Vuzix(VUZI) - 2025 Q2 - Quarterly Report

Part I – Financial Information Item 1. Consolidated Financial Statements (Unaudited) This section presents the company's unaudited consolidated financial statements, including balance sheets, equity, operations, cash flows, and detailed accounting notes Consolidated Balance Sheets Total assets and stockholders' equity decreased from December 2024 to June 2025, while current liabilities and mezzanine equity rose | Metric | June 30, 2025 ($) | December 31, 2024 ($) | | :----------------------------------- | :-------------- | :---------------- | | Total Assets | $36,902,452 | $39,405,258 | | Total Current Assets | $23,321,417 | $26,722,490 | | Total Current Liabilities | $3,037,976 | $2,112,273 | | Mezzanine Equity (Convertible Preferred Stock) | $5,000,000 | — | | Total Stockholders' Equity | $28,864,476 | $37,292,985 | Consolidated Statements of Changes in Mezzanine Equity and Stockholders' Equity Equity statements detail changes from Series B Preferred Stock issuance, stock compensation, ATM program proceeds, and net loss | Item | Three Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2025 ($) | | :--------------------------------- | :------------------------------- | :----------------------------- | | Preferred Stock Issued (Quanta SPA) | $5,000,000 | $5,000,000 | | Proceeds from ATM Program, Net | $2,835,408 | $4,089,850 | | Stock-Based Compensation Expense | $786,552 | $3,708,785 | | Net Loss | $(7,666,254) | $(16,303,881) | Consolidated Statements of Operations Net loss significantly reduced for both three and six months ended June 30, 2025, primarily due to the absence of a prior year's large impairment charge | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Sales | $1,295,709 | $1,092,571 | $2,876,650 | $3,096,438 | | Gross Loss | $(761,370) | $(333,145) | $(1,026,488) | $(386,398) | | Loss From Operations | $(7,855,304) | $(40,730,278) | $(16,629,723) | $(50,822,672) | | Net Loss | $(7,666,254) | $(40,612,193) | $(16,303,881) | $(50,659,775) | | Basic and Diluted Net Loss per Common Share | $(0.10) | $(0.62) | $(0.21) | $(0.77) | - Impairment on Intangible Asset and Equity Investment was $0 for both three and six months ended June 30, 2025, compared to $30,119,679 in the comparable 2024 periods, significantly reducing the net loss[12] Consolidated Statements of Cash Flows Net cash and cash equivalents decreased due to operating and investing activities, partially offset by significant financing from preferred stock and ATM program | Cash Flow Activity | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :--------------------------------- | :------------------------------- | :------------------------------- | | Net Cash Flows Used In Operating Activities | $(8,241,812) | $(14,440,335) | | Net Cash Flows Used In Investing Activities | $(1,631,941) | $(2,234,041) | | Net Cash Flows Provided by Financing Activities | $9,141,832 | — | | Net Decrease in Cash and Cash Equivalents | $(731,921) | $(16,674,376) | | Cash and Cash Equivalents - End of Period | $17,454,585 | $9,881,216 | - Financing activities in H1 2025 included $5,000,000 from the sale of Series B Preferred Stock and $4,089,850 net proceeds from the ATM program[13] Notes to the Unaudited Consolidated Financial Statements These notes provide detailed explanations and disclosures for the unaudited consolidated financial statements, covering accounting policies, revenue, equity, and asset valuations Note 1 – Basis of Presentation Financial statements are GAAP-compliant; management alleviated going concern doubt through capital raising and operational improvements - Management initially concluded that substantial doubt may exist regarding the Company's ability to meet its obligations within one year due to historical net losses and cash outflows from operations[23][24][26] - Plans to alleviate going concern doubt include raising further capital (ATM program, Quanta SPA), implementing operational improvements, and curtailing certain development programs[26][27][28] - As a result of management's plans, current cash on hand, and historical ability to raise capital, substantial doubt about the Company's ability to continue as a going concern has been alleviated[31] Note 2 – Revenue Recognition and Contracts with Customers Revenue is disaggregated into product sales (point-in-time) and engineering services (over time), with point-in-time recognition significantly increasing in Q2 2025 Revenue by Major Product Line (Three Months Ended June 30) | Revenue Type | 2025 ($) | 2024 ($) | Change ($) | % Change | | :------------------- | :----------- | :----------- | :----------- | :--------- | | Products Sales | $1,045,310 | $601,263 | $444,047 | 74% | | Engineering Services | $250,399 | $491,308 | $(240,909) | (49)% | | Total Revenue | $1,295,709 | $1,092,571 | $203,138 | 19% | Revenue by Major Product Line (Six Months Ended June 30) | Revenue Type | 2025 ($) | 2024 ($) | Change ($) | % Change | | :------------------- | :----------- | :----------- | :----------- | :--------- | | Products Sales | $2,369,383 | $2,430,336 | $(60,953) | (3)% | | Engineering Services | $507,267 | $666,102 | $(158,835) | (24)% | | Total Revenue | $2,876,650 | $3,096,438 | $(219,788) | (7)% | - Point-in-Time revenue recognition increased to 81% of total sales for the three months ended June 30, 2025, up from 55% in the comparable 2024 period[45] Note 3 – Loss Per Share Basic and diluted loss per share are identical due to the company's net loss, rendering common stock equivalents anti-dilutive Basic and Diluted Net Loss per Common Share | Period | 2025 ($) | 2024 ($) | | :--------------------------------- | :----- | :----- | | Three Months Ended June 30 | $(0.10) | $(0.62) | | Six Months Ended June 30 | $(0.21) | $(0.77) | - As of June 30, 2025, there were 7,724,513 common stock share equivalents potentially issuable, compared to 10,744,477 as of June 30, 2024[48] Note 4 – Inventories, Net Net inventories decreased from December 2024 to June 2025, primarily due to reduced purchased parts and disposal of obsoleted inventory Inventories, Net | Category | June 30, 2025 ($) | December 31, 2024 ($) | | :-------------------------- | :-------------- | :---------------- | | Purchased Parts and Components | $6,485,702 | $8,615,537 | | Work-in-Process | $262,427 | $264,715 | | Finished Goods | $3,350,940 | $3,877,549 | | Less: Reserve for Obsolescence | $(6,792,759) | $(7,944,575) | | Inventories, Net | $3,306,310 | $4,813,226 | - During the six months ended June 30, 2025, the Company physically disposed of $1,125,711 of inventory that was fully provisioned for as obsolete in the previous year[49] Note 5 – Fixed Assets Net fixed assets increased due to investments in tooling and manufacturing equipment, with some assets not yet depreciated Fixed Assets, Net | Category | June 30, 2025 ($) | December 31, 2024 ($) | | :-------------------------- | :-------------- | :---------------- | | Tooling and Manufacturing Equipment | $10,721,559 | $8,313,749 | | Less: Accumulated Depreciation | $(7,834,708) | $(6,727,668) | | Fixed Assets, Net | $8,739,592 | $7,584,284 | - As of June 30, 2025, $1,893,500 of manufacturing fixed assets were not yet placed into service, down from $4,913,005 at December 31, 2024[50] - Total depreciation expense for fixed assets for the six months ended June 30, 2025, was $723,840, an increase from $522,042 in the comparable 2024 period[51] Note 6 – Patents and Trademarks Net patents and trademarks increased slightly, reflecting ongoing intellectual property investments and amortization Patents and Trademarks, Net | Category | June 30, 2025 ($) | December 31, 2024 ($) | | :-------------------------- | :-------------- | :---------------- | | Patents and Trademarks | $4,527,812 | $4,286,743 | | Less: Accumulated Amortization | $(1,382,638) | $(1,287,983) | | Patents and Trademarks, Net | $3,145,174 | $2,998,760 | - Total amortization expense for patents and trademarks for the six months ended June 30, 2025, was $94,654, up from $83,340 in the comparable 2024 period[52] Note 7 – Technology Licenses, Net Net technology licenses significantly decreased due to the termination of the Atomistic license agreement and subsequent asset impairment in 2024 Technology Licenses, Net | Category | June 30, 2025 ($) | December 31, 2024 ($) | | :-------------------------- | :-------------- | :---------------- | | Licenses | $2,443,356 | $32,443,356 | | Write-Offs | — | $(30,000,000) | | Less: Accumulated Amortization | $(1,782,848) | $(1,682,313) | | Licenses, Net | $660,508 | $761,043 | - The company ceased further funding of development activities with Atomistic SAS, leading to the termination of the license agreement and an impairment of the technology license asset of $24,335,554 (net book value) as of June 30, 2024[54] - Total amortization expense related to technology licenses for the six months ended June 30, 2025, was $100,534, a significant decrease from $1,653,876 in the comparable 2024 period due to the write-off[53] Note 8 - Other Assets Other assets, net, slightly decreased, with an additional investment in a private corporation involved in display or software markets Other Assets, Net | Category | June 30, 2025 ($) | December 31, 2024 ($) | | :-------------------------- | :-------------- | :---------------- | | Total Investments (at cost) | $700,000 | $650,000 | | Software Development Costs, Net | $111,111 | $194,445 | | Total Other Assets | $811,111 | $844,445 | - The company invested an additional $50,000 in one of its private corporate investments during the six months ended June 30, 2025[56] Note 9 – Accrued Expenses Total accrued expenses significantly increased, driven by 'Other Accrued Expenses' including new product development costs and tooling, with slight rise in warranty obligations Accrued Expenses | Category | June 30, 2025 ($) | December 31, 2024 ($) | | :-------------------------- | :-------------- | :---------------- | | Accrued Wages and Related Costs | $251,055 | $417,266 | | Accrued Professional Services | $127,625 | $240,000 | | Accrued Warranty Obligations | $50,837 | $46,078 | | Other Accrued Expenses | $1,136,138 | $242,408 | | Total | $1,565,655 | $945,752 | - Other Accrued Expenses include $1,118,491 of new product development costs and tooling as of June 30, 2025[59] Note 10 – Income Taxes Effective income tax rate differs from U.S. statutory rate due to a valuation allowance against deferred tax assets, resulting in no income tax provision - There was no provision for income taxes for the three and six months ended June 30, 2025 and 2024[12] - The effective income tax rate differs from the U.S. statutory rate primarily due to the valuation allowance recorded against deferred tax assets[62] Note 11 – Mezzanine Equity and Stockholders' Equity The company increased authorized common stock, issued Series B Preferred Stock to Quanta Computer Inc., and raised capital through an ATM offering - Authorized common stock increased from 100,000,000 shares to 200,000,000 shares, approved by shareholders on June 17, 2025[68] - Issued 189,717 shares of Series B Preferred Stock for $5,000,000 to Quanta Computer Inc. on June 13, 2025, following achievement of milestones under the SPA[70] - The Series B Preferred Stock is classified as mezzanine equity due to redemption features not solely within the company's control[67] - Raised $4,089,850 in net proceeds from the ATM program during the six months ended June 30, 2025, by selling 1,303,735 shares of common stock[74] Note 12 – Stock-Based Compensation Stock-based compensation expense was recorded for stock options, RSUs, and PSUs, with new grants vesting upon revenue and EBITDA targets Total Stock-Based Compensation Expense (excluding LTIP options) | Period | 2025 ($) | 2024 ($) | | :--------------------------------- | :----------- | :----------- | | Three Months Ended June 30 | $842,596 | $1,470,793 | | Six Months Ended June 30 | $2,545,398 | $2,454,444 | - Granted 806,598 Restricted Stock Units (RSUs) and 504,431 Performance Stock Units (PSUs) during the six months ended June 30, 2025[80] - As of June 30, 2025, $3,852,200 of unrecognized stock compensation expense remains, to be recognized over a weighted average period of 2.0 years[81] Note 13 – Long-Term Incentive Plan The company cancelled 5,359,500 unvested LTIP stock options, replacing them with new RSUs and PSUs, accounted for as a modification with remaining fair market value to be recognized - 5,359,500 unvested stock options from the 2021 LTIP were cancelled and replaced with new RSUs and PSUs after stockholder approval on June 17, 2025[82] - The award exchange was accounted for as a modification, resulting in a remaining fair market value of $1,871,276 to be recognized over 30.5 months[83] Non-Cash Stock-Based Compensation Expense for LTIP Options | Period | 2025 ($) | 2024 ($) | | :--------------------------------- | :----------- | :----------- | | Three Months Ended June 30 | $(45,797) | $1,409,294 | | Six Months Ended June 30 | $1,180,356 | $2,818,584 | Note 14 – Litigation The company is involved in ordinary course litigation but believes any possible loss will not materially adversely affect its financial position or operations - The Company is not currently party to, nor is its property subject to any material legal proceedings[87] - Management assesses the probability and range of possible loss for legal matters and records liabilities when probable and estimable[86] Note 15 – Right-of-Use Assets and Liabilities The company holds operating lease right-of-use assets and liabilities, with a weighted average remaining lease term of 0.4 years as of June 30, 2025 Operating Lease Right-of-Use Assets and Liabilities | Category | June 30, 2025 ($) | December 31, 2024 ($) | | :--------------------------------- | :-------------- | :---------------- | | Operating Lease Right-of-Use Assets | $224,650 | $494,236 | | Operating Lease Right-of-Use Liabilities | $224,650 | $494,236 | - As of June 30, 2025, the weighted average remaining lease term was 0.4 years and the weighted average discount rate was 7.1%[89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition, operations, and liquidity, discussing critical accounting policies, business matters, and performance comparisons Critical Accounting Policies and Significant Developments and Estimates Management's discussion relies on unaudited financial statements and estimates for revenue, inventory, long-lived assets, and stock compensation, with no significant policy changes - Critical accounting policies and estimates include valuation of inventories, convertible Series B Preferred Stock, going concern, investments in equity securities, carrying value of long-lived assets and other intangible assets, software development costs, revenue recognition, product warranties, stock-based compensation and modification accounting, and income taxes[96] - No significant changes in accounting policies for the three months ended June 30, 2025[94] Business Matters Vuzix designs, manufactures, and sells augmented reality wearable display devices for enterprise, defense, industrial, medical, and commercial markets, leveraging micro-display and advanced optics - The company is engaged in the design, manufacture, marketing, and sale of augmented reality wearable display devices, including Smart Glasses, AI powered Smart Glasses, Waveguides, and AR technologies[97] - Vuzix focuses on the enterprise, defense, industrial, medical, and commercial markets for its Smart Glasses and AI/AR products[98] - The company believes its technology, intellectual property portfolio, and market position provide a leadership position in AI/AR and Smart Glasses products, waveguide optics, and display engine technology[98] Results of Operations Results show mixed performance with increased Q2 2025 sales but overall six-month decrease; gross loss widened, but net loss significantly improved due to absence of prior impairment and reduced operating expenses Comparison of Three Months Ended June 30, 2025 and 2024 Total sales increased by 19% due to 74% rise in product sales, but gross loss widened; operating expenses decreased substantially due to absence of prior impairment, leading to 81% net loss reduction Key Financials (Three Months Ended June 30) | Metric | 2025 ($) | 2024 ($) | Dollar Change ($) | % Change | | :----------------------------------- | :----------- | :----------- | :------------ | :--------- | | Total Sales | $1,295,709 | $1,092,571 | $203,138 | 19% | | Sales of Products | $1,045,310 | $601,263 | $444,047 | 74% | | Sales of Engineering Services | $250,399 | $491,308 | $(240,909) | (49)% | | Gross Loss | $(761,370) | $(333,145) | $(428,225) | 129% | | Total Operating Expenses | $7,093,934 | $40,397,133 | $(33,303,199) | (83)% | | Net Loss | $(7,666,254) | $(40,612,193) | $32,945,939 | (81)% | - The increase in product sales was primarily driven by increased unit sales of the M400 product[103] - Gross loss widened due to a $265,000 inventory reserve for obsolescence and increased product cost of sales[104] Comparison of Six Months Ended June 30, 2025 and 2024 Total sales decreased by 7%, with product sales down 3% and engineering services down 24%; gross loss widened, but net loss reduced by 68% due to absence of prior impairment Key Financials (Six Months Ended June 30) | Metric | 2025 ($) | 2024 ($) | Dollar Change ($) | % Change | | :----------------------------------- | :----------- | :----------- | :------------ | :--------- | | Total Sales | $2,876,650 | $3,096,438 | $(219,788) | (7)% | | Sales of Products | $2,369,383 | $2,430,336 | $(60,953) | (3)% | | Sales of Engineering Services | $507,267 | $666,102 | $(158,835) | (24)% | | Gross Loss | $(1,026,488) | $(386,398) | $(640,090) | 166% | | Total Operating Expenses | $15,603,235 | $50,436,274 | $(34,833,039) | (69)% | | Net Loss | $(16,303,881) | $(50,659,775) | $34,355,894 | (68)% | - The gross loss widened due to a $265,000 inventory reserve for obsolescence and increased unapplied manufacturing overhead costs, which rose by 15% due to lower actual production levels[122][123] - Selling and Marketing expenses decreased by 35% due to headcount reductions, cash salary decreases in exchange for equity compensation, and lower bad debt expense[128] Liquidity and Capital Resources Cash and cash equivalents slightly decreased; operating activities used cash, but financing provided significant capital through preferred stock and ATM program, alleviating going concern doubt Cash and Working Capital | Metric | June 30, 2025 ($) | December 31, 2024 ($) | | :-------------------------- | :-------------- | :---------------- | | Cash and Cash Equivalents | $17,454,585 | $18,186,506 | | Working Capital | $20,283,441 | $24,610,217 | Summary of Cash Flows (Six Months Ended June 30) | Cash Flow Activity | 2025 ($) | 2024 ($) | | :--------------------------------- | :----------- | :----------- | | Net Cash Provided by (used in) Operating Activities | $(8,241,812) | $(14,440,335) | | Net Cash Provided by (used in) Investing Activities | $(1,631,941) | $(2,234,041) | | Net Cash Provided by (used in) Financing Activities | $9,141,832 | — | - Financing activities in H1 2025 included $5,000,000 from the sale of Series B Convertible Preferred Stock to Quanta Computer Inc. and $4,089,850 in net proceeds from the ATM program[140] - Management has concluded that substantial doubt about the Company's ability to continue as a going concern has been alleviated due to its capital raising plans and current cash position[144][148] Forward-Looking Statements This section outlines forward-looking statements regarding future performance, product development, market acceptance, financial trends, and liquidity, noting actual results may differ due to risks - Forward-looking statements cover trends in operating expenses, market acceptance of Smart Glasses, ability to develop new products, technological advances, customer attraction and retention, inventory management, brand awareness, product defects, reliance on third-party suppliers, revenue/cost/gross margin trends, employee retention, foreign currency exchange rates, future regulations, and liquidity[153] - Key risk factors include business and economic conditions, rapid technological changes, competitive pressures, dependence on key customers, supply chain limitations, protection of proprietary technology, dependence on key personnel, and liquidity issues[154] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risks relate to interest rate changes on short-term investments and foreign currency exchange rates, but management estimates no material adverse effect - The company invests its excess cash in high-quality short-term corporate debt instruments[156] - Exposure to foreign currency exchange rates primarily arises from non-U.S. dollar denominated cash flows in Asia-Pacific and Europe; the company does not currently hedge this risk[156] - Management believes that any market risk associated with its international operations is unlikely to have a material adverse effect on its business, financial condition, or results of operation[156] Item 4. Controls and Procedures Management, including CEO and CFO, concluded disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and concluded to be effective as of June 30, 2025[157] - There have been no material changes in the company's internal control over financial reporting during the most recent fiscal quarter[158] Part II – Other Information Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The Company is not currently party to, nor is its property subject to any material legal proceedings[160] Item 1A. Risk Factors This section refers to risk factors from the 2024 Annual Report on Form 10-K, with an additional note on evolving trade policies' potential adverse effects on costs and demand - Refers to risk factors discussed in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2024[161] - A new risk factor highlights that the ongoing evolution of trade policies (including tariffs) could materially adversely affect the costs of raw and finished components and demand for products[162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or purchases of equity securities during the period - No unregistered sales of equity securities occurred[163] - No purchases of equity securities were made[163] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - No defaults upon senior securities occurred[163] Item 4. Mine Safety Disclosure This item is not applicable to the company - This disclosure item is not applicable to the registrant[163] Item 5. Other Information No Section 16 director or officer adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter - No Section 16 director or officer adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" during the fiscal quarter ended June 30, 2025[163] - No "non-Rule 10b5-1 trading arrangements" were adopted, modified, or terminated by directors and Section 16 officers during the fiscal quarter ended June 30, 2025[164] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[166] - The filing includes Inline XBRL Document set for the financial statements and accompanying notes, and a Cover Page Interactive Data File[166] Signatures Signatures The report is signed by Paul Travers, President and CEO, and Grant Russell, EVP and CFO, on behalf of Vuzix Corporation on August 14, 2025 - The report was signed by Paul Travers, President and Chief Executive Officer, and Grant Russell, Executive Vice President and Chief Financial Officer[171] - The signing date for the report was August 14, 2025[171]