Vuzix Corp

Previous wording

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

Current wording

recognition, allowance for credit losses, inventories, warranty reserves, product warranty, carrying value of long-lived assets, fair value measurement of financial instruments, valuation of stock compensation awards, achievement of equity market capitalization and probability of operational milestones being achieved under our LTIP, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not apparent from other sources. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements.

Previous wording

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

Current wording

We are engaged in the design, manufacture, marketing and sale of augmented reality wearable display devices also referred to as head mounted displays (or HMDs, but also known as near-eye displays), in the form of Smart Glasses and Augmented Reality (AR) glasses. Our wearable display devices are worn like eyeglasses or attach to a head worn mount. These devices typically include cameras, sensors, and a computer that enable the user to view, record and interact with video and digital content, such as computer data, the Internet, social media or entertainment applications. Our

Previous wording

With respect to our Smart Glasses and AR products, we are focused on the enterprise, defense, industrial, medical and commercial markets. All of the mobile display and mobile electronics markets in which we compete have been subject to rapid technological change over the last decade including the rapid adoption of tablets, larger screen sizes and display resolutions along with declining prices on mobile phones and other computing devices, and as a result we must continue to improve our products’ performance and lower our costs. We believe our technology, intellectual property portfolio and position in the marketplace give us a leadership position in AR and Smart Glasses products, waveguide optics, microLEDs and display engine technology.

Current wording

With respect to our Smart Glasses and AR products, we are focused on the enterprise, defense, industrial, medical and commercial markets. All of the mobile display and mobile electronics markets in which we compete have been subject to rapid technological change over the last decade including the rapid adoption of tablets, larger screen sizes and display resolutions along with declining prices on mobile phones and other computing devices, and as a result we must continue to improve our products’ performance and lower our costs. We believe our technology, intellectual property portfolio and position in the marketplace give us a leadership position in AR and Smart Glasses products, waveguide optics and display engine technology.

Previous wording

change, with ever greater capabilities and performance, including mobile devices with larger screen sizes and improved display resolutions as well as, in many cases, reductions in pricing for mobile devices. As a result, we must continue to improve our products’ performance and lower our costs. We believe our intellectual property portfolio gives us a leadership position in the design and manufacturing of micro-display projection engines, waveguides, mechanical packaging, ergonomics, and optical systems.

Current wording

All of the mobile displays and wearable and mobile electronics markets in which we compete, including mobile and wearable displays and electronics, have been and continue to be subject to consistent and rapid technological change, with ever greater capabilities and performance, including mobile devices with larger screen sizes and improved display resolutions as well as, in many cases, reductions in pricing for mobile devices. As a result, we must continue to improve our products’ performance and lower our costs. We believe our intellectual property portfolio gives us a leadership position in the design and manufacturing of micro-display projection engines, waveguides, mechanical packaging, ergonomics, and optical systems.

Previous wording

Sales. There was a decrease in total sales for the three months ended March 31, 2024, compared to the same period in 2023 of $2,187,494, or 52%. The following table reflects the major components of our sales:

Current wording

Sales. There was a decrease in total sales for the three months ended June 30, 2024, compared to the same period in 2023 of $3,598,264, or 77%. The following table reflects the major components of our sales:

Previous wording

Sales of products decreased by 56% for the three months ended March 31, 2024, compared to the same period in 2023. Lack of smart glasses revenue was the primary driver of this decrease as unit sales of our M400 product decreased compared to the previous year’s comparable period.

Current wording

Sales of products decreased by 86% for the three months ended June 30, 2024, compared to the same period in 2023. Reduced sales of smart glasses was the primary driver of this decrease as unit sales of our M400 product decreased compared to the previous year’s comparable period, when an Asian distributor placed a significant order in the second quarter of 2023.

Previous wording

Sales of engineering services for the three months ended March 31, 2024, was $174,794, compared to nil in the comparable 2023 period.

Current wording

Sales of engineering services for the three months ended June 30, 2024, was $491,308, compared to $265,673 in the comparable 2023 period.

Previous wording

For the three months ended March 31, 2024, there was a gross loss from total sales of $53,253 or 3% as compared to a gross profit of $876,006 or 21% in the comparable period in 2023.

Current wording

For the three months ended June 30, 2024, there was a gross loss from total sales of $333,145 or 31% as compared to a gross profit of $972,386 or 21% in the comparable period in 2023.

Previous wording

Selling and marketing expenses for the three months ended March 31, 2024 decreased by $318,877 or 13%, compared to the comparable period in 2023. This decrease was largely due to a $155,707 decrease in salary and benefits related expenses driven by headcount decreases; a decrease of $195,217 in advertising and tradeshow expenses; and a decrease of $41,137 in travel related expenses; partially offset by an increase of $53,936 in consulting fees.

Current wording

Selling and marketing expenses for the three months ended June 30, 2024 decreased by $271,701 or 11%, compared to the comparable period in 2023. This overall decrease was largely due to a decrease of $288,049 in advertising and tradeshow expenses; a $110,150 decrease in salary and benefits related expenses driven by headcount decreases; a decrease of $76,714 in travel related expenses; and a decrease of $63,314 in external consulting expenses; partially offset by a $290,000 increase to our allowance for credit losses.

Previous wording

General and administrative expenses for the three months ended March 31, 2024, decreased by $1,033,567 or 20%, compared to the comparable period in 2023. This decrease was largely due to a decrease of $915,307 in salary and benefits related expenses, which was primarily driven by a decrease in non-cash stock-based compensation; a decrease of $308,884 in investor relations expenses; and a decrease of $48,057 in insurance premiums; partially offset by an increase of $263,637 in legal expenses.

Current wording

General and administrative expenses for the three months ended June 30, 2024, increased by $231,846 or 5%, compared to the comparable period in 2023. This increase was largely due to an increase of $357,266 in accounting and auditing fees related to finalizing the 2023 audit; an increase of $125,364 in investor relations expenses; partially offset by a decrease of $209,443 in salary and benefits related expenses, which was primarily driven by a decrease in non-cash stock-based compensation; a decrease of $83,265 in external consulting expenses; a decrease of $34,796 in travel related expenses; and a decrease of $26,098 in rent expenses.

Previous wording

Other Income, Net. Total other income was $44,813 for the three months ended March 31, 2024, compared to other income of $606,622 in the comparable period in 2023, a decrease of $561,809. The overall decrease in other income was primarily the result of a decrease of $543,184 in investment income due to lower excess cash on-hand to invest; an increase of $106,138 in foreign exchange losses; partially offset by a decrease in Income and Other Taxes of $87,513.

Current wording

Other Income, Net. Total other income was $118,085 for the three months ended June 30, 2024, compared to other income of $562,712 in the comparable period in 2023, a decrease of $444,627. The overall decrease in other income was primarily the result of a decrease of $423,099 in investment income due to lower excess cash on-hand to invest; an increase of $39,389 in foreign exchange losses; partially offset by a decrease in Income and Other Taxes of $17,861.

Previous wording

Unapplied manufacturing overhead costs, not already added in product cost of sales, decreased by $45,240 or 8% for the three months ended March 31, 2024, over the 2023 comparable period. Such costs, however, increased as a percentage of total sales to 25% as compared to 13% in 2023 due to lower quarterly product revenue. The decrease in the net dollar amount of these unapplied overhead costs in the current period versus the prior period was primarily driven by improvements in actual versus originally planned production levels during the period.

Current wording

Unapplied manufacturing overhead costs, not already added in product cost of sales, increased by $50,504 or 6% for the six months ended June 30, 2024, over the 2023 comparable period and increased as a percentage of total sales to 31% as compared to 10% in 2023 due to lower quarterly product revenue. The increase in the net dollar amount of these unapplied overhead costs in the current period versus the prior period was primarily driven by a decrease in actual

Previous wording

Depreciation and Amortization. Depreciation and amortization expense, not included in cost of sales, for the three months ended March 31, 2024, was $970,377, compared to $964,265 in the comparable period in 2023 or relatively flat.

Current wording

Depreciation and Amortization. Depreciation and amortization expense, not included in cost of sales, for the six months ended June 30, 2024, was $2,158,716, compared to $1,937,487 in the comparable period in 2023 or an

Previous wording

Capital Resources: As of March 31, 2024, we had cash and cash equivalents of $16,501,401, a decrease of $10,054,191 from $26,555,592 as of December 31, 2023.

Current wording

Capital Resources: As of June 30, 2024, we had cash and cash equivalents of $9,881,216, a decrease of $16,674,376 from $26,555,592 as of December 31, 2023.

Previous wording

As of March 31, 2024, we had current assets of $32,674,775 compared to current liabilities of $3,473,845 which resulted in a positive working capital position of $29,200,930. As of December 31, 2023, we had a working capital position of $36,284,259. Our current liabilities are comprised principally of accounts payable, accrued expenses, licensing fee commitments, and operating lease right-of-use liabilities.

Current wording

As of June 30, 2024, we had current assets of $24,661,074 compared to current liabilities of $2,586,637 which resulted in a positive working capital position of $22,074,437. As of December 31, 2023, we had a working capital position of $36,284,259. Our current liabilities are comprised principally of accounts payable, accrued expenses, and operating lease right-of-use liabilities.

Previous wording

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

Current wording

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

Previous wording

During the three months ended March 31, 2024 we used $8,805,138 of cash for operating activities. Net changes in working capital items were $2,313,721 for the three months ended March 31, 2024, with the largest factors resulting from a $1,564,459 decrease in accrued expenses; a $743,110 increase in inventory and vendor prepayments; and a $639,943 increase in trade accounts and other receivables. For the three months ended March, 2023 we used a total of $4,164,727 in cash for operating activities.

Current wording

During the six months ended June 30, 2024 we used $14,440,335 of cash for operating activities. Net changes in working capital items were $2,097,411 for the six months ended June 30, 2024, with the largest factors resulting from

Previous wording

During the three months ended March 31, 2024 we used $1,249,053 of cash for investing activities, which included $1,000,000 in payments made towards our technology license fee commitment with Atomistic, as discussed in Note 6, and $147,814 in patent and trademark expenditures. For the three months ended March 31, 2023, we used a total of $4,692,596 in cash for investing activities.

Current wording

During the six months ended June 30, 2024, we used $2,234,041 of cash for investing activities, which included; $929,635 in manufacturing equipment and tooling for our new waveguide manufacturing facility; $1,000,000 final payment made towards our technology license fee commitment with Atomistic; and $304,406 in patent and trademark expenditures. For the six months ended June 30, 2023, we used a total of $11,440,020 in cash for investing activities.

Previous wording

During the three months ending March 31, 2024, we used nil net cash for financing activities. For the three months ended March 31, 2023, we used $470,757 in net cash for financing activities.

Current wording

During the six months ending June 30, 2024, we used nil net cash for financing activities. For the six months ended June 30, 2023, we used $456,211 in net cash for financing activities.

Previous wording

The Company’s cash requirements are primarily for funding operating losses, working capital, research and development, capital expenditures, and license fee commitments. Our operations have historically been financed primarily through net proceeds from the sale of our equity securities. The Company incurred net losses for the three months ended March 31, 2024 of $10,047,582; $50,149,077 for the year ended December 31, 2023; and $40,763,573 for the year ended December 31, 2022. The Company had net cash outflows from operations of $8,805,138 for the three

Current wording

The Company’s cash requirements are primarily for funding operating losses, working capital, research and development and capital expenditures. Our operations have historically been financed primarily through net proceeds from the sale of our equity securities. The Company incurred net losses for the six months ended June 30, 2024 of $50,659,775; $50,149,077 for the year ended December 31, 2023; and $40,763,573 for the year ended December 31, 2022. The Company had net cash outflows from operations of $14,440,335 for the six months ended June 30, 2024; $26,277,824 for the year ended December 31, 2023; and $24,521,082 for the year ended December 31, 2022. As of June 30, 2024, the Company had an accumulated deficit of $344,644,568. The Company’s cash outflows for investing activities were $2,234,041 for the six months ended June 30, 2024; $19,280,966 for the year ended December 31, 2023; and $21,170,816 for the year ended December 31, 2022.

Previous wording

The Company has in the past sold equity securities and in early 2024 entered into a sales agreement with an investment banking firm 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 in an “at the market” offering. 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.

Current wording

The Company has historically sold equity securities and currently has a new Registration Statement on Form S-3 that become effective in May 2024, which includes a sales agreement with an investment banking firm 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 in an “at the market” offering. 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.

Previous wording

This quarterly report includes forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s beliefs and

Current wording

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

Previous wording

All such forward-looking statements are subject to certain risks and uncertainties and should be evaluated in light of important risk factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risk factors include, but are not limited to, those described in “Risk Factors” in this report and under Item 1A and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023, and other filings we make with the Securities and Exchange Commission and the following: business and economic conditions, rapid technological changes accompanied by frequent new product introductions, competitive pressures, dependence on key customers, inability to gauge order flows from customers, fluctuations in quarterly and annual results, the reliance on a limited

Current wording

All such forward-looking statements are subject to certain risks and uncertainties and should be evaluated in light of important risk factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risk factors include, but are not limited to, those described in “Risk Factors” in this report and under Item 1A and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023, and other filings we make with the Securities and Exchange Commission and the following: business and economic conditions, rapid technological changes accompanied by frequent new product introductions, competitive pressures, dependence on key customers, inability to gauge order flows from customers, fluctuations in quarterly and annual results, the reliance on a limited number of third-party suppliers, limitations of our manufacturing capacity and arrangements, the protection of our proprietary technology, the dependence on key personnel, changes in critical accounting estimates, potential impairments related to investments, foreign regulations, liquidity issues, and potential material weaknesses in internal control over financial reporting. Further, during weak or uncertain economic periods, customers may delay the placement of their orders. These factors often result in a substantial portion of our revenue being derived from orders placed within a quarter and shipped in the final month of the same quarter.