UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended March 31, 2023


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

Commission file number 001-35955

VUZIX CORPORATION

(Exact name of registrant as specified in its charter)


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


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

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

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


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

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

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

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


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

Smaller reporting company	☒	Emerging growth company	☐

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

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

As of May 10, 2023, there were 63,219,123 shares of the registrant’s common stock outstanding.

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Part 1: FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

VUZIX CORPORATION

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	March 31,		December 31,
	2023		2022
ASSETS
Current Assets
Cash and Cash Equivalents	$	63,235,863	$	72,563,943
Accounts Receivable, Net		3,059,156		3,558,971
Accrued Revenues in Excess of Billings		192,177		269,129
Employee Retention Credit Receivable		466,705		466,705
Inventories, Net		10,861,679		11,267,969
Manufacturing Vendor Prepayments		474,035		998,671
Prepaid Expenses and Other Assets		1,621,186		2,115,853

Total Current Assets		79,910,801		91,241,241

Long-Term Assets
Fixed Assets, Net		6,139,939		3,878,505
Operating Lease Right-of-Use Asset		791,604		956,165
Patents and Trademarks, Net		2,341,024		2,220,094
Technology Licenses, Net		29,331,805		30,158,689
Intangible Asset, Net		640,383		675,313
Goodwill		1,601,400		1,601,400
Other Assets, Net		1,715,996		1,581,143

Total Assets	$	122,472,952	$	132,312,550

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable	$	1,271,365	$	1,211,747
Unearned Revenue		41,454		29,064
Accrued Expenses		1,466,214		1,670,539
Licensing Fees Commitment		9,500,000		11,500,000
Income and Other Taxes Payable		22,841		214,997
Operating Lease Right-of-Use Liability		562,375		651,011

Total Current Liabilities		12,864,249		15,277,358

Long-Term Liabilities
Operating Lease Right-of-Use Liability		229,229		305,154

Total Liabilities		13,093,478		15,582,512

Stockholders' Equity
Common Stock - $0.001 Par Value, 100,000,000 shares authorized; 63,787,858 shares issued and 63,208,186 shares outstanding as of March 31, 2023 and 63,783,779 shares issued and 63,319,107 shares outstanding as of December 31, 2022.		63,787		63,783
Additional Paid-in Capital		365,868,487		362,507,715
Accumulated Deficit		(254,076,299)		(243,835,716)
Treasury Stock, at cost, 579,672 shares as of March 31, 2023 and 464,672 shares as of December 31, 2022.		(2,476,501)		(2,005,744)

Total Stockholders' Equity		109,379,474		116,730,038

Total Liabilities and Stockholders' Equity	$	122,472,952	$	132,312,550

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)


	Common Stock			Additional		Accumulated		Treasury Stock
	Shares	Amount		Paid-In Capital		Deficit		Shares	Amount		Total
Balance - January 1, 2023	63,783,779	$	63,783	$	362,507,715	$	(243,835,716)	(464,672)	$	(2,005,744)	$	116,730,038
Stock-Based Compensation Expense	—		—		3,360,772		—	—		—		3,360,772
Stock Option Exercises	4,079		4		—		—	—		—		4
Purchases of Treasury Stock	—		—		—		—	(115,000)		(470,757)		(470,757)
Net Loss	—		—		—		(10,240,583)	—		—		(10,240,583)
Balance - March 31, 2023	63,787,858	$	63,787	$	365,868,487	$	(254,076,299)	(579,672)	$	(2,476,501)	$	109,379,474


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

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 March 31,

	2023		2022
Sales:
Sales of Products	$	4,191,361	$	2,503,051

Cost of Sales:
Cost of Sales - Products Sold		3,082,439		1,803,598
Cost of Sales - Depreciation and Amortization		232,916		223,785

Total Cost of Sales		3,315,355		2,027,383

Gross Profit		876,006		475,668

Operating Expenses:
Research and Development		3,069,797		3,103,444
Selling and Marketing		2,539,659		2,023,435
General and Administrative		5,131,824		5,453,833
Depreciation and Amortization		964,265		259,245
Impairment of Patents and Trademarks		17,666		49,603

Total Operating Expenses		11,723,211		10,889,560

Loss From Operations		(10,847,205)		(10,413,892)

Other Income (Expense):
Investment Income		695,783		6,280
Income and Other Taxes		(87,795)		(47,632)
Foreign Exchange Loss		(1,366)		(50,757)

Total Other Income (Expense), Net		606,622		(92,109)

Loss Before Provision for Income Taxes		(10,240,583)		(10,506,001)
Provision for Income Taxes		—		—

Net Loss		(10,240,583)		(10,506,001)

Basic and Diluted Loss per Common Share	$	(0.16)	$	(0.16)
Weighted-average Shares Outstanding - Basic and Diluted		63,216,598		63,695,127

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

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VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,

	2023		2022

Cash Flows from Operating Activities
Net Loss	$	(10,240,583)	$	(10,506,001)
Non-Cash Adjustments
Depreciation and Amortization		1,197,181		483,030
Stock-Based Compensation		3,667,509		4,319,748
Impairment of Patents and Trademarks		17,666		49,603
(Increase) Decrease in Operating Assets
Accounts Receivable		499,815		690,775
Accrued Revenues in Excess of Billings		76,952		—
Inventories		406,290		(407,084)
Manufacturing Vendor Prepayments		524,636		(82,513)
Prepaid Expenses and Other Assets		218,520		213,394
Increase (Decrease) in Operating Liabilities
Accounts Payable		59,618		(831,021)
Accrued Expenses		(412,566)		(292,286)
Unearned Revenue		12,391		1,825
Income and Other Taxes Payable		(192,156)		(74,549)

Net Cash Flows Used in Operating Activities		(4,164,727)		(6,435,079)

Cash Flows from Investing Activities
Purchases of Fixed Assets		(2,284,968)		(57,758)
Investments in Patents and Trademarks		(182,628)		(34,469)
Investments in Licenses, Intangibles and Other Assets		(2,000,000)		(125,000)
Investments in Software Development		(125,000)		—
Investments in Other Assets		(100,000)		—

Net Cash Flows Used in Investing Activities		(4,692,596)		(217,227)

Cash Flows from Financing Activities
Proceeds from Exercise of Warrants		—		29,224
Purchases of Treasury Stock		(470,757)		(251,057)

Net Cash Flows Used in Financing Activities		(470,757)		(221,833)

Net Decrease in Cash and Cash Equivalents		(9,328,080)		(6,874,139)
Cash and Cash Equivalents - Beginning of Period		72,563,943		120,203,873

Cash and Cash Equivalents - End of Period	$	63,235,863	$	113,329,734

Supplemental Disclosures
Unamortized Common Stock Expense included in Prepaid Expenses and Other Assets	$	1,061,885	$	1,001,232
Non-Cash Investment in Licenses		9,500,000		—
Stock-Based Compensation Expense - Expensed less Previously Issued		306,737		364,010

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 have been made to prior comparable 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 months ended March 31, 2023 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, 2022, as reported in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2023.

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 months ended March 31, 2022, 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 of these reclassifications:



	For the Three Months Ended March 31, 2022
Condensed Statement of Operations	As Previously Presented		Reclassification		Revised
Total Sales	$	2,503,051	$	—	$	2,503,051
Cost of Sales - Products Sold		1,863,697		(60,099)		1,803,598
Cost of Sales - Depreciation and Amortization		—		223,785		223,785
Gross Profit		639,354		163,686		475,668
Operating Expenses:
Research and Development		3,103,444				3,103,444
Selling and Marketing		2,023,435				2,023,435
General and Administrative		5,453,833				5,453,833
Depreciation and Amortization		422,931		(163,686)		259,245
Impairment of Patents and Trademarks		49,603				49,603
Total Operating Expenses		11,053,246		(163,686)		10,889,560
Loss From Operations		(10,413,892)		—		(10,413,892)
Total Other Expense, Net		(92,109)				(92,109)
Net Loss	$	(10,506,001)	$	—	$	(10,506,001)

Customer Concentrations

For the three months ended March 31, 2023, one customer represented 74% of total product revenue. For the three months ended March 31, 2022, one customer represented 11% of total product revenue.

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As of March 31, 2023, one customer represented 50% of accounts receivable. As of December 31, 2022, one customer represented 26% 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 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. The Company adopted ASU 2016-13 effective on January 1, 2023. The adoption of this standard did not 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. There were no Engineering Services revenue recorded in the three months ended March 31, 2023. The following table summarizes the revenue recognized by major product line:


	Three Months Ended
	March 31,
	2023		2022
Revenues
Products Sales	$	4,191,361	$	2,503,051

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 considers shipping and handling activities performed to be fulfillment activities and not a separate performance obligation. The Company also records revenue for performance obligations relating to our engineering services over time by using the input method measuring progress toward satisfying the performance obligations. Satisfaction of our performance obligations related to our engineering services is measured by the Company’s costs incurred as a percentage of total expected costs to project completion as the inputs of actual costs incurred by the Company are directly correlated with progress toward completing the contract. As such, the Company believes that our methodologies for recognizing revenue over time for our engineering services correlate directly with the transfer of control of the underlying assets to our customers.

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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 the date of billing, subject to an agreed upon customer acceptance period.

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


	% of Total Net Sales
	2023		2022
Point-in-Time	100	%	100	%

Remaining Performance Obligations

As of March 31, 2023, the Company had approximately $165,000 of remaining performance obligations under a current waveguide development project, which represents the remainder of the total transaction price of approximately $800,000 under this development agreement, which commenced in 2022, less revenue recognized under percentage of completion to date. The Company expects to recognize the remaining revenue related to this project in the second quarter of 2023. Revenues earned less amounts invoiced at March 31, 2023 in the amount of $192,177 are reflected as Accrued Revenues in Excess of Billings in the accompanying Consolidated Balance Sheet.

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 months ended March 31, 2023 and 2022, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. At March 31, 2023 and 2022, there were 8,603,308 and 8,611,365 common stock share equivalents, respectively, potentially exercisable or issuable under conversion or exercise of stock options that could dilute basic earnings per share in the future.

Note 4 – Inventories, Net

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


	March 31,		December 31,
	2023		2022

Purchased Parts and Components	$	10,018,357	$	10,399,527
Work-in-Process		358,857		344,242
Finished Goods		2,255,516		1,941,689
Less: Reserve for Obsolescence		(1,771,051)		(1,417,489)

Inventories, Net	$	10,861,679	$	11,267,969

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Note 5 – Fixed Assets

Fixed Assets consisted of the following:


	March 31,		December 31,
	2023		2022
Tooling and Manufacturing Equipment	$	8,050,657	$	6,065,445
Leaseholds		1,366,128		826,329
Computers and Purchased Software		765,237		760,256
Furniture and Equipment		2,505,091		2,487,650
		12,687,113		10,139,680
Less: Accumulated Depreciation		(6,547,174)		(6,261,175)
Fixed Assets, Net	$	6,139,939	$	3,878,505

During the three months ended March 31, 2023, the Company invested approximately $2,200,000 in tooling and manufacturing equipment and leasehold improvements, as part of the Company’s new waveguide expansion project. Construction on the Company’s new facility began late in December 2022 and is expected to be completed by the end of May 2023.

Total depreciation expense for fixed assets, not included in Cost of Sales, for the three months ended March 31, 2023 and 2022 was $102,451 and $117,087, respectively.

Note 6 – Technology Licenses, Net


	March 31,		December 31,
	2023		2022

Licenses	$	32,443,356	$	2,443,356
Additions		—		30,000,000
Less: Accumulated Amortization		(3,111,551)		(2,284,667)
Licenses, Net	$	29,331,805	$	30,158,689

Total amortization expense related to technology licenses for the three months ended March 31, 2023 and 2022 was $826,884 and $56,700, respectively.

Note 7 - Other Assets


	March 31,		December 31,
	2023		2022
Private Corporation Investments	$	450,000	$	450,000
Additions		100,000		—
Total Private Corporation Investments (at cost)		550,000		450,000

Software Development Costs		875,000		750,000
Additions		125,000		125,000
Less: Accumulated Amortization		(430,556)		(375,000)
Software Development Costs, Net		569,444		500,000

Unamortized Common Stock Expense included in Long-Term Prepaid Expenses		596,552		631,143

Total Other Assets	$	1,715,996	$	1,581,143

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In 2021, the Company acquired, for a purchase price of $200,000, an ownership interest of 3%, in the form of preferred stock, in a private corporation developing smart glasses software for use by retailers in the stock keeping of inventory, amongst other uses. In the three months ended March 31, 2023, the Company purchased an additional $100,000 of preferred stock in this corporation through a subsequent round of funding in order to retain 2% ownership interest.

During 2020, the Company invested $500,000 in Android operating systems upgrades for its CPU platform used in its M400 and M4000 products. This upgrade was finished and placed into service in the beginning of the fourth quarter of 2020. This capitalized asset is being amortized on a straight-line basis over its expected product life cycle of thirty-six (36) months, which began on October 1, 2020. In October 2021, the Company invested $250,000 and in the first quarter of 2022 the Company invested an additional $125,000 for further Android operating systems version upgrades to the CPU platform it uses in its M400 and M4000 products. In the three months ended March 31, 2023, a final investment of $125,000 was made to these system upgrades, which were placed into service during the quarter. These additional upgrades of $500,000 are being amortized on a straight-line base over thirty-six (36) months.

Total amortization expense related to all software updates for the three months ended March 31, 2023 and 2022 were $55,556 and $41,666, respectively.

Note 8 – Accrued Expenses

Accrued expenses consisted of the following:


	March 31,		December 31,
	2023		2022

Accrued Wages and Related Costs	$	580,002	$	843,537
Accrued Professional Services		189,760		263,800
Accrued Warranty Obligations		194,427		159,927
Other Accrued Expenses		502,025		403,275

Total	$	1,466,214	$	1,670,539

The Company has warranty obligations in connection with the sale of certain of its products. The warranty period for its products is generally twelve (12) months. The costs incurred to provide for these warranty obligations are estimated and recorded as an accrued expense at the time of sale. The Company estimates its future warranty costs based upon product-based historical performance rates and related costs to repair. Included in Other Accrued Expenses is $435,000 for external development work related to our waveguide development projects which was completed through March 31, 2023 but not yet invoiced.

The changes in the Company’s accrued warranty obligations for the three months ended March 31, 2023 were as follows:


Accrued Warranty Obligations at December 31, 2022	$	159,927
Reductions for Settling Warranties		(91,241)
Warranties Issued During Year		125,741

Accrued Warranty Obligations at March 31, 2023	$	194,427

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.

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Note 10 – Capital Stock

Preferred stock

The Board of Directors is authorized to establish and designate different series of preferred stock and to fix and determine their voting powers and other rights and terms. A total of 5,000,000 shares of preferred stock with a par value of $0.001 are authorized as of March 31, 2023 and December 31, 2022. Of this total, 49,626 shares are designated as Series A Preferred Stock. There were nil shares of Series A Preferred Stock issued and outstanding on March 31, 2023 and December 31, 2022, respectively.

Common Stock

The Company’s authorized common stock consists of 100,000,000 shares, par value of $0.001. There were 63,787,858 shares issued and 63,208,186 shares outstanding as of March 31, 2023 and 63,783,779 shares issued and 63,319,107 shares outstanding as of December 31, 2022.

Treasury Stock

On March 2, 2022, our Board of Directors approved the repurchase by the Company of up to an aggregate of $25 million of our common stock by open market or privately negotiated transactions under the Share Buyback Program. This program was in effect for one year and expired on March 2, 2023. During the three months ended March 31, 2023, the Company repurchased 115,000 shares of our common stock at an average cost of $4.06, before commission of $0.03 per share. As of March 31, 2023, 579,672 shares of our common stock were held in treasury.

Note 11 – Stock-Based Compensation

A summary of stock option activity related to the Company’s standard employee incentive plan (excluding options awarded under the Long-Term Incentive Plan (LTIP) – Note 12) for the three months ended March 31, 2023 is as follows:


		Weighted		Average
	Number of	Average		Remaining Life
	Options	Exercise Price		(years)
Outstanding at December 31, 2022	2,805,673	$	7.80	7.28
Granted	25,000		3.64
Exercised	(2,512)		1.33
Expired or Forfeited	(8,853)		15.23

Outstanding at March 31, 2023	2,819,308	$	7.74	7.07

The weighted average remaining contractual term for all options as of March 31, 2023 and December 31, 2022 was 7.07 years and 7.28 years, respectively.

As of March 31, 2023, there were 1,642,429 options that were fully-vested and exercisable at a weighted average exercise price of $6.94 per share. The weighted average remaining contractual term of the vested options is 6.2 years.

As of March 31, 2023, there were 1,176,879 unvested options exercisable at a weighted average exercise price of $8.84 per share. The weighted average remaining contractual term of the unvested options is 8.3 years.

The weighted average fair value of option grants was calculated using the Black-Scholes-Merton option pricing method. As of March 31, 2023, the Company had $7,393,432 of unrecognized stock compensation expense, which will be recognized over a weighted average period of 2.3 years.

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For the three months ended March 31, 2023 and 2022, the Company recorded total stock-based compensation expense, including stock awards but excluding awards under the Company’s LTIP, of $1,129,566 and $1,350,610, respectively.

Note 12 – Long-Term Incentive Plan

On March 17, 2021, the Company granted options to purchase a total of 5,784,000 shares of common stock to its officers and certain other members of its management team. The options were granted under the Company’s existing 2014 Incentive Stock Plan. The options have an exercise price of $19.00, with 375,000 options vesting immediately and the remaining portion vesting upon the achievement of certain equity market capitalization milestones, and revenue and EBITDA operational milestones. For the three months ended March 31, 2023 and 2022, the Company recorded non-cash stock-based compensation expense of $2,537,944 and $2,969,138, respectively, for options that vested or are probable to vest. These expenses are presented in the same financial statement line items in the Statements of Operations as the cash-based compensation expenses for the same employees.

The fair value of option grants was calculated using a Monte Carlo simulation for the equity market capitalization tranches and the Black-Scholes-Merton option pricing method for the operational milestone tranches. As of March 31, 2023, we had $14,671,988 of total unrecognized stock-based compensation expense for the portion of options tied to equity market capitalization milestones and the portion of options tied to operational milestones that were considered probable of achievement, all of which will be recognized over a service period of up to three to four years. The probabilities of the milestone achievements are subject to catch-up adjustments in each instance where an equity market capitalization milestone is achieved or when an operational milestone becomes probable to be achieved or is achieved. Compensation costs could be reversed in subsequent periods if an awardee leaves the Company prior to the expiration of the option life for market capitalization milestone or performance award vesting of a performance award no longer determined to be probable. If such milestones are achieved earlier in their expected service periods, the remaining unrecognized compensation expense related to that particular milestone would be accelerated and recognized in full during the period where that achievement is affirmed by the Board of Directors. As of December 31, 2022, and going forward, should all of the operational milestones which are currently not yet deemed probable of achievement become probable of achievement or are achieved, then the Company could ultimately recognize up to an additional $34.1 million in non-cash stock-based compensation expense at such time.

The unvested remaining equity market and operational milestones under the LTIP with their total related option grants and criteria achievement weightings of the options available for meeting a target are shown in the following table. Of the total 5,409,000 unvested options outstanding as of March 31, 2023, there are 2,704,500 options unvested for the achievement of Equity Market Capitalization targets, 1,893,150 unvested options for the achievement of annual Revenue targets, and 811,350 unvested options for the achievement of annual EBITDA Margins Before Non-Cash Charges targets.


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


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

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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.

Note 14 – Right-of-Use Assets and Liabilities

Future lease payments under operating leases as of March 31, 2023 were as follows:


2023	$	523,238
2024		191,120
2025		132,982
Total Future Lease Payments		847,340
Less: Imputed Interest		(55,736)
Total Lease Liability Balance	$	791,604

Operating lease costs under the operating leases totaled $203,339 and $162,365 for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, the weighted average discount rate was 7.1% and the weighted average remaining lease term was 1.7 years.

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

You should read the following discussion and analysis of financial condition and results of operations in conjunction with the financial statements and related notes appearing elsewhere in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, 2022.

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 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 such necessary estimates.

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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.

Results of Operations

Comparison of Three Months Ended March 31, 2023 and 2022

The following table compares the Company’s consolidated statements of operations data for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
							Dollar		% Increase
	2023			2022			Change		(Decrease)

Sales:
Sales of Products	$	4,191,361		$	2,503,051		$	1,688,310	67	%

Cost of Sales:
Cost of Sales - Products		3,082,439			1,803,598			1,278,841	71	%
Cost of Sales - Depreciation and Amortization		232,916			223,785			9,131	4	%

Total Cost of Sales		3,315,355			2,027,383			1,287,972	64	%

Gross Profit		876,006			475,668			400,338	84	%
Gross Profit %		21	%		19	%

Operating Expenses:
Research and Development		3,069,797			3,103,444			(33,647)	(1)	%
Selling and Marketing		2,539,659			2,023,435			516,224	26	%
General and Administrative		5,131,824			5,453,833			(322,009)	(6)	%
Depreciation and Amortization		964,265			259,245			705,020	272	%
Impairment of Patents and Trademarks		17,666			49,603			(31,937)	(64)	%

Loss from Operations		(10,847,205)			(10,413,892)			(433,313)	4	%

Other Income (Expense):
Investment Income		695,783			6,280			689,503

		Page No.

Part I – Financial Information		3

Item 1.	Consolidated Financial Statements (Unaudited):	3

	Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022	4

	Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	6

	Notes to the Unaudited Consolidated Financial Statements	7

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

Part II – Other Information		22

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3.	Defaults Upon Senior Securities	22

Item 4.	Mine Safety Disclosure	22

Item 5.	Other Information	22

Item 6.	Exhibits	23

Signatures		24