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, 2025. 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, 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; ● Evaluation of liabilities to equity and derivatives; 20 Table of Contents ● Investments in equity securities; ● Carrying value of long-lived assets, goodwill and other intangible 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, 2025. There have been no significant changes in our accounting policies for the three months ended June 30, 2026. 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, AI powered Smart Glasses, Waveguides, and Augmented Reality (AR) technologies. 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 microdisplay 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 AI/AR products, we are focused on the enterprise, defense, medical, security, and select consumer applications. 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 AI/AR and Smart Glasses products, waveguide optics, microLEDs, and display engine technology. Recent Accounting Pronouncements See Note 1 to the Unaudited Consolidated Financial Statements. 21 Table of Contents ​ ​ Results of Operations Comparison of Three Months Ended June 30, 2026 and 2025 The following table compares the Company’s consolidated statements of operations data for the three months ended June 30, 2026 and 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dollar ​ ​ ​ % Increase ​ ​ 2026 ​ 2025 ​ Change ​ (Decrease) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ Sales of Products ​ $ 884,296 $ 1,045,310 $ (161,014) (15) % Sales of Engineering Services ​ 229,202 ​ 250,399 ​ (21,197) (8) % ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Sales ​ 1,113,498 ​ 1,295,709 ​ (182,211) (14) % ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of Sales: ​ ​ ​ ​ ​ ​ ​ ​ Cost of Sales - Products ​ 1,488,456 ​ 1,617,346 ​ (128,890) (8) % Cost of Sales - Depreciation and Amortization ​ 73,579 ​ 167,349 ​ (93,770) (56) % Cost of Sales - Engineering Services ​ 196,874 ​ 272,384 ​ (75,510) (28) % ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Cost of Sales ​ 1,758,909 ​ 2,057,079 ​ (298,170) (14) % ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Loss ​ (645,411) ​ (761,370) ​ 115,959 (15) % Gross Loss% ​ (58) % ​ (59) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Expenses: ​ ​ ​ ​ ​ ​ ​ ​ Research and Development ​ 3,097,875 ​ 2,570,873 ​ 527,002 20 % Selling and Marketing ​ 1,209,944 ​ 1,352,990 ​ (143,046) (11) % General and Administrative ​ 2,682,330 ​ 2,756,588 ​ (74,258) (3) % Depreciation and Amortization ​ 118,245 ​ 413,483 ​ (295,238) (71) % ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss from Operations ​ (7,753,805) ​ (7,855,304) ​ 101,499 (1) % ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Income (Expense): ​ ​ ​ ​ ​ ​ ​ ​ Investment Income ​ 157,765 ​ 135,759 ​ 22,006 16 % Other Taxes ​ (20,332) ​ 40,772 ​ (61,104) (150) % Foreign Exchange Gain (Loss) ​ (12,323) ​ 12,519 ​ (24,842) (198) % ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Other Income, Net ​ 125,110 ​ 189,050 ​ (63,940) (34) % ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Loss ​ $ (7,628,695) ​ $ (7,666,254) ​ $ 37,559 (0) % 22 Table of Contents ​ ​ ​ ​ ​ Sales. There was a decrease in total sales for the three months ended June 30, 2026, compared to the same period in 2025 of $182,211, or 14%. The following table reflects the major components of our sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ % of ​ ​ ​ Three Months Ended ​ ​ ​ % of ​ ​ ​ Dollar ​ ​ ​ % Increase ​ ​ June 30, 2026 ​ Total Sales ​ June 30, 2025 ​ Total Sales ​ Change ​ (Decrease) ​ Sales of Products ​ $ 884,296 79 % $ 1,045,310 81 % $ (161,014) (15) % Sales of Engineering Services ​ 229,202 21 % 250,399 19 % (21,197) (8) % Total Sales ​ $ 1,113,498 100 % $ 1,295,709 100 % $ (182,211) (14) % ​ Sales of products decreased by 15%, or $161,014 for the three months ended June 30, 2026, compared to the same period in 2025, from $1,045,310 to $884,296. Reduced smart glasses revenue was the primary driver of this decrease as unit sales of our M400 product decreased, along with the unit sales of our products that were discontinued in 2026, compared to the previous year’s comparable period. ​ Sales of engineering services and OEM products for the three months ended June 30, 2026, were $229,202 compared to $250,399 in the comparable 2025 period, a decrease of 8%. Cost of Sales and Gross 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 sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ % of ​ ​ ​ Three Months Ended ​ ​ ​ % of ​ ​ ​ Dollar ​ ​ ​ % Increase ​ ​ ​ June 30, 2026 ​ Total Sales ​ June 30, 2025 ​ Total Sales ​ Change ​ (Decrease) ​ Product Cost of Sales ​ $ 632,108 ​ 57 % $ 844,111 ​ 65 % $ (212,003) ​ (25) % Inventory Reserve for Obsolescence ​ 287,285 26 % ​ 265,000 20 % ​ 22,285 8 % Manufacturing Overhead - Unapplied ​ 569,063 51 % ​ 508,235 39 % ​ 60,828 12 % Depreciation and Amortization ​ ​ 73,579 ​ 7 % ​ 167,349 ​ 13 % ​ (93,770) ​ (56) % Engineering Services Cost of Sales ​ 196,874 18 % ​ 272,384 21 % ​ (75,510) (28) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Cost of Sales ​ $ 1,758,909 158 % $ 2,057,079 159 % $ (298,170) (14) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Loss ​ $ (645,411) (58) % $ (761,370) (59) % $ 115,959 (15) % ​ For the three months ended June 30, 2026, there was a gross loss from total sales of $645,411, or 58%, compared to a gross loss of $761,370, or 59%, in the comparable period in 2025. Unapplied manufacturing overhead costs, not already added into product cost of sales, increased by $60,828, or 12%, for the three months ended June 30, 2026 compared to the 2025 comparable period. As a percentage of total sales, such costs increased to 51% compared to 39% in 2025 due to lower product revenue and lower production levels of new product, as the Company has sufficient finished goods on hand to meet currently expected demand for current Smart Glasses models for the foreseeable future. ​ Depreciation and amortization included in cost of sales decreased by $93,770, or 56%, for the three months ended June 30, 2026 versus the comparable period 2025. This decrease was due to certain leasehold improvements becoming fully depreciated in November 2025. ​ 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 23 Table of Contents 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 ​ % of ​ Three Months Ended ​ % of ​ Dollar ​ % Increase ​ ​ ​ ​ ​ June 30, 2026 ​ ​ ​ Total Sales ​ ​ ​ June 30, 2025 ​ ​ ​ Total Sales ​ ​ ​ Change ​ ​ ​ (Decrease) ​ Research and Development Expenses ​ $ 2,938,626 264% ​ $ 2,385,645 184% ​ $ 552,981 23 % Related Stock-based Compensation (non-cash) ​ ​ 159,249 14% ​ ​ 185,228 14% ​ ​ (25,979) (14) % Total Research and Development ​ $ 3,097,875 278% ​ $ 2,570,873 198% ​ $ 527,002 20 % ​ Total research and development expenses for the three months ended June 30, 2026 increased by $527,002, or 20%, compared to the comparable period in 2025. This increase was largely due to a $326,614 increase in external development costs for our new products; a $231,641 increase in cash salary and benefits related expenses due to headcount increases; a $98,880 increase in depreciation related to under-utilized new manufacturing equipment still being used primarily for R&D purposes; and a $41,964 increase in supplies expenses; partially offset by a $98,443 decrease in rent and utilities 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 ​ % of ​ Three Months Ended ​ % of ​ Dollar ​ % Increase ​ ​ ​ ​ ​ June 30, 2026 ​ ​ ​ Total Sales ​ ​ ​ June 30, 2025 ​ ​ ​ Total Sales ​ ​ ​ Change ​ ​ ​ (Decrease) ​ Selling and Marketing Expenses ​ $ 1,177,637 ​ 106% ​ $ 1,136,047 ​ 88% ​ $ 41,590 ​ 4 % Related Stock-based Compensation (non-cash) ​ ​ 32,307 ​ 3% ​ ​ 216,943 ​ 17% ​ ​ (184,636) ​ (85) % Total Selling and Marketing ​ $ 1,209,944 ​ 109% ​ $ 1,352,990 ​ 104% ​ $ (143,046) ​ (11) % ​ Total selling and marketing expenses for the three months ended June 30, 2026 decreased by $143,046, or 11%, compared to the comparable period in 2025. This decrease was due to a $184,636 decrease in non-cash stock-based compensation expense; partially offset by an increase of $26,621 in education and consulting related expenses and an increase of $15,193 in advertising and tradeshow expenses. General and Administrative. General and administrative expenses include professional fees, investor relations (IR) and shareholder related costs, salaries and related non-cash stock-based compensation, travel costs, and office and rental costs. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ % of ​ Three Months Ended ​ % of ​ Dollar ​ % Increase ​ ​ ​ ​ ​ June 30, 2026 ​ ​ ​ Total Sales ​ ​ ​ June 30, 2025 ​ ​ ​ Total Sales ​ ​ ​ Change ​ ​ ​ (Decrease) ​ General and Administrative Expenses ​ $ 2,252,882 202% ​ $ 2,664,669 206% ​ $ (411,787) (15) % Related Stock-based Compensation (non-cash) ​ ​ 429,448 39% ​ ​ 91,919 7% ​ ​ 337,529 367 % Total General and Administrative ​ $ 2,682,330 241% ​ $ 2,756,588 213% ​ $ (74,258) (3) % ​ Total general and administrative expenses for the three months ended June 30, decreased by $74,258, or 3%, compared to the comparable period in 2025. The decrease was largely due to a $501,264 decrease in IR and shareholder 24 Table of Contents related expenses; and a $41,707 decrease in consulting fees; offset by a $337,529 increase in non-cash stock-based compensation expenses related primarily to a $366,985 smaller reversal of previously recognized expense in 2026, as compared to the comparable period in 2025; a $226,669 increase in cash salary, benefits, and severance costs; and an $87,984 increase in recruiting and hiring expenses. ​ Depreciation and Amortization. Depreciation and amortization expense, not included in cost of sales or research and development expenses, for the three months ended June 30, 2026, was $118,245, compared to $413,483 in the comparable period in 2025, or a decrease of $295,238. This decrease was due to certain leasehold improvements becoming fully depreciated in November 2025. Other Income, Net. Total other income was $125,110 for the three months ended June 30, 2026, compared to other income of $189,050 in the comparable period in 2025, a decrease of $63,940. This decrease was due to an increase of $61,104 in other taxes; and an increase of $24,842 in foreign exchange losses; partially offset by an increase in investment income of $22,006. Provision for Income Taxes. There was no provision for income taxes in the respective three month periods ended June 30, 2026 and 2025. 25 Table of Contents ​ Comparison of Six Months Ended June 30, 2026 and 2025 The following table compares the Company’s consolidated statements of operations data for the six months ended June 30, 2026 and 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dollar ​ ​ ​ % Increase ​ ​ 2026 ​ 2025 ​ Change ​ (Decrease) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ Sales of Products ​ $ 1,926,674 ​ $ 2,369,383 ​ $ (442,709) (19) % Sales of Engineering Services ​ 578,139 ​ 507,267 ​ 70,872 14 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Sales ​ 2,504,813 ​ 2,876,650 ​ (371,837) (13) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of Sales: ​ ​ ​ ​ ​ ​ ​ ​ Cost of Sales - Products Sold ​ 2,960,628 ​ 3,228,076 ​ (267,448) (8) % Cost of Sales - Depreciation and Amortization ​ 156,320 ​ 344,218 ​ (187,898) (55) % Cost of Sales - Engineering Services ​ 411,196 ​ 330,844 ​ 80,352 24 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Cost of Sales ​ 3,528,144 ​ 3,903,138 ​ (374,994) (10) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Loss ​ (1,023,331) ​ (1,026,488) ​ 3,157 (0) % Gross Loss % ​ (41) % (36) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Expenses: ​ ​ ​ ​ ​ ​ ​ ​ Research and Development ​ 6,126,229 ​ 5,176,713 ​ 949,516 18 % Selling and Marketing ​ 2,760,810 ​ 2,890,456 ​ (129,646) (4) % General and Administrative ​ 4,816,272 ​ 6,717,572 ​ (1,901,300) (28) % Depreciation and Amortization ​ 233,262 ​ 818,494 ​ (585,232) (72) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss from Operations ​ (14,959,904) ​ (16,629,723) ​ 1,669,819 (10) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Income (Expense): ​ ​ ​ ​ ​ ​ ​ ​ Investment Income ​ 326,167 ​ 304,239 ​ 21,928 7 % Other Taxes ​ (36,458) ​ 22,371 ​ (58,829) (263) % Foreign Exchange Loss ​ (29,824) ​ (768) ​ (29,056) 3,783 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Other Income, Net ​ 259,885 ​ 325,842 ​ (65,957) (20) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Loss ​ $ (14,700,019) ​ $ (16,303,881) ​ $ 1,603,862 (10) % ​ Sales. There was a decrease in total sales for the six months ended June 30, 2026, compared to the same period in 2025 of $371,837, or 13%. The following table reflects the major components of our sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ % of ​ ​ ​ Six Months Ended ​ ​ ​ % of ​ ​ ​ Dollar ​ ​ ​ % Increase ​ ​ ​ June 30, 2026 ​ Total Sales ​ June 30, 2025 ​ Total Sales ​ Change ​ (Decrease) ​ Sales of Products ​ $ 1,926,674 77 % $ 2,369,383 82 % $ (442,709) (19) % Sales of Engineering Services ​ 578,139 23 % 507,267 18 % 70,872 14 % Total Sales ​ $ 2,504,813 100 % $ 2,876,650 100 % $ (371,837) (13) % ​ 26 Table of Contents Sales of products decreased by 19%, or $442,709, for the six months ended June 30, 2026, compared to the same period in 2025, from $2,369,383 to $1,926,674. Reduced smart glasses revenue was the primary driver of this decrease as unit sales of our M400 product decreased, along with the unit sales of our products that were discontinued in 2026, compared to the previous year’s comparable period. Sales of engineering services and OEM products for the six months ended June 30, 2026, were $578,139 compared to $507,267 in the comparable 2025 period, an increase of 14%. Cost of Sales and Gross 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 sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ % of ​ Six Months Ended ​ % of ​ Dollar ​ % Increase ​ ​ ​ ​ ​ June 30, 2026 ​ ​ ​ Total Sales ​ ​ ​ June 30, 2025 ​ ​ ​ Total Sales ​ ​ ​ Change ​ ​ ​ (Decrease) ​ Product Cost of Sales ​ $ 1,491,552 60 % $ 1,870,726 65 % $ (379,174) (20) % Inventory Reserve for Obsolescence ​ 287,285 11 % 265,000 9 % 22,285 8 % Manufacturing Overhead - Unapplied ​ 1,181,791 47 % 1,092,350 38 % 89,441 8 % Depreciation and Amortization ​ 156,320 6 % 344,218 12 % (187,898) (55) % Engineering Services Cost of Sales ​ 411,196 16 % 330,844 12 % 80,352 24 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Cost of Sales ​ ​ 3,528,144 141 % ​ 3,903,138 136 % ​ (374,994) (10) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Loss ​ $ (1,023,331) ​ (41) % $ (1,026,488) (36) % $ 3,157 (0) % ​ For the six months ended June 30, 2026, there was a gross loss from total sales of $1,023,331, or 41%, compared to a gross loss of $1,026,488, or 36%, in the comparable period in 2025. Unapplied manufacturing overhead costs, not already added into product cost of sales, increased by $89,441, or 8%, for the six months ended June 30, 2026 compared to the 2025 comparable period. As a percentage of total sales, such costs increased to 47%, compared to 38% in 2025, due to lower product revenue and lower production levels of new product, as the Company has sufficient finished goods on hand to meet currently expected demand for current Smart Glasses models for the foreseeable future. ​ Depreciation and amortization included in cost of sales decreased by $187,898, or 55%, for the six months ended June 30, 2026 versus the comparable period of 2025. This decrease was due to certain leasehold improvements becoming fully depreciated in November 2025. ​ 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ % of ​ Six Months Ended ​ % of ​ Dollar ​ % Increase ​ ​ ​ ​ ​ June 30, 2026 ​ ​ ​ Total Sales ​ ​ ​ June 30, 2025 ​ ​ ​ Total Sales ​ ​ ​ Change ​ ​ ​ (Decrease) ​ Research and Development Expenses ​ $ 5,844,485 233 % $ 4,639,403 161 % $ 1,205,082 26 % Related Stock-based Compensation (non-cash) ​ ​ 281,744 11 % ​ 537,310 19 % ​ (255,566) (48) % Total Research and Development Costs ​ $ 6,126,229 245 % $ 5,176,713 180 % $ 949,516 18 % ​ 27 Table of Contents Total research and development expenses for the six months ended June 30, 2026 increased by $949,516, or 18%, compared to the comparable period in 2025. This increase was largely due to a $665,344 increase in cash salary and benefits related expenses due to headcount increases; a $343,481 increase in depreciation related to under-utilized new manufacturing equipment still being used primarily for R&D purposes; and a $137,695 increase in external development costs for our new products; partially offset by a $255,566 decrease in non-cash stock-based compensation 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ % of ​ Six Months Ended ​ % of ​ Dollar ​ % Increase ​ ​ ​ ​ ​ June 30, 2026 ​ ​ ​ Total Sales ​ ​ ​ June 30, 2025 ​ ​ ​ Total Sales ​ ​ ​ Change ​ ​ ​ (Decrease) ​ Selling and Marketing Expenses ​ $ 2,659,828 106 % $ 2,306,634 80 % $ 353,194 15 % Related Stock-based Compensation (non-cash) ​ ​ 100,982 4 % ​ 583,822 20 % ​ (482,840) (83) % Total Selling and Marketing ​ $ 2,760,810 110 % $ 2,890,456 100 % $ (129,646) (4) % ​ Total selling and marketing expenses for the six months ended June 30, 2026 decreased by $129,646, or 4%, compared to the comparable period in 2025. This decrease was due to a $482,840 decrease in non-cash stock-based compensation expenses; partially offset by a $258,678 increase in cash salary and benefits-related expenses due to headcount increases; and a $32,926 increase in travel-related expenses. General and Administrative. General and administrative expenses include professional fees, IR costs, salaries and related non-cash stock-based compensation, travel costs, and office and rental costs. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ % of ​ Six Months Ended ​ % of ​ Dollar ​ % Increase ​ ​ ​ ​ ​ June 30, 2026 ​ ​ ​ Total Sales ​ ​ ​ June 30, 2025 ​ ​ ​ Total Sales ​ ​ ​ Change ​ ​ ​ (Decrease) ​ General and Administrative Expenses ​ $ 3,982,724 159 % $ 4,265,067 148 % $ (282,343) (7) % Related Stock-based Compensation (non-cash) ​ ​ 833,548 33 % ​ 2,452,505 85 % ​ (1,618,957) (66) % Total General and Administrative ​ $ 4,816,272 192 % $ 6,717,572 234 % $ (1,901,300) (28) % ​ Total general and administrative expenses for the six months ended June 30, 2026 decreased by $1,901,300, or 28%, compared to the comparable period in 2025. The decrease was largely due to a $1,618,957 decrease in non-cash stock-based compensation expense related to our 2024 cash salary reduction program in exchange for equity, which ended on April 30, 2025, and the termination of the Company’s original LTIP, which was cancelled on June 16, 2025; a $805,641 decrease in IR and shareholder related expenses; a $87,397 decrease in legal expenses; and a $77,467 decrease in consulting fees; partially offset by a $459,578 increase in cash salary and benefits mostly due to our 2024 cash salary reduction program, which ended on April 30, 2025; a $87,984 increase in recruitment and hiring expenses; a $58,825 increase in supplies expenses; a $43,503 increase in accounting and auditing costs; and a $38,289 increase in travel related costs. Depreciation and Amortization. Depreciation and amortization expense, not included in cost of sales or research and development expenses, for the six months ended June 30, 2026, was $233,262, compared to $818,494 in the comparable period in 2025, or a decrease of $585,232. This decrease was due to certain leasehold improvements becoming fully depreciated in November 2025. 28 Table of Contents Other Income, Net. Total other income was $259,885 for the six months ended June 30, 2026, compared to other income of $325,842 in the comparable period in 2025, a decrease of $65,957. This decrease was due to an increase of $58,829 in other taxes; and an increase of $29,056 in foreign exchange losses; partially offset by an increase in investment income of $21,928. Provision for Income Taxes. There was no provision for income taxes in the respective six month periods ended June 30, 2026 and 2025. ​ Liquidity and Capital Resources Capital Resources: As of June 30, 2026, we had cash and cash equivalents of $17,297,697, a decrease of $3,852,516 from $21,150,213 as of December 31, 2025. As of June 30, 2026, we had current assets of $21,850,841 compared to current liabilities of $3,836,024 which resulted in a positive working capital position of $18,014,817. As of December 31, 2025, we had a positive working capital position of $22,307,525. Our current liabilities are comprised principally of accounts payable, accrued expenses, and operating lease right-of-use liabilities. ​ Summary of Cash Flows: ​ The following table summarizes our select cash flows for the six months ended: ​ ​ ​ ​ ​ June 30, ​ ​June 30, ​ ​ ​ ​ 2026 ​ ​ ​ 2025 Net Cash Provided by (Used in) ​ ​ ​ ​ Operating Activities ​ $ (12,151,830) ​ $ (8,241,812) Investing Activities ​ (1,537,472) ​ (1,631,941) Financing Activities ​ 9,836,786 ​ 9,141,832 ​ During the six months ended June 30, 2026, we used $12,151,830 of cash for operating activities, an increase of $3,910,018 from the comparable 2025 period. Net changes in working capital items were $275,710 for the six months ended June 30, 2026, with the largest factors resulting from an $848,156 decrease in trade accounts and other receivables; a $344,656 decrease in inventory and vendor prepayments; offset by a $1,257,323 decrease in trade accounts payables and accrued expenses. For the six months ended June 30, 2025, we used a total of $8,241,812 in cash for operating activities. During the six months ended June 30, 2026, we used $1,537,472 of cash for investing activities, which included: $1,213,562 in manufacturing equipment and tooling, primarily for new waveguide manufacturing equipment, and $323,910 in patent and trademark expenditures. For the six months ended June 30, 2025, we used a total of $1,631,941 in cash for investing activities. During the six months ended June 30, 2026, we received $9,836,786 from financing activities, which included $9,914,210 in net proceeds from sales of common stock under our ATM program less $77,424 in Series B Preferred Stock dividend payments. For the six months ended June 30, 2025, we received $9,141,832 from financing activities. As of June 30, 2026, the Company does not have any current or long-term debt obligations outstanding. ​ In February 2026, the U.S. Supreme Court issued a ruling invalidating tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). Through March 31, 2026, the Company had paid approximately $190,000 related to IEEPA tariffs for the purchase of fixed assets and components included in the costs of sales. However, significant uncertainty remains regarding the ultimate availability, timing, and magnitude of potential refunds due to a phased administrative process, ongoing litigation, and potential appeals. Consequently, as of June 30, 2026, the Company has not recorded a receivable, asset, or gain because recovery for any unrefunded amounts as they 29 Table of Contents are not considered "probable" or "reasonably estimable" under the loss recovery model of ASC 410-30 and ASC 450, with potential refunds currently treated as unrecognized gain contingencies. Through the date of this filing, the Company has received refunds totaling $80,066, $26,154 in the three months ended June 30, 2026, and is recognizing the refunds as a reduction of cost of goods sold. ​ The Company incurred net losses of $14,700,019 for the six months ended June 30, 2026; $32,273,128 for the year ended December 31, 2025; and $73,538,157 for the year ended December 31, 2024. The Company had net cash outflows from operations of $12,151,830 for the six months ended June 30, 2026; $18,789,272 for the year ended December 31, 2025; and $23,739,372 for the year ended December 31, 2024. As of June 30, 2026, the Company had an accumulated deficit of $414,633,429. ​ The Company’s cash requirements going forward are primarily for funding operating losses, research and development, working capital and capital expenditures. Our cash requirements related to funding operating losses depend upon numerous factors, including new product development activities, our ability to commercialize our products, our products’ timely market acceptance, selling prices and gross margins, and other factors. Historically, the Company has met its cash needs primarily through the sale of equity securities. 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 cut its operating costs significantly or raise new equity and/or debt capital. ​ These historical financial factors initially 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 herein. Management’s plans to alleviate the conditions that raise substantial doubt include raising further capital, the implementation of operational improvements, and the curtailment of certain development programs, all of which the Company expects will preserve cash. ​ ​ Management’s plans concerning these matters and managing our liquidity include, among other things: ● Delaying or curtailing discretionary and non-essential operating expenses and capital expenditures not related to near-term product and manufacturing needs and reducing other investing activities for the remainder of our 2026 and 2027 fiscal years; ● The expected profit margin contribution upon the future commencement of volume manufacturing and sales of waveguides from our new waveguide manufacturing plant, particularly to ODM/OEM customers; and ● Continued pursuit of licensing and strategic opportunities around our waveguide technologies with potential ODMs/OEMs, which may include the receipt of upfront licensing fees and on-going supply agreements. The Company has historically raised capital through the sale of equity securities. The Company filed a Registration Statement on Form S-3 that became effective in May 2024, which includes a sales agreement prospectus for the issuance and sale of up to $50,000,000 of our common stock from time to time under a sales agreement with an investment bank in an “at the market” offering. Since May 2024, the Company has raised $32,380,501, net of broker expenses, including $9,914,210 to date in 2026, under this sales agreement. ​ Management will continue to utilize the available “at the market” noted above to satisfy obligations as they become due, as well as, monitor the capital markets on an ongoing basis and may consider raising capital under other programs if favorable market conditions develop. If the Company needs to raise capital for additional liquidity, the Company may 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. ​ As a result of management’s plan above, our current amount of cash on hand, and our historical ability to raise capital, management has concluded that substantial doubt of our ability to continue as a going concern has been alleviated. ​ ​ 30 Table of Contents 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. 31 Table of Contents 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” under Item 1A and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2025, 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, changes in trade policy in the United States and other countries, including changes in trade agreements and the imposition of tariffs, 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. ​