Vuzix Corp

Company Overview

Incorporated in Delaware in 1997, Vuzix Corporation ("Vuzix” or "the Company”) is a leading designer, manufacturer and marketer of Smart Glasses and Augmented Reality (AR) technologies and products for the enterprise, medical, defense and consumer markets. The Company’s products include head-mounted (or HMDs or heads-up displays or HUDs) smart personal display and wearable computing devices that offer users a portable high-quality viewing experience, provide solutions for mobility, wearable displays and augmented reality, as well as OEM waveguide optical components and display engines. 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 as well as interact and receive information from cloud-based Artificial Intelligence agents. 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, smartphone, tablet or a large-screen television.

We also provide custom solutions and engineering services to third parties, including Original Equipment Manufacturers (“OEMs”) and Original Design Manufacturers (“ODMs”), of waveguides to enable fully-integrated wearable display systems, including HMDs to commercial, industrial, consumer and defense customers. We do not offer “work-for-hire” services per se but rather offer our engineering services for projects that we expect could result in advancing our technology and potentially lead to long-term supply or OEM relationships.

Today’s near-eye or HMD products for AR, MR, XR and Virtual Reality are typically large goggles which are bulky and heavy and, as a result, have limited broad market appeal. We have developed thin optics, called waveguides, that are fully see-through and enable miniature display engines to be mounted in the temples of the HMD which allows the form factor and weight of the Smart Glasses to be near comparable to conventional eyeglasses. Our Smart Glasses and AR glasses are designed for all day use cases and are small enough to fit in a user’s pocket or purse. No external cabling or tethering to an external computing device or battery is required to use our current Smart Glasses, unlike most competitors today.

We believe that our waveguide optics and display engines offer numerous advantages over other wearable display solutions, including higher contrast, greater power efficiency, less weight, compact size and industrial design, and high brightness images for use outdoors. We also believe that our waveguide optics give us a substantial advantage over competitors’ optics, including other waveguides, because our solution allows us to produce optics that are fully transparent when powered off or on while also delivering high brightness levels required for AR and enterprise Smart Glasses applications. Our latest waveguide optics also support technology to minimize the forward light leakage, or eye glow, which is viewed as a market impediment by wearers and they also now allow for fully integrated prescription that have the same look and feel of conventional eye glasses even with the embedded waveguide.

We believe that our compact display engine technologies coupled with our waveguides are a key differentiator for enabling next generation AR and Smart Glasses hardware because they will ultimately allow us to make HMDs nearly indistinguishable from everyday eyeglasses. We believe that key growth areas for us currently are the enterprise, medical, defense, and security and the broader consumer markets. We are addressing most of these current markets by developing and selling our own finished products and building a growing eco-system of software and services internally, including with our Moviynt SAP logistics group and with our value-added resellers (VARs), distributors, system integrators, software developers and end customers.

Another potential channel to these markets that we are in the early stages of developing includes the sale of components to OEMs and ODMs where we intend to supply mass production of our waveguide optics and display engines to select third parties to use in their products or provide a white-labeled AR Smart Glasses reference design that select third parties can customize and sell as a branded product. In May 2022, we established a dedicated OEM group

and introduced a standardized platform of services and solutions for consumer, defense and enterprise customers. This platform offers one-stop shopping for advanced and customized waveguide and display engine solution needs, to subsystems and white-labeled AR smart glasses reference designs that select third parties can customize and sell as a branded product.

We have developed our own intellectual property portfolio that includes not only patents, but also over 25 years of wearable HMD products experience, including manufacturing know-how, industrial design, mechanical design, software, proprietary processes, materials, and equipment to create high performance waveguides, and near-eye display products. Our in-house waveguide manufacturing processes and equipment give us the ability to produce in volume and at broad market price points. Our broad in-house waveguide manufacturing capabilities include turnkey specification for design, mold production, replication and test, and system integration.

In 2022, we began investing in our own next generation microLED display technology with Atomistic SAS, a new entity based in France with whom we are engaged as a partner. We believe our technology, intellectual property portfolio and established position in the marketplace give us a leadership position in AR and Smart Glasses products, waveguide optics, microLEDs and display engine technology. The progress of Atomistic efforts is in part measured in milestones and they have achieved 6 out of 10 key milestones towards the ultimate goal of fully-functioning high efficiency MicroLEDs.

Our History

Historically, we have focused on three markets: the consumer markets for VR, entertainment and mobile video; Smart Glasses products for enterprise; and night-vision display electronics and rugged mobile displays for defense markets. We introduced our first HMD products over 25 years ago and we have offered numerous product models and versions with ever-advancing features and capabilities that have served these three markets. In June 2012, we sold the assets that produced products and provided services to military organizations and defense organizations and exited the defense and security markets by giving that buyer a non-compete period of exclusivity for 10 years. Effective June 2022, all market restrictions in the defense and security space for the Company expired and, as a result, we have resumed marketing and sales initiatives directly into the defense and homeland security markets. Our products have evolved over the years from using conventional optics and typically larger and bulkier wearable display form factors to now using advanced waveguide optics in wearable displays that are approaching the look and feel of fashion forward all day wearable solutions.

Overall Strategy

Our goal is to establish and maintain a leadership position as a worldwide supplier of wearable displays and computers including AR smart glasses solutions, as well as manufacturing related components needed to build such products, for third party OEMs and ODMs. We strive to be an innovator in designing ubiquitous wearable display devices and computers that can enable hands-free enterprise productivity applications, see-what-I see remote viewing, and AI and AR applications. We seek to generate top-line revenue and bottom-line profitability growth through the continued introduction of market leading technologies, including AR Smart Glasses, waveguides and display engines, software applications and solutions.

To broaden our position as a leading provider of wearable display products for AR and hands-free computing, as well as waveguides and display engines for OEMs and ODMs, we seek to:

We believe that the continued introduction of innovative products in our target markets is essential to our growth. Our products tend to have life cycles that span less than 5 years. We have assembled a group of highly skilled engineers who work internally as well as with external consultants to continue our product development efforts. Our primary development efforts are focused on waveguide optics (and their manufacture), projection engines, new microLED display technologies with our investment in Atomistic, low-power electronic designs, firmware and wearable computing software, and the industrial design and ergonomics of wearable displays. Our display product development efforts are focused towards continually enhancing the resolution, performance and manufacturability of our display products. We expect to continue our research and development expenditures in the future and perhaps increase them as our revenues grow. We have also acquired and licensed technologies developed by third parties and we may continue to do so in the future.

The Market

The mobile phone has evolved into a ubiquitous, location-aware, and powerful smart mobile computing device. Mobile technology has redefined the way people interact with their world, both at work and play, and has become an essential technology for most individuals around the globe. We believe that interactive AR content, Artificial Intelligence (“AI”), Edge Computing, internet of things (“IoT”), and speech-based cloud services will significantly further change the way such mobile computing devices are used and how content is delivered to the user though head worn displays, including the enabling of new experiences that cannot be experienced in any other way. We believe head-worn displays that are hands-free that can delivery real-time digital content have the ability to change the future of the computing industry.

Current mobile display technology is almost universally based upon direct view screens. These displays are designed to be handheld and small to make portability easy. Our products provide hands-free virtual large screens that are interactive and fit into conventional form factors. AR-based displays are designed to be "see-through" or "see-around" and allow the user to still see and interact with their surroundings. They may contain one (monocular) or two (binocular) displays.

Our business for the last several years has primarily focused on the enterprise, industrial, medical, and defense markets. We believe the demand for head-worn displays in these markets is being driven by the following:

As a result, we believe that our near-eye display technologies can significantly increase user satisfaction and allow for widespread AR and AI adoption and applications.

Target Markets

We offer smart wearable display and computing products that enable the development and deployment of AR applications, and OEM services and hardware solutions that include waveguides, optical components, display engines, subsystems and full white label designs. Our target markets and applications by sector are:

Enterprise

Our Smart Glasses are being used for numerous applications including: remote service video support, wearable computer displays, viewing of wireless sensor data, quality assurance, hands-free access to work instructions such as assembly checklists and manuals, in-the-field maintenance, warehouse pick-and-pack, real-time viewing of remote images, and training and education. Our products can typically run native Android applications within the glasses that, for example, allow them to stream video in real-time, scan bar codes, share visuals related to the work at hand and much more, all of which are highly useful for many enterprise applications. We believe that increasing demand for easy and instant data accessibility in a wide variety of commercial and industrial markets offer significant opportunities for our products. The benefit of hands-free mobile displays and computers over a handheld device or laptop on a cart is significant. Most mobile workers need the use of their hands while working, and gaining hands-free access to information can significantly improve work performance, enhance safety, and reduce errors. There are many reasons why enterprise users are adopting Smart Glasses, such as for:

Medical

The healthcare industry continues to be an early adopter of Smart Glasses to deliver a variety of benefits in and outside of the operating room. Our Smart Glasses are currently being used in operating rooms to enable MedTech experts, assisting surgeons, medical student training, patient care, and other healthcare professionals to see and communicate with surgeons in real-time. This unique solution empowers surgeons, medical device specialists, and other experts to work together remotely without incurring costly expenses to commute on-site for consultations and surgeries. Our Smart Glasses are also being used in telemedicine for remote calls made to provide a virtual presence within hospitals and senior care facilities that are video broadcast securely. Our Smart Glasses provide virtual training, health care for patients in the ICU and the operating room, and assistance in performing virtual patient rounds. Further, our Smart Glasses are being used in orthopedic surgeries as a fundamental tool to help align and install implant replacements.

Security and First Responders

Our Smart Glasses, particularly the versions that have a sunglasses look, have the potential to become disruptive and market changing products for security providers and first responders such as police and firefighters. We believe there are significant business opportunities in offering our technology in a traditional eyeglass unique form factor that can assist law enforcement and security personnel in keeping people safe or identifying suspicious persons or those associated with unlawful activities. The ability to deliver video feeds and real-time facial recognition and weapons

detection alerts in a covert fashion to our smart glasses wearers literally provides security personnel and first responders with eyes in the back of their heads, allowing them to view and interact with their immediate surroundings while also staying remotely connected and informed.

Defense

Vuzix has multiple major defense customers that have been or are developing our waveguides into their head mounted programs. Some desire full custom waveguides and display engines, while others plan to deploy our standard waveguide and display engine offerings. Vuzix waveguides appeal to U.S. defense companies because they are made in the United States, unlike other available solutions. We expect several of these defense customers to move from R&D projects to scaled production over time.

Consumer

We believe that one of the most significant drivers of longer-term wearable display market adoption that will change the future of computing and result in broad adoption of AR in smaller wearable packages will be the augmentation of the real world with cloud-based information and AI. This capability will allow smart phone users to be able to keep their phones in their pockets yet still receive location-aware content overlaid with their real-world view.

Glasses equipped with AI capabilities are ideal for consumer needs such as language translation, closed captioning, messaging, directions, health reporting, and workout status, among others. The advent of AI programs such as OpenAI and ChatGPT are expected to significantly accelerate this demand in the upcoming years. We believe that the keys to the consumer AR market are fashion-forward lightweight smart glasses that can support the user’s prescription. Vuzix’ new OEM solutions offerings are pointed directly at these needs.

Products

We produce and sell AR Smart Glasses for a variety of applications. Our products are available with varying features and are currently offered as both monocular and binocular display systems.

Our current products include:

M400 and M4000 Smart Glasses(M series)

The M400 and M4000 (the current “M series”) products are our monocular smart glasses designed for enterprise, industrial, commercial, and medical markets. The M400 is Vuzix’ work-horse Smart Glasses offering with its enhanced capabilities and is our fourth model in this family. This product began commercial production in September 2019 and the M4000 was introduced to the market and entered volume production in September 2020. The M400 is equipped with an occluded nHD OLED display and the M4000, which offers all the performance and functionality of the M400, employs our latest see-through waveguide optics with a WVGA DMD display. These two products include an Android-based wearable computer similar in performance to a modern smart phone, enhanced with a wearable monocular display, speech control, camera, sensors and wireless connectivity capabilities. These Smart Glasses serve up the digital world “hands-free”, offering access to information to augment the real world, data collection and more. Monocular products, due to their single eye display, are best used for push notifications and “information snacking”. Integrated head tracking, camera, touchpad, buttons and speech recognition gives versatility to navigate and use these M-series Smart Glasses in almost any environment. These products include pre-installed apps that can be used to record and play-back still pictures and broadcast quality video, track timed events, manage a user’s calendar, link to a phone, scan barcodes and much more. We offer connector applications, with annual subscriptions, that allow the smart glasses to join the most popular video conferencing applications including Microsoft Teams, Zoom and others. These products can provide enhancements to existing workflows and open new opportunities in industrial, medical, retail, supply chain, remote help desk, and many more aspects of our customers’ businesses.

Vuzix Blade® Smart Glasses

We introduced the second generation of our Blade Smart Glasses as a monocular system in September 2022. The Blade 2 added a host of advanced features and performance, including stereo audio, improved CPU performance, Android 11 OS and an autofocus camera, all to help meet the needs of connected workers. We believe the Vuzix Blade is the natural evolution of AR smart glasses by providing the user with a wide range of features and capabilities in a natural glasses form factor. The display imagery is projected visually out in front of the user like the heads-up display in a car. Current applications range from basic text messaging and answering the phone to overlaying mapping directions, menus, work instructions, documentation, biometrics and much more. The intuitive and feature-packed Vuzix Blade OS can leverage voice controls and external AI systems, allowing users to leave their phones in their pockets for most functions and adds the ability to connect the information being presented to the real world, including from cloud-based speech AI platforms such as Amazon Alexa. The Blade also has connector applications, with annual subscriptions, that allow the glasses to join the most popular video conferencing applications. We believe the Blade Smart Glasses is the first natural step to replacing the smart phone with a ubiquitous wearable device for all.

Vuzix Shield™ Smart Glasses

We announced the Vuzix Shield Smart Glasses in 2022, which we believe is a revolutionary leap for enterprise AR smart glasses, as our first binocular AR system utilizing microLED. The Vuzix Shield Smart Glasses offer a computing platform with more power and performance over our M400 series platform and its related enhanced AR capabilities coupled with Vuzix' proprietary waveguide optics driven by miniature microLED stereo displays to provide a completely non-occluded see-through heads-up display. Housed inside lightweight, stylish, prescription-ready safety glasses combined with stereo HD cameras, the Vuzix Shield delivers a singular wearable AR experience. The Shield, was commercially released in the second half of 2023. It also includes connector applications, with annual subscriptions, that allow the glasses to join the most popular video conferencing applications along with a 3-D user interface.

Vuzix Z100 Smart Glasses

We announced the Vuzix Z100 Smart Glasses, a lightweight enterprise-focused product based on our Ultralite AR Smart Glasses platform, at CES in January 2024. The Z100, which will initially be offered as a developer’s edition, pairs seamlessly via Bluetooth with Android or iOS IOT devices. They represent the first attractive, functional bridge between AI platform tools, where situational guidance can streamline workflows, and human workers to deliver the benefits of a truly connected workplace. Running up to 48 hours on a single charge, Vuzix Z100 Smart Glasses pack industry-defining heads-up waveguide technology into a sleek, fashionable form factor that weighs in at just 38 grams – the weight of a standard pair of glasses. Advanced monocular waveguide optics, combined with Vuzix’ custom microdisplay engine, create a crisp, transparent, monochrome image that can deliver all the important information on a user’s Android or iOS device, hands-free right before their eyes. Wearers get heads-up access to important task information, from language translation and closed captioning, to directions, to health and workout status, to messaging, workflow outputs and much more.

OEM Waveguide Optics and Display Engines

We believe our waveguide and display engine technologies address the critical performance parameters for next generation AR products, including higher brightness, sharper resolution, true see-through capabilities, compact size, lower power consumption, and longer operational life. As we manufacture our waveguides and display engines in higher volumes at reduced costs and capitalize on our waveguide manufacturing expertise, we believe that our products will be increasingly well-positioned to compete with other see-through optics and displays, particularly as demand expands for sophisticated mobile computing devices offering higher resolution and better image quality for AR/XR and Smart Glasses applications. We are developing, with partners, new microLED display technologies that should greatly increase the ability to offer high resolution displays that can overlay AR information and graphics to wearers in nearly any environment. The goal is to have extremely efficient full color micro displays capable of high brightness for use in any conditions. We believe that our waveguide and display engine technologies address the critical performance parameters for next generation AR products, including higher brightness, sharper resolution, true see-through capabilities, compact size, lower power consumption, and longer life.

Mobilium® Logistics Mobility Software

We acquired Moviynt®, a US-based SAP Certified ERP platform software solution provider, to support hand-held mobile phones and scanners used in logistics, warehousing and manufacturing applications in November 2022. Moviynt, a boutique-specialized software firm, has developed a logistics mobility software platform (Mobilium®) which eliminates traditional middleware, and is device agnostic. Mobilium can ultimately support multiple ERP systems and modern-day warehouse picking with wearable devices such as Vuzix’ smart glasses, handheld devices such as scanners, and even mobile phone-based systems. Moviynt’s SAP studio product is highly configurable and allows customers to customize and optimize specific mobile workflows for a given use case. Moviynt’s core technology and architecture consists of a certified SAP gateway module, IOS and Android client and mobile apps that run on a wide range of handhelds and wearables. This technology is unique in that it plugs directly into the customer’s SAP environment and does not require any new hardware, middleware or intermediate servers to process warehouse and logistics related transactions such as cycle counts and picks and transfers on the shop floor. Moviynt’s technology is SAP certified and compatible with other ERP systems including Oracle, which will also be fully developed and supported over time. The Mobilium software solution can now work with Vuzix smart glasses, mobile phones, and industry standard smart barcode data collection terminals.

Applications for Smart Glasses

Dozens of standard applications that are optimized for use with the growing lineup of Vuzix AR Smart Glasses are included on the devices and available for download from the Vuzix App Store. Many of these applications are similar to what is available to the customer with modern smart phones. These standard applications are designed to be simple to get started and easy-to-use, and we believe can immediately provide the fundamental benefits of Smart Glasses to novice and expert users alike.

Vuzix also resells a variety of other applications, including Vuzix Remote Assist (VRA), which provides remote telepresence capabilities, otherwise known as “see-what-I-see” video collaboration and work instructions, amongst other features. VRA enables an operator, mechanic, field technician or consultant to communicate in a hands-free manner with a remote expert to drive “just-in-time” video support of a process or repair. These applications increase productivity and customer satisfaction by sharing information between field technicians and remote support experts. The VRA app enables Vuzix Smart Glasses customers to multiply their expert workforce, eliminate the high costs of travel, improve customer service levels and equipment operation and accelerate knowledge transfer and training. We are offering the VRA app on a monthly or one-year subscription basis. We have also developed “connector” applications to enable third party applications like Zoom and Microsoft Teams and others, for use with our smart glasses. In some cases these applications will be free to the user and in others we will charge annual subscription fees.

We believe Vuzix is gaining market awareness and has the opportunity to move up the value chain, increase market share, and create a sustainable higher software subscription margin business by:

App Store for Smart Glasses

We also have an app store on our website where users can download and purchase Smart Glasses applications, including third-party apps. We continue to foster the development of an ecosystem of third-party developers to offer applications and trials for their smart glasses apps, many of which will be sold on an industry common revenue share

model, with the publisher receiving approximately 70% of the subscriptions collected. Supported by Vuzix’ new App Store, developers can offer or sell their applications to all Vuzix Smart Glasses users, expanding into an ecosystem of AR applications for real world use today. The app store supports free, one-time fee, and paid subscription monetization models. The Vuzix third-party developer community is able to leverage the open Android platform of the Vuzix M-Series and the Vuzix Blade to bring new and creative ideas to life.

OEM Services and Products

Waveguide Optics and Display Engines

We selectively offer waveguide optics and related coupling optics combined with our compact proprietary display engine to form a see-through display module. We sell limited numbers of our waveguide optic design reference kits to select qualified potential OEMs/ODMs, which include a projector, waveguide optics and associated electronics, to help these customers evaluate our technologies and to assist their efforts to build and test new products incorporating our proprietary solutions.

Waveguides require a display engine built for the purpose of the intended design. Vuzix is able to address most of these design specifications regardless of size, light coupling, power consumption, or resolution.

We believe our waveguide and display engine technologies address the critical performance parameters for next generation AR products, including higher brightness, sharper resolution, true see-through capabilities, compact size, lower power consumption and longer operational life. As we manufacture our waveguides and display engines in higher volumes at reduced costs and capitalize on our waveguide manufacturing expertise, we believe that our products will be increasingly well-positioned to compete with other see-through optics and displays, particularly as demand expands for sophisticated mobile computing devices offering higher resolution and better image quality for AR/XR and smart glasses applications. We are developing, with partners, new microLED display technologies that should greatly increase the ability to offer high resolution displays that can overlay AR information and graphics to wearers in nearly any environment. The goal is to have extremely efficient full color micro-displays capable of high brightness for use in any conditions. We believe that our waveguide and display engine technologies address the critical performance parameters for next generation AR products, including higher brightness, sharper resolution, true see-through capabilities, compact size, lower power consumption, and longer life.

Our strategy for addressing the broader mass market includes developing partnerships with both select consumer companies, including wireless communications carriers, and select high volume production manufacturing companies.

Engineering Services

Historically, we have provided fully-integrated wearable display systems, including head mounted displays, human computer interface devices, near-eye display-related engineering services and wearable computers to commercial, industrial and medical customers. Since the expiration in June 2022 of a 10-year non-compete agreement, we have resumed marketing and selling to defense, first responders and security customers. Such potential customers include police, fire fighters, EMTs, other first responders, and homeland and border security personnel.

We primarily respond to sales inquiries for our engineering services programs and OEM component requests directly and usually in response to inbound inquiries. We do not offer “works-for-hire” services at Vuzix but rather offer our services to opportunities that could result in advancing our technology or developing long-term supply or OEM relationships. We believe that we have established a strong reputation for quality, performance, and innovation for wearable near-eye display systems, waveguides, and display engines that will be attractive to many types of commercial users who want to leverage our services and products within their businesses. We continue to receive inbound requests for engagement related to our proprietary waveguide optics and miniature display engines from some of the world’s largest consumer and mobile electronics firms. Our business strategy is to commercialize our waveguide and display

engine technologies and products to permit select ODMs and OEMs to integrate and embed our technologies and products in a way that best matches their unique capabilities and timeline for bringing their products to market. Our design and engineering staff are actively involved with customers during all phases of prototype design through to production by providing engineering data, up-to-date product application notes, regular follow-up and technical assistance.

Defense and Security Products

As noted above, the 10-year non-compete restrictions with the buyer of our former defense division, TDG Acquisition LLC (DBA – Six15 Technologies (“Six15”)) expired in June 2022. This allows us to again pursue, on an unrestricted basis, opportunities related to the Company’s smart glasses and waveguide optics technologies into these expanded market opportunities related to first responders, US Department of Defense, security organizations and the Military.

Technology

We believe that it is important to make substantial investments in research and development to maintain our competitive advantage. The development and procurement of intellectual property rights relating to our technologies is a key aspect of our business strategy. We expect to continue to improve our products through our ongoing research and development and advancements made by our third-party suppliers of key components.

We believe that the range of our proprietary technologies gives us a significant competitive advantage. Our technologies relate to advanced optics systems including passive and active see-through imaging waveguides, micro-projection display engines, investments in microLED displays, and specialized software drivers and applications for wearable displays and computers. We also have a portfolio of trade secrets and expertise in nano-imprinting using high- stability mold substrates, nano structure embossing, and engineering toolsets for the design and manufacturing of diffractive waveguide optics.

We believe that display engines are also important for commercializing wearable displays. We have developed a proprietary micro digital light processing (DLP) based engine and are working on microLED engines designed specifically for our waveguide optics solutions. We are currently working with multiple partners in the microLED arena and unveiled our first microLED display-based binocular AR Smart Glasses called the Shield as well as the Vuzix Ultralite at CES 2022. These next generation waveguides and microLED display engines have allowed us to shrink the entire assembly to fit in the space available in a typical off-the-shelf pair of sports sunglasses with the Shield and in reading glasses in with the Ultralite.

In October 2017 and June 2021, we acquired certain IP and patent applications from the inventor/seller related to holographic optics and display engines for*“*image and wave field projection through a diffusive media”. This technology is still in active development and we are making progress towards our first functional solution.

On May 12, 2022, the Company signed a series of agreements with Atomistic SAS, a French company that is developing new microLED displays and a related backplane. These agreements provided for an exclusive license by the Company of key microLED technology and for the custom design of a backplane, for cash commitments totaling $30 million along with equity issuance commitments to be made by the Company relating to certain deliverables and the achievement of performance milestones by Atomistic. On December 16, 2022, the Company signed new agreements with Atomistic(the “Atomistic Agreements”)that superseded the prior May 12, 2022 agreements, whereby the scope for the construction of a backplane wasmodified and the Company obtained an additional license in an alternative self-emissive microLED technology. This multi-year project, if this new IP proves out, could result in industry-leading efficient full color HD microLED displays in an extremely small form-factor.

Product Development

We believe that the continued introduction of new products in our target markets is essential to our growth. Our products tend to have life cycles that span less than five years. We have assembled a group of highly skilled engineers who work internally as well as with external consultants to continue our product development efforts. Our primary development efforts are focused on waveguide optics (and their manufacture), projection engines, new microLED-display technologies, low-power electronic designs, firmware and wearable computing software, and the design and ergonomics of wearable displays. Our display product development efforts are focused towards continually enhancing the resolution, performance and manufacturability of our display products. We expect to increase our research and development expenditures in the future and as our revenues grow. We have also acquired and licensed technologies developed by third parties and we may continue to do so in the future.

Major technologies that we employ in our products include:

Micro-display Optics: Optical components represent a significant cost of goods for both us and our competitors. This cost is a function of the physical size of the micro-display and the cost of the supporting optics. We have developed thin and lightweight optics that can be integrated with very small micro-displays where we can more closely match conventional eyewear frames in size and weight. These new optics and displays provide what we believe are significantly improved ergonomics compared to competing wearable display solutions.

See-Through Waveguides: We have developed a range of patents and patents-pending around our see-through waveguides, as well as passive, dynamic and diffractive optics-based waveguides that are the basis for some of our future slim wearable display AR and smart glasses products. We are striving to develop ultra-compact micro-display engines to magnify and focus the light from a display into a user’s eye. Our development goal with these waveguides is to create AR-based wearable displays that will appear to others as practically indistinguishable from today’s conventional sunglasses by most measures, including comfort, size, weight and ergonomics.

Recently announced advancements in our waveguide technology include Incognito and integrated vision correction. Vuzix Incognito technology manages internal light reflection and thus minimizes and manages forward light leakage within a waveguide, enhancing low light optical performance and significantly advancing Vuzix' already industry-leading forward light ratio of 1:8. Incognito technology thereby improves the contrast of virtual images in AR smart glasses and interaction with the external environment. These refinements have been accomplished with no increases in Vuzix' manufacturing cost per waveguide. Multiple patents and patents pending are in place related to system processes and integrating scripts or optical power for smart glasses eyewear. The prescription lenses need to be finished, trimmed, and mounted to the waveguides, all of which must be conducted in a controlled dust-free environment and utilize the existing industry methods for high volume capacity waveguide prescription glasses. Vision correction will initially support a range of +2D to -8D diopters but will ultimately support any prescription.

Nanoimprinting: We continue to develop a portfolio of trade secrets and expertise in nanoimprinting for use in our waveguide optics. We believe these technologies are essential to the production of our approximately 1.2 mm thick see-through lenses which we believe are the cornerstone to making fashionable eyeglass-styled Smart Glasses. We have developed technology for waveguide design and production, including: tool design and creation, custom designed software for grating structures and layout, lithography processes, high index low shrinkage polymers and other materials, mold treatments, automation equipment and test/QA processes and procedures, to name a few.

Custom Display Engines: We have patents and patents-pending on intellectual property around microDLP display engines. We have also worked on very compact microLED projectors and are also working on microLED engines designed specifically for our waveguide optics solutions. We are currently working with multiple partners on microLED engines, both monochrome and color, and have delivered preliminary evaluation systems to select partners and potential OEM customers.

Patents and Other Intellectual Property

We have an intellectual property policy which has as its objectives: (i) the development of new intellectual property to further our position in personal display technology; and (ii) the maintenance and protection of our valuable trade secrets and know-how. We seek to achieve these objectives through the education and training of our engineering staff and the adoption of appropriate systems, policies and procedures for the creation, identification, and protection of intellectual property.

Our general practice is to file patent applications for our technology in the United States, Europe, Japan, and in additional countries, including Canada and China, for inventions which we believe have the greatest potential. We file and prosecute our patent applications in pursuit of the most extensive fields of protection possible including, where appropriate, the application of the relevant technology to the broader display industry.

We believe that our intellectual property portfolio, coupled with our supplier relationships and accumulated experience in the near-eye display field, gives us an advantage over potential competitors. We also believe our copyrights, trademarks, and patents are critical to our success and we intend to maintain and protect these. We also rely on proprietary technology, trade secrets, and know-how, including manufacturing processes and procedures, which are not patented. To protect our rights in these areas, we require all employees and, where appropriate, contractors, consultants, advisors and collaborators, to enter into confidentiality, invention assignment, and non-competition agreements with us.

Our technologies enable us to provide low-cost, small form factor, high-resolution wearable display products. To protect our technologies, we have developed a patent portfolio which currently consists of 194 issued U.S. and foreign patents and 178 pending U.S. and foreign patent applications. We are also currently evaluating several invention disclosures for the purposes of submitting design and utility patent applications. Our U.S. and foreign patents expire on various dates with the capacity to remain enforceable through at least September of 2043. In addition, in connection with the sale of our defense division in 2012, we received a worldwide, royalty-free, assignable grant-back license to all the patents and other intellectual property sold for use in the manufacture and sale of products in the consumer markets.

In addition to our various patents, we have 8 registered U.S. trademarks and 81 trademark registrations worldwide.

Competitors

The near-eye wearable computer or personal display and mobile device industry in which we operate is highly competitive and evolving rapidly. We compete against both direct view display technology in smart phones and tablets and wearable display technology. We believe that the principal competitive factors in the personal display industry include image size, image quality, image resolution, power efficiency, manufacturing cost, weight and dimension, feature implementation, AR capabilities, ergonomics, style, hands-free capabilities and, lastly, the interactive capabilities of the overall display system.

Aside from direct view displays, we also have competitors who produce near-eye personal displays or wearable displays. For the past decade, most of these products were mainly low-resolution, bulky in size, ergonomically deficient, costly, and with demanding power requirements.

Competition – Binocular Wearable Display Products

Vuzix AR Smart Glasses competitors include binocular wearable displays and virtual reality systems, using micro-displays or smaller flat panels. Examples of such companies include or have included Carl Zeiss, Seiko Epson (Epson), Sony Corporation, Microsoft Corporation, Avegant Corp., Meta (formerly Oculus/Facebook), HTC Corporation, Razer Inc., HP, Lenovo and many others. Some of these firms have discontinued their efforts while others continue to introduce new products. We believe that most of these competitive products have received limited customer acceptance, except for Meta’s products, due to being bulky, delivering limited operating time, and when connected to a computer, requiring extra cables. Despite their size, VR headsets from companies like Meta and Sony have been selling in the millions of units, primarily for game applications. VR systems are either standalone devices or require a wire to be

connected to a PC to operate. To date, the most popular units have been standalone devices from Meta which incorporate a computer similar to the ones used in our smart glasses products. Apple has also recently introduced the Vision Pro, a mixed reality headset.

Competition – AR Glasses

In the AR markets, there are currently few competitors with most of this market currently aimed at the high-end and research markets. Companies with products in this area include Microsoft Corporation, Sony Corporation, Epson, Lenovo, Magic Leap, Xreal, CastAR, and Apple. Further, industry watchers have speculated that companies such as Google, Snap, and Meta may offer or support AR wearable display products in the future, but to date, no specific product launch details have been officially announced. Today, many of these products are fairly bulky and are typically tethered to an external controller. Some VR goggles are using external view cameras to simulate an AR environment where the wearer can see the outside world. The Meta Quest Pro announced in the Fall of 2022 is an example of this and it retails for $1,500. Many such devices are being sold as AR Smart Glasses and are currently targeted at enterprise and academic researchers. The most complete and functional systems today are the Microsoft Hololens II and the Magic Leap Two, both of which cost $2,295-$3,500 per unit. Magic Leap 2 for Enterprise starts at $4,999 and goes higher based on features purchased.

Competition – Monocular Smart Glasses and Wearable Display Products

Although several companies produce monocular wearable displays, we believe that the market opportunity for these products, other than night vision products, has been limited primarily to trial tests and smaller rollouts in enterprise markets rather than broad commercial volume purchases. Competitors in these markets include or have included: Google/Alphabet, Lenovo, RealWear, Iristick, Liteye Systems, Inc., Lumus, Zebra Technologies (inclusive of the business unit formerly part of Motorola), Six-15 Technologies, LLC (the purchaser of our defense division), Optinvent, Shimadzu Corporation, Sony Corporation, Kopin Corporation, tooz technologies GmbH, Creative Display Systems, Brother, Garmin, BAE Systems, Focals by North (acquired by Google), and Rockwell Collins.

Several Japanese electronics companies including Hitachi, Murata Manufacturing Co., Sony Corporation, WESTUNITIS, and Olympus have or had announced monocular smart glasses systems for industry and many have exited the business over the last three years. There are also several China-based companies that have been showing monocular smart glasses products, including Lenovo but their sales activities thus far have been somewhat limited and focused primarily on Asia. We expect to encounter competition in the future from major consumer electronics companies and suppliers of imaging and information products for defense applications.

There is competition in all types of products we manufacture, from both large and small companies. The principal points of competition for these products include price, product performance, the availability of supporting applications, and the experience and brand name of the particular company and history of its dealings in such products. We believe that our monocular products match or exceed the display products currently offered by our competitors.

Competition – Waveguides and Display Engines

There are a limited number of manufacturers of waveguide optics, all targeted at OEM producers of AR and smart glasses. Competitors to our waveguide products include or have included Lumus, WaveOptics (acquired by Snap), Digilens, Dispelix, Optinvent and several others. In addition, several new waveguide manufacturers from China have begun demonstrating their solutions at recent trade shows.

Sales and Marketing

Sales

Our strategy is to sell our products and components both directly and through distributors and value-added resellers (VARs – also referred to as Vuzix Integration Partners or VIPs), and on a select basis to OEMs. As a result, we have distinct strategies for the sales of our products.

In the Smart Glasses and AR markets, we are currently focused on the enterprise space and as such are building strategic marketing relationships with software firms and distributors to address and support enterprise customers. We are, in parallel, supporting a VAR network with leading companies in various vertical markets from warehousing to field service to medical. These VARs provide their software and services offerings to their respective customer bases. We are also supporting select larger key accounts and distributors with our in-house direct sales team. For our Smart Glasses, we continue to foster an ecosystem with application developers from around the world. We also have our own hosted application store where our Smart Glasses customers can download and purchase applications and software developer kits.

We currently sell our products internationally through resellers, distributors, direct to commercial customers, and via online stores and various Vuzix operated web stores in the USA, Europe and Japan. Our international focus is currently on Japan and the EMEA (including the UK, Europe, Middle East and Africa). In Japan, we have a branch sales and service office and a small warehouse in Tokyo. We have a wholly-owned subsidiary, Vuzix (Europe) Limited, through which we conduct our business in the EU and Middle Eastern markets. We maintain small European sales offices in Oxford, England and Munich, Germany that are staffed by full-time sales consultants or employees. For warehousing, we have contracted with a third-party fulfillment center based in the UK and the Netherlands to service our customers in the EMEA. We also currently serve other APAC customers through North American (West Coast) and Tokyo sales offices.

For customer support for the EMEA, we have contracted with a third-party end-user technical support firm that provides sixteen (16) hours of customer and technical support daily.

We intend to primarily provide our Vuzix Ultralite OEM platform, waveguide and miniature display engine modules and optics components to select OEMs to incorporate into their branded products and sell through their own well-established distribution channels. An OEM/ODM design cycle typically requires between 6 and 24 months, depending upon the uniqueness of the market, and the complexity of the end product. Because our waveguides and display engines are the main functional component that define the imaging as well as look and feel of many of our potential OEM customers' end products, we intend to work closely with these customers to provide technical assistance throughout their product evaluation and any eventual integration process.

We believe that the technical nature of our OEM products, including waveguides and display projectors with micro-displays, demands close relationships with such customers. Our sales and marketing staff, assisted by our technical staff and senior management, visit prospective and existing customers worldwide on a regular basis. We believe these contacts are vital to the development of a close, long-term working relationship with our OEM customers, and in securing accurate and regular forecasts, market updates and information regarding technical and market trends. We also participate in industry specific trade shows and conferences.

Marketing

Our marketing and sales group, in conjunction with external firms, is responsible for product management, planning, advertising, marketing communications, and public relations. We have both internal and external public relations efforts in the U.S. and UK. We also employ marketing firms to help prepare brochures, packaging, tradeshow messaging and advertising campaigns, focused on either the enterprise or consumer end markets. Most of our products are currently sold under the Vuzix brand name. We seek to have Vuzix become known as one of the premier suppliers of wearable display products for enterprise applications and AR smart glasses. We currently undertake specific marketing activities as needed, including, but not limited to:

We engage in select marketing efforts that are intended to drive customers to our products and to help to grow awareness of our AR Smart Glasses and wearable displays in general. Public relations and product videos are an important aspect of our marketing and we intend to continue to distribute samples of our products to key industry participants.

Our Smart Glasses are sold through distributors, valued-added resellers, direct to end customers, through our webstore, and through a limited number of third-party online stores, such as Amazon. Our website, www.vuzix.com, is an important part of our direct sales efforts.

Manufacturing

We purchase product components from our suppliers, engage third-party contract manufacturing firms to perform electronic circuit board and cable assemblies, and now do the final assembly of our products primarily in our West Henrietta, New York facilities. We are experienced in the successful production of our products in moderate volumes. Our current facilities are capable of producing tens of thousands of finished products annually, and we believe producing out of these facilities at these levels is more economical and easier to manage than through third parties. We also manufacture all of our waveguide optics in our cleanroom environments at our West Henrietta, New York facility. We evaluate contract manufacturers and component suppliers on an ongoing basis, including whether or not to utilize new or alternative contract manufacturers or component suppliers. However, we also expect to manufacture all of our waveguide optics only at our West Henrietta, New York facility. In October 2022, we announced the signing of a new lease agreement for additional floor space in a building adjacent to our West Henrietta facility for the express purpose of expanding our waveguide production capacity.

We manufacture all of our waveguide optics in our cleanroom environments in West Henrietta, New York. As stated above, we completed and commenced production of waveguides at a dedicated state-of-the-art waveguide production facility located adjacent to our headquarters in West Henrietta, New York in 2023. This facility increases our waveguide unit capacity, lowers manufacturing costs, and allows us to utilize the more advanced processes needed for our latest waveguide designs.

We currently purchase almost all of the micro-displays used in our products from Sony Corporation, Jade Bird Display and Texas Instruments. Our relationship with these micro-display suppliers is generally on a purchase order basis and none have a contractual obligation to provide adequate supply or acceptable pricing to us on a long-term basis, nor do we have any contractual obligation to purchase micro-displays from them. We have operated this way for over a decade with these suppliers. Our Cobra II display engine is based on our proprietary design and is exclusively manufactured for us by a firm in Asia and it incorporates a DLP engine from Texas Instruments. We generally procure our other non-micro-display components and products from our vendors on a purchase order basis without any long-term commitments. Many of the raw materials used in our components are standard to the consumer electronics and computer industry. We provide forecasts that allow our contract manufacturers to stock component parts and other materials and plan capacity. Our contract manufacturers procure raw materials in volumes consistent with our forecasts, manufacture and/or assemble the products and perform tests according to our specifications. In some cases, we procure specific components and either sell them or consign them to our contract manufacturers. Products are either shipped to our customers or shipped to our West Henrietta, New York facilities to be inventoried as finished goods. We currently use several manufacturing sources in Asia where we have located some of our tooling.

While we do not manufacture our components, other than waveguides, we do own the tooling that is used to make our custom components. Some of our accessory products are sourced from third parties as finished goods. We typically have them print our Vuzix brand name on these products if they are co-branded. Such third-party products represented less than 5% of our sales in last three fiscal years.

Our manufacturing is not currently subject to seasonal variations, but in the future, depending upon our customers’ product mix, we may be affected by seasonal fluctuations which could affect working capital demands.

Backlog

There is a relatively short cycle between order and shipment of our product sales. Most purchase orders we receive are subject to rescheduling or cancellation by the customer with no or limited penalties. In regard to sales of custom products and waveguides to our OEM customers, we believe that the backlog metric is currently of limited utility in predicting future sales because all these OEM customers operate on a ship-to-order basis. Therefore, we believe at this time that backlog information is not material to the understanding of our business.

Human Capital

As of December 31, 2023, the Company had approximately 94 employees globally. The Company is committed to attracting, developing, and retaining talent to enable our strategic vision. This commitment directly shapes our approach to fostering a culture of inclusion and diversity and ensuring employees can reach their potential. We believe that our strong Company culture is a key enabler of our success. The values of accountability, integrity, teamwork, agility, and innovation are central to our culture and how we operate and work together. We take proactive steps to ensure that this culture continues to permeate throughout our organization. We consider our relations with our employees to be very good. In addition, we believe our compensation structure aligns with our stockholders’ long-term interests and reflects the Company’s commitment to pay for performance.

Available Information

We make available free of charge through our website, www.vuzix.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and our proxy statements and other reports that we file or furnish with the SEC as soon as reasonably practicable after they are filed or furnished, as well as certain of our corporate governance policies, including the charters for the Board of Directors’ audit, compensation, nominating, and acquisition committees and our code of ethics, corporate governance guidelines and whistleblower policy. We will also provide to any person without charge, upon request, a copy of any of the foregoing materials. Any such request must be made in writing to us, c/o** **Investor Relations, Vuzix Corporation, 25 Hendrix Road, West Henrietta, NY, 14586.

Information about Geographic Revenue

Information about geographic revenue is described in Note 19, “Geographic and Other Financial Information” in the notes to our consolidated financial statements.

History - Corporate

We were incorporated in Delaware in 1997 as VR Acquisition Corp. In 1997, we acquired substantially all of the assets of Forte Technologies, Inc. (Forte), which was engaged in the manufacture and sale of Virtual Reality headsets and the development of related technologies. Forte was originally owned and controlled by Kopin Corporation, one of our prior micro-display suppliers. Most of the technologies developed by Forte are now owned and used by us.

Reference in this report to “Vuzix”, the “Company”, “we,” “us,” “our” and similar words refer to Vuzix Corporation and its wholly-owned subsidiary.