Greetings and welcome to the Vuzix Third Quarter 2017 Financial Results and Business Update Conference 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] And as a reminder, this call is being recorded. Now, I would like to turn it over to Andrew Haag, Managing Partner at IRTH Communications. Mr. Haag, you may begin.

Good morning, everyone. I would like to welcome you to Vuzix's third quarter 2017 financial results and business update conference call. With us today are Vuzix's CEO, Paul Travers; CFO, Grant Russell; and the company's COO, Paul Boris. Before I turn the call over to Paul Travers, I’d like to remind you that in this call, management's prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements during the question-and-answer session. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that are contained in the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those contemplated by any of these forward-looking statements as a result of certain factors not limited to general economic and business conditions, competitive factors, changes in the business strategy or development plans, the ability to attract and retain qualified personnel, as well as changes in legal and regulatory requirements. In addition, any projections as to the company's future performance represents management's estimates as of today, November 10, 2017. Vuzix assumes no obligation to update these projections in the future as market conditions may change. Yesterday afternoon, the company issued a press release containing its financial results and the company filed its 10-Q with the SEC. So, participants in this call who may not have already done so, may wish to look at those documents as the company will provide a summary of the results discussed on today’s call. Today's call may include non-GAAP financial measures. When required, reconciliations to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in the Quarterly Filings at sec.gov, which is also available at www.vuzix.com. I will now turn the call over to Vuzix's CEO, Paul Travers, who will give an overview of the company's business activities and developments during the third quarter of 2017. Paul Travers will then turn the call over to Grant Russell, Vuzix’s CFO, who will provide an overview of the company's first [ph] quarter results. Following Grant Russell will be Paul Boris, Vuzix’s COO who will provide an update to some key strategic initiatives and business development activities. Paul Travers will follow Paul Boris, and provide closing remarks. We will then open up the call up for Q&A after managements update. Mr. Travers?

Thank you very much, Andrew. Hello everyone and thank you all for joining our call today to discuss the company’s third quarter 2017 financial results and business outlook for 2017. Over the last several quarters we have been witnessing a significant shift in the enterprise market for Smart Glasses. This shift has provided us improved visibility into our growing enterprise sales pipeline, which now includes well over 350 pilots and multiple large deployment opportunities around the world. We have worked closely with our VIP partners and value-added resellers to optimize the performance of the Vuzix’s M300 and the feedback has been overwhelmingly positive. VM300 has become the preferred hardware offering for many of our partners and clients over any of the competitors today. The conversion from pilot programs to commercial high-volume deployments began in notice in the fourth quarter for Vuzix and will continue to significantly throughout 2018. Beyond the M300 Smart Glasses, the company will be introducing several new products in early 2018, including an OEM version of our Toshiba powered by Vuzix’s Smart Glasses for enterprise, as well as the highly anticipated Vuzix blade augmented reality Smart Glasses. We are proud to say that for 2017 we recorded our third consecutive quarter of revenue growth of Vuzix. With Q3 sales of approximately 1.4 million, representing a 141% increase over last year’s Q3 and overall sales for the first three quarters of 2017 at 3.9 million, exceeding 2016’s full-year revenue by 85%. That said, the financial results for the later portion of Q3 were hindered by manufacturing issue that arose during the quarter related to certain plastics on the M300. This limited the availability of the M300 inventory throughout the third quarter. Because of this, by the end of the quarter, we had shipped all of our available M300…

Thanks Paul. Good morning everybody. Before I begin, I would love to just point out of the rounding up into the thousands, there will be millions in a few cases, as we do report in dollars in all our SEC filings. As Paul mentioned, for the three-month ending September 30, 2017 Vuzix reported $1.405 million on total revenues, as compared to 583,000 for the same period in 2016. That’s an increase of over 121% over the prior year. Smart Glass sales were up 171% with our new M300 Smart Glasses being up 462%. And for the first time, we saw our Smart Glass product sales exceed $1 million in the quarter. Product gross profit for the 2017 quarter was $29,000 versus a loss of 237,000 for the 2016 quarterly period, reflecting improved M300s margins and our total overall revenues on which to absorb the generally fixed manufacturing overhead costs they had. The 2017 quarters overall negative gross margin of 92,000 was driven by the expected increase in completion cost of the Toshiba Smart Glass development program, which was a fixed price contract, which resulted in the recognition of $141,000 loss of revenues for the quarter. As a reminder, the Q3 2017 product margins were further hampered by the zero margin we are running on the eyewear, which was written down at the end of 2016. We expect the overall M300 manufacturing costs will decrease further in Q4, and as production volumes ramp in 2018. R&D cost for the three months ended 2017, September 2017 were 1,506,000 as compared to 2,178,000 in 2016. The overall decrease in R&D spending is primarily the result of a reduction in M300 development cost, which was still an active development in the 2016 period. We did have some staff R&D additions in the quarter, but…

Thanks Grant and Paul. I’ll be briefing my comments and want to focus on some very specific aspects that have possibly impacted Vuzix’s business. So, diving right in, Paul Travers detailed of the acceleration and adoption and the more to scale rollouts we have seen from our VIPs. Despite all the talk about digital transformation, operations [indiscernible] are laagered in the technology adoption. Their thinking is, why should I buy a computer that may or may not work when I can buy a widget machine and make more product, which is why there are so few real reference stories in marketplace. Obviously, what they are missing is that a reliable widget machine that makes 30% more of the right product in the same timeframe or a field engineer that costs less because they have more and better data or expertise at their fingertips or should I say in the right piece creates a vastly more cost effective and scalable business. This is at the heart of the digital transformation that everyone is lusting for and so few are executing on. Last week, the CEO, a true software innovator in the space and MIT professor and thought leader on the industrial Internet and augmented reality had an event sponsored by the National Association of Manufacturers presented a Howard Business Review piece that prominently featured Vuzix customers and success stories. Not a couple, but the majority of the cited cases were delivered on Vuzix’s hardware. It is indisputable that new company in the space has a better broader set of referenceable used cases around industrial wearables and their direct intangible impact to operational performance than Vuzix does, which in the early stages of the market is a significant differentiator in buying decisions of these operations [indiscernible]. Another important topic that we’ve alluded…

Thank you, Paul and Grant. As you can gather from management's comments today, on today's call, the enterprise industry has truly pivoted into the next date of commercial deployments and adoption. 2017 has already proven to be a pivotal year for Vuzix on multiple fronts and we still have the fourth quarter to add to the story. When 2017 is all set and done, we will be able to look back and say and as a company Vuzix set new records on quarterly and annual revenue, we added multiple new OEM partnerships, we added significance strength to the Vuzix bench through the addition of talented new employees, we introduced one of the most exciting new redeye-based AR smart glasses to ever hit the market, and we broadened our intellectual patent portfolio to over 100 patents and patent pending, just to mention the high points. As exciting as 2017 is turning out to be for Vuzix, I have to say that 2018 is setting up to be a barn burner for the company. The enterprise of Smart Glasses industry as a whole and Vuzix will continue to pave the way as an industry leader and the world will see explosive growth in this space. This growth is fueling the cash flow engine at Vuzix. That along with the amazing caliber of companies that we’re working with is opening the door to conventional date financing for Vuzix. And as Grant said, as we execute to our plan, modify the way that we’re doing some of our production processes, the cost for everything is able to go down, we are getting stronger and we’re moving towards positive cash flow and independence by every measure. Now, let me pass the meeting to Andrew to begin the Q&A session.

Hi, everybody. Operator, can you please queue the Q&A session and move towards questions.

Certainly. [Operator Instructions] Our first question comes from line of Brian Kinstlinger with Maxim Group. Please go ahead with your questions.

Hi, good morning guys.

Good morning, Brian.

You mentioned plans to build 25,000 pieces based on demand for 2018 and then maybe even more given how much demand you’ve got. First, can you confirm just based on what has been said that the M300 is now being manufactured without issue and how many pieces do you think your manufacturer can make in 2018 and I wonder at Toshiba is being built on that same production line?

Toshiba is being built on the same plan, and the production problems that Vuzix experienced are enhanced 100%. At this point in time, the plant floor is cranking. We’ve mentioned this before, the tools are capable of actually pumping out a fair amount of product, upwards of 50,000 pieces on a monthly basis if we wanted to do that, and we needed too. So, the infrastructure is in place, it is part of the reason why it cast Vuzix so they could - as this growth happens we need to have the back up to support it. So, it’s that to accelerate. As I said, I believe just next week we’re getting a first lot of 700 pieces out of our China factory. So, it is franking up and it is possible to thank up to meet the demands we are confident of that.

And then you mentioned in your prepared remarks, the 5 million in revenue expected from Toshiba after the first 12-months of the completion of your development, is that a minimum commitment or is that based on early volume estimates by Toshiba and Vuzix?

So, there’s going to be, some time before the end of this quarter I believe there will be a press release that comes out, the only thing describes a whole lot more about the agreement between Vuzix and Toshiba. The bottom-line is for certain reasons that we would expect it would be a minimum kind of a number.

Great. And then you mentioned other Tier 1 OEM's, I think for the M300 I know you had one for the waveguide today that you couldn't really discuss by name, can you just talk - and maybe you did, I was confused, can you talk about the progress that you are making in the development for other OEMs for the M300s or am I mistaking and that’s not actually playing out right now?

So, the bulk of the OEM, all of the OEM are partners that we’re talking to - the ones that we have announced these three and others are always [indiscernible]. They all want - other than Toshiba of course, right. They are always [indiscernible] and they want this next generation ability to make slick, slim, see-through kind of devices.

And to be clear, while today's announcement is for waveguide technology that they won't use in other products are there also Tier 1 OEMs that you're working with that want to sell a product similar to the blade that is white labeled as their own?

If you look at what’s happening in the smart phone industry today between Apple's ARKit Google’s ARCore everybody is talking about the phone actually being a stepping stone until these next-generation devices, which would be glasses. If you think about what the ARKit does for the iPhone, you got people holding up their phone and they are getting directions on walking down the street, they put an arrow out in the middle of the street. But you are still holding up the phone, it’s an awkward, it’s cool a tech, right, but it’s awkward, it’s not the way this content needs to be and should be delivered. And Apple is getting rumors about bring glasses, and so the waveguide are a perfect fit for that Brian and that is the area where these guys are looking to deploy them.

Great. Looking forward to a great 2018. Thank you.

Thank you. That is so one case that’s different than that, I can't get into it, but waveguide, you might imagine there are a lot of cool things you could do with them besides just putting on a pair of glasses.

Absolutely.

Thank you. Our next question comes from the line of Jim McIlree with Chardan Capital. Please go ahead with your questions.

Yeah, thanks a lot and good morning. Can you put a dollar amount on how much the manufacturing issues impacted Q3 revenue?

Revenues, it’s really hard to backward speculate because when you’re going through this thing and you're working with your partners and you’re helping them deal with this issue right, it slows them down to. So, it’s really hard to say Jim, how much less on the table, I would say that the problems, the devices that we have problems with are all repairable. Since we need have some parts replaced on them and that’s going to happen and it should not cost Vuzix. And it didn't [indiscernible] third quarter I think rather significantly and there is somewhat of for an impact on the fourth quarter too because it slowed us a little bit, but all this is just kicking into overdrive now. I’m glad it’s in our rearview mirror.

Right. Okay, and Paul you know how analysts and investors are. When you come out and you say, we can produce, we are going to get a shipment of 700 next week and we can do 2,800 units for the rest of the quarter, I think the tendency is to say while they are going to ship and recognize this revenue 3,500 units, and I just want to make sure, is that what you're saying that you think you are going to do, or is that what you’re saying you have the capacity to do and it really will depend on the customer’s orders and ability to take that much product. I was just hoping if you could clarify that?

Yes, it’s capacity. That said the fourth quarter should be significant improvement over the third quarter. I just don't know, exactly what kind of - we are kind of picking up the pieces a little bit from September, I think. So, it should be a damn good third quarter - fourth quarter result.

All right, and the Toshiba, I think the timeline on that is that you’re going to have - I just lost it. You're going to have an agreement or - what you have first, you have, you're going to have a development program that’s completed and then you move into volume production and so are there other steps involved or is that it - you complete the development, you get the agreement, and then you go volume or is there a different timeline versus what I just saw speculated?

It kind of makes sense, let me just float you through it here. We need to finish delivering on the initial development effort, we have been delivering PVTs to them before the end of the year we’ll get all the way through to PVT basically production and that’s what they’ll look like before the end of the year, you know we will also have signed a GPA, an agreement - purchase agreement and then in the first quarter, I can tell you that almost everybody wants to be there early as part of the first quarter they make it happen and the production ramps up.

Okay. And your production will be based on the success of their product and so that - what you are characterizing as of 5 million minimum might take you two quarters to get there or three quarters or four, but it is really going to be dependent on how Toshiba does with the product?

Yes, that’s correct.

Okay. All right great. And then…

We would expect, it could potentially accelerate for all we know Jim, but there is a minimum amount of business we are expecting out of this thing and in 2018 it will be that $5 million and a number. It could be…

And there is no committed agreement to that yet. That’s really more based on your conversations with Toshiba and what they’ve shared with you in terms of what they think the product can do?

A bit more than that. I would like to think it is an agreement that is within days of [indiscernible].

Okay. I will wait for that one.

We will be sharing more when we can on that. Frankly, it’s not that far away, but it's hard to get into the details on something that’s eminent but not designed.

All right. And Paul both you Paul Boris talked about an acceleration in a demand for the M300, have we gotten to the point where that demand has resulted firm purchase orders with delivery times attached to that or are we getting to that point sometime in the next few months?

We have partners that are issuing from purchase orders, drop dates, and drop shipments around the globe.

Okay. And so, you’re confident and your enthusiasm is based on that as well as the general reaction that you’ve had. I mean, it’s partially based on firm dollar contracts in hand?

Yes, it’s a bit of a mix. It is a mix of a bunch of things. It is that - it is the business that we know of that our VIP partners have in the queue and it is all of this new stuff that Paul was talking about. I mean this business is starting to really charm, people are coming out of the woodwork. When it is proven ROIs that is as big as what people are seeing, the CIOs, CIOs et cetera that Paul is on that you guys they wanted to deploy so they can take advantage of it and we are seeing that as even a new part of activity that before it was a groundswell, but the little values, the VIPs and stuff, it wasn’t the bigger companies. With the exception of the occasional BHF now it’s slipping the other way.

Let me just add one thought to it. We talked about the used cases. What’s emerging is that one used case is sufficient for these folks to justify their whole program and then they want to add on to that in the next wave and the next wave and the next wave. So, what that does is that puts the M300 in play immediately, it gets the device to play quickly, it scales them out very fast, and then the VIPs can come right in behind that and add all kinds of additional value on top. I mean it’s a preferred way to move this technology out for the use of much larger customers and they are starting to take advantage of that.

Got it. Okay. Thank you. And my last one, hello…

No, I was just going to Jim, you got to think in the M300 now that I bought it to do just one thing in a plan. It can be so many things, so if there is 1000 of them deployed, all of a sudden all would be where a VIP applications can be utilized on those thousands that are in the field. So, it’s a good thing to have the higher volume of M300s in the field the more everybody wins.

Got it. Okay. And last question for you Grant, there is a line on the balance sheet accrued project revenue, I am assuming it relates to Toshiba, can you explain to me how that gets - what that is and how that gets either recognized or costed through the income statement?

Well it gets to the income statement; the revenue is set up on the balance sheet as a receivable and the revenue is for reported on the income statement. But basically, we are recognizing revenues on this on a percentage of cost completion. So, you look at the cost, you’ve incurred to date, the total cost of the project, you know about 75% of the total expected cost under GAAP you reported revenues of 75% of the revenue. You derive on that by symbolizing through Toshiba, which in our development agreement is based on milestones and the delivery of EVP's and PVT units. So, at the end of the year that should be much less it has gone - if anything there might just be there the final building as a receivable then it won't get completed be an accrued project, we see it’ll just be part of regular accounts receivable. Does that make sense?

Yes, that’s perfect. I got it. I just wanted to get a clarification on that. Great. Thanks a lot. Congratulations on everything and good luck. I will talk to you later.

Thank you, Jim.

This concludes today’s question-and-answer session. I’d like to turn the floor back to management for closing comments.

Well we like to thank everybody for joining our shareholders meeting today and for being great supporters of the company. We’re looking forward to a fantastic 2018 and finished 2017 frankly and again if you get a chance you should come to CES to see the Blade folks, because it’s an amazing device. Thank you for joining the conference call. This ends the call.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.