Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation

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Basis of Presentation
9 Months Ended
Sep. 30, 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 for the year ended December 31, 2016 (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.
 
For the nine months ended September 30, 2017, Toshiba Japan represented substantially all of engineering revenues and 24% of total revenues as compared to 0% in the same 2016 period. As of September 30, 2017 and 2016, Toshiba Japan accounted for 59% and 0% of accounts receivables and accrued project revenue, 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 nine months ended September 30, 2017 of $13,754,038. The Company has incurred a net loss consistently over recent 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 $90,592,988 as of September 30, 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. On August 14, 2017 the Company closed on the sale of 1,490,000 shares of its common stock to investors in a public offering at an offering price of $5.75 per share. As part of the same offering, we sold an additional 10,000 shares of common stock to an executive officer at the closing market price of $6.10 per share, to comply with certain Nasdaq rules. As of September 30, 2017, there was a subscription receivable  of $61,000 related to the above offering due from that executive officer. The total balance of that subscription receivable was paid in-full on October 3, 2017. The Company’s net proceeds after commissions and expenses were $7,978,321.
 
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. 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 include among other things:
 
 
the commencement of full and higher volume manufacturing of the new M300 Smart Glasses with assembly offshore in the summer of 2017, on a turnkey basis, which should result in further product margin improvements and supply chain investments, as demonstrated in our third quarter;
  
 
the award of a Smart Glasses development program with Toshiba, which we expect to be completed by end of 2017 and represents approximately a further $221,000 in revenues, which thereafter should move into volume production in early 2018 with a proposed supply and purchase agreement that we expect will result in a minimum of $5,000,000 in new revenues for the Company in the 12 month period following the commencement of volume deliveries;
 
 
tighter control of operating costs and reduction in spending growth rates wherever possible;
 
 
slowing of planned new product development based on new technologies as well as reduced discretionary and non-essential capital expenditures not related to select near-term new products;
 
 
reducing the rate of research and development spending on new technologies, particularly the use of costly external contractors, for our upcoming smart glasses models that will first be manufactured at our Rochester plant rather than at external contractors, where we incur high start-up costs and the requirement for bigger production commitments that consume working capital;
 
 
 
 
 better leveraging our product and technology base and creating new product models that are derivatives (rather than completely new) and which therefore are less costly to develop and introduce to the marketplace; and
 
 
attempting to utilize conventional bank operating loan financing to help grow our working capital base to support our investments in accounts receivable and inventory as sales revenues grow.
  
However, if these actions are not successful in the near term, 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 by selling equity, the ownership interest of existing stockholders may be diluted. The amount of such dilution could increase further due to the issuance of securities with new warrants or convertibility features with other dilutive characteristics, such as 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.