# Vuzix Corp: Form 10-Q for the period ended Mar 31, 2024

- Company: [Vuzix Corp](/companies/vuzi.md) (CIK 1463972)
- Form: 10-Q
- Filed: 2024-05-09
- Accepted by EDGAR: May 9, 2024, 16:01 ET
- Period: 2024-03-31
- Accession: 0001558370-24-007591
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1463972/000155837024007591/vuzi-20240331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1463972/000155837024007591/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $2.0m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $2.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | −$53.3k | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $2.7m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$10.1m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$10.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.16 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.16 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 64,725,108 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$8.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $101.2k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $16.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $32.7m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $77.0m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $3.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $3.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $73.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,685 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, 2023.*

*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;
- Going Concern;
- 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, 2023. There have been no significant changes in our accounting policies for the three months ended March 31, 2024.

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

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

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 March 31, 2024 and 2023

The following table compares the Company’s consolidated statements of operations data for the three months ended March 31, 2024 and 2023:

| ​ ​ ​ ​ ​ Sales: | ​ ​ ​ ​ | ​ ​ ​ Three Months Ended March 31, ​ ​ 2024 ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ 2023 ​ ​ ​ ​ ​ | ​ ​ Dollar Change ​ ​ ​ | ​ ​ ​ % Increase ​ (Decrease) ​ ​ ​ ​ |
| --- | --- | ---: | --- | --- | ---: |
| Sales of Products | ​ | $1,829,073 | $4,191,361 | $(2,362,288) | (56)% |
| Sales of Engineering Services | ​ | 174,794 | ​ — | ​ 174,794 | NM ​ |
| ​ | ​ |  | ​ | ​ | ​ |
| **Total Sales** | ​ | 2,003,867 | ​ 4,191,361 | ​ (2,187,494) | (52)% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Cost of Sales:** | ​ |  | ​ | ​ | ​ |
| Cost of Sales - Products | ​ | 1,807,593 | ​ 3,082,439 | ​ (1,274,846) | (41)% |
| Cost of Sales - Depreciation and Amortization | ​ | 181,566 | ​ 232,916 | ​ (51,350) | (22)% |
| Cost of Sales - Engineering Services | ​ | 67,961 | ​ — | ​ 67,961 | NM ​ |
| ​ | ​ |  | ​ | ​ | ​ |
| **Total Cost of Sales** | ​ | 2,057,120 | ​ 3,315,355 | ​ (1,258,235) | (38)% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Gross Profit (Loss)** | ​ | (53,253) | ​ 876,006 | ​ (929,259) | (106)% |
| Gross Profit (Loss)% | ​ | (3)% | ​ 21% | ​ | ​ |
| ​ | ​ |  | ​ | ​ | ​ |
| **Operating Expenses:** | ​ |  | ​ | ​ | ​ |
| Research and Development | ​ | 2,738,449 | ​ 3,069,797 | ​ (331,348) | (11)% |
| Selling and Marketing | ​ | 2,220,782 | ​ 2,539,659 | ​ (318,877) | (13)% |
| General and Administrative | ​ | 4,098,257 | ​ 5,131,824 | ​ (1,033,567) | (20)% |
| Depreciation and Amortization | ​ | 970,377 | ​ 964,265 | ​ 6,112 | 1% |
| Loss on Fixed Asset Disposal | ​ | 11,277 | ​ — | ​ 11,277 | NM ​ |
| Impairment of Patents and Trademarks | ​ | — | ​ 17,666 | ​ (17,666) | (100)% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Loss from Operations** | ​ | (10,092,395) | ​ (10,847,205) | ​ 754,810 | (7)% |
| ​ | ​ |  | ​ | ​ | ​ ​ |
| **Other Income (Expense):** | ​ |  | ​ | ​ | ​ |
| Investment Income | ​ | 152,599 | ​ 695,783 | ​ (543,184) | (78)% |
| Income and Other Taxes | ​ | (282) | ​ (87,795) | ​ 87,513 | (100)% |
| Foreign Exchange Loss | ​ | (107,504) | ​ (1,366) | ​ (106,138) | 7,770% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Total Other Income, Net** | ​ | 44,813 | ​ 606,622 | ​ (561,809) | (93)% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Loss Before Provision for Income Taxes** | ​ | (10,047,582) | ​ (10,240,583) | ​ 193,001 | (2)% |
| Provision for Income Taxes | ​ | — | ​ — | ​ — | —% |
| ​ | ​ |  | ​ | ​ | ​ |
| **Net Loss** | ​ | $(10,047,582) ​ | $(10,240,583) ​ | $193,001 | (2)% |

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

| ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ ​ ​ % of ​ Total Sales ​ | ​ ​ Three Months Ended March 31, 2023 | ​ ​ ​ % of ​ Total Sales ​ | ​ ​ Dollar Change | ​ ​ ​ % Increase ​ (Decrease) ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales of Products | ​ | $1,829,073 | 91% | $4,191,361 | 100% | $(2,362,288) | (56)% |
| Sales of Engineering Services | ​ | 174,794 | 9% | — | 0% | 174,794 | NM ​ |
| Total Sales | ​ | $2,003,867 | 100% | $4,191,361 | 100% | $(2,187,494) | (52)% |

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

Sales of engineering services for the three months ended March 31, 2024, was $174,794, compared to nil in the comparable 2023 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 March 31, 2024 | ​ ​ | ​ ​ As % Related Total Sales ​ | ​ ​ Three Months Ended March 31, 2023 | ​ ​ | ​ ​ As % Related Total Sales ​ | ​ ​ Dollar Change | ​ ​ | ​ ​ % Increase ​ (Decrease) ​ |
| --- | --- | --- | --- | ---: | --- | --- | ---: | --- | --- | ---: |
| Product Cost of Sales | ​ | $1,317,345 | ​ | 66% | $2,546,951 | ​ | 61% | $(1,229,606) | ​ | (48)% |
| Manufacturing Overhead - Unapplied |  | ​ 490,248 |  | 25% | ​ 535,488 |  | 13% | ​ (45,240) |  | (8)% |
| Depreciation and Amortization | ​ | ​ 181,566 | ​ | 9% | ​ 232,916 | ​ | 6% | ​ (51,350) | ​ | (22)% |
| Engineering Services Costs Sales |  | ​ 67,961 |  | 3% | ​ — |  | —% | ​ 67,961 |  | NM ​ |
| ​ |  | ​ |  |  | ​ |  |  | ​ |  | ​ |
| **Total Cost of Sales** | ​ | $2,057,120 |  | 103% | $3,315,355 |  | 79% | $(1,258,235) |  | (38)% |
| ​ | ​ |  |  | ​ |  |  | ​ |  |  | ​ |
| **Gross Profit (Loss)** | ​ | $(53,253) |  | (3)% | $876,006 |  | 21% | $(929,259) |  | (106)% |

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

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

*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 March 31, 2024 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ Three Months Ended March 31, 2023 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ ​ Dollar Change | ​ ​ ​ ​ ​ ​ ​ % Increase ​ ​ (Decrease) ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and Development | ​ | $2,738,449 | 137% | $3,069,797 | 73% | $(331,348) | (11)% |

Research and development expenses for the three months ended March 31, 2024 decreased by $331,348 or 11%, compared to the comparable period in 2023. This decrease was largely due to a $281,116 decrease in salary and benefits related expenses and a $58,595 reduction in external development 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 March 31, 2024 | ​ ​ ​ | ​ ​ ​ ​ % of ​ Total Sales ​ | ​ ​ ​ Three Months Ended March 31, 2023 | ​ ​ ​ | ​ ​ ​ ​ % of ​ Total Sales ​ | ​ ​ ​ ​ Dollar Change | ​ ​ ​ | ​ ​ ​ ​ % Increase ​ (Decrease) ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Selling and Marketing | ​ | $2,220,782 | ​ | 111% | $2,539,659 | ​ | 61% | $(318,877) | ​ | (13)% |

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

*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 March 31, 2024 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ Three Months Ended March 31, 2023 | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Total Sales ​ | ​ ​ ​ ​ Dollar Change | ​ ​ ​ ​ ​ ​ ​ % Increase ​ ​ (Decrease) ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| General and Administrative | ​ | $4,098,257 | 205% | $5,131,824 | 122% | $(1,033,567) | (20)% |

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

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

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

*Provision for Income Taxes.* There was not a provision for income taxes in the respective three-month periods ending March 31, 2024, and 2023.

### Liquidity and Capital Resources

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

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

Summary of Cash Flows:

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

| ​ ​ Net Cash Provided by (used in) | ​ | March 31, 2024 ​ | ​ ​ | ​ March 31, 2023 |
| --- | --- | ---: | --- | ---: |
| Operating Activities | ​ | $(8,805,138) | ​ | $ (4,164,727) |
| Investing Activities | ​ | (1,249,053) | ​ | (4,692,596) |
| Financing Activities | ​ | - | ​ | (470,757) |

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

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

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

In connection with the Atomistic Technology License discussed in Note 6 and as of the date of this 10-Q report, the Company is in active negotiations with Atomistic for an extension of our exclusive license to its technology, which currently expires on June 30, 2024. There can be no assurance a definitive agreement will be reached.

The Company’s cash requirements are primarily for funding operating losses, working capital, research and development, capital expenditures, and license fee commitments. Our operations have historically been financed primarily through net proceeds from the sale of our equity securities. The Company incurred net losses for the three months ended March 31, 2024 of $10,047,582; $50,149,077 for the year ended December 31, 2023; and $40,763,573 for the year ended December 31, 2022. The Company had net cash outflows from operations of $8,805,138 for the three months ended March 31, 2024; $26,277,824 for the year ended December 31, 2023; and $24,521,082 for the year ended December 31, 2022, respectively. As of March 31, 2024 the Company had an accumulated deficit of $304,032,375. The Company’s cash outflows for investing activities were $1,249,053 for the three months ended March 31, 2024; $19,280,966 for the year ended December 31, 2023; and $21,170,816 for the year ended December 31, 2022.

As of March 31, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $16,501,401.

The factors above raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s management intends to take actions necessary to continue as a going concern, as discussed below. The Company will need to grow its business significantly to become profitable and self-sustaining on a cash flow basis or it will be required to raise new equity and/or debt capital. Management’s plans concerning these matters and managing our liquidity include, among other things:

- Reductions in our cash annual operating expenses by approximately $8,000,000 for 2024 across all operating areas, representing a reduction of at least 20% as compared to 2023 levels, including the areas of Research and Development, Sales and Marketing and General and Administrative;
- Implementation of a voluntary Company-wide payroll reduction program for all individuals with optional salary reductions of 10% to 50% depending upon the respective base salary level for the period running from May 1, 2024 to April 30, 2025. The expected cash savings will be approximately $1,600,000 and will result in the issuance of stock awards or stock options, at a rate of 150% or 200%, respectively, of the net cash wage reductions;
- Further reductions of the rate of research and development spending on new technologies, particularly the use of external contractors.
- We do not intend to increase our levels of investing activities for our 2024 fiscal year as compared to 2023, now that our waveguide plant expansion has been completed and the license fees payments under the Atomistic License have been substantially made;
- Right-sizing of operations across all areas of the Company, including head-count hiring freezes or head-count reductions;
- The expected margin contribution upon the commencement of volume manufacturing and sales of waveguides from our new waveguide plant in 2024, particularly to OEM customers;
- Continued pursuit of licensing and strategic opportunities around our waveguide technologies with potential OEMs, which would include the receipt of upfront licensing fees and on-going supply agreements;
- Delayed or curtailed discretionary and non-essential capital expenditures not related to near-term new products;
- Reduction in the rate of new product introductions and further leveraging of existing platforms to reduce new product development and engineering costs;

The Company has in the past sold equity securities and in early 2024 entered into a sales agreement with an investment banking firm for the issuance and sale of up to $50,000,000 of our common stock that may be issued and sold from time to time in an “at the market” offering. Management monitors the capital markets on an ongoing basis and may consider raising capital if favorable market conditions develop. If the Company’s actual results are less than projected or the Company needs to raise capital for additional liquidity, the Company may be required to pursue additional equity financings, further curtail expenses, or enter into one or more strategic transactions. However, management can make no assurance that the Company will be able to successfully complete any of the forementioned pursuits on terms acceptable to the Company, or at all.

### 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 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, 2023, and other filings we make with the Securities and Exchange Commission and the following: business and economic conditions, rapid technological changes accompanied by frequent new product introductions, competitive pressures, dependence on key customers, inability to gauge order flows from customers, fluctuations in quarterly and annual results, the reliance on a limited number of third-party suppliers, limitations of our manufacturing capacity and arrangements, the protection of our proprietary technology, the dependence on key personnel, changes in critical accounting estimates, potential impairments related to investments, foreign regulations, liquidity issues, and potential material weaknesses in internal control over financial reporting. Further, during weak or uncertain economic periods, customers may delay the placement of their orders. These factors often result in a substantial portion of our revenue being derived from orders placed within a quarter and shipped in the final month of the same quarter.

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, 1,629 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 ineffective at March 31, 2024 due to the material weakness disclosed in the Company’s Form 10-K for the year ending December 31, 2023 filed on April 15, 2024.

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, 2023. There have been no material changes from those risk factors. The risks discussed in our 2023 Annual Report could materially affect our business, financial condition and future results.

Filed May 9, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-007591. Last ingested by Listed: Oct 24, 2026, 15:08 ET. No prices; not investment advice.