Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation

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Basis of Presentation
3 Months Ended
Mar. 31, 2020
Basis of Presentation  
Basis of Presentation

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, 2020 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, 2019, as reported in the Company’s Annual Report on Form 10‑K filed with the SEC on March 16, 2020.

Going Concern

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, 2020 of $5,361,624 and annual net losses of $26,476,370 in 2019 and $21,875,713 in 2018. As of March 31, 2020, the Company had an accumulated deficit of $150,104,435.

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 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. 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, which entered 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 inventory write-down losses as of December 31, 2019, primarily related to the first M300 Smart Glasses models, including the M300-C Smart Glasses in China, and excess components related to the cessation of such production;

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increased our efforts to further promote our engineering services programs, which result in overall higher gross margins since such programs enable the absorption of  some of our operating costs by utilizing a significant portion of our internal engineering fixed salary costs;

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

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

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implementation of a Company-wide payroll reduction program for individuals earning more than $60,000 annually with required base salary reductions  of 10% to 25% depending upon the respective base salary level in the period from May to December 31, 2020. The expected cash savings will be $1,200,000 and will result in the issuance of stock awards, at a rate of 150% of the net cash wage reductions;

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decreased tradeshow and external PR expenditures;

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right-sized operations across all areas of the Company, including head-count freezes or reductions;

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

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

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

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

 

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.

Customer Concentrations

For the three months ended March 31, 2020, one customer represented 15% of total product revenue and two confidential defense customers represented 100% of engineering services revenue. For the three months ended March 31, 2019, no one customer represented more than 10% of total product revenue.

As of March 31, 2020, two customers represented 23% and 11% of accounts receivable, respectively and two confidential defense customers represented 100% of accrued project revenue. As of December 31, 2019, three customers represented 32%,  26% and 13%, respectively, of accounts receivable.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). ASU 2016-13 provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to accounts receivable. ASU 2016-13 will become effective for the Company on January 1, 2023 and early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.