UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended ~~September~~June 30, ~~2022~~2023


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

Commission file number 001-35955

VUZIX CORPORATION

(Exact name of registrant as specified in its charter)


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


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

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

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


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

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

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

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


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

Smaller reporting company	☐☒	Emerging growth company	☐

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

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

As of ~~November 9, 2022,~~August 8, 2023, there were ~~63,739,650~~63,319,217 shares of the registrant’s common stock outstanding.

Table of Contents

Vuzix Corporation

INDEX

		Page No.

Part I – Financial Information		3

Item 1.	Consolidated Financial Statements (Unaudited):	3

	Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	4

	Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	5

	Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	6

	Notes to the Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1715

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2825

Item 4.	Controls and Procedures	2925

Part II – Other Information		2926

Item 1.	Legal Proceedings	2926

Item 1A.	Risk Factors	2926

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3026

Item 3.	Defaults Upon Senior Securities	3026

Item 4.	Mine Safety Disclosure	3026

Item 5.	Other Information	3026

Item 6.	Exhibits	3127

Signatures		3228

Table of Contents

Part 1: FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

VUZIX CORPORATION

CONSOLIDATED BALANCE SHEETS


	(Unaudited)				(Unaudited)
	September 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022
ASSETS
Current Assets
Cash and Cash Equivalents	$	90,374,403	$	120,203,873	$	48,582,005	$	72,563,943
Accounts Receivable		3,118,036		2,242,429
Accounts Receivable, Net						6,545,608		3,558,971
Accrued Revenues in Excess of Billings		393,250		—		309,762		269,129
Employee Retention Credit Receivable						—		466,705
Inventories, Net		12,229,472		12,151,982		10,870,166		11,267,969
Manufacturing Vendor Prepayments		430,721		504,051		353,399		998,671
Prepaid Expenses and Other Assets		2,465,117		2,047,819		1,660,374		2,115,853

Total Current Assets		109,010,999		137,150,154		68,321,314		91,241,241

Long-Term Assets
Fixed Assets, Net		9,524,178		5,190,438		6,814,005		3,878,505
Operating Lease Right-of-Use Asset		707,574		1,117,022		628,131		956,165
Patents and Trademarks, Net		2,141,157		1,988,370		2,438,299		2,220,094
Technology Licenses, Net		15,657,333		1,389,936		28,504,870		30,158,689
Intangible Asset, Net		—		147,548		605,453		675,313
Goodwill						1,601,400		1,601,400
Other Assets, Net		1,716,810		1,483,589		1,649,132		1,581,143

Total Assets	$	138,758,051	$	148,467,057	$	110,562,604	$	132,312,550

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable	$	2,196,590	$	2,054,762	$	1,620,490	$	1,211,747
Unearned Revenue		24,370		27,797		107,043		29,064
Accrued Expenses		1,174,372		1,419,308		1,029,177		1,670,539
Licensing Fees Commitment		4,250,000		—		3,500,000		11,500,000
Income and Other Taxes Payable		46,604		120,242		138,959		214,997
Operating Lease Right-of-Use Liability		525,882		534,146		429,421		651,011

Total Current Liabilities		8,217,818		4,156,255		6,825,090		15,277,358

Long-Term Liabilities
Operating Lease Right-of-Use Liability		181,692		582,876		198,710		305,154
Licensing Fees Commitment		4,750,000		—

Total Long-Term Liabilities		4,931,692		582,876

Total Liabilities		13,149,510		4,739,131		7,023,800		15,582,512

Stockholders' Equity
Common Stock - $0.001 Par Value, 100,000,000 shares authorized; 63,776,335 shares issued and 63,739,650 shares outstanding as of September 30, 2022 and 63,672,268 shares issued and outstanding as of December 31, 2021.		63,777		63,672
Common Stock - $0.001 Par Value, 100,000,000 shares authorized; 63,898,889 shares issued and 63,319,217 shares outstanding as of June 30, 2023 and 63,783,779 shares issued and 63,319,107 shares outstanding as of December 31, 2022.						63,899		63,783
Additional Paid-in Capital		358,872,631		346,736,397		369,072,625		362,507,715
Accumulated Deficit		(233,076,810)		(203,072,143)		(263,121,219)		(243,835,716)
Treasury Stock, at cost, 36,685 shares as of September 30, 2022 and 0 shares as of December 31, 2021		(251,057)		—
Treasury Stock, at cost, 579,672 shares as of June 30, 2023 and 464,672 shares as of December 31, 2022.						(2,476,501)		(2,005,744)

Total Stockholders' Equity		125,608,541		143,727,926		103,538,804		116,730,038

Total Liabilities and Stockholders' Equity	$	138,758,051	$	148,467,057	$	110,562,604	$	132,312,550

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

Table of Contents

VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


	Common Stock			Additional		Accumulated		Treasury Stock
	Shares	Amount		Paid-In Capital		Deficit		Shares	Amount		Total
Balance - April 1, 2023	63,787,858	$	63,787	$	365,868,487	$	(254,076,299)	(579,672)	$	(2,476,501)	$	109,379,474
Stock-Based Compensation Expense	96,525		97		3,189,606		—	—		—		3,189,703
Stock Option Exercises	14,506		15		14,532		—	—		—		14,547
Net Loss	—		—		—		(9,044,920)	—		—		(9,044,920)
Balance - June 30, 2023	63,898,889	$	63,899	$	369,072,625	$	(263,121,219)	(579,672)	$	(2,476,501)	$	103,538,804


	Common Stock			Additional		Accumulated		Treasury Stock
	Shares	Amount		Paid-In Capital		Deficit		Shares	Amount		Total
Balance - January 1, 2023	63,783,779	$	63,783	$	362,507,715	$	(243,835,716)	(464,672)	$	(2,005,744)	$	116,730,038
Stock-Based Compensation Expense	96,525		97		6,550,382		—	—		—		6,550,479
Stock Option Exercises	18,585		19		14,528		—	—		—		14,547
Purchases of Treasury Stock	—		—		—		—	(115,000)		(470,757)		(470,757)
Net Loss	—		—		—		(19,285,503)	—		—		(19,285,503)
Balance - June 30, 2023	63,898,889	$	63,899	$	369,072,625	$	(263,121,219)	(579,672)	$	(2,476,501)	$	103,538,804


	Common Stock			Additional		Accumulated		Treasury Stock
	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)

—

—

368,047

368

14,377,950

—

—

—

14,378,318
Stock Option Exercises

—

—

620,784

621

713,083

—

—

—

713,704
Stock Warrant Exercises

—

—

7,274,328

7,274

34,697,794

—

—

—

34,705,068
Proceeds from Common Stock Offering

—

—

4,768,293

4,768

97,784,270

—

—

—

97,789,038
Direct Costs of Common Stock Offering

—

—

—

—

(6,136,420)

—

—

—

(6,136,420)
Shares Redeemed to Cover Employee Tax Withholdings

—

—

(83,164)

(83)

(1,144,282)

—

—

—

(1,144,365)
Stock Issued for Technology License Purchase

—

—

75,000

75

1,404,675

—

—

—

1,404,750
Preferred Stock Converted & Preferred Dividend Settlement

(49,626)

(50)

4,962,600

4,963

(10,004,913)

—

—

—

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

—

—

—

—

—

(28,884,390)

—

—

(28,884,390)
Balance - September 30, 2021 (as Restated)

—

$
—

63,631,054

$
63,631

$
342,644,630

$
(191,579,373)

—

$
—

$
151,128,888


	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 - July 1, 2021 (as Restated)	—	$	—	63,278,096	$	63,278	$	336,770,866	$	(181,091,825)	—	$	—	$	155,742,319
Stock-Based Compensation Expense (as Restated)	—		—	300,000		300		5,833,873		—	—		—		5,834,173
Balance - January 1, 2022																63,672,268	$	63,672	$	346,736,397	$	(203,072,143)	—	$	—	$	143,727,926
Stock-Based Compensation Expense																288,650		289		8,538,153		—	—		—		8,538,442
Stock Option Exercises	—		—	52,958		53		39,891		—	—		—		39,944	64,722		65		48,440		—	—		—		48,505
Net Loss (as Restated)	—		—	—		—		—		(10,487,548)	—		—		(10,487,548)
Balance - September 30, 2021 (as Restated)	—	$	—	63,631,054	$	63,631	$	342,644,630	$	(191,579,373)	—	$	—	$	151,128,888
Purchases of Treasury Stock																—		—		—		—	(36,685)		(251,057)		(251,057)
Net Loss																—		—		—		(20,527,668)	—		—		(20,527,668)
Balance - June 30, 2022																64,025,640	$	64,026	$	355,322,990	$	(223,599,811)	(36,685)	$	(251,057)	$	131,536,148

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

Table of Contents

VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
			(as Restated)				(as Restated)
	2022		2021		2022		2021		2023		2022		2023		2022
Sales:
Sales of Products	$	2,537,539	$	3,018,774	$	7,939,483	$	9,657,589	$	4,425,162	$	2,898,892	$	8,616,523	$	5,401,944
Sales of Engineering Services		889,284		—		998,150		193,113		265,673		108,866		265,673		108,866

Total Sales		3,426,823		3,018,774		8,937,633		9,850,702		4,690,835		3,007,758		8,882,196		5,510,810

Cost of Sales:
Cost of Sales - Products Sold		2,034,123		2,370,053		6,289,612		7,347,450		3,303,979		2,451,890		6,386,418		4,255,488
Cost of Sales - Depreciation and Amortization										257,939		231,163		490,855		454,949
Cost of Sales - Engineering Services		302,707		—		362,003		29,669		156,531		59,296		156,531		59,296
Cost of Sales - Depreciation and Amortization		221,772		252,759		676,720		953,614

Total Cost of Sales		2,558,602		2,622,812		7,328,335		8,330,733		3,718,449		2,742,349		7,033,804		4,769,733

Gross Profit		868,221		395,962		1,609,298		1,519,969		972,386		265,409		1,848,392		741,077

Operating Expenses:
Research and Development		3,440,685		3,397,118		9,540,272		8,326,431		2,836,552		2,996,144		5,906,349		6,099,588
Selling and Marketing		1,980,748		1,653,013		5,895,332		4,305,632		2,509,922		1,850,595		5,049,581		3,914,584
General and Administrative		4,854,014		5,463,247		15,307,242		16,672,046		4,260,322		5,039,949		9,392,146		10,453,228
Depreciation and Amortization		510,099		246,902		1,149,046		731,035		973,222		379,702		1,937,487		638,946
Loss on Fixed Asset Disposal		—		—		—		83,908
Impairment of Patents and Trademarks		48,075		7,544		97,676		66,040		—		—		17,666		49,602

Total Operating Expenses		10,833,621		10,767,824		31,989,568		30,185,092		10,580,018		10,266,390		22,303,229		21,155,948

Loss From Operations		(9,965,400)		(10,371,862)		(30,380,270)		(28,665,123)		(9,607,632)		(10,000,981)		(20,454,837)		(20,414,871)

Other Income (Expense):
Investment Income		572,721		29,843		690,028		45,448		628,923		111,027		1,324,706		117,307
Income and Other Taxes		(19,768)		(105,526)		(98,727)		(138,034)		(35,420)		(31,326)		(123,215)		(78,959)
Foreign Exchange Loss		(64,552)		(40,003)		(215,698)		(126,681)		(30,791)		(100,388)		(32,157)		(151,145)

Total Other Income (Expense), Net		488,401		(115,686)		375,603		(219,267)		562,712		(20,687)		1,169,334		(112,797)

Loss Before Provision for Income Taxes		(9,476,999)		(10,487,548)		(30,004,667)		(28,884,390)		(9,044,920)		(10,021,668)		(19,285,503)		(20,527,668)
Provision for Income Taxes		—		—		—		—		—		—		—		—

Net Loss		(9,476,999)		(10,487,548)		(30,004,667)		(28,884,390)		(9,044,920)		(10,021,668)		(19,285,503)		(20,527,668)

Basic and Diluted Loss per Common Share	$	(0.15)	$	(0.17)	$	(0.47)	$	(0.48)	$	(0.14)	$	(0.16)	$	(0.31)	$	(0.32)
Weighted-average Shares Outstanding - Basic and Diluted		63,776,154		63,520,878		63,724,982		60,278,923		63,230,859		63,739,863		63,223,768		63,717,618

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

Table of Contents

VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,				Six Months Ended June 30,
			(as Restated)
	2022		2021		2023		2022

Cash Flows from Operating Activities
Net Loss	$	(30,004,667)	$	(28,884,390)	$	(19,285,503)	$	(20,527,668)
Non-Cash Adjustments
Depreciation and Amortization		1,700,766		1,453,367		2,428,342		1,093,895
Amortization of Software Development Costs and Prepaid Licenses in Cost of Sales		125,000		180,296
Stock-Based Compensation		12,016,334		12,830,782		6,500,261		8,200,774
Impairment of Patents and Trademarks		97,676		66,040		17,666		49,602
Loss on Fixed Asset Disposal		—		83,908
Change in Inventory Reserve for Obsolescence						480,258		—
(Increase) Decrease in Operating Assets
Accounts Receivable		(875,607)		330,092		(2,986,637)		678,523
Accrued Revenues in Excess of Billings		(393,250)		—		(40,633)		(108,866)
Inventories, Net		(77,490)		(3,779,513)
Employee Retention Credit Receivable						466,705		—
Inventories						(82,454)		359,893
Manufacturing Vendor Prepayments		73,330		(1,417,100)		645,272		(654,569)
Prepaid Expenses and Other Assets		(417,298)		(238,066)		1,692		492,599
Increase (Decrease) in Operating Liabilities
Accounts Payable		141,828		(34,346)		408,743		(732,813)
Accrued Expenses		(244,935)		602,293		(641,362)		195,276
Unearned Revenue		(3,425)		(26,901)		77,980		12,829
Income and Other Taxes Payable		(73,637)		(75,890)		(76,037)		(76,384)

Net Cash Flows Used in Operating Activities		(17,935,375)		(18,909,428)		(12,085,707)		(11,016,909)

Cash Flows from Investing Activities
Purchases of Fixed Assets		(5,203,562)		(3,592,703)		(2,774,513)		(3,504,931)
Investments in Patents and Trademarks		(362,981)		(442,582)		(340,507)		(272,686)
Investments in Licenses, Intangibles and Other Assets		(6,125,000)		(305,158)		(8,000,000)		(4,625,000)
Investments in Software Development						(125,000)		—
Investments in Other Assets						(200,000)		—

Net Cash Flows Used in Investing Activities		(11,691,543)		(4,340,443)		(11,440,020)		(8,402,617)

Cash Flows from Financing Activities
Proceeds from Exercise of Warrants		—		34,705,068
Cash Flows from (used) Financing Activities
Proceeds from Exercise of Stock Options		48,505		713,703		14,546		48,505
Proceeds from Common Stock Offering, Net		—		91,652,617
Purchases of Treasury Stock		(251,057)		—		(470,757)		(251,057)
Preferred Dividend Settlement Payment		—		(10,000,000)
Employee Tax Withholdings Payment		—		(1,144,364)

Net Cash Flows (Used in) Provided from Financing Activities		(202,552)		115,927,024
Net Cash Flows Used in Financing Activities						(456,211)		(202,552)

Net (Decrease) Increase in Cash and Cash Equivalents		(29,829,470)		92,677,153
Net Decrease in Cash and Cash Equivalents						(23,981,938)		(19,622,078)
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	$	90,374,403	$	128,746,661	$	48,582,005	$	100,581,795

Supplemental Disclosures
Unamortized Common Stock Expense included in Prepaid Expenses and Other Assets	$	1,204,942	$	1,729,646	$	1,335,307	$	1,223,691
Non-Cash Investment in Licenses		9,000,000		1,341,614		3,500,000		10,500,000
Stock-Based Compensation Expense - Expensed less Previously Issued		(71,502)		(1,547,536)		(50,218)		(337,379)

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

Table of Contents

VUZIX CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements of Vuzix Corporation (“the Company” or “Vuzix”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, the unaudited consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Certain re-classifications ~~may~~ have been made to prior comparable periods to conform with current reporting impacting Costs of Sales, Gross Profit and Depreciation and Amortization. The results of the Company’s operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of the results of the Company’s operations for the full fiscal year or any other period.

The accompanying interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto of the Company as of and for the year ended December 31, ~~2021,~~2022, as reported in the Company’s Annual Report on Form ~~10-K/A~~10-K filed with the SEC on ~~October 25, 2022.~~March 1, 2023.

~~Restatement~~

As described in additional detail in Note 2 to the financial statements included in its 2021 Form 10-K/A, the Company restated its previous unaudited quarterly results 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 and should no longer be relied upon. See Note 2, ~~Restatement of Previously Issued 2021 Unaudited Quarterly Financial Statements~~ ~~and Note 20,~~ ~~Quarterly Financial Information (Unaudited)~~ ~~of the Notes to the consolidated financial statements in the 2021 Form 10-K/A for the impact of these adjustments on each of the quarterly periods in fiscal year 2021.~~

~~The impact of the restatement on the unaudited quarterly financial statements is presented below.~~

~~The impact of the restatement to the Consolidated Balance Sheet:~~

September 30, 2021 (Unaudited)

As Previously

Balance Sheet

Reported

Adjustment

As Restated
Additional paid-in capital

$
337,125,126

$
5,519,504

$
342,644,630
Accumulated deficit

$
(186,059,869)

$
(5,519,504)

$
(191,579,373)

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~~The impact of the restatement to the Consolidated Statements of Operation:~~

For the Three Months Ended
September 30, 2021 (Unaudited)

For the Nine Months Ended
September 30, 2021 (Unaudited)

As Previously

As Previously

Condensed Statement of Operations

Reported

Adjustment

As Restated

Reported

Adjustment

As Restated
Total Sales

$
3,018,774

$
—

$
3,018,774

$
9,850,702

$
—

$
9,850,702
Total Cost of Sales

2,435,437

—

2,435,437

7,608,401

—

7,608,401
Gross Profit

583,337

—

583,337

2,242,301

—

2,242,301
Operating Expenses:

Research and Development

3,270,255

126,863

3,397,118

8,050,915

275,516

8,326,431
Selling and Marketing


1,589,582

63,431

1,653,013


4,167,874

137,758

4,305,632
General and Administrative

3,112,059

2,351,188

5,463,247

11,565,816

5,106,230

16,672,046
Depreciation and Amortization

434,277

—

434,277

1,453,367

—

1,453,367
Loss on Fixed Asset Disposal

—

—

—

83,908

—

83,908
Impairment of Patents and Trademarks


7,544

—

7,544


66,040

—

66,040
Total Operating Expenses

8,413,717

2,541,482

10,955,199

25,387,920

5,519,504

30,907,424
Loss From Operations

(7,830,380)

(2,541,482)

(10,371,862)

(23,145,619)

(5,519,504)

(28,665,123)
Total Other Expense, Net

(115,686)

—

(115,686)

(219,267)

—

(219,267)
Net Loss

$
(7,946,066)

$
(2,541,482)

$
(10,487,548)

$
(23,364,886)

$
(5,519,504)

$
(28,884,390)
Basic and Diluted Loss per Common Share

$
(0.13)

$
(0.04)

$
(0.17)

$
(0.39)

$
(0.10)

$
(0.48)

~~The impact of the restatement to the Statement of Changes in Stockholders’ Equity:~~

For the Nine Months Ended September 30, 2021 (Unaudited)

As Previously

Condensed Statement of Changes in Stockholders' Equity

Reported

Adjustment

As Restated
Stock-Based Compensation Expense

$
8,858,814

$
5,519,504

$
14,378,318
Additional Paid-In Capital

337,125,126

5,519,504

342,644,630
Net Loss

(23,364,886)

(5,519,504)

(28,884,390)
Accumulated Deficit

$
(186,059,869)

$
(5,519,504)

$
(191,579,373)

~~The impact of the restatement to the Statement of Cash Flows:~~

For the Nine Months Ended September 30, 2021 (Unaudited)

As Previously

Condensed Statement of Cash Flows

Reported

Adjustment

As Restated
Net Loss

$
(23,364,886)

$
(5,519,504)

$
(28,884,390)
Stock-Based Compensation

7,311,278

5,519,504

12,830,782
Net Cash Flows Used in Operating Activities

$
(18,909,428)

$
—

$
(18,909,428)

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~~Reclassification~~Re-classification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year’s presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, to reclassify depreciation expense related to our manufacturing operations from the amounts of reported depreciation and amortization expenses originally included in Operating Expenses. This change in classification does not affect previously reported Net Loss or reported Cash Flows Used in Operating Activities in the Consolidated Statements of Cash Flows or Consolidated Balance Sheets. The below table is a summary of the impact toof these ~~reclassifications:~~re-classifications:


													For the Three Months Ended June 30, 2022						For the Six Months Ended June, 2022
	For the Three Months Ended September 30, 2021 (Unaudited)						For the Nine Months Ended September 30, 2021 (Unaudited)						As Previously						As Previously
Condensed Statement of Operations	As Restated		Reclassification		Revised		As Restated		Reclassification		Revised		Presented		Re-classification		Revised		Presented		Re-classification		Revised
Total Sales	$	3,018,774	$	—	$	3,018,774	$	9,850,702	$	—	$	9,850,702	$	3,007,758	$	—	$	3,007,758	$	5,510,810	$	—	$	5,510,810
Total Cost of Sales		2,435,437		187,375		2,622,812		7,608,401		722,332		8,330,733
Cost of Sales - Products Sold														2,522,674		(70,784)		2,451,890		4,386,371		(130,883)		4,255,488
Cost of Sales - Depreciation and Amortization														—		231,163		231,163		—		454,949		454,949
Cost of Sales - Engineering Services														59,296		—		59,296		59,296		—		59,296
Gross Profit		583,337		(187,375)		395,962		2,242,301		(722,332)		1,519,969		425,788		160,379		265,409		1,065,143		324,066		741,077
Operating Expenses:				—
Research and Development		3,397,118		—		3,397,118		8,326,431		—		8,326,431		2,996,144				2,996,144		6,099,588				6,099,588
Selling and Marketing		1,653,013		—		1,653,013		4,305,632		—		4,305,632		1,850,595				1,850,595		3,914,584				3,914,584
General and Administrative		5,463,247		—		5,463,247		16,672,046		—		16,672,046		5,039,949				5,039,949		10,453,228				10,453,228
Depreciation and Amortization		434,277		(187,375)		246,902		1,453,367		(722,332)		731,035		540,081		(160,379)		379,702		963,012		(324,066)		638,946
Loss on Fixed Asset Disposal		—		—		—		83,908		—		83,908
Impairment of Patents and Trademarks		7,544		—		7,544		66,040		—		66,040		—				—		49,602				49,602
Total Operating Expenses		10,955,199		(187,375)		10,767,824		30,907,424		(722,332)		30,185,092		10,426,769		(160,379)		10,266,390		21,480,014		(324,066)		21,155,948
Loss From Operations		(10,371,862)		—		(10,371,862)		(28,665,123)		—		(28,665,123)		(10,000,981)		—		(10,000,981)		(20,414,871)		—		(20,414,871)
Total Other Expense, Net		(115,686)		—		(115,686)		(219,267)		—		(219,267)		(20,687)				(20,687)		(112,797)				(112,797)
Net Loss	$	(10,487,548)	$	—	$	(10,487,548)	$	(28,884,390)	$	—	$	(28,884,390)	$	(10,021,668)	$	—	$	(10,021,668)	$	(20,527,668)	$	—	$	(20,527,668)

Customer Concentrations

For the three months ended ~~September~~June 30, ~~2022,~~2023, one customer represented ~~21%~~75% of total product ~~revenue and two customers represented 100% of engineering services~~ revenue. For the three months ended ~~September 30, 2021, two customers represented 12% and 10% of total product revenue.~~

~~For the nine months ended September~~June 30, 2022, one customer represented ~~20%~~45% of total product ~~revenue and~~revenue.

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For the six months ended June 30, 2023, two customers represented ~~100%~~40% and 35% of ~~engineering services~~total product revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2021, no~~2022, one customer represented ~~more than 10%~~24% of total product ~~revenue and~~revenue.

As of June 30, 2023, two customers represented ~~100% of engineering services revenue.~~

~~As of September 30, 2022, three customers represented 30%, 13%~~58% and ~~11%~~23% of accounts ~~receivable, respectively.~~receivable. As of December 31, ~~2021, three customers~~2022, one customer represented ~~27%, 20% and 10%~~26% of accounts ~~receivable, respectively.~~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 re-issuance of shares will be credited or charged to paid-in capital in excess of par value using the average-cost method.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). ASU 2016-13 provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to, accounts receivable. The Company adopted ASU 2016-13 ~~will become~~ effective ~~for the Company~~ on January 1, ~~2023 and~~

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~~early adoption is permitted.~~2023. The ~~Company does not anticipate that the~~ adoption of this standard ~~will~~did not have a material impact on our consolidated financial statements.

Note 2 – Revenue Recognition and Contracts with Customers

Disaggregated Revenue

The Company’s total revenue was comprised of two major product lines: Smart Glasses Sales and Engineering Services. The following table summarizes the revenue recognized by major product line:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Revenues
Smart Glasses Sales	$	2,537,539	$	3,018,774	$	7,939,483	$	9,657,589
Products Sales									$	4,425,162	$	2,898,892	$	8,616,523	$	5,401,944
Engineering Services		889,284		—		998,150		193,113		265,673		108,866		265,673		108,866

Total Revenue	$	3,426,823	$	3,018,774	$	8,937,633	$	9,850,702	$	4,690,835	$	3,007,758	$	8,882,196	$	5,510,810

Significant Judgments

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

Performance Obligations

Revenues from our performance obligations are typically satisfied at a point-in-time for Smart Glasses, Waveguides and Display Engines, and our OEM Products, which are recognized when the customer obtains control and ownership, which is generally upon shipment. The Company 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 the~~measuring progress toward satisfying the performance obligations. Satisfaction of our performance obligations related to our engineering services is

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measured by the Company’s costs incurred as a percentage of total expected costs to project completion as the inputs of actual costs incurred by the Company are directly correlated with progress toward completing the contract. As such, the Company believes that our methodologies for recognizing revenue over time ~~using percentage-of-completion,~~ for our engineering services correlate directly with the transfer of control of the underlying assets to our customers.

Our standard product sales include a twelve ~~(12)~~(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 ~~up to two~~an additional twelve ~~(12)~~(12) month ~~periods.~~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 or a progress billing milestone achievement.~~period.

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The following table presents a summary of the Company’s sales by revenue recognition method as a percentage of total net sales for the ~~nine~~six months ended ~~September 30, 2022:~~June 30:


	% of Total Net Sales				% of Total Net Sales
	2022		2021		2023		2022
Point-in-Time	89	%	98	%	97%	%	98%	%
Over Time – Input Method	11	%	2	%	3%	%	2%	%

Total	100	%	100	%	100%	%	100%	%

Remaining Performance Obligations

As of ~~September~~June 30, ~~2022,~~2023, the Company had approximately ~~$320,000~~$80,000 of remaining performance obligations under ~~two~~a current waveguide development ~~projects,~~project, which represents the remainder of the total transaction ~~prices totaling $1,318,000~~price of approximately $800,000 under ~~these~~this development ~~agreements,~~agreement, which commenced in 2022, less revenue recognized under percentage of completion to date. The Company ~~currently~~ expects to recognize the remaining revenue ~~relating~~related to ~~these existing performance obligations of $320,000~~this project in the ~~fourth~~third quarter of ~~2022~~.2023. Revenues earned less amounts invoiced at ~~September~~June 30, ~~2022~~2023 in the amount of ~~$393,250~~$309,762 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. During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are anti-dilutive. Since the Company reported a net loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. ~~At September~~As of June 30, ~~2022~~2023 and ~~2021,~~2022, there were ~~8,532,349~~8,658,642 and ~~8,612,869~~8,528,668 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.

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Note 4 – Inventories, Net

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


	September 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022

Purchased Parts and Components	$	10,811,529	$	11,580,766	$	9,780,977	$	10,399,527
Work-in-Process		320,152		226,126		518,460		344,242
Finished Goods		2,249,105		1,472,534		2,468,476		1,941,689
Less: Reserve for Obsolescence		(1,151,314)		(1,127,444)		(1,897,747)		(1,417,489)

Inventories, Net	$	12,229,472	$	12,151,982	$	10,870,166	$	11,267,969

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Note 5 – Fixed Assets

Fixed Assets consisted of the following:


	September 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022
Tooling and Manufacturing Equipment	$	11,639,721	$	6,612,811	$	8,866,022	$	6,065,445
Leaseholds		826,329		797,059		1,472,898		826,329
Computers and Purchased Software		1,054,127		980,561		789,036		760,256
Furniture and Equipment		2,673,787		2,661,346		2,513,575		2,487,650
		16,193,964		11,051,777		13,641,531		10,139,680
Less: Accumulated Depreciation		(6,669,786)		(5,861,339)		(6,827,526)		(6,261,175)
Fixed Assets, Net	$	9,524,178	$	5,190,438	$	6,814,005	$	3,878,505

~~On April 27, 2022,~~During the six months ended June 30, 2023, the Company ~~signed a purchase order for new~~invested $2,774,513 in tooling and manufacturing equipment ~~upgrades~~and leasehold improvements, mostly attributable to ~~further our~~the Company’s new waveguide ~~production capabilities. The purchase order totaled~~ ~~$2,162,481~~expansion project. Construction on the Company’s new facility began late in December 2022 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~~expects the ~~assets are placed into service. The Company expects~~construction to ~~take delivery of this new waveguide equipment~~be completed by the end of ~~2022.~~September 2023.

~~On May 12, 2022, the Company signed a series~~Total depreciation expense for fixed assets, not included in cost of ~~agreements with Atomistic SAS, which provided~~sales, 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, ~~all of which is custom to the Company.~~

~~During~~ the three months ended ~~September~~June 30, 2023, and 2022 the Company made an additional progress payment of $1,500,000 towards this custom chip tooling asset, in addition to the $4,029,120 progress payments made to-date. These payments, totaling $5,529,120 arewas $111,934 and $111,943, respectively. Total depreciation expense for fixed assets, not included in ~~construction-in-progress in Tooling~~cost of sales, for the six months ended June 30, 2023, and Manufacturing Equipment until the asset is placed into service in the next 18 to 21 months. The remaining $9,470,880 commitment towards this custom backplane is expected to be paid over the same period as referenced above.

2022 was $214,385 and $229,029, respectively.

Note 6 – Technology Licenses, Net


	September 30,		December 31,		June 30,		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		(1,786,023)		(1,053,420)		(3,938,486)		(2,284,667)
Licenses, Net	$	15,657,333	$	1,389,936	$	28,504,870	$	30,158,689

~~As noted above in Note 5, on May 12,~~Total amortization expense related to technology licenses for the three months ended June 30, 2023 and 2022 was $826,984 and $244,201, respectively. Total amortization expense related to technology licenses for the six months ended June 30, 2023, and 2022 was $1,653,868 and $300,901, respectively.

The Company signed a series of agreements with Atomistic SAS ~~(the “Atomistic Agreements”),~~in 2022, which provided for an exclusive license of key mmicro LED 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-howperformance-based cash and ~~existing developed technologies related to next generation~~ m~~LEDs and micro-displays.~~

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) defined as a 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 and nine months ended September 30, 2022, the Company paid $1,500,000 and $4,500,000, respectively,~~

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~~towards this commitment and recorded a total of $375,000 and $562,500, in~~equity issuance commitments to be made by the ~~three and nine months ended Spetember 30, 2022, respectively, in amortization~~Company relating to ~~this~~the certain deliverables and the achievement of milestones by Atomistic, as further discussed in Note 10 – Capital Stock.

These intangible ~~asset. The~~technology license assets are to be amortized over a ten-year period. As of June 30, 2023, there is a remaining ~~balance~~funding commitment of ~~$9,000,000~~$3,500,000 associated with ~~this contractual obligation is to~~these licenses, that will be paid over the next ~~15 months.~~six months.

Note 7 - Other Assets


	September 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022
Private Corporation Investments (at cost)	$	450,000	$	450,000
Private Corporation Investments					$	450,000	$	450,000
Additions						200,000		—
Total Private Corporation Investments (at cost)						650,000		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		(333,333)		(208,334)		(513,889)		(375,000)
Software Development Costs, Net		541,667		541,666		486,111		500,000

Unamortized Common Stock Expense included in Long-Term Prepaid Expenses		725,143		491,923		513,021		631,143

Total Other Assets	$	1,716,810	$	1,483,589	$	1,649,132	$	1,581,143

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 six months ended June 30, 2023, the Company purchased an additional $100,000 of preferred stock in this corporation through a subsequent round of funding in order to retain a 2% ownership interest.

In June 2023, the Company purchased $100,000 of preferred stock, along with warrants, in a UK-based public company developing new semiconductor materials for displays. The investment represents less than a 1% 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 six months ended June 30, 2023, the Company made a final investment of $125,000 to these system upgrades, which ~~has not yet been completed, will ultimately be amortized once~~were 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.

Total amortization expense related to all software updates for the three months ended June 30, 2023, and 2022 were $83,333 and $41,667, respectively. Total amortization expense related to all software updates for the six months ended June 30, 2023, and 2022 were $138,889 and $83,333, respectively.

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Note 8 – Accrued Expenses

Accrued expenses consisted of the following:


	September 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022

Accrued Wages and Related Costs	$	350,409	$	683,044	$	478,116	$	843,537
Accrued Professional Services		245,660		551,220		152,400		263,800
Accrued Warranty Obligations		170,934		185,044		198,700		159,927
Other Accrued Expenses		407,369		—		199,961		403,275

Total	$	1,174,372	$	1,419,308	$	1,029,177	$	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 $268,000 for external development work related to our waveguide development projects which was completed through September 30, 2022 but not yet invoiced.~~

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The changes in the Company’s accrued warranty obligations for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~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		(252,294)		(219,723)
Warranties Issued During Year		238,184		258,496

Accrued Warranty Obligations at September 30, 2022	$	170,934
Accrued Warranty Obligations at June 30, 2023			$	198,700

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.

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 ~~September~~June 30, ~~2022~~2023, and December 31, ~~2021.~~2022. Of this total, 49,626 shares are designated as Series A Preferred Stock. There were nil shares of Series A Preferred Stock issued and outstanding on ~~September~~June 30, ~~2022~~2023, and December 31, ~~2021,~~2022, respectively.

Common Stock

The Company’s authorized common stock consists of 100,000,000 shares, par value of $0.001. There were ~~63,776,335~~63,898,889 shares issued and ~~63,739,650~~63,319,217 shares outstanding as of ~~September~~June 30, ~~2022~~2023, and ~~63,672,268~~63,783,779 shares issued and 63,319,107 shares outstanding as of December 31, ~~2021.~~2022.

In connection with the Atomistic ~~Agreements,~~Technology Licenses discussed in Note 6, the Company will, upon certain deliverables and the achievement ~~or waiver~~ of ~~performance~~ milestones contained in the Atomistic Agreements, be committed to pay $2,500,000 and to issue, depending on the Company’s share price within a $13.00 to $8.00 range at the time of their issuance, a minimum of 1,750,000 up to a maximum of 2,874,754 common shares of Vuzix to the stockholders of Atomistic (as a

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portion of the consideration for certain shares of Atomistic) which would result in Vuzix ~~obtaining~~owning Series A ~~Convertible~~ Preferred shares in Atomistic that could ultimately be converted into ~~common~~ordinary 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 156 to 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, is between a floor of $8.00 and a ceiling of $13.00, Vuzix may opt, at its sole discretion, to pay any fair market value valuation shortfall with up to 1,093,750 additional 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 fifty 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 shares of the Company’s common stock when that valuation target is exceeded. None of these share commitments have been issued to date.18 months.

Treasury Stock

On March 2, 2022, our Board of Directors approved the ~~repurchase by the~~ Company ofto repurchase 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

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~~may be suspended or discontinued at any time at the Company’s sole discretion.~~expired on March 2, 2023. During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company repurchased ~~36,685~~115,000 shares of our common stock at an average cost of ~~$6.84.~~$4.06, before commission of $0.03 per share. As of ~~September~~June 30, ~~2022, 36,685~~2023, 579,672 shares of our common stock were held in treasury.

Note 11 – Stock-Based Compensation

A summary of stock option activity related to the Company’s standard employee incentive plan (excluding options awarded under the Long-Term Incentive Plan (LTIP) – Note 12) for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, is as follows:


		Weighted			Weighted		Average
	Number of	Average		Number of	Average		Remaining Life
	Options	Exercise Price		Options	Exercise Price		(years)
Outstanding at December 31, 2021	2,823,634	$	7.67
Outstanding at December 31, 2022				2,805,673	$	7.80	7.28
Granted	183,500		5.92	124,000		4.80
Exercised	(137,866)		2.62	(18,240)		1.33
Expired or Forfeited	(120,919)		8.27	(36,791)		10.64

Outstanding at September 30, 2022	2,748,349	$	7.37
Outstanding at June 30, 2023				2,874,642	$	7.67	6.94

The weighted average remaining contractual term for all options as of ~~September~~June 30, ~~2022~~2023, and December 31, ~~2021~~2022, was ~~7.37~~6.94 years and ~~7.95~~7.28 years, respectively.

As of ~~September~~June 30, ~~2022,~~2023, there were ~~1,409,352~~1,765,244 options that were ~~fully-vested~~fully vested and exercisable at a weighted average exercise price of ~~$6.91~~$7.04 per share. The weighted average remaining contractual term of the vested options is ~~6.5~~6.1 years.

As of ~~September~~June 30, ~~2022,~~2023, there were ~~1,338,997~~1,109,398 unvested options exercisable at a weighted average exercise price of ~~$9.75~~$8.84 per share. The weighted average remaining contractual term of the unvested options is 8.3 years.

The weighted average fair value of option grants was calculated using the Black-Scholes-Merton option pricing method. ~~At September~~As of June 30, ~~2022,~~2023, the Company had ~~$9,293,768~~$6,863,003 of unrecognized stock compensation expense, which will be recognized over a weighted average period of ~~2.6~~2.2 years.

During the three months ended June 30, 2023, the Company issued 96,525 shares of common stock to its independent board members as part of their annual retainer for services covering the period of July 2023 to June 2024. The fair market value on the date of award of the stock issued was $5.18, 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, 2023.

For the three months ended ~~September~~June 30, ~~2022~~2023, and ~~2021,~~2022, the Company recorded total stock-based compensation expense, including stock awards but excluding stock option awards under the Company’s LTIP, of ~~$1,157,556~~$1,083,064 and ~~$1,137,862,~~$1,222,733, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, and ~~2021,~~2022, the Company recorded total stock-based compensation expense, including stock awards but excluding stock option awards under the Company’s LTIP, of ~~$3,730,899~~$2,212,630 and ~~$2,606,700, respectively~~$2,573,343, respectively.

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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 ~~September~~June 30, ~~2022~~2023, and ~~2021,~~2022, the Company recorded non-cash stock-based compensation expense of ~~$2,658,294~~$1,749,687 and ~~$3,031,307,~~$2,658,294, respectively, for options that vested or are probable to vest. For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, and ~~2021,~~2022, the Company recorded non-cash stock-based compensation expense of ~~$8,285,435~~$4,287,631 and ~~$10,224,082,~~$5,627,432, respectively, for options that vested or are probable to vest. These expenses are presented in the same financial statement line items in the Statements of Operations as the cash-based compensation expenses for the same employees.

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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 ~~September~~June 30, ~~2022,~~2023, we had ~~$20,054,731~~$12,922,301 of total unrecognized stock-based compensation expense for the portion of options tied to equity market capitalization milestones and the portion of options tied to operational milestones that were considered probable of achievement, all of which will be recognized over a service period of up to ~~six~~three to four years. The probabilities of the milestone achievements are subject to ~~catch-adjustments~~catch-up adjustments in each instance where an equity market capitalization milestone is achieved or when an operational milestone becomes probable to be achieved or is achieved. Compensation costs could be reversed in subsequent periods if an awardee leaves the Company prior to the expiration of the option life for market capitalization milestone or ~~the~~ performance ~~awards are~~award vesting of a performance award no longer determined to be probable. If such milestones are achieved earlier in their expected service periods, the remaining unrecognized compensation expense related to that particular milestone would be accelerated and recognized in full during the period where that achievement is affirmed by the Board of Directors. As of ~~September~~June 30, ~~2022,~~2023, 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 ~~September~~June 30, ~~2022 and December 31, 2021,~~2023, there are 2,704,500 options unvested for the achievement of ~~equity market capitalization~~Equity Market Capitalization targets, 1,893,150 unvested options for the achievement of annual ~~revenue~~Revenue targets, and 811,350 unvested options for the achievement of annual EBITDA ~~margins before non-cash charges~~Margins Before Non-Cash Charges targets.


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


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

Note 13 – Litigation

We are not currently involved in any actual or pending legal 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.

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Note 14 – Right-of-Use Assets and Liabilities

Future lease payments under operating leases as of ~~September~~June 30, ~~2022~~2023 were as follows:


2022	$	137,812
2023		546,916
2023 (6 months remaining)			$	348,826
2024		45,576		191,120
2025				132,982
Total Future Lease Payments		730,304		672,928
Less: Imputed Interest		(22,730)		(44,797)
Total Lease Liability Balance	$	707,574	$	628,131

Operating lease costs under the operating leases totaled ~~$160,767~~$207,352 and ~~$172,014~~$163,277 for the three months ended ~~September~~June 30, ~~2022~~2023, and ~~2021,~~2022, respectively. Operating lease costs under the operating leases totaled ~~$486,409~~$410,691 and ~~$460,434~~$325,642 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, and ~~2021,~~2022, respectively.

As of ~~September~~June 30, ~~2022,~~2023, the weighted average discount rate was ~~4.5%~~7.1% and the weighted average remaining lease term was ~~1.3~~1.5 years.

~~Note 15~~ – ~~Subsequent Events~~

On October 20, 2022 the Company purchased Moviynt®, a US-based SAP Certified ERP platform software solution provider, to support handheld mobile phones and scanners used in logistics, warehousing and manufacturing applications. Starting in Q4-2022 its operations will be presented on a consolidated basis.

The purchase price allocation has not been finalized, due to the timing of the acquisition and the filing date of this Quarterly Report on Form 10-Q. Therefore, the allocation of the purchase price to the assets acquired and liabilities assumed, including values to be recognized for goodwill and other intangible assets, will be disclosed in the Annual Report on Form 10-K for the year ending December 31, 2022.

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/A~~10-K for the year ended December 31, ~~2021.~~2022.

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

Critical Accounting Policies and Significant Developments and Estimates

The discussion and analysis of our financial condition and results of operations is based upon 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

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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.~~dictate. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using such necessary estimates.

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

●

Valuation of inventories;

●

Variable Interest Entities;

●

Business combinations;

●

Carrying value of long-lived assets;

●

Software development costs;

●

Revenue recognition;

●

Product warranty;

●

Stock-based compensation; and

●

Income taxes.

Our accounting policies are more fully described in the notes to our consolidated financial statements included in this quarterly report and in our Annual Report on Form ~~10-K/A~~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 ~~September~~June 30, ~~2022.~~2023.

Off-Balance Sheet Arrangements

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

Business Matters

We are engaged in the design, manufacture, marketing and sale of wearable computing devices and augmented reality wearable display devices, also referred to as head mounted displays (or HMDs), heads-up displays (HUDs) or near-eye displays, in the form of Smart Glasses and Augmented Reality (AR) glasses. Our wearable display devices are worn like eyeglasses or attach to a head-worn mount. These devices typically include cameras, sensors, and a computer that enable the user to view, record and interact with video and digital content, such as computer data, the internet, 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 defense markets. We also provide custom solutions and engineering services to third parties, including OEMs, of waveguides to enable ~~fully integrated~~fully-integrated wearable display systems, including HMDs to commercial, industrial and defense customers. We do not offer ~~“work for hire”~~“work-for-hire” services per se but rather offer

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our engineering services for projects that we expect could result in advancing our technology and potentially lead to long-term supply or OEM relationships.

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

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

Recent Accounting Pronouncements

See Note 1 to the Unaudited Consolidated Financial Statements.

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Results of Operations

Comparison of Three Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

The following table compares the Company’s consolidated statements of operations data for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


	Three Months Ended September 30,										Three Months Ended June 30,
							Dollar		% Increase								Dollar		% Increase
	2022			2021			Change		(Decrease)		2023			2022			Change		(Decrease)
					(as Restated)
Sales:
Sales of Products	$	2,537,539		$	3,018,774		$	(481,235)	(16)	%	$	4,425,162		$	2,898,892		$	1,526,270	53	%
Sales of Engineering Services		889,284			0			889,284	NM			265,673			108,866			156,807	144	%

Total Sales		3,426,823			3,018,774			408,049	14	%		4,690,835			3,007,758			1,683,077	56	%

Cost of Sales:
Cost of Sales - Products		2,034,123			2,370,053			(335,930)	(14)	%		3,303,979			2,451,890			852,089	35	%
Cost of Sales - Depreciation and Amortization												257,939			231,163			26,776	12	%
Cost of Sales - Engineering Services		302,707			—			302,707	NM			156,531			59,296			97,235	164	%
Cost of Sales - Depreciation and Amortization		221,772			252,759			(30,987)	(12)	%

Total Cost of Sales		2,558,602			2,622,812			(64,210)	(2)	%		3,718,449			2,742,349			976,100	36	%

Gross Profit		868,221			395,962			472,259	119	%		972,386			265,409			706,977	266	%
Gross Profit %		25	%		13	%						21	%		9	%

Operating Expenses:
Research and Development		3,440,685			3,397,118			43,567	1	%		2,836,552			2,996,144			(159,592)	(5)	%
Selling and Marketing		1,980,748			1,653,013			327,735	20	%		2,509,922			1,850,595			659,327	36	%
General and Administrative		4,854,014			5,463,247			(609,233)	(11)	%		4,260,322			5,039,949			(779,627)	(15)	%
Depreciation and Amortization		510,099			246,902			263,197	107	%		973,222			379,702			593,520	156	%
Impairment of Patents and Trademarks		48,075			7,544			40,531	537	%

Loss from Operations		(9,965,400)			(10,371,862)			406,462	(4)	%		(9,607,632)			(10,000,981)			393,349	(4)	%

Other Income (Expense):
Investment Income		572,721			29,843			542,878	1,819	%		628,923			111,027			517,896	466	%
Income and Other Taxes		(19,768)			(105,526)			85,758	(81)	%		(35,420)			(31,326)			(4,094)	13	%
Foreign Exchange Loss		(64,552)			(40,003)			(24,549)	61	%		(30,791)			(100,388)			69,597	(69)	%

Total Other Income (Expense), Net		488,401			(115,686)			604,087	(522)	%		562,712			(20,687)			583,399	(2,820)	%

Loss Before Provision for Income Taxes		(9,476,999)			(10,487,548)			1,010,549	(10)	%		(9,044,920)			(10,021,668)			976,748	(10)	%
Provision for Income Taxes		—			—			—	—	%		—			—			—	—	%

Net Loss	$	(9,476,999)		$	(10,487,548)		$	1,010,549	(10)	%	$	(9,044,920)		$	(10,021,668)		$	976,748	(10)	%

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Sales. There was an increase in total sales for the three months ended ~~September~~June 30, ~~2022~~2023 compared to the same period in ~~2021~~2022 of ~~$408,049,~~$1,683,077 or ~~14%~~56%. The following table reflects the major components of our sales:


	Three Months Ended		% of		Three Months Ended		% of		Dollar		% Increase		Three Months Ended		% of		Three Months Ended		% of		Dollar		% Increase
	September 30, 2022		Total Sales		September 30, 2021		Total Sales		Change		(Decrease)		June 30, 2023		Total Sales		June 30, 2022		Total Sales		Change		(Decrease)
Sales of Products	$	2,537,539	74	%		3,018,774	100	%	$	(481,235)	(16)	%	$	4,425,162	94	%		2,898,892	96	%	$	1,526,270	53	%
Sales of Engineering Services		889,284	26	%		—	0	%		889,284	NM			265,673	6	%		108,866	4	%		156,807	144	%
Total Sales	$	3,426,823	100	%	$	3,018,774	100	%	$	408,049	14	%	$	4,690,835	100	%	$	3,007,758	100	%	$	1,683,077	56	%

Sales of products ~~decreased~~increased by ~~16%~~53% for the three months ended ~~September~~June 30, 2022 compared to the three months ended September 30, 2021. Smart glasses revenues declined due to a combination of higher average sales discounts due to larger volume reseller sales, negative foreign exchange comparatives and small decrease in overall unit sales. Sales of waveguides and display engines included in product sales rose 272% for the three months ended September 30, 2022 as2023, compared to the same period in ~~2021.~~2022. Smart glasses revenue was the primary driver of this increase as unit sales of our M400 product increased significantly.

Sales of engineering services for the three months ended ~~September~~June 30, ~~2022 were $889,284~~2023, was $265,673, as compared to ~~nil~~$108,866 in the ~~2021~~comparable 2022 period.

Cost of Sales and Gross Profit. Cost of product ~~sales~~revenues and engineering services are comprised of materials, components, labor, warranty costs, freight costs, manufacturing overhead, software royalties, the depreciation for our tooling and ~~non-cash depreciation on~~ manufacturing ~~assets~~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:


	Three Months Ended		As % Related		Three Months Ended		As % Related		Dollar		% Increase		Three Months Ended		As % Related		Three Months Ended		As % Related		Dollar		% Increase
	September 30, 2022		Total Sales		September 30, 2021		Total Sales		Change		(Decrease)		June 30, 2023		Total Sales		June 30, 2022		Total Sales		Change		(Decrease)
Product Cost of Sales		1,679,067	49	%	$	1,575,350	52	%	$	103,717	7	%	$	2,940,253	63	%	$	2,114,139	70	%	$	826,114	39	%
Engineering Services Cost of Sales		302,707	9	%		—	—	%		302,707	NM
Manufacturing Overhead - Unapplied		355,056	10	%		794,703	26	%		(439,647)	(55)	%		363,726	8	%		337,751	11	%		25,975	8	%
Depreciation and Amortization		221,772	6	%		252,759	8	%		(30,987)	(12)	%		257,939	5	%		231,163	8	%		26,776	12	%
Engineering Services Costs Sales														156,531	3	%		59,296	2	%		97,235	164	%

Total Cost of Sales	$	2,558,602	75	%	$	2,622,812	87	%	$	(64,210)	(2)	%	$	3,718,449	79	%	$	2,742,349	91	%	$	976,100	36	%

Gross Profit	$	868,221	25	%	$	395,962	13	%	$	472,259	119	%	$	972,386	21	%	$	265,409	9	%	$	706,977	266	%

For the three months ended ~~September~~June 30, ~~2022,~~2023, gross profit from total sales was ~~$868,211~~$972,386 or ~~25%~~21% as compared to ~~$395,962~~$265,409 or ~~13%~~9% in the ~~same~~comparable period in ~~2021.~~2022.

~~Manufacturing~~Unapplied manufacturing overhead costs, not already added in ~~Cost~~cost of ~~Sales, decreased~~sales, increased by ~~$439,647~~$25,975 or ~~55%~~8% for the three months ended ~~September~~June 30, ~~2022~~2023 over the ~~2021~~2022 comparable ~~period to 10%~~period. Such costs, however, decreased as a percentage of total sales to 8% as compared to ~~26%~~11% in ~~2021.~~2022. The ~~decrease~~increase in the net dollar amount of these unapplied overhead costs in the current period versus the prior period iswas primarily ~~due~~driven by upgrades to ~~higher portions~~the opening balance of ~~these total costs being allocated directly into Product Cost~~finished goods that were processed in the second quarter, despite our M400 production levels.

Depreciation and amortization expense in cost of ~~Sales and inventory.~~sales increased by $26,776 or 12% because new manufacturing equipment was brought online in the second quarter as compared to the comparable 2022 period, when such activity was classified as construction-in-progress.

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


					(as Restated)
	Three Months Ended		% of		Three Months Ended		% of		Dollar		% Increase		Three Months Ended		% of		Three Months Ended		% of		Dollar		% Increase
	September 30, 2022		Total Sales		September 30, 2021		Total Sales		Change		(Decrease)		June 30, 2023		Total Sales		June 30, 2022		Total Sales		Change		(Decrease)
Research and Development	$	3,440,685	100	%	$	3,397,118	113	%	$	43,567	1	%	$	2,836,552	60	%	$	2,996,144	100	%	$	(159,592)	(5)	%

Research and development expenses for the three months ended ~~September~~June 30, ~~2022 increased~~2023, decreased by ~~$43,567~~$159,592 or 1%5%, as compared to the ~~same~~comparable period in ~~2021.~~2022. This ~~increase~~decrease was largely due to ~~an increase of $85,048~~a $192,929 reduction in external development expenses and consultants related to our new ~~products,~~products; a decrease of $33,710 in supplies expenses; and partially offset by ~~a decrease~~an increase of ~~$32,772~~$76,569 in ~~supplies~~salary and ~~consumables.~~benefits related expenses.

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
	September 30, 2022		Total Sales		September 30, 2021		Total Sales		Change		(Decrease)		June 30, 2023		Total Sales		June 30, 2022		Total Sales		Change		(Decrease)
Selling and Marketing	$	1,980,748	58	%	$	1,653,013	55	%	$	327,735	20	%	$	2,509,922	54	%	$	1,850,595	62	%	$	659,327	36	%

Selling and marketing expenses for the three months ended ~~September~~June 30, ~~2022~~2023, increased by ~~$327,735~~$659,327 or ~~20%~~36%, as compared to the ~~same~~comparable period in ~~2021.~~2022. This increase was largely due to a ~~$359,172~~$519,746 increase in salary and ~~salary~~ benefits related ~~expense;~~expenses, driven by headcount increase; an increase of ~~$116,811~~$87,179 in ~~travel related~~advertising and tradeshow expenses; and an increase of ~~$58,297~~$68,258 in ~~advertising costs,~~travel related expenses; partially offset by a decrease of ~~$101,507 in sales consulting fees; and a decrease of $101,008~~$46,525 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, and 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
	September 30, 2022		Total Sales		September 30, 2021		Total Sales		Change		(Decrease)		June 30, 2023		Total Sales		June 30, 2022		Total Sales		Change		(Decrease)
General and Administrative	$	4,854,014	142	%	$	5,463,247	181	%	$	(609,233)	(11)	%	$	4,260,322	91	%	$	5,039,949	168	%	$	(779,627)	(15)	%

General and administrative expenses for the three months ended ~~September~~June 30, ~~2022~~2023, decreased by ~~$609,233~~$779,627 or ~~11%~~15%, as compared to the ~~same~~comparable period in ~~2021.~~2022. This decrease was largely due to a decrease of ~~$383,381~~$760,257 in salary and ~~salary~~ benefits related expenses, which was primarily driven by a ~~$334,095~~ decrease in non-cash stock-based ~~compensation related to the Company’s LTIP;~~compensation; and a decrease of ~~$348,859~~$43,938 in ~~legal expenses,~~accounting and tax services expenses; partially offset by an increase of ~~$58,618~~$60,039 in ~~shareholder and IR~~travel related ~~expenses and a $32,008 increase in recruitment and hiring~~ expenses.

Depreciation and Amortization. Depreciation and amortization expense, not included in ~~Cost~~cost of ~~Sales,~~sales, for the three months ended ~~September~~June 30, ~~2022~~2023, was ~~$510,099,~~$973,222, as compared to ~~$246,902~~$379,702 in the ~~same~~comparable period in ~~2021,~~2022, an increase of ~~$263,197.~~$593,520. 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 partially offset by a decrease in depreciation expense related to certain fixed assets associated with machinery and tooling that became fully depreciated in 2021.~~2022.

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Other Income (Expense), Net. Total other income was ~~$488,401~~$562,712 for the three months ended ~~September~~June 30, ~~2022,~~2023, as compared to other expense of ~~$115,686~~$20,687 in the ~~same~~comparable period in ~~2021,~~2022, an increase of ~~$604,087.~~$583,399. The overall increase in other income was primarily the result of an increase of ~~$542,878~~$517,896 in investment income resulting from the

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recent rise in interest rates ~~and a higher average invested~~earned on the Company’s excess cash ~~balance period over period;~~period-over-period; and a decrease ~~of $85,758 in income and other taxes, partially offset by an increase of $24,549~~ in foreign exchange ~~losses.~~losses of $69,597.

Provision for Income Taxes. There was not a provision for income taxes in the respective ~~three month~~three-month periods ending ~~September~~June 30, ~~2022~~2023, and ~~2021.~~2022.

Comparison of ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

The following table compares the Company’s consolidated statements of operations data for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


	Nine Months Ended September 30,										Six Months Ended June 30,
							Dollar		% Increase								Dollar		% Increase
	2022			2021			Change		(Decrease)		2023			2022			Change		(Decrease)
					(as Restated)
Sales:
Sales of Products	$	7,939,483		$	9,657,589		$	(1,718,106)	(18)	%	$	8,616,523		$	5,401,944		$	3,214,579	60	%
Sales of Engineering Services		998,150			193,113			805,037	417	%		265,673			108,866			156,807	144	%

Total Sales		8,937,633			9,850,702			(913,069)	(9)	%		8,882,196			5,510,810			3,371,386	61	%

Cost of Sales:
Cost of Sales - Products Sold		6,289,612			7,347,450			(1,057,838)	(14)	%		6,386,418			4,255,488			2,130,930	50	%
Cost of Sales - Depreciation and Amortization												490,855			454,949			35,906	8	%
Cost of Sales - Engineering Services		362,003			29,669			332,334	1,120	%		156,531			59,296			97,235	164	%
Cost of Sales - Depreciation and Amortization		676,720			953,614			(276,894)	(29)	%

Total Cost of Sales		7,328,335			8,330,733			(1,002,398)	(12)	%		7,033,804			4,769,733			2,264,071	47	%

Gross Profit		1,609,298			1,519,969			89,329	6	%		1,848,392			741,077			1,107,315	149	%
Gross Profit %		18	%		15	%						21	%		13	%

Operating Expenses:
Research and Development		9,540,272			8,326,431			1,213,841	15	%		5,906,349			6,099,588			(193,239)	(3)	%
Selling and Marketing		5,895,332			4,305,632			1,589,700	37	%		5,049,581			3,914,584			1,134,997	29	%
General and Administrative		15,307,242			16,672,046			(1,364,804)	(8)	%		9,392,146			10,453,228			(1,061,082)	(10)	%
Depreciation and Amortization		1,149,046			731,035			418,011	57	%		1,937,487			638,946			1,298,541	203	%
Loss on Fixed Asset Disposal		—			83,908			(83,908)	(100)	%
Impairment of Patents and Trademarks		97,676			66,040			31,636	48	%		17,666			49,602			(31,936)	(64)	%

Loss from Operations		(30,380,270)			(28,665,123)			(1,715,147)	6	%		(20,454,837)			(20,414,871)			(39,966)	0	%

Other Income (Expense):
Investment Income		690,028			45,448			644,580	1,418	%		1,324,706			117,307			1,207,399	1,029	%
Income and Other Taxes		(98,727)			(138,034)			39,307	(28)	%		(123,215)			(78,959)			(44,256)	56	%
Foreign Exchange Loss		(215,698)			(126,681)			(89,017)	70	%		(32,157)			(151,145)			118,988	(79)	%

Total Other Income (Expense), Net		375,603			(219,267)			594,870	(271)	%		1,169,334			(112,797)			1,282,131	(1,137)	%

Net Loss	$	(30,004,667)		$	(28,884,390)		$	(1,120,277)	4	%	$	(19,285,503)		$	(20,527,668)		$	1,242,165	(6)	%

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Sales. There was ~~a decrease~~an increase in total sales for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, compared to the same period in ~~2021~~2022 of ~~$913,069,~~$3,371,386 or 9%61%. The following table reflects the major components of our sales:


	Nine Months Ended		% of		Nine Months Ended		% of		Dollar		% Increase		Six Months Ended		% of		Six Months Ended		% of		Dollar		% Increase
	September 30, 2022		Total Sales		September 30, 2021		Total Sales		Change		(Decrease)		June 30, 2023		Total Sales		June 30, 2022		Total Sales		Change		(Decrease)
Sales of Products	$	7,939,483	89	%	$	9,657,589	98	%	$	(1,718,106)	(18)	%	$	8,616,523	97	%	$	5,401,944	98	%	$	3,214,579	60	%
Sales of Engineering Services		998,150	11	%		193,113	2	%		805,037	417	%		265,673	3	%		108,866	2	%		156,807	144	%
Total Sales	$	8,937,633	100	%	$	9,850,702	100	%	$	(913,069)	(9)	%	$	8,882,196	100	%	$	5,510,810	100	%	$	3,371,386	61	%

Sales of products ~~decreased~~increased by ~~18%~~60% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, compared to the same period in ~~2021.~~2022. Smart glasses ~~revenues declined due to a combination~~revenue was the primary driver of this increase as unit sales of our M400 product increased significantly, partially offset by higher average sales discounts due to larger volume reseller sales negative foreign exchange comparatives and small decrease in overall unit sales. Sales of waveguides and display engines included in product sales rose by $460,650 for the nine months ended September 30, 2022 as compared to the ~~same~~comparable period in ~~2021.~~2022.

Sales of engineering services for the ~~nine~~six months ended ~~September~~June 30, ~~2022 were $998,150,~~2023, was $265,673, as compared to ~~$193,113~~$108,866 in the ~~same period of 2021.~~comparable 2022 period.


	Nine Months Ended		As % Related		Nine Months Ended		As % Related		Dollar		% Increase		Six Months Ended		% of		Six Months Ended		% of		Dollar		% Increase
	September 30, 2022		Total Sales		September 30, 2021		Total Sales		Change		(Decrease)		June 30, 2023		Total Sales		June 30, 2022		Total Sales		Change		(Decrease)
Product Cost of Sales	$	5,199,951	58	%	$	5,298,585	54	%	$	(98,634)	(2)	%	$	5,487,776	62	%	$	3,651,767	66	%	$	1,836,009	50	%
Engineering Services Cost of Sales		362,003	4	%		29,669	0	%		332,334	1,120	%
Manufacturing Overhead - Unapplied		1,089,661	12	%		2,048,865	21	%		(959,204)	(47)	%		898,642	10	%		734,604	13	%		164,038	22	%
Depreciation and Amortization		676,720	8	%		953,614	10	%		(276,894)	(29)	%		490,855	6	%		324,066	6	%		166,789	51	%
Engineering Services Cost of Sales														156,531	2	%		59,296	1	%		97,235	164	%

Total Cost of Sales		7,328,335	82	%		8,330,733	85	%		(1,002,398)	(12)	%		7,033,804	79	%		4,769,733	87	%		2,264,071	47	%

Gross Profit	$	1,609,298	18	%	$	1,519,969	15	%	$	89,329	6	%	$	1,848,392	21	%	$	741,077	13	%	$	1,107,315	149	%

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, gross profit from total sales was ~~$1,609,298~~$1,848,392 or ~~18%~~21% as compared to ~~$1,519,969~~$741,077 or ~~15%~~13% in the ~~same~~comparable period in ~~2021.~~2022.

~~Manufacturing~~Unapplied manufacturing overhead costs, not already added in ~~Cost~~cost of ~~Sales, decreased~~sales, increased by ~~$959,204~~$164,038 or ~~47%~~22% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 over the ~~2021~~2022 comparable period, ~~to 12%~~however, such costs decreased as a percentage of total sales to 10% as compared to ~~21%~~13% in ~~2021.~~2022. The ~~decrease~~increase in the net dollar amount of these unapplied overhead costs in the current period versus the prior period iswas primarily ~~due~~driven by a combination of a supply chain issue that slowed some production in Q1 2023 and by upgrades to ~~more absorption~~the opening balance of ~~fixed costs being allocated directly~~finished goods that were processed in the second quarter, despite our M400 production levels in the second quarter.

Depreciation and amortization expense in cost of sales, increased by $166,789 or 51% because new manufacturing equipment was brought online in the first half of 2023 as compared to ~~Product Cost of Sales and inventory.~~the prior period, when such activity was classified as construction-in-progress.

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					(as Restated)
	Nine Months Ended		% of		Nine Months Ended		% of		Dollar		% Increase		Six Months Ended		% of		Six Months Ended		% of		Dollar		% Increase
	September 30, 2022		Total Sales		September 30, 2021		Total Sales		Change		(Decrease)		June 30, 2023		Total Sales		June 30, 2022		Total Sales		Change		(Decrease)
Research and Development	$	9,540,272	107	%	$	8,326,431	85	%	$	1,213,841	15	%	$	5,906,349	66	%	$	6,099,588	111	%	$	(193,239)	(3)	%

Research and development expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2022 increased~~2023, decreased by ~~$1,213,841~~$193,239 or ~~15%~~3%, as compared to the ~~same~~comparable period in ~~2021.~~2022. This ~~increase~~decrease was largely due to ~~an increase of $677,871~~a $141,297 reduction in external development expenses and consultants related to our ~~Next Generation Smart Glasses (Shield)~~new products; a decrease of $79,059 in recruiting and ~~Blade 2.0;~~hiring expenses; and a ~~$522,114~~decrease of $39,897 in supplies expenses; partially offset by an increase of $72,099 in salary and benefits expenses due to additional personnel; an increase of $78,920 in technology licensing fees; and an increase of $68,087 in recruitment and hiring fees, and partially offset by a decrease of $133,328 in supplies and consumables expense.related expenses.


					(as Restated)
	Nine Months Ended		% of		Nine Months Ended		% of		Dollar		% Increase		Six Months Ended		% of		Six Months Ended		% of		Dollar		% Increase
	September 30, 2022		Total Sales		September 30, 2021		Total Sales		Change		(Decrease)		June 30, 2023		Total Sales		June 30, 2022		Total Sales		Change		(Decrease)
Selling and Marketing	$	5,895,332	66	%	$	4,305,632	44	%	$	1,589,700	37	%	$	5,049,581	57	%	$	3,914,584	71	%	$	1,134,997	29	%

Selling and marketing expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, increased by ~~$1,589,700~~$1,134,997 or ~~37%~~29%, as compared to the ~~same~~comparable period in ~~2021.~~2022. This increase was largely due to a ~~$1,178,544~~$964,021 increase in salary and ~~salary~~ benefits related ~~expense; a $251,478 increase in advertising costs;~~expenses, driven by headcount increases; an increase of ~~$308,681 in trade show expenses; an increase of $263,842~~$160,450 in travel related expenses; and an increase of ~~$17,149~~$53,635 in ~~commissions expenses,~~advertising and tradeshow expenses; partially offset by a decrease of ~~$292,595~~$42,523 in website development and maintenance costs.


					(as Restated)
	Nine Months Ended		% of		Nine Months Ended		% of		Dollar		% Increase		Six Months Ended		% of		Six Months Ended		% of		Dollar		% Increase
	September 30, 2022		Total Sales		September 30, 2021		Total Sales		Change		(Decrease)		June 30, 2023		Total Sales		June 30, 2022		Total Sales		Change		(Decrease)
General and Administrative	$	15,307,242	171	%	$	16,672,046	169	%	$	(1,364,804)	(8)	%	$	9,392,146	106	%	$	10,453,228	190	%	$	(1,061,082)	(10)	%

General and administrative expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, decreased by ~~$1,364,804~~$1,061,082 or 8%10%, as compared to the ~~same~~comparable period in ~~2021.~~2022. This decrease was largely due to a ~~$985,354~~ decrease of $1,379,618 in salary and benefits related expenses, ~~related~~which was primarily todriven by a decrease in 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;~~compensation; a decrease of ~~$278,152~~$108,555 in external accounting and tax services expenses; and a $47,255 decrease in legal expenses; partially offset by an increase of $193,176 in shareholder and IR related expenses; ~~a $207,113 decrease~~an increase of $141,817 in ~~legal expenses; a $140,045 decrease~~consulting fees; an increase of $79,639 in ~~recruitment and hiring expenses, and partially offset by increases in audit and tax advisory fees of $167,272, insurance premiums of $128,738, and~~ travel related ~~expenses~~expenses; and an increase of ~~$44,644, respectively.~~$49,024 in insurance premiums.

Depreciation and Amortization. Depreciation and amortization expense, not included in ~~Cost~~cost of ~~Sales,~~sales, for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, was ~~$1,149,046~~$1,937,487, as compared to ~~$731,035~~$638,946 in the ~~same~~comparable period in ~~2021,~~2022, an increase of ~~$418,011.~~$1,298,541. 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~~2022.

Table of Contents

Other Income (Expense), Net. Total other income was ~~$375,603~~$1,169,334 for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to other expense of ~~$219,267~~$112,797 in the ~~same~~comparable period in ~~2021,~~2022, an increase of ~~$594,870.~~$1,282,131. The overall increase in

~~Table of Contents~~

other income was primarily the result of an increase of ~~$644,580~~$1,207,399 in investment income resulting from the recent rise in interest rates ~~and a higher average invested~~earned on the Company’s excess cash ~~balance~~ period over period; and a decrease in foreign exchange losses of ~~$39,307 in income and other taxes,~~$118,988; partially offset by an increase of ~~$89,017~~$44,256 in ~~foreign exchange losses.~~income and other taxes.

Provision for Income Taxes. There was not a provision for income taxes in the respective ~~nine month~~six-month periods ending ~~September~~June 30, ~~2022~~2023, and ~~2021.~~2022.

Liquidity and Capital Resources

Capital Resources: As of ~~September~~June 30, ~~2022,~~2023, we had cash and cash equivalents of ~~$90,374,403,~~$48,582,005, a decrease of ~~$29,829,470~~$23,981,938 from ~~$120,203,873~~$72,563,943 as of December 31, ~~2021.~~2022.

As of ~~September~~June 30, ~~2022,~~2023, we had current assets of ~~$109,010,999~~$68,321,314 as compared to current liabilities of ~~$8,217,818~~$6,825,090 which resulted in a positive working capital position of ~~$100,793,181.~~$61,496,224. 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 ~~nine~~six months ended:

	September 30,		(as Restated) September 30,		June 30,		June 30,
	2022		2021		2023		2022
Net Cash Provided by (used in)
Operating Activities		(17,935,375)		(18,909,428)	$	(12,085,707)		$ (11,016,909)
Investing Activities		(11,691,543)		(4,340,443)		(11,440,020)		(8,402,617)
Financing Activities		(202,552)		115,927,024		(456,211)		(202,552)

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we used ~~$17,935,375~~$12,085,707 of cash for operating ~~activities as compared to $18,909,428 for the comparable period in 2021.~~activities. Net changes in working capital items were ~~$1,870,484~~$2,226,731 for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, with the largest factors resulting from a ~~$1,268,857~~$3,027,270 increase in trade accounts receivables and ~~other~~ accrued ~~receivables~~revenue in excess of billings, partially offset by receipt of $466,705 for our Employee Retention Credit, which was filed with the IRS in November 2022; a $562,818 decrease in inventory and vendor prepayments; and a $232,619 decrease ~~of $417,298~~ in ~~net~~ trade ~~payables~~accounts payable and accrued expenses.

~~During~~ For the ~~nine~~six months ended ~~September~~June 30, 2022, we used ~~$11,691,543~~a total of $11,016,909 in cash for operating activities.

During the six months ended June 30, 2023, we used $11,440,020 of cash for investing activities, which included ~~$6,000,000~~$8,000,000 in payments made towards our ~~$15,000,000~~ technology license fee commitment ~~(as~~with Atomistic, as discussed in Note ~~6), $5,203,562~~6, $2,774,513 for purchases of manufacturing equipment ~~product mold tooling,~~ and ~~backplane chip design and tooling fees; $362,981~~leasehold improvement expenditures primarily related to our waveguide expansion project; $340,507 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 $200,000 of investments in private corporations as discussed in Note 7. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we used a total of ~~$4,340,443~~$8,402,617 in cash for investing activities.

During the ~~nine~~six months ~~ended September~~ending June 30, ~~2022,~~2023, we used ~~$202,552~~$456,211 in net cash ~~from~~for financing activities, which included ~~$251,057~~$14,546 received for stock option exercises, which was offset by $470,757 expended for share repurchases under our Share Buyback Program that ~~was announced~~expired on March 2, ~~2022, and partially offset by $48,505 in proceeds from the exercise of stock options.~~2023. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we ~~received $115,927,024~~used $202,552 in ~~proceeds from~~net cash for financing ~~activities, primarily from sales of our equity securities.~~activities.

As of ~~September~~June 30, ~~2022,~~2023, the Company does not have any current or long-term debt obligations outstanding other than ~~Licensing Fee Commitments~~licensing fee commitments totaling $9,000,000 related to the Atomistic Agreements described in Note 6 of the consolidated financial statements. The Company also has contractual investment commitments for a backplane chip design under the Atomistic Agreements, as further described in Note 5 of the unaudited consolidated financial statements,$3,500,000, which ~~total approximately $9,500,000 and~~ are ~~expected to be funded to Atomistic over the next 15 to 21 months~~all current.

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Additionally in connection with the Atomistic Agreements, the Company entered a Stock Purchase Agreement with the stockholders of Atomistic under which Vuzix will buy Series B Convertible Preferred shares of Atomistic through the issuance of Vuzix common shares based on the achievement of certain Milestones as defined in the Share Purchase Agreement. This will result, depending upon 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 stockholders in exchange for convertible Series A Preferred shares of Atomistic over approximately the next 6 to 24 months. 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 Convertible 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 ~~license~~licensing fee commitments. We incurred a net loss for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, of ~~$30,004,667~~$19,285,503 (of which ~~$12,016,334~~$6,500,261 was related to non-cash stock-based ~~compensation primarily due~~compensation) and for the years ended December 31, 2022, and 2021 of $40,763,573 (of which $15,775,553 was related to ~~our LTIP)~~non-cash stock-based compensation) 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.~~compensation), respectively. The Company has an accumulated deficit of ~~$233,076,810~~$263,507,583 as of ~~September~~June 30, ~~2022.~~

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 is in effect for one year, does not obligate the Company to acquire any particular amount of common stock, and may be suspended or discontinued at any time at the Company’s sole discretion.During the nine months ended September 30, 2022, the Company repurchased 36,685 shares of our common stock at an average cost of $6.84. As of September 30, 2022, 36,685 shares of our common stock were held in treasury.2023.

Our operations ~~are~~have historically been financed primarily through net proceeds from the sale of our equity securities. As of ~~September~~June 30, ~~2022,~~2023, our principal sources of liquidity consisted of cash and cash equivalents of ~~$90,374,403.~~$48,582,005.

Forward Looking Statements

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

●

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

●

the effect of competitors and competition in our markets;

●

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

●

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

●

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

●

our ability to attract and retain customers;

●

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

●

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

●

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

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●

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;

●

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.

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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/A~~10-K for the year ended December 31, ~~2021~~2022, and other filings we make with the Securities and Exchange Commission and the following: business and economic conditions, rapid technological changes accompanied by frequent new product introductions, competitive pressures, dependence on key customers, inability to gauge order flows from customers, fluctuations in quarterly and annual results, the reliance on a limited number of third-party suppliers, limitations of our manufacturing capacity and arrangements, the protection of our proprietary technology, the effects of pending or threatened litigation, the dependence on key personnel, changes in critical accounting estimates, potential impairments related to investments, foreign regulations, liquidity issues, and potential material weaknesses in internal control over financial reporting. Further, during weak or uncertain economic periods, customers may delay the placement of their orders. These factors often result in a substantial portion of our revenue being derived from orders placed within a quarter and shipped in the final month of the same quarter.

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

Item 3.Quantitative and Qualitative Disclosures about Market Risk

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

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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 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/A.~~at June 30, 2023.

Changes in Internal Control over Financial Reporting

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

Table of ~~an error in~~Contents

quarter that ~~calculation.~~

Inhave materially affected, or are reasonably likely to materially affect, the ~~first quarter of 2022, we designed and, to the extent possible, implemented~~Company’s internal control improvements to remediate the material weakness stated above, which included; (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 September 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. However, management expects to show full remediation of this material weakness in 2022.reporting.

Part II. OTHER INFORMATION

Item 1.Legal Proceedings

We are not currently involved in any actual or pending legal 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/A~~10-K for the year ended December 31, ~~2021. Except as set forth below, there~~2022. There have been no material changes from those risk factors. The risks discussed in our ~~2021~~2022 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

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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~~

During the three months ended June 30, 2023, the Company issued 96,525 shares of common stock to its independent board members as part of their annual retainer for services covering the period of July 2023 to June 2024. In connection with the foregoing, the Company relied upon the exemption from registration for transactions not involving a public offering.

Purchase of Equity ~~Securities~~Securities: - none

Item 3.Defaults Upon Senior Securities

None

Item 4.Mine Safety Disclosures

Not Applicable

Item 5.Other Information

None

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Item 6.Exhibits


Exhibit No.		Description

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

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

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

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

~~101.INS~~101		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~~ set for the financial statements and accompanying notes in Part I, Item 1, of this Quarterly Report on Form 10-Q.

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: ~~November 9, 2022~~August 8, 2023	By:	/s/ Paul Travers
		Paul Travers
		President, Chief Executive Officer
		(Principal Executive Officer)

Date: ~~November 9, 2022~~August 8, 2023	By:	/s/ Grant Russell
		Grant Russell
		Executive Vice President and Chief Financial
		Officer
		(Principal Financial and Accounting Officer)

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	September 30, 2021 (Unaudited)
	As Previously
Balance Sheet	Reported		Adjustment		As Restated
Additional paid-in capital	$	337,125,126	$	5,519,504	$	342,644,630
Accumulated deficit	$	(186,059,869)	$	(5,519,504)	$	(191,579,373)


	For the Nine Months Ended September 30, 2021 (Unaudited)
	As Previously
Condensed Statement of Changes in Stockholders' Equity	Reported		Adjustment		As Restated
Stock-Based Compensation Expense	$	8,858,814	$	5,519,504	$	14,378,318
Additional Paid-In Capital		337,125,126		5,519,504		342,644,630
Net Loss		(23,364,886)		(5,519,504)		(28,884,390)
Accumulated Deficit	$	(186,059,869)	$	(5,519,504)	$	(191,579,373)


	For the Nine Months Ended September 30, 2021 (Unaudited)
	As Previously
Condensed Statement of Cash Flows	Reported		Adjustment		As Restated
Net Loss	$	(23,364,886)	$	(5,519,504)	$	(28,884,390)
Stock-Based Compensation		7,311,278		5,519,504		12,830,782
Net Cash Flows Used in Operating Activities	$	(18,909,428)	$	—	$	(18,909,428)