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Table of Contents

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 September 30, 2023

OR

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: (585359-5900

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 November 9, 2023, there were 63,327,608 shares of the registrant’s common stock outstanding.

Table of Contents

Vuzix Corporation

INDEX

 

Page
No.

 

 

Part I – Financial Information

3

 

 

Item 1.

Consolidated Financial Statements (Unaudited):

3

 

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

3

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022

4

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022

5

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 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

26

 

Item 4.

Controls and Procedures

26

 

Part II – Other Information

27

 

Item 1.

Legal Proceedings

27

 

Item 1A.

Risk Factors

27

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

 

Item 3.

Defaults Upon Senior Securities

27

 

Item 4.

Mine Safety Disclosure

27

 

Item 5.

Other Information

27

 

Item 6.

Exhibits

28

 

 

Signatures

29

2

Table of Contents

Part 1: FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

VUZIX CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

September 30, 

December 31, 

    

2023

    

2022

ASSETS

 

  

 

  

Current Assets

 

  

 

  

Cash and Cash Equivalents

$

38,049,037

$

72,563,943

Accounts Receivable, Net

 

6,951,934

 

3,558,971

Accrued Revenues in Excess of Billings

 

437,275

 

269,129

Employee Retention Credit Receivable

466,705

Inventories, Net

 

11,301,878

 

11,267,969

Manufacturing Vendor Prepayments

 

621,029

 

998,671

Prepaid Expenses and Other Assets

 

2,249,102

 

2,115,853

Total Current Assets

 

59,610,255

 

91,241,241

Long-Term Assets

 

  

 

  

Fixed Assets, Net

 

7,049,729

 

3,878,505

Operating Lease Right-of-Use Asset

464,658

956,165

Patents and Trademarks, Net

 

2,531,267

 

2,220,094

Technology Licenses, Net

 

27,677,936

 

30,158,689

Intangible Asset, Net

 

570,523

 

675,313

Goodwill

 

1,601,400

 

1,601,400

Other Assets, Net

 

1,482,269

 

1,581,143

Total Assets

$

100,988,037

$

132,312,550

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

  

Current Liabilities

 

  

 

  

Accounts Payable

$

1,853,263

$

1,211,747

Unearned Revenue

 

102,149

 

29,064

Accrued Expenses

 

838,249

 

1,670,539

Licensing Fees Commitment

 

2,000,000

 

11,500,000

Income and Other Taxes Payable

 

54,061

 

214,997

Operating Lease Right-of-Use Liability

296,467

651,011

Total Current Liabilities

 

5,144,189

 

15,277,358

Long-Term Liabilities

Operating Lease Right-of-Use Liability

168,191

305,154

Total Liabilities

 

5,312,380

 

15,582,512

Stockholders' Equity

 

  

 

  

Common Stock - $0.001 Par Value, 100,000,000 shares authorized; 63,907,280 shares issued and 63,327,608 shares outstanding as of September 30, 2023 and 63,783,779 shares issued and 63,319,107 shares outstanding as of December 31, 2022.

 

63,907

 

63,783

Additional Paid-in Capital

 

372,192,478

 

362,507,715

Accumulated Deficit

 

(274,104,227)

 

(243,835,716)

Treasury Stock, at cost, 579,672 shares as of September 30, 2023 and 464,672 shares as of December 31, 2022.

 

(2,476,501)

 

(2,005,744)

Total Stockholders' Equity

 

95,675,657

 

116,730,038

Total Liabilities and Stockholders' Equity

$

100,988,037

$

132,312,550

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

3

Table of Contents

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 - July 1, 2023

 

63,898,889

$

63,899

$

369,072,625

$

(263,121,219)

(579,672)

$

(2,476,501)

$

103,538,804

Stock-Based Compensation Expense

 

 

 

3,113,211

 

 

 

 

3,113,211

Stock Option Exercises

 

8,391

 

8

 

6,642

 

 

 

 

6,650

Net Loss

 

 

 

 

(10,983,008)

 

 

 

(10,983,008)

Balance - September 30, 2023

 

63,907,280

$

63,907

$

372,192,478

$

(274,104,227)

 

(579,672)

$

(2,476,501)

$

95,675,657

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

 

9,663,593

 

 

 

 

9,663,690

Stock Option Exercises

 

26,976

 

27

 

21,170

 

 

 

 

21,197

Purchases of Treasury Stock

 

 

 

 

 

(115,000)

 

(470,757)

 

(470,757)

Net Loss

 

 

 

 

(30,268,511)

 

 

 

(30,268,511)

Balance - September 30, 2023

 

63,907,280

$

63,907

$

372,192,478

$

(274,104,227)

 

(579,672)

$

(2,476,501)

$

95,675,657

Common Stock

Additional

Accumulated

Treasury Stock

    

Shares

    

Amount

    

Paid-In Capital

    

Deficit

    

Shares

    

Amount

    

Total

Balance - July 1, 2022

 

64,025,640

$

64,026

$

355,322,990

$

(223,599,811)

(36,685)

$

(251,057)

$

131,536,148

Stock-Based Compensation Expense

 

(291,667)

 

(291)

 

3,549,683

 

 

 

 

3,549,392

Stock Option Exercises

 

42,362

 

42

 

(42)

 

 

 

 

Net Loss

 

 

 

 

(9,476,999)

 

 

 

(9,476,999)

Balance - September 30, 2022

 

63,776,335

$

63,777

$

358,872,631

$

(233,076,810)

 

(36,685)

$

(251,057)

$

125,608,541

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

 

(3,017)

 

(2)

 

12,087,836

 

 

 

 

12,087,834

Stock Option Exercises

 

107,084

 

107

 

48,398

 

 

 

 

48,505

Purchases of Treasury Stock

 

 

 

 

 

(36,685)

 

(251,057)

 

(251,057)

Net Loss

 

 

 

 

(30,004,667)

 

 

 

(30,004,667)

Balance - September 30, 2022

 

63,776,335

$

63,777

$

358,872,631

$

(233,076,810)

 

(36,685)

$

(251,057)

$

125,608,541

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 September 30, 

Nine Months Ended September 30, 

    

2023

    

2022

    

2023

    

2022

Sales:

 

  

 

  

 

  

 

  

Sales of Products

$

1,371,851

$

2,537,539

$

9,988,374

$

7,939,483

Sales of Engineering Services

 

808,156

 

889,284

 

1,073,829

 

998,150

Total Sales

 

2,180,007

 

3,426,823

 

11,062,203

 

8,937,633

Cost of Sales:

 

  

 

  

 

  

 

  

Cost of Sales - Products Sold

 

1,884,239

 

2,034,123

 

8,270,658

 

6,289,612

Cost of Sales - Depreciation and Amortization

232,891

221,772

723,745

676,720

Cost of Sales - Engineering Services

 

300,421

 

302,707

 

456,953

 

362,003

Total Cost of Sales

 

2,417,551

 

2,558,602

 

9,451,356

 

7,328,335

Gross Profit (Loss)

 

(237,544)

 

868,221

 

1,610,847

 

1,609,298

Operating Expenses:

 

  

 

  

 

  

 

  

Research and Development

 

2,912,562

 

3,440,685

 

8,818,911

 

9,540,272

Selling and Marketing

 

2,832,031

 

1,980,748

 

7,881,612

 

5,895,332

General and Administrative

 

4,466,850

 

4,854,014

 

13,858,996

 

15,307,242

Depreciation and Amortization

 

959,353

 

510,099

 

2,896,840

 

1,149,046

Impairment of Patents and Trademarks

 

24,204

 

48,075

 

41,869

 

97,676

Total Operating Expenses

 

11,195,000

 

10,833,621

 

33,498,228

 

31,989,568

Loss From Operations

 

(11,432,544)

 

(9,965,400)

 

(31,887,381)

 

(30,380,270)

Other Income (Expense):

 

  

 

  

 

  

 

  

Investment Income

 

500,067

 

572,721

 

1,824,773

 

690,028

Income and Other Taxes

 

(21,715)

 

(19,768)

 

(144,930)

 

(98,727)

Foreign Exchange Loss

 

(28,816)

 

(64,552)

 

(60,973)

 

(215,698)

Total Other Income, Net

 

449,536

 

488,401

 

1,618,870

 

375,603

Loss Before Provision for Income Taxes

 

(10,983,008)

 

(9,476,999)

 

(30,268,511)

 

(30,004,667)

Provision for Income Taxes

 

 

 

 

Net Loss

 

(10,983,008)

 

(9,476,999)

 

(30,268,511)

 

(30,004,667)

Basic and Diluted Loss per Common Share

$

(0.17)

$

(0.15)

$

(0.48)

$

(0.47)

Weighted-average Shares Outstanding - Basic and Diluted

 

63,324,942

 

63,776,154

 

63,257,863

 

63,724,982

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

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VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended September 30, 

    

2023

    

2022

Cash Flows From (Used In) Operating Activities

 

  

 

  

Net Loss

$

(30,268,511)

$

(30,004,667)

Non-Cash Adjustments

 

  

 

  

Depreciation and Amortization

 

3,620,585

 

1,825,766

Stock-Based Compensation

 

9,797,274

 

12,016,334

Impairment of Patents and Trademarks

 

41,869

 

97,676

Change in Inventory Reserve for Obsolescence

485,183

(Increase) Decrease in Operating Assets

 

  

 

  

Accounts Receivable

 

(3,392,963)

 

(875,607)

Accrued Revenues in Excess of Billings

 

(168,146)

 

(393,250)

Employee Retention Credit Receivable

466,705

Inventories

 

(519,092)

 

(77,490)

Manufacturing Vendor Prepayments

 

377,642

 

73,330

Prepaid Expenses and Other Assets

 

(295,566)

 

(417,298)

Increase (Decrease) in Operating Liabilities

 

  

 

  

Accounts Payable

 

641,516

 

141,828

Accrued Expenses

 

(832,290)

 

(244,935)

Unearned Revenue

 

73,086

 

(3,425)

Income and Other Taxes Payable

 

(160,935)

 

(73,637)

Net Cash Flows Used in Operating Activities

 

(20,133,643)

 

(17,935,375)

Cash Flows From (Used In) Investing Activities

 

  

 

  

Purchases of Fixed Assets

 

(3,608,801)

 

(5,203,562)

Investments in Patents and Trademarks

 

(497,901)

 

(362,981)

Investments in Licenses, Intangibles and Other Assets

 

(9,500,000)

 

(6,125,000)

Investments in Software Development

(125,000)

Investments in Other Assets

 

(200,000)

 

Net Cash Flows Used in Investing Activities

 

(13,931,702)

 

(11,691,543)

Cash Flows From (Used In) Financing Activities

 

  

 

  

Proceeds from Exercise of Stock Options

 

21,196

 

48,505

Purchases of Treasury Stock

(470,757)

(251,057)

Net Cash Flows Used in Financing Activities

 

(449,561)

 

(202,552)

Net Decrease in Cash and Cash Equivalents

 

(34,514,906)

 

(29,829,470)

Cash and Cash Equivalents - Beginning of Period

 

72,563,943

 

120,203,873

Cash and Cash Equivalents - End of Period

$

38,049,037

$

90,374,403

Supplemental Disclosures

 

  

 

  

Unamortized Common Stock Expense included in Prepaid Expenses and Other Assets

$

1,126,777

$

1,204,942

Non-Cash Investment in Licenses

2,000,000

9,000,000

Stock-Based Compensation Expense - Expensed less Previously Issued

133,584

(71,502)

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. The results of the Company’s operations for the three and nine months ended September 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.

Customer Concentrations

For the three months ended September 30, 2023, one customer represented 21% of total product revenue and three customers represented 54%, 18% and 14% of engineering services revenue. For the three months ended September 30, 2022, one customer represented 21% of total product revenue and two customers represented 100% of engineering services revenue.

For the nine months ended September 30, 2023, two customers represented 34% and 30% of total product revenue and four customers represented 41%, 14%, 12%, and 11% of engineering services revenue. For the nine months ended September 30, 2022, one customer represented 20% of total product revenue and two customers represented 100% of engineering services revenue.

As of September 30, 2023, two customers represented 54% and 22% 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.

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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

Nine Months Ended

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Revenues

 

  

 

  

 

  

 

  

Products Sales

$

1,371,851

$

2,537,539

$

9,988,374

$

7,939,483

Engineering Services

 

808,156

 

889,284

 

1,073,829

 

998,150

Total Revenue

$

2,180,007

$

3,426,823

$

11,062,203

$

8,937,633

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 our product and general payment terms that are between Net 30 and Net 60 days. For our engineering services, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation, which determines how the transaction price is allocated among the performance obligations. The Company allocated the transaction price to each distinct performance obligation using the expected cost-plus margin approach to estimate the standalone selling price. Assumptions used in this method include the projected costs of each distinct performance obligation. 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.

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.

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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:

    

% of Total Net Sales

2023

 

2022

 

Point-in-Time

 

90

%

89

%

Over Time – Input Method

 

10

%

11

%

Total

 

100

%

100

%

Remaining Performance Obligations

As of September 30, 2023, the Company had approximately $3,200,000 of remaining performance obligations under four current waveguide development projects, which represents the remainder of transaction prices totaling approximately $4,400,000 under these development agreements, which commenced in 2022 and 2023, less revenue recognized under percentage of completion to date. The Company expects to recognize the remaining revenue related to these projects, based upon expected due dates, at 18% in the fourth quarter, 58% in 2024 and 24% in 2025. Revenues earned less amounts invoiced at September 30, 2023, in the amount of $437,275 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 nine months ended September 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 September 30, 2023 and 2022, there were 8,695,308 and 8,532,349 common stock share equivalents, for the three and nine months then ended, respectively, potentially issuable from the 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:

September 30, 

December 31, 

    

2023

    

2022

Purchased Parts and Components

$

8,471,998

$

10,399,527

Work-in-Process

 

530,558

 

344,242

Finished Goods

 

4,201,994

 

1,941,689

Less: Reserve for Obsolescence

 

(1,902,672)

 

(1,417,489)

Inventories, Net

$

11,301,878

$

11,267,969

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Note 5 – Fixed Assets

Fixed Assets consisted of the following:

September 30, 

December 31, 

    

2023

    

2022

Tooling and Manufacturing Equipment

$

8,966,430

$

6,065,445

Leaseholds

 

1,764,946

 

826,329

Computers and Purchased Software

 

817,207

 

760,256

Furniture and Equipment

 

2,580,907

 

2,487,650

 

14,129,490

 

10,139,680

Less: Accumulated Depreciation

 

(7,079,761)

 

(6,261,175)

Fixed Assets, Net

$

7,049,729

$

3,878,505

During the nine months ended September 30, 2023, the Company invested $3,608,801 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 November 2023.

Total depreciation expense for fixed assets, not included in cost of sales, for the three months ended September 30, 2023, and 2022 was $102,677 and $97,449, respectively. Total depreciation expense for fixed assets, not included in cost of sales, for the nine months ended September 30, 2023, and 2022 was $317,061 and $326,480, respectively.

Note 6 – Technology Licenses, Net

The changes in the Company’s Technology Licenses for the nine months ended September 30, 2023, were as follows:

September 30, 

December 31, 

    

2023

    

2022

Licenses

$

32,443,356

$

2,443,356

Additions

 

 

30,000,000

Less: Accumulated Amortization

 

(4,765,420)

 

(2,284,667)

Licenses, Net

$

27,677,936

$

30,158,689

Total amortization expense related to technology licenses, not included in cost of sales, for the three months ended September 30, 2023, and 2022 was $776,667 and $375,000, respectively. Total amortization expense related to technology licenses for the nine months ended September 30, 2023, and 2022 was $2,480,753 and $562,500, respectively.

The Company signed a series of agreements with Atomistic SAS in 2022, which provided for an exclusive license of key micro-LED technology for cash commitments totaling $30 million along with performance-based cash and equity issuance commitments to be made by the Company relating to certain deliverables and the achievement of milestones by Atomistic, as further discussed in Note 10 – Capital Stock.

These intangible technology license assets are to be amortized over a ten-year period. As of September 30, 2023, there is a remaining funding commitment of $2,000,000 associated with these licenses, which will be paid over the next three months.

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Note 7 - Other Assets

The changes in the Company’s Other Assets for the nine months ended September 30, 2023, were as follows:

September 30,

December 31, 

    

2023

    

2022

Private Corporation Investments

$

450,000

$

450,000

Additions

200,000

Total Private Corporation Investments (at cost)

650,000

450,000

Software Development Costs

875,000

750,000

Additions

125,000

125,000

Less: Accumulated Amortization

(597,222)

(375,000)

Software Development Costs, Net

402,778

500,000

Unamortized Common Stock Expense included in Long-Term Prepaid Expenses

429,491

631,143

Total Other Assets

$

1,482,269

$

1,581,143

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 nine months ended September 30, 2023, the Company purchased an additional $100,000 of preferred stock in this corporation through a subsequent round of funding in order to retain a 2% ownership interest.

In June 2023, the Company purchased $100,000 of preferred stock, along with warrants, in a UK-based public company developing new semiconductor materials for displays. The investment represents less than a 1% 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 completed 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 span 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 nine months ended September 30, 2023, the Company made a final investment of $125,000 to these system upgrades, which were placed into service during the second quarter. These additional upgrades of $500,000 are being amortized on a straight-line basis over thirty-six (36) months.

Total amortization expense related to all software updates, included in cost of sales, for the three months ended September 30, 2023, and 2022 were $83,333 and $63,868, respectively. Total amortization expense related to all software updates for the nine months ended September 30, 2023, and 2022 were $222,222 and $194,751, respectively.

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Table of Contents

Note 8 – Accrued Expenses

Accrued expenses consisted of the following:

September 30, 

December 31, 

    

2023

    

2022

Accrued Wages and Related Costs

$

398,768

$

843,537

Accrued Professional Services

 

216,475

 

263,800

Accrued Warranty Obligations

 

215,888

 

159,927

Other Accrued Expenses

 

7,118

 

403,275

Total

$

838,249

$

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.

The changes in the Company’s accrued warranty obligations for the nine months ended September 30, 2023, were as follows:

Accrued Warranty Obligations at December 31, 2022

$

159,927

Reductions for Settling Warranties

 

(243,690)

Warranties Issued During Year

 

299,651

Accrued Warranty Obligations at September 30, 2023

$

215,888

Note 9 – Income Taxes

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

Note 10 – Capital Stock

Preferred stock

The Board of Directors is authorized to establish and designate different series of preferred stock and to fix and determine their voting powers and other rights and terms. A total of 5,000,000 shares of preferred stock with a par value of $0.001 are authorized as of September 30, 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 September 30, 2023, and December 31, 2022.

Common Stock

The Company’s authorized common stock consists of