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 June 30, 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 August 9, 2022, there were 63,990,955 shares of the registrant’s common stock outstanding.

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Vuzix Corporation

INDEX

		Page No.

Part I – Financial Information		3

Item 1.	Consolidated Financial Statements (Unaudited):	3

	Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021	4

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021	5

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

Part II – Other Information		29

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosure	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

Signatures		31

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Part 1: FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

VUZIX CORPORATION

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	June 30,		December 31,
	2022		2021
ASSETS
Current Assets
Cash and Cash Equivalents	$	100,581,795	$	120,203,873
Accounts Receivable		1,563,906		2,242,429
Accrued Revenues in Excess of Billings		108,866		—
Inventories, Net		11,792,089		12,151,982
Manufacturing Vendor Prepayments		1,158,620		504,051
Prepaid Expenses and Other Assets		1,735,955		2,047,819

Total Current Assets		116,941,231		137,150,154

Long-Term Assets
Fixed Assets, Net		8,051,264		5,190,438
Operating Lease Right-of-Use Asset		837,920		1,117,022
Patents and Trademarks, Net		2,136,585		1,988,370
Technology Licenses, Net		16,089,035		1,389,936
Intangible Asset, Net		—		147,548
Other Assets, Net		1,839,047		1,483,589

Total Assets	$	145,895,082	$	148,467,057

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable	$	1,321,949	$	2,054,762
Unearned Revenue		40,626		27,797
Accrued Expenses		1,614,583		1,419,308
Licensing Fees Commitment		4,250,000		—
Income and Other Taxes Payable		43,856		120,242
Operating Lease Right-of-Use Liability		520,009		534,146

Total Current Liabilities		7,791,023		4,156,255

Long-Term Liabilities
Operating Lease Right-of-Use Liability		317,911		582,876
Licensing Fees Commitment		6,250,000		—

Total Long-Term Liabilities		6,567,911		582,876

Total Liabilities		14,358,934		4,739,131

Stockholders' Equity
Common Stock - $0.001 Par Value, 100,000,000 shares authorized; 64,025,640 shares issued and 63,988,955 shares outstanding as of June 30, 2022 and 63,672,268 shares issued and outstanding as of December 31, 2021.		64,026		63,672
Additional Paid-in Capital		355,322,990		346,736,397
Accumulated Deficit		(223,599,811)		(203,072,143)
Treasury Stock, at cost, 36,685 shares as of June 30, 2022 and 0 shares as of December 31, 2021		(251,057)		—

Total Stockholders' Equity		131,536,148		143,727,926

Total Liabilities and Stockholders' Equity	$	145,895,082	$	148,467,057

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

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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	—		—	288,650		289		8,538,153		—	—		—		8,538,441
Stock Option Exercises	—		—	64,722		65		48,440		—	—		—		48,506
Purchases of Treasury Stock	—		—	—		—		—		—	(36,685)		(251,057)		(251,057)
Net Loss	—		—	—		—		—		(20,527,668)	—		—		(20,527,668)
Balance - June 30, 2022	—	$	—	64,025,640	$	64,026	$	355,322,990	$	(223,599,811)	(36,685)	$	(251,057)	$	131,536,148


	Preferred Stock			Common Stock			Additional		Accumulated		Treasury Stock
	Shares	Amount		Shares	Amount		Paid-In Capital		Deficit		Shares	Amount		Total
Balance - April 1, 2022	—	$	—	63,704,626	$	63,705	$	350,721,326	$	(213,578,143)	(36,685)	$	(251,057)	$	136,955,831
Stock-Based Compensation Expense	—		—	288,650		289		4,582,414		—	—		—		4,582,703
Stock Option Exercises	—		—	32,364		32		19,250		—	—		—		19,282
Net Loss	—		—	—		—		—		(10,021,668)	—		—		(10,021,668)
Balance - June 30, 2022	—	$	—	64,025,640	$	64,026	$	355,322,990	$	(223,599,811)	(36,685)	$	(251,057)	$	131,536,148


	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 (as Restated)	—		—	68,047		68		8,544,078		—	—		—		8,544,146
Stock Option Exercises	—		—	567,826		568		673,191		—	—		—		673,759
Stock Warrant Exercises	—		—	7,274,328		7,274		34,697,794		—	—		—		34,705,068
Proceeds from Common Stock Offering	—		—	4,768,293		4,768		97,784,270		—	—		—		97,789,038
Direct Costs of Common Stock Offering	—		—	—		—		(6,136,420)		—	—		—		(6,136,420)
Shares Redeemed to Cover Employee Tax Withholdings	—		—	(83,164)		(83)		(1,144,282)		—	—		—		(1,144,365)
Stock Issued for Technology License Purchase	—		—	75,000		75		1,404,675		—	—		—		1,404,750
Preferred Stock Converted & Preferred Dividend Settlement	(49,626)		(50)	4,962,600		4,963		(10,004,913)		—	—		—		(10,000,000)
Net Loss (as Restated)	—		—	—		—		—		(18,396,842)	—		—		(18,396,842)
Balance - June 30, 2021 (as Restated)	—	$	—	63,278,096	$	63,278	$	336,770,866	$	(181,091,825)	—	$	—	$	155,742,319


	Preferred Stock			Common Stock			Additional		Accumulated		Treasury Stock
	Shares	Amount		Shares	Amount		Paid-In Capital		Deficit		Shares	Amount		Total
Balance - April 1, 2021	—	$	—	62,142,940	$	62,143	$	318,720,283	$	(171,846,353)	—	$	—	$	146,936,073
Stock-Based Compensation Expense (as Restated)	—		—	68,047		68		3,984,694		—	—		—		3,984,762
Stock Option Exercises	—		—	336,858		337		476,593		—	—		—		476,930
Stock Warrant Exercises	—		—	33,300		33		136,497		—	—		—		136,530
Proceeds from Common Stock Offerings	—		—	621,951		622		12,748,752		—	—		—		12,749,374
Direct Costs of Common Stock Offerings	—		—	—		—		(700,628)		—	—		—		(700,628)
Stock Issued for Technology License Purchase	—		—	75,000		75		1,404,675		—	—		—		1,404,750
Net Loss (as Restated)	—		—	—		—		—		(9,245,472)	—		—		(9,245,472)
Balance - June 30, 2021 (as Restated)	—	$	—	63,278,096	$	63,278	$	336,770,866	$	(181,091,825)	—	$	—	$	155,742,319

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

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VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
			(as Restated)				(as Restated)
	2022		2021		2022		2021
Sales:
Sales of Products	$	2,898,892	$	2,833,644	$	5,401,944	$	6,638,814
Sales of Engineering Services		108,866		82,894		108,866		193,113

Total Sales		3,007,758		2,916,538		5,510,810		6,831,927

Cost of Sales:
Cost of Sales - Products Sold		2,522,674		2,323,324		4,386,371		5,143,295
Cost of Sales - Engineering Services		59,296		13,842		59,296		29,669

Total Cost of Sales		2,581,970		2,337,166		4,445,667		5,172,964

Gross Profit (exclusive of depreciation shown separately below)		425,788		579,372		1,065,143		1,658,963

Operating Expenses:
Research and Development		2,996,144		2,723,994		6,099,588		4,929,312
Selling and Marketing		1,850,595		1,349,189		3,914,584		2,652,619
General and Administrative		5,039,949		5,181,042		10,453,228		11,208,799
Depreciation and Amortization		540,081		501,678		963,012		1,019,090
Loss on Fixed Asset Disposal		—		—		—		83,908
Impairment of Patents and Trademarks		—		30,765		49,602		58,496

Total Operating Expenses		10,426,769		9,786,668		21,480,014		19,952,224

Loss From Operations		(10,000,981)		(9,207,296)		(20,414,871)		(18,293,261)

Other Income (Expense):
Investment Income		111,027		7,767		117,307		15,605
Income and Other Taxes		(31,326)		(12,783)		(78,959)		(32,508)
Foreign Exchange Loss		(100,388)		(33,160)		(151,145)		(86,678)

Total Other Expense, Net		(20,687)		(38,176)		(112,797)		(103,581)

Loss Before Provision for Income Taxes		(10,021,668)		(9,245,472)		(20,527,668)		(18,396,842)
Provision for Income Taxes		—		—		—		—

Net Loss		(10,021,668)		(9,245,472)		(20,527,668)		(18,396,842)

Basic and Diluted Loss per Common Share	$	(0.16)	$	(0.15)	$	(0.32)	$	(0.31)
Weighted-average Shares Outstanding - Basic and Diluted		63,739,863		63,071,061		63,717,618		58,631,078

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

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VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
			(as Restated)
	2022		2021

Cash Flows from Operating Activities
Net Loss	$	(20,527,668)	$	(18,396,842)
Non-Cash Adjustments
Depreciation and Amortization		963,012		1,019,090
Amortization of Software Development Costs and Prepaid Licenses in Cost of Sales - Products		130,883		120,197
Stock-Based Compensation		8,200,774		8,661,613
Impairment of Patents and Trademarks		49,602		58,496
Loss on Fixed Asset Disposal		—		83,908
(Increase) Decrease in Operating Assets
Accounts Receivable		678,523		289,567
Accrued Revenues in Excess of Billings		(108,866)		—
Inventories		359,893		(1,783,539)
Manufacturing Vendor Prepayments		(654,569)		(2,565,073)
Prepaid Expenses and Other Assets		492,599		(522,084)
Increase (Decrease) in Operating Liabilities
Accounts Payable		(732,813)		(92,188)
Accrued Expenses		195,276		75,055
Unearned Revenue		12,829		(27,453)
Income and Other Taxes		(76,384)		(29,450)

Net Cash Flows Used in Operating Activities		(11,016,909)		(13,108,703)

Cash Flows from Investing Activities
Purchases of Fixed Assets		(3,504,931)		(719,164)
Investments in Patents and Trademarks		(272,686)		(214,450)
Investments in Licenses, Intangible and Other Assets		(4,625,000)		(305,158)

Net Cash Flows Used in Investing Activities		(8,402,617)		(1,238,772)

Cash Flows from Financing Activities
Proceeds from Exercise of Warrants		—		34,705,068
Proceeds from Exercise of Stock Options		48,505		673,759
Proceeds from Common Stock Offering, Net		—		91,647,850
Purchases of Treasury Stock		(251,057)		—
Preferred Dividend Settlement Payment		—		(10,000,000)
Employee Tax Withholdings Payment		—		(1,144,365)

Net Cash Flows (Used in) Provided from Financing Activities		(202,552)		115,882,312

Net (Decrease) Increase in Cash and Cash Equivalents		(19,622,078)		101,534,837
Cash and Cash Equivalents - Beginning of Period		120,203,873		36,069,508

Cash and Cash Equivalents - End of Period	$	100,581,795	$	137,604,345

Supplemental Disclosures
Unamortized Common Stock Expense included in Prepaid Expenses and Other Assets	$	1,223,691	$	101,517
Non-Cash Investment in Licenses		10,500,000		1,404,750
Stock-Based Compensation Expense - Expensed less Previously Issued		(337,379)		117,467

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

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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” or “Vuzix”) 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 and six months ended June 30, 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 and for the year ended 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:


	Three Months Ended June 30, 2021	Six Months Ended June 30, 2021
Additional Paid-in Capital	Increase of $466,015	Increase of $2,978,022
Research and Development Expense	Increase of $23,262	Increase of $148,653
Sales and Marketing	Increase of $11,631	Increase of $74,327
General and Administrative	Increase of $431,122	Increase of $2,755,042
Net Loss	Increase of $466,015	Increase of $2,978,022
Loss per Share	Increase of $0.01	Increase of $0.06

Customer Concentrations

For the three months ended June 30, 2022, one customer represented 45% of total product revenue and one customer represented 100% of engineering services revenue. For the three months ended June 30, 2021, no one customer represented more than 10% of total product revenue and one customer represented 100% of engineering services revenue.

For the six months ended June 30, 2022, one customer represented 24% of total product revenue and one customer represented 100% of engineering services revenue. For the six months ended June 30, 2021, no one customer represented more than 10% of total product revenue and two customers represented 100% of engineering services revenue.

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As of June 30, 2022, three customers represented 42%, 15% and 15% of accounts receivable. As of December 31, 2021, three customers represented 27%, 20% and 10% of accounts receivable.

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				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Revenues
Smart Glasses Sales	$	2,898,892	$	2,833,644	$	5,401,944	$	6,638,814
Engineering Services		108,866		82,894		108,866		193,113

Total Revenue	$	3,007,758	$	2,916,538	$	5,510,810	$	6,831,927

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 to measure the 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

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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.

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 six months ended June 30, 2022:


	% of Total Net Sales
	2022		2021
Point-in-Time	98	%	97	%
Over Time – Input Method	2	%	3	%

Total	100	%	100	%

Remaining Performance Obligations

As of June 30, 2022, the Company had $691,134 of remaining performance obligations under a current waveguide development project, which represents the remainder of the total transaction price of an $800,000 development agreement, less revenue recognized under percentage of completion to date. The Company currently expects to recognize the remaining revenue relating to this existing performance obligation of $691,134 before the end of 2022. Revenues earned less amounts invoiced at June 30, 2022 in the amount of $108,866 are reflected as Accrued Revenues in Excess of Billings in the accompanying Consolidated Balance Sheets.

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 and six months ended June 30, 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 June 30, 2022 and 2021, there were 8,528,668 and 8,584,030 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.

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Note 4 – Inventories, Net

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


	June 30,		December 31,
	2022		2021

Purchased Parts and Components	$	10,414,139	$	11,580,766
Work-in-Process		285,481		226,126
Finished Goods		2,095,643		1,472,534
Less: Reserve for Obsolescence		(1,003,174)		(1,127,444)

Inventories, Net	$	11,792,089	$	12,151,982

Note 5 – Fixed Assets

Fixed Assets consisted of the following:


	June 30,		December 31,
	2022		2021
Tooling and Manufacturing Equipment	$	9,930,222	$	6,612,811
Leaseholds		826,329		797,059
Computers and Purchased Software		1,035,358		980,561