Annual report pursuant to Section 13 and 15(d)

Going Concern

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Going Concern
12 Months Ended
Dec. 31, 2019
Going Concern  
Going Concern

Note 3 — Going Concern

The accompanying 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 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 annual net losses for the years ended December 31, 2019, 2018 and 2017 of $26,476,370,  $21,875,713 and $19,633,502, respectively. As of December 31, 2019, the Company had an accumulated deficit of $144,742,811.

The Company’s cash requirements are primarily for funding operating losses, research and development, working capital, and capital expenditures. 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. Historically, the Company has met its cash needs primarily by the sale of equity securities.

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 or it will be required to raise new equity and/or debt capital. Management’s plans concerning these matters and managing our liquidity include, among other things:

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the continued sale of our existing M300XL finished goods and Blade component inventory, of which we have significant levels;

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the expected success of our third-generation monocular device for enterprise, the M400 Smart Glasses. This product entered mass production near the end of the third quarter of 2019, and to date customer interest and adoption of the M400 has been more rapid than earlier models;

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the commencement of volume manufacturing and sale of the new Vuzix Smart Swim product in the second quarter of 2020;

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the timely sale and disposal of as many products and components as possible included in our write-down losses on the M300 Smart Glasses and excess components related to the cessation of production of it and the M300-C Smart Glasses in China. Management intends to seek to recover some cash from the $4,572,659 of inventory reserved for in the year ended December 31, 2019;

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increase our efforts to further promote our engineering services programs, which result in overall larger gross margins by absorbing some of our operating costs by utilizing a significant portion of our internal engineering fixed salary costs;

·

continue to pursue licensing and strategic opportunities around our waveguide technologies with potential OEMs, which would include the receipt of upfront licensing fees and supply agreements;

·

greater control of operating costs and reductions in spending growth rates wherever possible;

·

decrease tradeshow and external PR expenditures;

·

right-size operations across all areas of the Company, including head-count and salary freezes and overall spending;

·

delay or curtail discretionary and non-essential capital expenditures not related to near-term new products;

·

reduce the rate of new product introductions and leverage existing platforms to reduce new product development and engineering costs;

·

the introduction of the M4000 in late Q2-2020 will be the Company’s next generation see-through waveguide-based product specifically designed for the enterprise market; and 

·

further reduce the rate of research and development spending on new technologies, particularly the use of external contractors.

Historically, the Company has met its cash needs primarily through the sale of equity securities. On July 1, 2019, the Company entered into a securities purchase agreement with certain purchasers for the sale of an aggregate of 5,479,454 shares of the Company’s common stock along with warrants to purchase an aggregate of up to 5,479,454 additional shares of common stock, in a registered direct offering at a combined purchase price of $3.65 per share and warrant for aggregate gross sale proceeds of $20,000,007. The purchase agreement closed on July 2, 2019. The Company received net proceeds after issuance costs and expenses of $18,855,007. The warrants sold in the offering are exercisable for a period of two years commencing six months from the issuance date at an exercise price of $4.10 per share.

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.