Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation (Policies)

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Basis of Presentation (Policies)
6 Months Ended
Jun. 30, 2020
Basis of Presentation  
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 may have been made to prior periods to conform with current reporting. The results of the Company’s operations for the three and six months ended June 30, 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

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 six months ended June 30, 2020 of $9,600,290 and annual net losses of $26,476,370 in 2019 and $21,875,713 in 2018. As of June 30, 2020, the Company had an accumulated deficit of $154,343,101.

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.

On May 10, 2020, the Company entered into a securities purchase agreement with certain purchasers for the sale of an aggregate of 5,000,000 shares of the Company’s common stock in a registered direct offering at a purchase price of $2.25 per share for aggregate gross sale proceeds of $11,250,000. The purchase agreement closed on May 13, 2020. The Company received net proceeds after issuance costs and expenses of $10,582,309.

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 expected growing 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;

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

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

increased 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;

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;

implementation of a Company-wide voluntary payroll reduction program where employees could take salary reductions between 5% to 50% of their base salary for the period from May to December 2020 in exchange for shares of common stock at a value of 150% of the net cash wage reduction. The cash savings under this program will be approximately $888,000. The issuance of the related stock awards is further explained in Note 12;

decreased tradeshow and external PR expenditures;

right-sized operations and implemented greater control of operating costs across all areas of the Company, including head-count freezes or reductions;

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

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

further reduced 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

Customer Concentrations

For the three months ended June 30, 2020, no one customer represented more than 10% of total product revenue and two defense customers represented 100% of engineering services revenue. For the three months ended June 30, 2019, one customer represented 48% of total product revenue and one defense customer represented 100% of engineering services revenue.

For the six months ended June 30, 2020, no one customer represented more than 10% of total product revenue and two defense customers represented 100% of engineering services revenue. For the six months ended June 30, 2019, one customer represented 30% of total product revenue.

As of June 30, 2020, three customers represented 36%, 20% and 12% of accounts receivable, respectively, and one defense customer 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

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.