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

Matt Robison - Wunderlich Robert Mertens - Needham & Company.

Greetings, and welcome to Kopin’s Q3 Earnings Call. At this time, all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr.

Rich Sneider, Treasurer and Chief Financial Officer. Please go ahead..

Thank you. Welcome everyone, and 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 2016 fiscal third quarter results at a high level. John will conclude our prepared remarks and then we'll be happy to take your questions.

I would like to remind everyone that during todays call taking place on Thursday, October 27 2016, we'll 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, 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 the forward-looking statements made during today's call. And with that, I'll turn it over to John..

Thank you for joining us this morning to review our progress and to share our optimism. Before I go into more details, I would like to stress here the key points of this volume release. We are making very good progress in our technology, product development, design wins and partnership discussions.

Though we are not in a position to discuss now, we have spent major achievement announcements at the coming CES in January 2017 and in the Mobile World Congress in March. Also, we expect significant revenue growth in 2017 even just from our current core military and industrial business. 2017 is turning into a breakout year for us.

We're particularly excited about opportunities in Asia. We just -- I just spent three weeks in Asia, and it's clear they are heading both their views of AR/VR opportunities and commercializing patients into wearable categories. The key for users acceptance of AR/VR is mobile.

We are still all along; the [indiscernible] has to be small, lightweight, comfortable and attractive. The initial application should be focused. It should not be [indiscernible] on device at this time. Voice is key. Touch is not a preferred interface in wearables.

This is very exciting for us in Asia because our technology and vision are very well respected. Kopin is a highly sought-after partner in Asia. My meetings had been with the leading global technology companies. We are excited about the partnership and ventures we're pursuing. A very good example of AR focused device is our [indiscernible].

The reception to our solar headsets, pocketed to elite cycling community has been very strong in Asia. As a reminder, solar is a truly mobile AR headset using our innovative tiny pupil display module providing us similar readable digital display image while it is still [Indiscernible].

We had a visit upon a global Tier 1 company two days ago to try solos on. And these were her remarks, it blends in, it disappears, it's not distracting. It is there where I need it. She was right on. This is a big differentiable feature. Softbank, one of the leading technology companies is partnering with us to distribute solos in Japan.

Two weeks ago in Japan, Softbank demonstrated solos in one of his shows. About 1,000 visitors tried Solos now and the feedbacks were extremely positive. In U.S., as we discussed before, we started a kick start campaign as a terrific way to generate awareness in this.

The response was excellent, and we expect to start shipping our initial systems to customers this quarter. We strongly believe solos headsets are useful for other sports, such as in running, and we're redefining the headset to meet these new opportunities.

While we are working on future applications for our technology, we're also focused on growth on our current business. We're pleased with our progress there, especially with our military and chrome business. As a reminder, we are the sole display supplier to the Joint Striker Fighter F-35 helmets.

We have begun shipping production displays to this program. And we're anticipating significant revenue ramp in 2017. This AR helmet provides a 360 degree view for a pilot, a capability uniquely offered by this world's number one military jet. We also expect increased revenue from the Family of Weapon Sight Individual FWS-I program.

We mentioned last quarter; we have won this award and has now begun the low initial rate production phase of this integrated night-vision package we also expect to receive development contracts for the companion program, the Family Weapon Sight SC, FWSC, by year-end. Now let's talk about AR headsets used in drone racing.

It is clear that drone racing is turning into a rapid growing business. In fact, folks are now starting a drone racing league in the United States. The sport's also very popular outside United States. Also, as a reminder, we provide displays and optical modules for such headsets. And our market share is close to 100%. This business continues to grow.

We are on track for further revenue growth for drones next year. I would now take this opportunity to discuss another new growing application, the Firefighter helmet. Scott Sight for firefighters was introduced by Scott Safety, a division of Tyco, in April this year.

Kopin has worked closely with Scott Safety and provides a specially designed display module for a Scott Sight. The world’s first thermal imaging for the world's first thermal imaging -- camera imaging system that provides firefighters improved visibility in smoke-filled environments.

Currently, firefighters carry a thermal imaging camera in their hands, which impedes their ability to perform freely. Popular Science just awarded the Scott Sight a" Best of What's New" award due to the situational intelligence the headset provides to firefighters. The market acceptance by firefighters has been impressive.

We look for strong revenue growth in this segment in 2017. Needless to say, we are exploring similar applications. One aspect of new additional applications for Kopin technology in the health and safety fields, where the use of AR can enhance situational awareness and productivity. We're continuing with adding new key technology building blocks.

In the third quarter of 2016, we had 11 new patents granted and 11 new applications. Our portfolio of over 300 patents and patent pending is very impressive. We have over $84 million in cash and marketable securities at the end of third quarter. We have the financial resources to fund our current plans and for all the opportunities ahead with partners.

We're very encouraged by our progress this year and many of these achievements monetized in 2017. With -- although we have been stating that progress has been – rarely made in the last four quarters. I must stress the pace of business progress has now been accelerating.

We expect exciting developments in the next six to nine months, with major announcements in the coming CES in January 2017 and Mobile World Congress in March 2017. And we hope you will have opportunity to visit us at these two major shows. I will now turn the call to Richard to review the financial details..

Thanks, John. Beginning with the results for the quarter, total revenues for the third quarter of 2016 were $5.8 million compared with $8 million for the third quarter of 2015. Included in the third quarter of 2015 revenue was $1.8 million related to renegotiated contract terms due to a customer's lower forecasted volume in their program.

Cost of goods sold for the third quarter was 82.9% of product revenues compared with 75.3% for the third quarter of last year. R&D expenses in the third quarter of 2016 was $4.1 million compared with $4 million in the third quarter of 2015.

Internal R&D increased as a result of additional investments in wearable technologies, partially offset by lower-funded R&D. SG&A expenses were $4.0 million in the third quarter of 2016 compared to $4.6 million in the third quarter of 2015.

The decrease in the third quarter of 2016 as compared to the same quarter in 2015 was primarily due to a decrease in stock-based compensation, professional fees and patent amortization expenses. Other income expense was an expense of $1 million for the third quarter of 2016 as compared with income of $1.2 million for the third quarter of 2015.

The third quarter of 2016 included approximately $1.2 million of foreign currency losses as compared to approximately $600,000 of foreign currency gains in Q2, 2015 -- Q3 2015. The third quarter of 2015 also included gains on sales of investment of approximately $400,000.

Turning to the bottom line, our net loss attributable to the controlling interest for the quarter was approximately $7.9 million or $0.12 per share compared with a net loss of $4.7 million or $0.07 per share in the third quarter of 2015.

Cash flow used in operating activities for the nine months ended September 24, 2016, was approximately $19.2 million. As John mentioned during the quarter, we filed for 11 patents and had 11 new patents issued. We concluded the quarter with approximately $84.3 million of cash and marketable securities.

We have no long term debt; we continue to maintain a very strong cash and marketable security position in order to execute our strategy. Operator, with that, we're now ready to take questions..

Thank you sir. [Operator Instructions] Our first question today comes from Matt Robison of Wunderlich. Please go ahead.

Hey thanks. I wanted to talk a bit more industry stuff. [Indiscernible] has had some pretty positive announcements that seem like they're getting some traction in the enterprise space with their clip-on products like the M300 [ph] that uses some of your display technology. Can you comment on some of the other enterprise wins.

And they're kind of conspicuously absent I guess, from your prepared remarks and maybe give a little bit of flavor where you think, if there's any developments there. And then I've got a couple of other items..

Okay. It's John here, Matt. Thank you. Well on the enterprise, you'll note that we always say that enterprise starting from Golden-i days. We licensed enterprise systems to Motorola, of course, and also with Fujitsu, Phoenix also is one of our customers.

In many ways, the firefighters enterprise so like Tyco, Scott Safety using therefore are for the firemen. So we are now seeing very good response in the enterprise world, and there are a couple other deals in the enterprise we're not in a position to discuss [ph] right now..

One of the things that I've seen related to F-35 is -- with its delays, is there's been some pretty significant programs to upgrade F-16 capabilities to extend the life of the F-16.

Have you seen any work potentially for some of the displays that might be suited for over platforms?.

You mean the F-16?.

Yes, or other types of platforms that might be -- being extended because the JSF is [indiscernible]..

The answer is no. I think those -- the F-16s could be extended I don't think they will radically re-design their system. So It will be partly trying to get the price down. So in the F-35, of course, we are really the supply for helmet display. So our situation is that we do not see any real change in the projections or the production rate..

That's good. Now last one thing I wanted to talk about is Solos have -- it seems like it's approaching and you guys have preserved the level of cash that gives you pretty significant runway.

But what is it going to take to make Solos a significant component to your economics in terms of growth economics? And is there an opportunity to do some collaboration with other companies that may have more retail oriented infrastructure with Solos? So I just think of it as a reference design exercise..

No, it's a very good question. To think of that again, as I just said I was just over in Asia. And just like the case of Softbank, I just mentioned or Softbank, and we are – we are -- definite partner with people like them to brand it and market it and very encouragingly in Asia, people accepted our brand. So the use of Solos as Solo Kopin brand.

So it is a different world now. Solos just like Golden-i are branded, and is a brand with not a huge kind of expenses that are usual branding. So just the world of branding is different now.

So Solos is a very, very active brand partner it in the Olympic, we did it in Olympics and then we of course, many of the players, two of the players got gold and got silver medals out of the training. And so it's -- the answer is yes, Solos is a brand, a Kopin brand.

And we now recognize and we always believe it will be useful to other sports and we'll just see. Stay tuned..

Okay, thanks..

The next question comes from Robert Mertens of Needham & Company. Please go ahead..

Hello and thank you for taking my question today. I just want to see if I can get a little more clarity with your military revenue.

The nice uptick you had from the previous quarter is that being driven by the Joint Strike Fighter contract, or are there other contracts out there that you're working on?.

Yes, we’ve have a number as John mentioned the FWS-I contract, we have some small revenues from the FWS-C, but we really expect the bigger contracts to come within this quarter. So yes, although the F-35 and the FWS-C -- FWS-I are major programs, we actually have quite a number of military programs.

And the one thing I would add on to a question that even Matt asked about -- you asked about whether we were seeing F-16 helmets getting redesigned. Although we're not seeing anything along those lines, our subsidiary, FDD for years, has done training and simulation.

And the fact is that their display technology has been so well received with training simulation. There has been discussions about moving that actually into active platforms which are currently existing. So there is potential for redesign along those lines..

Great, thank you. That helps. And one more question. I see nice growth in the industrial sector.

Can you just speak a little bit further to your strategy going forward and if you expect those revenue trends to continue?.

Yes, I think the question is -- I couldn't use this occasion to answer some of my new insight on the situation. There is no question about the wearable is taking a little bit longer to kick off, especially with Google's Glass, of which many people know the way we are [indiscernible] and pivoted as it delayed the wearable for a while.

So now currently, people thinking about wearable is going for enterprise and I think it's true. And with all this being very, very strong in the enterprise world far early days in the Golden-i. Also people think that wearables at least the helmets vehicle [ph] for military. That's also true.

That's why we are in the F-35 or the AR and the helmet or the gun fighters and that many of the gun [Indiscernible] are towards helmets like eyeglass like. So we are very good there. We are also very good consumer industrial side like the helmet for the firemen. The question is consumer.

Consumer is definitely the biggest, biggest it has a huge volume, and how do you go about doing that? Now I've been in Asia for five times year. I think the consumer network has begun in Asia. Asians definitely understand the consumer market much better, cost point and application points.

So that's why we've been focusing now the last few months is to crack the consumer now. We're already in the military now, we are in enterprise. We're actually in consumers [ph] but we want to go to the consumer.

So I think the biggest item coming up to see is the mobile, how is Kopin going to crack the consumer nut?.

Great. Thank you. That’s helpful..

There are no further questions at this time. I'll now turn the floor back over to Dr. John Fan for closing comments..

Well, thank you very much for joining us this morning. And we look forward to give you updates on our future progress very soon. Thank you..