Basis of Presentation

9 Months Ended

Sep. 30, 2022

Basis of Presentation

Basis of Presentation

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements of Vuzix Corporation (“the Company” or “Vuzix”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, the unaudited consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Certain re-classifications may have been made to prior periods to conform with current reporting impacting Costs of Sales, Gross Profit and Depreciation and Amortization. The results of the Company’s operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results of the Company’s operations for the full fiscal year or any other period.

The accompanying interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto of the Company as of and for the year ended December 31, 2021, as reported in the Company’s Annual Report on Form 10-K/A filed with the SEC on October 25, 2022.

Restatement

As described in additional detail in Note 2 to the financial statements included in its 2021 Form 10-K/A, the Company restated its previous unaudited quarterly results in the Form 10-K for the year ended December 31, 2021. Previously filed 2021 quarterly reports on Form 10-Q for the periods affected by the restatement were not amended and should no longer be relied upon. See Note 2, Restatement of Previously Issued 2021 Unaudited Quarterly Financial Statements and Note 20, Quarterly Financial Information (Unaudited) of the Notes to the consolidated financial statements in the 2021 Form 10-K/A for the impact of these adjustments on each of the quarterly periods in fiscal year 2021.

The impact of the restatement on the unaudited quarterly financial statements is presented below.

The impact of the restatement to the Consolidated Balance Sheet:

	September 30, 2021 (Unaudited)
	As Previously
Balance Sheet	Reported		Adjustment		As Restated
Additional paid-in capital	$	337,125,126	$	5,519,504	$	342,644,630
Accumulated deficit	$	(186,059,869)	$	(5,519,504)	$	(191,579,373)

The impact of the restatement to the Consolidated Statements of Operation:

	For the Three Months Ended September 30, 2021 (Unaudited)						For the Nine Months Ended September 30, 2021 (Unaudited)
	As Previously						As Previously
Condensed Statement of Operations	Reported		Adjustment		As Restated		Reported		Adjustment		As Restated
Total Sales	$	3,018,774	$	—	$	3,018,774	$	9,850,702	$	—	$	9,850,702
Total Cost of Sales		2,435,437		—		2,435,437		7,608,401		—		7,608,401
Gross Profit		583,337		—		583,337		2,242,301		—		2,242,301
Operating Expenses:
Research and Development		3,270,255		126,863		3,397,118		8,050,915		275,516		8,326,431
Selling and Marketing		1,589,582		63,431		1,653,013		4,167,874		137,758		4,305,632
General and Administrative		3,112,059		2,351,188		5,463,247		11,565,816		5,106,230		16,672,046
Depreciation and Amortization		434,277		—		434,277		1,453,367		—		1,453,367
Loss on Fixed Asset Disposal		—		—		—		83,908		—		83,908
Impairment of Patents and Trademarks		7,544		—		7,544		66,040		—		66,040
Total Operating Expenses		8,413,717		2,541,482		10,955,199		25,387,920		5,519,504		30,907,424
Loss From Operations		(7,830,380)		(2,541,482)		(10,371,862)		(23,145,619)		(5,519,504)		(28,665,123)
Total Other Expense, Net		(115,686)		—		(115,686)		(219,267)		—		(219,267)
Net Loss	$	(7,946,066)	$	(2,541,482)	$	(10,487,548)	$	(23,364,886)	$	(5,519,504)	$	(28,884,390)
Basic and Diluted Loss per Common Share	$	(0.13)	$	(0.04)	$	(0.17)	$	(0.39)	$	(0.10)	$	(0.48)

The impact of the restatement to the Statement of Changes in Stockholders’ Equity:

	For the Nine Months Ended September 30, 2021 (Unaudited)
	As Previously
Condensed Statement of Changes in Stockholders' Equity	Reported		Adjustment		As Restated
Stock-Based Compensation Expense	$	8,858,814	$	5,519,504	$	14,378,318
Additional Paid-In Capital		337,125,126		5,519,504		342,644,630
Net Loss		(23,364,886)		(5,519,504)		(28,884,390)
Accumulated Deficit	$	(186,059,869)	$	(5,519,504)	$	(191,579,373)

The impact of the restatement to the Statement of Cash Flows:

	For the Nine Months Ended September 30, 2021 (Unaudited)
	As Previously
Condensed Statement of Cash Flows	Reported		Adjustment		As Restated
Net Loss	$	(23,364,886)	$	(5,519,504)	$	(28,884,390)
Stock-Based Compensation		7,311,278		5,519,504		12,830,782
Net Cash Flows Used in Operating Activities	$	(18,909,428)	$	—	$	(18,909,428)

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year’s presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Consolidated Statements of Operations for the three and nine months ended September 30, 2021, to reclassify depreciation expense related to our manufacturing operations from the amounts of reported depreciation and amortization expenses originally included in Operating Expenses. This change in classification does not affect previously reported Net Loss or reported Cash Flows Used in Operating Activities in the Consolidated Statements of Cash Flows or Consolidated Balance Sheets. The below table is a summary of the impact to these reclassifications:

	For the Three Months Ended September 30, 2021 (Unaudited)						For the Nine Months Ended September 30, 2021 (Unaudited)
Condensed Statement of Operations	As Restated		Reclassification		Revised		As Restated		Reclassification		Revised
Total Sales	$	3,018,774	$	—	$	3,018,774	$	9,850,702	$	—	$	9,850,702
Total Cost of Sales		2,435,437		187,375		2,622,812		7,608,401		722,332		8,330,733
Gross Profit		583,337		(187,375)		395,962		2,242,301		(722,332)		1,519,969
Operating Expenses:				—
Research and Development		3,397,118		—		3,397,118		8,326,431		—		8,326,431
Selling and Marketing		1,653,013		—		1,653,013		4,305,632		—		4,305,632
General and Administrative		5,463,247		—		5,463,247		16,672,046		—		16,672,046
Depreciation and Amortization		434,277		(187,375)		246,902		1,453,367		(722,332)		731,035
Loss on Fixed Asset Disposal		—		—		—		83,908		—		83,908
Impairment of Patents and Trademarks		7,544		—		7,544		66,040		—		66,040
Total Operating Expenses		10,955,199		(187,375)		10,767,824		30,907,424		(722,332)		30,185,092
Loss From Operations		(10,371,862)		—		(10,371,862)		(28,665,123)		—		(28,665,123)
Total Other Expense, Net		(115,686)		—		(115,686)		(219,267)		—		(219,267)
Net Loss	$	(10,487,548)	$	—	$	(10,487,548)	$	(28,884,390)	$	—	$	(28,884,390)

Customer Concentrations

For the three months ended September 30, 2022, one customer represented 21% of total product revenue and two customers represented 100% of engineering services revenue. For the three months ended September 30, 2021, two customers represented 12% and 10% of total product revenue.

For the nine months ended September 30, 2022, one customer represented 20% of total product revenue and two customers represented 100% of engineering services revenue. For the nine months ended September 30, 2021, no one customer represented more than 10% of total product revenue and two customers represented 100% of engineering services revenue.

As of September 30, 2022, three customers represented 30%, 13% and 11% of accounts receivable, respectively. As of December 31, 2021, three customers represented 27%, 20% and 10% of accounts receivable, respectively.

Treasury Stock

Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains and losses on the subsequent re-issuance of shares will be credited or charged to paid-in capital in excess of par value using the average-cost method.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). ASU 2016-13 provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to, accounts receivable. ASU 2016-13 will become effective for the Company on January 1, 2023 and

early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.