UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-35955

VUZIX CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		04-3392453
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)


25 Hendrix Road, Suite A West Henrietta, New York		14586
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (585) 359-5900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:		Trading Symbol(s)		Name of each exchange on which registered:
Common Stock, par value $0.001		VUZI		Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐

Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

As of May 10, 2022, there were 63,667,941 shares of the registrant’s common stock outstanding.

Table of Contents

Vuzix Corporation

INDEX

		Page No.

Part I – Financial Information

Item 1.	Consolidated Financial Statements (Unaudited):	3

	Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021	4

	Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	6

	Notes to the Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	22

Part II – Other Information		23

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Mine Safety Disclosure	24

Item 5.	Other Information	24

Item 6.	Exhibits	25

Signatures		26

Table of Contents

Part 1: FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

VUZIX CORPORATION

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	March 31,		December 31,
	2022		2021
ASSETS
Current Assets
Cash and Cash Equivalents	$	113,329,734	$	120,203,873
Accounts Receivable		1,551,654		2,242,429
Inventories, Net		12,559,066		12,151,982
Manufacturing Vendor Prepayments		586,564		504,051
Prepaid Expenses and Other Assets		1,470,415		2,047,819

Total Current Assets		129,497,433		137,150,154

Long-Term Assets
Fixed Assets, Net		5,042,421		5,190,438
Operating Lease Right-of-Use Asset		968,269		1,117,022
Patents and Trademarks, Net		2,020,099		1,988,370
Licenses, Net		1,333,236		1,389,936
Intangible Asset, Net		42,821		147,548
Other Assets, Net		1,445,897		1,483,589

Total Assets	$	140,350,176	$	148,467,057

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable	$	1,223,741	$	2,054,762
Unearned Revenue		29,623		27,797
Accrued Expenses		1,127,021		1,419,308
Income and Other Taxes Payable		45,692		120,242
Operating Lease Right-of-Use Liability		514,204		534,146

Total Current Liabilities		2,940,281		4,156,255

Long-Term Liabilities
Operating Lease Right-of-Use Liability		454,065		582,876

Total Liabilities		3,394,346		4,739,131

Stockholders' Equity
Common Stock - $0.001 Par Value, 100,000,000 Shares Authorized; 63,704,626 shares issued and 63,667,941 shares outstanding as of March 31, 2022 and 63,672,268 shares issued and outstanding as of December 31, 2021.		63,705		63,672
Additional Paid-in Capital		350,721,326		346,736,397
Accumulated Deficit		(213,578,144)		(203,072,143)
Treasury Stock, at cost, 36,685 shares as of March 31, 2022 and 0 shares as of December 31, 2021		(251,057)		—

Total Stockholders' Equity		136,955,830		143,727,926

Total Liabilities and Stockholders' Equity	$	140,350,176	$	148,467,057

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


	Preferred Stock			Common Stock			Additional		Accumulated		Treasury Stock
	Shares	Amount		Shares	Amount		Paid-In Capital		Deficit		Shares	Amount		Total
Balance - January 1, 2022	—	$	—	63,672,268	$	63,672	$	346,736,397	$	(203,072,143)	—	$	—	$	143,727,926
Stock-Based Compensation Expense	—		—	—		—		3,955,738		—	—		—		3,955,738
Stock Option Exercises	—		—	32,358		33		29,191		—	—		—		29,224
Purchases of Treasury Stock	—		—	—		—		—		—	(36,685)		(251,057)		(251,057)
Net Loss	—		—	—		—		—		(10,506,001)	—		—		(10,506,001)
Balance - March 31, 2022	—	$	—	63,704,626	$	63,705	$	350,721,326	$	(213,578,144)	(36,685)	$	(251,057)	$	136,955,830


	Preferred Stock			Common Stock			Additional		Accumulated		Treasury Stock
	Shares	Amount		Shares	Amount		Paid-In Capital		Deficit		Shares	Amount		Total
Balance - January 1, 2021	49,626	$	50	45,645,166	$	45,645	$	210,952,473	$	(162,694,983)	—	$	—	$	48,303,185
Stock-Based Compensation Expense	—		—	—		—		2,047,378		—	—		—		2,047,378
Stock Option Exercises	—		—	230,968		231		196,597		—	—		—		196,828
Stock Warrant Exercises	—		—	7,241,028		7,241		34,561,297		—	—		—		34,568,538
Proceeds from Common Stock Offerings	—		—	4,146,342		4,146		84,995,865		—	—		—		85,000,011
Direct Costs of Common Stock Offerings	—		—	—		—		(5,396,139)		—	—		—		(5,396,139)
Shared Redeemed to Cover Employee Tax Withholdings	—		—	(83,164)		(83)		(1,144,283)		—	—		—		(1,144,366)
Preferred Stock Converted & Preferred Dividend Settlement	(49,626)		(50)	4,962,600		4,962		(10,004,912)		—	—		—		(10,000,000)
Net Loss (as Restated)	—		—	—		—		—		(9,151,370)	—		—		(9,151,370)
Balance - March 31, 2021 (as Restated)	—	$	—	62,142,940	$	62,142	$	316,208,276	$	(171,846,353)	—	$	—	$	144,424,065

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,
			(as Restated)
	2022		2021
Sales:
Sales of Products	$	2,503,051	$	3,805,170
Sales of Engineering Services		—		110,219

Total Sales		2,503,051		3,915,389

Cost of Sales:
Cost of Sales - Products Sold		1,863,697		2,819,971
Cost of Sales - Engineering Services		—		15,827

Total Cost of Sales		1,863,697		2,835,798

Gross Profit (exclusive of depreciation shown separately below)		639,354		1,079,591

Operating Expenses:
Research and Development		3,103,444		2,205,318
Selling and Marketing		2,023,435		1,303,430
General and Administrative		5,453,833		6,027,757
Depreciation and Amortization		422,931		517,412
Loss on Fixed Asset Disposal		—		83,908
Impairment of Patents and Trademarks		49,603		27,731

Total Operating Expenses		11,053,246		10,165,556

Loss From Operations		(10,413,892)		(9,085,965)

Other Income (Expense):
Investment Income		6,280		7,838
Income and Other Taxes		(47,632)		(19,725)
Foreign Exchange Loss		(50,757)		(53,518)

Total Other Expense, Net		(92,109)		(65,405)

Loss Before Provision for Income Taxes		(10,506,001)		(9,151,370)
Provision for Income Taxes		—		—

Net Loss		(10,506,001)		(9,151,370)

Basic and Diluted Loss per Common Share	$	(0.16)	$	(0.17)
Weighted-average Shares Outstanding - Basic and Diluted		63,695,127		54,141,761

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
			(as Restated)
	2022		2021

Cash Flows from Operating Activities
Net Loss	$	(10,506,001)	$	(9,151,370)
Non-Cash Adjustments
Depreciation and Amortization		422,931		517,412
Amortization of Software Development Costs and Prepaid Licenses in Cost of Sales - Products		60,099		60,099
Stock-Based Compensation		4,319,748		4,618,213
Impairment of Patents and Trademarks		49,603		27,731
Loss on Fixed Asset Disposal		—		83,908
(Increase) Decrease in Operating Assets
Accounts Receivable		690,775		91,973
Revenues in Excess of Billings		—		(40,856)
Inventories		(407,084)		(857,695)
Manufacturing Vendor Prepayments		(82,513)		(1,785,763)
Prepaid Expenses and Other Assets		213,394		142,685
Increase (Decrease) in Operating Liabilities
Accounts Payable		(831,021)		(191,028)
Accrued Expenses		(292,286)		646,048
Unearned Revenue		1,825		(17,698)
Income and Other Taxes		(74,549)		(65,288)

Net Cash Flows Used in Operating Activities		(6,435,079)		(5,921,629)

Cash Flows from Investing Activities
Purchases of Fixed Assets		(57,758)		(314,981)
Investments in Patents and Trademarks		(34,469)		(135,674)
Investments in Licenses, Intangible and Other Assets		(125,000)		(200,000)

Net Cash Flows Used in Investing Activities		(217,227)		(650,655)

Cash Flows from Financing Activities
Proceeds from Exercise of Warrants		—		34,568,538
Proceeds from Exercise of Stock Options		29,224		196,828
Proceeds from Common Stock Offering, Net		—		79,603,872
Purchases of Treasury Stock		(251,057)		—
Preferred Dividend Settlement Payment		—		(10,000,000)
Employee Tax Withholdings Payment		—		(1,144,366)

Net Cash Flows (Used in) Provided from Financing Activities		(221,833)		103,224,872

Net (Decrease) Increase in Cash and Cash Equivalents		(6,874,139)		96,652,588
Cash and Cash Equivalents - Beginning of Period		120,203,873		36,069,508

Cash and Cash Equivalents - End of Period	$	113,329,734	$	132,722,096

Supplemental Disclosures
Unamortized Common Stock Expense included in Prepaid Expenses and Other Assets	$	1,001,232	$	160,222
Stock-Based Compensation Expense - Expensed less Previously Issued		364,010		58,828

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

VUZIX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements of Vuzix Corporation (“the Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, the unaudited consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Certain re-classifications may have been made to prior periods to conform with current reporting. The results of the Company’s operations for the three months ended March 31, 2022 are not necessarily indicative of the results of the Company’s operations for the full fiscal year or any other period.

The accompanying interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto of the Company as of December 31, 2021, as reported in the Company’s Annual Report on Form 10-K filed with the SEC on March 2, 2022.

Restatement

As described in additional detail in Note 14 to the financial statements included in its 2021 Form 10-K, the Company restated its previous unaudited quarterly results in the Form 10-K for the year ended December 31, 2021. Previously filed 2021 quarterly reports on Form 10-Q for the periods affected by the restatement were not amended. See Note 14, Long-Term Incentive Plan and Note 19, Quarterly Financial Information (Unaudited) of the Notes to the consolidated financial statements in the 2021 Form 10-K for the impact of these adjustments on each of the quarterly periods in fiscal year 2021.

The effect of these changes on non-cash stock-based compensation expense included in 2021 unaudited quarterly operating results was as follows:

		Q1-2021
Additional Paid-in Capital		Increase of $2,512,007
Research and Development Expense		Increase of $125,391
Sales and Marketing		Increase of $62,696
General and Administrative		Increase of $2,323,920
Net Loss		Increase of $2,512,007
Loss per Share		Increase of $0.05

Customer Concentrations

For the three months ended March 31, 2022, one customer represented 11% of total product revenue. For the three months ended March 31, 2021, one customer represented 11% of total product revenue and one customer represented 100% of engineering services revenue.

As of March 31, 2022, three customers represented 22%, 14% and 13% of accounts receivable. As of December 31, 2021, three customers represented 27%, 20% and 10% of accounts receivable.

Table of Contents

Treasury Stock

Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains and losses on the subsequent reissuance of shares will be credited or charged to paid-in capital in excess of par value using the average-cost method.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). ASU 2016-13 provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to accounts receivable. ASU 2016-13 will become effective for the Company on January 1, 2023 and early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.

Note 2 – Revenue Recognition and Contracts with Customers

Disaggregated Revenue

The Company’s total revenue was comprised of two major product lines: Smart Glasses Sales and Engineering Services. The following table summarizes the revenue recognized by major product line:


	Three Months Ended
	March 31,
	2022		2021
Revenues
Smart Glasses Sales	$	2,503,051	$	3,805,170
Engineering Services		—		110,219

Total Revenue	$	2,503,051	$	3,915,389

Significant Judgments

Under Topic 606 “Revenue from Contracts with Customers”, we use judgments that could potentially impact both the timing of our satisfaction of performance obligations and our determination of transaction prices used in determining revenue recognized by major product line. Such judgments include considerations in determining our transaction prices and when our performance obligations are satisfied for our standard product sales that include an end-user 30-day right to return if not satisfied with product and general payment terms that are between Net 30 and 60 days. For our engineering services, performance obligations are recognized over time using the input method and the estimated costs to complete each project are considered significant judgments.

Performance Obligations

Revenues from our performance obligations are typically satisfied at a point in time for Smart Glasses, Waveguides and Display Engines, and our OEM Products, which are recognized when the customer obtains control and ownership, which is generally upon shipment. The Company also records revenue for performance obligations relating to our engineering services over time by using the input method measuring progress toward satisfying the performance obligations. Satisfaction of our performance obligations related to our engineering services is measured by the Company’s costs incurred as a percentage of total expected costs to project completion as the inputs of actual costs incurred by the Company are directly correlated with progress toward completing the contract. As such, the Company believes that our methodologies for recognizing revenue over time for our engineering services correlate directly with the transfer of control of the underlying assets to our customers.

Table of Contents

Our standard product sales include a twelve (12) month assurance-type product warranty. In the case of certain of our OEM products and waveguide sales, some include a standard product warranty of up to eighteen (18) months to allow distribution channels to offer the end customer a full twelve (12) months of coverage. We offer extended warranties to customers, which extend the standard product warranty on product sales for an additional twelve (12) month period. All revenue related to extended product warranty sales is deferred and recognized over the extended warranty period. Our engineering services contracts vary from contract to contract but typically include payment terms of Net 30 days from date of billing, subject to an agreed upon customer acceptance period.

The following table presents a summary of the Company’s sales by revenue recognition method as a percentage of total net sales for the three months ended March 31, 2022:


	% of Total Net Sales
	2022		2021
Point-in-Time	100	%	97	%
Over Time – Input Method	-	%	3	%

Total	100	%	100	%

Remaining Performance Obligations

As of March 31, 2022, the Company had no outstanding performance obligations for its engineering services and waveguide development projects. In addition, the Company had no material outstanding performance obligations related to product sales, other than its standard product warranty.

Note 3 – Loss Per Share

Basic loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution from the assumed exercise of stock options and warrants, and the conversion of convertible preferred shares. During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are anti-dilutive. Since the Company reported a net loss for the three months ended March 31, 2022 and 2021, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. At March 31, 2022 and 2021, there were 8,611,365 and 8,983,727 common stock share equivalents, respectively, potentially exercisable or issuable under conversion or exercise of stock options that could dilute basic earnings per share in the future.

Note 4 – Inventories, Net

Inventories are stated at the lower of cost and net realizable value, and consisted of the following:


	March 31,		December 31,
	2022		2021

Purchased Parts and Components	$	11,461,309	$	11,580,766
Work-in-Process		265,757		226,126
Finished Goods		1,959,141		1,472,534
Less: Reserve for Obsolescence		(1,127,141)		(1,127,444)

Inventories, Net	$	12,559,066	$	12,151,982

Table of Contents

Note 5 – Licenses, Net


	March 31,		December 31,
	2022		2021

Licenses	$	2,443,356	$	1,038,606
Additions		—		1,404,750
Less: Accumulated Amortization		(1,110,120)		(1,053,420)
Licenses, Net	$	1,333,236	$	1,389,936

The Company acquired two licenses in 2017. The first related to the renegotiation of an existing license at a cost of $114,967, which resulted in lower royalty rates being paid by the Company over the next ten years. This license went into effect as of January 1, 2018. The second license was a result of the Company entering into a Technology Purchase and Royalty Agreement where it acquired all the seller’s right, title and interest in certain Transferred Intellectual Property (IP). Pursuant to the agreement, the Company paid approximately $75,702 as reimbursement of related patent application costs incurred by the seller to date, which are included in Patents and Trademarks. The Company also issued 25,000 shares of common stock, valued at $128,750, upon the original closing in October 2017 and agreed to certain further share issuances of 75,000 shares based upon the achievement of certain development milestones as well as per unit royalties once the technology was commercialized for the life of the related patents. In June 2021, the Company assumed or purchased outright the obligations for ongoing royalties under the original license agreement and certain other intellectual property rights in connection with consulting services by the original seller in exchange for the issuance of 75,000 shares with an assigned market value of $18.73 per share, or a total of $1,404,750. The underlying technology is not yet ready for commercialization, but the Company intends to proceed with further research and development work relating to such underlying technology.

Note 6 – Intangible Asset, Net


	March 31,		December 31,
	2022		2021

Intangible Asset	$	1,500,000	$	1,500,000
Less: Accumulated Amortization		(1,457,179)		(1,352,452)

Intangible Asset, Net	$	42,821	$	147,548

On October 4, 2018, the Company entered into amendment No. 1 to agreements (the “TDG Amendment”) with TDG Acquisition Company, LLC (“TDG”), aka Six15 Technologies, LLC. The TDG Amendment amends certain provisions of prior agreements between Vuzix and TDG, including an asset purchase agreement dated June 15, 2012, and an authorized reseller agreement dated June 15, 2012.

Pursuant to the TDG Amendment, the Company is permitted to engage in sales of heads-up display components or subsystems (and any services to support such sale) for incorporation into a finished good or system for sale to military organizations, subject to certain conditions. The Company is also permitted to sell its products to defense and security organizations that include business customers and governmental entity customers that primarily provide security and defense services, including police, fire fighters, EMTs, other first responders, and homeland and border security. The Company will owe TDG commissions with respect to all such sales until June 15, 2022, when the amendment and original non-compete agreements expire, after which the Company will be permitted to sell any product to any customer world-wide without owing any commission to TDG.

Total commissions expense under this agreement for the three months ended March 31, 2022 and 2021 was $25,794 and $52,655. All commissions expense related to this agreement is included in Selling and Marketing expense.

Total amortization expense for this intangible asset for the three months ended March 31, 2022 and 2021 was $104,727 and $104,727, respectively. $42,821 of remaining amortization expense will be recognized in the second quarter of 2022, as the non-compete agreement with TDG expires on June 15, 2022.

Table of Contents

Note 7 - Other Assets


	March 31,		December 31,
	2022		2021
Private Corporation Investments (at cost)	$	450,000	$	450,000

Software Development Costs		750,000		500,000
Additions		125,000		250,000
Less: Accumulated Amortization		(250,000)		(208,334)
Software Development Costs, Net		625,000		541,666

Unamortized Common Stock Expense included in Long-Term Prepaid Expenses		370,897		491,923

Total Other Assets	$	1,445,897	$	1,483,589

During 2020, the Company invested $500,000 in Android operating systems upgrades for its CPU platform used on its M400 and M4000 products. This upgrade was finished and placed into service in the beginning of the fourth quarter of 2020. This capitalized asset is being amortized on a straight-line over its expected product life cycle of 36 months, which began on October 1, 2020. In October 2021, the Company invested $250,000 and in the first quarter of 2022 the Company invested an additional $125,000 for further Android operating systems version upgrades to the CPU platform it uses on its M400 and M4000 products. This development work has not yet been completed and will ultimately be amortized once placed into service which the Company expects to occur by early 2023.

Note 8 – Accrued Expenses

Accrued expenses consisted of the following:


	March 31,		December 31,
	2022		2021

Accrued Wages and Related Costs	$	484,980	$	683,044
Accrued Professional Services		318,231		551,220
Accrued Warranty Obligations		156,192		185,044
Other Accrued Expenses		167,618		—

Total	$	1,127,021	$	1,419,308

The Company has warranty obligations in connection with the sale of certain of its products. The warranty period for its products is generally twelve (12) months. The costs incurred to provide for these warranty obligations are estimated and recorded as an accrued expense at the time of sale. The Company estimates its future warranty costs based upon product-based historical performance rates and related costs to repair.

The changes in the Company’s accrued warranty obligations for the three months ended March 31, 2022 and the balance as of December 31, 2021 were as follows:


Accrued Warranty Obligations at December 31, 2021	$	185,044
Reductions for Settling Warranties		(103,943)
Warranties Issued During Year		75,091

Accrued Warranty Obligations at March 31, 2022	$	156,192

Table of Contents

Note 9 – Income Taxes

The Company’s effective income tax rate is a combination of federal, state and foreign tax rates and differs from the U.S. statutory rate due to taxes on foreign income, permanent differences including tax-exempt interest, and the resolution of tax uncertainties, offset by a valuation allowance against U.S. deferred income tax assets.

Note 10 – Capital Stock

Preferred stock

The Board of Directors is authorized to establish and designate different series of preferred stock and to fix and determine their voting powers and other rights and terms. A total of 5,000,000 shares of preferred stock with a par value of $0.001 are authorized as of March 31, 2022 and December 31, 2021. Of this total, 49,626 shares are designated as Series A Preferred Stock. There were nil shares of Series A Preferred Stock issued and outstanding on March 31, 2022 and December 31, 2021, respectively.

Common Stock

The Company’s authorized common stock consists of 100,000,000 shares, par value of $0.001. There were 63,704,626 shares issued and 63,667,941 shares outstanding as of March 31, 2022 and 63,672,268 shares issued and outstanding as of December 31, 2021.

Treasury Stock

On March 2, 2022, our Board of Directors approved the repurchase by the Company of up to an aggregate of $25 million of our common stock by open market or privately negotiated transactions under the Share Buyback Program. This program is in effect for one year, does not obligate the Company to acquire any particular amount of common stock and may be suspended or discontinued at any time at the Company’s sole discretion. During the three months ended March 31, 2022, the Company repurchased 36,685 shares of our common stock at an average cost of $6.84. As of March 31, 2022, 36,685 shares of our common stock were held in treasury.

Note 11 – Stock-Based Compensation

A summary of stock option activity related to the Company’s standard employee incentive plan, excluding options awarded under the Long-Term Incentive Plan (LTIP), for the three months ended March 31, 2022 is as follows:


		Weighted
	Number of	Average
	Options	Exercise Price
Outstanding at December 31, 2021	2,823,634	$	7.67
Granted	98,500		5.78
Exercised	(43,040)		3.94
Expired or Forfeited	(51,729)		8.60

Outstanding at March 31, 2022	2,827,365	$	7.74

The weighted average remaining contractual term for all options as of March 31, 2022 and December 31, 2021 was 7.74 years and 7.95 years, respectively.

As of March 31, 2022, there were 1,183,727 options that were fully-vested and exercisable at a weighted average exercise price of $6.04 per share. The weighted average remaining contractual term of the vested options is 6.6 years.

As of March 31, 2022, there were 1,643,638 unvested options exercisable at a weighted average exercise price of $9.83 per share. The weighted average remaining contractual term of the unvested options is 8.6 years.

Table of Contents

The weighted average fair value of option grants was calculated using the Black-Scholes-Merton option pricing method. At March 31, 2022, the Company had $8,353,781 of unrecognized stock compensation expense, which will be recognized over a weighted average period of 3.0 years.

For the three months ended March 31, 2022 and 2021, the Company recorded total stock-based compensation expense, including stock awards but excluding awards under the Company’s LTIP, of $1,350,610 and $456,745, respectively.

Note 12 – Long-Term Incentive Plan

On March 17, 2021, the Company granted options to purchase a total of 5,784,000 shares of common stock to its officers and certain other members of its management team. The options were granted under the Company’s existing 2014 Incentive Stock Plan. The options have an exercise price of $19.00, with 375,000 options vesting immediately and the remaining portion vesting upon the achievement of certain equity market capitalization milestones, and revenue and EBITDA operational milestones. For the three months ended March 31, 2022 and 2021, the Company recorded non-cash stock-based compensation expense of $2,969,138 and $4,161,468, respectively, for options that vested or are probable to vest.

The fair value of option grants was calculated using a Monte Carlo simulation on the equity market capitalization tranches and the Black-Scholes-Merton option pricing method on the operational milestone tranches. As of March 31, 2022, we had $25,371,320 of total unrecognized stock-based compensation expense for the portion of options tied to equity market capitalization milestones and the portion of options tied to operational milestones that were considered probable of achievement, all of which will be recognized over a service period of up to six years. The probabilities of the milestone achievements are subject to catch-adjustments in each instance where an equity market capitalization milestone is achieved or when an operational milestone becomes probable to be achieved or is achieved. Compensation costs could be reversed in subsequent periods if an awardee leaves the Company prior to the expiration of the option life for market capitalization milestone or the performance awards are no longer determined to be probable. If such milestones are achieved earlier in their expected service periods, the remaining unrecognized compensation expense related to that particular milestone would be accelerated and recognized in full during the period where that achievement is affirmed by the Board of Directors. As of March 31, 2022, and going forward, should all of the operational milestones which are currently not yet deemed probable of achievement become probable of achievement or are achieved, then the Company could ultimately recognize up to an additional $34.1 million in non-cash stock-based compensation expense at such time.

The unvested remaining equity market capitalization and operational milestones under the LTIP with their total related option grants and criteria achievement weightings of the options available for meeting a target are shown in the following table. Of the total 5,409,000 unvested options outstanding as of March 31, 2022 and December 31, 2021, there are 2,704,500 options unvested for the achievement of equity market capitalization targets, 1,893,150 unvested options

Table of Contents

for the achievement of annual revenue targets, and 811,350 unvested options for the achievement of annual EBITDA margins before non-cash charges targets.


Award Potential	Criteria Achievement Weighting
	50% of Options Available	35% of Options Available	15% of Options Available
Options Available (Subject to Vesting)	Equity Market Capitalization Target	Last Twelve Months Revenue Target	Last Twelve Months EBITDA Margin before Non-Cash Charges Target


686,000	$ 2,000,000,000	$ 25,000,000	0.0%
686,000	3,000,000,000	50,000,000	2.0%
686,000	4,000,000,000	100,000,000	4.0%
686,000	5,000,000,000	200,000,000	6.0%
586,000	6,000,000,000	300,000,000	8.0%
586,000	7,000,000,000	450,000,000	10.0%
561,000	8,000,000,000	675,000,000	12.0%
491,000	9,000,000,000	1,000,000,000	14.0%
441,000	10,000,000,000	1,500,000,000	16.0%
5,409,000

Note 13 – Litigation

We are not currently involved in any actual or pending legal proceeding or litigation and we are not aware of any such material proceedings contemplated by or against us or involving our property.

Note 14 – Right-of-Use Assets and Liabilities

Future lease payments under operating leases as of March 31, 2022 were as follows:


2022	$	417,750
2023		546,916
2024		45,576
Total Future Lease Payments		1,010,242
Less: Imputed Interest		(41,973)
Total Lease Liability Balance	$	968,269

Operating lease costs under the operating leases totaled $162,365 and $124,215 for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, the weighted average discount rate was 4.5% and the weighted average remaining lease term was 1.8 years.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of financial condition and results of operations in conjunction with the financial statements and related notes appearing elsewhere in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, 2021.

As used in this report, unless otherwise indicated, the terms “Company,” “Vuzix”, “management,” “we,” “our,” and “us” refer to Vuzix Corporation.

Critical Accounting Policies and Significant Developments and Estimates

The discussion and analysis of our financial condition and results of operations is based on our unaudited consolidated financial statements and related notes appearing elsewhere in this quarterly report. The preparation of these

Table of Contents

statements in conformity with GAAP requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements, including the statement of operations, balance sheet, cash flow and related notes. We continually evaluate our estimates used in the preparation of our financial statements, including those related to revenue recognition, bad debts, inventories, warranty reserves, product warranty, carrying value of long-lived assets, fair value measurement of financial instruments, valuation of stock compensation awards, achievement of equity market capitalization and probability of operational milestones being achieved under our LTIP, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not apparent from other sources. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements.

We believe that our application of accounting policies, and the estimates inherently required therein, are reasonable. We periodically re-evaluate these accounting policies and estimates and make adjustments when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.

Management believes certain factors and trends are important in understanding our financial performance. The critical accounting policies, judgments and estimates that we believe have the most significant effect on our consolidated financial statements are:

●

Valuation of inventories;

●

Carrying value of long-lived assets;

●

Software development costs;

●

Revenue recognition;

●

Product warranty;

●

Stock-based compensation; and

●

Income taxes.

Our accounting policies are more fully described in the notes to our consolidated financial statements included in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes in our accounting policies for the three months ended March 31, 2022.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.

Business Matters

We are engaged in the design, manufacture, marketing and sale of wearable computing devices and augmented reality wearable display devices, also referred to as head mounted displays (or HMDs), heads-up displays (HUDs) or near-eye displays, in the form of Smart Glasses and Augmented Reality (AR) glasses. Our wearable display devices are worn like eyeglasses or attach to a head-worn mount. These devices typically include cameras, sensors, and a computer that enable the user to view, record and interact with video and digital content, such as computer data, the Internet, social media or entertainment applications. Our wearable display products integrate display technology with our advanced optics to produce compact high-resolution display engines, less than half an inch diagonally, which when viewed

Table of Contents

through our Smart Glasses products create virtual images that appear comparable in size to that of a computer monitor or a large-screen television.

With respect to our Smart Glasses and AR products, we are focused on the enterprise, industrial, commercial, security, first responder, medical markets, and, to a lesser degree, defense markets. We also provide custom solutions and engineering services to third parties, including OEMs, of waveguides to enable fully integrated wearable display systems, including HMDs to commercial, industrial and defense customers. We do not offer “work for hire” services per se but rather offer our engineering services for projects that we expect could result in advancing our technology and potentially lead to long-term supply or OEM relationships.

All of the mobile displays and wearable and mobile electronics markets in which we compete, including mobile and wearable displays and electronics, have been and continue to be subject to consistent and rapid technological change, with ever greater capabilities and performance, including mobile devices with larger screen sizes and improved display resolutions as well as, in many cases, declining prices on mobile devices. As a result, we must continue to improve our products’ performance and lower our costs. We believe our intellectual property portfolio gives us a leadership position in the design and manufacturing of micro-display projection engines, waveguides, mechanical packaging, ergonomics, and optical systems.

Recent Accounting Pronouncements

See Note 1 to the consolidated financial statements.

Table of Contents

Results of Operations

Comparison of Three Months Ended March 31, 2022 and 2021

The following table compares the Company’s consolidated statements of operations data for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
							Dollar			% Increase
	2022			2021			Change			(Decrease)
					(as Restated)
Sales:
Sales of Products	$	2,503,051		$	3,805,170		$	(1,302,119)		(34)	%
Sales of Engineering Services		—			110,219			(110,219)		(100)	%

Total Sales		2,503,051			3,915,389			(1,412,338)		(36)	%

Cost of Sales:
Cost of Sales - Products Sold		1,863,697			2,819,971			(956,274)		(34)	%
Cost of Sales - Engineering Services		—			15,827			(15,827)		(100)	%

Total Cost of Sales		1,863,697			2,835,798			(972,101)		(34)	%

Gross Profit (exclusive of depreciation shown separately below)		639,354			1,079,591			(440,237)		(41)	%
Gross Profit %		26	%		28	%

Operating Expenses:
Research and Development		3,103,444			2,205,318			898,126		41	%
Selling and Marketing		2,023,435			1,303,430			720,005		55	%
General and Administrative		5,453,833			6,027,757			(573,924)		(10)	%
Depreciation and Amortization		422,931			517,412			(94,481)		(18)	%
Impairment of Patents and Trademarks		49,603			27,731			21,872		79	%
Loss on Fixed Asset Disposal		—			83,908			(83,908)		(100)	%
									<