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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, 2024

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 14, 2024, there were 73,615,485 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, 2024 and December 31, 2023

3

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023

4

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023

5

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023

6

 

Notes to the Unaudited Consolidated Financial Statements

7

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

Item 4.

Controls and Procedures

32

 

Part II – Other Information

33

 

Item 1.

Legal Proceedings

33

 

Item 1A.

Risk Factors

33

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

 

Item 3.

Defaults Upon Senior Securities

33

 

Item 4.

Mine Safety Disclosure

33

 

Item 5.

Other Information

33

 

Item 6.

Exhibits

33

 

 

Signatures

34

2

Table of Contents

Part 1: FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

VUZIX CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

September 30, 

December 31,

    

2024

    

2023

ASSETS

 

  

 

  

Current Assets

 

  

 

  

Cash and Cash Equivalents

$

14,271,666

$

26,555,592

Accounts Receivable, net of allowance for credit losses of $1,992,000 at September 30, 2024 and $1,574,000 at December 31, 2023.

 

2,677,474

 

3,827,686

Accrued Revenues in Excess of Billings

 

488,232

 

165,771

Utility Improvement Refund

208,271

Inventories, Net

 

9,825,733

 

9,000,430

Manufacturing Vendor Prepayments

 

308,668

 

403,801

Prepaid Expenses and Other Assets

 

1,139,517

 

1,338,860

Total Current Assets

 

28,711,290

 

41,500,411

Long-Term Assets

 

  

 

  

Fixed Assets, Net

 

7,883,437

 

8,072,830

Operating Lease Right-of-Use Asset

619,155

301,185

Patents and Trademarks, Net

 

2,935,361

 

2,627,018

Technology Licenses, Net

 

811,311

 

26,851,001

Cost Method Investment in Atomistic

5,784,126

Other Assets, Net

 

886,112

 

1,011,111

Total Assets

$

41,846,666

$

86,147,681

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

  

Current Liabilities

 

  

 

  

Accounts Payable

$

659,272

$

1,570,630

Unearned Revenue

 

167,883

 

18,839

Accrued Expenses

 

715,895

 

2,416,443

Licensing Fees Commitment

 

 

1,000,000

Income and Other Taxes Payable

 

131,976

 

46,727

Operating Lease Right-of-Use Liability

506,372

163,513

Total Current Liabilities

 

2,181,398

 

5,216,152

Long-Term Liabilities

Operating Lease Right-of-Use Liability

112,783

137,672

Total Liabilities

 

2,294,181

 

5,353,824

Stockholders' Equity

 

  

 

  

Common Stock - $0.001 Par Value, 100,000,000 shares authorized; 74,195,157 shares issued and 73,615,485 shares outstanding as of September 30, 2024 and 65,304,780 shares issued and 64,725,108 shares outstanding as of December 31, 2023.

 

74,194

 

65,304

Additional Paid-in Capital

 

395,821,639

 

377,189,847

Accumulated Deficit

 

(353,866,847)

 

(293,984,793)

Treasury Stock, at cost, 579,672 shares as of September 30, 2024 and December 31, 2023.

 

(2,476,501)

 

(2,476,501)

Total Stockholders' Equity

 

39,552,485

 

80,793,857

Total Liabilities and Stockholders' Equity

$

41,846,666

$

86,147,681

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, 2024

 

66,034,769

$

66,034

$

382,462,147

$

(344,644,568)

(579,672)

$

(2,476,501)

$

35,407,112

Stock-Based Compensation Expense

 

293,393

 

293

 

3,185,684

 

 

 

 

3,185,977

Stock Issued under Atomistic Stock Purchase Agreement

 

174,688

 

175

 

181,500

 

 

 

 

181,675

Stock Issued under Quanta Securities Purchase Agreement

 

7,692,307

 

7,692

 

9,992,308

 

 

 

 

10,000,000

Net Loss

 

 

 

 

(9,222,279)

 

 

 

(9,222,279)

Balance - September 30, 2024

 

74,195,157

$

74,194

$

395,821,639

$

(353,866,847)

 

(579,672)

$

(2,476,501)

$

39,552,485

Common Stock

Additional

Accumulated

Treasury Stock

    

Shares

    

Amount

    

Paid-In Capital

    

Deficit

    

Shares

    

Amount

    

Total

Balance - January 1, 2024

 

65,304,780

$

65,304

$

377,189,847

$

(293,984,793)

(579,672)

$

(2,476,501)

$

80,793,857

Stock-Based Compensation Expense

 

1,022,398

 

1,022

 

8,457,983

 

 

 

 

8,459,005

Stock Option Exercises

 

984

 

1

 

1

 

 

 

 

2

Stock Issued under Atomistic Stock Purchase Agreement

 

174,688

 

175

 

181,500

 

 

 

 

181,675

Stock Issued under Quanta Securities Purchase Agreement

 

7,692,307

 

7,692

 

9,992,308

 

 

 

 

10,000,000

Net Loss

 

 

 

 

(59,882,054)

 

 

 

(59,882,054)

Balance - September 30, 2024

 

74,195,157

$

74,194

$

395,821,639

$

(353,866,847)

 

(579,672)

$

(2,476,501)

$

39,552,485

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

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, 

    

2024

    

2023

    

2024

    

2023

Sales:

 

  

 

  

 

  

 

  

Sales of Products

$

988,328

$

1,371,851

$

3,418,665

$

9,988,374

Sales of Engineering Services

 

397,386

 

808,156

 

1,063,488

 

1,073,829

Total Sales

 

1,385,714

 

2,180,007

 

4,482,153

 

11,062,203

Cost of Sales:

 

  

 

  

 

  

 

  

Cost of Sales - Products Sold

 

1,395,939

 

1,884,239

 

4,270,983

 

8,270,658

Cost of Sales - Depreciation and Amortization

181,807

232,891

545,422

723,745

Cost of Sales - Engineering Services

 

67,816

 

300,421

 

311,993

 

456,953

Total Cost of Sales

 

1,645,562

 

2,417,551

 

5,128,398

 

9,451,356

Gross Profit (Loss)

 

(259,848)

 

(237,544)

 

(646,245)

 

1,610,847

Operating Expenses:

 

  

 

  

 

  

 

  

Research and Development

 

2,333,798

 

2,912,562

 

7,406,913

 

8,818,911

Selling and Marketing

 

1,766,246

 

2,832,031

 

6,245,411

 

7,881,612

General and Administrative

 

4,347,013

 

4,466,850

 

12,941,336

 

13,858,996

Depreciation and Amortization

 

410,697

 

959,353

 

2,569,413

 

2,896,840

Loss on Fixed Asset Disposal

 

 

 

11,277

 

Impairment on Intangible Asset and Equity Investment

 

181,676

 

 

30,301,355

 

Impairment of Patents and Trademarks

 

 

24,204

 

 

41,869

Total Operating Expenses

 

9,039,430

 

11,195,000

 

59,475,705

 

33,498,228

Loss From Operations

 

(9,299,278)

 

(11,432,544)

 

(60,121,950)

 

(31,887,381)

Other Income (Expense):

 

  

 

  

 

  

 

Investment Income

 

95,234

 

500,067

 

453,657

 

1,824,773

Income and Other Taxes

 

(44,706)

 

(21,715)

 

(62,547)

 

(144,930)

Foreign Exchange Gain (Loss)

 

26,471

 

(28,816)

 

(151,214)

 

(60,973)

Total Other Income, Net

 

76,999

 

449,536

 

239,896

 

1,618,870

Loss Before Provision for Income Taxes

 

(9,222,279)

 

(10,983,008)

 

(59,882,054)

 

(30,268,511)

Provision for Income Taxes

 

 

 

 

Net Loss

 

(9,222,279)

 

(10,983,008)

 

(59,882,054)

 

(30,268,511)

Basic and Diluted Loss per Common Share

$

(0.14)

$

(0.17)

$

(0.90)

$

(0.48)

Weighted-average Shares Outstanding - Basic and Diluted

 

67,842,379

 

63,324,942

 

66,325,723

 

63,257,863

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,

    

2024

    

2023

Cash Flows From (Used In) Operating Activities

 

  

 

  

Net Loss

$

(59,882,054)

$

(30,268,511)

Non-Cash Adjustments

 

  

 

  

Depreciation and Amortization

 

3,265,636

 

3,620,585

Stock-Based Compensation

 

8,459,005

 

9,797,274

Impairment of Patents and Trademarks

 

 

41,869

Loss on Fixed Asset Disposal

 

11,277

 

Reserves on Trade Accounts Receivable

 

540,000

 

Change in Inventory Reserves for Obsolescence

485,183

Impairment on Intangible Assets and Equity Investments

30,301,355

(Increase) Decrease in Operating Assets

 

  

 

  

Accounts Receivable

 

610,212

 

(3,392,963)

Accrued Revenues in Excess of Billings

 

(322,461)

 

(168,146)

Utility Improvement Refund/Employee Retention Credit Receivable

208,271

466,705

Inventories

 

(825,303)

 

(519,092)

Manufacturing Vendor Prepayments

 

95,133

 

377,642

Prepaid Expenses and Other Assets

 

199,343

 

(295,566)

Increase (Decrease) in Operating Liabilities

 

  

 

  

Accounts Payable

 

(911,358)

 

641,516

Accrued Expenses

 

(1,700,548)

 

(832,290)

Unearned Revenue

 

149,044

 

73,086

Income and Other Taxes Payable

 

85,251

 

(160,935)

Net Cash Flows Used in Operating Activities

 

(19,717,197)

 

(20,133,643)

Cash Flows Used in Investing Activities

 

  

 

  

Purchases of Fixed Assets

 

(1,129,120)

 

(3,608,801)

Investments in Patents and Trademarks

 

(437,609)

 

(497,901)

Investments in Licenses

 

(1,000,000)

 

(9,500,000)

Investments in Software Development

(125,000)

Investments in Other Assets

 

 

(200,000)

Net Cash Flows Used in Investing Activities

 

(2,566,729)

 

(13,931,702)

Cash Flows Provided by (Used in) Financing Activities

 

  

 

  

Proceeds from Quanta Securities Purchase Agreement

10,000,000

Proceeds from Exercise of Stock Options

 

 

21,196

Purchases of Treasury Stock

(470,757)

Net Cash Flows Provided by (Used in) Financing Activities

 

10,000,000

 

(449,561)

Net Increase (Decrease) in Cash and Cash Equivalents

 

(12,283,926)

 

(34,514,906)

Cash and Cash Equivalents - Beginning of Period

 

26,555,592

 

72,563,943

Cash and Cash Equivalents - End of Period

$

14,271,666

$

38,049,037

Supplemental Disclosures

 

  

 

Unamortized Common Stock Expense included in Prepaid Expenses and Other Assets

$

$

1,126,777

Non-Cash Investment in Licenses

2,000,000

Depreciation and Amortization included in Research and Development Expense

150,801

Stock-Based Compensation Expense - Expensed less Previously Issued

133,584

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, 2024, 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, 2023, as reported in the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2024.

Customer Concentrations

For the three months ended September 30, 2024, two customers represented 20% of total product revenue and three customers represented 96% of engineering services revenue. For the three months ended September 30, 2023, one customer represented 21% of total product revenue and three customers represented 86% of engineering services revenue.

For the nine months ended September 30, 2024, two customers represented 23% of total product revenue and two customers represented 86% of engineering services revenue. For the nine months ended September 30, 2023, two customers represented 64% of total product revenue and four customers represented 78% of engineering services revenue.

As of September 30, 2024, three customers represented 88% of accounts receivable. As of December 31, 2023, two customers represented 73% of accounts receivable.

Fair Value of Financial Instruments

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, accounts payable, unearned revenue, accrued expenses, and income and other taxes payable. As of the consolidated balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented due to the short maturities of these instruments.

Going Concern 

  

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern.

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. (ASU) 2014- 15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. As a result, management is primarily responsible for assessing if there is a going concern issue when issuing an entity’s financial statements. The going concern assumption underlies all GAAP financial

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reporting and therefore requires and assumes that the financial statements have been prepared on a going concern basis. It presumes that a Company will continue normal business operations into the future.

Additional disclosure is required when there is substantial doubt about business continuity or substantial doubt that has not been alleviated by management’s mitigation plans. As required under applicable accounting standards, management has concluded that substantial doubt may exist surrounding the Company's ability to meet its obligations within one year of the release of the financial statements.

The Company incurred net losses for the nine months ended September 30, 2024 of $59,882,054; $50,149,077 for the year ended December 31, 2023; and $40,763,573 for the year ended December 31, 2022. The Company had net cash outflows from operations of $19,717,197 for the nine months ended September 30, 2024; $26,277,824 for the year ended December 31, 2023; and $24,521,082 for the year ended December 31, 2022. As of September 30, 2024, the Company had an accumulated deficit of $353,866,847. The Company’s cash outflows for investing activities were $2,566,729 for the nine months ended September 30, 2024; $19,280,966 for the year ended December 31, 2023; and $21,170,816 for the year ended December 31, 2022.

The Company’s cash requirements going forward are primarily for funding operating losses, research and development, working capital and capital expenditures. The higher cash outflows totaling $32,500,000 for investments in the years ending December 31, 2023 and 2022 were mainly for the Company’s exclusive technology license and equity investment in microLED technology via Atomistic (see Notes 6 and 10). The Company’s license was terminated on July 1, 2024. As a result, the Company will not be paying further licensing development fees to Atomistic.  

Our cash requirements related to funding operating losses depend upon numerous factors, including new product development activities, our ability to commercialize our products, our products’ timely market acceptance, selling prices and gross margins, and other factors. Historically, the Company has met its cash needs primarily through the sale of equity securities. The Company will need to grow its business significantly to become profitable and self-sustaining on a cash flow basis or it will be required to cut its operating costs significantly or raise new equity and/or debt capital.

These historical financial factors initially raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s management intends to take actions necessary to continue as a going concern, as discussed herein. Management’s plans to alleviate the conditions that raise substantial doubt include the implementation of operational improvements and the curtailment of certain development programs, both of which the Company expects will preserve cash.

Management’s plans concerning these matters and managing our liquidity include, among other things:    

On September 13, 2024, the Company received $10,000,000 under the closing of the first tranche under a Securities Purchase Agreement for the sale of up to $20,000,000 in common stock and Series B Preferred Stock with Quanta Computer Inc. Under the first closing, the Company sold $10,000,000 of common stock. The second and third tranches, which are tied to specific milestones, will each be for the sale of $5,000,000 of Series B Preferred Stock. The Company expects that these milestones will be achieved by March 2026;
Reductions in our cash annual operating expenses across all operating areas, representing a reduction of at least 20% as compared to 2023 levels, including in the areas of Research and Development, Sales and Marketing and General and Administrative;
Right-sizing of operations across all areas of the Company, including headcount reductions and personnel hiring freezes;
Implementation of a voluntary Company-wide payroll reduction program of 10% to 50% in exchange for stock options or stock awards, depending upon the respective base salary level for the period running from May 1, 2024 to April 30, 2025. The achieved cash savings in wages will be approximately $2,100,000;
The Company implemented two major rounds of staff reductions in January and June 2024. As a result the Company’s current weekly gross cash salary costs are now approximately $162,000 versus $263,000 at the beginning of 2024, a decrease of $101,000 per week or 38.4% (or a total of $5,252,000 on an annual basis);
Further reductions in the rate of research and development spending on new technologies, particularly the use of external contractors;

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Reduction in the rate of new product introductions and further leveraging of existing platforms to reduce new product development and engineering costs;
Delaying or curtailing discretionary and non-essential capital expenditures not related to near-term product and manufacturing needs and reducing other investing activities for our 2024 fiscal year as compared to 2023 and 2022, now that our waveguide manufacturing plant expansion has substantially been completed and the license fees payments under the Atomistic License have been completed;
The expected margin contribution upon the commencement of volume manufacturing and sales of waveguides from our new waveguide manufacturing plant, particularly to OEM customers;
Continued pursuit of licensing and strategic opportunities around our waveguide technologies with potential OEMs, which would include the receipt of upfront licensing fees and on-going supply agreements; and
Reduction in our existing products’ selling prices and higher volume discount levels to turn as much of our inventory of finished products into cash and pursue external manufacturers for Vuzix non-waveguide production needs.

The Company has historically raised capital through the sale of equity securities. The Company has filed a Registration Statement on Form S-3 that became effective in May 2024, which includes a sales agreement prospectus for the issuance and sale of up to $50,000,000 of our common stock that may be issued and sold from time to time under a. sales agreement with an investment banking in an “at the market” offering. Management monitors the capital markets on an ongoing basis and may consider raising capital if favorable market conditions develop. If the Company’s actual results are less than projected or the Company needs to raise capital for additional liquidity, the Company may be required to pursue additional equity financings, further curtail expenses, or enter into one or more strategic transactions. However, management can make no assurance that the Company will be able to successfully complete any of the forementioned pursuits on terms acceptable to the Company, or at all.

While there can be no assurance the Company will be able to successfully reduce operating expenses sufficiently enough or raise additional capital, management believes its historical ability to manage its cash flows and to obtain capital to continue operations will continue into the foreseeable future. However, as a result of this uncertainty, doubt about the Company continuing as a going concern has not been fully alleviated to the satisfaction of its external auditors as noted in their audit report included with to the Company’s 10-K filed with the SEC on April 15, 2024.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at year-end and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. The adoption of ASU 2023-09 is not expected to have a significant impact on the Entity’s consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which provides updates to qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and increased interim disclosure requirements, among others. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied retrospectively. The adoption of ASU 2023-07 is not expected to have a significant impact on the Entity’s 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, 

    

2024

    

2023

    

2024

    

2023

    

Revenues

 

  

 

  

 

  

 

  

 

Products Sales

$

988,328

$

1,371,851

$

3,418,665

$

9,988,374

Engineering Services

 

397,386

 

808,156

 

1,063,488

 

1,073,829

Total Revenue

$

1,385,714

$

2,180,007

$

4,482,153

$

11,062,203

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. 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.

Our standard product sales include a twelve (12) month assurance-type product warranty. In the case of certain 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 an extended warranty to customers that extends 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.

As of September 30, 2024 and 2023, there were $125,400 and nil, respectively, in outstanding performance obligations remaining for extended warranties.

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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 three and nine months ended September 30, 2024 and 2023:

    

Three Months Ended
September 30,

Nine Months Ended
September 30,

2024

 

2023

 

2024

 

2023

 

Point-in-Time

 

71

%

63

%

76

%

90

%

Over Time – Input Method

 

29

%

37

%

24

%

10

%

Total

 

100

%

100

%

100

%

100

%

Remaining Performance Obligations

As September 30, 2024, the Company had $2,161,768 of remaining performance obligations under a current waveguide development project, including initial product production, which represents the remainder of transaction prices totaling $3,500,000 under this development project, which commenced in 2023, less revenue recognized under percentage of completion to date. The Company expects to recognize the remaining revenue related to this project based upon expected due dates, in the amounts of 9% in 2024 and 91% in 2025. Revenues earned less amounts invoiced at September 30, 2024 was $488,232 and $165,771 at December 31, 2023.

As of September 30, 2023, the Company had approximately $3,200,000 of remaining performance obligations under four current waveguide development projects, which amount represents the remainder of the total transaction price of approximately $4,400,000 under this development project, less revenue recognized under percentage of completion to date.

As of September 30, 2024, the Company had no material outstanding performance obligations related to product sales, other than its standard and extended 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, 2024 and 2023, 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, 2024 and 2023, there were 10,653,332 and 8,695,308 common stock share equivalents, for the three 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, 

    

2024

    

2023

Purchased Parts and Components

$

8,871,676

$

9,500,415

Work-in-Process

 

292,902

 

394,923

Finished Goods

 

5,326,426

 

4,880,643

Less: Reserve for Obsolescence

 

(4,665,271)

 

(5,775,551)

Inventories, Net

$

9,825,733

$

9,000,430

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Note 5 – Fixed Assets

Fixed Assets consisted of the following:

September 30, 

December 31, 

    

2024

    

2023

Tooling and Manufacturing Equipment

$

9,780,066

$

8,793,192

Leasehold Improvements

 

2,840,176

 

3,162,695

Computers and Purchased Software

 

679,138

 

833,794

Furniture and Equipment

 

2,431,846

 

2,580,904

 

15,731,226

 

15,370,585

Less: Accumulated Depreciation

 

(7,847,789)

 

(7,297,755)

Fixed Assets, Net

$

7,883,437

$

8,072,830

December 31, 2023 asset groupings have been reclassified to conform with the September 30, 2024 presentation.

As of September 30, 2024 and December 31, 2023 there was $4,813,538 and $5,981,271, respectively, of fixed assets that are not yet placed into service.

Total depreciation expense for fixed assets for the three months ended September 30, 2024 and 2023 was $364,771 and $102,677, respectively. Total depreciation expense for fixed assets for the nine months ended September 30, 2024 and 2023 was $886,813 and $317,061, respectively.

Note 6 – Technology Licenses, Net

The changes in the Company’s Technology Licenses for the nine months ended September 30, 2024, were as follows:

September 30, 

December 31, 

    

2024

    

2023

Licenses

$

32,443,356

$

32,443,356

Write-Offs

 

(30,000,000)

 

Less: Accumulated Amortization

 

(1,632,045)

 

(5,592,355)

Licenses, Net

$

811,311

$

26,851,001

Total amortization expense related to technology licenses for the three months ended September 30, 2024 and 2023 was $50,267 and $776,667, respectively. Total amortization expense related to technology licenses for the nine months ended September 30, 2024 and 2023 was $1,708,402 and $2,480,753, respectively.

The Company decided to cease further funding of development activities with Atomistic SAS (“Atomistic”) under the license agreement, dated December 16, 2022, among the Company, Atomistic, and Atomistic’s two principals (the “License Agreement”). The Company’s decision gave Atomistic the right under the License Agreement to terminate the Granted License (as defined under the License Agreement), which right Atomistic exercised on July 1, 2024. As a result of the termination of the granted license, on July 1, 2024, which was effective June 30, 2024, the Company determined that the technology license asset of $24,335,554, net book value as of June 30, 2024, had been impaired as the Company no longer held exclusive licensing rights to the technology for its use.  

Notwithstanding the termination of the Granted License, the Company will be entitled to certain License Royalties (as defined under the License Agreement) from Atomistic if it licenses the technology that was the subject of the granted license.

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Note 7 - Other Assets

The Company’s Other Assets, were as follows: