Vuzix Corp

Note 1 — Summary of Significant Accounting Policies

Operations

Vuzix Corporation (the “Company”) was incorporated in 1997 under the laws of the State of Delaware and is headquartered in West Henrietta, New York (a suburb of Rochester). We design, manufacture, market, and sell AI-enabled smart glasses, waveguides, and related augmented reality (“AR”) technologies, components, and products for the enterprise, medical, defense, and consumer markets. Our offerings include head-mounted smart display and wearable computing devices that provide portable, hands-free access to digital content for mobility, frontline workflows, and AI- and AR-enabled applications, as well as OEM waveguide optical components and display engines. Our wearable display products integrate microdisplay technology with advanced optics to deliver compact, high-resolution display engines that, when used in our smart glasses or heads-up display solutions, present virtual images comparable in apparent size to a computer monitor or large-screen television. Our products are offered with varying features in both monocular and binocular configurations.

Basis of Presentation

The consolidated financial statements have been prepared in accordance with US Generally Accepted Accounting Principle (“GAAP”).

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Vuzix Europe GmbH, Vuzix Japan Corporation, and Moviynt, Inc. All inter-company transactions have been eliminated.** **

Evaluation of Liabilities, Equity and Derivatives

The Company evaluates whether financial instruments issued by the Company should be classified as liabilities, mezzanine equity, or permanent equity and whether such instruments contain features that meet the definition of a derivative. This evaluation requires judgment and consideration of the instrument’s contractual terms and applicable accounting guidance, including an assessment of redemption features and settlement provisions.

Instruments classified as liabilities are recorded at fair value, with changes in fair value recognized in earnings. Mezzanine equity is initially recorded at issuance date fair value and subsequently adjusted to its redemption value when it is probable that the instrument will become redeemable. Instruments classified as equity are not subsequently remeasured. Changes in these classifications or valuations could materially affect the Company’s financial position and results of operations.

Variable Interest Entities

The Company determines at the inception of each arrangement whether an entity in which it has made an investment or in which the Company has other variable interests is considered a variable interest entity (VIE). The Company consolidates VIEs when it is the primary beneficiary. The Company is the primary beneficiary of a VIE when it has the power to direct activities that most significantly affect the economic performance of the VIE and have the obligation to absorb the majority of their losses or benefits. If the Company is not the primary beneficiary in a VIE, the Company accounts for the investment or other variable interests in a VIE in accordance with applicable GAAP. At each reporting period, the Company assesses whether any changes in our interest or relationship with the entity affect our determination of whether the entity is a VIE and, if so, whether the Company is the primary beneficiary.

We have an investment in a VIE, Atomistic, in which we are not the primary beneficiary. This VIE includes a private company investment, described further in Notes 6 and 7. We have determined that the governance and operating structures of this entity do not allow us to direct the activities that would significantly affect their economic performance. Therefore, we are not the primary beneficiary, and the results of operations and financial position of this VIE are not included in our consolidated financial statements. We had accounted for this investment as a technology license and an equity investment. The maximum exposure of this unconsolidated VIE is generally based on the current carrying value of the investment. We have determined that the single source of our exposure to this VIE was our capital investment in them. The carrying value and maximum exposure of this unconsolidated VIE was $31.8 million as of March 31, 2024; however, as of June 30, 2024, the carrying value of these investments of $30.1 million was written-off due to the termination of the Company’s exclusive license. Refer to Notes 6 and 7 for further details.

Investments in Equity Securities

Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at that value with unrealized gains and losses included in earnings. For equity securities without a readily determinable fair value, the investment is recorded at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with unrealized gains and losses included in earnings. In the year ended December 31, 2025, there was an impairment charge of $400,000 recorded on two of the Company’s cost method investments. There wasno impairment recorded in the years ended December 31, 2024 and 2023.

Segment Data, Geographic Information and Significant Customers

Operating segments are defined as components of an entity for which separate financial information is available and regularly reviewed by the chief operating decision maker (“CODM”). The Company’s CODM is its Chief Executive Officer. The Company is not organized by market and is managed and operated as one business. A single management team that reports to the chief operating decision maker comprehensively manages the entire business. The Company does not operate any material separate lines of business or separate business entities and therefore manages its operations as asingle operating segment and therefore asingle reportable segment. Our CODM evaluates performance and makes operating decisions about allocating resources based on financial data presented on a consolidated basis, accompanied by information about revenue disaggregated by geographic region. Because our CODM evaluates financial performance on a consolidated basis, we have determined that we have a single operating segment composed of the consolidated financial results of Vuzix Corporation.

The CODM reviews financial information, presented on a consolidated basis, focusing on significant expenses and net loss/income for purposes of making operating decisions, allocating resources, and evaluating financial performance. The measure used by our CODM to assess performance and make operating decisions is net loss as reported on our consolidated statements of operations. The measure of segment assets is reported on the balance sheet as total consolidated assets. Net loss is used by our CODM to identify underlying trends in the performance of our business and make comparisons with the financial performance of our competitors. Our CODM also reviews total assets, as reported on our consolidated balance sheets, and purchases of property and equipment, as reported on our consolidated statements of cash flows.

Significant expenses regularly provided to and reviewed by the CODM are Cost of Sales, Research and Development, Compensation, General and Administrative and Intangible Asset and Equity Investment Impairment. These segment items for the years ending December 31, 2025, 2024, and 2023 are:

Other Segment Items:

Refer to Note 17 — Geographic and Other Financial Information (Unaudited).

Foreign Currency Transactions

The Company considers the U.S. dollar as the functional currency of the Company’s German and Japanese subsidiaries. The Company’s German subsidiary transacts primarily in Euros and the Company’s Japanese subsidiary transacts primarily in Yen. All transactions in foreign currencies are recorded in U.S. dollars at the then current exchange rate. Upon settlement of the underlying transaction, all amounts are re-measured to U.S. dollars at the current exchange rate on the date of settlement. All unsettled foreign currency transactions that remain in accounts receivable and trade account payables are re-measured to U.S. dollars at the period-end exchange rates. All re-measurement gains and losses are recorded in the current period net income.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at year-end and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk

The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits.

Cash and Cash Equivalents

Cash and cash equivalents can include highly liquid investments with original maturities of three months or less.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern.

In accordance with ASC Subtopic 205-40, Presentation of Financial Statements — Going Concern, management is required to evaluate whether conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The going concern assumption underlies all U.S. GAAP financial reporting and presumes that the Company will continue normal business operations into the foreseeable future, unless such conditions or events raise substantial doubt about the Company’s ability to continue as a going concern.

Additional disclosure is required when there is substantial doubt about business continuity or substantial doubt that has not been alleviated by management’s mitigation plans. As required under applicable accounting standards, management has concluded that doubt may exist surrounding the Company's ability to meet its obligations withinone year of the release of the financial statements.

The Company incurred net losses for the year ended December 31, 2025 of $32,273,128; $73,538,157 for the year ended December 31, 2024; and $50,149,077 for the year ended December 31, 2023. The Company had net cash outflows from operations of $18,789,272 for the year ended December 31, 2025; $23,739,372 for the year ended December 31, 2024; and $26,277,824 for the year ended December 31, 2023. As of December 31, 2025, the Company had an accumulated deficit of $399,858,410.

The Company’s cash requirements going forward are primarily for funding operating losses, research and development, working capital, and capital expenditures. Our cash requirements related to funding operating losses depend upon numerous factors, including new product development activities, research and development costs, our ability to commercialize our products, our products’ timely market acceptance, selling prices and gross margins, and other factors. Historically, the Company has met its cash needs primarily through the sale of equity securities. The Company will need to grow its business significantly to become profitable and self-sustaining on a cash flow basis or it will be required to cut its operating costs significantly or raise new equity and/or debt capital.

These historical financial factors initially raise doubt about the Company’s ability to continue as a going concern. Management intends to take actions necessary to continue as a going concern, as discussed herein. Management’s plans to alleviate the conditions that raise doubt include raising further capital and the implementation of operational improvements and the curtailment of certain development programs, both of which the Company expects will preserve cash.

Management’s plans concerning these matters and managing our liquidity include, among other things:

The Company has historically raised capital through the sale of equity securities. The Company filed a Registration Statement on Form S-3 that became effective in May 2024, which includes a sales agreement prospectus for the issuance and sale of up to $50,000,000 of our common stock that may be issued and sold from time to time under a sales agreement with an investment bank in an “at the market” offering. Since May 2024, the Company has raised $28,250,484, net of broker expenses, including $14,286,816, in the year ended December 31, 2025 and $5,784,193 to-date in 2026, under this sales agreement.

Management monitors the capital markets on an ongoing basis and may consider raising capital if favorable market conditions develop. If the Company’s actual results are less than projected or the Company needs to raise capital for additional liquidity, the Company may be required to pursue additional equity financings, further curtail expenses, or enter into one or more strategic transactions. However, management can make no assurance that the Company will be able to successfully complete any of the forementioned pursuits on terms acceptable to the Company, or at all.

As a result of management’s plan above, our current amount of cash on hand, and our historical ability to raise capital, management has concluded that substantial doubt of our ability to continue as a going concern has been alleviated.

Fair Value of Financial Instruments

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, accrued revenue, accounts payable, unearned revenue, accrued expenses, and income and other taxes payable. As of the consolidated balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented due to the short maturities of these instruments.

Accounts Receivable and Allowance for Credit Losses

The Company maintains reserves for potential credit losses based upon our historical experience, aging profile and current and expected future general economic conditions. Receivable balances are written-off when collection is deemed unlikely. In determining the adequacy of the provision, the Company considers known uncollectible or at-risk receivables. The total allowance for expected credit losses as of December 31, 2025 and 2024 was $46,000 and $89,000, respectively. During the year ended December 31, 2025, the Company wrote-off gross receivables of $43,000. During the year ended December 31, 2024, the Company wrote-off gross receivables of $2,462,219, which included $1,402,484 of accounts receivables that were fully provisioned for in the year ended December 31, 2023. The Company does not accrue interest on any past due accounts receivable unless such receivable goes into collection.

The following table provides a rollforward of expected credit losses for the years ended December 31, 2025 and 2024:

Customer and Supplier Concentrations

Two customers represented 25% and 11%, respectively, of total product revenue andfour customers represented 50%,17%,11%, and 11%, respectively, of engineering services revenue for the year ended December 31, 2025. One customer represented 24% of total product revenue andtwo customers represented 67% and 14%, respectively, of our engineering services revenue for the year ended December 31, 2024. Two customers represented 29% and 25%, respectively, of total product revenue andfour customers represented 44%,15%,12% and 11%, respectively, of our engineering services revenue for the year ended December 31, 2023.

Two customers represented 55% and 35%, respectively, of accounts receivable at December 31, 2025. One customer represented 76% of accounts receivable at December 31, 2024. Two customers represented 47% and 26%, respectively, of gross accounts receivable at December 31, 2023.

Three third-party vendors represented 25%,12%, and 11%, respectively, of purchases for the year ended December 31, 2025. As of December 31, 2025, the net amount due to these vendors wasnil. One third-party vendor represented 63% of material purchases for the year ended December 31, 2024. No third-party vendors represented more than 10% of material purchases for the year ended December 31, 2023.

Accrued Project Revenue

The Company carries accrued project revenue based on the percentage of completion on the project measured using the input method based upon costs incurred to date as a percentage of total expected costs to complete the project less amounts invoiced, if any. As of December 31, 2025, 2024, and 2023 there was $533,665, $673,498, and $165,771, respectively, in accrued project revenue.

Inventories

Inventories are valued at the lower of cost or net realizable value using the weighted average first-in, first-out method. The Company includes labor and overhead costs in its inventory valuation costing. The Company records provisions for excess, obsolete or slow-moving inventory based on changes in customer demand, technology developments or other economic factors. The Company’s products have product life cycles that range on average fromtwo tothree years currently. At both the product introduction and product discontinuation stage, there is a higher degree of risk of inventory obsolescence. The provision for obsolete and excess inventory is evaluated for adequacy at each quarter end. The estimate of the provision for obsolete and excess inventory is partially based on expected future product sales, which are difficult to forecast for certain products. The total provision for obsolete and excess inventory as of December 31, 2025 and 2024 was $6,068,188 and $7,944,575, respectively.

Revenue Recognition

The Company recognizes revenue from Contracts with Customers under FASB ASC Topic 606, “Revenue from Contracts with Customers”. Product sales represent the majority of the Company’s revenue. The Company recognizes revenue from these product sales as performance obligations are satisfied and transfer of control and ownership to the customer has occurred. Revenue is recognized in the amount that the Company expects to receive in exchange for the sale of our products. FOB shipping point is our standard shipping term and revenue is generally recognized as our products ship to customers, as control and ownership are transferred at this time. All of our standard product sales include a 30-day money-back guarantee and expected returns are estimated at each reporting period date, and a portion of revenue is deferred for all estimated returns. As of December 31, 2025 and 2024, unearned revenue consisting of deferred revenue associated with our expected returns were immaterial. The Company collects and remits sales taxes in certain jurisdictions and reports revenue net of any associated sales taxes.

Revenue from any engineering consulting and other services is recognized at the time the services are rendered. The Company accounts for its longer-term development contracts, which to date have all been firm fixed-priced contracts, on the percentage-of-completion method, whereby income is recognized as work on contracts progresses, but estimated losses on contracts in progress are charged to operations immediately. The percentage-of-completion is determined using the cost-to-cost method. To date, the majority of such contracts have been less than one calendar year in duration.

Unearned Revenue

These amounts represent deferred revenue against our expected product sales returns for all December 2025 and 2024 products sales that are subject to the Company’s 30-day money back guarantee return policy.

Cost of Product Sales

Cost of product sales includes the direct and allocated indirect costs of products sold to customers. Direct costs include labor, materials, reserves for estimated warranty expenses, and other costs incurred directly, or charged to us by our contract manufacturers in the manufacturing of these products. Indirect costs include labor, manufacturing overhead, and other costs associated with operating our manufacturing facility and capacity. Manufacturing overhead includes the costs of procuring, inspecting and storing material, facility and other costs, and is allocated to cost of product revenue based on the proportion of indirect labor which supported production activities. Depreciation of manufacturing tools and equipment and amortization of software development costs are included in our cost of product sales. The cost of product sales can fluctuate significantly from period to period, depending upon the product mix and volume, the level of manufacturing overhead expense and the volume of direct cost of materials.

Cost of Engineering Services

Cost of engineering services revenues includes both the direct and allocated indirect costs of performing on contracts and prototype units. Direct costs include labor, materials and other costs incurred directly in performing under the contract. Direct costs also include labor and other costs associated with operating our research and development department based on the level of effort supporting the development activity. Indirect costs include labor, manufacturing overhead, and other costs associated with operating our manufacturing facility and capacity. Cost of engineering sales is determined by the level of direct and indirect costs incurred, which can fluctuate substantially from period to period.

Fixed Assets

Fixed assets are stated at cost. Depreciation of fixed assets is provided for using the straight-line method over the following estimated useful lives:

Repair and maintenance costs are expensed as incurred. Asset betterments are capitalized and depreciated over their expected useful life.

Patents and Trademarks

The Company capitalizes the costs of obtaining its patents and registration of trademarks. Such costs are accumulated and capitalized during the filing periods, which can take several years to complete. Successful applications that result in the granting of a patent or trademark are then amortized over 15 years on a straight-line basis. Unsuccessful applications are written-off and expensed in the fiscal period where the application is abandoned or discontinued. Ongoing maintenance and legal fees for issued patents and trademarks are expensed as incurred.

Software Development Costs

The Company capitalizes the costs of obtaining or developing its software once technological feasibility has been determined by management or of purchased software solutions when placed into service. Such costs are accumulated and capitalized. Projects can take several years to complete. Unsuccessful or discontinued software projects are written-off and expensed in the fiscal period when the software development effort is abandoned or discontinued. Costs incurred internally in researching and developing a computer software product are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. Once the product is available for general release, accumulated costs are amortized over the life of the asset. The amortization of these costs is included in cost of product sales over the

estimated life of the products, which currently is estimated atthree years using a straight-line basis. As of December 31, 2025, 2024, and 2023, we had $27,778, $194,445, and $361,111, respectively, of net software development costs included in Other Assets. For the years ended December 31, 2025, 2024, and 2023, there wasnil in impairment of software development costs.

Licenses

The Company capitalizes the costs of acquiring licenses and prepaid royalties. They are amortized on either a per unit basis or straight line over the expected life of the license. In some cases, future royalties are subject to annual limits.

Long-Lived Assets, Goodwill and Other Acquired Intangible Assets

The Company, at least annually, assesses all of its long-lived assets and intangibles, excluding goodwill, for impairment and when events or circumstances indicate their carrying amounts may not be recoverable. For the years ended December 31, 2025 and 2024 impairment charges werenil, and for the year ended December 31, 2023, there was an impairment charge of $41,869 to patents and trademarks. For the years ended December 31, 2025, 2024, and 2023, we recorded a loss on fixed asset disposal of $106,898, $27,654, andnil, respectively, upon the retirement of certain tooling and manufacturing equipment assets no longer in use. Intangible assets with definite lives are amortized over their estimated useful lives on a straight-line basis over afive-year period.

We perform an evaluation of our goodwill and other intangible assets for impairment at least annually, or more frequently if events or changes in circumstances indicate a potential impairment trigger. For the year ending December 31, 2024, the Company recorded an impairment charge of $30,301,355 for the unamortized technology license and equity investment in Atomistic. For the year ended December 31, 2023, the Company recorded an impairment charge of $2,136,993 for the unamortized intangible assets and goodwill regarding its previous acquisition of Moviynt.

Research and Development

Research and development costs are expensed as incurred consistent with the guidance of FASB ASC Topic 730, “Research and Development,” and include employee-related costs, office expenses, third-party design and engineering services, and new product prototyping costs. Costs incurred internally in researching and developing a computer software product are charged to expense until technological feasibility has been established for the product.

Shipping and Handling Costs

Amounts charged to customers and costs incurred by the Company related to shipping and handling are included in net sales and cost of sales, respectively.

Provision for Future Warranty Costs

The Company provides for the estimated returns under warranty and the costs of fulfilling our obligations under product warranties at the time the related revenue is recognized. The Company estimates the costs based on historical and projected product failure rates, historical and projected repair costs, and knowledge of specific product failures (if any). The specific warranty terms and conditions vary depending upon the country in which we do business but generally include parts and labor over a period generally ranging fromone totwo years from the date of product shipment. The Company provides a reserve for expected future warranty returns at the time of product shipment or produces over-builds to cover replacements. We regularly re-evaluate our estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary each quarter end, based upon these historical and projected factors of warranty claims and costs.

Advertising

Advertising costs are expensed as incurred and recorded in “Selling and Marketing” in the Consolidated Statements of Operations. Advertising expense for the years ended December 31, 2025, 2024, and 2023 was $536,158, $648,123 and $2,279,797, respectively.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC Topic 740-10, “Income Taxes.” Accordingly, the Company provides deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws. A valuation allowance is established for deferred tax assets in amounts for which realization is not considered more likely than not to occur.

The Company reports any interest and penalties accrued relating to uncertain income tax positions as a component of the income tax provision.

Net Loss Per Share

Basic earnings per share is computed by dividing net income (loss) less preferred dividends, whether paid or accrued, on any outstanding preferred stock by the weighted average number of common shares outstanding for the period. Diluted earnings per share calculations reflect the assumed exercise of all dilutive employee stock options, vesting of Restricted Stock Units (“RSUs”), and Performance Stock Units (“PSUs”) applying the treasury stock method promulgated by FASB ASC Topic 260, “Earnings Per Share” and the conversion of any outstanding convertible preferred shares or notes payable that are in-the-money, applying the as-if-converted method. However, if the assumed exercise of stock options, RSUs, PSUs, and the conversion of any preferred shares are anti-dilutive, basic and diluted earnings per share are the same for all periods. As a result of the net losses generated in 2025, 2024 and 2023, all outstanding instruments would be anti-dilutive. As of December 31, 2025, 2024, and 2023, there were 10,254,286,10,367,990 and 8,695,308 common stock share equivalents, respectively, potentially issuable from the exercise of stock options, vesting of RSUs and PSUs, and the conversion of preferred stock that could dilute basic earnings per share in the future.

Stock-Based Compensation Expense

The Company accounts for stock-based compensation to employees and directors in accordance with FASB ASC Topic 718, “Compensation - Stock Compensation,” which requires that compensation expense be recognized in the consolidated financial statements for stock-based awards based on the grant date fair value. For stock option awards, the Black-Scholes-Merton option pricing model was used to estimate the fair value of share-based awards under FASB ASC Topic 718. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and share price volatility. The expected term of options granted was estimated to be the average of the vesting term, historical exercise and forfeiture rates, and the contractual life of the option. The share price volatility at the grant date is estimated using historical stock prices based upon the expected term of the options granted. The risk-free interest rate assumption is determined using the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

For common stock awards, the Company uses the fair market value of our common stock on the date of each stock-based award based on the market price of the Company’s common shares. The expense related to these awards is recognized over the requisite service period of the awards on a straight-line or graded vesting basis, which is generally commensurate with the vesting term. Stock-based compensation expense associated with stock options, stock awards, RSAs, and PSUs considered probable for the years ended December 31, 2025, 2024, and 2023 was $4,149,950, $5,928,198, and $4,566,253, respectively, excluding awards under the Company’s former Long-term Incentive Plan (LTIP). The Company issues new shares upon stock option exercises and the vesting of RSUs and PSUs.

For stock options awarded under the Company's former LTIP, options were to vest only upon the achievement of certain equity market conditions or performance-based milestones. The fair value of options granted under this program were calculated by using a Monte Carlo simulation for the equity market condition tranches and the Black-Scholes-Merton option pricing method on the performance-based tranches. As of June 17, 2025, a total of 5,359,500 of these options that were unvested were cancelled after receipt of stockholder approval at the Company’s 2025 Annual Shareholders Meeting for such cancellation coupled with a simultaneous issuance of new RSUs and PSU to those remaining option holders as described in Note 13. Stock-based compensation expense associated with the Company's former LTIP for the years ended December 31, 2025, 2024, and 2023 was $1,180,356, $5,637,176, and $8,144,734, respectively.

Leases

The Company determines if an arrangement is a lease at inception. Our lease agreements generally contain lease and non-lease components. Historically, non-lease components such as utilities have been immaterial. Payments under our lease arrangements are primarily fixed. Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The Company has made an accounting policy election to account for lease and non-lease components in its contracts as a single lease component for its real estate leases. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

As of December 31, 2025, all of our leases are considered operating leases. Operating lease right-of-use assets and liabilities were included on our Consolidated Balance Sheets beginning January 1, 2019. The Company does not have any finance leases as of December 31, 2025.

Recently Adopted Accounting Pronouncements

In December 2023, the FASB released Accounting Standards Update ("ASU") 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard requires enhanced disaggregation in the rate reconciliation and disclosures of income taxes paid by jurisdiction. The Company elected to apply the amendments in this ASU on a retrospective basis to all periods presented in the consolidated financial statements. Accordingly, the prior-period income tax rate reconciliation and income taxes paid disclosures have been recast to conform to the current-year presentation. The adoption of this standard resulted in increased disclosures but did not impact the Company's financial position, results of operations, or cash flows.

Recent Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03,Income Statement - Reporting Comprehensive Income (Topic 220): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires public entities to provide disaggregated disclosures of certain expense captions presented on the face of the income statement into specific categories within the notes to the consolidated financial statements. ASU 2024-03 is effective for the Company’s annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The ASU may be applied either on a prospective or retrospective basis. The Company is currently evaluating the impact of adoption of ASU 2024-03 on its financial statements and related disclosures.

In July 2024, the FASB issued ASU 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which amends ASC 326-20 to provide a practical expedient (for all entities) and an accounting policy election (for all entities, other than public business entities, that elect the practical expedient) related to the estimation of expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606. The standard is effective for annual reporting periods beginning after December 15, 2025, including interim periods, and allows for early adoption. The Company is

currently evaluating the impact on its financial statements and related disclosures. The Company does not expect the adoption of ASU 2025-05 to have a material impact on its consolidated financial statements.

Note 2 – Revenue Recognition and Contracts with Customers

Disaggregated Revenue

The Company’s total revenue was comprised oftwo major product categories: Products Sales (which include smart glasses, software, and accessories) and Engineering Services (which include engineering services fees and related ODM/OEM services and product sales, as well as waveguide and display engine component sales). The following table summarizes the revenue recognized by product line:

Significant Judgments

Under Topic 606“Revenue from Contr acts 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. 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 Product Sales, 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 both at a point-in-time and over time. For those performance obligations recognized over time, the input method is utilized for measuring progress toward satisfying the performance obligations. Satisfaction of these performance obligations is measured by the Company’s costs incurred as a percentage of total expected costs to project completion, as the inputs of actual costs incurred by the Company are directly correlated with progress toward completing the contract. As such, the Company believes that our methodologies for recognizing revenue both at a point-in-time and over time for our Engineering Services correlate directly with the transfer of control of the underlying assets to our customers.

Our standard product sales include atwelve (12) month assurance-type product warranty. In the case of certain OEM products and waveguide sales, some include a standard product warranty of up toeighteen (18) months to allow distribution channels to offer the end customer a full twelve (12) months of coverage. We offer an extended warranty to customers that extends the standard product warranty on product sales for an additional twelve (12) month period. All revenue related to extended product warranty sales is deferred and recognized over the extended warranty period. Our Engineering Services contracts vary from contract to contract but typically include payment terms of Net 30 days from the date of billing, subject to an agreed upon customer acceptance period.

As of December 31, 2025 and 2024, there were $47,025 and $109,725, respectively, in outstanding performance obligations remaining for extended warranties.

The following table presents a summary of the Company’s net sales by revenue recognition method as a percentage of total net sales:

Remaining Performance Obligations

As of December 31, 2025, the Company had $1,836,670 of remaining performance obligations under current waveguide and other development projects, including initial product production, which represents the remainder of transaction prices totaling $3,737,168 under these development projects, which commenced in 2023 and 2025, less revenue recognized under percentage of completion to date. The Company expects to recognize the remaining revenue related to these projects, based upon the following expected due dates:37% in 2026 and 63% in 2027. Revenues earned less amounts invoiced at December 31, 2025, in the amount of $533,665 are reflected as Accrued Revenues in Excess of Billings in the accompanying Consolidated Balance Sheet.

As of December 31, 2024, the Company had $2,051,502 of remaining performance obligations under a current waveguide development project, including its initial product production, which represents the remainder of transaction prices totaling $3,500,000 under this development project, which commenced in 2023, less revenue recognized under percentage of completion to date.

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

Note 3 — Inventories, Net

Inventories consisted of the following:

In addition to its normal Reserve for Obsolescence provision, the Company reserved as of December 31, 2025 additional provisions for expected surplus component parts and obsolescence in excess of its currently planned existing product builds in 2026 on most of its existing smart glass product models in anticipation of the planned introduction of newer models, which would logically replace the existing models when introduced. The disposal value of the excess components that could not be used in future models is unknown, so a 100% obsolescence provision has been accrued.

During the year ended December 31, 2025, the Company recorded an additional provision for gross inventory of $503,400 and converted into finished goods or physically disposed of $2,379,787 of inventory that was fully provisioned for in the previous year. During the year ended December 31, 2024, the Company recorded an obsolescence provision for gross inventory of $4,167,917 and disposed of $1,998,893 of inventory that was fully provisioned for.

The total obsolescence provisions totaled $6,068,188 and $7,944,575 for the years ended December 31, 2025 and 2024, respectively. The changes to these provisions are included in Cost of Sales on the Consolidated Statements of Operations.

Note 4 — Fixed Assets, Net

Fixed Assets consisted of the following:

Total depreciation expense for fixed assets for the years ended December 31, 2025, 2024, and 2023 was $1,919,386, $1,819,883, and $1,036,578, respectively.

As of December 31, 2025 and 2024, there was $2,602,784 and $4,931,005, respectively, of fixed assets that were not yet placed into service.

Note 5 — Patents and Trademarks, Net

Total amortization expense for patents and trademarks for the years ended December 31, 2025, 2024, and 2023 was $194,510, $189,216 and $183,690, respectively. The estimated aggregate annual amortization expense for each of thenext five fiscal years is approximately $323,000. For the years ended December 31, 2025 and 2024 we recordednil in patent impairment charges and in the year ended December 31, 2023 we recorded $41,869 in patent impairment charges.

Note 6 — Technology Licenses, Net

Total amortization expense related to these intangible technology licenses in the years ended December 31, 2025, 2024, and 2023 was $201,069, $1,553,334, and $3,307,737, respectively. The estimated aggregate annual amortization expense for thenext three fiscal years is approximately $202,000.

On June 30, 2024, the Company decided to cease further funding of development activities with Atomistic SAS (“Atomistic”) under the license agreement dated December 16, 2022 among the Company, Atomistic, and Atomistic’s two principals (the “License Agreement”). The Company’s decision gave Atomistic the right under the License Agreement to terminate the Granted License (as defined under the License Agreement), which right Atomistic exercised on July 1, 2024. As a result of the termination of the Granted License, the Company determined that the technology license asset, with a net book value as of June 30, 2024 of $24,335,554, had been impaired as the Company no longer held exclusive licensing rights to the technology for its use.

Notwithstanding the termination of the Granted License, the Company will be entitled to certain License Royalties (as defined under the License Agreement) from Atomistic if it licenses the technology that was the subject of the granted license.

Note 7 — Investment in Atomistic

In November 2023, Atomistic successfully reached seven oftwelve technological milestones under its technology license agreement (Note 6) with the Company executed on December 16, 2022. As a result of these achievements, the Company issued to the Atomistic Founders 1,397,500 shares of the Company's common stock and paid them $2,500,000 in exchange for 13,682 shares of Series A Preferred stock of Atomistic. The fair market value of the common shares when issued was $2.35 per share or a total of $3,284,125.

Subsequently, and in addition to the write-off of the Atomistic technology license discussed in Note 6, based upon the fact that Atomistic has lost future funding from the Company and most likely will not have adequate funds on its own to complete the project without raising additional funding from other third parties, the Company also determined the equity investment has been impaired and the Company recorded a charge of $5,784,125 for the period ended December 31, 2024. The Company will retain an equity interest in Atomistic, the right to appoint a member to the Atomistic board of directors and certain other rights as an equity owner pursuant to the stock purchase agreement and shareholders’ agreement entered into in connection with the License Agreement. The Company’s equity interest in Atomistic entitles it to a preferential allocation to 49% of the distributable amounts in the event of a liquidation event, such as an acquisition of Atomistic or its assets.

Future royalties of the license and the 49% liquidation preferred allocation value, if any, are considered gain contingencies and will not be recorded until any specific events materialize. At this specific point in time, the Company is unable to reasonably estimate a value for these contingencies and therefore recorded a full impairment against the license and the investment in Atomistic preferred shares due to such uncertainty of potential outcomes.

Note 8 – Other Assets

The Company’s other assets consist of the following:

During the year ended December 31, 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 stockkeeping of inventory, amongst other uses. In the year ended December 31, 2023, the Company purchased an additional $100,000 of preferred stock in this corporation through a subsequent round of funding in order to retain a 2% ownership interest. This investment was determined to be fully impaired in value as of December 31, 2025 and its net value is now considered zero.

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. This investment was determined to be fully impaired in value as of December 31, 2025 and its net value is now considered zero.

During 2020, the Company invested $500,000 in Android operating systems upgrades for its CPU platform used in its M400 and M4000 products, which was recorded as Software Development Costs. This upgrade was completed 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 span ofthirty-six (36) months, which began on October 1, 2020 and became fully amortized in 2023. In October 2021 and the first quarter of 2022, the Company invested $250,000 and $125,000, respectively, for further Android operating systems version upgrades to the CPU platform it uses in its M400 and M4000 products. During the year ended December 31, 2023, the Company made a final investment of $125,000 in these software system upgrades, which were placed into service during the second quarter of 2023. These additional upgrades of $500,000 are being amortized on a straight-line basis over thirty-six (36) months.

Total amortization expense for capitalized software development costs for the years ended December 31, 2025, 2024, and 2023 was $166,667, $166,667 and $263,549, respectively, and are included in Cost of Sales – Products in the Consolidated Statements of Operations.

Note 9 — Accrued Expenses

Accrued expenses consisted of the following:

The Product Development and Tooling Costs of $2,416,910 have been expensed or capitalized, a portion of which will be amortized over future production of a specified number of units when the project is completed and commercially released. The Company expects amortization to commence in the first quarter of 2026.

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, unless the customer purchases an extended warranty for an additional twelve (12) months. The costs incurred to provide for these warranty obligations are estimated and recorded as an accrued liability at the time of sale. The Company estimates its future warranty costs based upon product-based historical performance rates and related costs to repair.

The changes in the Company’s accrued warranty obligations for the years ended December 31, 2025, 2024, and 2023 were as follows:

Note 10 — Income Taxes

The Company files U.S. federal and various state and foreign tax returns.

Pre-tax earnings consisted of the following for the years ended:

The provision expense/(benefit) for income taxes for the years ended December 31, 2025, 2024, and 2023 was as follows:

A reconciliation of the statutory U.S. federal income tax rate to the effective rates for the years ended December 31, 2025, 2024, and 2023 is as follows:

Significant components of the Company’s deferred tax assets and liabilities at year end are as follows:

As of December 31, 2025, the Company has approximately $250 million in U.S. Federal net operating loss (NOL) carry-forwards. Some of these NOL carryforwards will expire beginning in 2026 and others are not subject to expiration. Specifically, $74.3 million of the NOL carryforward will begin to expire in 2026 and as a result of the Tax Cuts and Jobs Act, the remaining NOL carryforwards have no expiration. In addition to the U.S. Federal NOL carryforward, the Company has state NOL carryforwards of approximately $15.8 million in various jurisdictions in which it files that will begin to expire in 2034. The Company also has approximately $4.5 million of U.S. Federal and state credit carryforwards. The credit carryforwards will begin to expire in 2026 and will be fully expired by 2045 if not utilized. Utilization of the NOL carry-forwards may be subject to an annual limitation in the case of sufficient equity ownership changes under Section 382 of the U.S. Federal tax law or the NOL's may expire unutilized.

In addition to the U.S. Federal and state attributes noted above, Vuzix Europe GmbH, a wholly owned subsidiary incorporated in Germany, has NOLs as of December 31, 2025 of $1.1 million that have no expiration. Vuzix Japan KK, a KK corporate entity wholly owned by the Company in Japan, has NOLs as of December 31, 2025 of $1.8 million that will expire in 2034.

As the result of the assessment of the FASB ASC 740-10 (“Prior Authoritative Literature: FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”), the Company hasno unrecognized tax benefits.

The Company’s U.S. Federal and state tax matters for the years 2021 through 2024 remain subject to examination by the respective tax authorities.

FASB ASC 740 (“Prior Authoritative Literature: SFAS No. 109, Accounting for Income Taxes”), requires

recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differing treatment of items for financial reporting and income tax reporting purposes. The deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. In light of the historic losses of the Company, a

100% valuation allowance has been recorded to fully offset any benefit associated with the net deferred tax assets, for which realization is not considered more likely than not to occur.

The One Big Beautiful Bill Act ("OBBB") was signed into law on July 4, 2025. The OBBB makes changes to U.S. corporate income tax, including immediate expensing of domestic research and development costs, with retroactive application beginning January 1, 2025; reinstating the option to claim 100% accelerated depreciation deductions on qualified property, with retroactive application beginning January 20, 2025; and international tax provisions modifying global intangible low-taxed income ("GILTI"), foreign-derived intangible income ("FDII"), and base erosion and anti-abuse tax ("BEAT"). There is no significant impact from the OBBB on the Company.

Note 11 — Mezzanine Equity and Stockholders’ Equity

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. The Company has 5,000,000 authorized shares of preferred stock with a par value of $0.001 as of December 31, 2025 and December 31, 2024. Of this total,49,626 shares are designated as Series A Preferred Stock and 800,000 shares are designated as Series B Convertible Preferred Stock (“Series B Preferred Stock”). There werenil shares of Series A Preferred Stock issued and outstanding on December 31, 2025 and December 31, 2024, and there were 419,959 andnil shares of Series B Preferred Stock issued and outstanding as of December 31, 2025 and December 31, 2024, respectively.

Each share of Series B Preferred Stock is convertible, at the option of the holder, intoten shares of common stock, subject to adjustment for stock splits, stock dividends, and similar transactions. The Company may, at its option at any time after notice, redeem the Series B Preferred Stock that is outstanding, subject to the conversion rights of the holder. The Series B Preferred Stock does not entitle the holders to voting rights, except with respect to certain actions which will require the consent of the holders of 66 2/3% of the outstanding shares of Series B Preferred Stock, or as required by law.

The Series B Preferred Stock entitles the holders to cumulative dividends at the annual rate of 1.5% of the original issuance price, payable quarterly in cash. During the years ended December 31, 2025 and 2024, there were $22,409 andnil preferred dividends paid, respectively. As of December 31, 2025, total accumulated and unpaid preferred dividends were $39,923. There wereno accrued preferred dividends as of December 31, 2024.

Holders of the Series B Preferred Stock will have the right upon the occurrence of certain triggering events that are not all solely within the control of the Company, as defined in the certificate of designation, to require the Company to redeem all or part of their Series B Preferred Stock for cash at a price equal to 100% of the liquidation preference plus accrued but unpaid dividends.

Because the Series B Preferred Stock contains redemption features that are not solely within the control of the Company and may be triggered by events outside the Company’s control, the Series B Preferred Stock is classified outside of permanent equity, in accordance with ASC 480-10-S99-3A (SEC guidance on redeemable securities).

On September 3, 2024, Vuzix entered into a Securities Purchase Agreement (“SPA”) with Quanta Computer Inc. (“Quanta”), for the sale by the Company to Quanta of (i) $10,000,000 of the Company’s common stock, and (ii) up to $10,000,000 of the Company’s newly created Series B Convertible Preferred Stock intwo tranches.

The second closing under the SPA, for the sale of $5,000,000 of the Company’s Series B Preferred Stock occurred on June 13, 2025, when the Company demonstrated the achievement of milestones required to complete the second closing under the SPA resulting in the issuance of 189,717 shares of Series B Preferred Stock at a purchase price of $26.35 per share.

The third closing under the SPA, for the sale of $5,000,000 of the Company’s Series B Preferred Stock occurred on September 19, 2025, when the Company demonstrated the achievement of milestones required to complete

the third closing under the SPA resulting in the issuance of 230,242 additional shares of Series B Preferred Stock at a purchase price of $21.72 per share.

Common Stock

As of December 31, 2025, the Company’s authorized common stock consists of 200,000,000 shares, par value of $0.001, an increase from 100,000,000 shares as of December 31, 2024, which increase was effective upon the Company’s filing of an amendment to the Company’s certificate of incorporation with the Secretary of State of Delaware on June 20, 2025. There were 81,679,367 shares issued and 81,099,695 shares outstanding as of December 31, 2025 and 76,553,694 shares issued and 75,974,022 shares outstanding as of December 31, 2024.

On September 3, 2024, Vuzix entered into a Securities Purchase Agreement (“SPA”) with Quanta Computer Inc. (“Quanta”), for the sale by the Company to Quanta of (i) $10,000,000 of the Company’s common stock, and (ii) up to $10,000,000 of the Company’s newly created Series B Convertible Preferred Stock.

The first closing under the SPA, for the sale of $10,000,000 of the Company’s common stock at a purchase price of $1.30 per share, occurred on September 13, 2024, resulting in the issuance of 7,692,307 shares of the Company’s common stock.

The second closing under the SPA, for the sale of $5,000,000 of the Company’s Series B Preferred Stock occurred on June 13, 2025, when the Company demonstrated the achievement of milestones required to complete the second closing under the SPA resulting in the issuance of 189,717 shares of Series B Preferred Stock at a purchase price of $26.35 per share. These shares are convertible into 1,897,170 shares of the Company’s common stock.

The third closing under the SPA, for the sale of $5,000,000 of the Company’s Series B Preferred Stock occurred on September 19, 2025, when the Company demonstrated the achievement of milestones required to complete the third closing under the SPA resulting in the issuance of 230,242 additional shares of Series B Preferred Stock at a purchase price of $21.72 per share. These shares are convertible into 2,302,420 shares of the Company’s common stock.

In connection with the Atomistic Technology Licenses discussed in Note 6, on November 20, 2023, the Company issued a total of 1,397,500 shares of common stock to the Founders of Atomistic SAS (“Atomistic”) for the achievement of certain technological milestones under a license agreement entered into between the Company, Atomistic and the Founders, along with cash consideration in exchange for equity in Atomistic. Pursuant to the Stock Purchase Agreement with Atomistic and its Founders, the Company will, contingent upon completion of certain deliverables and the achievement of further milestones contained in the Atomistic Agreements, be committed to issue, depending on the Company’s share price at the time of their issuance, a further minimum of approximately 782,500 up to a maximum of 1,271,564 common shares to the Founders of Atomistic (as consideration for certain shares of Atomistic) which would result in Vuzix owning Series A Preferred shares in Atomistic.

In connection with the Atomistic Agreements, on August 12, 2024, the Company issued a total of 174,688 shares of common stock at a fair market value of $1.04 per share (closing price on August 9, 2024) or $181,675 to the Founders of Atomistic SAS (“Atomistic”) for the achievement of certain technological milestones. This issuance was recorded as an additional impairment charge related to the Atomistic equity investment in the third quarter of 2024.

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. This could result in the issuance of an additional 291,346 to 473,438 shares of the Company’s common stock when that valuation target is exceeded. None of these share commitments have been issued to date.

The Company decided to cease further funding of development activities with Atomistic SAS (“Atomistic”) under the license agreement, dated December 16, 2022, among the Company, Atomistic, and Atomistic’s two principals (the “License Agreement”). The Company’s decision gave Atomistic the right under the License Agreement to terminate the Granted License (as defined under the License Agreement), which right Atomistic exercised on July 1, 2024.

ATM Program

The Company filed a Registration Statement on Form S-3 with the SEC that became effective in May 2024, which includes a sales agreement prospectus for the issuance and sale of up to $50,000,000 of our common stock that may be issued and sold from time to time under a sales agreement with an investment bank in an “at the market” (“ATM”) offering.

During the year ended December 31, 2025, the Company sold 4,539,476 shares of common stock for gross proceeds of $14,820,349 (average of $3.26 per share) under the ATM before deducting broker expenses paid by the Company of $533,533.

In the first quarter of 2026, the Company sold 2,000,000 shares of common stock for gross proceeds of $6,000,200 (average of $3.00 per share) under the ATM before deducting broker expenses paid by the Company of $216,007.

During the year ended December 31, 2024, the Company sold 2,259,431 shares of common stock for gross proceeds of $8,432,448 (average of $3.73 per share) under the ATM before deducting broker expenses paid by the Company of $252,973.

The Company is using the net proceeds from these sales for general corporate purposes, including working capital.

Note 12 — Stock-Based Compensation

The Company’s 2023 Equity Incentive Plan (“the 2023 Plan”) that allow for the grants of both incentive stock options or ISOs, which can result in potentially favorable tax treatment to the participant, and non-statutory stock options, stock awards, RSUs, and PSUs. The 2023 Plan was approved by the stockholders of the Company on June 15, 2023. The Company no longer issues any options, stock awards, RSUs, and PSUs under its prior 2014 Plan. The 2023 Plan no longer contains an “evergreen provision”. As of December 31, 2025, the authorized shares of common stock under the 2023 Plan were 12,641,637.

The exercise price per share subject to an option is determined by the administrator, but in the case of an ISO must not be less than the fair market value of a share of our common stock on the date of grant and in the case of a non-statutory stock option must not be less than 100% of the fair market value of a share of our common stock on the date of grant.

Under the 2023 Plan, the Company may grant stock options, stock appreciation rights, performance awards of stock and/or cash, and stock awards of restricted stock.

Equity awards issued or outstanding under the 2023 Plan are as follows:

The 2023 Plan gives the Board of Directors of the Company the ability to determine vesting periods for all stock incentives granted under the 2023 Plan and allows stock option, RSU, and PSU terms to be up toten years from the original grant date. Employees’ incentive stock options, RSUs, and PSUs typically vest at a minimum rate of 25% per year over athree orfour year vesting term, commencing on the date of grant, or upon the achievement of performance targets in the case of PSUs.

The following table summarizes stock option activity related to the Company’s equity incentive plan, excluding options awarded under the former Long-term Incentive Plan (LTIP), for the years ended December 31, 2025, 2024, and 2023:

As of December 31, 2025, there were 3,744,326 options that were fully-vested and exercisable at a weighted average exercise price of $3.92 per share. The weighted average remaining contractual term on the vested options is 6.9 years. The unvested balance of 244,532 options as of December 31, 2025, are exercisable at a weighted average exercise price of $3.01 per share. The weighted average remaining contractual term on the unvested options is 8.8 years.

As of December 31, 2024, there were 1,812,818 options that were fully-vested and exercisable at a weighted average exercise price of $8.01 per share. The weighted average remaining contractual term on the vested options is 5.7 years. The unvested balance of 2,796,369 options as of December 31, 2024, were exercisable at a weighted average exercise price of $2.07 per share. The weighted average remaining contractual term on the unvested options was 9.4 years.

As of December 31, 2023, there were 2,093,850 options that were fully-vested and exercisable at a weighted average exercise price of $7.18 per share. The weighted average remaining contractual term on the vested options was 5.6 years. The unvested balance of 817,458 options as of December 31, 2023 were exercisable at a weighted average exercise price of $8.65 per share. The weighted average remaining contractual term on the vested options was 8.11 years.

The aggregate intrinsic value of the options exercised during the year ended December 31, 2025, 2024, and 2023 was approximately $68,325, $333,091, and $85,263, respectively. The aggregate intrinsic value of the options outstanding as of December 31, 2025, 2024, and 2023 was approximately $7,155,330, $9,801,292, and $563,874, respectively.

The Black-Scholes-Merton option pricing model was used to estimate the fair value of share-based awards under FASB ASC Topic 718. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and share price volatility. The expected term of options granted was estimated to be the average of the vesting term, historical exercise and forfeiture rates, and the contractual life of the

option. The share price volatility at the grant date is estimated using historical stock prices based upon the expected term of the options granted. The risk-free interest rate assumption is determined using the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. Therefore, the assumed expected dividend yield iszero.

The following summary table shows the assumptions used to compute the fair value of stock options granted, excluding former LTIP, during 2025, 2024, and 2023 and their estimated value:

Under FASB ASC Topic 718, “Compensation – Stock Compensation”, the Company has elected to account for forfeitures as they occur.

A summary of stock award, RSU and PSU activity related to the Company’s equity incentive plan, excluding bonus awards, for the year ended December 31, 2025, is as follows:

During the year ended December 31, 2025, the Company issued 95,238 shares of common stock to its independent board members as part of their annual retainer for services covering the period of July 2025 to June 2026. The fair market value on the date of award of the stock issued was $3.15, resulting in an aggregate fair value of $300,000. The fair market value of these awards is expensed over twelve (12) months beginning on July 1, 2025. Upon the death of one of our independent board members, 31,746 shares of common stock were immediately vested.

On August 5, 2025, the Company issued 65,295 shares of common stock to its new independent board member as part of their annual retainer for services covering the period of August 2025 to June 2026 and for a new member onboarding award. The fair market value on the date of award of the stock issued was $1.99, resulting in an aggregate fair value of approximately $129,937. The fair market value of these awards is expensed over eleven (11) months for 45,295 shares and twenty-three (23) months for 20,000 shares beginning on August 5, 2025.

On May 6, 2024, the Company implemented a voluntary Company-wide payroll reduction program for all employees, independent board members and contractors with optional salary or compensation reductions of 10% to 50% depending upon the respective base salary or compensation level for the period running from May 1, 2024 to April 30, 2025. The fair market value of these stock awards and stock option awards has been determined at $1.33 and $0.99, respectively, and a total of 824,711 stock awards and 2,756,116 stock option awards were issued with total fair market values of $1,096,865 and $2,728,555, respectively. The fair market value of these awards was expensed over twelve (12) months, which began on May 1, 2024 and these awards cliff vested on April 30, 2025.

The estimated cash savings was approximately $2,100,000 and resulted in the issuance of stock awards and stock options, at a rate of 150% or 200%, respectively, of the net cash wage reductions.

On March 19, 2025, the Company issued 509,571 RSUs and 207,404 PSUs to all employees of the Company, excluding certain members of senior management that were in the Company’s former LTIP described in Note 13. The fair market value on the date of award of the RSUs and PSUs was $2.30, resulting in an aggregate fair value of $1,649,041. The fair market value of these awards is being expensed over twenty and a half (20.5) months beginning March 19, 2025. The RSUs typically vest over time at a rate ofone-third annually on each December 31 st. The PSUs vest upon the achievement of certain revenue and EBITDA targets and, as of December 31, 2025, these targets are considered probable and the associated expense is being amortized. If both the revenue and EBITDA targets are exceeded by 150%, an additional 103,702 PSUs could be issued and vest immediately. The fair market value on the date of award of these bonus awards was $2.30, resulting in an aggregate fair value of $238,515. As of December 31, 2025, these bonus targets are not considered probable and their fair market value is not being amortized in stock-based compensation expense.

On June 17, 2025, the Company issued 297,027 RSUs and 297,027 PSUs to the executives and certain members of senior management of the Company as a replacement for the 5,089,500 stock options that were surrendered under the original LTIP (see Note 13 for additional details). The fair market value on the date of award of the RSUs and PSUs was $3.15, resulting in an aggregate fair value of $1,871,270. The RSUs vest over time at a rate ofone-third annually on each December 31 st. The PSUs vest upon the achievement of certain revenue and EBITDA targets and, as of September 30, 2025, these targets are considered probable and the associated expense is being amortized. If both the revenue and EBITDA targets are exceeded by 125%, an additional 74,257 PSUs could be issued and vest immediately. The fair market value on the date of award of these bonus awards was $3.15, resulting in an aggregate fair value of $233,910. As of December 31, 2025, these bonus targets are not considered probable and their fair market value is not being amortized in stock-based compensation expense.

On September 3, 2025, the Company issued 150,000 RSUs and 1,000,000 PSUs to its new President of its Enterprise Solutions business unit. The fair market value on the date of award of the RSUs and PSUs was $2.15, resulting in an aggregate fair value of $2,472,500. The RSUs will vest in equal portions quarterly over 12 months. The PSUs vest upon the achievement of certain revenue and EBITDA targets of the Company’s Enterprise Solutions business unit by December 31, 2028. As of December 31, 2025, these targets are not considered probable and their fair market value is not being amortized in stock-based compensation expense.

For the years ended December 31, 2025, 2024, and 2023, the Company recorded total stock-based compensation expense related to stock options, stock awards, RSUs and PSUs but excluding awards under the Company’s former LTIP of $4,149,950, $5,928,198, and $4,566,253, respectively.

As of December 31, 2025, the Company had $3,162,583 of unrecognized stock-based compensation expense related to stock options, stock awards, RSUs, and PSUs considered probable, which will be recognized over a weighted average period of 1.7 years.

Note 13 – 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 2014 Incentive Stock Plan. The options had 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. As of June 17, 2025, a total of 5,359,500 of these options that were unvested were cancelled after receipt of stockholder approval at the Company’s 2025 Annual Shareholders Meeting for such cancellation coupled with a simultaneous issuance of new RSUs and PSUs to those remaining option holders as described in Note 12.

The award exchange was accounted for as a modification under ASC Topic 718, Compensation—Stock Compensation. Under modification accounting, compensation cost to be recognized over the revised requisite service period includes the unrecognized cost of the original award that was previously deemed probable, the fair value of the new award if the prior award was not deemed probable, as well as any incremental cost, representing the excess of the fair value of the new awards over the fair value of the old award immediately prior to modification. As a result of the modification, there was a remaining fair market value of $1,871,276 and this cost will be recognized over the new requisite service period of the replacement awards, which is thirty and half months (30.5) beginning on June 17, 2025.

For the years ended December 31, 2025 and 2024, the Company recorded non-cash stock-based compensation expense of $1,180,356 and $5,637,176, respectively, for LTIP options that vested or were probable to vest, prior to their cancellation effective June 16, 2025. 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.

Note 14 — Right-of-Use Assets and Liabilities

On September 23, 2025, the Company executed lease renewal agreements for both its current properties located in West Henrietta, New York extending the current lease terms to November 30, 2027. As a result, the Company recorded an additional Right-of-Use asset and Right-of-Use liability of $1,044,154 on the Consolidated Balance Sheets as of September 23, 2025. These amounts were non-cash in nature and therefore are excluded from the statement of cash flows.

Operating lease costs under our operating leases totaled $1,063,955, $725,913 and $828,007 for the years ended December 31, 2025, 2024, and 2023, respectively.

Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. The leases generally also include real estate taxes and common area maintenance charges in the annual rental payments. Short-term leases are leases having a term of twelve (12) months or less. The Company recognizes short-term leases on an as-incurred basis and does not record a related lease asset or liability for such leases.

As none of our leases provide an implicit interest rate, we use our incremental borrowing rate to determine our discount rate at lease inception based upon the information available at commencement in determining the present value of lease payments. As of December 31, 2025, the weighted average discount rate was 7.1% and the weighted average remaining lease term was 1.9 years. As of December 31, 2024, the weighted average discount rate was 7.1% and the weighted average remaining lease term was 0.9 years.

Future lease payments under operating leases as of December 31, 2025 were as follows:

Note 15 — Employee Benefit Plans

The Company has a Section 401(k) Savings Plan which covers employees who meet certain age and length of service requirements. Effective July 1, 2018, the Company’s Plan was amended to include a 100% match by the Company on all eligible employee salary deferrals. The Company’s matching contribution is limited to 3% of covered employee’s annual salary. Total 401(k) matching expense for the years ended December 31, 2025, 2024, and 2023 totaled $241,871, $283,614, and $332,717, respectively.

Note 16 — Litigation

We are involved in various lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. In connection with these matters, we assess, on a regular basis, the probability and range of possible loss based upon the developments in these matters. A liability is recorded in the consolidated financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. We regularly review outstanding legal matters to determine the adequacy of the liabilities accrued and related disclosures in consideration of many factors, which include, but are not limited to, past history, scientific and other evidence, and the specifics and status of each matter. We may change our estimates if our assessment of the various factors changes and the amount of ultimate loss may differ from our estimates, resulting in a material effect on our business, financial condition, results of operations, and/or cash flows. With respect to these matters, based upon management’s current knowledge, the Company believes that the amount or range of any reasonably possible loss, if any, will not, either individually or in the aggregate, have a material adverse effect on the Company’s financial position, results of operations or cash flows.

The Company is not currently party to, nor is its property subject to, any material legal proceedings.

Note 17 — Geographic and Other Financial Information (Unaudited)

Geographic Financial Information (Unaudited)

Geographical revenue information, based on ship-to destination of the customers for the three years ended December 31, 2025, 2024, and 2023 is as follows (in thousands):

By Continent and Region:

By Country:

Countries listed in the above table were those with revenues greater than 10% or one of the largest three for the years ended December 31, 2025, 2024, and 2023. The Company does not maintain significant amounts of long-lived assets outside of the United States.

Note 18 — Quarterly Financial Information (Unaudited)

The following table summarizes our unaudited quarterly financial information for the periods shown below (in thousands, except per share data):

Exhibit Index

† Confidential treatment granted as to certain portion

• Filed herewith.

** Indicates management contract or compensatory arrangement.

*** Furnished herewith.