Vuzix Corp

Note 1**– Basis of Presentation**

The accompanying unaudited consolidated financial statements of Vuzix Corporation (“the Company” or “Vuzix”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the unaudited consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of the Company’s operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results of the Company’s operations for the full fiscal year or any other period.

The accompanying interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto of the Company as of and for the year ended December 31, 2024, as reported in the Company’s Annual Report on Form 10-K filed with the SEC on March 13, 2025.

Customer Concentrations

For the three months ended June 30, 2025, two customers represented 18% and 12%, of total product revenue andtwo customers represented 54% and 30%, of engineering services revenue. For the three months ended June 30, 2024, two customers represented 17% and 13% of total product revenue andone customer represented 86% of engineering services revenue.

For the six months ended June 30, 2025, one customer represented 23% of total product revenue andfour customers represented 37%,35%,17%, and 10% of engineering services revenue. For the six months ended June 30, 2024, one customer represented 12% of total product revenue andone customer represented 82% of engineering services revenue.

As of June 30, 2025, three customers represented 49%,14%, and 11% of accounts receivable. As of December 31, 2024, one customer represented 76% of accounts receivable.

Fair Value of Financial Instruments

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, 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.

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.

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. (ASU) 2014-15, “Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. As a result, management is primarily responsible for assessing if there is a going concern issue when issuing an entity’s financial statements. The going concern assumption underlies all GAAP financial

reporting and therefore requires and assumes that the financial statements have been prepared on a going concern basis. It presumes that a Company will continue normal business operations into the future.

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 substantial doubt may exist surrounding the Company's ability to meet its obligations within one year of the release of the financial statements.

The Company incurred net losses for the six months ended June 30, 2025 of $16,303,881; $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 $8,241,812 for the six months ended June 30, 2025; $23,739,372 for the year ended December 31, 2024; and $26,277,824 for the year ended December 31, 2023. As of June 30, 2025, the Company had an accumulated deficit of $383,826,831. The Company’s cash outflows for investing activities were $1,631,941 for the six months ended June 30, 2025; $2,919,949 for the year ended December 31, 2024; and $19,280,966 for the year ended December 31, 2023.

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, 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 substantial doubt about the Company’s ability to continue as a going concern. The Company’s management intends to take actions necessary to continue as a going concern, as discussed herein. Management’s plans to alleviate the conditions that raise substantial doubt include raising further capital, 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 has 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 banking in an “at the market” offering. Since May 2024, the Company has raised $12,221,011, including $2,835,408 and $4,089,850, respectively, in the three and six months ended June 30, 2025, 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.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP 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.

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 CODM 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. 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. The measure of segment assets is reported on the balance sheet as total consolidated assets. Our CODM also reviews total assets, as reported on our consolidated balance sheets, and purchases of fixed assets, 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, Total Compensation, General and Administrative and Intangible Asset and Equity Investment Impairment. These segment items for the three and six months ended June 30, 2025 and 2024 are:

Other Segment Items:

Geographic Information

All long-lived assets are located in the U.S.

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and

income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. Management is currently evaluating the impact of ASU 2023-09 on the Company’s consolidated financial statements.

Note 2 – Revenue Recognition and Contracts with Customers

Disaggregated Revenue

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

Significant Judgments

Under Topic 606 “Revenue from Contracts with Customers”, we use judgments that could potentially impact both the timing of our satisfaction of performance obligations and our determination of transaction prices used in determining revenue recognized by major product line. Such judgments include considerations in determining our transaction prices and when our performance obligations are satisfied for our standard product sales. For our Engineering Services, performance obligations are recognized over time using the input method, and the estimated costs to complete each project are considered significant judgments.

Performance Obligations

Revenues from our performance obligations are typically satisfied at a point-in-time for Smart Glasses, Waveguides and Display Engines, and our OEM Products, which are recognized when the customer obtains control and ownership, which is generally upon shipment. The Company considers shipping and handling activities performed to be fulfillment activities and not a separate performance obligation. The Company also records revenue for performance obligations relating to our Engineering Services over time by using the input method measuring progress toward satisfying the performance obligations. Satisfaction of our performance obligations related to our Engineering Services is measured by the Company’s costs incurred as a percentage of total expected costs to project completion, as the inputs of actual costs incurred by the Company are directly correlated with progress toward completing the contract. As such, the Company believes that our methodologies for recognizing revenue over time for our Engineering Services correlate directly with the transfer of control of the underlying assets to our customers.

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 extend 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 June 30, 2025 and December 31, 2024, there were $78,375 and $109,725, respectively, in outstanding performance obligations remaining for extended warranties.

The following table presents a summary of the Company’s sales by revenue recognition method as a percentage of total net sales for the three and six months ended June 30, 2025 and 2024:

Remaining Performance Obligations

As of June 30, 2025, the Company had $1,866,335 of remaining performance obligations under a current waveguide development project, including 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 expects to recognize the remaining revenue related to this project based upon expected due dates, in the amounts of 24% in 2025 and 76% in 2026. Revenues earned less amounts invoiced at June 30, 2025 and December 31, 2024 totaled $383,665 and $673,498, respectively.

As of June 30, 2024, the Company had $2,359,904 of remaining performance obligations under a current waveguide development project, which represented the remainder of transaction prices totaling $3,500,000 under this development agreement, less revenue recognized under percentage of completion to date.

As of June 30, 2025, the Company had no material outstanding performance obligations related to product sales, other than its standard and extended product warranty.

Note 3 – Loss Per Share

Basic loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution from the assumed exercise of stock options. During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are anti-dilutive. Since the Company reported a net loss for the three and six months ended June 30, 2025 and 2024, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. As of June 30, 2025 and 2024, there were 7,724,513 and 10,744,477 common stock share equivalents 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.

Note 4 – Inventories, Net

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

During the six months ended June 30, 2025, the Company physically disposed of $1,125,711 of inventory that was fully provisioned for as obsolete in the previous year.

Note 5 – Fixed Assets

Fixed Assets consisted of the following:

As of June 30, 2025 and December 31, 2024, there were $1,893,500 and $4,913,005, respectively, of manufacturing fixed assets that are not yet placed into service and, therefore, are not currently being depreciated.

Total depreciation expense for fixed assets for the three months ended June 30, 2025 and 2024 was $227,820 and $231,222, respectively. Total depreciation expense for fixed assets for the six months ended June 30, 2025 and 2024 was $723,840 and $522,042, respectively.

Note 6 – Patents and Trademarks

The changes in the Company’s Patents and Trademarks for the six months ended June 30, 2025 and the year ended December 31, 2024, were as follows:

Total amortization expense for patents and trademarks for the three months ended June 30, 2025 and 2024 was $50,462 and $40,551, respectively. Total amortization expense for patents and trademarks for the six months ended June 30, 2025 and 2024 was $94,654 and $83,340, respectively.

Note 7 – Technology Licenses, Net

The changes in the Company’s Technology Licenses for the six months ended June 30, 2025 and the year ended December 31, 2024, were as follows:

Total amortization expense related to technology licenses for the three months ended June 30, 2025 and 2024 was $50,266 and $835,542, respectively. Total amortization expense related to technology licenses for the six months ended June 30, 2025 and 2024 was $100,534 and $1,653,876, respectively.

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 of $24,335,554, net book value as of June 30, 2024, 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 Atomistic licenses the technology that was the subject of the Granted License.

Note 8 - Other Assets

The Company’s Other Assets were as follows:

The Company has investments inthree corporations that are involved in the near-eye display, enterprise software, and micro display markets. All these investments represent small ownership levels ranging from approximately 1% to a maximum of 4%. Two of these companies are private corporations andone is a small public company. During the six months ended June 30, 2025, the Company invested a further $50,000 in one of those private corporations.

Total amortization expense related to all software updates, included in cost of sales, for the three and six months ended June 30, 2025, and 2024 was and $41,668 and $83,333, respectively.

Note 9 – Accrued Expenses

Accrued expenses consisted of the following:

As of June 30, 2025, Other Accrued Expenses include $1,118,491 of new product development costs and tooling that have been expensed or capitalized that are being deferred and, a portion thereof, amortized by the third-party vendor over expected future production when the project is completed.

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 six months ended June 30, 2025, were as follows:

Note 10 – Income Taxes

The Company’s effective income tax rate differs from the U.S. statutory rate primarily due to the valuation allowance recorded against deferred tax assets.

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 June 30, 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 June 30, 2025 and December 31, 2024 and there were 189,717 andnil shares of Series B Preferred Stock issued and outstanding as of June 30, 2025 and December 31, 2024, respectively.

The Series B Preferred Stock entitle the holders to cumulative dividends at the annual rate of 1.5% of the original issuance price, payable quarterly in cash. As of June 30, 2025, total accumulated and unpaid preferred dividends were $3,493. There wereno accrued preferred dividends as of December 31, 2024.

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 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.

Holders of the Series B Preferred Stock will have the right upon the occurrence of certain triggering events, as defined in the certificate of designation, that are not all solely within the control of the Company, 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 upon the occurrence of a defined triggering event.

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).

Common Stock

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 was approved by the shareholders on June 17, 2025. There were 77,921,364 shares issued and 77,341,692 shares outstanding as of June 30, 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.

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, at a purchase price per share equal to the higher of (a) $13.00 or (b)ten times the volume-weighted average sale price of the common stock for thethirty trading days before the date on which the conditions for the third closing are met, will occur fifteen business days after the day on which the closing conditions for such closing are met or waived, or such other date as may be agreed to between the Company and Quanta. The third closing will be subject to, among other closing conditions, the Waveguide Plate Production Capacity Rate at the Company’s Rochester, New York waveguide manufacturing plant being reasonably demonstrated to reach certain production levels and yields based on a sampled run-rate basis. The Company evaluated the provisions of the agreement and concluded that the second and third tranche obligations are not free-standing instruments and do not require bifurcation from the host.

The SPA may be terminated by either party if the third closing has not occurred by March 3, 2026 (18 months from the date of the SPA).

The Company is to using up to 15% of the net proceeds under the SPA for collaboration on new generation AI/AR smart glasses product development associated with smart glasses for each party’s needs and third-party customers utilizing waveguides of the Company during the term of the SPA.

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” (or ATM) offering.

During the three months ended June 30, 2025, the Company sold 1,060,194 shares of common stock for gross proceeds of $2,941,294 (average of $2.77 per share) before deducting broker expenses paid by the Company of $105,887 pursuant to the ATM offering. During the six months ended June 30, 2025, the Company sold 1,303,735 shares of common stock for gross proceeds of $4,242,583 (average of $3.25 per share) under the ATM before deducting broker expenses paid by the Company of $152,733. The Company is using the net proceeds from these sales for general corporate purposes, including working capital.

Note 12 – Stock-Based Compensation

A summary of stock option activity related to the Company’s standard employee incentive plan (excluding options awarded under the Long-Term Incentive Plan (“LTIP” – Note 13) for the six months ended June 30, 2025, is as follows:

The weighted average remaining contractual term for all options as of June 30, 2025, and December 31, 2024, was 6.57 years and 7.84 years, respectively.

As of June 30, 2025, there were 4,076,252 options that were fully vested and exercisable at a weighted average exercise price of $4.36 per share. The weighted average remaining contractual term of the vested options is 6.35 years.

As of June 30, 2025, there were 415,759 unvested options exercisable at a weighted average exercise price of $2.61 per share. The weighted average remaining contractual term of the unvested options is 8.61 years.

The weighted average fair value of option grants was calculated using the Black-Scholes-Merton option pricing method.

On March 19, 2025, the Company issued 509,571 Restricted Stock Units (“RSUs”) and 207,404 Performance Stock Units (“PSUs”) to all employees of the Company, excluding certain members of senior management that are currently in the Company’s LTIP. 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 will be 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 June 30, 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. As of June 30, 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 to the 5,089,500 stock options that were surrendered under the original LTIP (see Note 13 for additional details). The RSUs vest over time at a rate ofone-third annually on each December 31 st. The RSUs vest upon the achievement of certain revenue and EBITDA targets and, as of June 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. As of June 30, 2025, these bonus targets are not considered probable and their fair market value is not being amortized in stock-based compensation expense.

A summary of RSU and PSU activity related to the Company’s standard employee incentive plan and long-term incentive plan for the six months ended June 30, 2025, is as follows:

For the three months ended June 30, 2025 and 2024, the Company recorded total stock-based compensation expense, including stock awards but excluding stock option awards under the Company’s LTIP, of $842,596 and $1,470,793, respectively. For the six months ended June 30, 2025 and 2024, the Company recorded total stock-based compensation expense, including stock awards but excluding stock option awards under the Company’s LTIP, of $2,545,398 and $2,454,444, respectively.

As of June 30, 2025, the Company had $3,852,200 of unrecognized stock compensation expense related to stock options and stock awards, which will be recognized over a weighted average period of 2.0 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 PSU 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 include 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 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 three months ended June 30, 2025 and 2024, the Company recorded non-cash stock-based compensation expense of $(45,797) and $1,409,294, respectively, for LTIP options that vested or were probable to vest,

prior to their cancellation effective June 16, 2025. The negative expense reflected above in the second quarter was due to the reversal of previously recognized expense for employees who terminated prior to completing their requisite service periods for certain market conditions. For the six months ended June 30, 2025 and 2024, the Company recorded non-cash stock-based compensation expense of $1,180,356 and $2,818,584, 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 – 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 15 – Right-of-Use Assets and Liabilities

Future lease payments under operating leases as of June 30, 2025, were as follows:

Operating lease costs under the operating leases totaled $284,353 and $184,143 for the three months ended June 30, 2025 and 2024, respectively. Operating lease costs under the operating leases totaled $493,119 and $375,648 for the six months ended June 30, 2025 and 2024, respectively.

As of June 30, 2025, the weighted average discount rate was 7.1% and the weighted average remaining lease term was 0.4 years.