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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, 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 November 8, 2021, there were 63,631,676 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 September 30, 2021 and December 31, 2020

3

 

 

 

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

Ended September 30, 2021 and 2020

4

 

 

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020

5

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 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

25

 

 

 

Part II – Other Information

26

 

 

 

Item 1.

Legal Proceedings

26

 

 

Item 1A.

Risk Factors

26

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

Item 3.

Defaults Upon Senior Securities

26

 

 

 

Item 4.

Mine Safety Disclosure

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, 

    

2021

    

2020

ASSETS

 

  

 

  

Current Assets

 

  

 

  

Cash and Cash Equivalents

$

128,746,661

$

36,069,508

Accounts Receivable

 

1,058,790

 

1,388,882

Inventories, Net

 

9,880,337

 

6,100,824

Licenses, Net

68,109

272,444

Manufacturing Vendor Prepayments

 

1,902,132

 

485,032

Prepaid Expenses and Other Assets

 

2,332,049

 

738,561

Total Current Assets

 

143,988,078

 

45,055,251

Long-Term Assets

 

  

 

  

Fixed Assets, Net

 

5,339,494

 

2,837,402

Operating Lease Right-of-Use Asset

1,221,719

1,517,306

Patents and Trademarks, Net

 

1,862,016

 

1,593,049

Licenses, Net

 

1,446,638

 

193,687

Intangible Asset, Net

 

252,275

 

566,456

Other Assets, Net

 

1,356,535

 

708,333

Total Assets

$

155,466,755

$

52,471,484

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Current Liabilities

 

  

 

  

Accounts Payable

$

1,482,809

$

1,517,155

Unearned Revenue

 

14,251

 

41,152

Accrued Expenses

 

1,585,325

 

983,033

Income and Other Taxes Payable

 

33,763

 

109,653

Operating Lease Right-of-Use Liability

534,146

444,495

Total Current Liabilities

 

3,650,294

 

3,095,488

Long-Term Liabilities

Operating Lease Right-of-Use Liability

687,573

1,072,811

Total Liabilities

 

4,337,867

 

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 September 30, 2021 and December 31, 2020.

 

 

50

Common Stock - $0.001 Par Value, 100,000,000 Shares Authorized; 63,631,054 and 45,645,166 Shares Issued and Outstanding as of September 30, 2021 and December 31, 2020.

 

63,631

 

45,645

Additional Paid-in Capital

 

337,125,126

 

210,952,473

Accumulated Deficit

 

(186,059,869)

 

(162,694,983)

Total Stockholders' Equity

 

151,128,888

 

48,303,185

Total Liabilities and Stockholders' Equity

$

155,466,755

$

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

 

 

 

368,047

 

368

 

8,858,446

 

 

8,858,814

Stock Option Exercises

 

 

 

620,784

 

621

 

713,083

 

 

713,704

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

 

 

 

 

 

 

(23,364,886)

 

(23,364,886)

Balance - September 30, 2021

 

$

 

63,631,054

$

63,631

$

337,125,126

$

(186,059,869)

$

151,128,888

Preferred Stock

Common Stock

Additional

Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid-In Capital

    

Deficit

    

Total

Balance - July 1, 2021

$

 

63,278,096

$

63,278

$

333,792,844

$

(178,113,803)

$

155,742,319

Stock-Based Compensation Expense

 

 

 

300,000

 

300

 

3,292,391

 

 

3,292,691

Stock Option Exercises

 

 

 

52,958

 

53

 

39,891

 

 

39,944

Net Loss

 

 

 

 

 

 

(7,946,066)

 

(7,946,066)

Balance - September 30, 2021

 

$

 

63,631,054

$

63,631

$

337,125,126

$

(186,059,869)

$

151,128,888

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

 

 

 

942,986

 

943

 

1,928,880

 

 

1,929,823

Proceeds from Common Stock Offerings

 

 

 

8,647,059

 

8,647

 

26,741,355

 

 

26,750,002

Direct Costs of Common Stock Offerings

 

 

 

 

 

(1,550,666)

 

 

(1,550,666)

Net Loss

 

 

 

 

 

 

(14,361,100)

 

(14,361,100)

Balance - September 30, 2020

 

49,626

$

50

 

42,718,665

$

42,718

$

196,069,645

$

(159,103,911)

$

37,008,502

Preferred Stock

Common Stock

Additional

Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid-In Capital

    

Deficit

    

Total

Balance - July 1, 2020

49,626

$

50

 

39,004,106

$

39,004

$

180,438,200

$

(154,343,101)

$

26,134,153

Stock-Based Compensation Expense

 

 

 

67,500

 

67

 

1,018,065

 

 

1,018,132

Proceeds from Common Stock Offerings

 

 

 

3,647,059

 

3,647

 

15,496,355

 

 

15,500,002

Direct Costs of Common Stock Offerings

 

 

 

 

 

(882,975)

 

 

(882,975)

Net Loss

 

 

 

 

 

 

(4,760,810)

 

(4,760,810)

Balance - September 30, 2020

 

49,626

$

50

 

42,718,665

$

42,718

$

196,069,645

$

(159,103,911)

$

37,008,502

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, 

    

2021

    

2020

    

2021

    

2020

Sales:

 

  

 

  

 

  

 

  

Sales of Products

$

3,018,774

$

2,686,166

$

9,657,589

$

6,392,865

Sales of Engineering Services

 

 

92,555

 

193,113

 

954,415

Total Sales

 

3,018,774

 

2,778,721

 

9,850,702

 

7,347,280

Cost of Sales:

 

  

 

  

 

  

 

  

Cost of Sales - Products Sold

 

2,435,437

 

2,393,676

 

7,578,732

 

5,942,043

Cost of Sales - Engineering Services

 

 

37,075

 

29,669

 

180,830

Total Cost of Sales

 

2,435,437

 

2,430,751

 

7,608,401

 

6,122,873

Gross Profit (exclusive of depreciation shown separately below)

 

583,337

 

347,970

 

2,242,301

 

1,224,407

Operating Expenses:

 

  

 

  

 

  

 

  

Research and Development

 

3,270,255

 

1,874,243

 

8,050,915

 

5,693,569

Selling and Marketing

 

1,589,582

 

936,206

 

4,167,874

 

2,885,872

General and Administrative

 

3,112,059

 

1,635,076

 

11,565,816

 

4,972,854

Depreciation and Amortization

 

434,277

 

634,669

 

1,453,367

 

1,923,922

Loss on Fixed Asset Disposal

 

 

 

83,908

 

Impairment of Patents and Trademarks

 

7,544

 

16,000

 

66,040

 

73,532

Total Operating Expenses

 

8,413,717

 

5,096,194

 

25,387,920

 

15,549,749

Loss From Operations

 

(7,830,380)

 

(4,748,224)

 

(23,145,619)

 

(14,325,342)

Other Income (Expense):

 

  

 

  

 

  

 

  

Investment Income

 

29,843

 

4,662

 

45,448

 

33,908

Income and Other Taxes

 

(105,526)

 

(16,802)

 

(138,034)

 

(43,867)

Foreign Exchange Loss

 

(40,003)

 

(446)

 

(126,681)

 

(25,799)

Total Other Expense, Net

 

(115,686)

 

(12,586)

 

(219,267)

 

(35,758)

Loss Before Provision for Income Taxes

 

(7,946,066)

 

(4,760,810)

 

(23,364,886)

 

(14,361,100)

Provision for Income Taxes

 

 

 

 

Net Loss

 

(7,946,066)

 

(4,760,810)

 

(23,364,886)

 

(14,361,100)

Preferred Stock Dividends - Accrued not Paid

 

 

(520,562)

 

 

(1,527,716)

Loss Attributable to Common Stockholders

$

(7,946,066)

$

(5,281,372)

$

(23,364,886)

$

(15,888,816)

Basic and Diluted Loss per Common Share

$

(0.13)

$

(0.13)

$

(0.39)

$

(0.44)

Weighted-average Shares Outstanding - Basic and Diluted

 

63,520,878

 

39,837,321

 

60,278,923

 

36,448,266

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, 

    

2021

    

2020

Cash Flows from Operating Activities

 

  

 

  

Net Loss

$

(23,364,886)

$

(14,361,100)

Non-Cash Adjustments

 

  

 

  

Depreciation and Amortization

 

1,453,367

 

1,923,922

Amortization of Software Development Costs in Cost of Sales - Products

 

180,296

 

137,496

Stock-Based Compensation

 

7,311,278

 

2,019,006

Impairment of Patents and Trademarks

 

66,040

 

73,532

Loss on Fixed Asset Disposal

 

83,908

 

(Increase) Decrease in Operating Assets

 

  

 

  

Accounts Receivable

 

330,092

 

160,287

Accrued Project Revenue

 

 

(81,714)

Inventories

 

(3,779,513)

 

(855,613)

Manufacturing Vendor Prepayments

 

(1,417,100)

 

71,536

Prepaid Expenses and Other Assets

 

(238,066)

 

(105,686)

Increase (Decrease) in Operating Liabilities

 

  

 

  

Accounts Payable

 

(34,346)

 

(153,682)

Accrued Expenses

 

602,293

 

(11,790)

Unearned Revenue

 

(26,901)

 

(90,215)

Income and Other Taxes

 

(75,890)

 

14,144

Net Cash Flows Used in Operating Activities

 

(18,909,428)

 

(11,259,877)

Cash Flows from Investing Activities

 

  

 

  

Purchase of Fixed Assets

 

(3,592,703)

 

(467,595)

Investments in Patents and Trademarks

 

(442,582)

 

(329,347)

Investments in Licenses, Intangible and Other Assets

 

(305,158)

 

(365,650)

Net Cash Used in Investing Activities

 

(4,340,443)

 

(1,162,592)

Cash Flows from Financing Activities

 

  

 

  

Proceeds from Exercise of Warrants

 

34,705,068

 

Proceeds from Exercise of Stock Options

 

713,703

 

Proceeds from Common Stock Offering, Net

91,652,617

25,199,336

Preferred Dividend Settlement Payment

 

(10,000,000)

 

Employee Tax Withholdings Payment

 

(1,144,364)

 

Proceeds from Term Note

1,555,900

Net Cash Flows Provided from Financing Activities

 

115,927,024

 

26,755,236

Net Increase in Cash and Cash Equivalents

 

92,677,153

 

14,332,767

Cash and Cash Equivalents - Beginning of Period

 

36,069,508

 

10,606,091

Cash and Cash Equivalents - End of Period

$

128,746,661

$

24,938,858

Supplemental Disclosures

 

  

 

  

Unamortized Common Stock Expense included in Prepaid Expenses and Other Assets

$

1,729,646

$

277,880

Non-Cash Investment in Licenses

1,341,614

380,249

Stock-Based Compensation Expense - Expensed less Previously Issued

(1,547,536)

89,183

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 nine months ended September 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 September 30, 2021, two customers represented 12% and 10% of total product revenue. For the three months ended September 30, 2020, no one customer represented more than 10% of total product revenue and one customer represented 90% of engineering services revenue.

For the nine months ended September 30, 2021, no one customer represented more than 10% of total product revenue and two customers represented 100% of engineering services revenue. For the nine months ended September 30, 2020, no one customer represented more than 10% of total product revenue and two customers represented 90% of engineering services revenue.

As of September 30, 2021, three customers represented 29%, 15% and 14% 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

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Revenues

 

  

 

  

 

  

 

  

Smart Glasses Sales

$

3,018,774

$

2,686,166

$

9,657,589

$

6,392,865

Engineering Services

 

 

92,555

 

193,113

 

954,415

Total Revenue

$

3,018,774

$

2,778,721

$

9,850,702

$

7,347,280

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 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 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, 2021:

    

% of Total Sales

 

Point-in-Time

 

98

%

Over Time – Input Method

 

2

%

Total

 

100

%

Remaining Performance Obligations

As of September 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 nine months ended September 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 September 30, 2021 and 2020, there were 8,612,869 and 17,775,890 common stock share equivalents, respectively, potentially exercisable or issuable under conversion or exercise 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:

September 30, 

December 31, 

    

2021

    

2020

Purchased Parts and Components

$

8,785,171

$

5,252,709

Work-in-Process

 

203,103

 

1,381,677

Finished Goods

 

2,180,435

 

3,352,057

Less: Reserve for Obsolescence

 

(1,288,372)

 

(3,885,619)

Inventories, Net

$

9,880,337

$

6,100,824

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Note 5 – Licenses, Net

September 30, 

December 31, 

    

2021

    

2020

Licenses

$

1,038,606

$

493,717

Additions

 

1,404,750

 

544,889

Less: Accumulated Amortization / Expensed

 

(928,609)

 

(572,475)

1,514,747

466,131

Less: Current Portion

(68,109)

(272,444)

Licenses, Net

$

1,446,638

$

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 original closing in October 2017 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 assumed or purchased outright the obligations for ongoing royalties under the original license agreement 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 or a total of $1,404,750. The underlying technology is not yet ready for commercialization, but the Company intends to proceed with further research and development work relating to such underlying technology.

Note 6 – Intangible Asset, Net

    

September 30, 

    

December 31, 

2021

2020

Intangible Asset

$

1,500,000

$

1,500,000

Less: Accumulated Amortization

 

(1,247,725)

 

(933,544)

Intangible Asset, Net

$

252,275

$

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 September 30, 2021 and 2020 was $2,550 and nil. Total commissions expense for the nine months ended September 30, 2021 and 2020 was $59,397 and $176,944. All commissions expense related to this agreement is included in Selling and Marketing expense.

Total amortization expense for this intangible asset for the three months ended September 30, 2021 and 2020 was $104,727 and $104,727, respectively. Total amortization expense for this intangible asset for the nine months ended September 30, 2021 and 2020 was $314,181 and $318,817, respectively. Future monthly amortization expense for the remaining 8.5 months is approximately $30,000 per month.

Note 7 – Accrued Expenses

Accrued expenses consisted of the following:

September 30, 

December 31, 

    

2021

    

2020

Accrued Wages and Related Costs

$

587,961

$

582,924

Accrued Professional Services

 

218,506

 

187,323

Accrued Warranty Obligations

 

194,092

 

143,898

Other Accrued Expenses

 

584,766

 

68,888

Total

$

1,585,325

$

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 nine months ended September 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

 

(239,534)

Warranties Issued During Period

 

289,728

Accrued Warranty Obligations at September 30, 2021

$

194,092

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 September 30, 2021 and December 31, 2020. Of this total, 49,626 shares are

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designated as Series A Preferred Stock. There were nil and 49,626 shares of Series A Preferred Stock issued and outstanding on September 30, 2021 and December 31, 2020, respectively.

On January 28, 2021, Intel Corporation (“Intel”) (which was the holder of all of the outstanding shares of Series A Preferred Stock) converted all of its 49,626 shares of Series A Preferred Stock into 4,962,600 shares of common stock and the shares of Series A Preferred Stock have been retired and cannot be reissued. In connection with the foregoing, Intel and the Company entered into an agreement pursuant to which Intel agreed to accept $10,000,000 in full payment of all accrued Series A Preferred Stock dividends in the approximate amount of $10,800,000.

Common Stock

The Company’s authorized common stock consists of 100,000,000 shares, par value of $0.001. There were 63,631,054 and 45,645,166 shares of common stock issued and outstanding as of September 30, 2021 and December 31, 2020, respectively.

On March 25, 2021, the Company entered into an underwriting agreement with BTIG, LLC for the sale of the Company’s common stock in an underwritten public offering at a public offering price of $20.50 per share. The Company closed on this public offering (including the full exercise of the over-allotment option granted to the underwriters), receiving total gross proceeds of $97,789,037. The Company received net proceeds after the underwriting discount and issuance costs and expenses of $91,652,618.

Note 10 – Stock Warrants

A summary of the various changes in warrants during the nine months ended September 30, 2021 is as follows:

September 30, 

    

2021

Warrants Outstanding at December 31, 2020

 

7,276,928

Exercised During the Period

 

(7,274,328)

Issued During the Period

 

Expired During the Period

 

Warrants Outstanding at September 30, 2021

 

2,600

The outstanding warrants as of September 30, 2021, expire on January 2, 2022. The average remaining term of the warrants is approximately 3 months. The exercise price is $4.10 per share.

During the three months ended September 30, 2021 and 2020, there were no warrants exercised.

During the nine months ended September 30, 2021, a total of 7,274,328 warrants were exercised on a cash basis resulting in the issuance of 7,274,328 shares of common stock and proceeds to the Company of $34,705,068. During the nine months ended September 30, 2020, there were no warrants exercised.

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Note 11 – Stock-Based Compensation

A summary of stock option activity related to the Company’s standard employee incentive plan, excluding options awarded under the Long-term Incentive Plan (LTIP), for the nine months ended September 30, 2021 is as follows: