Item 1A. Risk Factors
An investment in our securities involves a high degree of risk. An investor should carefully consider the risks described below, together with all of the other information included in this annual report, before making an investment decision. Our business, financial condition or results of operations could suffer as a result of these risks. In that case, the market value of our securities could decline, and an investor may lose all or part of his or her investment.
Summary of Risk Factors:
We have incurred net losses since our inception and may continue to incur losses.
We operate in a highly competitive and complex market and the size, resources and brand name of some of our competitors may allow them to compete more effectively than we can, which could result in a loss of our market share and a decrease in our revenue.
We depend on advances in technology by other companies and if those advances do not materialize or are not accessible to us, some of our anticipated new products could be delayed or cancelled.
Our products could infringe on the intellectual property rights of others.
If we lose our rights under our third-party technology licenses, our operations could be adversely affected.
General Business and Industry Risks
We have incurred net losses since our inception and may continue to incur losses.
We reported a net loss of $32,273,128 for the year ended December 31, 2025; $73,538,157 for the year ended December 31, 2024, and $50,149,077 for the year ended December 31, 2023. We have an accumulated deficit of $399,858,410 as of December 31, 2025.
We may not achieve or maintain profitability in the future. We will need to increase sales in order to achieve and maintain profitability. In addition, we expect that our expenses relating to product development and research, sales and marketing, as well as our general and administrative costs, may increase as our business grows. If we do not achieve and maintain profitability, our financial condition will be materially and adversely affected, and we would be required to raise additional capital. We may not be able to raise any necessary capital on commercially reasonable terms or at all. If we fail to achieve or maintain profitability, the market price of our common stock may decline.
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We operate in a highly competitive and complex market and believe our future success depends in part on our ability to effectively manage the growth and increased complexity of our business.
The following factors could present difficulties for us:
Managing our ongoing research and development efforts associated with the development of new products based on emerging and innovative technologies;
Managing our rights under our third-party technology licenses to avoid losing any competitive advantages in the market or the ability to commercialize certain products or technologies completely, which could substantially decrease our revenues;
Managing our marketing initiatives effectively to generate sufficient levels of product and brand awareness;
Managing product quality issues to minimize higher-than-expected warranty claims or returns that could harm our business and operating results;
Managing our technical support, firmware or software updates on products to maintain customer satisfaction;
Managing the need to replace and regularly introduce on a timely basis new products and technologies, enhance existing products, and effectively stimulate customer demand for new products and upgraded or enhanced versions of our existing products; and
Managing the maintenance and further development of our sales channels for our products, including developing and supporting our value-added resellers (VARs), distributors and retail sales channels, many of which offer products from several different manufacturers and could give a higher priority to selling other companies’ products.
The size, resources and brand name of some of our competitors may allow them to compete more effectively than we can, which could result in a loss of our market share and a decrease in our revenue.
The market for head-worn display devices, including AR and AI Smart Glasses, is highly competitive. Further, we expect competition to intensify in the future as existing competitors introduce new and more competitive offerings alongside their existing products, and as new market entrants introduce new products into our markets. To date, the market for smart glasses is in its early stages, with no single company achieving a dominant or leading position. We compete against established, well-known diversified consumer electronics manufacturers including Samsung Electronics Co., Sony Corporation, Meta, LG Electronics (LGE), HTC, TCL, and Lenovo, and many of our current competitors have substantial market share, longer operating histories, larger intellectual property portfolios, diversified product lines, ability to bundle competitive offerings including software products and cloud services with their products, well-established supply and distribution systems, strong worldwide brand recognition and greater financial, marketing, research and development and other resources than we do.
Moreover, smartphones, tablets, and new wearable devices with ever-expanding video display screens, including foldable and expandable screens, and ever-increasing computing power have significantly improved the mobile personal computing experience. In the future, large consumer electronics manufacturers of those devices, such as Apple, Samsung, LGE, Lenovo, Alphabet/Google, Snap, Garmin, Meta/Facebook, Microsoft and others may design or develop products similar to ours. In addition to competition or potential competition from large, established companies, new companies may emerge and offer competitive products. Further, our current and prospective competitors may consolidate with each other or acquire companies that will allow them to develop products that better compete with our products, which would intensify the competition that we face and may also disrupt or lead to termination of our distribution, technology, software, and/or content partnerships. Increased competition may result in pricing pressures and
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reduced profit margins and may impede our ability to increase the sales of our products, any one of which could substantially harm our business and results of operations.
Our lack of long-term purchase orders or binding commitments from customers could result in significant volatility and a rapid decline in our sales and operating results.
We generally do not receive long-term purchase orders or other binding commitments from customers for our Vuzix branded products. Instead, customers typically issue purchase orders at their discretion, often shortly before the requested shipment date. These purchase orders may be canceled, reduced, or delayed by customers, in many cases without penalty and on relatively short notice. In addition, our customers may decide to discontinue purchasing our products at any time and for any reason.
Because we cannot rely on long-term purchase orders or contractual commitments, we have limited visibility into future demand and are not protected from sudden declines in customer orders. As a result, our sales volume may decline rapidly with little or no warning if customers reduce, delay, or cancel orders or choose not to continue purchasing our products.
We plan our production schedules, inventory levels, and resource allocation based primarily on internal forecasts of customer demand. These forecasts are inherently uncertain and subject to significant fluctuation. Inaccurate demand forecasts may result in excess or insufficient inventory, inefficient use of capital, and operational challenges. Furthermore, our operating expenses and investments in capital equipment and new product development are based in part on expectations of future sales. If actual demand does not align with these expectations, we may be unable to reduce costs or adjust our operations in a timely manner, which could adversely affect our gross margins, operating results, and financial condition.
We depend on advances in certain technology by other companies and if those advances do not materialize, some of our anticipated new products could be delayed or cancelled.
We rely on and will continue to rely on technologies (including microdisplays, mobile computing electronics and operating systems) that are developed and produced by other companies. The commercial success of certain of our planned future products will depend in part on advances in these and other technologies by other companies. We may, from time to time, contract with and support companies developing key technologies in order to accelerate the development of them for our specific uses. Such activities might not result in useful technologies or components for us.
If microdisplay-based personal displays or near-eye displays do not gain greater acceptance in the market for head worn or mobile displays, our business strategy may fail.
The mobile display market is dominated by displays larger than one inch, most of which are currently based on direct view liquid crystal display (LCD) and organic light emitting display (OLED) technology. A number of large established global companies have made and continue to make substantial investments in, and are conducting research to improve characteristics of, handheld direct view LCDs and OLED displays. Advances in direct view LCD and OLED technology, microLED or other technologies, including foldable and stretchable displays may overcome their current market limitations and permit them to remain or become more attractive technologies for most personal viewing applications, which, along with general public acceptability of wearing smart glasses, could limit the potential market for our near-eye display and wearable computing technology and cause our business strategy to fail.
There are a number of competing providers of microdisplay-based personal display technology, including smart glasses, and we may fail to capture a substantial portion of the personal wearable display market.
In addition to competing with direct view displays, we also compete with microdisplay-based personal and wearable display technologies that have been developed by many other companies. Numerous other companies have announced their intentions to offer smart glasses and AI/AR products. Most of our competitors have greater financial, marketing, distribution and technical resources than we do. Moreover, our competitors may succeed in developing new microdisplay-based personal display technologies, optics, and near-eye display products that are more affordable or have
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more desirable features than our technology. If our products are unable to capture a reasonable portion of the smart wearable display market, our business strategy may fail.
Our products may experience declining unit prices and we may not be able to offset that decline with production cost decreases or higher unit sales.
In the markets in which we compete, prices of established consumer electronics displays, personal computers, and mobile products tend to decline significantly over time or as new enhanced versions are introduced, frequently every 12 to 24 months. In order to maintain adequate product profit margins over the long term, we believe that we will need to continuously develop product enhancements and new technologies that will either slow price declines of our products or reduce the cost of producing and delivering our products. While we anticipate many opportunities to reduce production costs over time, we may not be able to reduce our necessary component costs. We expect to attempt to offset the anticipated potential decrease in our average selling price by introducing new products, increasing our sales volumes or adjusting our product mix. If we fail to do so, our results of operations will be materially and adversely affected.
Our business depends in part on access to third-party platforms or technologies, and if the access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies change without notice to us, our business and operating results could be adversely affected.
Our products rely on access to third party platforms and software, including mobile operating systems, and AI and voice assistant ecosystems, some of which are controlled by competitors. These platform owners may limit, delay, deny, or condition our access, retain competitive advantages in integration and performance, or introduce competing products that function more effectively on their platforms. Our ability to launch products, maintain compatibility, and establish or sustain platform relationships may be adversely affected by changes to platform technologies, policies, or terms, including the imposition of licensing or royalty fees. Any loss of access, unfavorable changes, or delays in third party platforms or technologies could result in increased costs, reduced margins, excess inventory, customer support issues, or otherwise materially harm our business, financial condition, and operating results.
Our use of open-source software could negatively affect our ability to sell our products and could subject us to possible litigation.
We incorporate open-source software into our products, which is subject to licenses that may impose obligations, including requirements to disclose source code or to license derivative works under specified terms. In addition, software we license from third parties may contain open-source components that could trigger similar obligations with respect to our proprietary software. If we fail to comply with applicable open-source license requirements, we could be subject to claims of infringement or breach of license, which could result in significant legal expenses, damages, injunctive relief limiting our ability to distribute affected products, or requirements to make our proprietary software publicly available. Any of these outcomes could adversely affect our business, financial condition, and results of operations.
Our operating results may be adversely impacted by worldwide political, economic, public health uncertainties, wars and specific conditions in the markets we address.
Any worsening of global economic, financial, political, social, or public health conditions, including global pandemics, such as COVID-19, could materially adversely affect (i) demand for our current and future products; (ii) our ability to raise, or the terms of, needed capital; and (iii) the supply of components for our products. We cannot predict the timing, strength, or duration of any future economic slowdown or subsequent economic recovery, or such impact on the wearable display industry.
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Due to our significant level of international operations, including the use of foreign suppliers and contract manufacturers, we are subject to international operational, financial, legal, political and public health risks which could harm our operating results.
We source components from third party suppliers, utilize contract manufacturers for certain assemblies, and conduct specific manufacturing activities in West Henrietta, New York. In the future, final assembly of certain products may be performed outside the United States, including at facilities operated by our new strategic partner, Quanta Computer. A substantial portion of our operations, suppliers, and customers are located outside the United States, exposing us to risks related to compliance with foreign laws and regulations, trade and tax uncertainties, economic instability, public health events, currency fluctuations, and extended accounts receivable collection cycles. Any of these risks could disrupt our operations, adversely affect our financial condition, and limit our ability to grow internationally.
Cybersecurity incidents or failures of our information technology systems, or those of third parties, could adversely affect our business, results of operations, and financial condition.
We are subject to ongoing cybersecurity risks, including threats to our information technology (“IT”) infrastructure, products, and data, as well as to the systems of customers, suppliers, subcontractors, and other third parties with whom we conduct business. We rely extensively on electronic systems to operate our business, manage data, and transact with customers, vendors, and subsidiaries. These systems contain sensitive and proprietary information, including personal data, regulated information, intellectual property, trade secrets, and financial information.
Cybersecurity threats are increasingly frequent, sophisticated, and evolving, and include attempts to gain unauthorized access to systems or data, disrupt operations, introduce malicious code, or otherwise compromise the confidentiality, integrity, or availability of information. These threats may originate from a variety of sources, including cybercriminals, nation state actors, hacktivists, insiders, and other third parties, and may be exacerbated by geopolitical developments, the continued use of legacy systems, the discovery of previously unknown vulnerabilities, and the increasing use of artificial intelligence by threat actors.
We may experience disruptions to our own IT systems or those of third parties due to cyberattacks, system failures, or other security incidents, whether on premises or in cloud-based environments. In some cases, we rely on the cybersecurity safeguards of third parties, over whom we have limited visibility or control, and failure of those safeguards could result in operational disruptions, loss of data, or the compromise of sensitive information.
Cybersecurity related laws and regulations are complex and continue to evolve, which may increase compliance costs, require additional investments, subject us to enhanced regulatory scrutiny, or result in enforcement actions or disclosure obligations. Notwithstanding measures we have implemented, no system is completely secure, and vulnerabilities may not be identified or mitigated in a timely manner.
A successful cybersecurity incident or prolonged system disruption could result in operational interruptions, production delays, loss, theft, or misuse of sensitive information or intellectual property, financial losses, regulatory penalties, litigation, reputational harm, or loss of customers. Any such event could have a material adverse effect on our business, results of operations, financial condition, or liquidity. The impact of any future cybersecurity incident cannot be predicted with certainty.
We may lose the services of key management personnel and may not be able to attract and retain other necessary personnel.
Changes in our management could have an adverse effect on our business and, in particular, while our staff is relatively small with 88 employees and full-time contractors globally, we are dependent upon the active participation of several key management personnel, including Paul Travers, our President and Chief Executive Officer. Mr. Travers, the Company’s founder, is critical to the strategic direction and overall management of our Company as well as our research and development process. The loss of Mr. Travers could adversely affect our business, financial condition, and operating results. We do not carry key person life insurance on any of our senior management or other key personnel. Our Executive Vice President and Chief Financial Officer, Grant Russell, a Canadian citizen, currently has his principal
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residence in Vancouver, Canada and a second residence in West Henrietta, New York. If he becomes unable to travel to and work in the United States, his ability to perform some of his duties could be materially adversely affected.
Our future success depends on our ability to attract and retain highly skilled technical and managerial personnel. Competition for such talent is intense, and our ability to recruit and retain employees and contractors depends in part on offering competitive compensation and benefits. We compete with companies that have significantly greater financial and other resources and may be more attractive to prospective personnel. As a result, we may be required to increase compensation, incentive awards, equity-based compensation, and other benefits, which could increase our operating expenses and adversely affect our results of operations. If we are unable to attract, retain, and motivate qualified personnel, our business, financial condition, and results of operations could be materially adversely affected.
Operational Risks
The design, tooling and manufacture of waveguides encompasses several complex processes, and several steps of our production processes are dependent upon certain critical machines and tools which could result in delivery interruptions, which could adversely affect our operating results.
Our product technology and manufacturing processes are evolving, which can result in production challenges and difficulties. We may be unable to produce our products in sufficient quantity and quality to maintain existing customers and attract new customers. In addition, we may experience manufacturing problems which could result in delays in delivering orders or product introductions. We currently do not have full equipment redundancy in our manufacturing facility or tooling. If we experience any significant disruption in the operation of our manufacturing facility or a serious failure of a critical piece of equipment or tooling, we may be unable to supply products to our customers in a timely manner. Interruptions in our manufacturing could be caused by equipment problems, the introduction of new equipment into the manufacturing process or delays in the delivery of new manufacturing equipment. Lead-time for delivery, installation, testing, repair and maintenance of manufacturing equipment can be extensive. We have experienced production in the past and no assurance can be given that we will not potential sales or be to meet production orders due to future production in our manufacturing lines.
Our waveguide and display engine products sales to third parties are subject to lengthy OEM development periods.
We intend to sell certain of our waveguides, and in some cases related display engines with microdisplays, as components to ODMs/OEMs for incorporation into their products. To date, these sales have not been a material contributor to our revenues, and there can be no assurance they will become so in the future. ODMs and OEMs determine whether and when to incorporate our products during their development cycles, which can be lengthy and unpredictable. The period between initial product sampling, customization to meet specific customer requirements, qualification, and ultimate incorporation into an ODM or OEM product may extend from six months to two years or longer. If our products fail to meet customer cost, performance, reliability, or technical requirements, or if unanticipated technical challenges arise during integration, customers may delay, limit, or abandon adoption of our products. Prolonged development cycles, delays in customer qualification, or failure to achieve design wins could materially and affect our operating results, financial condition, and prospects.
Our dependence on sales to VARs, distributors, and other resellers increases the risks of managing our supply chain and may result in excess inventory or inventory shortages.
Many of our various reseller relationships for our Smart Glasses and AI/AR products and their accessories could involve such resellers taking inventory positions and reselling to multiple customers. Our VAR and distributor relationships may reduce our ability to forecast sales and increase risks to our business. Since our distributors and VARs would act as intermediaries between us and the end user customers or resellers, we would be required to rely on our distributors to accurately report inventory levels and production forecasts. This may require us to manage a more complex supply chain and monitor the financial condition and credit worthiness of our distributors and VARs and their major end user customers. Our failure to manage one or more of these risks could result in excess inventory or shortages that could adversely impact our operating results and financial condition.
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Our reliance on third party suppliers, including sole source suppliers, for critical components and manufacturing exposes us to supply disruptions, cost increases, long lead times, and component obsolescence, any of which could materially and adversely affect our business, financial condition, and results of operations.
We do not manufacture the integrated circuit chip sets, microprocessors, wireless chips, optics, microdisplays, backlights, some projection engines, printed circuit boards, or other electronic components used in our products. Instead, we depend on third party suppliers and independent contractors, including contract manufacturers, to source, manufacture, and assemble all or portions of our products. Many of these components are customized or custom made for us, and certain key components are sourced from a limited number of suppliers or from a single supplier, some of which may have limited financial resources or could potentially become competitors. Our supplier relationships are generally governed by purchase orders rather than long-term supply agreements, and these suppliers have no contractual obligation to provide components in sufficient quantities or at acceptable prices on a long term basis.
Our ability to meet customer demand depends on the timely and adequate delivery of these components. We are subject to risks of supply shortages, long lead times, changes or discontinuation of components, and end of life obsolescence due to technological changes, which may require product redesigns, increased costs, or the forced obsolescence of related inventory. In addition, lengthy component lead times limit our ability to rapidly adjust production quantities or delivery schedules. We have experienced component end of life issues in the past and expect to encounter additional shortages and supply constraints in the future, making component availability unpredictable.
If any of our suppliers or contractors are unable or unwilling to supply required components, experience production disruptions, discontinue their relationship with us, or are affected by events such as government mandated shutdowns related to health epidemics, we may be unable to manufacture and sell our products until suitable replacement suppliers are identified. We may be unable to secure replacement suppliers on reasonable terms or in a timely manner, if at all. While alternative display technologies and suppliers may be available, incorporating such alternatives could require new tooling and electronics, increase production costs, reduce performance, and make our products less competitive or less desirable. Any interruption or disruption in our supply chain could result in delayed product deliveries, increased costs, reduced sales, or an inability to meet customer demand, which could materially and affect our business, financial condition, and results of operations.
Our facilities and information systems and those of our key suppliers could be damaged as a result of disasters or unpredictable events, which could have an adverse effect on our business operations.
We operate the majority of our business from one campus location in West Henrietta, New York (a suburb of Rochester). We also rely on third-party manufacturing plants in the United States and Asia and third-party logistics, sales and marketing facilities in Japan and Europe, and in other parts of the world to provide key components for our products and services. If major disasters such as earthquakes, pandemics, fires, floods, wars, terrorist attacks, computer viruses, transportation disasters or other events occur in any of these locations, or our information systems or communications network or those of any of our key component suppliers breaks down or operates improperly as a result of such events, our facilities or those of our key suppliers may be seriously damaged, and we may have to stop or delay production and shipment of our products. We may also incur expenses relating to such damages. If production or shipment of our products or components is stopped or delayed or if we incur any increased expenses as a result of to our facilities, our business, operating results and financial condition could be materially affected.
Financial and Market Risks
We have not paid dividends in the past and do not expect to pay dividends in the future on our common stock.
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition, and other business and economic factors affecting us at such time as our Board of Directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on a stockholders’ investment will only occur if our stock price appreciates.
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Our stock price may be volatile in the future.
The trading price of our common stock has been subject to wide fluctuations in response to quarter-to-quarter variations in results of operations, announcements of technological innovations or new products introduced by us or our competitors, general conditions in the wearable, wireless communications, software applications (including AI), consumer electronics, semiconductor and display markets, changes in our operating results estimates by financial analysts or other events or factors. In addition, the public stock markets have recently experienced high price and trading volatility. The risks relating to inflation, interest rates and the imposition of tariffs could have a material impact on our revenues and costs. These matters can significantly affect the market prices and price volatility of securities of many technology companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
There is uncertainty regarding the exclusive forum clause in our amended and restated bylaws.
Our amended and restated bylaws include a clause that provides that the Court of Chancery of the State of Delaware will be the exclusive forum for certain types of actions that may be brought against us. There is uncertainty as to whether we would seek to, or whether we could successfully, apply this exclusive forum provision to any actions that may be brought against us under the Securities Acts.
Additional stock offerings in the future may dilute the existing stockholders’ percentage ownership of our Company.
Given our capital plans, needs and expectations, we may issue additional shares of common stock, preferred stock or securities convertible or exercisable for shares of common stock, including convertible preferred stock, convertible notes, warrants, and equity incentive awards. The issuance of additional securities in the future will dilute the percentage ownership of the then existing stockholders.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, inventories, product warranty reserves, accounting for income taxes, going concern, carrying value of long-term and other intangible assets, software development costs, variable interest entities, and stock-based compensation expense. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our common stock.
Our results of operations may suffer if we are not able to successfully manage our increasing exposure to foreign exchange rate risks.
A majority of our sales and cost of components are denominated in U.S. dollars. As our business grows, both our sales and production costs may increasingly be denominated in other currencies. Where such sales or production costs are denominated in other currencies they are converted to U.S. dollars for the purpose of calculating any sales or costs to us. Our sales may decrease as a result of any appreciation of the U.S. dollar against these other currencies.
The majority of our current expenditures are incurred in U.S. dollars and many of our components come from countries that currently peg their currency against the U.S. dollar. If the pegged exchange rates change adversely or are allowed to float up, additional U.S. dollars will be required to fund our purchases of these components.
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Although we do not currently enter into currency option contracts or engage in other hedging activities, we may do so in the future. There is no assurance that we will undertake any such hedging activities or that, if we do so, they will be successful in reducing the risks to us of our exposure to foreign currency fluctuations.
Legal and Regulatory Risks
Our business and products are subject to extensive government regulation, and failure to comply with applicable laws and regulations, or changes in such laws and regulations, could adversely affect our business, financial condition, and results of operations.
Our current operations and our expansion into new markets and product categories subject us to a wide array of domestic and international laws, regulations, standards, and other requirements governing, among other things, electrical safety, wireless emissions, health and safety, e-commerce, cybersecurity, consumer protection, and export and import controls. Compliance with these requirements is often complex, costly, and time consuming, and such requirements may differ significantly across jurisdictions, including between countries, increasing the difficulty and expense of compliance.
Our products may require regulatory approvals, certifications, or satisfaction of other regulatory conditions in the jurisdictions in which they are manufactured, sold, or both. These requirements can create procurement, manufacturing, and design challenges and may require us to incur additional costs to identify and qualify suppliers and manufacturers capable of producing compliant materials, components, and products. If we fail to comply with applicable laws, regulations, or standards, we may be subject to fines, penalties, product recalls, reputational harm, restrictions on sales, or, in severe cases, suspension or cessation of operations in certain jurisdictions. Any such outcomes could have a material adverse effect on our business, financial condition, and results of operations.
Changes in existing laws or regulations, or the adoption of new laws or regulations, could require us to significantly alter our manufacturing processes, product designs, or supply chain, or could substantially increase our costs of doing business. If regulatory changes materially increase our manufacturing costs or require significant product redesigns, our margins, competitiveness, and operating results could be adversely affected.
Our products must comply with regulations governing electromagnetic radiation, including those administered by the U.S. Federal Communications Commission (FCC), in order to be sold in the United States, as well as comparable requirements of regulatory authorities in the European Union, Japan, China, and other jurisdictions. Our AI/AR smart glasses products include wireless radios and receivers, which are subject to additional testing and certification requirements. Any failure to obtain or maintain required approvals could delay product launches, restrict sales, or require costly modifications.
Our business is subject to environmental, hazardous substance, and product recycling regulations, which could increase our costs, disrupt our operations, and adversely affect our business and financial condition.
We are subject to environmental laws and regulations related to the use of toxic, volatile, or otherwise hazardous substances in third party components incorporated into our products, including the Restriction of Certain Hazardous Substances (RoHS) Directive and the EU Waste Electrical and Electronic Equipment (WEEE) Directive, as well as similar laws and regulations in China, Japan, and other jurisdictions. These regulations restrict or regulate the use of certain substances, including lead, and impose obligations related to product recycling, collection, and treatment. Similar laws may be enacted or expanded in additional jurisdictions, including the United States, subjecting us to further compliance obligations.
Although we maintain policies and procedures intended to promote compliance with applicable environmental and product related laws and regulations by our employees, contractors, manufacturers, and suppliers, we cannot guarantee that such parties will comply with all applicable requirements. Non-compliance by our suppliers or contract manufacturers could require us to re-engineer products, substitute components, or disrupt manufacturing or logistics, which could result in additional costs, delays, or supply interruptions.
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The WEEE Directive and similar regulations require producers of electronic goods to bear responsibility for the collection, recycling, and treatment of covered products. Changes in interpretation or enforcement of these requirements could increase our compliance costs or impose additional obligations. Failure to comply with these or similar laws, whether past, present, or future, could result in reduced product sales, inventory write-offs, reputational damage, fines, penalties, or other sanctions, any of which could materially harm our business and financial condition.
While our historical expenditures for environmental compliance have not had a material impact on our results of operations or cash flows, we expect that ongoing and future environmental laws and regulations will continue to affect our products and operations and may result in additional costs, increased penalties for non-compliance, or requirements to modify product content or manufacturing processes. Any of these developments could have a material adverse effect on our business, financial condition, and results of operations.
Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain materials used in the manufacturing of our products.
As a public company, we are subject to requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, that require us to determine, disclose and report whether or not our products contain conflict minerals. These requirements could adversely affect the sourcing, availability and pricing of the materials used in the manufacture of components used in our products. In addition, we have and will continue to incur additional costs to comply with the disclosure requirements, including costs related to conducting diligence procedures to determine the sources of conflict minerals that may be used in, or necessary for the production of, our products and, if applicable, potential changes to products, processes or sources of supply as a consequence of such verification activities. We also may face reputational harm if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to alter our products, processes or sources of supply to avoid such materials, as well as our contract manufacturers breaching their local labor laws.
We could be adversely affected by violations of anti-bribery laws in other jurisdictions in which we operate.
The global nature of our business and the significance of our international revenue create various domestic and local regulatory challenges and subject us to risks associated with our international operations. We operate in areas of the world that can experience corruption by government officials to some degree and, in certain circumstances, compliance with anti-bribery and anticorruption laws may conflict with local customs and practices. Our global operations require us to import and export to and from several countries, which geographically expands our compliance obligations. In addition, changes in such laws could result in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition and results of operations.
As a U.S. company we may be held liable for the corrupt actions taken by directors, officers, employees, agents, or other strategic or local partners or representatives. If we or our intermediaries fail to comply with such requirements or similar legislation, governmental authorities in the United States and elsewhere could seek to impose substantial civil and/or criminal fines and penalties which could have a material adverse effect on our business, reputation, operating results and financial condition.
We are subject to governmental export and import controls and economic sanctions laws that could subject us to liability and impair our ability to compete in international markets.
The U.S. and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of some technologies. Our products are subject to U.S. export controls, including the Commerce Department’s Export Administration Regulations and various economic and trade sanctions regulations established by the Treasury Department’s Office of Foreign Assets Control, and exports of our products must be made in compliance with these laws. Furthermore, U.S. export control laws and economic sanctions prohibit the provision of products and services to countries, governments, and persons targeted by U.S. sanctions. Even though we take precautions to prevent our products from being provided to targets of U.S. sanctions, our products, including our firmware updates, could be provided to those targets or provided by our customers despite such precautions. Any such provision could have negative consequences, including government investigations, penalties and reputational harm. Our failure to obtain required
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import or export approval for our products could harm our international and domestic sales and adversely affect our revenue.
Changes in trade policy in the United States and other countries, including changes in trade agreements and the imposition of tariffs and the resulting consequences, may have adverse impacts on our business, results of operations and financial condition.
The current U.S. government administration is currently altering its approach to international trade policy, including through the potential termination of certain existing bilateral or multilateral trade agreements and treaties and the imposition of tariffs on a wide range of products and other goods from China, Canada, Mexico, and other countries in Europe and Asia. Given our manufacturing in some of those countries, and our lack of manufacturing elsewhere, policy changes in the United States or other countries, such as the tariffs already proposed, implemented and threatened, present particular risks for us. There are also risks associated with retaliatory tariffs and resulting trade wars. We cannot predict future trade policy, the terms of any renegotiated trade agreements or treaties, or tariffs and their impact on our business. To the extent that trade tariffs and other restrictions imposed by the United States or other countries increase the price of, or limit the amount of, our products or components or materials used in our products imported into the United States or other countries, or create adverse tax consequences, the sales, cost or gross margin of our products may be adversely affected and the demand from our customers for products and services may be .
We collect, store, process and use portions of our customers’ personally identifiable information and other data, which subjects us to governmental regulation and other legal obligations related to privacy, information security and data protection. Any cybersecurity breaches or our actual or perceived failure to comply with such legal obligations by us, or by our third-party service providers or partners, could harm our business.
While we take reasonable measures intended to protect the security, integrity and confidentiality of any personal information and other sensitive information we collect, store or transmit, we cannot guarantee that inadvertent or unauthorized use or disclosure will not occur, or that third parties will not gain unauthorized access to this information. While our privacy policies currently prohibit such activities, our third-party service providers or partners may engage in such activity without our knowledge or consent. If we or our third-party service providers were to experience a breach, disruption or failure of systems compromising our customers’ data, or if one of our third-party service providers or partners were to access our customers’ personal data without our authorization, our brand and reputation could be adversely affected, use of our products could decrease and we could be exposed to a risk of loss, and regulatory proceedings.
Our products could infringe on the intellectual property rights of others.
Companies in the consumer electronics, wireless communications, semiconductor, IT and display industries steadfastly pursue and protect intellectual property rights, often times resulting in considerable and costly litigation to determine the validity of patents and claims by third parties of infringement of patents or other intellectual property rights. Our products could be found to infringe on the intellectual property rights of others. Other companies may hold or obtain patents or inventions or other proprietary rights in technology necessary for our business. Periodically, other companies inquire about our products and technology in their attempts to assess whether we violate their intellectual property rights. If we are forced to defend against infringement claims, we may face costly litigation, of technical and management personnel, and product shipment , even if the of are . If there is a claim of us and we are to develop non- technology or license the or similar technology on a timely basis, or if we are required to using one or more of our business or product names due to a trademark claim us, it could affect our business.
Our intellectual property rights and proprietary rights may not adequately protect our products.
Our commercial success will depend substantially on our ability to obtain patents and other intellectual property rights and maintain adequate legal protection for our products in the United States and other countries. We will be able to protect our intellectual property from unauthorized use by third parties only to the extent that these assets are covered
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by valid and enforceable patents, trademarks, copyrights or other intellectual property rights, or are effectively maintained as trade secrets. As of the date of this filing, we have 306 issued U.S. and foreign patents and 202 pending U.S. and foreign patent applications. We apply for patents covering our products, services, technologies and designs, as we deem appropriate. We may fail to apply for patents on important products, services, technologies, processes or designs in a timely fashion, or at all. We do not know whether any of our patent applications will result in the issuance of any patents. Even if patents are issued, they may not be sufficient to protect our products, services, technologies, or designs. Our existing and future patents may not be sufficiently broad to prevent others from developing competing products, services technologies, or designs. Intellectual property protection and patent rights outside of the United States are even less predictable. As a result, the validity and enforceability of patents cannot be predicted with certainty.
We rely in part on unpatented proprietary technology, and others may independently develop the same or similar technology or otherwise obtain access to our unpatented technology. We require employees, contractors, consultants, advisors, suppliers and strategic partners to enter into confidentiality and intellectual property assignment agreements (as appropriate), but these agreements may not provide sufficient protection for our trade secrets, know-how or other proprietary information.
