefit from that in terms of volumes and revenues much higher than we had before. We're excited about that.

And how about the FWS programs, I don't think you mentioned the FWS programs in this particular quarter; are those going - progressing okay?

They are. They are at an earlier stage, the ENVG-B and ENVG III but yes, they are - we're moving ahead. We've got it, we're involved in both the Crew-Served and Individual, so that's moving ahead.

My last question, I'm not sure exactly how to ask this but I'm concerned about your financing outlook; running low on cash here and wondering what capital expenditures you have coming up? What you're thinking as far as if you're going to be able to continue, if you're going to be able to breakeven this - in the next few quarters or what your cash burn is, if you're going to have to do some financing; if you could speak to that a little bit please?

Well, you hit all bunch of items there, so let me see, let me knock them off if I can, one at a time here. First of all, what happened in the fourth quarter was to us a bit of an impairment on our path towards breakeven but we are targeting and planning on achieving a breakeven run rate this year; so that is still moving forward. Secondly, in terms of our financing as we pointed out in our earnings release and you'll see in the 8-K; we had about $7 million of liquidity at the end of December, keep that in mind, of which we have $3.5 million or $3.4 million of cash, we had no borrowings on our credit facility and about $4.1 million available here, so a little over again by $7 million to $7.5 million availability. We feel that our existing plan, and we can certainly operate with our existing liquidity; we are though nonetheless, of course, always sort of opportunistic and practical on our expectations about fundraising. And if a funding opportunity presents itself, we will very, very carefully the benefit of funding it - funding against a dilutive impact. We're always opportunistic from that standpoint.

[Operator Instructions] And the next question will be follow-up from Kevin Dede of H.C. Wainwright. Please go ahead.

Jeff, could you dive in a little bit on the margin implications in the fourth quarter given say $1 million missed opportunity in the incremental costs, it just looked to me - so the product - the cost of product was high and I was just wondering how you'd rationalize that sort of one-time costs that might be buried in that?

So first of all, I didn't say it was $1 million, you said it was $1 million. I said it was less than $1 million dollars in terms of the top...

Okay. Thanks.

All right, so I made that clear. But nonetheless, the interaction we had had greater bearing and just on the volume for us, it had a significant impact on the production costs season or yields for the quarter, and that led to material costing higher than they otherwise normally would be. In addition, we did incur some costs in qualifying for the new production processes at our production levels on some of our newer tools, for example, the SLS. So actually, that's going to benefit us greatly in the future but it was expensive during the quarter as we had to go through some sampling testing in chemicals, expensive chemicals, to get that qualification. So that had direct bearing on our margin in the fourth quarter, making it look worse than otherwise it would be but fortunately, we're going to get a benefit of that going forward. We are still going to have some of the impact of that in the quarter that we're in right now, nowhere near the magnitude or degree that we experienced in the fourth quarter but we're working through that and as our yields are recovering on our original path for yield improvement as our volumes are now increasing once again, we're going to get the benefit, most of those pretty significantly on our gross profit and our gross margin percentage.

You alluded to driving to breakeven; I'm just wondering if you could take us through back at the envelope, approximate cost levels there; so what top line would you expect? What sort of gross margin and where are your operating costs? How does that all sort of come together for you in breakeven?

So we have a policy in these costs, I'm not sticking to what our breakeven is but I can certainly help you figure out what that should be. So I think we take a look at what our SG&A was for the fourth quarter, that's not unusual for us, that's certainly in the range, we look for a little bit of improvement there. Our R&D is probably not the similar for as it's been in the past. I would encourage you to take a look at some of the margins that we've achieved in the second and to a lesser degree, the third quarter of last year, and that could probably give you a sense of what the breakeven and revenues and run rate would have to be; and that's again, we're targeting that, we see that happening this year.

And ladies and gentlemen, that will conclude our question-and-answer session. I would like to hand the conference back over to Andrew Sculley for any closing remarks.

Well, thank you everyone. I'd like to emphasize though one thing is that, our - what our high brightness capability does for us. Even with a lower brightness requirement, we've said 5,000 nits often, we can get over 5,000 nits but if you run at 200 nits like our normal products do, we get five times the power efficiency, so five times lower power and five times the OLED lifetime; so it is an outstanding advantage no matter what you need that product for. And I just want to say that one more time, and this ManTech success that we have had puts us in a great position for either the manufacturing partner we talked about or the request for information on the title three. So we feel really good about this. And I want to leave it at that but I want to thank everyone on the phone for staying with us, and I liked the questions very much.

And I just want to add that although we really can't convey this over the phone, we all share the enthusiasm for our display that Andrew conveyed. But I also want to plain out here just in closing that we've actually made a lot of progress in buttressing and building up our core business. And it's unfortunate that all the hard work that we've been doing in the progress of making here have been masked by the production issue we experienced in the fourth quarter. I know it's frustrating for all of us, and I have no doubt it's frustrating for you as our shareholders, but I really want to underscore - Andrew and I want to underscore, that we are singularly focused in continuing our path towards growth and profitability. And with that, we say thank you very much for your time.

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your line.