UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended June 30, 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 August 8, 2023, there were 63,319,217 shares of the registrant’s common stock outstanding.

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Vuzix Corporation

INDEX

		Page No.

Part I – Financial Information		3

Item 1.	Consolidated Financial Statements (Unaudited):	3

	Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022	4

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022	5

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

Part II – Other Information		26

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Defaults Upon Senior Securities	26

Item 4.	Mine Safety Disclosure	26

Item 5.	Other Information	26

Item 6.	Exhibits	27

Signatures		28

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Part 1: FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

VUZIX CORPORATION

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	June 30,		December 31,
	2023		2022
ASSETS
Current Assets
Cash and Cash Equivalents	$	48,582,005	$	72,563,943
Accounts Receivable, Net		6,545,608		3,558,971
Accrued Revenues in Excess of Billings		309,762		269,129
Employee Retention Credit Receivable		—		466,705
Inventories, Net		10,870,166		11,267,969
Manufacturing Vendor Prepayments		353,399		998,671
Prepaid Expenses and Other Assets		1,660,374		2,115,853

Total Current Assets		68,321,314		91,241,241

Long-Term Assets
Fixed Assets, Net		6,814,005		3,878,505
Operating Lease Right-of-Use Asset		628,131		956,165
Patents and Trademarks, Net		2,438,299		2,220,094
Technology Licenses, Net		28,504,870		30,158,689
Intangible Asset, Net		605,453		675,313
Goodwill		1,601,400		1,601,400
Other Assets, Net		1,649,132		1,581,143

Total Assets	$	110,562,604	$	132,312,550

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable	$	1,620,490	$	1,211,747
Unearned Revenue		107,043		29,064
Accrued Expenses		1,029,177		1,670,539
Licensing Fees Commitment		3,500,000		11,500,000
Income and Other Taxes Payable		138,959		214,997
Operating Lease Right-of-Use Liability		429,421		651,011

Total Current Liabilities		6,825,090		15,277,358

Long-Term Liabilities
Operating Lease Right-of-Use Liability		198,710		305,154

Total Liabilities		7,023,800		15,582,512

Stockholders' Equity
Common Stock - $0.001 Par Value, 100,000,000 shares authorized; 63,898,889 shares issued and 63,319,217 shares outstanding as of June 30, 2023 and 63,783,779 shares issued and 63,319,107 shares outstanding as of December 31, 2022.		63,899		63,783
Additional Paid-in Capital		369,072,625		362,507,715
Accumulated Deficit		(263,121,219)		(243,835,716)
Treasury Stock, at cost, 579,672 shares as of June 30, 2023 and 464,672 shares as of December 31, 2022.		(2,476,501)		(2,005,744)

Total Stockholders' Equity		103,538,804		116,730,038

Total Liabilities and Stockholders' Equity	$	110,562,604	$	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 - April 1, 2023	63,787,858	$	63,787	$	365,868,487	$	(254,076,299)	(579,672)	$	(2,476,501)	$	109,379,474
Stock-Based Compensation Expense	96,525		97		3,189,606		—	—		—		3,189,703
Stock Option Exercises	14,506		15		14,532		—	—		—		14,547
Net Loss	—		—		—		(9,044,920)	—		—		(9,044,920)
Balance - June 30, 2023	63,898,889	$	63,899	$	369,072,625	$	(263,121,219)	(579,672)	$	(2,476,501)	$	103,538,804


	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	96,525		97		6,550,382		—	—		—		6,550,479
Stock Option Exercises	18,585		19		14,528		—	—		—		14,547
Purchases of Treasury Stock	—		—		—		—	(115,000)		(470,757)		(470,757)
Net Loss	—		—		—		(19,285,503)	—		—		(19,285,503)
Balance - June 30, 2023	63,898,889	$	63,899	$	369,072,625	$	(263,121,219)	(579,672)	$	(2,476,501)	$	103,538,804


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


	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	288,650		289		8,538,153		—	—		—		8,538,442
Stock Option Exercises	64,722		65		48,440		—	—		—		48,505
Purchases of Treasury Stock	—		—		—		—	(36,685)		(251,057)		(251,057)
Net Loss	—		—		—		(20,527,668)	—		—		(20,527,668)
Balance - June 30, 2022	64,025,640	$	64,026	$	355,322,990	$	(223,599,811)	(36,685)	$	(251,057)	$	131,536,148

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

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VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,

	2023		2022		2023		2022
Sales:
Sales of Products	$	4,425,162	$	2,898,892	$	8,616,523	$	5,401,944
Sales of Engineering Services		265,673		108,866		265,673		108,866

Total Sales		4,690,835		3,007,758		8,882,196		5,510,810

Cost of Sales:
Cost of Sales - Products Sold		3,303,979		2,451,890		6,386,418		4,255,488
Cost of Sales - Depreciation and Amortization		257,939		231,163		490,855		454,949
Cost of Sales - Engineering Services		156,531		59,296		156,531		59,296

Total Cost of Sales		3,718,449		2,742,349		7,033,804		4,769,733

Gross Profit		972,386		265,409		1,848,392		741,077

Operating Expenses:
Research and Development		2,836,552		2,996,144		5,906,349		6,099,588
Selling and Marketing		2,509,922		1,850,595		5,049,581		3,914,584
General and Administrative		4,260,322		5,039,949		9,392,146		10,453,228
Depreciation and Amortization		973,222		379,702		1,937,487		638,946
Impairment of Patents and Trademarks		—		—		17,666		49,602

Total Operating Expenses		10,580,018		10,266,390		22,303,229		21,155,948

Loss From Operations		(9,607,632)		(10,000,981)		(20,454,837)		(20,414,871)

Other Income (Expense):
Investment Income		628,923		111,027		1,324,706		117,307
Income and Other Taxes		(35,420)		(31,326)		(123,215)		(78,959)
Foreign Exchange Loss		(30,791)		(100,388)		(32,157)		(151,145)

Total Other Income (Expense), Net		562,712		(20,687)		1,169,334		(112,797)

Loss Before Provision for Income Taxes		(9,044,920)		(10,021,668)		(19,285,503)		(20,527,668)
Provision for Income Taxes		—		—		—		—

Net Loss		(9,044,920)		(10,021,668)		(19,285,503)		(20,527,668)

Basic and Diluted Loss per Common Share	$	(0.14)	$	(0.16)	$	(0.31)	$	(0.32)
Weighted-average Shares Outstanding - Basic and Diluted		63,230,859		63,739,863		63,223,768		63,717,618

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

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VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,

	2023		2022

Cash Flows from Operating Activities
Net Loss	$	(19,285,503)	$	(20,527,668)
Non-Cash Adjustments
Depreciation and Amortization		2,428,342		1,093,895
Stock-Based Compensation		6,500,261		8,200,774
Impairment of Patents and Trademarks		17,666		49,602
Change in Inventory Reserve for Obsolescence		480,258		—
(Increase) Decrease in Operating Assets
Accounts Receivable		(2,986,637)		678,523
Accrued Revenues in Excess of Billings		(40,633)		(108,866)
Employee Retention Credit Receivable		466,705		—
Inventories		(82,454)		359,893
Manufacturing Vendor Prepayments		645,272		(654,569)
Prepaid Expenses and Other Assets		1,692		492,599
Increase (Decrease) in Operating Liabilities
Accounts Payable		408,743		(732,813)
Accrued Expenses		(641,362)		195,276
Unearned Revenue		77,980		12,829
Income and Other Taxes Payable		(76,037)		(76,384)

Net Cash Flows Used in Operating Activities		(12,085,707)		(11,016,909)

Cash Flows from Investing Activities
Purchases of Fixed Assets		(2,774,513)		(3,504,931)
Investments in Patents and Trademarks		(340,507)		(272,686)
Investments in Licenses, Intangibles and Other Assets		(8,000,000)		(4,625,000)
Investments in Software Development		(125,000)		—
Investments in Other Assets		(200,000)		—

Net Cash Flows Used in Investing Activities		(11,440,020)		(8,402,617)

Cash Flows from (used) Financing Activities
Proceeds from Exercise of Stock Options		14,546		48,505
Purchases of Treasury Stock		(470,757)		(251,057)

Net Cash Flows Used in Financing Activities		(456,211)		(202,552)

Net Decrease in Cash and Cash Equivalents		(23,981,938)		(19,622,078)
Cash and Cash Equivalents - Beginning of Period		72,563,943		120,203,873

Cash and Cash Equivalents - End of Period	$	48,582,005	$	100,581,795

Supplemental Disclosures
Unamortized Common Stock Expense included in Prepaid Expenses and Other Assets	$	1,335,307	$	1,223,691
Non-Cash Investment in Licenses		3,500,000		10,500,000
Stock-Based Compensation Expense - Expensed less Previously Issued		(50,218)		(337,379)

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 and six months ended June 30, 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.

Re-classification 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 six months ended June 30, 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 re-classifications:


	For the Three Months Ended June 30, 2022						For the Six Months Ended June, 2022
	As Previously						As Previously
Condensed Statement of Operations	Presented		Re-classification		Revised		Presented		Re-classification		Revised
Total Sales	$	3,007,758	$	—	$	3,007,758	$	5,510,810	$	—	$	5,510,810
Cost of Sales - Products Sold		2,522,674		(70,784)		2,451,890		4,386,371		(130,883)		4,255,488
Cost of Sales - Depreciation and Amortization		—		231,163		231,163		—		454,949		454,949
Cost of Sales - Engineering Services		59,296		—		59,296		59,296		—		59,296
Gross Profit		425,788		160,379		265,409		1,065,143		324,066		741,077
Operating Expenses:
Research and Development		2,996,144				2,996,144		6,099,588				6,099,588
Selling and Marketing		1,850,595				1,850,595		3,914,584				3,914,584
General and Administrative		5,039,949				5,039,949		10,453,228				10,453,228
Depreciation and Amortization		540,081		(160,379)		379,702		963,012		(324,066)		638,946
Impairment of Patents and Trademarks		—				—		49,602				49,602
Total Operating Expenses		10,426,769		(160,379)		10,266,390		21,480,014		(324,066)		21,155,948
Loss From Operations		(10,000,981)		—		(10,000,981)		(20,414,871)		—		(20,414,871)
Total Other Expense, Net		(20,687)				(20,687)		(112,797)				(112,797)
Net Loss	$	(10,021,668)	$	—	$	(10,021,668)	$	(20,527,668)	$	—	$	(20,527,668)

Customer Concentrations

For the three months ended June 30, 2023, one customer represented 75% of total product revenue. For the three months ended June 30, 2022, one customer represented 45% of total product revenue.

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For the six months ended June 30, 2023, two customers represented 40% and 35% of total product revenue. For the six months ended June 30, 2022, one customer represented 24% of total product revenue.

As of June 30, 2023, two customers represented 58% and 23% 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. The following table summarizes the revenue recognized by major product line:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenues
Products Sales	$	4,425,162	$	2,898,892	$	8,616,523	$	5,401,944
Engineering Services		265,673		108,866		265,673		108,866

Total Revenue	$	4,690,835	$	3,007,758	$	8,882,196	$	5,510,810

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

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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.

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 six months ended June 30:


	% of Total Net Sales
	2023		2022
Point-in-Time	97%	%	98%	%
Over Time – Input Method	3%	%	2%	%

Total	100%	%	100%	%

Remaining Performance Obligations

As of June 30, 2023, the Company had approximately $80,000 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 third quarter of 2023. Revenues earned less amounts invoiced at June 30, 2023 in the amount of $309,762 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 and six months ended June 30, 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. As of June 30, 2023 and 2022, there were 8,658,642 and 8,528,668 common stock share equivalents, respectively, potentially exercisable or issuable under conversion or exercise of stock options that could dilute basic earnings per share in the future.

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Note 4 – Inventories, Net

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


	June 30,		December 31,
	2023		2022

Purchased Parts and Components	$	9,780,977	$	10,399,527
Work-in-Process		518,460		344,242
Finished Goods		2,468,476		1,941,689
Less: Reserve for Obsolescence		(1,897,747)		(1,417,489)

Inventories, Net	$	10,870,166	$	11,267,969

Note 5 – Fixed Assets

Fixed Assets consisted of the following:


	June 30,		December 31,
	2023		2022
Tooling and Manufacturing Equipment	$	8,866,022	$	6,065,445
Leaseholds		1,472,898		826,329
Computers and Purchased Software		789,036		760,256
Furniture and Equipment		2,513,575		2,487,650
		13,641,531		10,139,680
Less: Accumulated Depreciation		(6,827,526)		(6,261,175)
Fixed Assets, Net	$	6,814,005	$	3,878,505

During the six months ended June 30, 2023, the Company invested $2,774,513 in tooling and manufacturing equipment and leasehold improvements, mostly attributable to the Company’s new waveguide expansion project. Construction on the Company’s new facility began late in December 2022 and the Company expects the construction to be completed by the end of September 2023.

Total depreciation expense for fixed assets, not included in cost of sales, for the three months ended June 30, 2023, and 2022 was $111,934 and $111,943, respectively. Total depreciation expense for fixed assets, not included in cost of sales, for the six months ended June 30, 2023, and 2022 was $214,385 and $229,029, respectively.

Note 6 – Technology Licenses, Net