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 March 31, ~~2022~~2023


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

Commission file number 001-35955

VUZIX CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		04-3392453
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)


25 Hendrix Road, Suite A West Henrietta, New York		14586
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (585) 359-5900

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol(s)	Name of each exchange on which registered:
Common Stock, par value $0.001	VUZI	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes ☒ No ◻☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧☒ No ◻☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒☐	Accelerated filer	☐	Non-accelerated filer	☐☒

Smaller reporting company	☐☒	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻☐

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No ⌧☒

As of May 10, ~~2022,~~2023, there were ~~63,667,941~~63,219,123 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 March 31, ~~2022~~2023 and December 31, ~~202~~20221	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, ~~2022~~2023 and ~~202~~20221	4

	Consolidated Statements of Operations for the Three Months Ended March 31, ~~2022~~2023 and ~~202~~20221	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2022~~2023 and ~~202~~20221	6

	Notes to the Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2221

Item 4.	Controls and Procedures	2221

Part II – Other Information		2322

Item 1.	Legal Proceedings	2322

Item 1A.	Risk Factors	2322

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2422

Item 3.	Defaults Upon Senior Securities	2422

Item 4.	Mine Safety Disclosure	2422

Item 5.	Other Information	2422

Item 6.	Exhibits	2523

Signatures		2624

Table of Contents

Part 1: FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

VUZIX CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)


March 31,

December 31,


2022

2021
ASSETS




Current Assets




Cash and Cash Equivalents

$
113,329,734

$
120,203,873
Accounts Receivable

1,551,654

2,242,429
Inventories, Net

12,559,066

12,151,982
Manufacturing Vendor Prepayments

586,564

504,051
Prepaid Expenses and Other Assets

1,470,415

2,047,819

Total Current Assets

129,497,433

137,150,154

Long-Term Assets




Fixed Assets, Net

5,042,421

5,190,438
Operating Lease Right-of-Use Asset

968,269

1,117,022
Patents and Trademarks, Net

2,020,099

1,988,370
Licenses, Net

1,333,236

1,389,936
Intangible Asset, Net

42,821

147,548
Other Assets, Net

1,445,897

1,483,589

Total Assets

$
140,350,176

$
148,467,057

LIABILITIES AND STOCKHOLDERS' EQUITY


Current Liabilities




Accounts Payable

$
1,223,741

$
2,054,762
Unearned Revenue

29,623

27,797
Accrued Expenses

1,127,021

1,419,308
Income and Other Taxes Payable

45,692

120,242
Operating Lease Right-of-Use Liability

514,204

534,146

Total Current Liabilities

2,940,281

4,156,255

Long-Term Liabilities

Operating Lease Right-of-Use Liability

454,065

582,876

Total Liabilities

3,394,346

4,739,131

Stockholders' Equity




Common Stock - $0.001 Par Value, 100,000,000 Shares Authorized; 63,704,626 shares issued and 63,667,941 shares outstanding as of March 31, 2022 and 63,672,268 shares issued and outstanding as of December 31, 2021.

63,705

63,672
Additional Paid-in Capital

350,721,326

346,736,397
Accumulated Deficit

(213,578,144)

(203,072,143)
Treasury Stock, at cost, 36,685 shares as of March 31, 2022 and 0 shares as of December 31, 2021

(251,057)

—

Total Stockholders' Equity

136,955,830

143,727,926

Total Liabilities and Stockholders' Equity

$
140,350,176

$
148,467,057


	(Unaudited)
	March 31,		December 31,
	2023		2022
ASSETS
Current Assets
Cash and Cash Equivalents	$	63,235,863	$	72,563,943
Accounts Receivable, Net		3,059,156		3,558,971
Accrued Revenues in Excess of Billings		192,177		269,129
Employee Retention Credit Receivable		466,705		466,705
Inventories, Net		10,861,679		11,267,969
Manufacturing Vendor Prepayments		474,035		998,671
Prepaid Expenses and Other Assets		1,621,186		2,115,853

Total Current Assets		79,910,801		91,241,241

Long-Term Assets
Fixed Assets, Net		6,139,939		3,878,505
Operating Lease Right-of-Use Asset		791,604		956,165
Patents and Trademarks, Net		2,341,024		2,220,094
Technology Licenses, Net		29,331,805		30,158,689
Intangible Asset, Net		640,383		675,313
Goodwill		1,601,400		1,601,400
Other Assets, Net		1,715,996		1,581,143

Total Assets	$	122,472,952	$	132,312,550

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable	$	1,271,365	$	1,211,747
Unearned Revenue		41,454		29,064
Accrued Expenses		1,466,214		1,670,539
Licensing Fees Commitment		9,500,000		11,500,000
Income and Other Taxes Payable		22,841		214,997
Operating Lease Right-of-Use Liability		562,375		651,011

Total Current Liabilities		12,864,249		15,277,358

Long-Term Liabilities
Operating Lease Right-of-Use Liability		229,229		305,154

Total Liabilities		13,093,478		15,582,512

Stockholders' Equity
Common Stock - $0.001 Par Value, 100,000,000 shares authorized; 63,787,858 shares issued and 63,208,186 shares outstanding as of March 31, 2023 and 63,783,779 shares issued and 63,319,107 shares outstanding as of December 31, 2022.		63,787		63,783
Additional Paid-in Capital		365,868,487		362,507,715
Accumulated Deficit		(254,076,299)		(243,835,716)
Treasury Stock, at cost, 579,672 shares as of March 31, 2023 and 464,672 shares as of December 31, 2022.		(2,476,501)		(2,005,744)

Total Stockholders' Equity		109,379,474		116,730,038

Total Liabilities and Stockholders' Equity	$	122,472,952	$	132,312,550

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

Table of Contents

VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


	Preferred Stock			Common Stock			Additional		Accumulated		Treasury Stock					Common Stock			Additional		Accumulated		Treasury Stock
	Shares	Amount		Shares	Amount		Paid-In Capital		Deficit		Shares	Amount		Total		Shares	Amount		Paid-In Capital		Deficit		Shares	Amount		Total
Balance - January 1, 2022	—	$	—	63,672,268	$	63,672	$	346,736,397	$	(203,072,143)	—	$	—	$	143,727,926
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	—		—	—		—		3,955,738		—	—		—		3,955,738	—		—		3,360,772		—	—		—		3,360,772
Stock Option Exercises	—		—	32,358		33		29,191		—	—		—		29,224	4,079		4		—		—	—		—		4
Purchases of Treasury Stock	—		—	—		—		—		—	(36,685)		(251,057)		(251,057)	—		—		—		—	(115,000)		(470,757)		(470,757)
Net Loss	—		—	—		—		—		(10,506,001)	—		—		(10,506,001)	—		—		—		(10,240,583)	—		—		(10,240,583)
Balance - March 31, 2022	—	$	—	63,704,626	$	63,705	$	350,721,326	$	(213,578,144)	(36,685)	$	(251,057)	$	136,955,830
Balance - March 31, 2023																63,787,858	$	63,787	$	365,868,487	$	(254,076,299)	(579,672)	$	(2,476,501)	$	109,379,474

Preferred Stock

Common Stock

Additional

Accumulated

Treasury Stock


   Shares

   Amount

   Shares

   Amount

Paid-In Capital

Deficit

     Shares

    ��Amount

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

—

—

—

—

2,047,378

—

—

—

2,047,378
Stock Option Exercises

—

—

230,968

231

196,597

—

—

—

196,828
Stock Warrant Exercises

—

—

7,241,028

7,241

34,561,297

—

—

—

34,568,538
Proceeds from Common Stock Offerings

—

—

4,146,342

4,146

84,995,865

—

—

—

85,000,011
Direct Costs of Common Stock Offerings

—

—

—

—

(5,396,139)

—

—

—

(5,396,139)
Shared Redeemed to Cover Employee Tax Withholdings

—

—

(83,164)

(83)

(1,144,283)

—

—

—

(1,144,366)
Preferred Stock Converted & Preferred Dividend Settlement

(49,626)

(50)

4,962,600

4,962

(10,004,912)

—

—

—

(10,000,000)
Net Loss (as Restated)

—

—

—

—

—

(9,151,370)

—

—

(9,151,370)
Balance - March 31, 2021 (as Restated)

—

$
—

62,142,940

$
62,142

$
316,208,276

$
(171,846,353)

—

$
—

$
144,424,065


	Common Stock			Additional		Accumulated		Treasury Stock
	Shares	Amount		Paid-In Capital		Deficit		Shares	Amount		Total
Balance - January 1, 2022	63,672,268	$	63,672	$	346,736,397	$	(203,072,143)	—	$	—	$	143,727,926
Stock-Based Compensation Expense	—		—		3,955,738		—	—		—		3,955,738
Stock Option Exercises	32,358		33		29,191		—	—		—		29,224
Purchases of Treasury Stock	—		—		—		—	(36,685)		(251,057)		(251,057)
Net Loss	—		—		—		(10,506,001)	—		—		(10,506,001)
Balance - March 31, 2022	63,704,626	$	63,705	$	350,721,326	$	(213,578,144)	(36,685)	$	(251,057)	$	136,955,830

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

Table of Contents

VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,				Three Months Ended March 31,
			(as Restated)
	2022		2021		2023		2022
Sales:
Sales of Products	$	2,503,051	$	3,805,170	$	4,191,361	$	2,503,051
Sales of Engineering Services		—		110,219

Total Sales		2,503,051		3,915,389

Cost of Sales:
Cost of Sales - Products Sold		1,863,697		2,819,971		3,082,439		1,803,598
Cost of Sales - Engineering Services		—		15,827
Cost of Sales - Depreciation and Amortization						232,916		223,785

Total Cost of Sales		1,863,697		2,835,798		3,315,355		2,027,383

Gross Profit (exclusive of depreciation shown separately below)		639,354		1,079,591
Gross Profit						876,006		475,668

Operating Expenses:
Research and Development		3,103,444		2,205,318		3,069,797		3,103,444
Selling and Marketing		2,023,435		1,303,430		2,539,659		2,023,435
General and Administrative		5,453,833		6,027,757		5,131,824		5,453,833
Depreciation and Amortization		422,931		517,412		964,265		259,245
Loss on Fixed Asset Disposal		—		83,908
Impairment of Patents and Trademarks		49,603		27,731		17,666		49,603

Total Operating Expenses		11,053,246		10,165,556		11,723,211		10,889,560

Loss From Operations		(10,413,892)		(9,085,965)		(10,847,205)		(10,413,892)

Other Income (Expense):
Investment Income		6,280		7,838		695,783		6,280
Income and Other Taxes		(47,632)		(19,725)		(87,795)		(47,632)
Foreign Exchange Loss		(50,757)		(53,518)		(1,366)		(50,757)

Total Other Expense, Net		(92,109)		(65,405)
Total Other Income (Expense), Net						606,622		(92,109)

Loss Before Provision for Income Taxes		(10,506,001)		(9,151,370)		(10,240,583)		(10,506,001)
Provision for Income Taxes		—		—		—		—

Net Loss		(10,506,001)		(9,151,370)		(10,240,583)		(10,506,001)

Basic and Diluted Loss per Common Share	$	(0.16)	$	(0.17)	$	(0.16)	$	(0.16)
Weighted-average Shares Outstanding - Basic and Diluted		63,695,127		54,141,761		63,216,598		63,695,127

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

Table of Contents

VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,				Three Months Ended March 31,
			(as Restated)
	2022		2021		2023		2022

Cash Flows from Operating Activities
Net Loss	$	(10,506,001)	$	(9,151,370)	$	(10,240,583)	$	(10,506,001)
Non-Cash Adjustments
Depreciation and Amortization		422,931		517,412		1,197,181		483,030
Amortization of Software Development Costs and Prepaid Licenses in Cost of Sales - Products		60,099		60,099
Stock-Based Compensation		4,319,748		4,618,213		3,667,509		4,319,748
Impairment of Patents and Trademarks		49,603		27,731		17,666		49,603
Loss on Fixed Asset Disposal		—		83,908
(Increase) Decrease in Operating Assets
Accounts Receivable		690,775		91,973		499,815		690,775
Revenues in Excess of Billings		—		(40,856)
Accrued Revenues in Excess of Billings						76,952		—
Inventories		(407,084)		(857,695)		406,290		(407,084)
Manufacturing Vendor Prepayments		(82,513)		(1,785,763)		524,636		(82,513)
Prepaid Expenses and Other Assets		213,394		142,685		218,520		213,394
Increase (Decrease) in Operating Liabilities
Accounts Payable		(831,021)		(191,028)		59,618		(831,021)
Accrued Expenses		(292,286)		646,048		(412,566)		(292,286)
Unearned Revenue		1,825		(17,698)		12,391		1,825
Income and Other Taxes		(74,549)		(65,288)
Income and Other Taxes Payable						(192,156)		(74,549)

Net Cash Flows Used in Operating Activities		(6,435,079)		(5,921,629)		(4,164,727)		(6,435,079)

Cash Flows from Investing Activities
Purchases of Fixed Assets		(57,758)		(314,981)		(2,284,968)		(57,758)
Investments in Patents and Trademarks		(34,469)		(135,674)		(182,628)		(34,469)
Investments in Licenses, Intangible and Other Assets		(125,000)		(200,000)
Investments in Licenses, Intangibles and Other Assets						(2,000,000)		(125,000)
Investments in Software Development						(125,000)		—
Investments in Other Assets						(100,000)		—

Net Cash Flows Used in Investing Activities		(217,227)		(650,655)		(4,692,596)		(217,227)

Cash Flows from Financing Activities
Proceeds from Exercise of Warrants		—		34,568,538		—		29,224
Proceeds from Exercise of Stock Options		29,224		196,828
Proceeds from Common Stock Offering, Net		—		79,603,872
Purchases of Treasury Stock		(251,057)		—		(470,757)		(251,057)
Preferred Dividend Settlement Payment		—		(10,000,000)
Employee Tax Withholdings Payment		—		(1,144,366)

Net Cash Flows (Used in) Provided from Financing Activities		(221,833)		103,224,872
Net Cash Flows Used in Financing Activities						(470,757)		(221,833)

Net (Decrease) Increase in Cash and Cash Equivalents		(6,874,139)		96,652,588
Net Decrease in Cash and Cash Equivalents						(9,328,080)		(6,874,139)
Cash and Cash Equivalents - Beginning of Period		120,203,873		36,069,508		72,563,943		120,203,873

Cash and Cash Equivalents - End of Period	$	113,329,734	$	132,722,096	$	63,235,863	$	113,329,734

Supplemental Disclosures
Unamortized Common Stock Expense included in Prepaid Expenses and Other Assets	$	1,001,232	$	160,222	$	1,061,885	$	1,001,232
Non-Cash Investment in Licenses						9,500,000		—
Stock-Based Compensation Expense - Expensed less Previously Issued		364,010		58,828		306,737		364,010

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

Table of Contents

VUZIX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements of Vuzix Corporation (“the Company” or “Vuzix”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, the unaudited consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Certain re-classifications ~~may~~ have been made to prior comparable periods to conform with current ~~reporting.~~reporting impacting Costs of Sales, Gross Profit and Depreciation and Amortization. The results of the Company’s operations for the three months ended March 31, ~~2022~~2023 are not necessarily indicative of the results of the Company’s operations for the full fiscal year or any other period.

The accompanying interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto of the Company as of and for the year ended December 31, ~~2021,~~2022, as reported in the Company’s Annual Report on Form 10-K filed with the SEC on March ~~2, 2022.~~1, 2023.

~~Restatement~~Reclassification of Prior Year Presentation

~~As described in additional detail in Note 14~~Certain prior year amounts have been reclassified for consistency with the current year’s presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the ~~financial statements~~Consolidated Statements of Operations for the three months ended March 31, 2022, to reclassify depreciation expense related to our manufacturing operations from the amounts of reported depreciation and amortization expenses originally included in ~~its 2021 Form 10-K, the Company restated its previous unaudited quarterly results~~Operating Expenses. This change in classification does not affect previously reported Net Loss or reported Cash Flows Used in Operating Activities in the ~~Form 10-K for the year ended December 31, 2021. Previously filed 2021 quarterly reports on Form 10-Q for the periods affected by the restatement were not amended. See Note 14,~~ ~~Long-Term Incentive Plan~~ ~~and Note 19,~~ ~~Quarterly Financial Information (Unaudited)~~Consolidated Statements of ~~the Notes to the consolidated financial statements in the 2021 Form 10-K for~~Cash Flows or Consolidated Balance Sheets. The below table is a summary of the impact of these ~~adjustments on each of the quarterly periods in fiscal year 2021.~~

~~The effect of these changes on non-cash stock-based compensation expense included in 2021 unaudited quarterly operating results was as follows:~~reclassifications:

		~~Q1-2021~~
~~Additional Paid-in Capital~~		~~Increase of $2,512,007~~
~~Research and Development Expense~~		~~Increase of $125,391~~
~~Sales and Marketing~~		~~Increase of $62,696~~
~~General and Administrative~~		~~Increase of $2,323,920~~
~~Net Loss~~		~~Increase of $2,512,007~~
~~Loss per Share~~		~~Increase of $0.05~~



	For the Three Months Ended March 31, 2022
Condensed Statement of Operations	As Previously Presented		Reclassification		Revised
Total Sales	$	2,503,051	$	—	$	2,503,051
Cost of Sales - Products Sold		1,863,697		(60,099)		1,803,598
Cost of Sales - Depreciation and Amortization		—		223,785		223,785
Gross Profit		639,354		163,686		475,668
Operating Expenses:
Research and Development		3,103,444				3,103,444
Selling and Marketing		2,023,435				2,023,435
General and Administrative		5,453,833				5,453,833
Depreciation and Amortization		422,931		(163,686)		259,245
Impairment of Patents and Trademarks		49,603				49,603
Total Operating Expenses		11,053,246		(163,686)		10,889,560
Loss From Operations		(10,413,892)		—		(10,413,892)
Total Other Expense, Net		(92,109)				(92,109)
Net Loss	$	(10,506,001)	$	—	$	(10,506,001)

Customer Concentrations

For the three months ended March 31, ~~2022, 1~~2023, one customer represented ~~11%~~74% of total product revenue. For the three months ended March 31, ~~2021, 1~~2022, one customer represented 11% of total product ~~revenue and 1 customer represented 100% of engineering services~~ revenue.

~~As of March 31, 2022, 3 customers represented 22%, 14% and 13% of accounts receivable. As of December 31, 2021, 3 customers represented 27%, 20% and 10% of accounts receivable.~~

Table of Contents

As of March 31, 2023, one customer represented 50% of accounts receivable. As of December 31, 2022, one customer represented 26% of accounts receivable.

Treasury Stock

Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains and losses on the subsequent ~~reissuance~~re-issuance of shares will be credited or charged to paid-in capital in excess of par value using the average-cost method.

Recent Accounting Pronouncements

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

Note 2 – Revenue Recognition and Contracts with Customers

Disaggregated Revenue

The Company’s total revenue was comprised of 2two major product lines: Smart Glasses Sales and Engineering Services. There were no Engineering Services revenue recorded in the three months ended March 31, 2023. The following table summarizes the revenue recognized by major product line:


	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2022		2021		2023		2022
Revenues
Smart Glasses Sales	$	2,503,051	$	3,805,170
Engineering Services		—		110,219
Products Sales					$	4,191,361	$	2,503,051

Total Revenue	$	2,503,051	$	3,915,389

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~~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.

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Our standard product sales include a twelve ~~(12)~~(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)~~(18) months to allow distribution channels to offer the end customer a full twelve ~~(12)~~(12) months of coverage. We offer extended warranties to customers, which extend the standard product warranty on product sales for an additional twelve ~~(12)~~(12) month period. All revenue related to extended product warranty sales is deferred and recognized over the extended warranty period. Our engineering services contracts vary from contract to contract but typically include payment terms of Net 30 days from the date of billing, subject to an agreed upon customer acceptance period.

The following table presents a summary of the Company’s sales by revenue recognition method as a percentage of total net sales for the three months ended March ~~31, 2022:~~31:


	% of Total Net Sales				% of Total Net Sales
	2022		2021		2023		2022
Point-in-Time	100	%	97	%	100	%	100	%
Over Time – Input Method	-	%	3	%

Total	100	%	100	%

Remaining Performance Obligations

As of March 31, ~~2022,~~2023, the Company had ~~0 outstanding~~approximately $165,000 of remaining performance obligations ~~for its engineering services and~~under a current waveguide development ~~projects. In addition,~~project, which represents the remainder of the total transaction price of approximately $800,000 under this development agreement, which commenced in 2022, less revenue recognized under percentage of completion to date. The Company expects to recognize the remaining revenue related to this project in the second quarter of 2023. Revenues earned less amounts invoiced at March 31, 2023 in the amount of $192,177 are reflected as Accrued Revenues in Excess of Billings in the accompanying Consolidated Balance Sheet.

The Company had no material outstanding performance obligations related to product sales, other than its standard product warranty.

Note 3 – Loss Per Share

Basic loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution from the assumed exercise of stock ~~options and warrants, and the conversion of convertible preferred shares.~~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 months ended March 31, ~~2022~~2023 and ~~2021,~~2022, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. At March 31, ~~2022~~2023 and ~~2021,~~2022, there were ~~8,611,365~~8,603,308 and ~~8,983,727~~8,611,365 common stock share equivalents, respectively, potentially exercisable or issuable under conversion or exercise of stock options that could dilute basic earnings per share in the future.

Note 4 – Inventories, Net

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

March 31,

December 31,

2022

2021

Purchased Parts and Components

$
11,461,309

$
11,580,766
Work-in-Process

265,757

226,126
Finished Goods

1,959,141

1,472,534
Less: Reserve for Obsolescence

(1,127,141)

(1,127,444)

Inventories, Net

$
12,559,066

$
12,151,982


	March 31,		December 31,
	2023		2022

Purchased Parts and Components	$	10,018,357	$	10,399,527
Work-in-Process		358,857		344,242
Finished Goods		2,255,516		1,941,689
Less: Reserve for Obsolescence		(1,771,051)		(1,417,489)

Inventories, Net	$	10,861,679	$	11,267,969

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Note 5 – ~~Licenses, Net~~Fixed Assets

Fixed Assets consisted of the following:


	March 31,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Tooling and Manufacturing Equipment					$	8,050,657	$	6,065,445
Leaseholds						1,366,128		826,329
Computers and Purchased Software						765,237		760,256
Furniture and Equipment						2,505,091		2,487,650
						12,687,113		10,139,680
Licenses	$	2,443,356	$	1,038,606
Additions		—		1,404,750
Less: Accumulated Amortization		(1,110,120)		(1,053,420)
Licenses, Net	$	1,333,236	$	1,389,936
Less: Accumulated Depreciation						(6,547,174)		(6,261,175)
Fixed Assets, Net					$	6,139,939	$	3,878,505

~~The~~During the three months ended March 31, 2023, the Company ~~acquired 2 licenses~~invested approximately $2,200,000 in ~~2017. The first related~~tooling and manufacturing equipment and leasehold improvements, as part of the Company’s new waveguide expansion project. Construction on the Company’s new facility began late in December 2022 and is expected to ~~the renegotiation of an existing license at a cost of $114,967, which resulted in lower royalty rates being paid~~be completed by the ~~Company over the next~~ ~~ten years. This license went into effect as~~end 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 areMay 2023.

Total depreciation expense for fixed assets, not included in ~~Patents and Trademarks. The Company also issued 25,000 shares~~Cost 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 commercializedSales, 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~~three months ended March 31, 2023 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 research2022 was $102,451 and ~~development work relating to such underlying technology.~~$117,087, respectively.

Note 6 – ~~Intangible Asset,~~Technology Licenses, Net


	March 31,		December 31,		March 31,		December 31,
	2022		2021		2023		2022

Intangible Asset	$	1,500,000	$	1,500,000
Licenses					$	32,443,356	$	2,443,356
Additions						—		30,000,000
Less: Accumulated Amortization		(1,457,179)		(1,352,452)		(3,111,551)		(2,284,667)

Intangible Asset, Net	$	42,821	$	147,548
Licenses, Net					$	29,331,805	$	30,158,689

~~On October 4, 2018, the Company entered into amendment No. 1~~Total amortization expense related 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 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~~technology licenses for the three months ended March 31, 2023 and 2022 was $826,884 and ~~2021 was $25,794 and $52,655. All commissions expense related to this agreement is included in Selling and Marketing expense.~~$56,700, respectively.

Total amortization expense for this intangible asset for the three months ended March 31, 2022 and 2021 was $104,727 and $104,727, respectively. $42,821 of remaining amortization expense will be recognized in the second quarter of 2022, as the non-compete agreement with TDG expires on June 15, 2022.

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Note 7 - Other Assets


	March 31,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Private Corporation Investments (at cost)	$	450,000	$	450,000
Private Corporation Investments					$	450,000	$	450,000
Additions						100,000		—
Total Private Corporation Investments (at cost)						550,000		450,000

Software Development Costs		750,000		500,000		875,000		750,000
Additions		125,000		250,000		125,000		125,000
Less: Accumulated Amortization		(250,000)		(208,334)		(430,556)		(375,000)
Software Development Costs, Net		625,000		541,666		569,444		500,000

Unamortized Common Stock Expense included in Long-Term Prepaid Expenses		370,897		491,923		596,552		631,143

Total Other Assets	$	1,445,897	$	1,483,589	$	1,715,996	$	1,581,143

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In 2021, the Company acquired, for a purchase price of $200,000, an ownership interest of 3%, in the form of preferred stock, in a private corporation developing smart glasses software for use by retailers in the stock keeping of inventory, amongst other uses. In the three months ended March 31, 2023, the Company purchased an additional $100,000 of preferred stock in this corporation through a subsequent round of funding in order to retain 2% ownership interest.

During 2020, the Company invested $500,000 in Android operating systems upgrades for its CPU platform used onin its M400 and M4000 products. This upgrade was finished and placed into service in the beginning of the fourth quarter of 2020. This capitalized asset is being amortized on a straight-line basis over its expected product life cycle of 36thirty-six (36) months, which began on October 1, 2020. In October 2021, the Company invested $250,000 and in the first quarter of 2022 the Company invested an additional $125,000 for further Android operating systems version upgrades to the CPU platform it uses onin its M400 and M4000 products. ~~This development work has not yet been completed and will ultimately be amortized once~~In the three months ended March 31, 2023, a final investment of $125,000 was made to these system upgrades, which were placed into service ~~which~~during the ~~Company expects~~quarter. These additional upgrades of $500,000 are being amortized on a straight-line base over thirty-six (36) months.

Total amortization expense related to ~~occur by early 2023.~~all software updates for the three months ended March 31, 2023 and 2022 were $55,556 and $41,666, respectively.

Note 8 – Accrued Expenses

Accrued expenses consisted of the following:


	March 31,		December 31,		March 31,		December 31,
	2022		2021		2023		2022

Accrued Wages and Related Costs	$	484,980	$	683,044	$	580,002	$	843,537
Accrued Professional Services		318,231		551,220		189,760		263,800
Accrued Warranty Obligations		156,192		185,044		194,427		159,927
Other Accrued Expenses		167,618		—		502,025		403,275

Total	$	1,127,021	$	1,419,308	$	1,466,214	$	1,670,539

The Company has warranty obligations in connection with the sale of certain of its products. The warranty period for its products is generally twelve (12) months. The costs incurred to provide for these warranty obligations are estimated and recorded as an accrued expense at the time of sale. The Company estimates its future warranty costs based upon product-based historical performance rates and related costs to repair. Included in Other Accrued Expenses is $435,000 for external development work related to our waveguide development projects which was completed through March 31, 2023 but not yet invoiced.

The changes in the Company’s accrued warranty obligations for the three months ended March 31, ~~2022 and the balance as of December 31, 2021~~2023 were as follows:


Accrued Warranty Obligations at December 31, 2021	$	185,044
Accrued Warranty Obligations at December 31, 2022			$	159,927
Reductions for Settling Warranties		(103,943)		(91,241)
Warranties Issued During Year		75,091		125,741

Accrued Warranty Obligations at March 31, 2022	$	156,192
Accrued Warranty Obligations at March 31, 2023			$	194,427

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Note 9 – Income Taxes

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

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Note 10 – Capital Stock

Preferred stock

The Board of Directors is authorized to establish and designate different series of preferred stock and to fix and determine their voting powers and other rights and terms. A total of 5,000,000 shares of preferred stock with a par value of $0.001 are authorized as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022. Of this total, 49,626 shares are designated as Series A Preferred Stock. There were ~~NaN~~nil shares of Series A Preferred Stock issued and outstanding on March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Common Stock

The Company’s authorized common stock consists of 100,000,000 shares, par value of $0.001. There were ~~63,704,626~~63,787,858 shares issued and ~~63,667,941~~63,208,186 shares outstanding as of March 31, ~~2022~~2023 and ~~63,672,268~~63,783,779 shares issued and 63,319,107 shares outstanding as of December 31, ~~2021.~~2022.

Treasury Stock

On March 2, 2022, our Board of Directors approved the repurchase by the Company of up to an aggregate of $25 million of our common stock by open market or privately negotiated transactions under the Share Buyback Program. This program iswas in effect for one year ~~does not obligate the Company to acquire any particular amount of common stock~~ and ~~may be suspended or discontinued at any time at the Company’s sole discretion.~~expired on March 2, 2023. During the three months ended March 31, ~~2022,~~2023, the Company repurchased ~~36,685~~115,000 shares of our common stock at an average cost of ~~$6.84.~~$4.06, before commission of $0.03 per share. As of March 31, ~~2022, 36,685~~2023, 579,672 shares of our common stock were held in treasury.

Note 11 – Stock-Based Compensation

A summary of stock option activity related to the Company’s standard employee incentive plan ~~excluding~~(excluding options awarded under the Long-Term Incentive Plan (LTIP), – Note 12) for the three months ended March 31, ~~2022~~2023 is as follows:


		Weighted			Weighted		Average
	Number of	Average		Number of	Average		Remaining Life
	Options	Exercise Price		Options	Exercise Price		(years)
Outstanding at December 31, 2021	2,823,634	$	7.67
Outstanding at December 31, 2022				2,805,673	$	7.80	7.28
Granted	98,500		5.78	25,000		3.64
Exercised	(43,040)		3.94	(2,512)		1.33
Expired or Forfeited	(51,729)		8.60	(8,853)		15.23

Outstanding at March 31, 2022	2,827,365	$	7.74
Outstanding at March 31, 2023				2,819,308	$	7.74	7.07

The weighted average remaining contractual term for all options as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~7.74~~7.07 years and ~~7.95~~7.28 years, respectively.

As of March 31, ~~2022,~~2023, there were ~~1,183,727~~1,642,429 options that were fully-vested and exercisable at a weighted average exercise price of ~~$6.04~~$6.94 per share. The weighted average remaining contractual term of the vested options is ~~6.6~~6.2 years.

As of March 31, ~~2022,~~2023, there were ~~1,643,638~~1,176,879 unvested options exercisable at a weighted average exercise price of ~~$9.83~~$8.84 per share. The weighted average remaining contractual term of the unvested options is ~~8.6~~8.3 years.

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The weighted average fair value of option grants was calculated using the Black-Scholes-Merton option pricing method. AtAs of March 31, ~~2022,~~2023, the Company had ~~$8,353,781~~$7,393,432 of unrecognized stock compensation expense, which will be recognized over a weighted average period of ~~3.0~~2.3 years.

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For the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, the Company recorded total stock-based compensation expense, including stock awards but excluding awards under the Company’s LTIP, of ~~$1,350,610~~$1,129,566 and ~~$456,745,~~$1,350,610, respectively.

Note 12 – Long-Term Incentive Plan

On March 17, 2021, the Company granted options to purchase a total of 5,784,000 shares of common stock to its officers and certain other members of its management team. The options were granted under the Company’s existing 2014 Incentive Stock Plan. The options have an exercise price of $19.00, with 375,000 options vesting immediately and the remaining portion vesting upon the achievement of certain equity market capitalization milestones, and revenue and EBITDA operational milestones. For the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, the Company recorded non-cash stock-based compensation expense of ~~$2,969,138~~$2,537,944 and ~~$4,161,468,~~$2,969,138, respectively, for options that vested or are probable to vest. These expenses are presented in the same financial statement line items in the Statements of Operations as the cash-based compensation expenses for the same employees.

The fair value of option grants was calculated using a Monte Carlo simulation onfor the equity market capitalization tranches and the Black-Scholes-Merton option pricing method onfor the operational milestone tranches. As of March 31, ~~2022,~~2023, we had ~~$25,371,320~~$14,671,988 of total unrecognized stock-based compensation expense for the portion of options tied to equity market capitalization milestones and the portion of options tied to operational milestones that were considered probable of achievement, all of which will be recognized over a service period of up to ~~six~~three to four years. The probabilities of the milestone achievements are subject to ~~catch-adjustments~~catch-up adjustments in each instance where an equity market capitalization milestone is achieved or when an operational milestone becomes probable to be achieved or is achieved. Compensation costs could be reversed in subsequent periods if an awardee leaves the Company prior to the expiration of the option life for market capitalization milestone or ~~the~~ performance ~~awards are~~award vesting of a performance award no longer determined to be probable. If such milestones are achieved earlier in their expected service periods, the remaining unrecognized compensation expense related to that particular milestone would be accelerated and recognized in full during the period where that achievement is affirmed by the Board of Directors. As of ~~March~~December 31, 2022, and going forward, should all of the operational milestones which are currently not yet deemed probable of achievement become probable of achievement or are achieved, then the Company could ultimately recognize up to an additional $34.1 million in non-cash stock-based compensation expense at such time.

The unvested remaining equity market ~~capitalization~~ and operational milestones under the LTIP with their total related option grants and criteria achievement weightings of the options available for meeting a target are shown in the following table. Of the total 5,409,000 unvested options outstanding as of March 31, ~~2022 and December 31, 2021,~~2023, there are 2,704,500 options unvested for the achievement of ~~equity market capitalization~~Equity Market Capitalization targets, 1,893,150 unvested options for the achievement of annual Revenue targets, and 811,350 unvested options for the achievement of annual EBITDA Margins Before Non-Cash Charges targets.


Award Potential	Criteria Achievement Weighting
	50% of Options Available	35% of Options Available	15% of Options Available
Options Available (Subject to Vesting)	Equity Market Capitalization Target	Last Twelve Months Revenue Target	Last Twelve Months EBITDA Margin before Non-Cash Charges Target


686,000	$ 2,000,000,000	$ 25,000,000	0.0%
686,000	3,000,000,000	50,000,000	2.0%
686,000	4,000,000,000	100,000,000	4.0%
686,000	5,000,000,000	200,000,000	6.0%
586,000	6,000,000,000	300,000,000	8.0%
586,000	7,000,000,000	450,000,000	10.0%
561,000	8,000,000,000	675,000,000	12.0%
491,000	9,000,000,000	1,000,000,000	14.0%
441,000	10,000,000,000	1,500,000,000	16.0%
5,409,000

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~~for the achievement of annual revenue targets, and 811,350 unvested options for the achievement of annual EBITDA margins before non-cash charges targets.~~

Award Potential
Criteria Achievement Weighting

50% of Options Available
35% of Options Available
15% of Options Available
Options Available
(Subject to Vesting)
Equity Market
Capitalization
Target
Last Twelve Months Revenue
Target
Last Twelve Months EBITDA
Margin before
Non-Cash
Charges Target

686,000
$ 2,000,000,000
$ 25,000,000
0.0%
686,000
3,000,000,000
50,000,000
2.0%
686,000
4,000,000,000
100,000,000
4.0%
686,000
5,000,000,000
200,000,000
6.0%
586,000
6,000,000,000
300,000,000
8.0%
586,000
7,000,000,000
450,000,000
10.0%
561,000
8,000,000,000
675,000,000
12.0%
491,000
9,000,000,000
1,000,000,000
14.0%
441,000
10,000,000,000
1,500,000,000
16.0%
5,409,000

Note 13 – Litigation

We are not currently involved in any actual or pending legal ~~proceeding~~proceedings or litigation that we consider to be material, and we are not aware of any such material proceedings contemplated by or against us or involving our property.

Note 14 – Right-of-Use Assets and Liabilities

Future lease payments under operating leases as of March 31, ~~2022~~2023 were as follows:


2022	$	417,750
2023		546,916	$	523,238
2024		45,576		191,120
2025				132,982
Total Future Lease Payments		1,010,242		847,340
Less: Imputed Interest		(41,973)		(55,736)
Total Lease Liability Balance	$	968,269	$	791,604

Operating lease costs under the operating leases totaled ~~$162,365~~$203,339 and ~~$124,215~~$162,365 for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

As of March 31, ~~2022,~~2023, the weighted average discount rate was ~~4.5%~~7.1% and the weighted average remaining lease term was ~~1.8~~1.7 years.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of financial condition and results of operations in conjunction with the financial statements and related notes appearing elsewhere in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

As used in this report, unless otherwise indicated, the terms “Company,” “Vuzix”, “management,” “we,” “our,” and “us” refer to Vuzix Corporation.

Critical Accounting Policies and Significant Developments and Estimates

The discussion and analysis of our financial condition and results of operations is based onupon our unaudited consolidated financial statements and related notes appearing elsewhere in this quarterly report. The preparation of these

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statements in conformity with GAAP requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements, including the statement of operations, balance sheet, cash flow and related notes. We continually evaluate our estimates used in the preparation of our financial statements, including those related to revenue recognition, bad debts, inventories, warranty reserves, product warranty, carrying value of long-lived assets, fair value measurement of financial instruments, valuation of stock compensation awards, achievement of equity market capitalization and probability of operational milestones being achieved under our LTIP, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not apparent from other sources. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements.

We believe that our application of accounting policies, and the estimates inherently required therein, are reasonable. We periodically re-evaluate these accounting policies and estimates and make adjustments when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using such necessary estimates.

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Management believes certain factors and trends are important in understanding our financial performance. The critical accounting policies, judgments and estimates that we believe have the most significant effect on our consolidated financial statements are:

●

Valuation of inventories;

●

Variable Interest Entities;

●

Business combinations;

●

Carrying value of long-lived assets;

●

Software development costs;

●

Revenue recognition;

●

Product warranty;

●

Stock-based compensation; and

●

Income taxes.

Our accounting policies are more fully described in the notes to our consolidated financial statements included in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no significant changes in our accounting policies for the three months ended March 31, ~~2022.~~2023.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.

Business Matters

We are engaged in the design, manufacture, marketing and sale of wearable computing devices and augmented reality wearable display devices, also referred to as head mounted displays (or HMDs), heads-up displays (HUDs) or near-eye displays, in the form of Smart Glasses and Augmented Reality (AR) glasses. Our wearable display devices are worn like eyeglasses or attach to a head-worn mount. These devices typically include cameras, sensors, and a computer that enable the user to view, record and interact with video and digital content, such as computer data, the ~~Internet,~~internet, social media or entertainment applications. Our wearable display products integrate display technology with our advanced optics to produce compact high-resolution display engines, less than half an inch diagonally, which when viewed

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through our Smart Glasses products create virtual images that appear comparable in size to that of a computer monitor or a large-screen television.

With respect to our Smart Glasses and AR products, we are focused on the enterprise, industrial, commercial, security, first responder, medical, ~~markets,~~ and ~~to a lesser degree,~~ defense markets. We also provide custom solutions and engineering services to third parties, including OEMs, of waveguides to enable ~~fully integrated~~fully-integrated wearable display systems, including HMDs to commercial, industrial and defense customers. We do not offer ~~“work for hire”~~“work-for-hire” services per se but rather offer our engineering services for projects that we expect could result in advancing our technology and potentially lead to long-term supply or OEM relationships.

All of the mobile displays and wearable and mobile electronics markets in which we compete, including mobile and wearable displays and electronics, have been and continue to be subject to consistent and rapid technological change, with ever greater capabilities and performance, including mobile devices with larger screen sizes and improved display resolutions as well as, in many cases, ~~declining prices on~~reductions in pricing for mobile devices. As a result, we must continue to

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improve our products’ performance and lower our costs. We believe our intellectual property portfolio gives us a leadership position in the design and manufacturing of micro-display projection engines, waveguides, mechanical packaging, ergonomics, and optical systems.

Recent Accounting Pronouncements

See Note 1 to the ~~consolidated financial statements.~~Unaudited Consolidated Financial Statements.

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Results of Operations

Comparison of Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022

The following table compares the Company’s consolidated statements of operations data for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


	Three Months Ended March 31,										Three Months Ended March 31,
							Dollar		% Increase								Dollar		% Increase
	2022			2021			Change		(Decrease)		2023			2022			Change		(Decrease)
					(as Restated)
Sales:
Sales of Products	$	2,503,051		$	3,805,170		$	(1,302,119)	(34)	%	$	4,191,361		$	2,503,051		$	1,688,310	67	%
Sales of Engineering Services		—			110,219			(110,219)	(100)	%

Total Sales		2,503,051			3,915,389			(1,412,338)	(36)	%

Cost of Sales:
Cost of Sales - Products Sold		1,863,697			2,819,971			(956,274)	(34)	%
Cost of Sales - Engineering Services		—			15,827			(15,827)	(100)	%
Cost of Sales - Products												3,082,439			1,803,598			1,278,841	71	%
Cost of Sales - Depreciation and Amortization												232,916			223,785			9,131	4	%

Total Cost of Sales		1,863,697			2,835,798			(972,101)	(34)	%		3,315,355			2,027,383			1,287,972	64	%

Gross Profit (exclusive of depreciation shown separately below)		639,354			1,079,591			(440,237)	(41)	%
Gross Profit												876,006			475,668			400,338	84	%
Gross Profit %		26	%		28	%						21	%		19	%

Operating Expenses:
Research and Development		3,103,444			2,205,318			898,126	41	%		3,069,797			3,103,444			(33,647)	(1)	%
Selling and Marketing		2,023,435			1,303,430			720,005	55	%		2,539,659			2,023,435			516,224	26	%
General and Administrative		5,453,833			6,027,757			(573,924)	(10)	%		5,131,824			5,453,833			(322,009)	(6)	%
Depreciation and Amortization		422,931			517,412			(94,481)	(18)	%		964,265			259,245			705,020	272	%
Impairment of Patents and Trademarks		49,603			27,731			21,872	79	%		17,666			49,603			(31,937)	(64)	%
Loss on Fixed Asset Disposal		—			83,908			(83,908)	(100)	%

Loss from Operations		(10,413,892)			(9,085,965)			(1,327,927)	15	%		(10,847,205)			(10,413,892)			(433,313)	4	%

Other Income (Expense):
Investment Income		6,280			7,838			(1,558)	(20)	%		695,783			6,280			689,503	10,979	%
Income and Other Taxes		(47,632)			(19,725)			(27,907)	141	%		(87,795)			(47,632)			(40,163)	84	%
Foreign Exchange Loss		(50,757)			(53,518)			2,761	(5)	%		(1,366)			(50,757)			49,391	(97)	%

Total Other Expense, Net		(92,109)			(65,405)			(26,704)	41	%
Total Other Income (Expense), Net												606,622			(92,109)			698,731	(759)	%

Loss Before Provision for Income Taxes												(10,240,583)			(10,506,001)			265,418	(3)	%
Provision for Income Taxes												—			—			—	—	%

Net Loss	$	(10,506,001)		$	(9,151,370)		$	(1,354,631)	15	%	$	(10,240,583)		$	(10,506,001)		$	265,418	(3)	%

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Sales. There was ~~a decrease~~an increase in total sales for the three months ended March 31, ~~2022~~2023 compared to the same period in ~~2021~~2022 of ~~$1,412,338~~$1,688,310, or ~~36%~~67%. The following table reflects the major components of our sales:

Three Months Ended

% of

Three Months Ended

% of

Dollar

% Increase


March 31, 2022

Total Sales

March 31, 2021

Total Sales

Change

(Decrease)

Sales of Smart Glasses

$
2,379,398

95
%
$
3,772,481

96
%
$
(1,393,083)

(37)
%
Sales of Waveguides & Display Engines

108,250

4
%

—

—
%

108,250

N/M

Sales Freight out

15,403

1
%

32,689

1
%

(17,286)

(53)
%
Sales of Engineering Services

—

—
%

110,219

3
%

(110,219)

(100)
%
Total Sales

$
2,503,051

100
%
$
3,915,389

100
%
$
(1,412,338)

(36)
%


	Three Months Ended		% of		Three Months Ended		% of		Dollar		% Increase
	March 31, 2023		Total Sales		March 31, 2022		Total Sales		Change		(Decrease)
Sales of Products	$	4,191,361	100	%		2,503,051	100	%	$	1,688,310	67	%

Sales of ~~Smart Glasses~~ products ~~decreased~~increased by ~~37% or $1,393,083 in the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Historically, product revenues in the 1~~^st quarter of each fiscal year have been noticeably lower than that of the previous three quarters in the prior fiscal year. Product revenues of $2,503,051 in the first quarter of 2022 were significantly higher than comparable periods, with the exception of 2021, which reflected abnormally higher growth over most first quarter comparable periods.

~~Sales of engineering services~~67% for the three months ended March 31, ~~2022 were nil~~2023 compared to the same period in 2022. Smart glasses revenue was the primary driver of this increase, as unit sales of our M400 product increased significantly, partially offset by higher average sales discounts due to larger volume reseller sales, as compared to ~~$110,219~~that during the same period in 2022.

There were no engineering services revenue for the ~~2021 period.~~three months ended March 31, 2023 and 2022.

Cost of Sales and Gross Profit. Cost of product ~~sales~~revenues and engineering services are comprised of materials, components, labor, warranty costs, freight costs, manufacturing overhead, software royalties, ~~and~~ the non-cash depreciation for our tooling and manufacturing equipment, and amortization of software development costs related to the production of our products and rendering of engineering services. The following table reflects the components of our cost of goods ~~sold for products:~~sold:

Three Months Ended

As % Related

Three Months Ended

As % Related

Dollar

% Increase


March 31, 2022

Product Sales

March 31, 2021

Product Sales

Change

(Decrease)

Product Cost of Sales

$
1,215,736

49
%
$
1,998,514

53
%
$
(782,778)

(39)
%
Freight Costs

208,280

8
%

190,345

5
%

17,935

9
%
Manufacturing Overhead

396,853

16
%

546,673

14
%

(149,820)

(27)
%
Warranty Costs

(28,852)

(1)
%

(32,848)

(1)
%

3,996

(12)
%
Amortization of Software Development Costs

65,880

3
%

64,999

2
%

881

1
%
Software Royalties

5,800

0
%

52,288

1
%

(46,488)

(89)
%

Total Cost of Sales - Products

1,863,697

74
%

2,819,971

74
%

(956,274)

(34)
%

Gross Profit - Product Sales

$
639,354

26
%
$
985,199

26
%
$
(345,845)

(35)
%


	Three Months Ended		As % Related		Three Months Ended		As % Related		Dollar		% Increase
	March 31, 2023		Total Sales		March 31, 2022		Total Sales		Change		(Decrease)
Product Cost of Sales		2,546,951	61	%	$	1,406,745	56	%	$	1,140,206	81	%
Manufacturing Overhead - Unapplied		535,488	13	%		396,853	16	%		138,635	35	%
Depreciation and Amortization		232,916	6	%		223,785	9	%		9,131	4	%

Total Cost of Sales	$	3,315,355	79	%	$	2,027,383	81	%	$	1,287,972	64	%

Gross Profit	$	876,006	21	%	$	475,668	19	%	$	400,338	84	%

For the three months ended March 31, ~~2022, we reported an overall~~2023, gross profit from ~~product~~total sales ~~of $639,354~~was $876,006 or ~~26%~~21% as compared to ~~$985,199~~$475,668 or ~~26%~~19% in the same period in ~~2021. On a product cost of sales basis only, product direct costs were 49% of sales in the 2022 period as compared to 53% in 2021.~~2022.

Manufacturing overhead costs, ~~while decreasing~~not already added in Cost of Sales, increased by ~~$149,820~~$138,635 or ~~27%~~35% for the three months ended March 31, ~~2022~~2023 over the ~~2021~~2022 comparable period, ~~increased to 16%~~however, such costs decreased as a percentage of total ~~product~~ sales to 13% as compared to ~~14%~~16% in ~~2021.~~2022. The ~~decrease~~increase in the net dollar amount of these unapplied overhead costs in the current period versus the prior period iswas primarily driven by lower than planned production output due to ~~more absorption of fixed costs being allocated to inventory as a result of~~some supply chain issues, which have improved ~~efficiencies~~significantly in ~~our manufacturing processes.~~the second quarter.

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Costs for engineering services for the three months ended March 31, 2022 were nil as compared to $15,827 in 2021. There was no gross profit from engineering services for the three months ended March 31, 2022 versus $94,392 in the same period in 2021.

Research and Development. Our research and development expenses consist primarily of compensation costs for personnel, ~~related~~including non-cash stock-based compensation expenses, third-party services, purchase of research supplies and materials, and consulting fees related to research and development. Software development expenses to determine technical feasibility before final development and ongoing maintenance are not capitalized and are included in research and development ~~costs.~~expenses.


					(as Restated)
	Three Months Ended		% of		Three Months Ended		% of		Dollar		% Increase		Three Months Ended		% of		Three Months Ended		% of		Dollar		% Increase
	March 31, 2022		Total Sales		March 31, 2021		Total Sales		Change		(Decrease)		March 31, 2023		Total Sales		March 31, 2022		Total Sales		Change		(Decrease)
Research and Development	$	3,103,444	124	%	$	2,205,318	56	%	$	898,126	41	%	$	3,069,797	73	%	$	3,103,444	124	%	$	(33,647)	(1)	%

Research and development expenses for the three months ended March 31, ~~2022 increased~~2023 decreased by ~~$898,126,~~$33,647 or ~~41%~~1%, as compared to the same period in ~~2021.~~2022. This ~~increase~~decrease was largely due to a decline of $61,300 in recruitment and hiring expenses, mostly offset by an increase of ~~$435,356~~$52,243 in external development expenses and consultants related to our Next Generation Smart Glasses (Shield); a $358,797 increase in salary and benefits expenses, of which $137,399 was related to non-cash stock-based compensation; and an increase of $52,167 in recruitment and hiring fees.new products.

Selling and Marketing. Selling and marketing expenses consist of trade show costs, advertising, sales samples, travel costs, sales staff compensation costs including non-cash stock-based compensation expense, consulting fees, public relations agency fees, website costs and sales commissions paid to full-time staff and outside consultants.


					(as Restated)
	Three Months Ended		% of		Three Months Ended		% of		Dollar		% Increase		Three Months Ended		% of		Three Months Ended		% of		Dollar		% Increase
	March 31, 2022		Total Sales		March 31, 2021		Total Sales		Change		(Decrease)		March 31, 2023		Total Sales		March 31, 2022		Total Sales		Change		(Decrease)
Selling and Marketing	$	2,023,435	81	%	$	1,303,430	33	%	$	720,005	55	%	$	2,539,659	61	%	$	2,023,435	81	%	$	516,224	26	%

Selling and marketing expenses for the three months ended March 31, ~~2022~~2023 increased by ~~$720,005~~$516,224 or ~~55%~~26%, as compared to the same period in ~~2021.~~2022. This increase was largely due to a ~~$470,857~~$541,848 increase in salary and salary benefits related ~~expense, of which $93,631 was related to non-cash stock-based compensation;~~expenses, driven by headcount increase; and an increase of $278,897 in trade show expenses, which was a direct result of attending tradeshows post COVID-19 lockdowns that had benn enforced in 2021; a $100,455 increase in advertising costs; an increase of $27,292$92,193 in travel related expenses; partially offset by ~~decreases~~a decrease of ~~$141,829~~$52,780 in commissions; a decrease of $33,544 in advertising and tradeshow expenses; a decrease of $31,363 in website development and maintenance ~~costs~~costs; and ~~$30,987~~a decrease of $27,763 in ~~commissions largely due to a reduction in commissions payable to TDG (as described in Note 6 of the financial statements) for defense related engineering services.~~sales consulting fees.

General and Administrative. General and administrative expenses include professional fees, investor relations (IR) costs, salaries and related non-cash stock-based compensation, travel costs, office and rental costs.


					(as Restated)
	Three Months Ended		% of		Three Months Ended		% of		Dollar		% Increase		Three Months Ended		% of		Three Months Ended		% of		Dollar		% Increase
	March 31, 2022		Total Sales		March 31, 2021		Total Sales		Change		(Decrease)		March 31, 2023		Total Sales		March 31, 2022		Total Sales		Change		(Decrease)
General and Administrative	$	5,453,833	218	%	$	6,027,757	154	%	$	(573,924)	(10)	%	$	5,131,824	122	%	$	5,453,833	218	%	$	(322,009)	(6)	%

General and administrative expenses for the three months ended March 31, ~~2022~~2023 decreased by ~~$573,924~~$322,009 or ~~10%~~6%, as compared to the same period in ~~2021.~~2022. This decrease was largely due to a ~~$594,460~~ decrease of $562,119 in salary and salary benefits related expenses, ~~related~~which was primarily todriven by a decrease in non-cash stock-based compensation ~~which was significantly higher the first quarter of 2021 due~~related to the ~~vesting of equity market capitalization milestones under the~~Company’s LTIP; a decrease of ~~$101,388~~$64,617 in ~~shareholder related expenses, a $70,111 decrease in recruitment~~accounting and ~~hiring~~tax services expenses; ~~a $31,770 decrease in regulatory filings fees;~~ and a ~~$30,384~~$37,082 decrease in legal expenses; partially offset by ~~increases~~an increase of ~~$177,159~~$198,767 in ~~audit~~shareholder and ~~tax advisory fees~~IR related expenses; a $84,575 increase in consulting fees; and ~~$118,297~~a $36,647 increase in insurance premiums.

Depreciation and Amortization. Depreciation and amortization expense, not included in Cost of Sales, for the three months ended March 31, 2023 was $964,265, as compared to $259,245 in the same period in 2022, an increase of $705,020 The increase in depreciation and amortization expense is primarily due to the amortization of our technology license related to the Atomistic Agreements, which began on May 12, 2022.

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~~Depreciation and Amortization.~~ Other Income (Expense), Net ~~Depreciation and amortization expense~~. Total other income was $606,622 for the three months ended March 31, ~~2022 was $422,931~~2023, as compared to ~~$517,412~~other expense of $92,109 in the same period in ~~2021, a decrease of $94,481. The decrease in depreciation expense is primarily due to certain fixed assets related to machinery and tooling that became fully depreciated in 2021.~~

~~Other Expense~~~~. Total other expense was $92,109 for the three months ended March 31,~~ 2022, ~~as compared to $65,405 in the same period in 2021,~~ an increase of ~~$26,704.~~$698,731. The overall increase in other ~~expenses~~income was primarily the result of an increase of ~~$27,907~~$689,503 in investment income resulting from the recent rise in interest rates earned on the Company’s excess cash period over period; and a decrease in foreign exchange losses of $49,391; partially offset by an increase of $40,163 in income and other taxes.

Provision for Income Taxes. There was not a provision for income taxes in the respective three month periods ending March 31, ~~2022~~2023 and ~~2021.~~2022.

Liquidity and Capital Resources

Capital Resources: As of March 31, ~~2022,~~2023, we had cash and cash equivalents of ~~$113,329,734,~~$63,235,863, a decrease of ~~$6,874,139~~$9,328,080 from ~~$120,203,873~~$72,563,943 as of December 31, ~~2021.~~2022.

As of March 31, ~~2022,~~2023, we had current assets of ~~$129,497,433~~$79,910,801 as compared to current liabilities of ~~$2,940,319~~$12,864,249 which resulted in a positive working capital position of ~~$126,557,114.~~$67,046,552. As of December 31, ~~2021,~~2022, we had a working capital position of ~~$132,993,899.~~$75,963,883. Our current liabilities are comprised principally of accounts payable, accrued expenses, licensing fee commitments, and operating lease right-of-use liabilities.

Summary of Cash Flow:

The following table summarizes our select cash flows for the three months ended:

	March 31,		March 31,		March 31,		March 31,
	2022		2021		2023		2022
Net Cash Provided by (used in)
Net Loss less Non-Cash Operating Expenses	$	(5,653,620)	$	(3,844,007)
Operating Activities	$	(6,435,079)	$	(5,921,629)	$	(4,164,727)		$ (6,435,079)
Investing Activities		(217,227)		(650,655)		(4,692,596)		(217,227)
Financing Activities		(221,833)		103,224,872		(470,757)		(221,833)

During the three months ended March 31, ~~2022,~~2023, we used ~~$6,435,042~~$4,164,727 of cash for operating ~~activities as compared to $5,921,629~~activities. Net changes in working capital items were $1,193,500 for the ~~comparable period~~three months ended March 31, 2023, with the largest factors resulting from a $930,926 decrease in ~~2021.~~inventory and vendor prepayments; and a $218,520 decrease in other prepaid expenses. For the three months ended March 31, 2022, we ~~incurred~~used a ~~net loss~~total of ~~$10,506,001, which, after adding back non-cash~~$6,435,079 in cash for operating expenses of $4,852,381, resulted in a net cash loss of $5,653,620 before changes in working capital. For the three months ended March 31, 2021, we incurred a net loss of $9,151,370, which, after adding back non-cash operating expenses of $5,307,363, resulted in a net cash loss of $3,844,007 before changes in working capital. Net changes in working capital items were $781,422 for the three months ended March 31, 2022 with the largest factor resulting from a $1,123,307 reduction in trade accounts payables and other accrued expenses, a $489,597 of investments in inventory and vendor prepayments; partially offset by decreases in accounts receivable of $690,775 and other prepaid expenses of $213,394.activities.

During the three months ended March 31, ~~2022,~~2023, we used ~~$217,227~~$4,692,596 of cash for investing activities, which included ~~$57,758~~$2,000,000 in payments made towards our technology license fee commitment, $2,284,968 for purchases of manufacturing equipment and ~~product mold tooling; $34,469~~leasehold improvement expenditures related to our waveguide expansion project; $182,628 in patent and trademark expenditures; ~~and~~ a further investment of $125,000 in the purchase of software operating license upgrades for our smart glasses ~~platform.~~platform; and an additional $100,000 investment in a private corporation as discussed in Note 7. For the three months ended March 31, ~~2021,~~2022, we used a total of ~~$650,655~~$217,227 in cash for investing activities.

During the three months ending March 31, 2023, we used $470,757 in net cash for financing activities, which was for share repurchases under our Share Buyback Program that was announced on March 2, 2022 and expired on March 2, 2023. For the three months ended March 31, 2022, we used $221,833 in net cash ~~from~~for financing activities, which included $251,057 of share repurchases under our Share Buyback Program that was announced on March 2, 2022; partially offset by $29,224 in proceeds from the exercise of stock options. For the three months ended March 31, 2021, we received $103,224,872 in proceeds from financing activities, primarily from sales of our equity securities.activities.

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As of March 31, ~~2022,~~2023, the Company does not have any current or long-term debt obligations ~~outstanding.~~outstanding other than licensing fee commitments totaling $9,500,000, which are all current.

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The Company’s cash requirements are primarily for funding operating losses, working capital, research and development, capital expenditures, and ~~capital expenditures.~~licensing fee commitments. We incurred a net loss for the three months ended March 31, 2023 of $10,240,583 (of which $3,667,509 was related to non-cash stock-based compensation primarily due to our LTIP) and for the years ended December 31, 2022 and 2021 of ~~$10,506,001~~$40,763,573 (of which $15,775,553 was related to non-cash stock-based compensation primarily due to our LTIP) and ~~annual net losses of~~ $40,377,160 (of which $17,302,833 was related to non-cash stock-based compensation primarily due to our LTIP) ~~in 2021 and $17,952,172 in 2020.~~, respectively. The Company has an accumulated deficit of ~~$213,578,144~~$254,076,299 as of March 31, ~~2022.~~2023.

On March 2, 2022, our Board of Directors approved the repurchase by the Company of up to an aggregate of $25 million of our common stock by open market or privately negotiated transactions under the Share Buyback Program. This program iswas in effect for one year, ~~does~~did not obligate the Company to acquire any particular amount of common stock, and ~~may be~~could have been suspended or discontinued at any time at the Company’s sole ~~discrestion.~~discretion. During the three months ended March 31, ~~2022,~~2023, the Company repurchased ~~36,685~~115,000 shares of our common stock at an average cost of ~~$6.84.~~$4.06, before commission of $0.03 per share. As of March 31, ~~2022, 36,685~~2023, 579,672 shares of our common stock were held in treasury.

Our operations ~~are~~have historically been financed primarily through ~~the~~ net proceeds from the sale of our equity securities. As of March 31, ~~2022,~~2023, our principal sources of liquidity consisted of cash and cash equivalents of ~~$113,329,734.~~$63,235,863.

Forward Looking Statements

This quarterly report includes forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, but are not limited to, statements concerning:

●

trends in our operating expenses, including personnel costs, research and development expense, sales and marketing expense, and general and administrative expense;

●

the effect of competitors and competition in our markets;

●

our wearable smart glasses products and their market acceptance and future potential;

●

our ability to develop, timely introduce, and effectively manage the introduction of new products and services or improve our existing products and services;

●

expected technological advances by us or by third parties and our ability to leverage them;

●

our ability to attract and retain customers;

●

our ability to accurately forecast consumer demand and adequately manage our inventory;

●

our ability to deliver an adequate supply of product to meet demand;

●

our ability to maintain and promote our brand and expand brand awareness;

●

our ability to detect, prevent, or fix defects in our products;

●

our reliance on third-party suppliers, contract manufacturers and logistics providers and our limited control over such parties;

●

trends in revenue, costs of revenue, and gross margin and our possible or assumed future results of operations;

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●

our ability to attract and retain highly skilled employees;

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●

the impact of foreign currency exchange rates;

●

the effect of future regulations;

●

the sufficiency of our existing cash and cash equivalent balances and cash flow from operations to meet our working capital and capital expenditure needs for at least the next twelve (12) months; and

●

general market, political, economic, business and public health conditions.

All statements in this quarterly report that are not historical facts are forward-looking statements. We may, in some cases, use terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions that convey uncertainty of future events or outcomes to identify forward-looking statements.

All such forward-looking statements are subject to certain risks and uncertainties and should be evaluated in light of important risk factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risk factors include, but are not limited to, those that are described in “Risk Factors” in this report and under Item 1A and elsewhere in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and other filings we make with the Securities and Exchange Commission and the following: business and economic conditions, rapid technological changes accompanied by frequent new product introductions, competitive pressures, dependence on key customers, inability to gauge order flows from customers, fluctuations in quarterly and annual results, the reliance on a limited number of third-party suppliers, limitations of our manufacturing capacity and arrangements, the protection of our proprietary technology, the effects of pending or threatened litigation, the dependence on key personnel, changes in critical accounting estimates, potential impairments related to investments, foreign regulations, liquidity issues, and potential material weaknesses in internal control over financial reporting. Further, during weak or uncertain economic periods, customers may delay the placement of their orders. These factors often result in a substantial portion of our revenue being derived from orders placed within a quarter and shipped in the final month of the same quarter.

We caution readers to carefully consider such factors. Many of these factors are beyond our control. In addition, any forward-looking statements represent our estimates only as of the date they are made and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, except as may be required under applicable securities laws, we specifically disclaim any obligation to do so.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

We invest our excess cash in high-quality short-term corporate debt instruments, which bear lower levels of relative risk. We believe that the effect, if any, of possible near-term changes in interest rates on our financial position, results of operations, and cash flows should not be material to our cash flows or income. It is possible that interest rate movements would increase our unrealized gain or loss on interest rate securities. We are exposed to changes in foreign currency exchange rates primarily through transaction gains and losses as a result of non-U.S. dollar denominated cash flows related to business activities in Japan and Europe. We do not currently hedge our foreign currency exchange rate risk. We estimate that any market risk associated with our international operations is unlikely to have a material adverse effect on our business, financial condition or results of operation.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has performed an evaluation of the effectiveness of our disclosure controls and procedures that are defined in

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Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. This evaluation included consideration of the controls, processes, and procedures that are

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designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is properly recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our management, including our CEO and CFO, ~~have~~ concluded that our disclosure controls and procedures were ~~not~~ effective ~~because of the material weakness in internal control over financial reporting described below and disclosed on the 2021 Form 10-K.~~at March 31, 2023.

Changes in Internal Control over Financial Reporting

~~As reported~~There have not been any changes in our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021, included in “Item 9A. Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2021, our internal control over financial reporting was considered ineffective as of that date as a result of a material weakness. The material weakness that existed at that time was over the Company’s internal control over financial reporting ~~related to~~(as defined in 13a-15(f) and 15d-15(f) promulgated under the ~~methodology utilized by the Company to calculate the fair market value of the LTIP stock options issued in March 2021 for the achievement of certain equity market capitalization milestones, and~~Exchange Act) that occurred during the Company’s ~~subsequent identification and correction of an error in~~most recent fiscal quarter that ~~calculation.~~

Inhave materially affected, or are reasonably likely to materially affect, the ~~first quarter of 2022, we designed and, to the extent possible, implemented~~Company’s internal control improvements to remediate the material weakness stated above, which include; (i) a more robust and comprehensive review by management each period to identify unusual and non-routine transactions, (ii) a process to identify and engage resources, including third-party resources, with the technical accounting expertise needed to timely address any complex technical accounting issues that affect our consolidatedover financial statements, and (iii) a more robust process for the selection of third-party specialists and management review of their work. As of March 31, 2022, not enough time has passed from the implementation of these new procedures to allow for successful control testing that would evidence that this control weakness has been fully remediated. Management expects to show full remediation of this material weakness in 2022.reporting.

Part II. OTHER INFORMATION

Item 1.Legal Proceedings

We are not currently involved in any actual or pending legal ~~proceeding~~proceedings or litigation that we consider to be material, and we are not aware of any such proceedings contemplated by or against us or involving our property.

Item 1A.Risk Factors

In addition to the other information set forth in this report you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no material changes from those risk factors. The risks discussed in our ~~2021~~2022 Annual Report could materially affect our business, financial condition and future results.

~~Impact of COVID-19 and Geo-political Actions~~

The implications of COVID-19 and Geo-political actions on our results from operations going forward remain uncertain. These have the ongoing potential to cause adverse effects to our customers, suppliers or business partners in locations that have or will experience more pronounced disruptions, which could result in a reduction to future revenue and manufacturing output as well as delays in our new product development activities. Recent increases in demand for certain chips within various technology sectors and other industries has been one of the ripple effects of the COVID-19 crisis and Geo-political actions that are causing shortages of certain chips and negatively impacting many companies’ supply chains and their ability to maintain or increase their production to meet market demands. At this time, we are operating successfully with our existing products but are seeing longer component lead times which is increasing risk in our supply chain as well as the need to carry more component inventories and make earlier purchase commitments for components, which could have an impact on future products.

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

Sale of Unregistered Securities – none

Purchase of Equity Securities:


Period	Total number of shares purchased (1)	Average price paid per share (1)		Total number of shares purchased under the Company's Share Buyback Program (1)	Maximum dollar value that may yet be purchased (1)		Total number of shares purchased (1)	Average price paid per share (1)		Total number of shares purchased under the Company's Share Buyback Program (1)	Maximum dollar value that may yet be purchased (1)
March 1 - 31, 2022	36,685	$	6.84	36,685	$	24,748,906
January 3, 2023 – January 18. 2023							115,000	$	4.06	579,672	$	-

(1)

On March 2, 2022, our Board of Directors approved the repurchase by the Company of up to an aggregate of $25 million of our common stock by open market or privately negotiated transactions under the Share Buyback Program. An aggregate amount of $2,476,501 was purchased under this program between March 2022 and January 2023. This program ~~is in effect for one year, does not obligate the Company to acquire any particular amount of common stock and may be suspended or discontinued at any time at the Company’s sole discretion~~expired on March 2, 2023.

Item 3.Defaults Upon Senior Securities

None

Item 4.Mine Safety Disclosures

Not Applicable

Item 5.Other Information

None

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Item 6.Exhibits


Exhibit No.		Description

31.1		Certification of the Chief Executive Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification of the Chief Financial Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certification of the Chief Executive Officer of the Registrant pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.2		Certification of the Chief Financial Officer of the Registrant pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Link base Document

101.DEF		Inline XBRL Taxonomy Extension Definition Link base

101.LAB		Inline XBRL Taxonomy Extension Label Link base Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Link base Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*

* Filed herewith.

** Furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	VUZIX CORPORATION

Date: May 10, ~~2022~~2023	By:	/s/ Paul Travers
		Paul Travers
		President, Chief Executive Officer
		(Principal Executive Officer)

Date: May 10, ~~2022~~2023	By:	/s/ Grant Russell
		Grant Russell
		Executive Vice President and Chief Financial
		Officer
		(Principal Financial and Accounting Officer)

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XBRL-Only Content Section