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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 June 30, 2021

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 August 9, 2021, there were 63,583,523 shares of the registrant’s common stock outstanding.

Table of Contents

Vuzix Corporation

INDEX

 

 

Page
No.

 

 

 

Part I – Financial Information

 

 

 

Item 1.

Consolidated Financial Statements (Unaudited):

 

 

 

Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

3

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months

Ended June 30, 2021 and 2020

4

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020

5

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

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

26

 

 

 

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

2

Table of Contents

Part 1: FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

VUZIX CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

June 30, 

December 31, 

    

2021

    

2020

ASSETS

 

  

 

  

Current Assets

 

  

 

  

Cash and Cash Equivalents

$

137,604,345

$

36,069,508

Accounts Receivable

 

1,099,315

 

1,388,882

Inventories, Net

 

7,884,363

 

6,100,824

Licenses, Net

136,221

272,444

Manufacturing Vendor Prepayments

 

3,050,105

 

485,032

Prepaid Expenses and Other Assets

 

1,260,645

 

738,561

Total Current Assets

 

151,034,994

 

45,055,251

Long-Term Assets

 

  

 

  

Fixed Assets, Net

 

2,902,153

 

2,837,402

Operating Lease Right-of-Use Asset

1,389,276

1,517,306

Patents and Trademarks, Net

 

1,677,837

 

1,593,049

Licenses, Net

 

1,522,289

 

193,687

Intangible Asset, Net

 

357,002

 

566,456

Other Assets, Net

 

825,000

 

708,333

Total Assets

$

159,708,551

$

52,471,484

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Current Liabilities

 

  

 

  

Accounts Payable

$

1,424,967

$

1,517,155

Unearned Revenue

 

13,699

 

41,152

Accrued Expenses

 

1,058,087

 

983,033

Income and Other Taxes Payable

 

80,203

 

109,653

Operating Lease Right-of-Use Liability

551,967

444,495

Total Current Liabilities

 

3,128,923

 

3,095,488

Long-Term Liabilities

Operating Lease Right-of-Use Liability

837,309

1,072,811

Total Liabilities

 

3,966,232

 

4,168,299

Stockholders' Equity

 

  

 

  

Preferred Stock - $0.001 Par Value, 5,000,000 Shares Authorized; zero and 49,626 Shares Issued and Outstanding as of June 30, 2021 and December 31, 2020.

 

 

50

Common Stock - $0.001 Par Value, 100,000,000 Shares Authorized; 63,278,096 and 45,645,166 Shares Issued and Outstanding as of June 30, 2021 and December 31, 2020.

 

63,278

 

45,645

Additional Paid-in Capital

 

333,792,844

 

210,952,473

Accumulated Deficit

 

(178,113,803)

 

(162,694,983)

Total Stockholders' Equity

 

155,742,319

 

48,303,185

Total Liabilities and Stockholders' Equity

$

159,708,551

$

52,471,484

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)

Preferred Stock

Common Stock

Additional

Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid-In Capital

    

Deficit

    

Total

Balance - January 1, 2021

49,626

$

50

 

45,645,166

$

45,645

$

210,952,473

$

(162,694,983)

$

48,303,185

Stock-Based Compensation Expense

 

 

 

68,047

 

68

 

5,566,056

 

 

5,566,124

Stock Option Exercises

 

 

 

567,826

 

568

 

673,191

 

 

673,759

Stock Warrant Exercises

 

 

 

7,274,328

 

7,274

 

34,697,794

 

 

34,705,068

Proceeds from Common Stock Offering

 

 

 

4,768,293

 

4,768

 

97,784,270

 

 

97,789,038

Direct Costs of Common Stock Offering

 

 

 

 

 

(6,136,420)

 

 

(6,136,420)

Shares Redeemed to Cover Employee Tax Withholdings

 

 

(83,164)

 

(83)

 

(1,144,282)

 

 

(1,144,365)

Stock Issued for Technology License Purchase

75,000

75

1,404,675

1,404,750

Preferred Stock Converted

 

(49,626)

 

(50)

 

4,962,600

 

4,963

 

(10,004,913)

 

 

(10,000,000)

Net Loss

 

 

 

 

 

 

(15,418,820)

 

(15,418,820)

Balance - June 30, 2021

 

$

 

63,278,096

$

63,278

$

333,792,844

$

(178,113,803)

$

155,742,319

Preferred Stock

Common Stock

Additional

Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid-In Capital

    

Deficit

    

Total

Balance - April 1, 2021

$

 

62,142,940

$

62,143

$

316,208,276

$

(169,334,346)

$

146,936,073

Stock-Based Compensation Expense

 

 

 

68,047

 

68

 

3,518,679

 

 

3,518,747

Stock Option Exercises

 

 

 

336,858

 

337

 

476,593

 

 

476,930

Stock Warrant Exercises

 

 

 

33,300

 

33

 

136,497

 

 

136,530

Proceeds from Common Stock Offering

 

 

621,951

 

622

 

12,748,752

 

 

12,749,374

Direct Costs of Common Stock Offering

 

 

 

 

(700,628)

 

 

(700,628)

Stock Issued for Technology LicensesPurchase

75,000

75

1,404,675

1,404,750

Net Loss

 

 

 

 

 

 

(8,779,457)

 

(8,779,457)

Balance - June 30, 2021

 

$

 

63,278,096

$

63,278

$

333,792,844

$

(178,113,803)

$

155,742,319

Preferred Stock

Common Stock

Additional

Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid-In Capital

    

Deficit

    

Total

Balance - January 1, 2020

49,626

$

50

 

33,128,620

$

33,128

$

168,950,076

$

(144,742,811)

$

24,240,443

Stock-Based Compensation Expense

 

 

 

875,486

 

876

 

910,815

 

 

911,691

Proceeds from Common Stock Offerings

 

 

 

5,000,000

 

5,000

 

11,245,000

 

 

11,250,000

Direct Costs of Common Stock Offerings

 

 

 

 

 

(667,691)

 

 

(667,691)

Net Loss

 

 

 

 

 

 

(9,600,290)

 

(9,600,290)

Balance - June 30, 2020

 

49,626

$

50

 

39,004,106

$

39,004

$

180,438,200

$

(154,343,101)

$

26,134,153

Preferred Stock

Common Stock

Additional

Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid-In Capital

    

Deficit

    

Total

Balance - April 1, 2020

49,626

$

50

 

33,128,620

$

33,128

$

169,160,041

$

(150,104,435)

$

19,088,784

Stock-Based Compensation Expense

 

 

 

875,486

 

876

 

700,850

 

 

701,726

Proceeds from Common Stock Offerings

 

 

 

5,000,000

 

5,000

 

11,245,000

 

 

11,250,000

Direct Costs of Common Stock Offerings

 

 

 

 

 

(667,691)

 

 

(667,691)

Net Loss

 

 

 

 

 

 

(4,238,666)

 

(4,238,666)

Balance - June 30, 2020

 

49,626

$

50

 

39,004,106

$

39,004

$

180,438,200

$

(154,343,101)

$

26,134,153

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, 

    

2021

    

2020

    

2021

    

2020

Sales:

 

  

 

  

 

  

 

  

Sales of Products

$

2,833,644

$

2,335,189

$

6,638,814

$

3,706,699

Sales of Engineering Services

 

82,894

 

701,654

 

193,113

 

861,860

Total Sales

 

2,916,538

 

3,036,843

 

6,831,927

 

4,568,559

Cost of Sales:

 

  

 

  

 

  

 

  

Cost of Sales - Products Sold

 

2,323,324

 

2,122,329

 

5,143,295

 

3,548,367

Cost of Sales - Engineering Services

 

13,842

 

118,594

 

29,669

 

143,755

Total Cost of Sales

 

2,337,166

 

2,240,923

 

5,172,964

 

3,692,122

Gross Profit (exclusive of depreciation shown separately below)

 

579,372

 

795,920

 

1,658,963

 

876,437

Operating Expenses:

 

  

 

  

 

  

 

  

Research and Development

 

2,700,732

 

1,796,268

 

4,780,659

 

3,819,326

Selling and Marketing

 

1,337,558

 

796,857

 

2,578,292

 

1,949,665

General and Administrative

 

4,749,920

 

1,799,958

 

8,453,757

 

3,337,778

Depreciation and Amortization

 

501,678

 

640,711

 

1,019,090

 

1,289,253

Loss on Fixed Asset Disposal

 

 

 

83,908

 

Impairment of Patents and Trademarks

 

30,765

 

 

58,496

 

57,532

Total Operating Expenses

 

9,320,653

 

5,033,794

 

16,974,202

 

10,453,554

Loss From Operations

 

(8,741,281)

 

(4,237,874)

 

(15,315,239)

 

(9,577,117)

Other Income (Expense):

 

  

 

  

 

  

 

  

Investment Income

 

7,767

 

7,089

 

15,605

 

29,246

Income and Other Taxes

 

(12,783)

 

(9,379)

 

(32,508)

 

(27,065)

Foreign Exchange (Loss) Income

 

(33,160)

 

1,498

 

(86,678)

 

(25,354)

Total Other Expense, Net

 

(38,176)

 

(792)

 

(103,581)

 

(23,173)

Loss Before Provision for Income Taxes

 

(8,779,457)

 

(4,238,666)

 

(15,418,820)

 

(9,600,290)

Provision for Income Taxes

 

 

 

 

Net Loss

 

(8,779,457)

 

(4,238,666)

 

(15,418,820)

 

(9,600,290)

Preferred Stock Dividends - Accrued not Paid

 

 

(507,315)

 

 

(1,007,153)

Loss Attributable to Common Stockholders

$

(8,779,457)

$

(4,745,981)

$

(15,418,820)

$

(10,607,443)

Basic and Diluted Loss per Common Share

$

(0.14)

$

(0.13)

$

(0.26)

$

(0.31)

Weighted-average Shares Outstanding - Basic and Diluted

 

63,071,061

 

36,341,616

 

58,631,078

 

34,735,118

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, 

    

2021

    

2020

Cash Flows from Operating Activities

 

  

 

  

Net Loss

$

(15,418,820)

$

(9,600,290)

Non-Cash Adjustments

 

  

 

  

Depreciation and Amortization

 

1,019,090

 

1,289,253

Amortization of Software Development Costs in Cost of Sales - Products

 

120,197

 

91,664

Stock-Based Compensation

 

5,683,591

 

941,933

Impairment of Patents and Trademarks

 

58,496

 

57,532

Loss on Fixed Asset Disposal

 

83,908

 

(Increase) Decrease in Operating Assets

 

  

 

  

Accounts Receivable

 

289,567

 

(120,965)

Accrued Project Revenue

 

 

(175,005)

Inventories

 

(1,783,539)

 

(548,466)

Manufacturing Vendor Prepayments

 

(2,565,073)

 

(374,791)

Prepaid Expenses and Other Assets

 

(522,084)

 

(7,442)

Increase (Decrease) in Operating Liabilities

 

  

 

  

Accounts Payable

 

(92,188)

 

(230,201)

Accrued Expenses

 

75,055

 

(122,971)

Unearned Revenue

 

(27,453)

 

(77,247)

Income and Other Taxes

 

(29,450)

 

5,915

Net Cash Flows Used in Operating Activities

 

(13,108,703)

 

(8,871,081)

Cash Flows from Investing Activities

 

  

 

  

Purchase of Fixed Assets

 

(719,164)

 

(253,174)

Investments in Patents and Trademarks

 

(214,450)

 

(140,863)

Investments in Licenses, Intangible and Other Assets

 

(305,158)

 

(250,000)

Net Cash Used in Investing Activities

 

(1,238,772)

 

(644,037)

Cash Flows from Financing Activities

 

  

 

  

Proceeds from Exercise of Warrants

 

34,705,068

 

Proceeds from Exercise of Stock Options

 

673,759

 

Proceeds from Common Stock Offering, Net

91,647,850

10,582,309

Preferred Dividend Settlement Payment

 

(10,000,000)

 

Employee Tax Withholdings Payment

 

(1,144,365)

 

Proceeds from Term Note

1,555,900

Net Cash Flows Provided from Financing Activities

 

115,882,312

 

12,138,209

Net Increase in Cash and Cash Equivalents

 

101,534,837

 

2,623,091

Cash and Cash Equivalents - Beginning of Period

 

36,069,508

 

10,606,091

Cash and Cash Equivalents - End of Period

$

137,604,345

$

13,229,182

Supplemental Disclosures

 

  

 

  

Unamortized Common Stock Expense included in Prepaid Expenses

$

101,517

$

223,496

Non-Cash Investment in Licenses

1,404,750

471,809

Stock-Based Compensation Expense - Expensed less Previously Issued

117,467

31,118

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”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, the unaudited consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Certain re-classifications may have been made to prior periods to conform with current reporting. The results of the Company’s operations for the three and six months ended June 30, 2021 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 December 31, 2020, as reported in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2021.

Customer Concentrations

For the three months ended June 30, 2021, no one customer represented more than 10% of total product revenue and one customer represented 100% of engineering services revenue. For the three months ended June 30, 2020, no one customer represented more than 10% of total product revenue and two customers represented 100% of engineering services revenue.

For the six months ended June 30, 2021, no one customer represented more than 10% of total product revenue and two customers represented 100% of engineering services revenue. For the six months ended June 30, 2020, no one customer represented more than 10% of total product revenue and two customers represented 100% of engineering services revenue.

As of June 30, 2021, two customers represented 13% and 10% of accounts receivable. As of December 31, 2020, two customers represented 21% and 14% of accounts receivable.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). ASU 2016-13 provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to accounts receivable. ASU 2016-13 will become effective for the Company on January 1, 2023 and early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.

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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

Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

Revenues

 

  

 

  

 

  

 

  

Smart Glasses Sales

$

2,833,644

$

2,335,189

$

6,638,814

$

3,706,699

Engineering Services

 

82,894

 

701,654

 

193,113

 

861,860

Total Revenue

$

2,916,538

$

3,036,843

$

6,831,927

$

4,568,559

Significant Judgments

Under Topic 606 “Revenue from Contracts with Customers”, we use judgments that could potentially impact both the timing of our satisfaction of performance obligations and our determination of transaction prices used in determining revenue recognized by major product line. Such judgments include considerations in determining our transaction prices and when our performance obligations are satisfied for our standard product sales that include an end-user 30-day right to return if not satisfied with product and general payment terms that are between Net 30 and 60 days. For our Engineering Services, performance obligations are recognized over time using the input method and the estimated costs to complete each project are considered significant judgments.

Performance Obligations

Revenues from our performance obligations are typically satisfied at a point in time for Smart Glasses, Waveguides and Display Engines, and our OEM Products, which are recognized when the customer obtains control and ownership, which is generally upon shipment. The Company also records revenue for performance obligations relating to our Engineering Services over time by using the input method 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 of 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 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 six months ended June 30, 2021:

    

% of Total Sales

 

Point-in-Time

 

97

%

Over Time – Input Method

 

3

%

Total

 

100

%

Remaining Performance Obligations

As of June 30, 2021, the Company had no outstanding performance obligations under its engineering services and waveguide development projects, as all projects were completed and delivered in the first half of 2021. In addition, the Company had no materially 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 and warrants, and the conversion of convertible preferred shares. 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, 2021 and 2020, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. At June 30, 2021 and 2020, there were 8,584,030 and 14,147,580 common stock share equivalents, respectively, potentially issuable under conversion of preferred shares, options, and warrants 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:

June 30, 

December 31, 

    

2021

    

2020

Purchased Parts and Components

$

4,522,059

$

5,252,709

Work-in-Process

 

682,050

 

1,381,677

Finished Goods

 

4,173,309

 

3,352,057

Less: Reserve for Obsolescence

 

(1,493,055)

 

(3,885,619)

Inventories, Net

$

7,884,363

$

6,100,824

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Note 5 – Licenses, Net

June 30, 

December 31, 

    

2021

    

2020

Licenses

$

1,038,606

$

493,717

Less: Accumulated Amortization / Expensed

 

(784,846)

 

(572,475)

Additions

 

1,404,750

 

544,889

1,658,510

466,131

Less: Current Portion

(136,221)

(272,444)

Licenses, Net

$

1,522,289

$

193,687

In December 2020, the Company renewed its global non-exclusive master reseller agreement (MRA) for certain smart glasses software under which it committed to sell a minimum number of new software licenses in 2021, as well as the unsold remainder from 2020. The amount capitalized, included in current assets on the Consolidated Balance Sheets, will be expensed to cost of sales - products sold during the period based upon actual software licenses sold, with any of the remaining prepaid licenses expensed at the end of the term of the MRA.

The Company acquired two licenses in 2017. The first related to the renegotiation of an existing license at a cost of $114,967, which resulted in lower royalty rates being paid by the Company over the next 10 years. This license went into effect as of January 1, 2018. The second license was a result of the Company entering into a Technology Purchase and Royalty Agreement where it acquired all the seller’s right, title and interest in certain Transferred Intellectual Property (IP). Pursuant to the agreement, the Company paid approximately $75,702 as reimbursement of related patent application costs incurred by the seller to date, which are included in Patents and Trademarks. The Company also issued 25,000 shares of common stock, valued at $128,750, upon the closing and agreed to certain further share issuances of 75,000 shares based upon the achievement of certain development milestones as well as per unit royalties once the technology was commercialized for the life of the related patents. In June 2021, the Company purchased outright the obligations for ongoing royalties and certain other intellectual property rights in connection with consulting services by the original seller in exchange for the issuance of 75,000 shares with an assigned market value of $18.73 per share. The underlying technology is not yet ready for commercialization, but the Company intends to proceed with further research and development work over the next 2 to 3 years.

Note 6 – Intangible Asset, Net

    

June 30, 

    

December 31, 

2021

2020

Intangible Asset

$

1,500,000

$

1,500,000

Less: Accumulated Amortization

 

(1,142,998)

 

(933,544)

Intangible Asset, Net

$

357,002

$

566,456

On October 4, 2018, the Company entered into amendment No. 1 to agreements (the “TDG Amendment”) with TDG Acquisition Company, LLC (“TDG”), aka Six15 Technologies, LLC. The TDG Amendment amends certain provisions of prior agreements between Vuzix and TDG, including an asset purchase agreement dated June 15, 2012, and an authorized reseller agreement dated June 15, 2012.

Pursuant to the TDG Amendment, the Company is permitted to engage in sales of heads-up display components or subsystems (and any services to support such sale) for incorporation into a finished good or system for sale to military organizations, subject to certain conditions. The Company is also permitted to sell its products to defense and security organizations that include business customers and governmental entity customers that primarily provide security and defense services, including police, fire fighters, EMTs, other first responders, and homeland and border security. The Company will owe TDG commissions with respect to all such sales until June 15, 2022, when the amendment and

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original non-compete agreements expire, after which the Company will be permitted to sell any product to any customer world-wide without owing any commission to TDG.

Total commissions expense under this agreement for the three months ended June 30, 2021 and 2020 was $4,192 and $140,364. Total commissions expense for the six months ended June 30, 2021 and 2020 was $56,847 and $176,944. All commissions expense related to this agreement are included in Selling and Marketing expense.

Total amortization expense for this intangible asset for the three months ended June 30, 2021 and 2020 was $104,727 and $112,090, respectively. Total amortization expense for this intangible asset for the six months ended June 30, 2021 and 2020 was $209,454 and $214,090, respectively. Future monthly amortization expense for the remaining 11.5 months is approximately $31,000 per month.

Note 7 – Accrued Expenses

Accrued expenses consisted of the following:

June 30, 

December 31, 

    

2021

    

2020

Accrued Wages and Related Costs

$

513,222

$

582,924

Accrued Professional Services

 

178,160

 

187,323

Accrued Warranty Obligations

 

112,963

 

143,898

Other Accrued Expenses

 

253,742

 

68,888

Total

$

1,058,087

$

983,033

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 liability 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 six months ended June 30, 2021 and the balance as of December 31, 2020 were as follows:

Accrued Warranty Obligations at December 31, 2020

$

143,898

Reductions for Settling Warranties

 

(230,099)

Warranties Issued During Period

 

199,164

Accrued Warranty Obligations at June 30, 2021

$

112,963

Note 8 – 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 9 – 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 special rights and terms. A total of 5,000,000 shares of preferred stock with a par value of $0.001 are authorized as of June 30, 2021 and December 31, 2020. Of this total, 49,626 shares are

11