Andrew Haag - IR Paul Travers - President and CEO Grant Russell - CFO.

Jay Srivatsa - Chardan Capital Markets Matt Robison - Wunderlich Ross Silver - Vista Partners Aaron Martin - AIGH Investment Management Michael Altobell - Paragon John Nobile - Taglich Brothers Alpash Patel - Private Investor.

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 all might remember, we went to China side by side with Lenovo and announced a major deal whereby Lenovo will be selling our co-branded M100 Smart Glasses in China.

Lenovo we see exclusive device to sell our M100 glasses there to enterprise customers and after receiving finally certification from China's quality certification center, no easy feat frankly. The Chinese didn’t have any clue what a wearable display system was, let alone how to get it through all those testings.

We finally got through that allowing Lenovo to ultimately begin shipping into the marketplace to their customers. And I'm going to talk a bit later about who those customers are. They have a focus on warehouse operations, the major hospitals power distribution and the energy's sectors.

Vizux's also seen a series of applications in North American and European markets come from companies like SAP now with over four applications supporting our M100 alongside other developers.

For example, companies like UV-MAX have developed a vision picking application that was implemented and tested over a three week period by DHL among a bunch of other companies quite frankly. But DHL has been vocal about it. They are a leader in logistics with over 275,000 employees worldwide.

During this test employees wearing Vuzix's smart glasses picked over 24,000 packages and delivered a published 25% improvement in efficiency for their customer Rico. As a result of this trial, it's anticipated that Rico will be moving to more extensive implementation. And frankly DHL was also pretty happy with the results as you might imagine.

So they're looking at implementations of their own within their facilities; although the people at DHL, Rico and UV-Max have led the way by publishing their findings, showing their companies as up as front runners in the area. There are other examples of use cases and successful trials that are moving towards implementation as well.

Vuzix looks forward to continuing to work with all of these companies and they move toward adopting smart glasses solutions in the enterprise market. Excuse me folks just a moment. It does take time in the enterprise markets to bring new market innovations and smart glasses have proven to be no exception.

Development efforts that begun in early 2014 are just now starting to bear material fruit as we move from development of applications and testing to customer adoption and implementation of these solutions across many areas in the enterprise market.

I will update you in more detail later in the call of some specifics regarding the progress we’ve made and how we’re positioning Vuzix as a market leader. Right now though I would like to turn the call over our CFO, Grant Russell, to get the meat of the call and review our financial results.

Grant?.

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 have to be recorded in the cost of goods amounts. Operating expenses, R&D sales and marketing were up slightly, though again we’ve capitalized a portion of our R&D cost.

So the reported expect portion was modestly up. As a matter of fact, we did send over almost the third more in R&D. We had another small impairment of some patents and trademarks but overall our loss from operations was $5,032,000 for 2014 versus $4.6 million for 2013.

G&A costs were one of the items that were up and we’ve spent -- had to spend some money on things like expanded investor relations, attending earnings conference and all in preparation for gearing up for our listing on NASDAQ.

Other items within our P&L, as you know, we have quite a few, mainly most of them driven by our mark-to-market derivative liability requirements. We reported 2.8 million in other expenses, the largest being the mark-to-market under derivative liability and versus 5.5 million effectively for 2013.

This should be the last quarterly period where we have to see such large swings in our operating results, thanks to the fact that we have limited 86% of our derivative liability at the end of last year or January 2nd with the closing of the Intel financing.

From operations, we did use about $4.9 million to keep those -- invest in the ongoing in the Company. That’s up a little bit from the prior year, but it’s consistent with the last several years and as Vuzix continues to invest in its new products and technology.

We did include a pro forma -- some pro forma financial information reflecting the close of the Intel transaction on January 2nd. We -- because it was -- even though it was just two days late, we're not allowed to reflect that in our December 31st numbers.

But as everybody can see, our -- some of the assets, liabilities increased from $3.7 million as of December 31 to 28.3 million as of January 2nd, and most importantly our cash went from 85,000 up to 24.7 million and the derivative liability that’s causing some of the fluctuations in our operating results was reduced from $13.5 million down to $1.4 million.

And in this quarter we’ve had a quite few -- most of those warrants exercised. So at the end of March 31, 2015, we’re going to have a very small number to report there.

And stockholders’ equity as a result of all these various transactions increased from a deficit of $14.4 million to a positive $22.4 million and was one of the key factors in allowing us to uplift the NASDAQ.

Think that sorts of highlights all the major number, Paul?.

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 a hands free device opens it up for a pile of applications in the enterprise markets and in fact it never ceases to amaze me, the number of apps and new cases that are coming for these products.

That said, there are something like five or six areas that really are driving the current business for Vuzix. Field service is one of them, logistics and warehousing is another, medical applications, pharmaceuticals, manufacturing and general aviation.

So the advantages of using smart glasses in those areas are numerous, but the biggest one I think you’ll see is the fact that they’re hands free devices, and some examples of how they’re being used, in logistics and warehousing, a lot of you probably have seen the videos. You’ve seen what DHL is doing.

The bottom line is instead of holding a bar code scanner and then taking a pen or a pencil checking something off of a pick list, literally you wear the glasses, you look and go, look and go, look and go. And it’s proven as much as four times faster doing it this way than other methods.

So it’s a significant improvement in the logistics and warehousing and the market opportunity there -- it’s just huge. People talk about robots coming in and the likes. The reality of it is in the end for the most part human beings are picking boxes and putting them in boxes to ship to people.

And as you know there's hundreds of thousands of job areas that are impacted by the potential of smart glasses in that case. Another example is in training, in training particularly in the medical space. We have people that use our smart glasses today, as they’re doing an operation.

Instead of having doctors looking over their shoulders, maybe they can get three or four around them on the operating table, they can now record and stream live what they’re doing and share it with others, one to many all over the place.

That current set of sharing information like that and sort of teleporting information like that is a big one for smart glasses, in particular with Vuzix. And then finally in the field service area.

You can imagine if you have a guy in a field and he needs to make a decision and he doesn’t have the technical knowledge in order to do it appropriately, the ability of having another senior technician effectively teleporting, stand in his place and help him make a decision can save lots of money.

If you think about companies that have operations in Asia and they’re having a problem on the plant floor, instead of sending a guy in an airplane, they can literally have them go to a command center, log in and see what the employee is doing and help him make the best of. Those are things that are giving great returns on investments.

Smart glasses in a very short period of time because of that with Vuzix has shipped thousands of systems and it’s resulted in many trial programs and effectively today there are over 50 currently running programs that have gone from early prototype kinds of things to actual people using them in real world use cases, and as those trials move from the early tests and into actual production programs Vuzix, has seen growth from single digit orders to bigger volumes and in some cases the need for our smart glasses are in thousands of units.

We’re not there yet but the transition has happened. You can see these applications being very successfully implemented in the field and the number are starting to grow. In some cases its direct sales from Vuzix. In other cases, we’re enabling third party partners, value added resellers.

companies like UVMax and Enterprise or HeadApp in the aviation industry. In the case of UVMax, they’re the gentlemen who implemented the DHL picking application, warehouse picking application. They have a pile of their own programs with applications that they’ve written and the for the most part using Vuzix’s smart glasses.

HeadApp is in the aviation industry and it’s a 214A small pilots and the likes, they start shipping shortly. Arcovis in the medical industry, Pristine in the medical and enterprise industry. XOI has a version of Vuzix’s M100 that now runs under Linux, and they have a pile of their own active trial programs and those are just to name a few.

So we have a bunch of partners that are writing the applications, that are releasing their own apps which will open up I think significant business opportunities and revenue streams for Vuzix from each of their customers. Each of those VARs have growing businesses around our smart glasses with sales growing similarly.

Almost in every case we’re seeing results. Like the smart pick in bakery operation leading daily goods orders more accurately and efficiently to gain published results. And they can pick almost as much as four times faster than what they were. Or leaders like DHL and Rico with 25% efficiency improvements. These are real return on investments.

They are real programs. And they are resulting in revenue streams for Vuzix. And we talked a bit about our partnership with Lenovo Corporation. It has been a slow start unfortunately but that’s the name of the beast.

When we even try to get return through China certifications, getting the Chinese government to understand what a wearable display -- smart glasses were took time. Today they have an exclusive with us in China. In January they finally started shipping product. The package is beautiful. It’s Chinese understanding.

So it’s been completely rewritten, the tools and stuff. So a Chinese person can use it. It uses the Lenovo services and that services are focused on application areas that are in the enterprise. And they've got a bunch of programs underway right now.

They seem to be meeting with great results so far, and it ranges from their own internal shipping and warehousing needs to people in the energy industry in Chin which is massive and in healthcare in China. So they've got a lot of great opportunities coming. Vuzix is looking forward to some significant growth in 2015 and 2016 as they rollout product.

Another good one is SAP. SAP, they have four different applications. They really have just started shipping. Two of them are finally available, field service and warehousing. They have a rounds in retail, one that is also coming. We mentioned the companies like APX Lab, [indiscernible] et cetera.

The bottom-line is the M100 is meeting with great success so far. Programs are going from oneseys, twoseys, tens to real rollouts. You will see from the Vuzix’s announcements throughout the rest of this year of other application areas that are going live.

And there in some cases in markets -- if you just think about the warehousing industries alone with companies like Amazon hiring nearly 85,000 employees every fall just to pick and pack and ship, there's significant business opportunities. Let me just talk really quickly about our IWear 720. Gaming is been in our DNA.

I started this conversation by saying a significant portion of our revenues were in the entertainment space. The IWear 720 is Vuzix’s first offering in a long time in the wearable display markets and it’s planned at virtual reality and personal entertainment solutions. These guys won four awards at the Game Developers Conference.

It’s been a couple of years in development at Vuzix. They are an amazing product in that they can give you the kind of experience you would get with an Oculus Rift. For those who don’t who know, Oculus is a company that makes virtual reality headsets that Facebook bought for $2.3 billion.

It gives you those kinds of experiences but it allows you to do it on devices that are plug-n-play today. So you can plug it into your iPhone, plug it into your Xbox, it runs standard 3D HDMI content, but it also supports the virtual reality kinds of software that’s coming.

You will hear a whole lot more about that here shortly at Vuzix as the summer comes around. We will be shipping that product by the end of the year. We've increased production capacity at Vuzix, another major milestone for us. Our facilities now in China have the ability to produce as much 50,000 units a month.

So we’re prepared as the volumes pickup for our smart glasses. So the increasing value of our IP is obvious. Today we have 39 patents and 10 additional patents are pending, a bunch more than in process. We think that that intellectual property portfolio is going to prove very valuable.

If you just look at that in a comparison of other companies, you have companies Oculus that got bought for $2.3 billion from Facebook, another acquisition that was a handful of patents from a company called Osterhout that Microsoft paid as much as a $150 million for.

Google last year led an investment of $500 million into a company called Magic Leap for about a 20% position. These are companies that really aren’t even shipping products yet. Vuzix is and we have a future of where we can get in this space is going with some of our next generation waveguide technology. Let me just finish up here really quickly.

I wanted to talk a bit about the Intel investment. On January of 2015, although it was in a 2014 event, that was really important, they invested $24.8 million in Vuzix. They invested it at a premium to market of $5.

Although it was a premium to our market cap at the time, Vuzix management believes Intel got a pretty good deal when you look at comparables in the marketplace today. That said, so did Vuzix. Intel is a great partner for Vuzix. We are already collaborating with them.

I can’t -- I wish I could share with you more about everything that’s going on here because I know it’s a question on a lot of people’s minds. I can tell you that we are doing stuff with them now as I speak. It’s going back both ways.

There's going to be great opportunities for Vuzix's to open up business through Intel and on the flipside of the coin, Intel is helping us with some of our next generation technology from the perspective of silicon in the likes. So it's off to a great start and you'll hear more about that as the year unfolds. Great working relationship already.

We're excited by it. Continuing here just really quickly, I want to try to finish up. So our goal for 2014, we seeded the marketplace with initial enterprise applications. We're moving from seeded markets to actual roll outs with real programs and volume opportunities here in 2015 around the M100.

Our consumer IWear 720 will start shipping and we'll be rolling back into the customer adoption by the fall of this year. And then finally, by the end of 2015 another plus from the Intel investment is it's really allowed us to step our Waveguide optics development efforts.

So we'll be introducing by the end of this year our first pair of smart glasses based on those Waveguides. It's going to solve the Google glass problem of being a glass hole.

We think it will open up the mass market to the real value proposition of wearable displays when they really finally look like fashion glasses and I hope that that will put us well on our way to potentially even replacing the smartphone with smart glasses. This is just the beginning.

2014 was a great year and we have already set the bar pretty high in 2015 with the Intel investment and NASDAQ uplifting.

We're looking forward to seeing enterprise level customers, implementation of our smart glasses which you'll hear much more about as the year unfolds, further developments with our business and sales partners and the launch of our IWear 720 products into the virtual reality and gaming markets this fall.

We'd like to thank you for supporting our story and our vision and we look forward to sharing our progress with you again in the next quarter. At this point in time I'd like to open up the call for questions. There was other stuff I wanted to cover, but I think it'd be great to give you guys an opportunity to kind of ask your own questions. Thank you. .

(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 if you don’t look like something that’s fashionable, you’re not going to have great results in the consumer side. It has to look pretty.

So then on the Oculus side, Oculus they have optics from the 1980’s, not to pan the gentlemen. The fact is it’s an experience that people haven’t seen in a long time and when you put on an Oculus Rift, you do have this immersive experience which I believe has the potential to change the world when you’re sitting at home in your living room.

So what Vuzix did, we have a product similar to Oculus. It’s a great, great big field of view. Oculus gives you let’s say a 90 plus degree field of view. We support a 60 degree field of view. So it's slightly smaller than theirs. We did that on purpose because it allowed us to keep the aspect ratio of the content coming in.

So you didn’t have to reformat it. So I can put on the Vuzix IWare 720, and when I do, I can open up a spreadsheet and literally see right to the corners, I can work on it as if it were a spreadsheet or a word processing et cetera. What that means is I can work with any content today. So the IWare 720 is plug and play compatible.

When you’re in with an Oculus Rift, you have to plug it into the wall, you’re at home, you need custom content that’s running on your PC. It’s the split screen funky weird stuff so that they can take advantage of the optical issues, take advantage. They have to do it in order to fix their optics distortions. We don’t have those, so we’re plug and play.

We’re battery operated. We work on almost anything. You can get virtual reality experiences out of it, albeit not quite as big as an Oculus Rift, but we believe because you have the ability, if you’re running without shields underneath you can see the real world. You have tendency to not have this nauseousness thing that happens.

And then when you add in all the rest of the issues associated with a 720, it works with glasses, we’re very good at doing those kinds of things. It’s so easy to wear.

Nothing touches your face with the 720 it’s going to be one of, I think they’ll be many products in the VR space -- you’re seeing that happen now but I think that at $499 bucks, the IWare 720 is going to have clients with great favor in the marketplace..

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..