Vuzix Reports Full Year 2015 Financial Results

The following table compares the Company’s statement of operations data for the twelve months ended December 31, 2015 and 2014.

2015 Operational Financial Commentary:

• Overall product revenues were up 3% in 2015, despite the phase-out of the Company’s Wrap Video Eyewear products in Q1-2015, thanks to a 13% increases in smart glasses revenues.
• Sales from engineering services for the year ended December 31, 2015 were $205,831 compared to $557,517 in 2014. The decrease is primarily the result of the completion of US military engineering services program in early 2015. In 2014, approximately 56% of engineering services revenues was to the US military. The Company has no follow on military engineering programs.
• Gross Margins for 2015 decreased to 21% as compared to 31% for the year ended December 31, 2014. Average 2015 product gross margins actually increased but were negatively affected by a total of 12% due to the impact of a full year’s amortization of software development included in cost of sales for the 2015 year as compared to just one quarter in 2014, and higher minimum software royalties versus 2014 due to software included with the M100 Smart Glasses.
• Sales and marketing costs increased to $1,798,041 in 2015 versus $1,232,520 in 2014 due to higher personnel salary, trade show and PR costs.
• Overall research and development costs expensed for 2015 were up 105% over 2014 to $3,595,437, primarily the result of staff additions and related increased salary costs and spending on new product development for the iWear Video Headphones, our next generation smart glasses and Waveguide research.
• General and administrative expenses increased to $6,120,101 from $2,593,384 primarily due to higher stock compensation costs, external director fees, and increased investor relations activities in 2015 as compared to 2014. Of the overall increase in 2015 over 2014, a total of approximately 80% of these cost increases, or $2,804,522, was non-cash share and warrant compensation expenses.
• Total Other Expense (Income) was $2,086,022 for the year ended December 31, 2015 compared to $2,836,526 in 2014. The largest expense for the 2015 period was the loss of $1,098,465 on the derivative liability valuation mark-to-market revaluation versus a loss of $2,194,001. The next largest expense was related to the amortization of term debt discounts in 2015, which represented a full year’s charge as compared to 2014, when the related term debt was only issued half way through 2014.
• Total non-cash expenses for the year ending December 31, 2015 were $5,752,978 versus $3,696,681 in 2014.

2015 and Recent Corporate Highlights:

• Began trading on NASDAQ on January 28, 2015.
• Improved balance sheet with increased cash, stockholder’s equity and assets through a $24.8 million investment from Intel; decreased derivative liabilities through related transactions.
• Made first volume deployment of M100s to Lee Company in fall of 2015 with XOEye Technologies, with initial shipments of 500 Vuzix M100 Smart Glasses bundled with XOEye’s custom applications.
• Introduced M300 Smart Glasses pre-order program, with product scheduled to start shipping commercially in Summer 2016.
• Deployed M100 Smart Glasses with Bechtle, Germany’s largest B2B IT service provider, in world’s first use of mobile SAP AR warehouse picker app in a live environment.
• Vuzix common shares were selected for inclusion in the Russell Microcap® Growth Index when the Russell indices were reconstituted in June of 2015.
• Awarded eight CES 2016 Innovation Awards, including “Best of” in Gaming and Virtual Reality for iWear® Wireless Video Headphones.
• Made Vuzix M100 Smart Glasses available in prescription safety format at national retail optical chain.
• Commenced shipments of iWear Video Headphones to developers and consumers, with growing online library of over 120 software titles available.
• Grew our intellectual property with the filing of 14 patent applications, the purchase of two patents and the receipt of two new patents.
• Delivered working enterprise smart glasses solution to DHL for warehouse picking, resulting in greater than a 25% increase in worker productivity.
• Launched Future Proof offer with APX Labs, allowing customers to begin deployments with APX’s Skylight and Vuzix M100 Smart Glasses and upgrade to the next generation Vuzix M300 seamlessly when they begin shipping to customers in Summer 2016.
• Moved into new corporate offices and manufacturing areas, as well as completed upgrade to Rochester facilities, accelerating development and manufacturing of Waveguide technology and equipment for new generation Smart Glasses products.

2015 Year End Financial Summary

“We are excited about the growing traction we are seeing for our Smart Glasses,” said Paul Travers, President and Chief Executive Officer of Vuzix. “For example, our recent shipment with XOEye Technologies to Lee Company to facilitate remote support, training, workflow enhancement and much more is the largest order to-date that we have received. The momentum has already started to build in 2016, which we expect to be a much improved year for Vuzix financially over 2015, as more enterprise customers should be converting successful pilot programs to actual commercial deployments.”

Mr. Travers continued, “We expect our next generation M300 Smart Glasses to begin shipping in Summer of 2016 and recently launched a pre-order program for this innovative product, which we believe will further differentiate us from other technology in the wearable space. The Vuzix design team over the last two years has gained valuable insight into what worked and what did not in ours and other smart glasses hardware. With significantly improved ergonomics and faster processing power, all in a new ruggedized form designed specifically for enterprise, industrial and medical use, the M300 represents the most innovative technology available in the smart glasses arena.”