UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
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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.
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).
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.
☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | |
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Smaller reporting company | Emerging growth company |
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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
As of November 9, 2022, there were
Vuzix Corporation
INDEX
2
Part 1: FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
VUZIX CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) |
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September 30, | December 31, | |||||
| 2022 |
| 2021 | |||
ASSETS |
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Current Assets |
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Cash and Cash Equivalents | $ | | $ | | ||
Accounts Receivable |
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Accrued Revenues in Excess of Billings |
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| — | ||
Inventories, Net |
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Manufacturing Vendor Prepayments |
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Prepaid Expenses and Other Assets |
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Total Current Assets |
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Long-Term Assets |
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Fixed Assets, Net |
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Operating Lease Right-of-Use Asset | | | ||||
Patents and Trademarks, Net |
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Technology Licenses, Net |
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Intangible Asset, Net |
| — |
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Other Assets, Net |
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Total Assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities |
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Accounts Payable | $ | | $ | | ||
Unearned Revenue |
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Accrued Expenses |
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Licensing Fees Commitment |
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| — | ||
Income and Other Taxes Payable |
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Operating Lease Right-of-Use Liability | | | ||||
Total Current Liabilities |
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Long-Term Liabilities | ||||||
Operating Lease Right-of-Use Liability | | | ||||
Licensing Fees Commitment | | — | ||||
Total Long-Term Liabilities | | | ||||
Total Liabilities |
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Stockholders' Equity |
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Common Stock - $ |
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Additional Paid-in Capital |
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Accumulated Deficit |
| ( |
| ( | ||
Treasury Stock, at cost, |
| ( |
| — | ||
Total Stockholders' Equity |
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Total Liabilities and Stockholders' Equity | $ | | $ | | ||
The accompanying notes are an integral part of these consolidated financial statements.
3
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 | — | $ | — |
| | $ | | $ | | $ | ( | — | $ | — | $ | | ||||||||
Stock-Based Compensation Expense |
| — |
| — |
| ( |
| ( |
| |
| — |
| — |
| — |
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Stock Option Exercises |
| — |
| — |
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| — |
| — |
| — |
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Purchases of Treasury Stock |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( |
| ( | ||||||
Net Loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Balance - September 30, 2022 |
| — | $ | — |
| | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | ||||||
Preferred Stock | Common Stock | Additional | Accumulated | Treasury Stock | ||||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-In Capital |
| Deficit |
| Shares |
| Amount |
| Total | |||||||
Balance - July 1, 2022 | — | $ | — |
| | $ | | $ | | $ | ( | ( | $ | ( | $ | | ||||||||
Stock-Based Compensation Expense |
| — |
| — |
| ( |
| ( |
| |
| — |
| — |
| — |
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Stock Option Exercises |
| — |
| — |
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| ( |
| — |
| — |
| — |
| — | ||||||
Net Loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Balance - September 30, 2022 |
| — | $ | — |
| | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | ||||||
Preferred Stock | Common Stock | Additional | Accumulated | Treasury Stock | ||||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-In Capital |
| Deficit |
| Shares |
| Amount |
| Total | |||||||
Balance - January 1, 2021 | | $ | |
| | $ | | $ | | $ | ( | — | $ | — | $ | | ||||||||
Stock-Based Compensation Expense (as Restated) |
| — |
| — |
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| — |
| — |
| — |
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Stock Option Exercises |
| — |
| — |
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| — |
| — |
| — |
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Stock Warrant Exercises |
| — |
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Proceeds from Common Stock Offering |
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| — |
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| — |
| — |
| — |
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Direct Costs of Common Stock Offering |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| — |
| ( | ||||||
Shares Redeemed to Cover Employee Tax Withholdings |
| — |
| — |
| ( |
| ( |
| ( |
| — |
| — |
| — |
| ( | ||||||
Stock Issued for Technology License Purchase |
| — |
| — |
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| — |
| — |
| — |
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Preferred Stock Converted & Preferred Dividend Settlement | ( | ( | | | ( | — | — | — | ( | |||||||||||||||
Net Loss (as Restated) |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Balance - September 30, 2021 (as Restated) |
| — | $ | — |
| | $ | | $ | | $ | ( |
| — | $ | — | $ | | ||||||
Preferred Stock | Common Stock | Additional | Accumulated | Treasury Stock | ||||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-In Capital |
| Deficit |
| Shares |
| Amount |
| Total | |||||||
Balance - July 1, 2021 (as Restated) | — | $ | — |
| | $ | | $ | | $ | ( | — | $ | — | $ | | ||||||||
Stock-Based Compensation Expense (as Restated) |
| — |
| — |
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| — |
| — |
| — |
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Stock Option Exercises |
| — |
| — |
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| — |
| — |
| — |
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Net Loss (as Restated) |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Balance - September 30, 2021 (as Restated) |
| — | $ | — |
| | $ | | $ | | $ | ( |
| — | $ | — | $ | | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
VUZIX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(as Restated) | (as Restated) | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Sales: |
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Sales of Products | $ | | $ | | $ | | $ | | ||||
Sales of Engineering Services |
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| — |
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Total Sales |
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Cost of Sales: |
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Cost of Sales - Products Sold |
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Cost of Sales - Engineering Services |
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| — |
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Cost of Sales - Depreciation and Amortization | | | | | ||||||||
Total Cost of Sales |
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Gross Profit |
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Operating Expenses: |
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Research and Development |
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Selling and Marketing |
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General and Administrative |
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Depreciation and Amortization |
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Loss on Fixed Asset Disposal |
| — |
| — |
| — |
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Impairment of Patents and Trademarks |
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Total Operating Expenses |
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Loss From Operations |
| ( |
| ( |
| ( |
| ( | ||||
Other Income (Expense): |
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Investment Income |
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Income and Other Taxes |
| ( |
| ( |
| ( |
| ( | ||||
Foreign Exchange Loss |
| ( |
| ( |
| ( |
| ( | ||||
Total Other Income (Expense), Net |
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| ( |
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| ( | ||||
Loss Before Provision for Income Taxes |
| ( |
| ( |
| ( |
| ( | ||||
Provision for Income Taxes |
| — |
| — |
| — |
| — | ||||
Net Loss |
| ( |
| ( |
| ( |
| ( | ||||
Basic and Diluted Loss per Common Share | ( | ( | ( | ( | ||||||||
Weighted-average Shares Outstanding - Basic and Diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
5
VUZIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, | ||||||
(as Restated) | ||||||
| 2022 |
| 2021 | |||
Cash Flows from Operating Activities |
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Net Loss | $ | ( | $ | ( | ||
Non-Cash Adjustments |
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Depreciation and Amortization |
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Amortization of Software Development Costs and Prepaid Licenses in Cost of Sales |
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Stock-Based Compensation |
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Impairment of Patents and Trademarks |
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Loss on Fixed Asset Disposal |
| — |
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(Increase) Decrease in Operating Assets |
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Accounts Receivable |
| ( |
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Accrued Revenues in Excess of Billings | ( | — | ||||
Inventories, Net |
| ( |
| ( | ||
Manufacturing Vendor Prepayments |
| |
| ( | ||
Prepaid Expenses and Other Assets |
| ( |
| ( | ||
Increase (Decrease) in Operating Liabilities |
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Accounts Payable |
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| ( | ||
Accrued Expenses |
| ( |
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Unearned Revenue |
| ( |
| ( | ||
Income and Other Taxes Payable |
| ( |
| ( | ||
Net Cash Flows Used in Operating Activities |
| ( |
| ( | ||
Cash Flows from Investing Activities |
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Purchases of Fixed Assets |
| ( |
| ( | ||
Investments in Patents and Trademarks |
| ( |
| ( | ||
Investments in Licenses, Intangibles and Other Assets |
| ( |
| ( | ||
Net Cash Flows Used in Investing Activities |
| ( |
| ( | ||
Cash Flows from Financing Activities |
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Proceeds from Exercise of Warrants |
| — |
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Proceeds from Exercise of Stock Options |
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Proceeds from Common Stock Offering, Net | — | | ||||
Purchases of Treasury Stock | ( | — | ||||
Preferred Dividend Settlement Payment |
| — |
| ( | ||
Employee Tax Withholdings Payment |
| — |
| ( | ||
Net Cash Flows (Used in) Provided from Financing Activities |
| ( |
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Net (Decrease) Increase in Cash and Cash Equivalents |
| ( |
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Cash and Cash Equivalents - Beginning of Period |
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Cash and Cash Equivalents - End of Period | $ | | $ | | ||
Supplemental Disclosures |
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Unamortized Common Stock Expense included in Prepaid Expenses and Other Assets | $ | | $ | | ||
Non-Cash Investment in Licenses | | | ||||
Stock-Based Compensation Expense - Expensed less Previously Issued | ( | ( | ||||
The accompanying notes are an integral part of these consolidated financial statements.
6
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 impacting Costs of Sales, Gross Profit and Depreciation and Amortization. The results of the Company’s operations for the three and nine months ended September 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/A filed with the SEC on October 25, 2022.
Restatement
As described in additional detail in Note 2 to the financial statements included in its 2021 Form 10-K/A, 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 and should no longer be relied upon. See Note 2, Restatement of Previously Issued 2021 Unaudited Quarterly Financial Statements and Note 20, Quarterly Financial Information (Unaudited) of the Notes to the consolidated financial statements in the 2021 Form 10-K/A for the impact of these adjustments on each of the quarterly periods in fiscal year 2021.
The impact of the restatement on the unaudited quarterly financial statements is presented below.
The impact of the restatement to the Consolidated Balance Sheet:
September 30, 2021 (Unaudited) | |||||||||
As Previously | |||||||||
Balance Sheet |
| Reported |
| Adjustment |
| As Restated | |||
Additional paid-in capital | $ | | $ | | $ | | |||
Accumulated deficit | $ | ( | $ | ( | $ | ( | |||
7
The impact of the restatement to the Consolidated Statements of Operation:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||
As Previously | As Previously | |||||||||||||||||
Condensed Statement of Operations |
| Reported |
| Adjustment |
| As Restated |
| Reported |
| Adjustment |
| As Restated | ||||||
Total Sales | $ | | $ | — | $ | | $ | | $ | — | $ | | ||||||
Total Cost of Sales | | — | | | — | | ||||||||||||
Gross Profit | | — | | | — | | ||||||||||||
Operating Expenses: | ||||||||||||||||||
Research and Development | | | | | | | ||||||||||||
Selling and Marketing |
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| | | | ||||||||||
General and Administrative | | | | | | | ||||||||||||
Depreciation and Amortization | | — | | | — | | ||||||||||||
Loss on Fixed Asset Disposal | — | — | — | | — | | ||||||||||||
Impairment of Patents and Trademarks |
| | — | |
| | — | | ||||||||||
Total Operating Expenses | | | | | | | ||||||||||||
Loss From Operations | ( | ( | ( | ( | ( | ( | ||||||||||||
Total Other Expense, Net | ( | — | ( | ( | — | ( | ||||||||||||
Net Loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Basic and Diluted Loss per Common Share | ( | ( | ( | ( | ( | ( | ||||||||||||
The impact of the restatement to the Statement of Changes in Stockholders’ Equity:
For the Nine Months Ended September 30, 2021 (Unaudited) | |||||||||
As Previously | |||||||||
Condensed Statement of Changes in Stockholders' Equity |
| Reported |
| Adjustment |
| As Restated | |||
Stock-Based Compensation Expense | $ | | $ | | $ | | |||
Additional Paid-In Capital | | | | ||||||
Net Loss | ( | ( | ( | ||||||
Accumulated Deficit | $ | ( | $ | ( | $ | ( | |||
The impact of the restatement to the Statement of Cash Flows:
For the Nine Months Ended September 30, 2021 (Unaudited) | |||||||||
As Previously | |||||||||
Condensed Statement of Cash Flows |
| Reported |
| Adjustment |
| As Restated | |||
Net Loss | $ | ( | $ | ( | $ | ( | |||
Stock-Based Compensation | | | | ||||||
Net Cash Flows Used in Operating Activities | $ | ( | $ | — | $ | ( | |||
8
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year’s presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Consolidated Statements of Operations for the three and nine months ended September 30, 2021, to reclassify depreciation expense related to our manufacturing operations from the amounts of reported depreciation and amortization expenses originally included in Operating Expenses. This change in classification does not affect previously reported Net Loss or reported Cash Flows Used in Operating Activities in the Consolidated Statements of Cash Flows or Consolidated Balance Sheets. The below table is a summary of the impact to these reclassifications:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||
Condensed Statement of Operations |
| As Restated |
| Reclassification |
| Revised |
| As Restated |
| Reclassification |
| Revised | ||||||
Total Sales | $ | | $ | — | $ | | $ | | $ | — | $ | | ||||||
Total Cost of Sales | | | | | | | ||||||||||||
Gross Profit | | ( | | | ( | | ||||||||||||
Operating Expenses: | — | |||||||||||||||||
Research and Development | | — | | | — | | ||||||||||||
Selling and Marketing |
| | — | |
| | — | | ||||||||||
General and Administrative | | — | | | — | | ||||||||||||
Depreciation and Amortization | | ( | | | ( | | ||||||||||||
Loss on Fixed Asset Disposal | — | — | — | | — | | ||||||||||||
Impairment of Patents and Trademarks |
| | — | |
| | — | | ||||||||||
Total Operating Expenses | | ( | | | ( | | ||||||||||||
Loss From Operations | ( | — | ( | ( | — | ( | ||||||||||||
Total Other Expense, Net | ( | — | ( | ( | — | ( | ||||||||||||
Net Loss | $ | ( | $ | — | $ | ( | $ | ( | $ | — | $ | ( | ||||||
Customer Concentrations
For the three months ended September 30, 2022,
For the nine months ended September 30, 2022,
As of September 30, 2022,
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 re-issuance 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
9
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
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Revenues |
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Smart Glasses Sales | $ | | $ | | $ | | $ | | ||||
Engineering Services |
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| — |
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Total Revenue | $ | | $ | | $ | | $ | | ||||
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 believes that our methodologies for recognizing revenue over time, using percentage-of-completion, for our engineering services correlate directly with the transfer of control of the underlying assets to our customers.
Our standard product sales include a (
10
The following table presents a summary of the Company’s sales by revenue recognition method as a percentage of total net sales for the nine months ended September 30, 2022:
| % of Total Net Sales | ||||
2022 |
| 2021 |
| ||
Point-in-Time |
| | % | | % |
Over Time – Input Method |
| | % | | % |
Total |
| | % | | % |
Remaining Performance Obligations
As of September 30, 2022, the Company had approximately $
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. 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 nine months ended September 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 September 30, 2022 and 2021, there were
Note 4 – Inventories, Net
Inventories are stated at the lower of cost and net realizable value, and consisted of the following:
September 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Purchased Parts and Components | $ | | $ | | ||
Work-in-Process |
| |
| | ||
Finished Goods |
| |
| | ||
Less: Reserve for Obsolescence |
| ( |
| ( | ||
Inventories, Net | $ | | $ | | ||
11
Note 5 – Fixed Assets
Fixed Assets consisted of the following:
September 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Tooling and Manufacturing Equipment | $ | | $ | | ||
Leaseholds |
| |
| | ||
Computers and Purchased Software |
| |
| | ||
Furniture and Equipment |
| |
| | ||
| |
| | |||
Less: Accumulated Depreciation |
| ( |
| ( | ||
Fixed Assets, Net | $ | | $ | | ||
On April 27, 2022, the Company signed a purchase order for new manufacturing equipment upgrades to further our waveguide production capabilities. The purchase order totaled $
On May 12, 2022, the Company signed a series of agreements with Atomistic SAS, which provided for an exclusive license by the Company of key mLED technology and for the custom design of a backplane chip (the “Atomistic Agreements”), for cash commitments totaling $
During the three months ended September 30, 2022, the Company made an additional progress payment of $
Note 6 – Technology Licenses, Net
September 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Licenses | $ | | $ | | ||
Additions |
| |
| | ||
Less: Accumulated Amortization |
| ( |
| ( | ||
Licenses, Net | $ | | $ | | ||
As noted above in Note 5, on May 12, 2022, the Company signed a series of agreements with Atomistic SAS (the “Atomistic Agreements”), which provided for an exclusive license of key mLED technology and for the custom design of a backplane chip for cash commitments totaling $
As of the effective date of the Atomistic Agreements, the Company recorded an intangible technology license asset of $
12
towards this commitment and recorded a total of $
Note 7 - Other Assets
September 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Private Corporation Investments (at cost) | $ | | $ | | ||
Software Development Costs | | | ||||
Additions | | | ||||
Less: Accumulated Amortization | ( | ( | ||||
Software Development Costs, Net | | | ||||
Unamortized Common Stock Expense included in Long-Term Prepaid Expenses | | | ||||
Total Other Assets | $ | | $ | | ||
During 2020, the Company invested $
Note 8 – Accrued Expenses
Accrued expenses consisted of the following:
September 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Accrued Wages and Related Costs | $ | | $ | | ||
Accrued Professional Services |
| |
| | ||
Accrued Warranty Obligations |
| |
| | ||
Other Accrued Expenses |
| |
| — | ||
Total | $ | | $ | | ||
The Company has warranty obligations in connection with the sale of certain of its products. The warranty period for its products is generally (
13
The changes in the Company’s accrued warranty obligations for the nine months ended September 30, 2022 were as follows:
Accrued Warranty Obligations at December 31, 2021 | $ | | |
Reductions for Settling Warranties |
| ( | |
Warranties Issued During Year |
| | |
Accrued Warranty Obligations at September 30, 2022 | $ | |
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
Common Stock
The Company’s authorized common stock consists of
In connection with the Atomistic Agreements, the Company will, upon the achievement or waiver of performance milestones contained in the Atomistic Agreements, be committed to pay $
Treasury Stock
On March 2, 2022, our Board of Directors approved the repurchase by the Company of up to an aggregate of $
14
may be suspended or discontinued at any time at the Company’s sole discretion. During the nine months ended September 30, 2022, the Company repurchased
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) – Note 12) for the nine months ended September 30, 2022 is as follows:
Weighted | |||||
Number of | Average | ||||
| Options |
| Exercise Price | ||
Outstanding at December 31, 2021 |
| | $ | | |
Granted |
| |
| | |
Exercised |
| ( |
| | |
Expired or Forfeited |
| ( |
| | |
Outstanding at September 30, 2022 |
| | $ | | |
The weighted average remaining contractual term for all options as of September 30, 2022 and December 31, 2021 was
As of September 30, 2022, there were
As of September 30, 2022, there were
The weighted average fair value of option grants was calculated using the Black-Scholes-Merton option pricing method. At September 30, 2022, the Company had $
For the three months ended September 30, 2022 and 2021, the Company recorded total stock-based compensation expense, including stock awards but excluding awards under the Company’s LTIP, of $
Note 12 – Long-Term Incentive Plan
On March 17, 2021, the Company granted options to purchase a total of
15
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 September 30, 2022, we had $
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
Award Potential | Criteria Achievement Weighting | ||
Options Available | Equity Market | Last Twelve Months Revenue | Last Twelve Months EBITDA |
| $ | $ | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |||
Note 13 – Litigation
We are not currently involved in any actual or pending legal proceedings or litigation that we consider to be material, and we are not aware of any such material proceedings contemplated by or against us or involving our property.
16
Note 14 – Right-of-Use Assets and Liabilities
Future lease payments under operating leases as of September 30, 2022 were as follows:
2022 | $ | | |
2023 |
| | |
2024 |
| | |
Total Future Lease Payments |
| | |
Less: Imputed Interest |
| ( | |
Total Lease Liability Balance | $ | |
Operating lease costs under the operating leases totaled $
As of September 30, 2022, the weighted average discount rate was
Note 15 – Subsequent Events
On October 20, 2022 the Company purchased Moviynt®, a US-based SAP Certified ERP platform software solution provider, to support handheld mobile phones and scanners used in logistics, warehousing and manufacturing applications. Starting in Q4-2022 its operations will be presented on a consolidated basis.
The purchase price allocation has not been finalized, due to the timing of the acquisition and the filing date of this Quarterly Report on Form 10-Q. Therefore, the allocation of the purchase price to the assets acquired and liabilities assumed, including values to be recognized for goodwill and other intangible assets, will be disclosed in the Annual Report on Form 10-K for the year ending December 31, 2022.
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/A 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 upon our unaudited consolidated financial statements and related notes appearing elsewhere in this quarterly report. The preparation of these 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
17
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; |
| ● | Variable Interest Entities; |
| ● | 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/A for the year ended December 31, 2021. There have been no significant changes in our accounting policies for the three months ended September 30, 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 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 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
18
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 Unaudited Consolidated Financial Statements.
19
Results of Operations
Comparison of Three Months Ended September 30, 2022 and 2021
The following table compares the Company’s consolidated statements of operations data for the three months ended September 30, 2022 and 2021:
Three Months Ended September 30, |
| |||||||||||
|
|
| Dollar |
| % Increase |
| ||||||
2022 | 2021 | Change | (Decrease) |
| ||||||||
(as Restated) | ||||||||||||
Sales: |
|
|
|
|
|
|
|
| ||||
Sales of Products | $ | 2,537,539 |
| $ | 3,018,774 |
| $ | (481,235) |
| (16) | % | |
Sales of Engineering Services |
| 889,284 |
| 0 |
| 889,284 |
| NM | ||||
|
|
|
|
|
|
|
| |||||
Total Sales |
| 3,426,823 |
| 3,018,774 |
| 408,049 |
| 14 | % | |||
|
|
|
|
|
|
|
| |||||
Cost of Sales: |
|
|
|
|
|
|
|
| ||||
Cost of Sales - Products |
| 2,034,123 |
| 2,370,053 |
| (335,930) |
| (14) | % | |||
Cost of Sales - Engineering Services |
| 302,707 |
| — |
| 302,707 |
| NM | ||||
Cost of Sales - Depreciation and Amortization |
| 221,772 |
| 252,759 |
| (30,987) |
| (12) | % | |||
|
|
|
|
|
|
|
| |||||
Total Cost of Sales |
| 2,558,602 |
| 2,622,812 |
| (64,210) |
| (2) | % | |||
|
|
|
|
|
|
|
| |||||
Gross Profit |
| 868,221 |
| 395,962 |
| 472,259 |
| 119 | % | |||
Gross Profit % |
| 25 | % | 13 | % |
|
|
| ||||
|
|
|
|
|
|
|
| |||||
Operating Expenses: |
|
|
|
|
|
|
|
| ||||
Research and Development |
| 3,440,685 |
| 3,397,118 |
| 43,567 |
| 1 | % | |||
Selling and Marketing |
| 1,980,748 |
| 1,653,013 |
| 327,735 |
| 20 | % | |||
General and Administrative |
| 4,854,014 |
| 5,463,247 |
| (609,233) |
| (11) | % | |||
Depreciation and Amortization |
| 510,099 |
| 246,902 |
| 263,197 |
| 107 | % | |||
Impairment of Patents and Trademarks |
| 48,075 |
| 7,544 |
| 40,531 |
| 537 | % | |||
|
|
|
|
|
|
|
| |||||
Loss from Operations |
| (9,965,400) |
| (10,371,862) |
| 406,462 |
| (4) | % | |||
|
|
|
|
|
|
| ||||||
Other Income (Expense): |
|
|
|
|
|
|
|
| ||||
Investment Income |
| 572,721 |
| 29,843 |
| 542,878 |
| 1,819 | % | |||
Income and Other Taxes |
| (19,768) |
| (105,526) |
| 85,758 |
| (81) | % | |||
Foreign Exchange Loss |
| (64,552) |
| (40,003) |
| (24,549) |
| 61 | % | |||
|
|
|
|
|
|
|
| |||||
Total Other Income (Expense), Net |
| 488,401 |
| (115,686) |
| 604,087 |
| (522) | % | |||
|
|
|
|
|
|
|
| |||||
Loss Before Provision for Income Taxes |
| (9,476,999) |
| (10,487,548) |
| 1,010,549 |
| (10) | % | |||
Provision for Income Taxes |
| — |
| — |
| — |
| — | % | |||
|
|
|
|
|
|
|
| |||||
Net Loss | $ | (9,476,999) | $ | (10,487,548) | $ | 1,010,549 |
| (10) | % | |||
20
Sales. There was an increase in total sales for the three months ended September 30, 2022 compared to the same period in 2021 of $408,049, or 14%. The following table reflects the major components of our sales:
| Three Months Ended | % of | Three Months Ended | % of | Dollar | % Increase |
| |||||||||
September 30, 2022 | Total Sales | September 30, 2021 | Total Sales | Change | (Decrease) | |||||||||||
Sales of Products | $ | 2,537,539 |
| 74 | % | 3,018,774 |
| 100 | % | $ | (481,235) |
| (16) | % | ||
Sales of Engineering Services |
| 889,284 |
| 26 | % |
| — |
| 0 | % |
| 889,284 |
| NM | ||
Total Sales | $ | 3,426,823 |
| 100 | % | $ | 3,018,774 |
| 100 | % | $ | 408,049 |
| 14 | % | |
Sales of products decreased by 16% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Smart glasses revenues declined due to a combination of higher average sales discounts due to larger volume reseller sales, negative foreign exchange comparatives and small decrease in overall unit sales. Sales of waveguides and display engines included in product sales rose 272% for the three months ended September 30, 2022 as compared to the same period in 2021.
Sales of engineering services for the three months ended September 30, 2022 were $889,284 as compared to nil in the 2021 period.
Cost of Sales and Gross Profit. Cost of product sales and engineering services are comprised of materials, components, labor, warranty costs, freight costs, manufacturing overhead, software royalties, and non-cash depreciation on manufacturing assets and amortization of software development costs related to the production of our products and rendering of engineering services. The following table reflects the components of our cost of goods sold:
Three Months Ended | As % Related | Three Months Ended | As % Related | Dollar | % Increase | |||||||||||
September 30, 2022 | Total Sales | September 30, 2021 | Total Sales | Change | (Decrease) | |||||||||||
Product Cost of Sales |
| 1,679,067 |
| 49 | % | $ | 1,575,350 |
| 52 | % | $ | 103,717 |
| 7 | % | |
Engineering Services Cost of Sales |
| 302,707 |
| 9 | % | — |
| — | % | 302,707 |
| NM | ||||
Manufacturing Overhead - Unapplied |
| 355,056 |
| 10 | % | 794,703 |
| 26 | % | (439,647) |
| (55) | % | |||
Depreciation and Amortization | 221,772 | 6 | % | 252,759 | 8 | % | (30,987) | (12) | % | |||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total Cost of Sales | $ | 2,558,602 |
| 75 | % | $ | 2,622,812 |
| 87 | % | $ | (64,210) |
| (2) | % | |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Gross Profit | $ | 868,221 |
| 25 | % | $ | 395,962 |
| 13 | % | $ | 472,259 |
| 119 | % | |
For the three months ended September 30, 2022, gross profit from total sales was $868,211 or 25% as compared to $395,962 or 13% in the same period in 2021.
Manufacturing overhead costs, not already added in Cost of Sales, decreased by $439,647 or 55% for the three months ended September 30, 2022 over the 2021 comparable period to 10% as a percentage of total sales as compared to 26% in 2021. The decrease in the net dollar amount of these unapplied overhead costs in the current period versus the prior period is primarily due to higher portions of these total costs being allocated directly into Product Cost of Sales and inventory.
21
Research and Development. Our research and development expenses consist primarily of compensation costs for personnel, related non-cash stock-based compensation expenses, third-party services, purchase of research supplies and materials, and consulting fees related to research and development. Software development expenses to determine technical feasibility before final development and ongoing maintenance are not capitalized and are included in research and development costs.
(as Restated) | ||||||||||||||||
Three Months Ended | % of | Three Months Ended | % of | Dollar | % Increase | |||||||||||
September 30, 2022 | Total Sales | September 30, 2021 | Total Sales | Change | (Decrease) | |||||||||||
Research and Development | $ | 3,440,685 |
| 100 | % | $ | 3,397,118 |
| 113 | % | $ | 43,567 |
| 1 | % | |
Research and development expenses for the three months ended September 30, 2022 increased by $43,567 or 1%, as compared to the same period in 2021. This increase was largely due to an increase of $85,048 in external development expenses and consultants related to our new products, partially offset by a decrease of $32,772 in supplies and consumables.
Selling and Marketing. Selling and marketing expenses consist of trade show costs, advertising, sales samples, travel costs, sales staff compensation costs including non-cash stock-based compensation expense, consulting fees, public relations agency fees, website costs and sales commissions paid to full-time staff and outside consultants.
(as Restated) | ||||||||||||||||
Three Months Ended | % of | Three Months Ended | % of | Dollar | % Increase | |||||||||||
| September 30, 2022 |
| Total Sales | September 30, 2021 |
| Total Sales | Change |
| (Decrease) | |||||||
Selling and Marketing | $ | 1,980,748 | 58 | % | $ | 1,653,013 | 55 | % | $ | 327,735 | 20 | % | ||||
Selling and marketing expenses for the three months ended September 30, 2022 increased by $327,735 or 20%, as compared to the same period in 2021. This increase was largely due to a $359,172 increase in salary and salary benefits related expense; an increase of $116,811 in travel related expenses; and an increase of $58,297 in advertising costs, partially offset by a decrease of $101,507 in sales consulting fees; and a decrease of $101,008 in website development and maintenance costs.
General and Administrative. General and administrative expenses include professional fees, investor relations (IR) costs, salaries and related non-cash stock-based compensation, travel costs, office and rental costs.
(as Restated) | ||||||||||||||||
Three Months Ended | % of | Three Months Ended | % of | Dollar | % Increase | |||||||||||
September 30, 2022 | Total Sales | September 30, 2021 | Total Sales | Change | (Decrease) | |||||||||||
General and Administrative | $ | 4,854,014 |
| 142 | % | $ | 5,463,247 |
| 181 | % | $ | (609,233) |
| (11) | % | |
General and administrative expenses for the three months ended September 30, 2022 decreased by $609,233 or 11%, as compared to the same period in 2021. This decrease was largely due to a decrease of $383,381 in salary and salary benefits related expenses, which was primarily driven by a $334,095 decrease in non-cash stock-based compensation related to the Company’s LTIP; and a decrease of $348,859 in legal expenses, partially offset by an increase of $58,618 in shareholder and IR related expenses and a $32,008 increase in recruitment and hiring expenses.
Depreciation and Amortization. Depreciation and amortization expense, not included in Cost of Sales, for the three months ended September 30, 2022 was $510,099, as compared to $246,902 in the same period in 2021, an increase of $263,197. The increase in depreciation and amortization expense is primarily due to the amortization of our technology license related to the Atomistic Agreements which began on May 12, 2022 and is partially offset by a decrease in depreciation expense related to certain fixed assets associated with machinery and tooling that became fully depreciated in 2021.
Other Income (Expense), Net. Total other income was $488,401 for the three months ended September 30, 2022, as compared to other expense of $115,686 in the same period in 2021, an increase of $604,087. The overall increase in other income was primarily the result of an increase of $542,878 in investment income resulting from the
22
recent rise in interest rates and a higher average invested cash balance period over period; and a decrease of $85,758 in income and other taxes, partially offset by an increase of $24,549 in foreign exchange losses.
Provision for Income Taxes. There was not a provision for income taxes in the respective three month periods ending September 30, 2022 and 2021.
Comparison of Nine Months Ended September 30, 2022 and 2021
The following table compares the Company’s consolidated statements of operations data for the nine months ended September 30, 2022 and 2021:
Nine Months Ended September 30, | ||||||||||||
|
|
| Dollar |
| % Increase |
| ||||||
2022 | 2021 | Change | (Decrease) |
| ||||||||
(as Restated) | ||||||||||||
Sales: |
|
|
|
|
|
|
|
| ||||
Sales of Products | $ | 7,939,483 | $ | 9,657,589 | $ | (1,718,106) |
| (18) | % | |||
Sales of Engineering Services |
| 998,150 |
| 193,113 |
| 805,037 |
| 417 | % | |||
Total Sales |
| 8,937,633 |
| 9,850,702 |
| (913,069) |
| (9) | % | |||
Cost of Sales: |
|
|
|
|
|
|
|
| ||||
Cost of Sales - Products Sold |
| 6,289,612 |
| 7,347,450 |
| (1,057,838) |
| (14) | % | |||
Cost of Sales - Engineering Services |
| 362,003 |
| 29,669 |
| 332,334 |
| 1,120 | % | |||
Cost of Sales - Depreciation and Amortization |
| 676,720 |
| 953,614 |
| (276,894) |
| (29) | % | |||
Total Cost of Sales |
| 7,328,335 |
| 8,330,733 |
| (1,002,398) |
| (12) | % | |||
Gross Profit |
| 1,609,298 |
| 1,519,969 |
| 89,329 |
| 6 | % | |||
Gross Profit % |
| 18 | % |
| 15 | % |
|
|
|
| ||
Operating Expenses: |
|
|
|
|
|
|
|
| ||||
Research and Development |
| 9,540,272 |
| 8,326,431 |
| 1,213,841 |
| 15 | % | |||
Selling and Marketing |
| 5,895,332 |
| 4,305,632 |
| 1,589,700 |
| 37 | % | |||
General and Administrative |
| 15,307,242 |
| 16,672,046 |
| (1,364,804) |
| (8) | % | |||
Depreciation and Amortization |
| 1,149,046 |
| 731,035 |
| 418,011 |
| 57 | % | |||
Loss on Fixed Asset Disposal |
| — |
| 83,908 |
| (83,908) |
| (100) | % | |||
Impairment of Patents and Trademarks |
| 97,676 |
| 66,040 |
| 31,636 |
| 48 | % | |||
Loss from Operations |
| (30,380,270) |
| (28,665,123) |
| (1,715,147) |
| 6 | % | |||
Other Income (Expense): |
|
|
|
|
|
|
|
| ||||
Investment Income |
| 690,028 |
| 45,448 |
| 644,580 |
| 1,418 | % | |||
Income and Other Taxes |
| (98,727) |
| (138,034) |
| 39,307 |
| (28) | % | |||
Foreign Exchange Loss |
| (215,698) |
| (126,681) |
| (89,017) |
| 70 | % | |||
Total Other Income (Expense), Net |
| 375,603 |
| (219,267) |
| 594,870 |
| (271) | % | |||
Net Loss | $ | (30,004,667) | $ | (28,884,390) | $ | (1,120,277) |
| 4 | % | |||
23
Sales. There was a decrease in total sales for the nine months ended September 30, 2022 compared to the same period in 2021 of $913,069, or 9%. The following table reflects the major components of our sales:
Nine Months Ended | % of | Nine Months Ended | % of | Dollar | % Increase | |||||||||||
September 30, 2022 | Total Sales | September 30, 2021 | Total Sales | Change | (Decrease) | |||||||||||
Sales of Products | $ | 7,939,483 |
| 89 | % | $ | 9,657,589 |
| 98 | % | $ | (1,718,106) |
| (18) | % | |
Sales of Engineering Services |
| 998,150 |
| 11 | % |
| 193,113 |
| 2 | % |
| 805,037 |
| 417 | % | |
Total Sales | $ | 8,937,633 |
| 100 | % | $ | 9,850,702 |
| 100 | % | $ | (913,069) |
| (9) | % | |
Sales of products decreased by 18% for the nine months ended September 30, 2022 compared to the same period in 2021. Smart glasses revenues declined due to a combination of higher average sales discounts due to larger volume reseller sales, negative foreign exchange comparatives and small decrease in overall unit sales. Sales of waveguides and display engines included in product sales rose by $460,650 for the nine months ended September 30, 2022 as compared to the same period in 2021.
Sales of engineering services for the nine months ended September 30, 2022 were $998,150, as compared to $193,113 in the same period of 2021.
Cost of Sales and Gross Profit. Cost of product sales and engineering services are comprised of materials, components, labor, warranty costs, freight costs, manufacturing overhead, software royalties, and non-cash depreciation on manufacturing assets and amortization of software development costs related to the production of our products and rendering of engineering services. The following table reflects the components of our cost of goods sold:
Nine Months Ended | As % Related | Nine Months Ended | As % Related | Dollar | % Increase | |||||||||||
September 30, 2022 | Total Sales | September 30, 2021 | Total Sales | Change | (Decrease) | |||||||||||
Product Cost of Sales | $ | 5,199,951 |
| 58 | % | $ | 5,298,585 |
| 54 | % | $ | (98,634) |
| (2) | % | |
Engineering Services Cost of Sales |
| 362,003 |
| 4 | % |
| 29,669 |
| 0 | % |
| 332,334 |
| 1,120 | % | |
Manufacturing Overhead - Unapplied |
| 1,089,661 |
| 12 | % |
| 2,048,865 |
| 21 | % |
| (959,204) |
| (47) | % | |
Depreciation and Amortization |
| 676,720 |
| 8 | % |
| 953,614 |
| 10 | % |
| (276,894) |
| (29) | % | |
Total Cost of Sales | 7,328,335 |
| 82 | % | 8,330,733 |
| 85 | % | (1,002,398) |
| (12) | % | ||||
Gross Profit | $ | 1,609,298 | 18 | % | $ | 1,519,969 |
| 15 | % | $ | 89,329 |
| 6 | % | ||
For the nine months ended September 30, 2022, gross profit from total sales was $1,609,298 or 18% as compared to $1,519,969 or 15% in the same period in 2021.
Manufacturing overhead costs, not already added in Cost of Sales, decreased by $959,204 or 47% for the nine months ended September 30, 2022 over the 2021 comparable period to 12% as a percentage of total sales as compared to 21% in 2021. The decrease in the net dollar amount of these unapplied overhead costs in the current period versus the prior period is primarily due to more absorption of fixed costs being allocated directly to Product Cost of Sales and inventory.
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Research and Development. Our research and development expenses consist primarily of compensation costs for personnel, related non-cash stock-based compensation expenses, third-party services, purchase of research supplies and materials, and consulting fees related to research and development. Software development expenses to determine technical feasibility before final development and ongoing maintenance are not capitalized and are included in research and development costs.
(as Restated) | ||||||||||||||||
Nine Months Ended | % of | Nine Months Ended | % of | Dollar | % Increase | |||||||||||
September 30, 2022 | Total Sales | September 30, 2021 | Total Sales | Change | (Decrease) | |||||||||||
Research and Development | $ | 9,540,272 |
| 107 | % | $ | 8,326,431 |
| 85 | % | $ | 1,213,841 |
| 15 | % | |
Research and development expenses for the nine months ended September 30, 2022 increased by $1,213,841 or 15%, as compared to the same period in 2021. This increase was largely due to an increase of $677,871 in external development expenses related to our Next Generation Smart Glasses (Shield) and Blade 2.0; a $522,114 increase in salary and benefits expenses due to additional personnel; an increase of $78,920 in technology licensing fees; and an increase of $68,087 in recruitment and hiring fees, and partially offset by a decrease of $133,328 in supplies and consumables expense.
Selling and Marketing. Selling and marketing expenses consist of trade show costs, advertising, sales samples, travel costs, sales staff compensation costs including non-cash stock-based compensation expense, consulting fees, public relations agency fees, website costs and sales commissions paid to full-time staff and outside consultants.
(as Restated) | ||||||||||||||||
Nine Months Ended | % of | Nine Months Ended | % of | Dollar | % Increase | |||||||||||
September 30, 2022 | Total Sales | September 30, 2021 | Total Sales | Change | (Decrease) | |||||||||||
Selling and Marketing | $ | 5,895,332 |
| 66 | % | $ | 4,305,632 |
| 44 | % | $ | 1,589,700 |
| 37 | % | |
Selling and marketing expenses for the nine months ended September 30, 2022 increased by $1,589,700 or 37%, as compared to the same period in 2021. This increase was largely due to a $1,178,544 increase in salary and salary benefits related expense; a $251,478 increase in advertising costs; an increase of $308,681 in trade show expenses; an increase of $263,842 in travel related expenses; and an increase of $17,149 in commissions expenses, and partially offset by a decrease of $292,595 in website development and maintenance costs.
General and Administrative. General and administrative expenses include professional fees, investor relations (IR) costs, salaries and related non-cash stock-based compensation, travel costs, office and rental costs.
(as Restated) | ||||||||||||||||
Nine Months Ended | % of | Nine Months Ended | % of | Dollar | % Increase | |||||||||||
September 30, 2022 | Total Sales | September 30, 2021 | Total Sales | Change | (Decrease) | |||||||||||
General and Administrative | $ | 15,307,242 |
| 171 | % | $ | 16,672,046 |
| 169 | % | $ | (1,364,804) |
| (8) | % | |
General and administrative expenses for the nine months ended September 30, 2022 decreased by $1,364,804 or 8%, as compared to the same period in 2021. This decrease was largely due to a $985,354 decrease in salary and benefits expenses related primarily to non-cash stock-based compensation which was significantly higher in the first quarter of 2021 due to the vesting of an achieved equity market capitalization milestone under the LTIP; a decrease of $278,152 in shareholder and IR related expenses; a $207,113 decrease in legal expenses; a $140,045 decrease in recruitment and hiring expenses, and partially offset by increases in audit and tax advisory fees of $167,272, insurance premiums of $128,738, and travel related expenses of $44,644, respectively.
Depreciation and Amortization. Depreciation and amortization expense, not included in Cost of Sales, for the nine months ended September 30, 2022 was $1,149,046 as compared to $731,035 in the same period in 2021, an increase of $418,011. The increase in depreciation and amortization expense is primarily due to the amortization of our technology license related to the Atomistic Agreements which began on May 12, 2022
Other Income (Expense), Net. Total other income was $375,603 for the nine months ended September 30, 2022, as compared to other expense of $219,267 in the same period in 2021, an increase of $594,870. The overall increase in
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other income was primarily the result of an increase of $644,580 in investment income resulting from the recent rise in interest rates and a higher average invested cash balance period over period; and a decrease of $39,307 in income and other taxes, partially offset by an increase of $89,017 in foreign exchange losses.
Provision for Income Taxes. There was not a provision for income taxes in the respective nine month periods ending September 30, 2022 and 2021.
Liquidity and Capital Resources
Capital Resources: As of September 30, 2022, we had cash and cash equivalents of $90,374,403, a decrease of $29,829,470 from $120,203,873 as of December 31, 2021.
As of September 30, 2022, we had current assets of $109,010,999 as compared to current liabilities of $8,217,818 which resulted in a positive working capital position of $100,793,181. As of December 31, 2021, we had a working capital position of $132,993,899. Our current liabilities are comprised principally of accounts payable, accrued expenses, licensing fee commitments, and operating lease right-of-use liabilities.
Summary of Cash Flow:
The following table summarizes our select cash flows for the nine months ended:
September 30, | (as Restated) September 30, | |||||
| 2022 |
| 2021 | |||
Net Cash Provided by (used in) |
|
|
|
| ||
Operating Activities | (17,935,375) | (18,909,428) | ||||
Investing Activities |
| (11,691,543) |
| (4,340,443) | ||
Financing Activities |
| (202,552) |
| 115,927,024 | ||
During the nine months ended September 30, 2022, we used $17,935,375 of cash for operating activities as compared to $18,909,428 for the comparable period in 2021. Net changes in working capital items were $1,870,484 for the nine months ended September 30, 2022, with the largest factors resulting from a $1,268,857 increase in trade accounts receivables and other accrued receivables and a decrease of $417,298 in net trade payables and accrued expenses.
During the nine months ended September 30, 2022, we used $11,691,543 of cash for investing activities, which included $6,000,000 in payments made towards our $15,000,000 technology license fee commitment (as discussed in Note 6), $5,203,562 for purchases of manufacturing equipment, product mold tooling, and backplane chip design and tooling fees; $362,981 in patent and trademark expenditures; and a further investment of $125,000 in the purchase of software operating license upgrades for our smart glasses platform. For the nine months ended September 30, 2021, we used a total of $4,340,443 in cash for investing activities.
During the nine months ended September 30, 2022, we used $202,552 in net cash from financing activities, which included $251,057 for share repurchases under our Share Buyback Program that was announced on March 2, 2022, and partially offset by $48,505 in proceeds from the exercise of stock options. For the nine months ended September 30, 2021, we received $115,927,024 in proceeds from financing activities, primarily from sales of our equity securities.
As of September 30, 2022, the Company does not have any current or long-term debt obligations outstanding other than Licensing Fee Commitments totaling $9,000,000 related to the Atomistic Agreements described in Note 6 of the consolidated financial statements. The Company also has contractual investment commitments for a backplane chip design under the Atomistic Agreements, as further described in Note 5 of the unaudited consolidated financial statements, which total approximately $9,500,000 and are expected to be funded to Atomistic over the next 15 to 21 months
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Additionally in connection with the Atomistic Agreements, the Company entered a Stock Purchase Agreement with the stockholders of Atomistic under which Vuzix will buy Series B Convertible Preferred shares of Atomistic through the issuance of Vuzix common shares based on the achievement of certain Milestones as defined in the Share Purchase Agreement. This will result, depending upon Vuzix’ share price at the time of their issuance, in the Company’s issuance of a minimum of 1,750,000 to a maximum of 2,843,750 common shares to Atomistic stockholders in exchange for convertible Series A Preferred shares of Atomistic over approximately the next 6 to 24 months. Once Atomistic has achieved all its milestones or has them waived by Vuzix, and Vuzix issues the required numbers of Vuzix common shares, in exchange for Series A Convertible Preferred shares in Atomistic that could ultimately be converted into common shares of Atomistic, the Company would ultimately end up owning 100% of Atomistic.
The Company’s cash requirements are primarily for funding operating losses, working capital, research and development, capital expenditures, and license fee commitments. We incurred a net loss for the nine months ended September 30, 2022 of $30,004,667 (of which $12,016,334 was related to non-cash stock-based compensation primarily due to our LTIP) and annual net losses of $40,377,160 (of which $17,302,833 was related to non-cash stock-based compensation primarily due to our LTIP) in 2021 and $17,952,172 in 2020. The Company has an accumulated deficit of $233,076,810 as of September 30, 2022.
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 nine months ended September 30, 2022, the Company repurchased 36,685 shares of our common stock at an average cost of $6.84. As of September 30, 2022, 36,685 shares of our common stock were held in treasury.
Our operations are financed primarily through net proceeds from the sale of our equity securities. As of September 30, 2022, our principal sources of liquidity consisted of cash and cash equivalents of $90,374,403.
Forward Looking Statements
This quarterly report includes forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, but are not limited to, statements concerning:
| ● | trends in our operating expenses, including personnel costs, research and development expense, sales and marketing expense, and general and administrative expense; |
| ● | the effect of competitors and competition in our markets; |
| ● | our wearable smart glasses products and their market acceptance and future potential; |
| ● | our ability to develop, timely introduce, and effectively manage the introduction of new products and services or improve our existing products and services; |
| ● | expected technological advances by us or by third parties and our ability to leverage them; |
| ● | our ability to attract and retain customers; |
| ● | our ability to accurately forecast consumer demand and adequately manage our inventory; |
| ● | our ability to deliver an adequate supply of product to meet demand; |
| ● | our ability to maintain and promote our brand and expand brand awareness; |
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| ● | our ability to detect, prevent, or fix defects in our products; |
| ● | our reliance on third-party suppliers, contract manufacturers and logistics providers and our limited control over such parties; |
| ● | trends in revenue, costs of revenue, and gross margin and our possible or assumed future results of operations; |
| ● | our ability to attract and retain highly skilled employees; |
| ● | the impact of foreign currency exchange rates; |
| ● | the effect of future regulations; |
| ● | the sufficiency of our existing cash and cash equivalent balances and cash flow from operations to meet our working capital and capital expenditure needs for at least the next twelve (12) months; and |
| ● | general market, political, economic, business and public health conditions. |
All statements in this quarterly report that are not historical facts are forward-looking statements. We may, in some cases, use terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions that convey uncertainty of future events or outcomes to identify forward-looking statements.
All such forward-looking statements are subject to certain risks and uncertainties and should be evaluated in light of important risk factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risk factors include, but are not limited to, those that are described in “Risk Factors” in this report and under Item 1A and elsewhere in our Annual Report on Form 10-K/A for the year ended December 31, 2021 and other filings we make with the Securities and Exchange Commission and the following: business and economic conditions, rapid technological changes accompanied by frequent new product introductions, competitive pressures, dependence on key customers, inability to gauge order flows from customers, fluctuations in quarterly and annual results, the reliance on a limited number of third-party suppliers, limitations of our manufacturing capacity and arrangements, the protection of our proprietary technology, the effects of pending or threatened litigation, the dependence on key personnel, changes in critical accounting estimates, potential impairments related to investments, foreign regulations, liquidity issues, and potential material weaknesses in internal control over financial reporting. Further, during weak or uncertain economic periods, customers may delay the placement of their orders. These factors often result in a substantial portion of our revenue being derived from orders placed within a quarter and shipped in the final month of the same quarter.
We caution readers to carefully consider such factors. Many of these factors are beyond our control. In addition, any forward-looking statements represent our estimates only as of the date they are made and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, except as may be required under applicable securities laws, we specifically disclaim any obligation to do so.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
We invest our excess cash in high-quality short-term corporate debt instruments, which bear lower levels of relative risk. We believe that the effect, if any, of possible near-term changes in interest rates on our financial position, results of operations, and cash flows should not be material to our cash flows or income. It is possible that interest rate movements would increase our unrealized gain or loss on interest rate securities. We are exposed to changes in foreign currency exchange rates primarily through transaction gains and losses as a result of non-U.S. dollar denominated cash flows related to business activities in Japan and Europe. We do not currently hedge our foreign currency exchange rate risk. We estimate that any market risk associated with our international operations is unlikely to have a material adverse effect on our business, financial condition or results of operation.
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Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management, with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has performed an evaluation of the effectiveness of our disclosure controls and procedures that are defined in Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. This evaluation included consideration of the controls, processes, and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is properly recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were not effective because of the material weakness in internal control over financial reporting described below and disclosed on the 2021 Form 10-K/A.
Changes in Internal Control over Financial Reporting
As reported in our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021, included in “Item 9A. Controls and Procedures” of our Annual Report on Form 10-K/A for the year ended December 31, 2021, our internal control over financial reporting was considered ineffective as of that date as a result of a material weakness. The material weakness that existed at that time was over the Company’s internal control over financial reporting related to the methodology utilized by the Company to calculate the fair market value of the LTIP stock options issued in March 2021 for the achievement of certain equity market capitalization milestones, and the Company’s subsequent identification and correction of an error in that calculation.
In the first quarter of 2022, we designed and, to the extent possible, implemented control improvements to remediate the material weakness stated above, which included; (i) a more robust and comprehensive review by management each period to identify unusual and non-routine transactions, (ii) a process to identify and engage resources, including third-party resources, with the technical accounting expertise needed to timely address any complex technical accounting issues that affect our consolidated financial statements, and (iii) a more robust process for the selection of third-party specialists and management review of their work. As of September 30, 2022 not enough time has passed from the implementation of these new procedures to allow for successful control testing that would evidence that this control weakness has been fully remediated. However, management expects to show full remediation of this material weakness in 2022.
Part II. OTHER INFORMATION
Item 1.Legal Proceedings
We are not currently involved in any actual or pending legal proceedings or litigation that we consider to be material, and we are not aware of any such proceedings contemplated by or against us or involving our property.
Item 1A.Risk Factors
In addition to the other information set forth in this report you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K/A for the year ended December 31, 2021. Except as set forth below, there have been no material changes from those risk factors. The risks discussed in our 2021 Annual Report and described below could materially affect our business, financial condition and future results.
Impact of COVID-19 and Geo-political Actions
The implications of COVID-19 and Geo-political actions on our results from operations going forward remain uncertain. These have the ongoing potential to cause adverse effects to our customers, suppliers or business partners in
29
locations that have or will experience more pronounced disruptions, which could result in a reduction to future revenue and manufacturing output as well as delays in our new product development activities. Recent increases in demand for certain chips within various technology sectors and other industries has been one of the ripple effects of the COVID-19 crisis and Geo-political actions that are causing shortages of certain chips and negatively impacting many companies’ supply chains and their ability to maintain or increase their production to meet market demands. At this time, we are operating successfully with our existing products but are seeing longer component lead times which is increasing risk in our supply chain as well as the need to carry more component inventories and make earlier purchase commitments for components, which could have an impact on future products.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Sale of Unregistered Securities – none
Purchase of Equity Securities - none
Item 3.Defaults Upon Senior Securities
None
Item 4.Mine Safety Disclosures
Not Applicable
Item 5.Other Information
None
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Item 6.Exhibits
Exhibit No. |
| Description |
| ||
31.1 | ||
|
| |
31.2 | ||
|
| |
32.1 | ||
|
| |
32.2 | ||
|
| |
101.INS | Inline XBRL Instance Document | |
|
| |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
|
| |
101.CAL | Inline XBRL Taxonomy Extension Calculation Link base Document | |
|
| |
101.DEF | Inline XBRL Taxonomy Extension Definition Link base | |
|
| |
101.LAB | Inline XBRL Taxonomy Extension Label Link base Document | |
|
| |
101.PRE | Inline XBRL Taxonomy Extension Presentation Link base Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* |
* Filed herewith.
** Furnished herewith
.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| VUZIX CORPORATION | |
|
|
|
Date: November 9, 2022 | By: | /s/ Paul Travers |
|
| Paul Travers |
|
| President, Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
Date: November 9, 2022 | By: | /s/ Grant Russell |
|
| Grant Russell |
|
| Executive Vice President and Chief Financial |
|
| Officer |
|
| (Principal Financial and Accounting Officer) |
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