Greetings and welcome to the Vuzix Fourth Quarter and Year End 2014 Financial Results Conference Call. (Operator Instructions) A 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, Andrew Haag. Thank you, sir. You may begin.

Good morning everyone. I would like to welcome all of you to Vuzix's full year 2014 financial results conference call. With us today are Vuzix's CEO and President Paul Travers and the Company's CFO Grant Russell. Before I turn the call over to Paul I would like to remind you that on this call management's prepared remarks contain forward-looking statements which are subject to risk, uncertainties and management may make additional forward-looking statements during the question and answer session. Therefore the Company claims protection on the safe harbor for forward-looking statements and it is contained in the Private Securities Litigation Reform Act of 1995 as the results to differ materially from those contemplated by the forward-looking statements at the result of based on certain factors limited to general economic -- not limited to general economic business conditions competitive factors, changes in business strategy or development plans. The ability to attract and retain qualified personnel and changes in legal and regulatory requirements. In addition any projections as to the Company's future performance represents management's estimates as of today April 1st, 2015. Vuzix assumes no obligation to update these projections in the future as market conditions change. Yesterday the Company filed a 10-K with the SEC and afterwards issued a press release announcing its financial results. So participants in this call may wish to look at those documents as we provide a summary of the results on this call. Today's call may include non-GAAP financial measures. When required a reconciliation of the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release which is also available at www.vuzix.com. I would like to now turn the call to Vuzix's CEO and President, Paul Travers who will give an overview of the Company's business activities and development for the full year 2014. Paul will then turn the call over Grant Russell, CFO who will provide an overview of the key financial performance and operating metrics. Paul will then give another update and then we will move to Q&A. Paul?

Yes. Thank you very much Andrew. Welcome everybody. I'd like to thank you for joining the call today with our recent listing on the NASDAQ and now the filing of our 2014 results. We thought it was a great time to host a conference call. In fact this is our first conference call. I would like to thank new shareholders, thanking our existing shareholders and give you all an update on recent developments in Vuzix's. There is lots of listening going at Vuzix these days. So I'll try to keep this brief so there is time for some Q&A in the end. 2014 was an exciting year at Vuzix and 2015 has started off at a great pace, with the $24.8 million investment from Intel Corporation in our NASDAQ listening here in early January or end of January. It's also being an exciting time in wearable tech industry, especially in the eyewear side of it. We're seeing many new technologies and major investments from leading corporations like Google, Facebook, Microsoft as well as others. Additionally there have been several well respected research firm and analysts calling for solid growth in this space for years to come. We see analysts that are predicting the wearable computers that generate more than 10 billion in the revenue by 2020 and firms like ABR Research forecasting wearable computing device market will grow 0.5 billion unit shipments by 2018 with more than 75 million of those being smart glasses. Deloitte Consulting expects the enterprise market for wearable devices to surpass the consumer market over the long term. Vuzix has seen this trend and the enterprise market is one that we have been actively targeting. Vuzix is already achieving notable success as the industry sits on the cusp of major customer adoption. Last summer as you…

Morning everybody. Lastly we filed our 10-K with the SEC and we did some news release and hope everybody hopefully has a great chance to read it. So even I'll just do an overview quickly so we have more time for questions. Our revenues for the fiscal year ended December 31, 2014, were $3,032,000 versus 2,389,000 for the same period in 2013. That's an increase overall of 27%. Within that our sales of our smart glasses and Waveguide products were up actually 312% over the prior year and what brought -- minimized the overall increase was the fact that our Wrap series of products which we’ve been building for couple of years is going end of life or effectively is end of life and really has limited quantities available. And what we did have we decided to focus on the AR and VR. So those sales were actually off 45%. But engineering services were pretty flat for the year just being up a little over 5%. As I said total sales overall were up 27% and on a quarterly basis, we didn’t actually include that in the news release, but our Q4 sales were $844,000 versus $611,000 and they were up 38% over the prior quarter in 2013. Gross margins were 31% for 2014 versus 34% for 2013. They were down the 3% but in the discussions, in the MD&A we actually said there was about a 5% negative impact with the startup of manufacturing in China and this is the first quarterly period or yearly period where we have started to amortize our software development cost related to the M100 smart glasses. So that’s a fact earn growth -- from a cash basis, earned growth margins were actually up but now we have some non-cash charges, which per GAAP…

Fantastic Grant, thank you very much for that review. Let me continue here. First of all by offering that Vuzix has gone through a transition. It used to be routine for us to do between $10 million and $13 million a year in revenues and it was split between our defense and our consumer operations about 50-50 and over the last two years we have been transitioning from a series of old products. In fact you saw that with a reduction in Wrap sales. That's a product line that's going end of life. So those products are going away and we’re moving now into these next generation of products from Vuzix, which are revolutionary in the wearable display market and they’re coming right in time for the wearable tech. Business that is right in front of all of us and seems to be, seemingly so excited. As I mentioned previously, 2014 was a very eventful year as we start to make that transition. Several notable milestones were achieved here at the Company and these advancements are cause for great enthusiasm as we look forward to the future of Vuzix and it starts with our M100 smart glasses. The M100 smart glasses are effectively like having a smartphone. The only thing they’re missing is the cellular phone service. The difference is you wear them instead of holding them. So you imagine everything, GPS, WiFi, Bluetooth, all the motion sensors, an HD camera that looks out the front, and these guys run the Android applications in the glasses. So they’re smart gizmos, but the real things that make them stand out besides being super lightweight and easy to wear all day is the fact that they’re hands free. And the ability to connect information from the cloud to the real world in…

(Operator Instruction) Our first question today is coming from Jay Srivatsa from Chardan Capital Markets. Please proceed with your question.

Paul and Grant, congrats on the strong Q4 in fiscal 2014. Let me ask you at a high level, in fiscal 2014 what was the revenue mix between the M100 product and the older generation product? Specifically in Q4, what was the mix?

In Q4 probably just a little under 80% was the smart glass logic Waveguide products.

Okay. And then looking ahead to fiscal 2015, what is your projection on how the mix will be? Is it going to be all waveguide smart glass products or do you still believe some of the older generation products will continue to sell through?

Well in the second half of the year we'll also have the -- we should have the IWear 720, the video headphones going and we anticipate probably a split that will be either 50-50 or 60% smart glasses 40% video headphones.

Okay. Paul, you mentioned a lot of stuff happening in terms of customers and stuff. I know you didn't give guidance for fiscal 2015, but would you expect sequential revenue growth on a quarterly basis, on an annual basis? Any color would be appreciated.

To see a 300% or so increase in revenues from 2014 would not be unrealistic.

Okay. And where do you think this is coming from? Is it from existing customers, new customers, combination?

We've been in the entertainment space for quite some time as you know. The Wrap series of products is going away, but the IWear 720 which will start shipping this fall will represent a reasonable portion of business. The demand for wearable displays that are virtual reality based seems quite significant in the marketplace. The channels that we sell those products to today are really excited about the IWear 720. At the same time now we have an existing base of customers on the M100 that are beginning to roll out programs. So I call those existing although they really are new programs. You might see our company like DHL rolling something out in the fall of the year. They're really new for Vuzix but it's been years -- at least a year now in an effort to get them up online in the software operation and the like. So as I said it will be a mix between consumer and smart glasses and – some of its new customers and some of this is on existing base.

Okay. I know you said you couldn't speak much about the Intel investment and the strategy there, but just at a high level, do you foresee an Intel-based M100 or Intel-based Vuzix smart glass later part of this year or is it more fiscal 2016 or what's kind of the timeline?

Because of some of the testing that has to go into getting a next generation CPU with all the radios and everything else qualified, it’s unlikely you would see a 2015 release, although you are going to see some from Vuzix some next generation M100- esque stuff. You wouldn’t see one based upon Intel.

Okay. So given the very bullish guidance you have kind of suggested for fiscal 2015, what does it do -- to in terms of breakeven revenue run rate? What do you need to get to, to achieve breakeven?

Right now the Vuzix is -- so we have -- at our current earn rates we have something like four or five years' worth of capital in the bank. We don’t need more money. That said, its important Vuzix is executing to our plan. We’re in a race. We are building these next generation products and we’re investing in them. So you’re going to see our burn rate go up a little bit. That said, currently about $10 million per year run rate puts us at a cash flow breakeven more so. That’s going up though. We will need to do a bit more than that as we move into next year and have -- as our burn rates go up a bit to get these next generation products out. We’re not giving official guidance in that regard. Grant, do you have anything you could offer?

Really nothing more than what you suggested, Paul. I kind of look at it from a unit sales standpoint. If we sell the required our target -- the number units we're planning on building, those revenue numbers are not unrealistic.

Okay, and last from me, Grant, in terms of the warrants how much is left?

Well, there is -- as is debated, a little over $500,000 more, but related to the warrants that were issued in August 2013 as part of a public offering. We’re now down to about a total of 90,000 warrants and those were the ones that have the reset of. About a third of those have already waived. So there's really about 50,000 warrants left with reset ratchet capabilities. And all the convertible debt still remains on our books as those rights were waived. So a derivative liability at the end of March 2015 should be really small. And most of those were exercised in January and February. So the potential overhang of the $2.25 of warrants is being reduced drastically.

Thank you. Our next question today is coming from Matt Robison from Wunderlich. Please proceed with your question.

First one for Grant, it is more of a housekeeping item. I hope I don't bore you with this one too much. But I was wondering if you could provide the basic and diluted share count that would correspond with your pro forma balance sheet items that you have published? And go ahead I was going to give another one while you looked that up. But go ahead if you are ready for it.

I mean in our -- there is $10 million in 476 [ph] and it goes into weighted average calculation for basic for 2014. So 10,500,000 approximately. At the end of the year there was -- December 31 there was actually $11.2 million outstanding and today there is $15.8 million. From an anti-dilutive standpoint because the impact of those additional shares would be anti-dilutive, our reported loss per share would have been smaller. That element doesn’t get disclosed. If we had a profit, there would have been about 2.4 million addition shares that would have been in the money and therefore would have been included as the base in our diluted EPS numbers.

Yes, I think so. So for this year we should think the share count being -- I mean if we're projecting out further into some point when you're profitable, we should think something like 18.2 million shares?

Yes, I mean today we’re on -- like I said just little under $16 million and with the Intel convertible perhaps they’re just a little under 5 million. So we’ll have to start improving the -- cutback those preferred shares out of 6% dividend associated with them. So we’ll be having to book that, but on a fully dilutive basis we are up at about 22 million ignoring…

Yes, including the conversion, okay. That's what I thought based on your press releases. Okay, if we looked at just the fourth quarter, what would the M100 growth have been like?

The growth, year-over-year, okay. It would have been up probably a little over 10 fold. Basically we didn’t really start shipping to be honestly M1100 to customers. It was really in 2013 primarily to developers and it was just at the every tail end of the year that we actually started releasing products to general customers. So it was well over 10 times.

And are we looking at kind of space here where we could anticipate sequential growth throughout this year and including sequential growth in the first quarter over the fourth quarter?

Yes we believe so. Like you’re not going to see tenfold increases quarter to quarter.

And the Lenovo, just to confirm that's M100 that they’re reselling.

That’s correct.

They’re giving customers are taking -- they’re actually getting them in there, their hands over there.

Yes, you guys had a list of -- quite a list of developments during the course of 2014. Can you just highlight the ones that maybe happened since September?

Gosh.

I can follow up with you guys. I don’t want to burden the call with it. I just wanted to get a…

That’d be great. You can call me directly if you want to.

Thank you, our next question today is coming from Ross Silver from Vista Partners. Please proceed with your question.

Congratulations on an excellent 2014. Paul, it sounds like you are a little bit under the weather. So I hope you feel better. But just a question as it relates to the competitive environment. I know you mentioned the acquisition of Oculus by Facebook. And then also you spoke a little about the Google Glass. Could you just talk about sort of the differentiation that you have relative to products that are potentially in the market or on the verge of entering the market?

Sure. Well on the Google glass comparison first, everybody probably knows the Google’s kind of retrenching a little bit right now. They designed that product for the consumer market place. I can understand why, they did that. When you try to use Google glass in an enterprise set of conditions where the processor has to be pretty heavily loaded, what happens is it overheats, because it can’t keep up with -- imagine you’re in a warehouse and you’re using the camera as a barcode scanner. So the processor’s running constantly at 30 frames a second bringing in this video data, looking for bar code information, scanning it and trying to decode what the barcodes are. Well that’s pretty processor intensive and Google glass was not designed for that. So it fails pretty badly often. The other thing is it doesn’t have autofocus cameras in it and the likes. So when you’re trying to read a barcode you’ve got to move the barcode in and out until you get it just in the right position to where it will finally scan. Vuzix doesn’t have any of those problems. Again, we didn’t design it for the consumer space on purpose. It’s not one of those things that you’d see people wearing down the street in New York City, but we never said it was to begin with. The fact that you’re in a warehouse and you’ve got a hard hat on and you’ve got all kinds of other gear just makes it fit in really well. So in enterprise we designed it specifically for that marketplace and it’s meeting with great results there because of it. Whereas Google, they’re back to the drawing board, and when they finally work their way through this, I think they should have learned by now that…

Thank, next question today is coming from Aaron Martin from AIGH Investment Management. Please proceed with your question.

It's Aaron Martin from AIGH. Congratulations on the progress. Can you talk about the pipeline of M100 business as you look out to this year in terms of -- that supports the kind of growth you talked about for this year and what have you learned in terms of how companies like DHL and other companies that you're directly selling to move through that pipeline in terms of doing trials on smaller scale and moving up the trial size? And can you talk a little bit about that?

Sure. First of all we've learned that bigger companies take a whole lot longer to implement and bring out their solutions than the smaller ones do. Right now if you look at the Fortune 100 list, there are companies that are in that. Approximately 40% of those companies have purchased smart glasses from Vuzix. So it’s a lot of big guys that are using these devices. And the good thing about that is when they finally bring them out to market, the market opportunity is significant. Unfortunately it takes time for them to do that. If you think about programs like DHL, in the Rico in particular -- that was a DHL - Rico effort, right? They went through their first trials. They are going to be moving to some stuff. But then ultimately the business when it really starts unfolding here and gets to be, it can be pretty significant. Shipping industries 275,000 employees at DHL, there is FedEx, there is USPS, there is the Walmarts of the world. They all have these same problems. So once you solve the problem for one or two of them, it feels like it gets easier. I say that, knock on wood, there's not a lot of competition for Vuzix right now, and we’re expecting a bunch of these companies. So an earlier question, there is a lot of activity that’s happening. There is -- and many of them are getting through this process. So it’s easier…

Are there stages of trials? Is that something where they get progressively bigger?

That’s what we’re seeing. There are smaller operations that will like, hey, this works great, lets implement it. But if it's a bigger operation, it’s done in stages. So they will do it at their XYZ plant first, see success, then they will move it into other plants. In some areas it works really well, and other areas per the situation based upon how their plant has set up it doesn’t work. So yes, it starts slow and then builds.

Okay, thank you. In terms of the Intel relationship, and I know there is very little you can say, and you talked about how you are working together with them right now and that we can look forward to a product at some point maybe in the next year. But is this an Intel product? The typical Intel doesn't usually release consumer products. Or is it more of the call it Intel Vuzix inside? How should we look at it or is it an Intel product?

Well, it’s really hard for me to speak to them. I can say that along the reason why Intel likes Vuzix is related to our next generation optics. They think we have a really good feel on the business too. It falls right in line with their thinking of how the business will unfold. But if you just look at inside of the Intel, and this is public information, they have relationships with companies like Luxottica. Luxottica has been the number one fashion glasses company on the planet. So you could imagine if you play that out and you have a little bit that products from Luxottica maybe at some point in time would have Intel inside, that kinds of things in them. And to enable fashion glasses Vuzix is in a pretty good position for that. So it’s tough along those lines but other than that, those are public things. I really couldn’t comment beyond that.

Okay, I understand that. Let me maybe try to get at this in a way you can talk about. What percentage of Vuzix's engineered resources are focused on working with Intel right now?

I can’t answer that. Sorry.

Thank you. Our next question today is coming from Michael Altobell from Paragon. Please proceed with your question.

Paul, with the IWear 720, how and where are you planning to market this and what are your expectations for 2015?

For 2015 the product is going to be new. We’re going to be -- it will be a focus of specialty retailers. Our own Website, we have Web properties in Asia as well as the EU UK and the best combination of some select catalogs sales, folks like Amazon et cetera, it's we just -- we’re not going to build up the hundreds and thousands of units if they required it for like a rollout in Best Buy or the likes, even assuming they would decide to carry it. But initially it’s going to be fairly concentrated distribution channel. And we’re expecting that 40% to 50% of our sales will be -- literally will be direct, and right now they are averaging around 35% of all our other products.

And in fact you should see shortly the 720 going on sale on our Web site for presales.

Thank you. Our next question today is coming from John Nobile from Taglich Brothers. Please proceed with your question.

I know, Grant, that you broke out before a combination of -- for the fourth quarter the M100 and the M2000 AR sales was about 80% of product sales in the fourth quarter. But I was hoping you could break out just the M100 sales for the year, get an idea of what that contributed to total sales.

At this stage, we're not disclosing product line revenue for a variety of competitive reasons. So we'll get totals in percentage changes but we think it's a little too early and until we have a more solid historical pipeline we don’t want to mislead or confuse anybody with individual product line detail.

They are two different kind of devices if you think about it. One of them is an optical seeker system one of them is kind of more immersive system. And we think there is good information in the market side of that, understanding how those products move and who they relate to.

And I know startup cost affected your results in China for the M100. I was hoping you could quantify exactly what are the startup costs, how much this was in fiscal 2014?

The biggest product in our 10-K we filed in the MD&A, we said the startup cost in China. I think we quoted a number 72,000. They're actually little more of that, but some of them more expense in other areas. But including like R&D, travel costs et cetera for our Group, that end up, [indiscernible]. But the bulk of what we identified which impacted margins almost 3% was they go through engineering, sort of destructive testing modes for the first several builds. So they do a one build and do another build and then they finally start production. The output of the first and second build which is around 300 pieces and those components and products end being destroyed. So these things cost $250, $260 each, all the electronics and materials in them. So that becomes a direct hit on our cost of sales.

Okay, so all that added up was about $72,000?

Yes I believe that's the number I looked at in the MD&A.

Okay, I will look. I didn't have a chance to read through the K yet.

There were other costs. There was related travel, but we try to – some of it just the cost of generally doing business. But we only identified what the components, materials have ended up being destroyed as part of the QA process.

And I know that Google Glass has had its problems and, competitively speaking, how do you feel that the M100 actually stacks up against Microsoft's Holo lens?

The Holo lens is pointed at a different market. I think Microsoft's ultimate goal is to make that the device of future and people use it walking down the street, they use it for entertainment purposes and the likes. I can say that in the warehousing environment you put the Holo lens on and there's not of peripheral vision that you have because just if you saw the thing. And I'm speaking as a person who has not gotten a chance to actually wear it here it okay. But from what I understand, the CPU for it is big and bulky. Currently they've got fans on it that keep it cool. There is not a lot of peripheral vision it looks. So in the enterprise space it's not a great solution. And the way it correctly exists, it's not a great solution for walking down the street either. You think you look odd with Google Glass on? This thing is even odder. So they have work to do on the ergonomics side. That said, as an entertainment device using it home or maybe -- and in research kinds of things as it is, even maybe it might fun for people. But it doesn’t really compete with a pair of light weight smart glasses that are hands free for enterprise kinds of things.

Okay. And a lot of my questions were addressed, but I just have one more, in particular with Lenovo. You said that you started shipping in January, but I was just curious if there were any sales of Lenovo in the fourth quarter. And what do you expect as far as that area is concerned for 2015?

So in 2014 actually Vuzix did shift to Lenovo. The bigger issue was Lenovo being able to shift to their customer base. So --and in 2015 we've also shipped some product to Lenovo. So the thing for Lenovo was probably two fold, one getting the CQC, CCC certifications was a dragged out process. And then number two, trying to turn something into a Chinese version is not entirely -- there's lot of software and the likes that have to get put in place. And then I think as Lenovo went out their customer base they learned a bunch of other things too and they upgraded and changed. So Lenovo hasn’t started shipping until just in January to their customer base.

Okay, but you did ship to Lenovo obviously in the fourth quarter. So I just wanted to get a feel for if you could quantify what that was.

Yes, Grant do you know what the numbers are in the fourth quarter or was it.

We don’t disclose sales individual customers. So it's

Okay, but Lenovo really didn't get the ability to really start shipping in any quantities until January. I would imagine that whatever you did ship to Lenovo in Q4 we can anticipate sequential growth going forward.

Yes actually we did ship to them in Q3 and I'm just trying to have a scan on what we might have gotten in Q4. Actually the shipments, Lenovo shipments as part of our M100 sales in Q4 were really modest, very minimal because since we ran at the end -- we make a shipment on August, first shipment August and September to them, and then we ran into the CQC certification, that we effectively -- we’re not using any products in Q4.

Yes, so that is what really kept the sales down was waiting for that certification, which is history at this point. So I would imagine that, if you could give us a feel for at least Q1, because that is actually in the books at this point, how Lenovo shipments have gone through in Q1.

Q1, they have started taking profits again and they finally have been shipping and they have all these accounts that are coming on board. But honestly John, beyond it’s a really hard to share that kind of data with you.

The numbers are modest. They’re not materially a big jump because it’s still part of their rollout.

And that is for Q1 you anticipate it being modest right now?

Yes.

Thank you. Our next question today is coming from Alpash Patel, a Private Investor. Please proceed with your question.

As you mentioned Oculus couple of times, the $2.3 billion acquisition by Facebook, where do you see Vuzix in a year or two or five years from now? Do you see it being potential takeover target or do you see it an independent company?

Well, I mean currently Vuzix is building our business. You might imagine that in an $80 million market cap where there is not a lot of interest in selling the Company. So we’re building the business today. At some point in time an acquisition of Vuzix could happen clearly. It would make sense. There are some big companies that want to get and want to play in this space. Vuzix is a leader. So today we’re building and if the numbers were right, of course Vuzix would mean to address the potential acquisition down the road.

Okay and other thing. I know you’ve mentioned Amazon as a possibility, just as DHL and has Amazon said actually or UPS approached Vuzix yet to try out their product?

We have sold product to a pile of companies. So you might imagine that they would be on the list.

Okay and as far as -- and we know that DHL has already tried the product and saw the 25% increase in the productivity. So do you expect an order from DHL anytime in the near future?

We anticipate that DHL will continue to build their efforts around smart glasses and wearable tech just like they have explained in their video.

Okay and finally, has Vuzix looked into like police cameras? I know that's a pretty big topic right now with Ferguson and everything happening?

We worked with the firm in Rochester, New York, called Fifteen. And we have gotten some outreach in this regard and we forwarded those request for information onto our partners at Fifteen and yes they’re managing that effort.

Ladies and gentlemen, we have reached end of our question-and-answer session. I would like to turn the call back over to management for any further or closing comments.

Thanks everybody for joining the call. Vuzix is in an exciting time in its growth. We’ve come to an awful lot in the wearable tech space. We're one of those companies that have been through thick and thin of it while we are survivors. And I don’t believe that you could pick a better time to invest in a company like Vuzix. We appreciate everybody’s support thus far and look forward to 2015 with everybody.

Thank you. That concludes today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.