Financial Data and Key Metrics Changes - The company's Q2 2023 revenue was $4.7 million, a 56% increase compared to the same period in 2022, and a 12% sequential increase from the prior quarter [6][36] - Product sales, primarily from smart glasses, reached a record $4.4 million, representing a 53% year-over-year increase [7] - Gross profit for Q2 2023 was $1 million, or 21%, compared to $0.3 million, or 9%, in Q2 2022 [37] - The net loss for Q2 2023 was $9.4 million, or $0.14 per share, compared to a net loss of $10 million, or $0.16 per share, in the same period last year [39] Business Line Data and Key Metrics Changes - The smart glasses segment is driving growth, with significant contributions from the M400 product line [36][75] - OEM revenue recognized during Q2 was $0.3 million, related to optical components and waveguides [7] - Engineering services revenue increased to $0.3 million in Q2 2023 from $0.1 million in Q2 2022 [37] Market Data and Key Metrics Changes - The smart glasses industry is experiencing growth across various sectors, including warehousing, logistics, healthcare, and remote support [8][9] - The company is expanding its global sales channels, focusing on solution selling and partnerships with value-added channel partners [9][10] Company Strategy and Development Direction - The company is positioning itself for growth in AI-enabled smart glasses, which are expected to enhance human capabilities across multiple applications [10][11] - A new waveguide mega factory is set to open, aimed at increasing production capacity and reducing costs [14][27] - The company is focusing on ODM/OEM models for consumer products, avoiding direct retail competition [67] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about achieving continued record revenues for the full year, driven by strong demand and expanding engagements [7][8] - The company anticipates a shift towards third-party channel partners, which may slow the growth of sales and marketing costs [44] - Management expects to see continued growth in the second half of 2023, with a strong pipeline of business [54][56] Other Important Information - The company has a patent portfolio of 329 patents, a 50% increase over the last 24 months [24] - The new waveguide production facility is designed to support advanced technologies and increase manufacturing capacity [27][28] Q&A Session Summary Question: What market verticals are driving growth in Smart Glasses? - Management noted significant growth in the medical community, warehousing, and remote support sectors, with many companies moving from proof of concepts to actual rollouts [47] Question: What metrics should be monitored for OEM projects? - Management indicated that the new facility could produce over 1 million waveguides annually, with potential high-margin revenue from defense-related projects [50] Question: Will there be continuous sequential growth through the second half of the year? - Management expressed confidence in continuous growth, supported by a strong pipeline of business [54] Question: What is the expected revenue mix for 2024 and 2025? - Management expects enterprise sales to dominate, with OEM business growing significantly as new contracts are finalized [63] Question: How does the company plan to approach the consumer market? - The company plans to focus on ODM/OEM relationships, providing key components and solutions without competing directly in retail [67] Question: What are the normalized gross margin expectations? - Management aims for gross margins close to 40%, with engineering services expected to be more profitable than product sales [70]

Part I – Financial Information This section provides Vuzix Corporation's unaudited consolidated financial statements and detailed notes for the periods ended June 30, 2023, and December 31, 2022 [Item 1. Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents Vuzix Corporation's unaudited consolidated financial statements and related notes for the periods ended June 30, 2023, and December 31, 2022 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202023%20and%20December%2031%2C%202022) This section details the company's financial position, including assets, liabilities, and equity, as of June 30, 2023, and December 31, 2022 | Metric | June 30, 2023 | December 31, 2022 | Change | | :-------------------------------- | :-------------- | :---------------- | :----- | | Cash and Cash Equivalents | $48,582,005 | $72,563,943 | $(23,981,938) | | Total Current Assets | $68,321,314 | $91,241,241 | $(22,919,927) | | Total Assets | $110,562,604 | $132,312,550 | $(21,749,946) | | Total Current Liabilities | $6,825,090 | $15,277,358 | $(8,452,268) | | Total Liabilities | $7,023,800 | $15,582,512 | $(8,558,712) | | Total Stockholders' Equity | $103,538,804 | $116,730,038 | $(13,191,234) | [Consolidated Statements of Changes in Stockholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section outlines changes in stockholders' equity for the three and six months ended June 30, 2023, and 2022 | Metric | January 1, 2023 | June 30, 2023 | Change | | :-------------------------------- | :-------------- | :------------ | :----- | | Total Stockholders' Equity | $116,730,038 | $103,538,804 | $(13,191,234) | | Net Loss (Six Months) | N/A | $(19,285,503) | N/A | | Stock-Based Compensation Expense (Six Months) | N/A | $6,550,479 | N/A | | Purchases of Treasury Stock (Six Months) | N/A | $(470,757) | N/A | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section presents the company's financial performance, including sales, gross profit, and net loss, for the three and six months ended June 30, 2023, and 2022 | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | % Change (YoY) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | % Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Total Sales | $4,690,835 | $3,007,758 | 56% | $8,882,196 | $5,510,810 | 61% | | Gross Profit | $972,386 | $265,409 | 266% | $1,848,392 | $741,077 | 149% | | Gross Profit % | 21% | 9% | 12 p.p. | 21% | 13% | 8 p.p. | | Loss From Operations | $(9,607,632) | $(10,000,981) | (4)% | $(20,454,837) | $(20,414,871) | 0% | | Net Loss | $(9,044,920) | $(10,021,668) | (10)% | $(19,285,503) | $(20,527,668) | (6)% | | Basic and Diluted Loss per Common Share | $(0.14) | $(0.16) | (12.5)% | $(0.31) | $(0.32) | (3.1)% | | Investment Income (6 Months) | N/A | N/A | N/A | $1,324,706 | $117,307 | 1029% | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section details cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023, and 2022 | Cash Flow Activity (Six Months Ended June 30) | 2023 | 2022 | Change | | :------------------------------------------ | :-------------- | :-------------- | :----- | | Net Cash Flows Used in Operating Activities | $(12,085,707) | $(11,016,909) | $(1,068,798) | | Net Cash Flows Used in Investing Activities | $(11,440,020) | $(8,402,617) | $(3,037,403) | | Net Cash Flows Used in Financing Activities | $(456,211) | $(202,552) | $(253,659) | | Net Decrease in Cash and Cash Equivalents | $(23,981,938) | $(19,622,078) | $(4,359,860) | | Cash and Cash Equivalents - End of Period | $48,582,005 | $100,581,795 | $(51,999,790) | [Notes to the Unaudited Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the consolidated financial statements, covering accounting policies and specific financial items [Note 1 – Basis of Presentation](index=8&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation) This note describes the basis of financial statement preparation, reclassifications, and significant customer concentration - Reclassified depreciation expense related to manufacturing operations from Operating Expenses to Cost of Sales for prior comparable periods, with no impact on Net Loss or Cash Flows[15](index=15&type=chunk)[17](index=17&type=chunk) | Reclassification Impact (Three Months Ended June 30, 2022) | As Previously Presented | Re-classification | Revised | | :------------------------------------------------------- | :---------------------- | :---------------- | :------ | | Cost of Sales - Products Sold | $2,522,674 | $(70,784) | $2,451,890 | | Cost of Sales - Depreciation and Amortization | $0 | $231,163 | $231,163 | | Gross Profit | $425,788 | $160,379 | $265,409 | | Depreciation and Amortization (Operating Expenses) | $540,081 | $(160,379) | $379,702 | - One customer represented **75% of total product revenue** for the three months ended June 30, 2023, and **45%** for the same period in 2022, indicating significant customer concentration[18](index=18&type=chunk) - Two customers represented **40% and 35% of total product revenue** for the six months ended June 30, 2023[19](index=19&type=chunk) - The company adopted ASU 2016-13 (Credit Losses) effective January 1, 2023, with no material impact on consolidated financial statements[21](index=21&type=chunk) [Note 2 – Revenue Recognition and Contracts with Customers](index=10&type=section&id=Note%202%20%E2%80%93%20Revenue%20Recognition%20and%20Contracts%20with%20Customers) This note details the company's revenue recognition policies and disaggregates revenue by type and recognition method | Revenue Type | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Products Sales | $4,425,162 | $2,898,892 | $8,616,523 | $5,401,944 | | Engineering Services | $265,673 | $108,866 | $265,673 | $108,866 | | Total Revenue | $4,690,835 | $3,007,758 | $8,882,196 | $5,510,810 | | Revenue Recognition Method (6 Months Ended June 30) | 2023 | 2022 | | :---------------------------------------- | :--- | :--- | | Point-in-Time | 97% | 98% | | Over Time – Input Method | 3% | 2% | - As of June 30, 2023, the company had approximately **$80,000 of remaining performance obligations** for a waveguide development project, expected to be recognized in Q3 2023[28](index=28&type=chunk) [Note 3 – Loss Per Share](index=12&type=section&id=Note%203%20%E2%80%93%20Loss%20Per%20Share) This note explains the calculation of basic and diluted loss per share and the impact of anti-dilutive securities - Basic and diluted loss per share are identical due to net losses, rendering potential common shares anti-dilutive[30](index=30&type=chunk) | Metric | June 30, 2023 | June 30, 2022 | | :------------------------------------------------ | :------------ | :------------ | | Potentially Exercisable/Issuable Common Stock Equivalents | 8,658,642 | 8,528,668 | [Note 4 – Inventories, Net](index=13&type=section&id=Note%204%20%E2%80%93%20Inventories%2C%20Net) This note provides a breakdown of inventory components, including purchased parts, work-in-process, finished goods, and obsolescence reserves | Inventory Component | June 30, 2023 | December 31, 2022 | | :------------------------ | :-------------- | :---------------- | | Purchased Parts and Components | $9,780,977 | $10,399,527 | | Work-in-Process | $518,460 | $344,242 | | Finished Goods | $2,468,476 | $1,941,689 | | Less: Reserve for Obsolescence | $(1,897,747) | $(1,417,489) | | Inventories, Net | $10,870,166 | $11,267,969 | [Note 5 – Fixed Assets](index=13&type=section&id=Note%205%20%E2%80%93%20Fixed%20Assets) This note details the company's fixed assets, including tooling, manufacturing equipment, and leaseholds, and recent capital expenditures | Fixed Asset Component | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :---------------- | | Tooling and Manufacturing Equipment | $8,866,022 | $6,065,445 | | Leaseholds | $1,472,898 | $826,329 | | Fixed Assets, Net | $6,814,005 | $3,878,505 | - Invested **$2,774,513** in tooling and manufacturing equipment and leasehold improvements during the six months ended June 30, 2023, primarily for a new waveguide expansion project[32](index=32&type=chunk) - Construction on the new facility for waveguide expansion began in late December 2022 and is expected to be completed by the end of September 2023[32](index=32&type=chunk) [Note 6 – Technology Licenses, Net](index=13&type=section&id=Note%206%20%E2%80%93%20Technology%20Licenses%2C%20Net) This note outlines the company's technology licenses, associated amortization, and future funding commitments | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :---------------- | | Licenses, Net | $28,504,870 | $30,158,689 | | Accumulated Amortization | $(3,938,486) | $(2,284,667) | - Remaining funding commitment of **$3,500,000** for Atomistic technology licenses, payable over the next six months[36](index=36&type=chunk) | Amortization Expense (Technology Licenses) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Amortization Expense | $826,984 | $244,201 | $1,653,868 | $300,901 | [Note 7 - Other Assets](index=14&type=section&id=Note%207%20-%20Other%20Assets) This note details other assets, including private corporation investments and software development costs | Other Asset Component | June 30, 2023 | December 31, 2022 | | :---------------------------------------- | :-------------- | :---------------- | | Total Private Corporation Investments (at cost) | $650,000 | $450,000 | | Software Development Costs, Net | $486,111 | $500,000 | | Total Other Assets | $1,649,132 | $1,581,143 | - Invested an additional **$100,000** in preferred stock of a private corporation developing smart glasses software and **$100,000** in preferred stock and warrants of a UK-based public company developing new semiconductor materials for displays during the six months ended June 30, 2023[37](index=37&type=chunk)[38](index=38&type=chunk) - Made a final investment of **$125,000** in Android operating system upgrades for its CPU platform, placed into service during Q2 2023, with total additional upgrades of **$500,000** being amortized over 36 months[39](index=39&type=chunk) [Note 8 – Accrued Expenses](index=15&type=section&id=Note%208%20%E2%80%93%20Accrued%20Expenses) This note provides a breakdown of accrued expenses, including wages, professional services, and warranty obligations | Accrued Expense Component | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :---------------- | | Accrued Wages and Related Costs | $478,116 | $843,537 | | Accrued Professional Services | $152,400 | $263,800 | | Accrued Warranty Obligations | $198,700 | $159,927 | | Total Accrued Expenses | $1,029,177 | $1,670,539 | | Accrued Warranty Obligations | Amount | | :-------------------------------- | :----- | | At December 31, 2022 | $159,927 | | Reductions for Settling Warranties | $(219,723) | | Warranties Issued During Year | $258,496 | | At June 30, 2023 | $198,700 | [Note 9 – Income Taxes](index=15&type=section&id=Note%209%20%E2%80%93%20Income%20Taxes) This note discusses factors influencing the effective income tax rate, such as foreign taxes and valuation allowances - Effective income tax rate is influenced by foreign income taxes, permanent differences, and a valuation allowance against U.S. deferred income tax assets[43](index=43&type=chunk) [Note 10 – Capital Stock](index=15&type=section&id=Note%2010%20%E2%80%93%20Capital%20Stock) This note details authorized, issued, and outstanding common and preferred stock, including future share commitments and repurchases | Capital Stock Metric | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :---------------- | | Authorized Common Stock Shares | 100,000,000 | 100,000,000 | | Issued Common Stock Shares | 63,898,889 | 63,783,779 | | Outstanding Common Stock Shares | 63,319,217 | 63,319,107 | | Authorized Preferred Stock Shares | 5,000,000 | 5,000,000 | - Committed to issuing **1,750,000 to 2,874,754 common shares** to Atomistic stockholders over the next 6 to 18 months, contingent on deliverables and milestones, as part of the technology license agreement[46](index=46&type=chunk)[47](index=47&type=chunk) - Repurchased **115,000 shares of common stock** at an average cost of **$4.06** during Q1 2023 under a share buyback program that expired on March 2, 2023[48](index=48&type=chunk) [Note 11 – Stock-Based Compensation](index=17&type=section&id=Note%2011%20%E2%80%93%20Stock-Based%20Compensation) This note outlines stock option activity, unrecognized compensation expense, and stock-based compensation expense excluding LTIP | Stock Option Activity (6 Months Ended June 30, 2023) | Number of Options | Weighted Average Exercise Price | | :----------------------------------------- | :---------------- | :------------------------------ | | Outstanding at December 31, 2022 | 2,805,673 | $7.80 | | Granted | 124,000 | $4.80 | | Exercised | (18,240) | $1.33 | | Expired or Forfeited | (36,791) | $10.64 | | Outstanding at June 30, 2023 | 2,874,642 | $7.67 | - Unrecognized stock compensation expense of **$6,863,003** as of June 30, 2023, to be recognized over **2.2 years**[51](index=51&type=chunk) - Issued **96,525 shares of common stock** to independent board members with an aggregate fair value of approximately **$500,000**, expensed over 12 months starting July 1, 2023[52](index=52&type=chunk) | Stock-Based Compensation Expense (Excluding LTIP) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Expense | $1,083,064 | $1,222,733 | $2,212,630 | $2,573,343 | [Note 12 – Long-Term Incentive Plan](index=19&type=section&id=Note%2012%20%E2%80%93%20Long-Term%20Incentive%20Plan) This note details stock-based compensation expense for the LTIP, unrecognized expense, and potential future compensation based on milestones | LTIP Stock-Based Compensation Expense | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Non-Cash Expense | $1,749,687 | $2,658,294 | $4,287,631 | $5,627,432 | - Unrecognized stock-based compensation expense for LTIP options is **$12,922,301** as of June 30, 2023, to be recognized over **three to four years**[55](index=55&type=chunk) - Potential for an additional **$34.1 million** in non-cash stock-based compensation expense if all currently improbable operational milestones under the LTIP become probable or are achieved[55](index=55&type=chunk) | Unvested LTIP Options (June 30, 2023) | Number of Options | Criteria Achievement Weighting | | :------------------------------------ | :---------------- | :----------------------------- | | Total Unvested Options | 5,409,000 | N/A | | Equity Market Capitalization Target | 2,704,500 | 50% | | Last Twelve Months Revenue Target | 1,893,150 | 35% | | Last Twelve Months EBITDA Target | 811,350 | 15% | [Note 13 – Litigation](index=19&type=section&id=Note%2013%20%E2%80%93%20Litigation) This note confirms the absence of material legal proceedings or litigation against the company - No material legal proceedings or litigation are currently active or contemplated against the company[58](index=58&type=chunk) [Note 14 – Right-of-Use Assets and Liabilities](index=21&type=section&id=Note%2014%20%E2%80%93%20Right-of-Use%20Assets%20and%20Liabilities) This note details future lease payments, operating lease costs, and key lease terms for right-of-use assets and liabilities | Future Lease Payments (as of June 30, 2023) | Amount | | :---------------------------------------- | :----- | | 2023 (6 months remaining) | $348,826 | | 2024 | $191,120 | | 2025 | $132,982 | | Total Future Lease Payments | $672,928 | | Total Lease Liability Balance | $628,131 | | Operating Lease Costs | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Costs | $207,352 | $163,277 | $410,691 | $325,642 | - Weighted average discount rate for operating leases was **7.1%**, and the weighted average remaining lease term was **1.5 years** as of June 30, 2023[60](index=60&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results for the three and six months ended June 30, 2023, highlighting key trends, critical accounting policies, and future outlook. It details revenue growth, gross profit improvements, and changes in operating expenses, alongside liquidity and capital resources [Critical Accounting Policies and Significant Developments and Estimates](index=21&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Developments%20and%20Estimates) This section discusses the critical accounting policies and significant estimates used in preparing the financial statements - Financial statements rely on estimates and assumptions for revenue recognition, bad debts, inventories, warranty reserves, long-lived assets, financial instrument fair value, stock compensation, LTIP milestones, and income taxes[63](index=63&type=chunk) - No significant changes in accounting policies for the three months ended June 30, 2023[65](index=65&type=chunk) [Off-Balance Sheet Arrangements](index=22&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of material off-balance sheet arrangements that could impact the company's financial condition - The company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on its financial condition or results[66](index=66&type=chunk) [Business Matters](index=22&type=section&id=Business%20Matters) This section describes Vuzix's core business, product offerings, market dynamics, and intellectual property strategy - Vuzix designs, manufactures, markets, and sells wearable computing devices (Smart Glasses and AR glasses) for enterprise, industrial, commercial, security, first responder, medical, and defense markets[67](index=67&type=chunk)[68](index=68&type=chunk) - Provides custom solutions and engineering services for waveguides and display systems, aiming to advance technology and foster long-term supply/OEM relationships[68](index=68&type=chunk) - Operates in a rapidly changing technological market, requiring continuous product performance improvement and cost reduction[69](index=69&type=chunk) - Believes its intellectual property portfolio provides a leadership position in micro-display projection engines, waveguides, mechanical packaging, ergonomics, and optical systems[70](index=70&type=chunk) [Recent Accounting Pronouncements](index=24&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 1 for details on recently adopted accounting pronouncements - Refer to Note 1 for details on recent accounting pronouncements[71](index=71&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) This section analyzes the company's operational performance, including revenue, gross profit, and expenses, for the reported periods [Comparison of Three Months Ended June 30, 2023 and 2022](index=24&type=section&id=Comparison%20of%20Three%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section compares the company's financial performance for the three months ended June 30, 2023, and 2022, highlighting key changes | Metric (3 Months Ended June 30) | 2023 | 2022 | Dollar Change | % Change | | :------------------------------ | :----------- | :----------- | :------------ | :------- | | Total Sales | $4,690,835 | $3,007,758 | $1,683,077 | 56% | | Sales of Products | $4,425,162 | $2,898,892 | $1,526,270 | 53% | | Sales of Engineering Services | $265,673 | $108,866 | $156,807 | 144% | | Gross Profit | $972,386 | $265,409 | $706,977 | 266% | | Gross Profit % | 21% | 9% | N/A | 12 p.p. | | Loss From Operations | $(9,607,632) | $(10,000,981) | $393,349 | (4)% | | Net Loss | $(9,044,920) | $(10,021,668) | $976,748 | (10)% | - Smart glasses revenue was the primary driver of the **53% increase in product sales**, with unit sales of the M400 product increasing significantly[74](index=74&type=chunk) - Unapplied manufacturing overhead costs increased by **$25,975 (8%)** but decreased as a percentage of total sales from **11% to 8%**[77](index=77&type=chunk) - Depreciation and amortization expense in cost of sales increased by **12%** due to new manufacturing equipment coming online[78](index=78&type=chunk) - R&D expenses decreased by **5% ($159,592)** due to reductions in external development expenses and supplies, partially offset by increased salary and benefits[80](index=80&type=chunk) - Selling and marketing expenses increased by **36% ($659,327)** due to higher salary and benefits (headcount increase), advertising, tradeshows, and travel, partially offset by lower website costs[82](index=82&type=chunk) - G&A expenses decreased by **15% ($779,627)** primarily due to a decrease in salary and benefits related expenses, driven by lower non-cash stock-based compensation[84](index=84&type=chunk) - Depreciation and amortization expense (not in cost of sales) increased by **156% ($593,520)** primarily due to the amortization of the Atomistic technology license, which began in May 2022[85](index=85&type=chunk) - Total other income increased by **$583,399**, shifting from an expense to income, primarily due to a **466% increase in investment income** from higher interest rates and a decrease in foreign exchange losses[86](index=86&type=chunk) - No provision for income taxes in either period[87](index=87&type=chunk) [Comparison of Six Months Ended June 30, 2023 and 2022](index=29&type=section&id=Comparison%20of%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section compares the company's financial performance for the six months ended June 30, 2023, and 2022, detailing significant trends | Metric (6 Months Ended June 30) | 2023 | 2022 | Dollar Change | % Change | | :------------------------------ | :----------- | :----------- | :------------ | :------- | | Total Sales | $8,882,196 | $5,510,810 | $3,371,386 | 61% | | Sales of Products | $8,616,523 | $5,401,944 | $3,214,579 | 60% | | Sales of Engineering Services | $265,673 | $108,866 | $156,807 | 144% | | Gross Profit | $1,848,392 | $741,077 | $1,107,315 | 149% | | Gross Profit % | 21% | 13% | N/A | 8 p.p. | | Loss from Operations | $(20,454,837) | $(20,414,871) | $(39,966) | 0% | | Net Loss | $(19,285,503) | $(20,527,668) | $1,242,165 | (6)% | - Product sales increased by **60%**, primarily driven by significantly higher unit sales of the M400 smart glasses, partially offset by higher average sales discounts due to larger volume reseller sales[89](index=89&type=chunk) - Unapplied manufacturing overhead costs increased by **22%** but decreased as a percentage of total sales from **13% to 10%**, influenced by Q1 2023 supply chain issues and Q2 finished goods upgrades[92](index=92&type=chunk) - Depreciation and amortization expense in cost of sales increased by **51%** due to new manufacturing equipment brought online in the first half of 2023[93](index=93&type=chunk) - R&D expenses decreased by **3% ($193,239)** due to reductions in external development expenses, recruiting, and supplies, partially offset by increased salary and benefits[95](index=95&type=chunk) - Selling and marketing expenses increased by **29% ($1,134,997)** due to higher salary and benefits (headcount increases), travel, and advertising/tradeshows, partially offset by lower website costs[97](index=97&type=chunk) - G&A expenses decreased by **10% ($1,061,082)** primarily due to a decrease in salary and benefits related expenses (lower non-cash stock-based compensation) and reduced accounting/tax/legal expenses, partially offset by increased shareholder/IR, consulting, travel, and insurance costs[99](index=99&type=chunk) - Depreciation and amortization expense (not in cost of sales) increased by **203% ($1,298,541)** primarily due to the amortization of the Atomistic technology license, which began in May 2022[100](index=100&type=chunk) - Total other income increased by **$1,282,131**, shifting from an expense to income, primarily due to a **1029% increase in investment income** from higher interest rates and a decrease in foreign exchange losses, partially offset by increased income and other taxes[101](index=101&type=chunk) - No provision for income taxes in either period[102](index=102&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its financial obligations and fund operations, including cash position and capital expenditures | Metric | June 30, 2023 | December 31, 2022 | Change | | :-------------------------- | :-------------- | :---------------- | :----- | | Cash and Cash Equivalents | $48,582,005 | $72,563,943 | $(23,981,938) | | Current Assets | $68,321,314 | $91,241,241 | $(22,919,927) | | Current Liabilities | $6,825,090 | $15,277,358 | $(8,452,268) | | Working Capital | $61,496,224 | $75,963,883 | $(14,467,659) | | Cash Flow Activity (6 Months Ended June 30) | 2023 | 2022 | | :------------------------------------------ | :-------------- | :-------------- | | Net Cash Used in Operating Activities | $(12,085,707) | $(11,016,909) | | Net Cash Used in Investing Activities | $(11,440,020) | $(8,402,617) | | Net Cash Used in Financing Activities | $(456,211) | $(202,552) | - Investing activities included **$8 million** for technology license fees, **$2.77 million** for manufacturing equipment and leasehold improvements (waveguide expansion), and **$0.34 million** for patents/trademarks[106](index=106&type=chunk) - The company has an accumulated deficit of **$263,507,583** as of June 30, 2023, and its operations have historically been financed primarily through equity securities sales[109](index=109&type=chunk)[110](index=110&type=chunk) - No current or long-term debt obligations other than **$3.5 million** in current licensing fee commitments[108](index=108&type=chunk) [Forward Looking Statements](index=34&type=section&id=Forward%20Looking%20Statements) This section outlines the nature of forward-looking statements, associated risks, and the company's disclaimer regarding future updates - Forward-looking statements cover trends in operating expenses, competitive pressures, product market acceptance, technological advances, customer attraction/retention, inventory management, supply chain, brand, product defects, reliance on third-party suppliers, intellectual property, litigation, key personnel, accounting estimates, investments, foreign regulations, liquidity, and general economic conditions[112](index=112&type=chunk) - All forward-looking statements are subject to risks and uncertainties, including those described in "Risk Factors" in the Annual Report on Form 10-K, which may cause actual results to differ materially[114](index=114&type=chunk) - The company disclaims any obligation to update forward-looking statements in the future, except as required by applicable securities laws[115](index=115&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposure primarily stems from interest rate fluctuations on its cash and short-term investments and foreign currency exchange rates from international business activities. It invests excess cash in high-quality short-term corporate debt and does not currently hedge foreign currency risk, estimating that market risks are unlikely to have a material adverse effect - Exposed to market risk from interest rate changes on short-term corporate debt investments and foreign currency exchange rates (Japan and Europe)[116](index=116&type=chunk) - Does not currently hedge foreign currency exchange rate risk[116](index=116&type=chunk) - Estimates that market risk associated with international operations is unlikely to have a material adverse effect[116](index=116&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2023, and concluded they were effective. There have been no material changes in internal control over financial reporting during the most recent fiscal quarter [Evaluation of Disclosure Controls and Procedures](index=36&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section details management's conclusion on the effectiveness of disclosure controls and procedures as of June 30, 2023 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of June 30, 2023[117](index=117&type=chunk) [Changes in Internal Control over Financial Reporting](index=36&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes in internal control over financial reporting during the most recent fiscal quarter - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[118](index=118&type=chunk)[120](index=120&type=chunk) Part II – Other Information This section provides additional information not covered in Part I, including legal proceedings, risk factors, and equity security sales [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings or litigation, nor is it aware of any such proceedings contemplated against it - No material legal proceedings or litigation are currently active or contemplated against the company[122](index=122&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2022. These risks could materially affect the business, financial condition, and future results - No material changes to the risk factors from the Annual Report on Form 10-K for the year ended December 31, 2022[123](index=123&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended June 30, 2023, the company issued 96,525 shares of common stock to its independent board members as part of their annual retainer, relying on an exemption from registration for transactions not involving a public offering. There were no purchases of equity securities - Issued **96,525 common shares** to independent board members as annual retainer during Q2 2023, exempt from registration[124](index=124&type=chunk) - No purchases of equity securities during the period[125](index=125&type=chunk) [Item 3. Defaults Upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the period - No defaults upon senior securities[125](index=125&type=chunk) [Item 4. Mine Safety Disclosure](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This item is not applicable to the company - Not Applicable[125](index=125&type=chunk) [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) No other information to report under this item - None[125](index=125&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO (Sarbanes-Oxley Act Sections 302 and 906) and Inline XBRL documents for financial statements | Exhibit No. | Description | | :---------- | :---------- | | 31.1 | Certification of the Chief Executive Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | | 31.2 | Certification of the Chief Financial Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | | 32.1 | Certification of the Chief Executive Officer of the Registrant pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | | 32.2 | Certification of the Chief Financial Officer of the Registrant pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | | 101 | Inline XBRL Document set for the financial statements and accompanying notes in Part I, Item 1, of this Quarterly Report on Form 10-Q. | | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* | Signatures This section contains the official signatures of the company's principal executive and financial officers, certifying the report - Report signed by Paul Travers (President, CEO) and Grant Russell (EVP, CFO) on August 8, 2023[132](index=132&type=chunk)

Par HOOD 1Q2023 EARNINGS PRESENTATION MAY 10, 2023 (B) 1 Cautionary Note Regarding Forward Looking Statements Certain statements included in this presentation may be considered forward-looking. All statements in this presentation that are not historical facts are forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements, and therefore ...

Start Time: 16:30 January 1, 0000 5:16 PM ET Vuzix Corporation (NASDAQ:VUZI) Q1 2023 Earnings Conference Call May 10, 2023, 16:30 PM ET Company Participants Paul Travers - President and CEO Grant Russell - EVP and CFO Ed McGregor - Director, IR Conference Call Participants Matt VanVliet - BTIG Jim McIlree - Dawson James Operator Greetings, and welcome to the Vuzix First Quarter ending March 31, 2023 Financial Results and Business Update Conference Call. At this time, all participants are in a listen-only mo ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-35955 VUZIX CORPORATION (Exact name of registrant as specified in its charter) Delaware 04-3392453 State or other jurisdiction of incorporation or organiza ...

Vuzix Corporation (NASDAQ:VUZI) Q4 2022 Results Conference Call March 1, 2022 4:30 PM ET Company Participants Ed McGregor - Director, IR Paul Travers - CEO Grant Russell - CFO Conference Call Participants Christian Schwab - Craig-Hallum Jack Vander Aarde - Maxim Group Jim McIlree - Dawson James Matt VanVliet - BTIG Operator Greetings, and welcome to the Vuzix Fourth Quarter and Full Year ending December 31, 2022, Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, t ...

Part I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Vuzix designs, manufactures, and sells augmented reality (AR) wearable display devices, known as Smart Glasses, targeting enterprise, industrial, medical, and defense markets [Company Overview and Strategy](index=5&type=section&id=Company%20Overview%20and%20Strategy) Vuzix specializes in AR wearable displays (Smart Glasses) that offer hands-free access to digital content, aiming to improve operational efficiency for its customers - Vuzix's competitive advantage lies in its thin, see-through waveguide optics and compact display engines, which allow for HMDs to resemble conventional eyeglasses[18](index=18&type=chunk)[19](index=19&type=chunk) - The company's strategy involves selling finished products, licensing technology to OEMs, selling waveguide components, and developing a suite of software applications[26](index=26&type=chunk) - Effective June 2022, a 10-year non-compete agreement expired, allowing Vuzix to resume marketing and sales initiatives directly into the defense and homeland security markets[24](index=24&type=chunk) [Target Markets](index=9&type=section&id=Target%20Markets) Vuzix primarily targets the enterprise, industrial, and medical sectors, where its Smart Glasses enhance productivity, safety, and remote collaboration - Primary target markets are enterprise, industrial, and medical, with applications like remote video support, quality assurance, and warehouse pick-and-pack[32](index=32&type=chunk)[35](index=35&type=chunk) - In healthcare, Smart Glasses are used in operating rooms for remote expert consultation, medical student training, and telemedicine[36](index=36&type=chunk) - The company is also targeting security and first responders with features like real-time facial recognition and alerts in a covert eyeglass form factor[37](index=37&type=chunk) - Vuzix believes the long-term consumer market will be driven by fashion-forward, lightweight smart glasses that augment reality with cloud-based information and AI[38](index=38&type=chunk) [Products and Applications](index=13&type=section&id=Products%20and%20Applications) Vuzix offers a range of AR Smart Glasses, including M-Series, Blade, Shield, and Ultralite platforms, supported by an App Store and proprietary software for collaboration - Key products include the M400/M4000 (monocular enterprise), Blade 2 (upgraded monocular), Shield (binocular micro-LED), and Ultralite (lightweight OEM platform)[41](index=41&type=chunk)[43](index=43&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) - The Vuzix App Store allows users to download applications, and the company fosters a third-party developer ecosystem with a revenue-sharing model[49](index=49&type=chunk)[52](index=52&type=chunk) - Vuzix offers Vuzix Remote Assist (VRA) for telepresence and has developed 'connector' applications for third-party platforms like Zoom, Microsoft Teams, and Cisco WebEx[50](index=50&type=chunk) [Technology and Intellectual Property](index=19&type=section&id=Technology%20and%20Intellectual%20Property) Vuzix's competitive advantage is built on its proprietary technology in advanced optics, including see-through imaging waveguides, micro-projection display engines, and investments in micro-LED displays - Core technologies include see-through waveguides, custom micro-display engines (DLP and micro-LED), and nanoimprinting processes for manufacturing thin optics[62](index=62&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk)[71](index=71&type=chunk) - In 2022, Vuzix signed agreements with Atomistic SAS for an exclusive license and custom design of key micro-LED technology, involving a **$30 million cash commitment** and equity issuance[66](index=66&type=chunk) - The company's IP portfolio consists of **148 issued U.S. and foreign patents** and **130 pending patent applications**, with patents expiring on various dates up to January 24, 2040[75](index=75&type=chunk) [Competition](index=23&type=section&id=Competition) Vuzix operates in a highly competitive and rapidly evolving market, facing competition from direct view displays (smartphones, tablets) and other wearable display manufacturers - The wearable display industry is highly competitive, with key factors including image quality, power efficiency, ergonomics, and cost[77](index=77&type=chunk) - Competitors in binocular AR/VR include Microsoft (Hololens II), Magic Leap, Meta, and Sony[79](index=79&type=chunk)[80](index=80&type=chunk) - Monocular smart glasses competitors include Google/Alphabet, Lenovo, RealWear, and Sony[81](index=81&type=chunk) - Competitors for waveguide optics and display engines include Lumus, WaveOptics (Snap), and Digilens[84](index=84&type=chunk)[86](index=86&type=chunk) [Sales, Marketing, and Manufacturing](index=26&type=section&id=Sales,%20Marketing,%20and%20Manufacturing) Vuzix sells its products through a multi-channel strategy including direct sales, distributors, value-added resellers (VARs), and online stores, with a focus on the US, Europe, and Japan - The sales strategy utilizes direct sales, distributors, and VARs, with international offices in Japan and Europe[87](index=87&type=chunk)[89](index=89&type=chunk) - Final assembly and all waveguide optics manufacturing occur at the company's West Henrietta, NY facility; an adjacent facility was leased in October 2022 to expand waveguide production capacity[99](index=99&type=chunk)[100](index=100&type=chunk) - Vuzix relies on third-party suppliers for critical components, purchasing micro-displays from Sony Corporation, Jade Bird Display, and Texas Instruments on a purchase order basis[101](index=101&type=chunk) - The company is engaged in the design, manufacture, marketing, and sale of augmented reality (AR) wearable display and computing devices, such as Smart Glasses[17](index=17&type=chunk) - Vuzix's strategy includes developing its own finished products, building a software ecosystem, and selling components like waveguide optics and display engines to OEMs[20](index=20&type=chunk)[25](index=25&type=chunk) - In November 2022, Vuzix acquired Moviynt®, a US-based SAP Certified ERP platform software provider, to enhance its software solutions for logistics, warehousing, and manufacturing applications[48](index=48&type=chunk) - As of March 1, 2023, the company had **105 full-time employees** in North America, with **50 dedicated to research and development and engineering services**[105](index=105&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks, including a history of net losses, intense competition, reliance on third-party technologies, and supply chain vulnerabilities - The company has a history of net losses, reporting a net loss of **$40.8 million** for the year ended December 31, 2022, and an accumulated deficit of **$243.8 million**[113](index=113&type=chunk) - Vuzix faces intense competition from established companies with greater financial, marketing, and R&D resources, such as Google, Microsoft, Meta, and Sony[115](index=115&type=chunk) - The business depends on technologies developed by other companies (e.g., micro-displays) and the broader market acceptance of near-eye display technology, which is not guaranteed[124](index=124&type=chunk)[125](index=125&type=chunk) - Reliance on third-party suppliers, some of which are sole-source, for critical components creates risks of supply shortages, long lead times, and price increases that could disrupt the supply chain[209](index=209&type=chunk)[210](index=210&type=chunk) [Item 2. Properties](index=68&type=section&id=Item%202.%20Properties) Vuzix's main facility is a leased 39,000 square foot space in West Henrietta, New York, serving as its headquarters, R&D, and manufacturing center - The main facility is a **39,000 sq. ft. leased space** in West Henrietta, NY, housing headquarters, R&D, and manufacturing[217](index=217&type=chunk) - In October 2022, an additional **12,000 sq. ft.** was leased in West Henrietta to expand waveguide manufacturing, with planned completion in mid-2023[217](index=217&type=chunk) - The company maintains small rental offices in Oxford, England, and Tokyo, Japan, for sales and marketing[218](index=218&type=chunk)[220](index=220&type=chunk) [Item 3. Legal Proceedings](index=70&type=section&id=Item%203.%20Legal%20Proceedings) As of the filing date, Vuzix Corporation is not involved in any material legal proceedings or litigation - The company is not currently involved in any material actual or pending legal proceedings[221](index=221&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=70&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Vuzix's common stock is listed on the NASDAQ Capital Market under 'VUZI', has not paid dividends, and initiated a **$25 million** share buyback program in March 2022 - The company's common stock trades on the NASDAQ Capital Market under the symbol VUZI[224](index=224&type=chunk) - Vuzix has never paid cash dividends on its common stock and does not expect to in the foreseeable future[228](index=228&type=chunk) Share Repurchase Activity (2022) | Period | Total shares purchased | Average price paid per share | | :--- | :--- | :--- | | March 30 - 31, 2022 | 36,685 | $6.84 | | Nov 29 – Dec 31, 2022 | 427,987 | $4.10 | - On March 2, 2022, the Board approved a one-year share buyback program for up to **$25 million** of common stock[231](index=231&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=73&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal year 2022, Vuzix saw total sales decrease by **10%** to **$11.8 million**, with a net loss of **$40.8 million**, while maintaining strong liquidity with **$72.6 million** in cash [Results of Operations for Fiscal Year 2022 vs. 2021](index=81&type=section&id=Results%20of%20Operations%20for%20Fiscal%20Year%202022%20vs.%202021) For 2022, total sales decreased by **10%** to **$11.8 million**, driven by an **18%** drop in product sales, resulting in a slight increase in net loss to **$40.8 million** Consolidated Statements of Operations Data (2022 vs. 2021) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Sales | $11,835,882 | $13,164,933 | $(1,329,051) | (10)% | | Gross Profit | $1,483,126 | $1,568,490 | $(85,364) | (5)% | | Loss from Operations | $(42,232,271) | $(39,980,107) | $(2,252,164) | 6% | | Net Loss | $(40,763,573) | $(40,377,160) | $(386,413) | 1% | - Sales of products decreased by **18%** in 2022 compared to 2021, primarily due to higher average sales discounts on larger volume sales and negative foreign exchange impacts[264](index=264&type=chunk) - Sales of engineering services increased by **250%** in 2022 compared to 2021[265](index=265&type=chunk) - Research and development costs increased by **9%** in 2022, mainly due to external development expenses for the Shield and Blade 2.0 smart glasses[271](index=271&type=chunk) - Selling and marketing costs rose by **32%** in 2022, driven by higher salary expenses, travel, and trade show costs[273](index=273&type=chunk) [Results of Operations for Fiscal Year 2021 vs. 2020](index=86&type=section&id=Results%20of%20Operations%20for%20Fiscal%20Year%202021%20vs.%202020) In 2021, total sales increased by **14%** to **$13.2 million**, but net loss widened significantly to **$40.4 million** due to a **225%** rise in General and Administrative expenses Consolidated Statements of Operations Data (2021 vs. 2020) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Sales | $13,164,933 | $11,581,496 | $1,583,437 | 14% | | Gross Profit | $1,568,490 | $597,958 | $970,532 | 162% | | Loss from Operations | $(39,980,107) | $(19,127,464) | $(20,852,643) | 109% | | Net Loss | $(40,377,160) | $(17,952,172) | $(22,424,988) | 125% | - Sales of Smart Glasses products rose by **27%** in 2021, driven by growth in M-Series sales[285](index=285&type=chunk) - General and administrative costs increased by **225%** in 2021, largely due to a **$13.5 million** increase in salary and benefits, of which **$12.7 million** was non-cash stock-based compensation from the LTIP[296](index=296&type=chunk) [Liquidity and Capital Resources](index=92&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2022, Vuzix had **$72.6 million** in cash, a **$47.6 million** decrease from the prior year, primarily due to operating and investing activities Key Balance Sheet and Cash Flow Data (as of Dec 31, 2022) | Metric | Amount (2022) | Amount (2021) | | :--- | :--- | :--- | | Cash and Cash Equivalents | $72,563,943 | $120,203,873 | | Working Capital | $75,963,883 | $132,994,189 | | Net Cash Used in Operating Activities | $(24,521,082) | $(26,980,411) | | Net Cash Used in Investing Activities | $(21,170,816) | $(4,852,452) | - Significant cash outflows for investing activities in 2022 included **$16.5 million** for technology license commitments, **$2.3 million** for the Moviynt acquisition, and **$1.7 million** for manufacturing equipment[304](index=304&type=chunk) - The company has a licensing fee commitment of **$11.5 million** related to the Atomistic Agreements, payable within one year[307](index=307&type=chunk)[312](index=312&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=94&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Vuzix is exposed to market risks from interest rate fluctuations on its cash investments and foreign currency exchange rate changes from international operations - The company's excess cash is invested in short-term, highly rated corporate debt, which is subject to interest rate risk[313](index=313&type=chunk) - Vuzix is exposed to foreign currency exchange rate risk through its subsidiaries in Asia and the UK and through component purchasing; the company does not currently hedge this risk[315](index=315&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=96&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2022, 2021, and 2020, including balance sheets, statements of operations, and cash flows [Consolidated Financial Statements](index=107&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements present Vuzix's financial position and results of operations, reporting **$132.3 million** in total assets and a **$40.8 million** net loss for 2022 Key Financial Data (as of and for the year ended Dec 31, 2022) | Metric | Amount | | :--- | :--- | | **Balance Sheet:** | | | Total Assets | $132,312,550 | | Total Liabilities | $15,582,512 | | Total Stockholders' Equity | $116,730,038 | | **Statement of Operations:** | | | Total Sales | $11,835,882 | | Gross Profit | $1,483,126 | | Net Loss | $(40,763,573) | | **Statement of Cash Flows:** | | | Net Cash Used in Operating Activities | $(24,521,082) | [Notes to Consolidated Financial Statements](index=112&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail significant accounting policies, the Moviynt acquisition, revenue recognition, and balance sheet accounts, including **$11.5 million** in technology license commitments - The acquisition of Moviynt in October 2022 for a total consideration of **$2.47 million** resulted in the recognition of **$1.6 million** in goodwill and **$0.7 million** in other intangible assets[418](index=418&type=chunk)[420](index=420&type=chunk) - The company's Long-Term Incentive Plan (LTIP) resulted in non-cash stock-based compensation expense of **$11.1 million** in 2022 and **$13.3 million** in 2021[480](index=480&type=chunk) - As of December 31, 2022, the company had a remaining funding commitment of **$11.5 million** for technology licenses related to its agreements with Atomistic SAS, payable over the next twelve months[440](index=440&type=chunk) Geographic Revenue Breakdown (2022) | Region | Revenue (in thousands) | % of Total | | :--- | :--- | :--- | | North America | $4,738 | 40% | | Europe | $3,532 | 30% | | Asia-Pacific | $3,411 | 29% | | Others | $155 | 1% | [Item 9A. Controls and Procedures](index=96&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective[319](index=319&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[324](index=324&type=chunk) - The independent auditor, Freed Maxick CPAs, P.C., issued an attestation report stating that the internal control over financial reporting was effective as of December 31, 2022[325](index=325&type=chunk) Part III [Items 10-14 (Incorporated by Reference)](index=98&type=section&id=Items%2010-14) Information for Items 10-14 is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of stockholders - Information regarding directors, executive compensation, security ownership, related transactions, and accountant fees will be provided in the forthcoming definitive proxy statement and is incorporated by reference[331](index=331&type=chunk)[332](index=332&type=chunk)[333](index=333&type=chunk)[334](index=334&type=chunk)[335](index=335&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=100&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report - This section contains the index to the consolidated financial statements, Schedule II (Valuation and Qualifying Accounts), and a list of all exhibits filed with the report[338](index=338&type=chunk)[339](index=339&type=chunk)

Financial Data and Key Metrics Changes - Total revenues for Q3 2022 were $3.4 million, an increase of 14% compared to $3 million in Q3 2021 [33] - Gross profit for Q3 2022 was $0.9 million, representing a gross margin of 25%, up from a gross profit of $0.4 million and a margin of 13% in the prior year [36] - Net loss for Q3 2022 was $9.5 million or $0.15 per share, compared to a net loss of $10.5 million or $0.17 per share in Q3 2021 [38] Business Line Data and Key Metrics Changes - Sales of waveguides and display engines reached approximately $0.25 million, a new quarterly record [34] - Revenues from engineering services were also a record at $0.9 million, compared to none in the prior year's period [34] - Decreases in glass revenues were noted due to higher sales discounts for larger volume orders and negative foreign exchange impacts [35] Market Data and Key Metrics Changes - The outlook for warehousing and logistics remains strong, with a Fortune 100 customer placing multiple orders for Smart Glasses [14] - Vuzix Smart Glasses have been deployed in distribution centers of several large retail customers, with expectations for further expansion [15] - In healthcare, major independent software vendors continue to expand the global availability of Vuzix-powered surgical solutions [16] Company Strategy and Development Direction - The company is expanding its waveguide manufacturing capabilities and has entered into a lease for new manufacturing space [11] - Vuzix completed the acquisition of Moviynt, a revenue-generating SaaS solution provider, to broaden its go-to-market strategy [12] - The company is focused on becoming a high-volume, cost-competitive provider of waveguides and display engines for consumer electronics [27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2023, anticipating significant deployments across various sectors [45] - The company expects to see sequential revenue growth in Smart Glasses products and solutions in Q4 2022 [17] - Management noted that while the OEM business may be lumpy, there are numerous programs expected to come online in 2023 [53] Other Important Information - The company has no current or long-term debt obligations outstanding, maintaining a strong cash position of $90.4 million as of September 30, 2022 [38] - Vuzix plans to unveil new products at the Consumer Electronics Show in Las Vegas, indicating ongoing innovation [41] Q&A Session Summary Question: Thoughts on distribution and warehousing channel amid macro headwinds - Management believes Vuzix products enhance efficiency in distribution channels, making them valuable despite labor challenges [45] Question: Mix of OEM business versus Smart Glasses sales in the long term - Management indicated that OEM business could represent significant revenue, with potential for millions of units sold [48] Question: Clarification on OEM revenue and growth expectations - Management acknowledged that OEM revenue can be lumpy but expects consistent growth in 2023 with multiple programs coming online [53] Question: Timing of waveguide opportunities - Management expects some revenue from waveguides in 2023, with broader market growth anticipated in 2024 [56] Question: Timeline for OEM opportunities from early conversations to sale - The timeline varies, with some projects taking 12 to 18 months to reach production, while others may take longer [62]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-35955 VUZIX CORPORATION (Exact name of registrant as specified in its charter) Delaware 04-3392453 State or other jurisdiction of incorporation or orga ...

Vuzix Corporation (NASDAQ:VUZI) Q2 2022 Earnings Conference Call August 9, 2022 4:30 PM ET Company Participants Ed McGregor - Director of Investor Relations Paul Travers - Chief Executive Officer Grant Russell - Chief Financial Officer Conference Call Participants Matt VanVliet - BTIG Tyler Burmeister - Craig-Hallum Jim McIlree - Dawson James Operator Greetings, and welcome to the Vuzix Second Quarter ending June 30, 2022 Financial Results and Business Update Conference Call. At this time, all participants ...