Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation

Basis of Presentation
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Accounting [Text Block]
Note 1 – Basis of Presentation
The accompanying unaudited consolidated financial statements of Vuzix Corporation (“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 (the “SEC”). Accordingly, the unaudited consolidated financial statements do not include all 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. Certain re-classifications have been made to prior periods to conform with current reporting. The results of the Company’s operations for the three months ended March 31, 2019 are not necessarily indicative of the results of the Company’s operations for the full fiscal year or any other period.
The accompanying interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto of the Company as of December 31, 2018, as reported in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2019. 
The accompanying unaudited 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 unaudited 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 net losses for the three months ended March 31, 2019 of $6,359,761 and annual net losses of $21,875,713 in 2018 and $19,633,502 in 2017. As of March 31, 2019, the Company has an accumulated deficit of $124,626,202.
The Company’s cash requirements are primarily for funding operating losses, working capital, research and development, 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 by the sale of equity, borrowings under notes, and sales of convertible debt.
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:
  · the continued sale of our existing M300, M300XL and Blade inventory;
  · the introduction of our M400 Smart Glasses, our third-generation monocular device for enterprise. We expect to launch the product in the third quarter of 2019;
  · the commencement of volume manufacturing and sale of the new M100 Smart Swim product in the third quarter of 2019;
  · new engineering services and product sales into business customers, first responder, defense and governmental entity customers;
  · tightly control operating costs and reduce spending growth rates wherever possible;
  · decrease tradeshow and PR firm spending;
  · right size operations across all areas of the Company, both with head-count and spending;
  · delay or curtail discretionary and non-essential capital expenditures not related to near-term new products; and
  · reduce the rate of research and development spending on new technologies, particularly the use of costly external contractors.
However, if these plans 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 securities with warrants or 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.
Recent Accounting Pronouncements
In July 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). This ASU requires that when determining whether certain financial instruments should be classified as liabilities or equity instruments, an entity should not consider the down round feature. The provisions of the ASU related to down rounds are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We have adopted this standard effective January 1, 2019. The adoption of this standard did not impact our Consolidated Financial Statements for the current or prior periods presented.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize a right-of-use asset and lease liability in the balance sheet for all leases, including operating leases, with terms of more than twelve months. We have adopted this standard effective January 1, 2019. Upon adoption, we recognized an Operating Lease Right-of-Use Asset of $994,000, a current Operating Lease Liability of $533,000 and a long-term Operating Lease Liability of $461,000. We applied Topic 842 to all leases as of January 1, 2019 with comparable periods continuing to be reported under Topic 840. Upon 
, we
elected: (i) the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification and (ii) the practical expedient which allows us not to separate non-lease components from lease components, as they are not considered the predominate components in our contracts. The adoption of this standard does not have a significant impact on our consolidated results of operations or cash flows. See Note 12 for further details.
For the three months ended March 31, 2019, no one customer represented more than 10% of our product revenue. For the three months ended March 31, 2018, Toshiba Japan represented 94% of the Company’s engineering revenues and 18% of the Company’s total revenues.
As of March 31, 2019
, no
customer represented more than 10% of
accounts receivable. As of December 31, 2018, Toshiba and SATS represented 32% and 38%, respectively, of accounts receivable.