Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation

Basis of Presentation
3 Months Ended
Mar. 31, 2017
Organization, Consolidation and Presentation Of Financial Statements [Abstract]  
Basis of Presentation
Note 1 — Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Vuzix Corporation and Subsidiaries (“the Company") 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. Accordingly, the unaudited Condensed Consolidated Financial Statements do not include all of the 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. The condensed consolidated balance sheet as of December 31, 2016 was derived from the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K (the “Annual Report”).
The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of the Company as of December 31, 2016, as reported in the Company’s Annual Report.
The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.
In the first quarter of 2017, Toshiba Japan represented 20% of revenues as compared to 0% in the same 2016 period. As of March 31, 2017 and 2016, Toshiba Japan accounted for 75% and 0% of accounts receivables, respectively.
The accompanying Condensed Consolidated Financial Statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These Condensed Consolidated Financial Statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern. The Company incurred a net loss for the first three months of 2017 of $4,181,812. The Company has incurred a net loss consistently over the last 2 years. The Company incurred annual net losses of $19,250,082 in 2016 and $13,427,478 in 2015, and has an accumulated deficit of $81,020,762 as of March 31, 2017.
The Company’s cash requirements are primarily for funding operating losses, research, capital expenditures and working capital. Historically, the Company has met these cash needs by borrowings under notes, sales of convertible debt, and the sales of equity. In 2016, we received total net proceeds from public equity offerings of $19,238,015, after underwriting discounts and commissions and other offering expenses payable by Vuzix.
Our cash requirements related to funding operating losses depend on 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. In order for us to achieve positive cash flow from operations, our product sales will need to significantly increase.
The Company’s management intends to take actions necessary to continue as a going concern, as discussed herein. The Company will need to grow its business significantly to become profitable and self-sustaining on a cash flow basis. Management’s plans concerning these matters and managing our liquidity includes among other things:
the commencement of full volume manufacturing of the new M300 Smart Glasses this spring, along with expected margin improvements from higher production volumes and assembly off shore;
the recent award of a Smart Glasses development program with Toshiba, which we expect to be completed by September 2017 and represents a further $905,000 in revenues during the next two fiscal quarters.
tightly control operating costs and reduce spending growth rates wherever possible;
delay or curtail discretionary and non-essential capital expenditures not related to near-term new products;
reduce the rate of research and development spending on new technologies, particularly the use of costly external contractors
delay some planned new products based on new technology; and
the Company has $547,990 in convertible senior secured notes payable, that are convertible at $2.25 per share, which are due on June 3, 2017. We expect that the remaining holders of these notes, whom are also current stockholders, will convert all their notes and related accrued interest.
However, if these actions are not successful within a reasonable time period, we will have to raise additional capital to maintain operations and/or materially reduce our operating and new product development costs.
If the Company raises additional funds, the ownership interest of existing stockholders may be diluted. The amount of such dilution could increase due to the issuance of new warrants or securities with other dilutive characteristics, such as full ratchet anti-dilution clauses or price resets.
Based upon our current amount of cash on hand, management’s historical ability to raise capital, and our ability to manage our cost structure and adjust operating plans if and as required, we have concluded that substantial doubt of our ability to continue as a going concern has been alleviated.