# Vuzix Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Vuzix Corp](/companies/vuzi.md) (CIK 1463972)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:01 ET
- Period: 2023-09-30
- Accession: 0001558370-23-018554
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1463972/000155837023018554/vuzi-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1463972/000155837023018554/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $2.2m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $11.1m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $2.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $9.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | −$237.5k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $1.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $2.9m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $8.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$11.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$31.9m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$11.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$30.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.17 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.17 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.48 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 63,324,942 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 63,257,863 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$20.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $3.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $470.8k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $38.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $59.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $101.0m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $5.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $5.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $95.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,743 characters.

*You should read the following discussion and analysis of financial condition and results of operations in conjunction with the financial statements and related notes appearing elsewhere in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, 2022.*

*As used in this report, unless otherwise indicated, the terms “Company,” “Vuzix”, “management,” “we,” “our,” and “us” refer to Vuzix Corporation.*

### Critical Accounting Policies and Significant Developments and Estimates

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

We believe that our application of accounting policies, and the estimates inherently required therein, are reasonable. We periodically re-evaluate these accounting policies and estimates and make adjustments when facts and circumstances dictate. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using such necessary estimates.

Management believes certain factors and trends are important in understanding our financial performance. The critical accounting policies, judgments and estimates we believe have the most significant effect on our consolidated financial statements are:

- Valuation of inventories;
- Variable Interest Entities;
- Business combinations;
- Carrying value of long-lived assets;
- Software development costs;
- Revenue recognition;
- Product warranty;
- Stock-based compensation; and
- Income taxes.

Our accounting policies are more fully described in the notes to our consolidated financial statements included in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes in our accounting policies for the three months ended September 30, 2023.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.

### Business Matters

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

With respect to our Smart Glasses and AR products, we are focused on the enterprise, industrial, commercial, security, first responder, medical, and defense markets. We also provide custom solutions and engineering services to third parties, including OEMs, of waveguides to enable fully-integrated wearable display systems, including HMDs to commercial, industrial and defense customers. We do not offer “work-for-hire” services per se but rather offer our engineering services for projects that we expect could result in advancing our technology and potentially lead to long-term supply or OEM relationships.

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

### Recent Accounting Pronouncements

See Note 1 to the Unaudited Consolidated Financial Statements.

### Results of Operations

### Comparison of Three Months Ended September 30, 2023 and 2022

The following table compares the Company’s consolidated statements of operations data for the three months ended September 30, 2023 and 2022:

| ​ ​ ​ ​ ​ Sales: | ​ ​ ​ ​ | ​ ​ ​ Three Months Ended September 30, ​ ​ 2023 ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ ​ | ​ ​ Dollar Change ​ ​ ​ | ​ ​ ​ % Increase ​ (Decrease) ​ ​ ​ ​ |
| --- | --- | ---: | --- | --- | ---: |
| Sales of Products | ​ | $1,371,851 | $2,537,539 | $(1,165,688) | (46)% |
| Sales of Engineering Services | ​ | 808,156 | ​ 889,284 | ​ (81,128) | (9)% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Total Sales** | ​ | 2,180,007 | ​ 3,426,823 | ​ (1,246,816) | (36)% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Cost of Sales:** | ​ |  | ​ | ​ | ​ |
| Cost of Sales - Products | ​ | 1,884,239 | ​ 2,034,123 | ​ (149,884) | (7)% |
| Cost of Sales - Depreciation and Amortization | ​ | 232,891 | ​ 221,772 | ​ 11,119 | 5% |
| Cost of Sales - Engineering Services | ​ | 300,421 | ​ 302,707 | ​ (2,286) | (1)% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Total Cost of Sales** | ​ | 2,417,551 | ​ 2,558,602 | ​ (141,051) | (6)% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Gross Profit (Loss)** | ​ | (237,544) | ​ 868,221 | ​ (1,105,765) | (127)% |
| Gross Profit (Loss)% | ​ | (11)% | ​ 25% | ​ | ​ |
| ​ | ​ |  | ​ | ​ | ​ |
| **Operating Expenses:** | ​ |  | ​ | ​ | ​ |
| Research and Development | ​ | 2,912,562 | ​ 3,440,685 | ​ (528,123) | (15)% |
| Selling and Marketing | ​ | 2,832,031 | ​ 1,980,748 | ​ 851,283 | 43% |
| General and Administrative | ​ | 4,466,850 | ​ 4,854,014 | ​ (387,164) | (8)% |
| Depreciation and Amortization | ​ | 959,353 | ​ 510,099 | ​ 449,254 | 88% |
| Impairment of Patents and Trademarks | ​ | 24,204 | ​ 48,075 | ​ (23,871) | (50)% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Loss from Operations** | ​ | (11,432,544) | ​ (9,965,400) | ​ (1,467,144) | 15% |
| ​ | ​ |  | ​ | ​ | ​ ​ |
| **Other Income (Expense):** | ​ |  | ​ | ​ | ​ |
| Investment Income | ​ | 500,067 | ​ 572,721 | ​ (72,654) | (13)% |
| Income and Other Taxes | ​ | (21,715) | ​ (19,768) | ​ (1,947) | 10% |
| Foreign Exchange Loss | ​ | (28,816) | ​ (64,552) | ​ 35,736 | (55)% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Total Other Income, Net** | ​ | 449,536 | ​ 488,401 | ​ (38,865) | (8)% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Loss Before Provision for Income Taxes** | ​ | (10,983,008) | ​ (9,476,999) | ​ (1,506,009) | 16% |
| Provision for Income Taxes | ​ | — | ​ — | ​ — | —% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Net Loss** | ​ | $(10,983,008) ​ | $(9,476,999) ​ | $(1,506,009) | 16% |

*Sales.* There was a decrease in total sales for the three months ended September 30, 2023, compared to the same period in 2022 of $1,246,816 or 36%. The following table reflects the major components of our sales:

| ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ ​ ​ % of ​ Total Sales ​ | ​ ​ Three Months Ended September 30, 2022 | ​ ​ ​ % of ​ Total Sales ​ | ​ ​ Dollar Change | ​ ​ ​ % Increase ​ (Decrease) ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales of Products | ​ | $1,371,851 | 63% | $2,537,539 | 74% | $(1,165,688) | (46)% |
| Sales of Engineering Services | ​ | 808,156 | 37% | 889,284 | 26% | (81,128) | (9)% |
| Total Sales | ​ | $2,180,007 | 100% | $3,426,823 | 100% | $(1,246,816) | (36)% |

Sales of products decreased by 46% for the three months ended September 30, 2023, compared to the same period in 2022. Lack of smart glasses revenue was the primary driver of this decrease as unit sales of our M400 product decreased as compared to the previous year’s comparable period.

Sales of engineering services for the three months ended June 30, 2023, was $808,156, as compared to $889,284 in the comparable 2022 period.

*Cost of Sales and Gross Profit (Loss).* Cost of product revenues and engineering services are comprised of materials, components, labor, warranty costs, freight costs, manufacturing overhead, software royalties, the depreciation for our tooling and manufacturing equipment, and amortization of software development costs related to the production of our products and rendering of engineering services. The following table reflects the components of our cost of goods sold:

| ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ ​ | ​ ​ As % Related Total Sales ​ | ​ ​ Three Months Ended September 30, 2022 | ​ ​ | ​ ​ ​ ​ ​ ​ ​ As % Related Dollar % Increase ​ Total Sales ​ Change ​ (Decrease) ​ |
| --- | --- | --- | --- | ---: | --- | --- | ---: |
| Product Cost of Sales | ​ | $1,558,813 | ​ | 72% | $1,679,067 | ​ | 49% $(120,254) ​ (7)% |
| Manufacturing Overhead - Unapplied |  | ​ 325,426 |  | 15% | ​ 355,056 |  | 10% ​ (29,630) (8)% |
| Depreciation and Amortization | ​ | ​ 232,891 | ​ | 11% | ​ 221,772 | ​ | 6% ​ 11,119 ​ 5% |
| Engineering Services Costs Sales |  | ​ 300,421 |  | 14% | ​ 302,707 |  | 9% ​ (2,286) (1)% |
| ​ |  | ​ |  |  | ​ |  | ​% |
| **Total Cost of Sales** | ​ | $2,417,551 |  | 111% | $2,558,602 |  | 75% $(141,051) (6)% |
| ​ | ​ |  |  | ​ |  |  | ​% |
| **Gross Profit (Loss)** | ​ | $(237,544) |  | (11)% | $868,221 |  | 25% $(1,105,765) (127)% |

For the three months ended September 30, 2023, there was a gross loss from total sales of $237,544 or 11% as compared to a gross profit of $868,221 or 25% in the comparable period in 2022.

Unapplied manufacturing overhead costs, not already added in product cost of sales, decreased by $29,630 or 8% for the three months ended September 30, 2023, over the 2022 comparable period. Such costs, however, increased as a percentage of total sales to 15% as compared to 10% in 2022 due to lower quarterly product revenue. The decrease in the net dollar amount of these unapplied overhead costs in the current period versus the prior period was primarily driven by improvements in actual versus originally planned production levels during the period.

Depreciation and amortization expense in cost of sales increased by $11,119 or 5% because new manufacturing equipment was brought online in the third quarter as compared to the comparable 2022 period, when such activity was classified as construction-in-progress.

*Research and Development.* Our research and development expenses consist primarily of compensation costs for personnel, including non-cash stock-based compensation expenses, third-party services, purchase of research supplies and materials, and consulting fees related to research and development. Software development expenses to determine technical feasibility before final development and ongoing maintenance are not capitalized and are included in research and development expenses.

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Three Months Ended September 30, 2023 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ Three Months Ended September 30, 2022 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ ​ Dollar Change | ​ ​ ​ ​ ​ ​ ​ % Increase ​ ​ (Decrease) ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and Development | ​ | $2,912,562 | 134% | $3,440,685 | 100% | $(528,123) | (15)% |

Research and development expenses for the three months ended September 30, 2023, decreased by $528,123 or 15%, as compared to the comparable period in 2022. This decrease was largely due to a $507,259 reduction in external development expenses and consultants related to our new products and a decrease of $23,127 in recruiting and hiring expenses.

*Selling and Marketing.* Selling and marketing expenses consist of trade show costs, advertising, sales samples, travel costs, sales staff compensation costs including non-cash stock-based compensation expense, consulting fees, public relations agency fees, website costs, and sales commissions paid to full-time staff and outside consultants.

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Three Months Ended September 30, 2023 | ​ ​ ​ | ​ ​ ​ ​ % of ​ Total Sales ​ | ​ ​ ​ Three Months Ended September 30, 2022 | ​ ​ ​ | ​ ​ ​ ​ % of ​ Total Sales ​ | ​ ​ ​ ​ Dollar Change | ​ ​ ​ | ​ ​ ​ ​ % Increase ​ (Decrease) ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Selling and Marketing | ​ | $2,832,031 | ​ | 130% | $1,980,748 | ​ | 58% | $851,283 | ​ | 43% |

Selling and marketing expenses for the three months ended September 30, 2023, increased by $851,282 or 43%, as compared to the comparable period in 2022. This increase was largely due to a $522,086 increase in salary and benefits related expenses driven by headcount increases; an increase of $241,322 in advertising and tradeshow expenses; and an increase of $131,384 in travel related expenses; partially offset by a decrease of $38,984 in recruiting and hiring expenses; and a decrease of $36,082 in website development and maintenance costs.

*General and Administrative.* General and administrative expenses include professional fees, investor relations (IR) costs, salaries and related non-cash stock-based compensation, travel costs, and office and rental costs.

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Three Months Ended September 30, 2023 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ Three Months Ended September 30, 2022 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ ​ Dollar Change | ​ ​ ​ ​ ​ ​ ​ % Increase ​ ​ (Decrease) ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| General and Administrative | ​ | $4,466,850 | 205% | $4,854,014 | 142% | $(387,164) | (8)% |

General and administrative expenses for the three months ended September 30, 2023, decreased by $387,164 or 8%, compared to the comparable period in 2022. This decrease was largely due to a decrease of $218,801 in salary and benefits related expenses, which was primarily driven by a decrease in non-cash stock-based compensation; a decrease of $79,739 in shareholder and IR related expenses; a decrease of $64,128 in legal expenses and a decrease of $40,828 in accounting, auditing, advisory and tax services expenses; partially offset by an increase of $118,515 in insurance premiums.

*Depreciation and Amortization.* Depreciation and amortization expense, not included in cost of sales, for the three months ended September 30, 2023, was $959,353, as compared to $510,099 in the comparable period in 2022, an increase of $449,254. The increase in this expense is primarily due to the amortization of our technology license related to the Atomistic Agreements, which began on May 12, 2022 and was amended on December 16, 2022, which increased the amount of amortization.

*Other Income, Net*. Total other income was $449,536 for the three months ended September 30, 2023, compared to other income of $488,401 in the comparable period in 2022, a decrease of $38,865. The overall decrease in other income was primarily the result of a decrease of $72,654 in investment income due to lower excess cash on-hand to invest; partially offset by a decrease in foreign exchange losses of $35,736.

*Provision for Income Taxes.* There was not a provision for income taxes in the respective three-month periods ending September 30, 2023, and 2022.

### Comparison of Nine Months Ended September 30, 2023 and 2022

The following table compares the Company’s consolidated statements of operations data for the nine months ended September 30, 2023 and 2022:

| ​ ​ ​ ​ ​ Sales: | ​ ​ ​ ​ | ​ ​ ​ Nine Months Ended September 30, ​ ​ 2023 ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ ​ | ​ ​ Dollar Change ​ ​ ​ | ​ ​ ​ | ​ ​ ​ % Increase (Decrease) ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | --- | ---: |
| Sales of Products | ​ | $9,988,374 ​ | $7,939,483 ​ | $2,048,891 |  | 26% |
| Sales of Engineering Services | ​ | 1,073,829 ​ | 998,150 ​ | 75,679 |  | 8% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ |
| **Total Sales** | ​ | 11,062,203 ​ | 8,937,633 ​ | 2,124,570 |  | 24% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ |
| **Cost of Sales:** | ​ | ​ | ​ |  |  | ​ |
| Cost of Sales - Products Sold | ​ | 8,270,658 ​ | 6,289,612 ​ | 1,981,046 |  | 31% |
| Cost of Sales - Depreciation and Amortization | ​ | 723,745 ​ | 676,720 ​ | 47,025 |  | 7% |
| Cost of Sales - Engineering Services | ​ | 456,953 ​ | 362,003 ​ | 94,950 |  | 26% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ |
| **Total Cost of Sales** | ​ | 9,451,356 ​ | 7,328,335 ​ | 2,123,021 |  | 29% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ |
| **Gross Profit** | ​ | 1,610,847 ​ | 1,609,298 ​ | 1,549 |  | 0% |
| Gross Profit % | ​ | 15% | 18% |  |  | ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ |
| **Operating Expenses:** | ​ | ​ | ​ |  |  | ​ |
| Research and Development | ​ | 8,818,911 ​ | 9,540,272 ​ | (721,361) |  | (8)% |
| Selling and Marketing | ​ | 7,881,612 ​ | 5,895,332 ​ | 1,986,280 |  | 34% |
| General and Administrative | ​ | 13,858,996 ​ | 15,307,242 ​ | (1,448,246) |  | (9)% |
| Depreciation and Amortization | ​ | 2,896,840 ​ | 1,149,046 ​ | 1,747,794 |  | 152% |
| Impairment of Patents and Trademarks | ​ | 41,869 ​ | 97,676 ​ | (55,807) |  | (57)% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ |
| **Loss from Operations** | ​ | (31,887,381) ​ | (30,380,270) ​ | (1,507,111) |  | 5% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ |
| **Other Income (Expense):** | ​ | ​ | ​ |  |  | ​ |
| Investment Income | ​ | 1,824,773 ​ | 690,028 ​ | 1,134,745 |  | 164% |
| Income and Other Taxes | ​ | (144,930) ​ | (98,727) ​ | (46,203) |  | 47% |
| Foreign Exchange Loss | ​ | (60,973) ​ | (215,698) ​ | 154,725 |  | (72)% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ |
| **Total Other Income, Net** | ​ | 1,618,870 ​ | 375,603 ​ | 1,243,267 |  | 331% |
| **​** | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ |
| **Net Loss** | ​ | $(30,268,511) ​ | $(30,004,667) ​ | $(263,844) |  | 1% |

*Sales.* There was an increase in total sales for the nine months ended September 30, 2023, compared to the same period in 2022 of $2,124,570 or 24%. The following table reflects the major components of our sales:

| ​ ​ ​ | ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ ​ % of ​ Total Sales ​ | ​ ​ Nine Months Ended September 30, 2022 | ​ ​ ​ % of ​ Total Sales ​ | ​ ​ Dollar Change | ​ ​ ​ % Increase ​ ​ (Decrease) ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales of Products | ​ | $9,988,374 | 90% | $7,939,483 | 89% | $2,048,891 | 26% |
| Sales of Engineering Services | ​ | 1,073,829 | 10% | 998,150 | 11% | 75,679 | 8% |
| Total Sales | ​ | $11,062,203 | 100% | $8,937,633 | 100% | $2,124,570 | 24% |

Sales of products increased by 26% for the nine months ended September 30, 2023, compared to the same period in 2022. Smart glasses revenue was the primary driver of this increase as unit sales of our M400 product increased, partially offset by higher average sales discounts due to larger volume reseller sales compared to the comparable period in 2022.

Sales of engineering services for the nine months ended September 30, 2023, was $1,073,829, as compared to $998,150 in the comparable 2022 period.

*Cost of Sales and Gross Profit.* Cost of product revenues and engineering services are comprised of materials, components, labor, warranty costs, freight costs, manufacturing overhead, software royalties, the depreciation for our tooling and manufacturing equipment, and amortization of software development costs related to the production of our products and rendering of engineering services. The following table reflects the components of our cost of goods sold:

| ​ ​ ​ | ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ % of ​ Total Sales | ​ ​ Nine Months Ended September 30, 2022 | ​ ​ | ​ ​ % of ​ Total Sales | ​ ​ Dollar Change | ​ ​ | ​ ​ % Increase ​ (Decrease) ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Product Cost of Sales | ​ | $7,046,018 |  | 64% | $5,199,951 |  | 58% | $1,846,067 |  | 36% |
| Manufacturing Overhead - Unapplied | ​ | 1,224,640 |  | 11% | 1,089,661 |  | 12% | 134,979 |  | 12% |
| Depreciation and Amortization | ​ | 723,745 |  | 7% | 676,720 |  | 8% | 47,025 |  | 7% |
| Engineering Services Cost of Sales | ​ | 456,953 |  | 4% | 362,003 |  | 4% | 94,950 |  | 26% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ |
| **Total Cost of Sales** | ​ | ​ 9,451,356 |  | 85% | ​ 7,328,335 |  | 82% | ​ 2,123,021 |  | 29% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ |
| **Gross Profit** | ​ | $1,610,847 | ​ | 15% | $1,609,298 |  | 18% | $1,549 |  | 0% |

For the nine months ended September 30, 2023, gross profit from total sales was $1,610,847 or 15% compared to $1,609,298 or 18% in the comparable period in 2022.

Unapplied manufacturing overhead costs, not already added in product cost of sales, increased by $134,979 or 12% for the nine months ended September 30, 2023, over the 2022 comparable period, however, such costs decreased as a percentage of total sales to 11% as compared to 12% in 2022. The increase in the net dollar amount of these unapplied overhead costs in the current period versus the prior period was primarily driven by a supply chain issue that slowed some production in Q1 2023.

Depreciation and amortization expense in cost of sales increased by $47,025 or 7% because new manufacturing equipment was brought online in the first half of 2023 as compared to the prior period, when such activity was classified as construction-in-progress.

*Research and Development.* Our research and development expenses consist primarily of compensation costs for personnel, including non-cash stock-based compensation expenses, third-party services, purchase of research supplies and materials, and consulting fees related to research and development. Software development expenses to determine technical feasibility before final development and ongoing maintenance are not capitalized and are included in research and development expenses.

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Nine Months Ended September 30, 2023 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ Nine Months Ended September 30, 2022 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ ​ Dollar Change | ​ ​ ​ ​ ​ ​ ​ % Increase ​ ​ (Decrease) ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and Development | ​ | $8,818,911 | 80% | $9,540,272 | 107% | $(721,361) | (8)% |

Research and development expenses for the nine months ended September 30, 2023, decreased by $721,361 or 8%, compared to the comparable period in 2022. This decrease was largely due to a $648,556 reduction in external development expenses and consultants related to our new products; and a decrease of $102,186 in recruiting and hiring expenses; partially offset by an increase of $69,988 in salary and benefits related expenses.

*Selling and Marketing.* Selling and marketing expenses consist of trade show costs, advertising, sales samples, travel costs, sales staff compensation costs including non-cash stock-based compensation expense, consulting fees, public relations agency fees, website costs, and sales commissions paid to full-time staff and outside consultants.

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Nine Months Ended September 30, 2023 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ Nine Months Ended September 30, 2022 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ ​ Dollar Change | ​ ​ ​ ​ ​ ​ ​ % Increase ​ ​ (Decrease) ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling and Marketing | ​ | $7,881,612 | 71% | $5,895,332 | 66% | $1,986,280 | 34% |

Selling and marketing expenses for the nine months ended September 30, 2023, increased by $1,986,280 or 34%, compared to the comparable period in 2022. This increase was largely due to a $1,538,095 increase in salary and benefits related expenses driven by headcount increases; an increase of $294,957 in advertising and tradeshow expenses; and an increase of $291,835 in travel related expenses; partially offset by a decrease of $113,970 in website development and maintenance costs; and a decrease of $50,657 in sales commissions, mostly attributable to a reduction in commissions paid to TDG for defense related engineering services under terms of an agreement, which expired on June 15, 2022.

*General and Administrative.* General and administrative expenses include professional fees, investor relations (IR) costs, salaries and related non-cash stock-based compensation, travel costs, office and rental costs.

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Nine Months Ended September 30, 2023 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ Nine Months Ended September 30, 2022 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ ​ Dollar Change | ​ ​ ​ ​ ​ ​ ​ % Increase ​ ​ (Decrease) ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| General and Administrative | ​ | $13,858,996 | 125% | $15,307,242 | 171% | $(1,448,246) | (9)% |

General and administrative expenses for the nine months ended September 30, 2023, decreased by $1,448,246 or 9%, compared to the comparable period in 2022. This decrease was largely due to a decrease of $1,675,545 in salary and benefits related expenses, which was primarily driven by a decrease in non-cash stock-based compensation; a decrease of $148,717 in external audit, accounting, advisory and tax services expenses; and a $111,383 decrease in legal expenses; partially offset by an increase of $251,446 in various consulting fees; an increase of $167,539 in insurance premiums; an increase of $103,194 in shareholder and IR related expenses; and an increase of $93,663 in travel related expenses.

*Depreciation and Amortization.* Depreciation and amortization expense, not included in cost of sales, for the nine months ended September 30, 2023, was $2,896,840, compared to $1,149,046 in the comparable period in 2022, an increase of $1,747,794. The increase in this expense is primarily due to the amortization of our technology license related to the Atomistic Agreements, which began on May 12, 2022.

*Other Income, Net*. Total other income was $1,618,870 for the nine months ended September 30, 2023, compared to other income of $375,603 in the comparable period in 2022, an increase of $1,243,267. The overall increase in other income was primarily the result of an increase of $1,134,745 in investment income due to higher interest rates earned on excess cash invested; and a decrease in foreign exchange losses of $154,725; partially offset by an increase of $46,203 in income and other taxes.

*Provision for Income Taxes.* There was not a provision for income taxes in the respective nine-month periods ending September 30, 2023, and 2022.

### Liquidity and Capital Resources

Capital Resources: As of September 30, 2023, we had cash and cash equivalents of $38,049,037, a decrease of $34,514,906 from $72,563,943 as of December 31, 2022.

As of September 30, 2023, we had current assets of $59,610,255 compared to current liabilities of $5,144,189 which resulted in a positive working capital position of $54,466,066. As of December 31, 2022, we had a working capital position of $75,963,883. Our current liabilities are comprised principally of accounts payable, accrued expenses, licensing fee commitments, and operating lease right-of-use liabilities.

Summary of Cash Flow:

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

| ​ ​ Net Cash Provided by (used in) | ​ | September 30, 2023 ​ | ​ ​ | ​ September 30, 2022 |
| --- | --- | ---: | --- | ---: |
| Operating Activities | ​ | $(20,133,643) | ​ | $ (17,935,375) |
| Investing Activities | ​ | (13,931,702) | ​ | (11,691,543) |
| Financing Activities | ​ | (449,561) | ​ | (202,552) |

During the nine months ended September 30, 2023, we used $20,133,643 of cash for operating activities. Net changes in working capital items were $3,810,043 for the nine months ended September 30, 2023, with the largest factors resulting from a $3,094,404 increase in trade accounts receivable and accrued revenue in excess of billings, partially offset by receipt of $466,705 for our Employee Retention Credit, which was filed with the IRS in November 2022; a $141,450 decrease in inventory and vendor prepayments; and a $190,744 decrease in trade accounts payable and accrued expenses. For the nine months ended September 30, 2022, we used a total of $17,935,375 in cash for operating activities.

During the nine months ended September 30, 2023, we used $13,931,702 of cash for investing activities, which included $9,500,000 in payments made towards our technology license fee commitment with Atomistic, as discussed in Note 6, $3,608,801 for purchases of manufacturing equipment and leasehold improvement expenditures primarily related to our waveguide expansion project; $497,901 in patent and trademark expenditures; a further investment of $125,000 in the purchase of software operating license upgrades for our smart glasses platform; and an additional $200,000 of investments in private corporations as discussed in Note 7. For the nine months ended September 30, 2022, we used a total of $11,691,543 in cash for investing activities.

During the nine months ending September 30, 2023, we used $449,561 in net cash for financing activities, which included $21,196 received for stock option exercises, which was offset by $470,757 expended for share repurchases under our Share Buyback Program that expired on March 2, 2023. For the nine months ended September 30, 2022, we used $202,552 in net cash for financing activities.

As of September 30, 2023, the Company does not have any current or long-term debt obligations outstanding other than licensing fee commitments totaling $2,000,000, which are all current.

The Company’s cash requirements are primarily for funding operating losses, working capital, research and development, capital expenditures, and licensing fee commitments. We incurred a net loss for the nine months ended September 30, 2023, of $30,268,511 (of which $9,797,274 was related to non-cash stock-based compensation) and for the years ended December 31, 2022, and 2021 of $40,763,573 (of which $15,775,553 was related to non-cash stock-based compensation) and $40,377,160 (of which $17,302,833 was related to non-cash stock-based compensation), respectively. The Company has an accumulated deficit of $274,104,227 as of September 30, 2023.

Our operations have historically been financed primarily through net proceeds from the sale of our equity securities. As of September 30, 2023, our principal sources of liquidity consisted of cash and cash equivalents of $38,049,037.

### Forward Looking Statements

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

- trends in our operating expenses, including personnel costs, research and development expense, sales and marketing expense, and general and administrative expense;
- the effect of competitors and competition in our markets;
- our wearable smart glasses products and their market acceptance and future potential;
- our ability to develop, timely introduce, and effectively manage the introduction of new products and services or improve our existing products and services;
- expected technological advances by us or by third parties and our ability to leverage them;
- our ability to attract and retain customers;
- our ability to accurately forecast consumer demand and adequately manage our inventory;
- our ability to deliver an adequate supply of product to meet demand;
- our ability to maintain and promote our brand and expand brand awareness;
- our ability to detect, prevent, or fix defects in our products;
- our reliance on third-party suppliers, contract manufacturers and logistics providers and our limited control over such parties;
- trends in revenue, costs of revenue, and gross margin and our possible or assumed future results of operations;
- our ability to attract and retain highly skilled employees;
- the impact of foreign currency exchange rates;
- the effect of future regulations;
- the sufficiency of our existing cash and cash equivalent balances and cash flow from operations to meet our working capital and capital expenditure needs for at least the next twelve (12) months; and
- general market, political, economic, business and public health conditions.

All statements in this quarterly report that are not historical facts are forward-looking statements. We may, in some cases, use terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions that convey uncertainty of future events or outcomes to identify forward-looking statements.

All such forward-looking statements are subject to certain risks and uncertainties and should be evaluated in light of important risk factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risk factors include, but are not limited to, those described in “Risk Factors” in this report and under Item 1A and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022, and other filings we make with the Securities and Exchange Commission and the following: business and economic conditions, rapid technological changes accompanied by frequent new product introductions, competitive pressures, dependence on key customers, inability to gauge order flows from customers, fluctuations in quarterly and annual results, the reliance on a limited number of third-party suppliers, limitations of our manufacturing capacity and arrangements, the protection of our proprietary technology, the dependence on key personnel, changes in critical accounting estimates, potential impairments related to investments, foreign regulations, liquidity issues, and potential material weaknesses in internal control over financial reporting. Further, during weak or uncertain economic periods, customers may delay the placement of their orders. These factors often result in a substantial portion of our revenue being derived from orders placed within a quarter and shipped in the final month of the same quarter.

We caution readers to carefully consider such factors. Many of these factors are beyond our control. In addition, any forward-looking statements represent our estimates only as of the date they are made and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, except as may be required under applicable securities laws, we specifically disclaim any obligation to do so.

## Market risk

As filed, 930 characters.

We invest our excess cash in high-quality short-term corporate debt instruments, which bear lower levels of relative risk. We believe that the effect, if any, of possible near-term changes in interest rates on our financial position, results of operations, and cash flows should not be material to our cash flows or income. It is possible that interest rate movements would increase our unrealized gain or loss on interest rate securities purchased at a discount. We are exposed to changes in foreign currency exchange rates primarily through transaction gains and losses as a result of non-U.S. dollar denominated cash flows related to business activities in Japan and Europe. We do not currently hedge our foreign currency exchange rate risk. We estimate that any market risk associated with our international operations is unlikely to have a material adverse effect on our business, financial condition or results of operation.

## Controls and procedures

As filed, 1,503 characters.

Evaluation of Disclosure Controls and Procedures

Management, with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has performed an evaluation of the effectiveness of our disclosure controls and procedures that are defined in Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. This evaluation included consideration of the controls, processes, and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is properly recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective at September 30, 2023.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as defined in 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 405 characters.

In addition to the other information set forth in this report you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes from those risk factors. The risks discussed in our 2022 Annual Report could materially affect our business, financial condition and future results.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-018554. Last ingested by Listed: Oct 24, 2026, 15:08 ET. No prices; not investment advice.