UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2022March 31, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-35955
VUZIX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
| 04-3392453 |
State or other jurisdiction of | (I.R.S. Employer |
25 Hendrix Road, Suite A |
| 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 |
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Smaller reporting company |
| Emerging growth company | ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 9, 2022,May 10, 2023, there were 63,990,95563,219,123 shares of the registrant’s common stock outstanding.
Vuzix Corporation
INDEX
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
Part 1: FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
VUZIX CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | |
| | (Unaudited) |
| | | | (Unaudited) |
| | | ||
| | June 30, | | December 31, | | March 31, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
ASSETS |
| |
|
| |
|
| |
|
| |
|
Current Assets |
| |
|
| |
|
| |
|
| |
|
Cash and Cash Equivalents | | $ | 100,581,795 | | $ | 120,203,873 | | $ | 63,235,863 | | $ | 72,563,943 |
Accounts Receivable | |
| 1,563,906 | |
| 2,242,429 | ||||||
Accounts Receivable, Net | |
| 3,059,156 | |
| 3,558,971 | ||||||
Accrued Revenues in Excess of Billings | |
| 108,866 | |
| — | |
| 192,177 | |
| 269,129 |
Employee Retention Credit Receivable | | | 466,705 | | | 466,705 | ||||||
Inventories, Net | |
| 11,792,089 | |
| 12,151,982 | |
| 10,861,679 | |
| 11,267,969 |
Manufacturing Vendor Prepayments | |
| 1,158,620 | |
| 504,051 | |
| 474,035 | |
| 998,671 |
Prepaid Expenses and Other Assets | |
| 1,735,955 | |
| 2,047,819 | |
| 1,621,186 | |
| 2,115,853 |
| | | | | | | | | | | | |
Total Current Assets | |
| 116,941,231 | |
| 137,150,154 | |
| 79,910,801 | |
| 91,241,241 |
| | | | | | | | | | | | |
Long-Term Assets | |
|
| |
|
| |
|
| |
|
|
Fixed Assets, Net | |
| 8,051,264 | |
| 5,190,438 | |
| 6,139,939 | |
| 3,878,505 |
Operating Lease Right-of-Use Asset | | | 837,920 | | | 1,117,022 | | | 791,604 | | | 956,165 |
Patents and Trademarks, Net | |
| 2,136,585 | |
| 1,988,370 | |
| 2,341,024 | |
| 2,220,094 |
Technology Licenses, Net | |
| 16,089,035 | |
| 1,389,936 | |
| 29,331,805 | |
| 30,158,689 |
Intangible Asset, Net | |
| — | |
| 147,548 | |
| 640,383 | |
| 675,313 |
Goodwill | |
| 1,601,400 | |
| 1,601,400 | ||||||
Other Assets, Net | |
| 1,839,047 | |
| 1,483,589 | |
| 1,715,996 | |
| 1,581,143 |
| | | | | | | | | | | | |
Total Assets | | $ | 145,895,082 | | $ | 148,467,057 | | $ | 122,472,952 | | $ | 132,312,550 |
| | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | |
|
| |
| | |
|
|
Current Liabilities | |
|
| |
|
| |
|
| |
|
|
Accounts Payable | | $ | 1,321,949 | | $ | 2,054,762 | | $ | 1,271,365 | | $ | 1,211,747 |
Unearned Revenue | |
| 40,626 | |
| 27,797 | |
| 41,454 | |
| 29,064 |
Accrued Expenses | |
| 1,614,583 | |
| 1,419,308 | |
| 1,466,214 | |
| 1,670,539 |
Licensing Fees Commitment | |
| 4,250,000 | |
| — | |
| 9,500,000 | |
| 11,500,000 |
Income and Other Taxes Payable | |
| 43,856 | |
| 120,242 | |
| 22,841 | |
| 214,997 |
Operating Lease Right-of-Use Liability | | | 520,009 | | | 534,146 | | | 562,375 | | | 651,011 |
| | | | | | | | | | | | |
Total Current Liabilities | |
| 7,791,023 | |
| 4,156,255 | |
| 12,864,249 | |
| 15,277,358 |
| | | | | | | | | | | | |
Long-Term Liabilities | | | | | | | | | | | | |
Operating Lease Right-of-Use Liability | | | 317,911 | | | 582,876 | | | 229,229 | | | 305,154 |
Licensing Fees Commitment | | | 6,250,000 | | | — | ||||||
| | | | | | | ||||||
Total Long-Term Liabilities | | | 6,567,911 | | | 582,876 | ||||||
| | | | | | | | | | | | |
Total Liabilities | |
| 14,358,934 | |
| 4,739,131 | |
| 13,093,478 | |
| 15,582,512 |
| | | | | | | | | | | | |
Stockholders' Equity | |
|
| |
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| |
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Common Stock - $0.001 Par Value, 100,000,000 shares authorized; 64,025,640 shares issued and 63,988,955 shares outstanding as of June 30, 2022 and 63,672,268 shares issued and outstanding as of December 31, 2021. | |
| 64,026 | |
| 63,672 | ||||||
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 | |
| 355,322,990 | |
| 346,736,397 | |
| 365,868,487 | |
| 362,507,715 |
Accumulated Deficit | |
| (223,599,811) | |
| (203,072,143) | |
| (254,076,299) | |
| (243,835,716) |
Treasury Stock, at cost, 36,685 shares as of June 30, 2022 and 0 shares as of December 31, 2021 | |
| (251,057) | |
| — | ||||||
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 | |
| 131,536,148 | |
| 143,727,926 | |
| 109,379,474 | |
| 116,730,038 |
| | | | | | | | | | | | |
Total Liabilities and Stockholders' Equity | | $ | 145,895,082 | | $ | 148,467,057 | | $ | 122,472,952 | | $ | 132,312,550 |
The accompanying notes are an integral part of these consolidated financial statements.
3
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 |
| — | |
| — |
| 288,650 | |
| 289 | |
| 8,538,153 | |
| — |
| — | |
| — | |
| 8,538,441 |
| — | |
| — | |
| 3,360,772 | |
| — |
| — | |
| — | |
| 3,360,772 |
Stock Option Exercises |
| — | |
| — |
| 64,722 | |
| 65 | |
| 48,440 | |
| — |
| — | |
| — | |
| 48,506 |
| 4,079 | |
| 4 | |
| — | |
| — |
| — | |
| — | |
| 4 |
Purchases of Treasury Stock |
| — | |
| — |
| — | |
| — | |
| — | |
| — |
| (36,685) | |
| (251,057) | |
| (251,057) |
| — | |
| — | |
| — | |
| — |
| (115,000) | |
| (470,757) | |
| (470,757) |
Net Loss |
| — | |
| — |
| — | |
| — | |
| — | |
| (20,527,668) |
| — | |
| — | |
| (20,527,668) |
| — | |
| — | |
| — | |
| (10,240,583) |
| — | |
| — | |
| (10,240,583) |
Balance - June 30, 2022 |
| — | | $ | — |
| 64,025,640 | | $ | 64,026 | | $ | 355,322,990 | | $ | (223,599,811) |
| (36,685) | | $ | (251,057) | | $ | 131,536,148 | |||||||||||||||||||
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 - April 1, 2022 | | — | | $ | — |
| 63,704,626 | | $ | 63,705 | | $ | 350,721,326 | | $ | (213,578,143) | | (36,685) | | $ | (251,057) | | $ | 136,955,831 |
Stock-Based Compensation Expense |
| — | |
| — |
| 288,650 | |
| 289 | |
| 4,582,414 | |
| — |
| — | |
| — | |
| 4,582,703 |
Stock Option Exercises |
| — | |
| — |
| 32,364 | |
| 32 | |
| 19,250 | |
| — |
| — | |
| — | |
| 19,282 |
Net Loss |
| — | |
| — |
| — | |
| — | |
| — | |
| (10,021,668) |
| — | |
| — | |
| (10,021,668) |
Balance - June 30, 2022 |
| — | | $ | — |
| 64,025,640 | | $ | 64,026 | | $ | 355,322,990 | | $ | (223,599,811) |
| (36,685) | | $ | (251,057) | | $ | 131,536,148 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 (as Restated) |
| — | |
| — |
| 68,047 | |
| 68 | |
| 8,544,078 | |
| — |
| — | |
| — | |
| 8,544,146 |
Stock Option Exercises |
| — | |
| — |
| 567,826 | |
| 568 | |
| 673,191 | |
| — |
| — | |
| — | |
| 673,759 |
Stock Warrant Exercises |
| — | |
| — |
| 7,274,328 | |
| 7,274 | |
| 34,697,794 | |
| — |
| — | |
| — | |
| 34,705,068 |
Proceeds from Common Stock Offering |
| — | |
| — |
| 4,768,293 | |
| 4,768 | |
| 97,784,270 | |
| — |
| — | |
| — | |
| 97,789,038 |
Direct Costs of Common Stock Offering |
| — | |
| — |
| — | |
| — | |
| (6,136,420) | |
| — |
| — | |
| — | |
| (6,136,420) |
Shares Redeemed to Cover Employee Tax Withholdings |
| — | |
| — |
| (83,164) | |
| (83) | |
| (1,144,282) | |
| — |
| — | |
| — | |
| (1,144,365) |
Stock Issued for Technology License Purchase |
| — | |
| — |
| 75,000 | |
| 75 | |
| 1,404,675 | |
| — |
| — | |
| — | |
| 1,404,750 |
Preferred Stock Converted & Preferred Dividend Settlement | | (49,626) | | | (50) | | 4,962,600 | | | 4,963 | | | (10,004,913) | | | — | | — | | | — | | | (10,000,000) |
Net Loss (as Restated) |
| — | |
| — |
| — | |
| — | |
| — | |
| (18,396,842) |
| — | |
| — | |
| (18,396,842) |
Balance - June 30, 2021 (as Restated) |
| — | | $ | — |
| 63,278,096 | | $ | 63,278 | | $ | 336,770,866 | | $ | (181,091,825) |
| — | | $ | — | | $ | 155,742,319 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Additional | | Accumulated | | Treasury Stock | | | | |||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-In Capital |
| Deficit |
| Shares |
| Amount |
| Total | ||||||
Balance - April 1, 2021 | | — | | $ | — |
| 62,142,940 | | $ | 62,143 | | $ | 318,720,283 | | $ | (171,846,353) | | — | | $ | — | | $ | 146,936,073 |
Stock-Based Compensation Expense (as Restated) |
| — | |
| — |
| 68,047 | |
| 68 | |
| 3,984,694 | |
| — |
| — | |
| — | |
| 3,984,762 |
Stock Option Exercises |
| — | |
| — |
| 336,858 | |
| 337 | |
| 476,593 | |
| — |
| — | |
| — | |
| 476,930 |
Stock Warrant Exercises |
| — | |
| — |
| 33,300 | |
| 33 | |
| 136,497 | |
| — |
| — | |
| — | |
| 136,530 |
Proceeds from Common Stock Offerings |
| — | |
| — |
| 621,951 | |
| 622 | |
| 12,748,752 | |
| — |
| — | |
| — | |
| 12,749,374 |
Direct Costs of Common Stock Offerings |
| — | |
| — |
| — | |
| — | |
| (700,628) | |
| — |
| — | |
| — | |
| (700,628) |
Stock Issued for Technology License Purchase | | — | | | — | | 75,000 | | | 75 | | | 1,404,675 | | | — | | — | | | — | | | 1,404,750 |
Net Loss (as Restated) |
| — | |
| — |
| — | |
| — | |
| — | |
| (9,245,472) |
| — | |
| — | |
| (9,245,472) |
Balance - June 30, 2021 (as Restated) |
| — | | $ | — |
| 63,278,096 | | $ | 63,278 | | $ | 336,770,866 | | $ | (181,091,825) |
| — | | $ | — | | $ | 155,742,319 |
| | | | | | | | | | | | | | | | | | | |
| | 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.
4
VUZIX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | | ||||||||||||
| | | | | (as Restated) | | | | | (as Restated) | | | | | | | |||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 |
| ||||||
Sales: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Sales of Products | | $ | 2,898,892 | | $ | 2,833,644 | | $ | 5,401,944 | | $ | 6,638,814 | | $ | 4,191,361 | | $ | 2,503,051 | |
Sales of Engineering Services | |
| 108,866 | |
| 82,894 | |
| 108,866 | |
| 193,113 | |||||||
| | | | | | | | | | | | | |||||||
Total Sales | |
| 3,007,758 | |
| 2,916,538 | |
| 5,510,810 | |
| 6,831,927 | |||||||
| | | | | | | | | | | | | | | | | | | |
Cost of Sales: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Cost of Sales - Products Sold | |
| 2,522,674 | |
| 2,323,324 | |
| 4,386,371 | |
| 5,143,295 | |
| 3,082,439 | |
| 1,803,598 | |
Cost of Sales - Engineering Services | |
| 59,296 | |
| 13,842 | |
| 59,296 | |
| 29,669 | |||||||
Cost of Sales - Depreciation and Amortization | | | 232,916 | | | 223,785 | | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total Cost of Sales | |
| 2,581,970 | |
| 2,337,166 | |
| 4,445,667 | |
| 5,172,964 | |
| 3,315,355 | |
| 2,027,383 | |
| | | | | | | | | | | | | | | | | | | |
Gross Profit (exclusive of depreciation shown separately below) | |
| 425,788 | |
| 579,372 | |
| 1,065,143 | |
| 1,658,963 | |||||||
Gross Profit | |
| 876,006 | |
| 475,668 | | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
Operating Expenses: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Research and Development | |
| 2,996,144 | |
| 2,723,994 | |
| 6,099,588 | |
| 4,929,312 | |
| 3,069,797 | |
| 3,103,444 | |
Selling and Marketing | |
| 1,850,595 | |
| 1,349,189 | |
| 3,914,584 | |
| 2,652,619 | |
| 2,539,659 | |
| 2,023,435 | |
General and Administrative | |
| 5,039,949 | |
| 5,181,042 | |
| 10,453,228 | |
| 11,208,799 | |
| 5,131,824 | |
| 5,453,833 | |
Depreciation and Amortization | |
| 540,081 | |
| 501,678 | |
| 963,012 | |
| 1,019,090 | |
| 964,265 | |
| 259,245 | |
Loss on Fixed Asset Disposal | |
| — | |
| — | |
| — | |
| 83,908 | |||||||
Impairment of Patents and Trademarks | |
| — | |
| 30,765 | |
| 49,602 | |
| 58,496 | |
| 17,666 | |
| 49,603 | |
| | | | | | | | | | | | | | | | | | | |
Total Operating Expenses | |
| 10,426,769 | |
| 9,786,668 | |
| 21,480,014 | |
| 19,952,224 | |
| 11,723,211 | |
| 10,889,560 | |
| | | | | | | | | | | | | | | | | | | |
Loss From Operations | |
| (10,000,981) | |
| (9,207,296) | |
| (20,414,871) | |
| (18,293,261) | |
| (10,847,205) | |
| (10,413,892) | |
| | | | | | | | | | | | | | | | | | | |
Other Income (Expense): | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Investment Income | |
| 111,027 | |
| 7,767 | |
| 117,307 | |
| 15,605 | |
| 695,783 | |
| 6,280 | |
Income and Other Taxes | |
| (31,326) | |
| (12,783) | |
| (78,959) | |
| (32,508) | |
| (87,795) | |
| (47,632) | |
Foreign Exchange Loss | |
| (100,388) | |
| (33,160) | |
| (151,145) | |
| (86,678) | |
| (1,366) | |
| (50,757) | |
| | | | | | | | | | | | | | | | | | | |
Total Other Expense, Net | |
| (20,687) | |
| (38,176) | |
| (112,797) | |
| (103,581) | |||||||
Total Other Income (Expense), Net | |
| 606,622 | |
| (92,109) | | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
Loss Before Provision for Income Taxes | |
| (10,021,668) | |
| (9,245,472) | |
| (20,527,668) | |
| (18,396,842) | |
| (10,240,583) | |
| (10,506,001) | |
Provision for Income Taxes | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| | | | | | | | | | | | | | | | | | | |
Net Loss | |
| (10,021,668) | |
| (9,245,472) | |
| (20,527,668) | |
| (18,396,842) | |
| (10,240,583) | |
| (10,506,001) | |
| | | | | | | | | | | | | | | | | | | |
Basic and Diluted Loss per Common Share | | $ | (0.16) | | $ | (0.15) | | $ | (0.32) | | $ | (0.31) | | $ | (0.16) | | $ | (0.16) | |
Weighted-average Shares Outstanding - Basic and Diluted | |
| 63,739,863 | |
| 63,071,061 | |
| 63,717,618 | |
| 58,631,078 | |
| 63,216,598 | |
| 63,695,127 | |
The accompanying notes are an integral part of these consolidated financial statements.
5
VUZIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | |
| | Six Months Ended June 30, | | Three Months Ended March 31, | ||||||||
| | | | | (as Restated) | | | | | | ||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
| | | | | | | | | | | | |
Cash Flows from Operating Activities |
| |
|
| |
|
| |
|
| |
|
Net Loss | | $ | (20,527,668) | | $ | (18,396,842) | | $ | (10,240,583) | | $ | (10,506,001) |
Non-Cash Adjustments | |
|
| |
|
| |
|
| |
|
|
Depreciation and Amortization | |
| 963,012 | |
| 1,019,090 | |
| 1,197,181 | |
| 483,030 |
Amortization of Software Development Costs and Prepaid Licenses in Cost of Sales - Products | |
| 130,883 | |
| 120,197 | ||||||
Stock-Based Compensation | |
| 8,200,774 | |
| 8,661,613 | |
| 3,667,509 | |
| 4,319,748 |
Impairment of Patents and Trademarks | |
| 49,602 | |
| 58,496 | |
| 17,666 | |
| 49,603 |
Loss on Fixed Asset Disposal | |
| — | |
| 83,908 | ||||||
(Increase) Decrease in Operating Assets | |
|
| |
|
| |
|
| |
|
|
Accounts Receivable | |
| 678,523 | |
| 289,567 | |
| 499,815 | |
| 690,775 |
Accrued Revenues in Excess of Billings | | | (108,866) | | | — | |
| 76,952 | |
| — |
Inventories | |
| 359,893 | |
| (1,783,539) | |
| 406,290 | |
| (407,084) |
Manufacturing Vendor Prepayments | |
| (654,569) | |
| (2,565,073) | |
| 524,636 | |
| (82,513) |
Prepaid Expenses and Other Assets | |
| 492,599 | |
| (522,084) | |
| 218,520 | |
| 213,394 |
Increase (Decrease) in Operating Liabilities | |
|
| |
|
| |
|
| |
|
|
Accounts Payable | |
| (732,813) | |
| (92,188) | |
| 59,618 | |
| (831,021) |
Accrued Expenses | |
| 195,276 | |
| 75,055 | |
| (412,566) | |
| (292,286) |
Unearned Revenue | |
| 12,829 | |
| (27,453) | |
| 12,391 | |
| 1,825 |
Income and Other Taxes | |
| (76,384) | |
| (29,450) | ||||||
Income and Other Taxes Payable | |
| (192,156) | |
| (74,549) | ||||||
| | | | | | | | | | | | |
Net Cash Flows Used in Operating Activities | |
| (11,016,909) | |
| (13,108,703) | |
| (4,164,727) | |
| (6,435,079) |
| | | | | | | | | | | | |
Cash Flows from Investing Activities | |
|
| |
|
| |
|
| |
|
|
Purchases of Fixed Assets | |
| (3,504,931) | |
| (719,164) | |
| (2,284,968) | |
| (57,758) |
Investments in Patents and Trademarks | |
| (272,686) | |
| (214,450) | |
| (182,628) | |
| (34,469) |
Investments in Licenses, Intangible and Other Assets | |
| (4,625,000) | |
| (305,158) | ||||||
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 | |
| (8,402,617) | |
| (1,238,772) | |
| (4,692,596) | |
| (217,227) |
| | | | | | | | | | | | |
Cash Flows from Financing Activities | |
|
| |
|
| |
|
| |
|
|
Proceeds from Exercise of Warrants | |
| — | |
| 34,705,068 | |
| — | |
| 29,224 |
Proceeds from Exercise of Stock Options | |
| 48,505 | |
| 673,759 | ||||||
Proceeds from Common Stock Offering, Net | | | — | | | 91,647,850 | ||||||
Purchases of Treasury Stock | | | (251,057) | | | — | | | (470,757) | | | (251,057) |
Preferred Dividend Settlement Payment | |
| — | |
| (10,000,000) | ||||||
Employee Tax Withholdings Payment | |
| — | |
| (1,144,365) | ||||||
| | | | | | | | | | | | |
Net Cash Flows (Used in) Provided from Financing Activities | |
| (202,552) | |
| 115,882,312 | ||||||
Net Cash Flows Used in Financing Activities | |
| (470,757) | |
| (221,833) | ||||||
| | | | | | | | | | | | |
Net (Decrease) Increase in Cash and Cash Equivalents | |
| (19,622,078) | |
| 101,534,837 | ||||||
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 | | $ | 100,581,795 | | $ | 137,604,345 | | $ | 63,235,863 | | $ | 113,329,734 |
| | | | | | | | | | | | |
Supplemental Disclosures | |
|
| |
|
| |
|
| |
|
|
Unamortized Common Stock Expense included in Prepaid Expenses and Other Assets | | $ | 1,223,691 | | $ | 101,517 | | $ | 1,061,885 | | $ | 1,001,232 |
Non-Cash Investment in Licenses | | | 10,500,000 | | | 1,404,750 | | | 9,500,000 | | | — |
Stock-Based Compensation Expense - Expensed less Previously Issued | | | (337,379) | | | 117,467 | | | 306,737 | | | 364,010 |
The accompanying notes are an integral part of these consolidated financial statements.
6
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 and six months ended June 30, 2022March 31, 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.
RestatementReclassification of Prior Year Presentation
As described in additional detail in Note 14Certain 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 statementsConsolidated 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 resultsOperating 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 forCash 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:
|
| |||
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
|
| | | | | | | | | | | |
| | | | | | | | | | |
|
|
| 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 June 30, 2022, 1March 31, 2023, one customer represented 45%74% of total product revenue and 1 customer represented 100% of engineering services revenue. For the three months ended June 30, 2021, no 1March 31, 2022, one customer represented more than 10%11% of total product revenue and 1 customer represented 100% of engineering services revenue.
For the six months ended June 30, 2022, 1 customer represented 24% of total product revenue and 1 customer represented 100% of engineering services revenue. For the six months ended June 30, 2021, no 1 customer represented more than 10% of total product revenue and 2 customers represented 100% of engineering services revenue.
7
As of June 30, 2022, 3 customersMarch 31, 2023, one customer represented 42%, 15% and 15%50% of accounts receivable. As of December 31, 2021, 3 customers2022, one customer represented 27%, 20% and 10%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 reissuancere-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 willdid 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 | | Six Months Ended | | Three Months Ended | ||||||||||||
| | June 30, | | June 30, | | March 31, | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||||
Revenues |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Smart Glasses Sales | | $ | 2,898,892 | | $ | 2,833,644 | | $ | 5,401,944 | | $ | 6,638,814 | ||||||
Engineering Services | |
| 108,866 | |
| 82,894 | |
| 108,866 | |
| 193,113 | ||||||
Products Sales | | $ | 4,191,361 | | $ | 2,503,051 | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Total Revenue | | $ | 3,007,758 | | $ | 2,916,538 | | $ | 5,510,810 | | $ | 6,831,927 |
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 timepoint-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 to measure themeasuring 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
8
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.
8
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 sixthree months ended June 30, 2022:March 31:
| | | | | | | | | | |
|
| % of Total Net Sales |
| % of Total Net Sales | ||||||
| | 2022 |
| 2021 |
| | 2023 |
| 2022 |
|
Point-in-Time |
| 98 | % | 97 | % |
| 100 | % | 100 | % |
Over Time – Input Method |
| 2 | % | 3 | % | |||||
| | | | | | |||||
Total |
| 100 | % | 100 | % |
Remaining Performance Obligations
As of June 30, 2022,March 31, 2023, the Company had $691,134approximately $165,000 of remaining performance obligations under a current waveguide development project, which represents the remainder of the total transaction price of anapproximately $800,000 under this development agreement, which commenced in 2022, less revenue recognized under percentage of completion to date. The Company currently expects to recognize the remaining revenue relatingrelated to this existing performance obligationproject in the second quarter of $691,134 before the end of 2022.2023. Revenues earned less amounts invoiced at June 30, 2022March 31, 2023 in the amount of $108,866$192,177 are reflected as Accrued Revenues in Excess of Billings in the accompanying Consolidated Balance Sheets.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 and six months ended June 30,March 31, 2023 and 2022, and 2021, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. At June 30,March 31, 2023 and 2022, and 2021, there were 8,528,6688,603,308 and 8,584,0308,611,365 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.
9
Note 4 – Inventories, Net
Inventories are stated at the lower of cost and net realizable value, and consisted of the following:
| | | | | | | | | | | | |
| | June 30, | | December 31, | | March 31, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
| | | | | | | | | | | | |
Purchased Parts and Components | | $ | 10,414,139 | | $ | 11,580,766 | | $ | 10,018,357 | | $ | 10,399,527 |
Work-in-Process | |
| 285,481 | |
| 226,126 | |
| 358,857 | |
| 344,242 |
Finished Goods | |
| 2,095,643 | |
| 1,472,534 | |
| 2,255,516 | |
| 1,941,689 |
Less: Reserve for Obsolescence | |
| (1,003,174) | |
| (1,127,444) | |
| (1,771,051) | |
| (1,417,489) |
| | | | | | | | | | | | |
Inventories, Net | | $ | 11,792,089 | | $ | 12,151,982 | | $ | 10,861,679 | | $ | 11,267,969 |
9
Note 5 – Fixed Assets
Fixed Assets consisted of the following:
| | | | | | | | | | | | |
| | June 30, | | December 31, | | March 31, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Tooling and Manufacturing Equipment | | $ | 9,930,222 | | $ | 6,612,811 | | $ | 8,050,657 | | $ | 6,065,445 |
Leaseholds | |
| 826,329 | |
| 797,059 | |
| 1,366,128 | |
| 826,329 |
Computers and Purchased Software | |
| 1,035,358 | |
| 980,561 | |
| 765,237 | |
| 760,256 |
Furniture and Equipment | |
| 2,673,787 | |
| 2,661,346 | |
| 2,505,091 | |
| 2,487,650 |
| |
| 14,465,696 | |
| 11,051,777 | |
| 12,687,113 | |
| 10,139,680 |
Less: Accumulated Depreciation | |
| (6,414,432) | |
| (5,861,339) | |
| (6,547,174) | |
| (6,261,175) |
Fixed Assets, Net | | $ | 8,051,264 | | $ | 5,190,438 | | $ | 6,139,939 | | $ | 3,878,505 |
On April 27, 2022, the Company signed a purchase order for new manufacturing equipment upgrades to further our waveguide production capabilities. The purchase order totaled $2,162,481 and the Company made a down payment of $1,050,748 at that time and this deposit has been included in construction in progress in Tooling and Manufacturing Equipment until the assets are placed into service. The Company expects to take delivery of this new waveguide equipment by the end of 2022.
On May 12, 2022, the Company signed a series of agreements with Atomistic SAS, which provided for an exclusive license by the Company of key mLED technology and for the custom design of a backplane chip (the “Atomistic Agreements”), for cash commitments totaling $30 million along with equity issuance commitments to be made by the Company relating exclusively to the achievement of performance milestones by Atomistic (See Note 10 – Capital Stock for further details). $15 million of these cash commitments are for the design of the backplane chip, which consists of a specific design and delivery of a mask set and other elements required for production of a silicon chip with (a) pixel driving circuitry, (b) one or more driver circuits for providing voltages and currents to mLEDs or mLasers; and (c) a controller circuit for relaying image data to the driver circuits to which the main circuit boards of a computer may be connected, and which provides connections between them; all of which is custom to the Company.
During the three months ended June 30, 2022,March 31, 2023, the Company made an additional progress paymentinvested approximately $2,200,000 in tooling and manufacturing equipment and leasehold improvements, as part of $1,890,000 towards this custom chip tooling asset,the Company’s new waveguide expansion project. Construction on the Company’s new facility began late in addition to the $2,139,120 down payment that was made in 2021. These payments, totaling $4,029,120 are included in construction in progress in ToolingDecember 2022 and Manufacturing Equipment until the asset is placed into service in the next 18 to 24 months. The remaining $10,970,880 commitment towards this custom backplane is expected to be paid overcompleted by the same period as referenced above.end of May 2023.
10
Sales, for the three months ended March 31, 2023 and 2022 was $102,451 and $117,087, respectively.
Note 6 – Technology Licenses, Net
| | | | | | | | | | | | |
| | June 30, | | December 31, | | March 31, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
| | | | | | | | | | | | |
Licenses | | $ | 2,443,356 | | $ | 1,038,606 | | $ | 32,443,356 | | $ | 2,443,356 |
Additions | |
| 15,000,000 | |
| 1,404,750 | |
| — | |
| 30,000,000 |
Less: Accumulated Amortization | |
| (1,354,321) | |
| (1,053,420) | |
| (3,111,551) | |
| (2,284,667) |
Licenses, Net | | $ | 16,089,035 | | $ | 1,389,936 | | $ | 29,331,805 | | $ | 30,158,689 |
As noted above in Note 5, on May 12, 2022, the Company signed a series of agreements with Atomistic SAS (the “Atomistic Agreements”), which provided for an exclusive license of key mLED technology and for the custom design of a backplane chip for cash commitments totaling $30 million along with equity issuance commitments to be made by the Company relating exclusively to the achievement of performance milestones by Atomistic (See Note 10 – Capital Stock for further details). $15 million of these agreements are for the exclusive technology license for the existing know-how and existing developed technologiesTotal amortization expense related to next generation mLEDs and micro-displays with pixelated epitaxial semiconductor material structures that emit red, green and blue wavelengths of visible lighttechnology licenses for light emitting diodes with a pixel pitch equal to or less than three microns.
As of the effective date of the Atomistic Agreements, the Company recorded an intangible technology license asset of $15,000,000 and an accrued liability (short-term and long-term), Licensing Fees Commitment, of $15,000,000. This intangible asset is to be amortized over a ten-year period, which began on May 12, 2022. During the three months ended June 30,March 31, 2023 and 2022 the Company paid $4,500,000 towards this commitmentwas $826,884 and recorded a total of $187,500 in amortization relating to this intangible asset. The remaining $10,500,000 balance of this contractual obligation is to be paid over the next 18 to 24 months.$56,700, respectively.
Note 7 - Other Assets
| | | | | | | | | | | | |
| | June 30, | | 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 | | | (291,667) | | | (208,334) | | | (430,556) | | | (375,000) |
Software Development Costs, Net | | | 583,333 | | | 541,666 | | | 569,444 | | | 500,000 |
| | | | | | | | | | | | |
Unamortized Common Stock Expense included in Long-Term Prepaid Expenses | | | 805,714 | | | 491,923 | | | 596,552 | | | 631,143 |
| | | | | | | | | | | | |
Total Other Assets | | $ | 1,839,047 | | $ | 1,483,589 | | $ | 1,715,996 | | $ | 1,581,143 |
10
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 thirty-six (36) months, which began on October 1, 2020. In October 2021, the Company invested $250,000 and in the first quarter of 2022 the Company invested an additional $125,000 for further Android operating systems version upgrades to the CPU platform it uses onin its M400 and M4000 products. This development work,In the three months ended March 31, 2023, a final investment of $125,000 was made to these system upgrades, which has not yet been completed, will ultimately be amortized oncewere placed into service which is expected to occur by early 2023.during the quarter. These additional upgrades of $500,000 are being amortized on a straight-line base over thirty-six (36) months.
11Total amortization expense related to 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:
| | | | | | | | | | | | |
| | June 30, | | December 31, | | March 31, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
| | | | | | | | | | | | |
Accrued Wages and Related Costs | | $ | 518,967 | | $ | 683,044 | | $ | 580,002 | | $ | 843,537 |
Accrued Professional Services | |
| 320,807 | |
| 551,220 | |
| 189,760 | |
| 263,800 |
Accrued Warranty Obligations | |
| 178,229 | |
| 185,044 | |
| 194,427 | |
| 159,927 |
Other Accrued Expenses | |
| 596,580 | |
| — | |
| 502,025 | |
| 403,275 |
| | | | | | | | | | | | |
Total | | $ | 1,614,583 | | $ | 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 $331,000$435,000 for external development work related to our Next Generation Smart Glasseswaveguide development projects which was completed through June 30, 2022March 31, 2023 but not yet invoiced.
The changes in the Company’s accrued warranty obligations for the sixthree months ended June 30, 2022March 31, 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 | |
| (168,873) | |
| (91,241) |
Warranties Issued During Year | |
| 162,058 | |
| 125,741 |
| | | | | | |
Accrued Warranty Obligations at June 30, 2022 | | $ | 178,229 | |||
Accrued Warranty Obligations at March 31, 2023 | | $ | 194,427 |
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.
11
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 June 30, 2022March 31, 2023 and December 31, 2021.2022. Of this total, 49,626 shares are designated as Series A Preferred Stock. There were NaNnil shares of Series A Preferred Stock issued and outstanding on June 30, 2022March 31, 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 64,025,64063,787,858 shares issued and 63,988,95563,208,186 shares outstanding as of June 30, 2022March 31, 2023 and 63,672,26863,783,779 shares issued and 63,319,107 shares outstanding as of December 31, 2021.
In connection with the Atomistic Agreements, the Company will, upon the achievement or waiver of performance milestones contained in the Atomistic Agreements, be committed to pay $2,500,000 and to issue a
12
minimum of 1,750,000 common shares of Vuzix to Atomistic owners/founders (as a portion of the consideration for certain shares of Atomistic) which would result in Vuzix obtaining Series A Convertible Preferred shares in Atomistic that could ultimately be converted into common shares of Atomistic, with Atomistic becoming a subsidiary of the Company, and Vuzix ultimately owning 100% of Atomistic. The share issuances by the Company may not commence any earlier than April 2023 and are expected to be issued over the next 24 months unless waived and accelerated by the Company. In the event the fair market value, which is determined based upon the trailing 10-day VWAP, of the Company’s common shares issued is between a floor of $8 and ceiling of $13, Vuzix may opt to pay any fair market value valuation shortfall with up to 1,093,750 Vuzix common shares or cash to Atomistic owners/founders. Within five years of the commencement of the Atomistic Agreements, the Company has agreed to issue up to a 15% equity bonus of the previously issued common shares to Atomistic stockholders, if; (i) the Company engages in a change of control transaction for an implied equity value of at least $3.5 billion or (ii) the Company’s market valuation exceeds $3.5 billion, if it is determined that 50 percent (50%) of such implied equity value or market capitalization is directly attributable to any technology developed by Atomistic. This could result in the issuance of an additional 262,500 to 426,563 common shares of the Company’s common stock when that valuation target is exceeded. NaN of these share commitments have been issued to date.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 sixthree months ended June 30, 2022,March 31, 2023, the Company repurchased 36,685115,000 shares of our common stock at an average cost of $6.84.$4.06, before commission of $0.03 per share. As of June 30, 2022, 36,685March 31, 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 options awarded under the Long-Term Incentive Plan (LTIP) – Note 12) for the sixthree months ended June 30, 2022March 31, 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 |
| 117,500 | |
| 5.83 |
| 25,000 | |
| 3.64 |
|
|
Exercised |
| (85,452) | |
| 2.66 |
| (2,512) | |
| 1.33 |
|
|
Expired or Forfeited |
| (111,014) | |
| 8.19 |
| (8,853) | |
| 15.23 |
|
|
| | | | | | | | | | | | |
Outstanding at June 30, 2022 |
| 2,744,668 | | $ | 7.75 | |||||||
Outstanding at March 31, 2023 |
| 2,819,308 | | $ | 7.74 |
| 7.07 |
The weighted average remaining contractual term for all options as of June 30, 2022March 31, 2023 and December 31, 20212022 was 7.577.07 years and 7.957.28 years, respectively.
As of June 30, 2022,March 31, 2023, there were 1,303,1681,642,429 options that were fully-vested and exercisable at a weighted average exercise price of $6.36$6.94 per share. The weighted average remaining contractual term of the vested options is 6.56.2 years.
As of June 30, 2022,March 31, 2023, there were 1,441,5001,176,879 unvested options exercisable at a weighted average exercise price of $9.73$8.84 per share. The weighted average remaining contractual term of the unvested options is 8.58.3 years.
The weighted average fair value of option grants was calculated using the Black-Scholes-Merton option pricing method. At June 30, 2022,As of March 31, 2023, the Company had $7,815,902$7,393,432 of unrecognized stock compensation expense, which will be recognized over a weighted average period of 2.82.3 years.
1312
During the three months ended June 30, 2022, the Company issued 88,650 shares of common stock to its independent board members as part of their annual retainer for services covering the period of July 2022 to June 2023. The fair market value on the date of award of the stock issued was $5.64, resulting in an aggregate fair value of approximately $500,000. The fair market value of these awards is expensed over twelve (12) months, beginning on July 1, 2022.
During the three months ended June 30, 2022, the Company issued 200,000 shares of common stock to its recently appointed Chief Operating Officer. The fair market value on the date of award of the stock issued was $5.64, resulting in an aggregate fair value of approximately $1,128,000. The fair market value of this award is expensed over a forty-two (42) month vesting period, beginning on June 15, 2022.
For the three months ended June 30,March 31, 2023 and 2022, and 2021, the Company recorded total stock-based compensation expense, including stock awards but excluding awards under the Company’s LTIP, of $1,222,733$1,129,566 and $1,012,094,$1,350,610, respectively. For the six months ended June 30, 2022 and 2021, the Company recorded total stock-based compensation expense, including stock awards but excluding awards under the Company’s LTIP, of $2,573,343 and $1,468,838, 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 June 30,March 31, 2023 and 2022, and 2021, the Company recorded non-cash stock-based compensation expense of $2,658,294$2,537,944 and $2,115,476,$2,969,138, respectively, for options that vested or are probable to vest. ForThese expenses are presented in the six months ended June 30, 2022 and 2021,same financial statement line items in the Company recorded non-cash stock-basedStatements of Operations as the cash-based compensation expense of $5,627,432 and $7,192,775, respectively,expenses for options that vested or are probable to vest.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 June 30, 2022,March 31, 2023, we had $22,713,026$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 sixthree to four years. The probabilities of the milestone achievements are subject to catch-adjustmentscatch-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 areaward 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 June 30,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 June 30, 2022 and DecemberMarch 31, 2021,2023, there are 2,704,500 options unvested for the achievement of equity market capitalizationEquity Market Capitalization targets, 1,893,150 unvested options
14
for the achievement of annual revenueRevenue targets, and 811,350 unvested options for the achievement of annual EBITDA margins before non-cash chargesMargins Before Non-Cash Charges targets.
| | | |
Award Potential | Criteria Achievement Weighting | ||
| 50% of Options Available | 35% of Options Available | 15% of Options Available |
Options Available | Equity Market | Last Twelve Months Revenue | Last Twelve Months EBITDA |
| | | |
| | | |
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 | | | |
13
Note 13 – Litigation
We are not currently involved in any actual or pending legal 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 June 30, 2022March 31, 2023 were as follows:
| | | | | | |
2022 | | $ | 277,067 | |||
2023 | |
| 546,916 | | $ | 523,238 |
2024 | |
| 45,576 | |
| 191,120 |
2025 | |
| 132,982 | |||
Total Future Lease Payments | |
| 869,559 | |
| 847,340 |
Less: Imputed Interest | |
| (31,639) | |
| (55,736) |
Total Lease Liability Balance | | $ | 837,920 | | $ | 791,604 |
Operating lease costs under the operating leases totaled $163,277$203,339 and $164,205$162,365 for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. Operating lease costs under the operating leases totaled $325,642 and $288,420 for the six months ended June 30, 2022 and 2021, respectively.
As of June 30, 2022,March 31, 2023, the weighted average discount rate was 4.5%7.1% and the weighted average remaining lease term was 1.61.7 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.
15
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 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.
14
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 June 30, 2022.March 31, 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
16
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, 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 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 integratedfully-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 onreductions in pricing for mobile devices. As a result, we must continue to
15
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.
17
Results of Operations
Comparison of Three Months Ended June 30,March 31, 2023 and 2022 and 2021
The following table compares the Company’s consolidated statements of operations data for the three months ended June 30, 2022March 31, 2023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | Three Months Ended March 31, |
| ||||||||||||||||||
|
| | |
| | |
| Dollar |
| % Increase |
|
| | |
| | |
| Dollar |
| % Increase |
| ||
| | 2022 | | 2021 | | Change | | (Decrease) |
| | 2023 | | 2022 | | Change | | (Decrease) |
| ||||||
| | | | | | (as Restated) | | | | | | | | | | | | | | | | | | |
Sales: |
| |
|
| |
|
| |
|
|
| |
| |
|
| |
|
| |
|
|
| |
Sales of Products | | $ | 2,898,892 |
| $ | 2,833,644 |
| $ | 65,248 |
| 2 | % | | $ | 4,191,361 |
| $ | 2,503,051 |
| $ | 1,688,310 |
| 67 | % |
Sales of Engineering Services | |
| 108,866 |
| | 82,894 |
| | 25,972 |
| 31 | % | ||||||||||||
| |
|
|
| |
|
| |
|
|
| | ||||||||||||
Total Sales | |
| 3,007,758 |
| | 2,916,538 |
| | 91,220 |
| 3 | % | ||||||||||||
| |
|
|
| |
|
| |
|
|
| | |
|
|
| |
|
| |
|
|
| |
Cost of Sales: | |
|
|
| |
|
| |
|
|
| | |
|
|
| |
|
| |
|
|
| |
Cost of Sales - Products | |
| 2,522,674 |
| | 2,323,324 |
| | 199,350 |
| 9 | % | |
| 3,082,439 |
| | 1,803,598 |
| | 1,278,841 |
| 71 | % |
Cost of Sales - Engineering Services | |
| 59,296 |
| | 13,842 |
| | 45,454 |
| 328 | % | ||||||||||||
Cost of Sales - Depreciation and Amortization | |
| 232,916 |
| | 223,785 |
| | 9,131 |
| 4 | % | ||||||||||||
| |
|
|
| |
|
| |
|
|
| | |
|
|
| |
|
| |
|
|
| |
Total Cost of Sales | |
| 2,581,970 |
| | 2,337,166 |
| | 244,804 |
| 10 | % | |
| 3,315,355 |
| | 2,027,383 |
| | 1,287,972 |
| 64 | % |
| |
|
|
| |
|
| |
|
|
| | |
|
|
| |
|
| |
|
|
| |
Gross Profit (exclusive of depreciation shown separately below) | |
| 425,788 |
| | 579,372 |
| | (153,584) |
| (27) | % | ||||||||||||
Gross Profit | |
| 876,006 |
| | 475,668 |
| | 400,338 |
| 84 | % | ||||||||||||
Gross Profit % | |
| 14 | % | | 20 | % | |
|
|
| | |
| 21 | % | | 19 | % | |
|
|
| |
| |
|
|
| |
|
| |
|
|
| | |
|
|
| |
|
| |
|
|
| |
Operating Expenses: | |
|
|
| |
|
| |
|
|
| | |
|
|
| |
|
| |
|
|
| |
Research and Development | |
| 2,996,144 |
| | 2,723,994 |
| | 272,150 |
| 10 | % | |
| 3,069,797 |
| | 3,103,444 |
| | (33,647) |
| (1) | % |
Selling and Marketing | |
| 1,850,595 |
| | 1,349,189 |
| | 501,406 |
| 37 | % | |
| 2,539,659 |
| | 2,023,435 |
| | 516,224 |
| 26 | % |
General and Administrative | |
| 5,039,949 |
| | 5,181,042 |
| | (141,093) |
| (3) | % | |
| 5,131,824 |
| | 5,453,833 |
| | (322,009) |
| (6) | % |
Depreciation and Amortization | |
| 540,081 |
| | 501,678 |
| | 38,403 |
| 8 | % | |
| 964,265 |
| | 259,245 |
| | 705,020 |
| 272 | % |
Impairment of Patents and Trademarks | |
| — |
| | 30,765 |
| | (30,765) |
| (100) | % | |
| 17,666 |
| | 49,603 |
| | (31,937) |
| (64) | % |
| |
|
|
| |
|
| |
|
|
| | |
|
|
| |
|
| |
|
|
| |
Loss from Operations | |
| (10,000,981) |
| | (9,207,296) |
| | (793,685) |
| 9 | % | |
| (10,847,205) |
| | (10,413,892) |
| | (433,313) |
| 4 | % |
| |
|
|
| |
|
| |
|
| | | |
|
|
| |
|
| |
|
| | |
Other Income (Expense): | |
|
|
| |
|
| |
|
|
| | |
|
|
| |
|
| |
|
|
| |
Investment Income | |
| 111,027 |
| | 7,767 |
| | 103,260 |
| 1,329 | % | |
| 695,783 |
| | 6,280 |
| | 689,503 |
| 10,979 | % |
Income and Other Taxes | |
| (31,326) |
| | (12,783) |
| | (18,543) |
| 145 | % | |
| (87,795) |
| | (47,632) |
| | (40,163) |
| 84 | % |
Foreign Exchange Loss | |
| (100,388) |
| | (33,160) |
| | (67,228) |
| 203 | % | |
| (1,366) |
| | (50,757) |
| | 49,391 |
| (97) | % |
| |
|
|
| |
|
| |
|
|
| | |
|
|
| |
|
| |
|
|
| |
Total Other Expense, Net | |
| (20,687) |
| | (38,176) |
| | 17,489 |
| (46) | % | ||||||||||||
Total Other Income (Expense), Net | |
| 606,622 |
| | (92,109) |
| | 698,731 |
| (759) | % | ||||||||||||
| |
|
|
| |
|
| |
|
|
| | |
|
|
| |
|
| |
|
|
| |
Loss Before Provision for Income Taxes | |
| (10,021,668) |
| | (9,245,472) |
| | (776,196) |
| 8 | % | |
| (10,240,583) |
| | (10,506,001) |
| | 265,418 |
| (3) | % |
Provision for Income Taxes | |
| — |
| | — |
| | — |
| — | % | |
| — |
| | — |
| | — |
| — | % |
| |
|
|
| |
|
| |
|
|
| | |
|
|
| |
|
| |
|
|
| |
Net Loss | | $ | (10,021,668) | | $ | (9,245,472) | | $ | (776,196) |
| 8 | % | | $ | (10,240,583) | | $ | (10,506,001) | | $ | 265,418 |
| (3) | % |
1816
Sales. There was an increase in total sales for the three months ended June 30, 2022March 31, 2023 compared to the same period in 20212022 of $91,220$1,688,310, or 3%67%. The following table reflects the major components of our sales:
| | | | | | | | | | | | | | | | |
|
| Three Months Ended | | % of | | Three Months Ended | | % of | | Dollar | | % Increase |
| |||
| | June 30, 2022 | | Total Sales | | June 30, 2021 | | Total Sales | | Change | | (Decrease) | | |||
Sales of Smart Glasses | | $ | 2,782,006 |
| 92 | % | | 2,798,549 |
| 96 | % | $ | (16,543) |
| (1) | % |
Sales of Waveguides & Display Engines | |
| 105,000 |
| 3 | % |
| — |
| 0 | % |
| 105,000 |
| NM | |
Sales Freight Out | |
| 11,886 |
| 0 | % |
| 35,095 |
| 1 | % |
| (23,209) |
| (66) | % |
Sales of Engineering Services | |
| 108,866 |
| 4 | % |
| 82,894 |
| 3 | % |
| 25,972 |
| 31 | % |
Total Sales | | $ | 3,007,758 |
| 100 | % | $ | 2,916,538 |
| 100 | % | $ | 91,220 |
| 3 | % |
| | | | | | | | | | | | | | | | |
|
| 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 decreasedincreased by 1%67% for the three months ended June 30, 2022March 31, 2023 compared to the three months ended June 30, 2021. Whilesame period in 2022. Smart glasses revenue was the primary driver of this increase, as unit sales of smart glasses were up in the current quarterour M400 product increased significantly, partially offset by higher average sales discounts due to larger volume reseller sales, as compared to that during the 2021 quarter, foreign exchange reductions and higher customer volume discounts, reduced the top line revenue amount.same period in 2022.
Sales ofThere were no engineering services revenue for the three months ended June 30, 2022 were $108,866 as compared to $82,894 in the 2021 period.March 31, 2023 and 2022.
Cost of Sales and Gross Profit. Cost of product salesrevenues 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 | | | Three Months Ended | | As % Related | | Three Months Ended | | As % Related | | Dollar | | % Increase | | ||||||
| | June 30, 2022 | | Product Sales | | June 30, 2021 | | Product Sales | | Change | | (Decrease) | | | March 31, 2023 | | Total Sales | | March 31, 2022 | | Total Sales | | Change | | (Decrease) | | ||||||
Product Cost of Sales |
| $ | 1,807,485 |
| 62 | % | $ | 1,344,381 |
| 47 | % | $ | 463,104 |
| 34 | % |
| | 2,546,951 |
| 61 | % | $ | 1,406,745 |
| 56 | % | $ | 1,140,206 |
| 81 | % |
Freight Costs |
| | 165,681 |
| 6 | % | | 172,608 |
| 6 | % | | (6,927) |
| (4) | % | ||||||||||||||||
Manufacturing Overhead - Unapplied |
| | 337,751 |
| 12 | % | | 707,489 |
| 25 | % | | (369,738) |
| (52) | % |
| | 535,488 |
| 13 | % | | 396,853 |
| 16 | % | | 138,635 |
| 35 | % |
Warranty Costs |
| | 22,037 |
| 1 | % | | 2,974 |
| 0 | % | | 19,063 |
| 641 | % | ||||||||||||||||
Inventory Reserve for Obsolescence |
| | 120,000 |
| 4 | % | | — |
| — | % | | 120,000 |
| NM | | ||||||||||||||||
Amortization of Software Development Costs |
| | 65,002 |
| 2 | % | | 59,231 |
| 2 | % | | 5,771 |
| 10 | % | ||||||||||||||||
Software Royalties |
| | 4,718 |
| 0 | % | | 36,641 |
| 1 | % | | (31,923) |
| (87) | % | ||||||||||||||||
Depreciation and Amortization | | | 232,916 | | 6 | % | | 223,785 | | 9 | % | | 9,131 | | 4 | % | ||||||||||||||||
|
| |
|
|
|
| |
|
|
|
| |
|
|
| |
| |
|
|
|
| |
|
|
|
| |
|
|
| |
Total Cost of Sales - Products | | $ | 2,522,674 |
| 87 | % | $ | 2,323,324 |
| 82 | % | $ | 199,350 |
| 9 | % | ||||||||||||||||
Total Cost of Sales | | $ | 3,315,355 |
| 79 | % | $ | 2,027,383 |
| 81 | % | $ | 1,287,972 |
| 64 | % | ||||||||||||||||
| |
|
|
|
| |
|
|
|
| |
|
|
|
| | |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Gross Profit - Product Sales | | $ | 376,218 |
| 13 | % | $ | 510,320 |
| 18 | % | $ | (134,102) |
| (26) | % | ||||||||||||||||
Gross Profit | | $ | 876,006 |
| 21 | % | $ | 475,668 |
| 19 | % | $ | 400,338 |
| 84 | % |
For the three months ended June 30, 2022, we reported an overallMarch 31, 2023, gross profit from producttotal sales of $376,218was $876,006 or 13%21% as compared to $510,320$475,668 or 18%19% in the same period in 2021. On a product cost2022.
Manufacturing overhead costs, not already added in Cost of sales basis only, product direct costs were 62% of sales inSales, increased by $138,635 or 35% for the three months ended March 31, 2023 over the 2022 comparable period, however, such costs decreased as a percentage of total sales to 13% as compared to 47%16% in 2021,2022. The increase in the net dollar amount of these unapplied overhead costs in the current period versus the prior period was primarily driven by: (i) a higher level of sales discounts on high volume units sales, (ii) the negative impact of foreign exchangeby lower than planned production output due to some supply chain issues, which have improved significantly in the 2022 period on non-US dollar denominated sales, and (iii) higher allocations of applied manufacturing overhead costs included in Product Cost of Sales.second quarter.
1917
Manufacturing overhead costs, not already added in Product Cost of Sales, decreased by $369,738 or 52% for the three months ended June 30, 2022 over the 2021 comparable period to 12% as a percentage of total product sales as compared to 25% in 2021. The decrease in the dollar amount of these overhead costs in the current period versus the prior period is primarily due to more absorption of fixed costs being allocated directly to Product Cost of Sales and inventory.
Costs for engineering services for the three months ended June 30, 2022 were $59,296 as compared to $13,842 in 2021. Gross profit from engineering services for the three months ended June 30, 2022 was $49,570 versus $69,052 in the same period in 2021.
Research and Development. Our research and development expenses consist primarily of compensation costs for personnel, relatedincluding 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 | | ||||||
| | June 30, 2022 | | Total Sales | | June 30, 2021 | | Total Sales | | Change | | (Decrease) | | | March 31, 2023 | | Total Sales | | March 31, 2022 | | Total Sales | | Change | | (Decrease) | | ||||||
Research and Development | | $ | 2,996,144 |
| 100 | % | $ | 2,723,994 |
| 93 | % | $ | 272,150 |
| 10 | % | | $ | 3,069,797 |
| 73 | % | $ | 3,103,444 |
| 124 | % | $ | (33,647) |
| (1) | % |
Research and development expenses for the three months ended June 30, 2022 increasedMarch 31, 2023 decreased by $272,150$33,647 or 10%1%, as compared to the same period in 2021.2022. This increasedecrease was largely due to a decline of $61,300 in recruitment and hiring expenses, mostly offset by an increase of $172,383$52,243 in external development expenses and consultants related to our Next Generation Smart Glasses (Shield); a $170,013 increase in salary and benefits expenses; and partially offset by a decrease of $68,318 in supplies and consumables.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 | | ||||||
|
| June 30, 2022 |
| Total Sales | | June 30, 2021 |
| Total Sales | | Change |
| (Decrease) | |
| March 31, 2023 |
| Total Sales | | March 31, 2022 |
| Total Sales | | Change |
| (Decrease) | | ||||||
Selling and Marketing | | $ | 1,850,595 | | 62 | % | $ | 1,349,189 | | 46 | % | $ | 501,406 | | 37 | % | | $ | 2,539,659 | | 61 | % | $ | 2,023,435 | | 81 | % | $ | 516,224 | | 26 | % |
Selling and marketing expenses for the three months ended June 30, 2022March 31, 2023 increased by $501,406$516,224 or 37%26%, as compared to the same period in 2021.2022. This increase was largely due to a $343,762$541,848 increase in salary and salary benefits related expense;expenses, driven by headcount increase; and an increase of $99,781$92,193 in travel related expenses; an increase of $73,422 in sales commissions largely due an increase in commissions payable to TDG Acquisition Company, LLC for defense related sales under our former agreement which expired on June 15, 2022; an increase of $42,927 in trade show expenses; and partially offset by a decrease of $69,657$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 a decrease of $27,763 in 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 | | ||||||
| | June 30, 2022 | | Total Sales | | June 30, 2021 | | Total Sales | | Change | | (Decrease) | | | March 31, 2023 | | Total Sales | | March 31, 2022 | | Total Sales | | Change | | (Decrease) | | ||||||
General and Administrative | | $ | 5,039,949 |
| 168 | % | $ | 5,181,042 |
| 178 | % | $ | (141,093) |
| (3) | % | | $ | 5,131,824 |
| 122 | % | $ | 5,453,833 |
| 218 | % | $ | (322,009) |
| (6) | % |
General and administrative expenses for the three months ended June 30, 2022March 31, 2023 decreased by $141,093$322,009 or 3%6%, as compared to the same period in 2021.2022. This decrease was largely due to a decrease of $221,443$562,119 in salary and salary benefits related expenses, which was primarily driven by a decrease in non-cash stock-based compensation related to the Company’s LTIP; a decrease of $64,617 in accounting and tax services expenses; and a $37,082 decrease in legal expenses; partially offset by an increase of $198,767 in shareholder and IR related expenses; a $102,353 decrease in recruitment and hiring expenses; and partially offset by increases of $79,838$84,575 increase in consulting fees, $61,541fees; and a $36,647 increase in insurance premiums and $19,781 in travel related expenses.premiums.
20
Depreciation and Amortization. Depreciation and amortization expense, not included in Cost of Sales, for the three months ended June 30, 2022March 31, 2023 was $540,081,$964,265, as compared to $501,678$259,245 in the same period in 2021,2022, an increase of $38,403.$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; and is mostly offset by a decrease in depreciation expense related to certain fixed assets associated with machinery and tooling that became fully depreciated in 2021.2022.
18
Other Expense,Income (Expense), Net. Total other expenseincome was $20,687$606,622 for the three months ended June 30, 2022,March 31, 2023, as compared to $38,176other expense of $92,109 in the same period in 2021, a decrease2022, an increase of $17,489.$698,731. The overall decreaseincrease in other expensesincome was primarily the result of an increase of $18,543 in income and other taxes; and an increase of $67,228 in foreign exchange losses, offset by an increase of $103,260$689,503 in investment income resulting from the recent rise in interest rates.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 June 30, 2022March 31, 2023 and 2021.2022.
21
Comparison of Six Months Ended June 30, 2022 and 2021
The following table compares the Company’s consolidated statements of operations data for the six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | |
| | Six Months Ended June 30, | | |||||||||
|
| | |
| | |
| Dollar |
| % Increase |
| |
| | 2022 | | 2021 | | Change | | (Decrease) |
| |||
| | | | | | (as Restated) | | | | | | |
Sales: |
| |
|
| |
|
| |
|
|
| |
Sales of Products | | $ | 5,401,944 | | $ | 6,638,814 | | $ | (1,236,870) |
| (19) | % |
Sales of Engineering Services | |
| 108,866 | |
| 193,113 | |
| (84,247) |
| (44) | % |
| | | | | | | | | | | | |
Total Sales | |
| 5,510,810 | |
| 6,831,927 | |
| (1,321,117) |
| (19) | % |
| | | | | | | | | | | | |
Cost of Sales: | |
|
| |
|
| |
|
|
|
| |
Cost of Sales - Products Sold | |
| 4,386,371 | |
| 5,143,295 | |
| (756,924) |
| (15) | % |
Cost of Sales - Engineering Services | |
| 59,296 | |
| 29,669 | |
| 29,627 |
| 100 | % |
| | | | | | | | | | | | |
Total Cost of Sales | |
| 4,445,667 | |
| 5,172,964 | |
| (727,297) |
| (14) | % |
| | | | | | | | | | | | |
Gross Profit (exclusive of depreciation shown separately below) | |
| 1,065,143 | |
| 1,658,963 | |
| (593,820) |
| (36) | % |
Gross Profit % | |
| 19 | % |
| 24 | % |
|
|
|
| |
| | | | | | | | | | | | |
Operating Expenses: | |
|
| |
|
| |
|
|
|
| |
Research and Development | |
| 6,099,588 | |
| 4,929,312 | |
| 1,170,276 |
| 24 | % |
Selling and Marketing | |
| 3,914,584 | |
| 2,652,619 | |
| 1,261,965 |
| 48 | % |
General and Administrative | |
| 10,453,228 | |
| 11,208,799 | |
| (755,571) |
| (7) | % |
Depreciation and Amortization | |
| 963,012 | |
| 1,019,090 | |
| (56,078) |
| (6) | % |
Impairment of Patents and Trademarks | |
| 49,602 | |
| 58,496 | |
| (8,894) |
| (15) | % |
Loss on Fixed Asset Disposal | |
| — | |
| 83,908 | |
| (83,908) |
| (100) | % |
| | | | | | | | | | | | |
Loss from Operations | |
| (20,414,871) | |
| (18,293,261) | |
| (2,121,610) |
| 12 | % |
| | | | | | | | | | | | |
Other Income (Expense): | |
|
| |
|
| |
|
|
|
| |
Investment Income | |
| 117,307 | |
| 15,605 | |
| 101,702 |
| 652 | % |
Income and Other Taxes | |
| (78,959) | |
| (32,508) | |
| (46,451) |
| 143 | % |
Foreign Exchange Loss | |
| (151,145) | |
| (86,678) | |
| (64,467) |
| 74 | % |
| | | | | | | | | | | | |
Total Other Expense, Net | |
| (112,797) | |
| (103,581) | |
| (9,216) |
| 9 | % |
| | | | | | | | | | | | |
Net Loss | | $ | (20,527,668) | | $ | (18,396,842) | | $ | (2,130,826) |
| 12 | % |
22
Sales. There was a decrease in total sales for the six months ended June 30, 2022 compared to the same period in 2021 of $1,321,117 or 19%. The following table reflects the major components of our sales:
| | | | | | | | | | | | | | | | |
| | Six Months Ended | | % of | | Six Months Ended | | % of | | Dollar | | % Increase | | |||
| | June 30, 2022 | | Total Sales | | June 30, 2021 | | Total Sales | | Change | | (Decrease) | | |||
Sales of Smart Glasses | | $ | 5,161,405 |
| 94 | % | $ | 6,571,030 |
| 96 | % | $ | (1,409,625) |
| (21) | % |
Sales of Waveguides & Display Engines | |
| 213,250 |
| 4 | % |
| — |
| — | % |
| 213,250 |
| N/M | |
Sales Freight Out | |
| 27,289 |
| 0 | % |
| 67,784 |
| 1 | % |
| (40,495) |
| (60) | % |
Sales of Engineering Services | |
| 108,866 |
| 2 | % |
| 193,113 |
| 3 | % |
| (84,247) |
| (44) | % |
Total Sales | | $ | 5,510,810 |
| 100 | % | $ | 6,831,927 |
| 100 | % | $ | (1,321,117) |
| (19) | % |
Sales of Smart Glasses products decreased by 21% or $1,409,625 in the six months ended June 30, 2022, as compared to the six months ended June 30, 2021.
Sales of engineering services for the six months ended June 30, 2022 were $108,866, as compared to $193,113 in the same period of 2021.
Cost of Sales and Gross Profit. Cost of product sales and engineering services are comprised of materials, components, labor, warranty costs, freight costs, manufacturing overhead, software royalties, and the non-cash 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:
| | | | | | | | | | | | | | | | |
| | Six Months Ended | | As % Related | | Six Months Ended | | As % Related | | Dollar | | % Increase | | |||
| | June 30, 2022 | | Product Sales | | June 30, 2021 | | Product Sales | | Change | | (Decrease) | | |||
Product Cost of Sales | | $ | 3,023,220 |
| 56 | % | $ | 3,342,895 |
| 50 | % | $ | (319,675) |
| (10) | % |
Freight Costs | |
| 373,962 |
| 7 | % |
| 362,953 |
| 5 | % |
| 11,009 |
| 3 | % |
Manufacturing Overhead - Unapplied | |
| 734,604 |
| 14 | % |
| 1,254,162 |
| 19 | % |
| (519,558) |
| (41) | % |
Warranty Costs | |
| (6,815) |
| (0) | % |
| (29,874) |
| (0) | % |
| 23,059 |
| (77) | % |
Inventory Reserve for Obsolescence | |
| 120,000 |
| 2 | % |
| - |
| — | % |
| 120,000 |
| NM | |
Amortization of Software Development Costs | |
| 130,883 |
| 2 | % |
| 124,230 |
| 2 | % |
| 6,653 |
| 5 | % |
Software Royalties | |
| 10,517 |
| 0 | % |
| 88,929 |
| 1 | % |
| (78,412) |
| (88) | % |
| | | | | | | | | | | | | | | | |
Total Cost of Sales - Products | | | 4,386,371 |
| 81 | % | | 5,143,295 |
| 77 | % | | (756,924) |
| (15) | % |
| | | | | | | | | | | | | | | | |
Gross Profit - Product Sales | | $ | 1,015,573 | | 19 | % | $ | 1,495,519 |
| 23 | % | $ | (479,946) |
| (32) | % |
For the six months ended June 30, 2022, we reported an overall gross profit from product sales of $1,015,573 or 19% as compared to $1,495,519 or 23% in the same period in 2021. On a product cost of sales basis only, product direct costs were 56% of sales in the 2022 period as compared to 50% in 2021, primarily driven by: (i) a higher level of sales discounts on high-volume unit sales, (ii) the negative impact of foreign exchange in the 2022 period on non-US dollar denominated sales, and (iii) higher allocations of applied manufacturing overheads costs included in Product Cost of Sales.
Manufacturing overhead costs, not already applied and added into Product Cost of Sales, decreased by $519,558 or 41% for the six months ended June 30, 2022 over the 2021 comparable period to 14% as a percentage of total product sales as compared to 19% in 2021. The decrease in the dollar amount of these overhead costs in the current period versus the prior period is primarily due to more absorption of fixed costs being allocated directly to Product Cost of Sales and to inventory.
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Costs for engineering services for the six months ended June 30, 2022 were $59,296, as compared to $29,669 in 2021. Gross profit from engineering services for the six months ended June 30, 2022 was $49,570 versus $163,444 in the same period in 2021.
Research and Development. Our research and development expenses consist primarily of compensation costs for personnel, related 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.
| | | | | | | | | | | | | | | | |
| | | | | | | (as Restated) | | | | | | | | | |
| | Six Months Ended | | % of | | Six Months Ended | | % of | | Dollar | | % Increase | | |||
| | June 30, 2022 | | Total Sales | | June 30, 2021 | | Total Sales | | Change | | (Decrease) | | |||
Research and Development | | $ | 6,099,588 |
| 111 | % | $ | 4,929,312 |
| 72 | % | $ | 1,170,276 |
| 24 | % |
Research and development expenses for the six months ended June 30, 2022 increased by $1,170,276 or 24%, as compared to the same period in 2021. This increase was largely due to an increase of $607,980 in external development expenses related to our Next Generation Smart Glasses (Shield); a $505,548 increase in salary and benefits expenses; an increase of $78,920 in technology licensing fees; and an increase of $78,800 in recruitment and hiring fees; and partially offset by a decrease of $100,556 in supplies and consumables expense.
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) | | | | | | | | | |
| | Six Months Ended | | % of | | Six Months Ended | | % of | | Dollar | | % Increase | | |||
| | June 30, 2022 | | Total Sales | | June 30, 2021 | | Total Sales | | Change | | (Decrease) | | |||
Selling and Marketing | | $ | 3,914,584 |
| 71 | % | $ | 2,652,619 |
| 39 | % | $ | 1,261,965 |
| 48 | % |
Selling and marketing expenses for the six months ended June 30, 2022 increased by $1,261,965 or 48%, as compared to the same period in 2021. This increase was largely due to a $819,327 increase in salary and salary benefits related expense; a $304,988 increase in advertising costs; an increase of $147,031 in travel related expenses; an increase of $101,657 in trade show expenses; and an increase of $56,627 in commissions expenses largely due to an increase in commissions payable to TDG for defense related sales; and partially offset by a decrease of $191,195 in website development and maintenance costs.
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) | | | | | | | | | |
| | Six Months Ended | | % of | | Six Months Ended | | % of | | Dollar | | % Increase | | |||
| | June 30, 2022 | | Total Sales | | June 30, 2021 | | Total Sales | | Change | | (Decrease) | | |||
General and Administrative | | $ | 10,453,228 |
| 190 | % | $ | 11,208,799 |
| 164 | % | $ | (755,571) |
| (7) | % |
General and administrative expenses for the six months ended June 30, 2022 decreased by $755,571 or 7%, as compared to the same period in 2021. This decrease was largely due to a $601,973 decrease in salary and benefits expenses, related primarily to non-cash stock-based compensation which was significantly higher in the first quarter of 2021 due to the vesting of an achieved equity market capitalization milestone under the LTIP; a decrease of $322,831 in shareholder and IR related expenses, a $172,054 decrease in recruitment and hiring expenses; and a $36,221 decrease in legal expenses; and partially offset by increases of $179,838 in insurance premiums, $158,079 in audit and tax advisory fees and $39,781 in travel related expenses.
Depreciation and Amortization. Depreciation and amortization expense for the six months ended June 30, 2022 was $963,012 as compared to $1,019,090 in the same period in 2021, a decrease of $56,078. The decrease in
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depreciation expense was primarily related to certain fixed assets associated with machinery and tooling that became fully depreciated in 2021.
Other Expense. Total other expense was $112,797 for the six months ended June 30, 2022 as compared to $103,581 in the same period in 2021, an increase of $9,216. The overall increase in other expenses was primarily the result of an increase of $46,451 in income and other taxes; and an increase of $64,467 in foreign exchange losses, offset by an increase of $101,702 in investment income due to the recent rise in interest rates.
Provision for Income Taxes. There was not a provision for income taxes in the respective six month periods ending June 30, 2022 and 2021.
Liquidity and Capital Resources
Capital Resources: As of June 30, 2022,March 31, 2023, we had cash and cash equivalents of $100,581,795,$63,235,863, a decrease of $19,622,078$9,328,080 from $120,203,873$72,563,943 as of December 31, 2021.2022.
As of June 30, 2022,March 31, 2023, we had current assets of $116,941,231$79,910,801 as compared to current liabilities of $7,791,023$12,864,249 which resulted in a positive working capital position of $109,150,208.$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 sixthree months ended:
| | June 30, | | (as Restated) June 30, | | March 31, | | March 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Net Cash Provided by (used in) |
| |
|
| |
|
| |
|
| |
|
Net Loss less Non-Cash Operating Expenses | | $ | (11,183,397) | | $ | (8,453,538) | ||||||
Operating Activities | | (11,016,909) | | (13,108,703) | | $ | (4,164,727) | | $ (6,435,079) | |||
Investing Activities | |
| (8,402,617) | |
| (1,238,772) | |
| (4,692,596) | |
| (217,227) |
Financing Activities | |
| (202,552) | |
| 115,882,312 | |
| (470,757) | |
| (221,833) |
During the sixthree months ended June 30, 2022,March 31, 2023, we used $11,016,909$4,164,727 of cash for operating activities as compared to $13,108,703 for the comparable period in 2021. For the six months ended June 30, 2022, we incurred a net loss of $20,527,668, which, after adding back non-cash operating expenses of $9,344,271, resulted in a net cash loss of $11,183,397 before changes in working capital. For the six months ended June 30, 2021, we incurred a net loss of $18,396,842, which, after adding back non-cash operating expenses of $9,943,304, resulted in a net cash loss of $8,453,538 before changes in working capital.activities. Net changes in working capital items were $166,489$1,193,500 for the sixthree months ended June 30, 2022,March 31, 2023, with the largest factorfactors resulting from a $537,537 increase$930,926 decrease in trade accounts payables and other accrued expenses, a decrease of $294,676 in investments of inventory and vendor prepayments; and partially offset by decreasesa $218,520 decrease in accounts receivable and revenues in excess of billings of $569,657 and other prepaid expensesexpenses. For the three months ended March 31, 2022, we used a total of $492,599.$6,435,079 in cash for operating activities.
During the sixthree months ended June 30, 2022,March 31, 2023, we used $8,402,617$4,692,596 of cash for investing activities, which included $4,500,000$2,000,000 in payments made towards our $15,000,000 technology license fee commitment, (as discussed in Note 6), $3,504,931$2,284,968 for purchases of manufacturing equipment product mold tooling, and backplane chip design and tooling fees; $272,686leasehold 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 sixthree months ended June 30, 2021,March 31, 2022, we used a total of $1,238,772$217,227 in cash for investing activities.
During the sixthree months ended June 30, 2022,ending March 31, 2023, we used $202,552$470,757 in net cash fromfor financing activities, which included $251,057was for share repurchases under our Share Buyback Program that was announced on March 2, 2022;2022 and
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partially offset by $48,505 in proceeds from the exercise of stock options. expired on March 2, 2023. For the sixthree months ended June 30, 2021,March 31, 2022, we received $115,882,312used $221,833 in proceeds fromnet cash for financing activities, primarily from sales of our equity securities.activities.
As of June 30, 2022,March 31, 2023, the Company does not have any current or long-term debt obligations outstanding other than Licensing Fee Commitmentslicensing fee commitments totaling $10,500,000 related to the Atomistic Agreements described in Note 6$9,500,000, which are all current.
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Additionally in connection with the Atomistic Agreements, the Company entered a Stock Purchase Agreement with the two founder/owners (“Founders”) of Atomistic under which Vuzix will buy Series B Convertible Preferred shares in Atomistic through the issuance of Vuzix common shares based on the achievement of certain Milestone as defined in the Share Purchase Agreement. There are a total of six Milestone Series B Preferred purchases payable in Vuzix common shares expected to be achieved over the next twenty-four (24) months and one Milestone Series B Preferred purchase payable in cash of $2,500,000 along with the issuance of Vuzix common shares, to take place on the eleventh month anniversary of the Closing of this transaction. These share issuances by Vuzix are subject to a valuation floor and ceiling of $8 and $13 per share of Vuzix’ common stock, which is determined based upon the trailing 10-day VWAP, at the time when the Atomistic Series B preferred shares are purchased. This will result, depending on Vuzix’ share price at the time of their issuance, in the Company’s issuance of a minimum of 1,750,000 to a maximum of 2,843,750 common shares to Atomistic owners/founders in exchange for convertible Series A Preferred shares of Atomistic. In the event the fair market value of the Vuzix common shares issued is between the valuation floor and ceiling of $8 to $13, Vuzix may opt to pay any fair market value shortfall in Vuzix common shares or cash. Once Atomistic has achieved all its milestones or has them waived by Vuzix, and Vuzix issues the required numbers of Vuzix common shares, in exchange for Series A Covertible Preferred shares in Atomistic that could ultimately be converted into common shares of Atomistic, the Company would ultimately end up owning 100% of Atomistic.
The Company’s cash requirements are primarily for funding operating losses, working capital, research and development, capital expenditures, and licenselicensing fee commitments. We incurred a net loss for the sixthree months ended June 30,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 $20,527,668$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 $223,599,811$254,076,299 as of June 30, 2022.March 31, 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, doesdid not obligate the Company to acquire any particular amount of common stock, and may becould have been suspended or discontinued at any time at the Company’s sole discretion. During the sixthree months ended June 30, 2022,March 31, 2023, the Company repurchased 36,685115,000 shares of our common stock at an average cost of $6.84.$4.06, before commission of $0.03 per share. As of June 30, 2022, 36,685March 31, 2023, 579,672 shares of our common stock were held in treasury.
Our operations arehave historically been financed primarily through net proceeds from the sale of our equity securities. As of June 30, 2022,March 31, 2023, our principal sources of liquidity consisted of cash and cash equivalents of $100,581,795.$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; |
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● | 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; |
20
● | our ability to attract and retain highly skilled employees; |
● | 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, 20212022 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.
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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
21
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 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 reportedThere 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, andExchange Act) that occurred during the Company’s subsequent identification and correction of an error inmost 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, implementedCompany’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 June 30, 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.
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Part II. OTHER INFORMATION
Item 1.Legal Proceedings
We are not currently involved in any actual or pending legal 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. Except as set forth below, there2022. There have been no material changes from those risk factors. The risks discussed in our 20212022 Annual Report and described below 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.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Sale of Unregistered Securities – none
Purchase of Equity Securities - noneSecurities:
| | |||||||||
Period |
| Total number |
| Average |
| Total number |
| Maximum dollar value | ||
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 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 | | |
| |
|
31.2 | | |
| |
|
32.1 | | |
| |
|
32.2 | | |
| |
|
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: | By: | /s/ Paul Travers |
|
| Paul Travers |
|
| President, Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
Date: | By: | /s/ Grant Russell |
|
| Grant Russell |
|
| Executive Vice President and Chief Financial |
|
| Officer |
|
| (Principal Financial and Accounting Officer) |
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