Vuzix(VUZI) - 2020 Q2 - Quarterly Report

Part I – Financial Information Item 1. Consolidated Financial Statements (Unaudited) This section presents Vuzix Corporation's unaudited consolidated financial statements, including balance sheets, statements of operations, and cash flows, for periods ending June 30, 2020 Consolidated Balance Sheets As of June 30, 2020, total assets increased to $31.1 million, total liabilities to $5.0 million, and stockholders' equity to $26.1 million Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Current Assets | | | | Cash and Cash Equivalents | $13,229,182 | $10,606,091 | | Inventories, Net | $6,256,333 | $5,707,867 | | Total Current Assets | $22,923,268 | $19,073,508 | | Total Assets | $31,102,080 | $28,446,465 | | Current Liabilities | | | | Total Current Liabilities | $2,814,108 | $2,634,657 | | Total Liabilities | $4,967,927 | $4,206,022 | | Total Stockholders' Equity | $26,134,153 | $24,240,443 | Consolidated Statements of Operations For Q2 2020, sales increased to $3.0 million and net loss narrowed to $4.2 million; for H1 2020, sales grew to $4.6 million and net loss decreased to $9.6 million Statement of Operations Summary (Unaudited) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Sales | $3,036,843 | $2,185,861 | $4,568,559 | $3,559,232 | | Gross Profit | $795,920 | $152,039 | $876,437 | $191,928 | | Loss from Operations | ($4,237,874) | ($5,069,394) | ($9,577,117) | ($11,419,060) | | Net Loss | ($4,238,666) | ($5,055,934) | ($9,600,290) | ($11,415,695) | | Basic and Diluted Loss per Share | ($0.13) | ($0.20) | ($0.31) | ($0.45) | Consolidated Statements of Cash Flows For H1 2020, net cash used in operations was $8.9 million, offset by $12.1 million from financing activities, resulting in a $2.6 million net cash increase Cash Flow Summary (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($8,871,081) | ($11,683,121) | | Net Cash Used in Investing Activities | ($644,037) | ($2,220,792) | | Net Cash from Financing Activities | $12,138,209 | $0 | | Net Increase (Decrease) in Cash | $2,623,091 | ($13,903,913) | | Cash at End of Period | $13,229,182 | $3,359,730 | Notes to the Unaudited Consolidated Financial Statements These notes detail accounting policies, going concern analysis, revenue recognition, debt obligations, capital structure, and litigation related to the financial statements - The company has a history of net losses, with a net loss of $9.6 million for the first six months of 2020 and an accumulated deficit of $154.3 million as of June 30, 2020[19] - Management has concluded that substantial doubt about the company's ability to continue as a going concern has been alleviated, based on cash on hand, historical ability to raise capital, and cost management plans[24] - In May 2020, the company raised $11.25 million in gross proceeds ($10.58 million net) through a registered direct offering of 5,000,000 shares of common stock at $2.25 per share[21][53] - The company received a Paycheck Protection Program (PPP) loan of $1,555,900 in April 2020, bearing a 1% interest rate and a two-year term, with intent to apply for forgiveness[40] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, business operations, and outlook, including COVID-19 impacts, results of operations, and liquidity and capital resources Business Matters and COVID-19 Impact Vuzix focuses on enterprise Smart Glasses and AR products, experiencing mixed COVID-19 impacts with both order delays and new opportunities in remote support and telemedicine - The company is focused on enterprise, industrial, commercial, security, first responder, and medical markets for its Smart Glasses and AR products[71] - The COVID-19 pandemic has caused delays in expected orders and the launch of new products like the M4000 and upgraded Blade Smart Glasses[73] - Conversely, the pandemic has accelerated opportunities for Vuzix products in telemedicine, guided remote support, and remote training as companies adapt to travel restrictions[74][75] Results of Operations Q2 2020 sales grew 39% to $3.0 million driven by Smart Glasses, while H1 2020 sales grew 28% to $4.6 million, with improved gross profit and reduced net loss Q2 2020 vs Q2 2019 Performance | Metric | Q2 2020 | Q2 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Sales | $3,036,843 | $2,185,861 | $850,982 | 39% | | Gross Profit | $795,920 | $152,039 | $643,881 | 423% | | Loss from Operations | ($4,237,874) | ($5,069,394) | $831,520 | (16)% | | Net Loss | ($4,238,666) | ($5,055,934) | $817,268 | (16)% | - Q2 2020 sales of Smart Glasses products rose 183% YoY, primarily due to the M400 Smart Glasses, which began selling in Q4 2019. M-Series Smart Glasses revenue increased 374% YoY[80] H1 2020 vs H1 2019 Performance | Metric | H1 2020 | H1 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Sales | $4,568,559 | $3,559,232 | $1,009,327 | 28% | | Gross Profit | $876,437 | $191,928 | $684,509 | 357% | | Loss from Operations | ($9,577,117) | ($11,419,060) | $1,841,943 | (16)% | | Net Loss | ($9,600,290) | ($11,415,695) | $1,815,405 | (16)% | - For H1 2020, R&D expenses decreased by 15%, Selling & Marketing by 13%, and General & Administrative by 10% compared to H1 2019, reflecting cost control measures[108][110][112] Liquidity and Capital Resources As of June 30, 2020, cash increased to $13.2 million due to $12.1 million from financing activities, improving working capital to $20.1 million and alleviating going concern doubts - Cash and cash equivalents increased to $13,229,182 as of June 30, 2020, from $10,606,091 at December 31, 2019[115] - Working capital improved to $20,109,160 as of June 30, 2020, from $16,438,851 at year-end 2019[116] - During the first six months of 2020, the company received $10.6 million in net proceeds from a stock sale and $1.6 million from a PPP term loan[120] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate and foreign currency fluctuations, primarily in Japan and Europe, but does not currently hedge these non-material risks - The company's primary market risks are related to interest rate changes on its cash investments and foreign currency exchange rate fluctuations from its business in Japan and Europe[134] - Vuzix does not currently use hedging instruments to manage foreign currency risk and estimates that the associated market risk is not material[134] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[135] - No changes occurred in the company's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[136] Part II – Other Information Item 1. Legal Proceedings The company reports a patent infringement lawsuit filed by Throop, LLC in December 2019, which was voluntarily dismissed without prejudice in March 2020 - Throop, LLC filed a patent infringement lawsuit against Vuzix on December 16, 2019, concerning two U.S. patents that expired in January 2020[138] - Throop filed a voluntary dismissal without prejudice on March 6, 2020. The company denies the claims and will defend itself against any future related lawsuits[138] Item 1A. Risk Factors This section updates risk factors to include potential negative effects of the COVID-19 pandemic, such as supply chain constraints, product delays, and capital raising challenges - The company has identified the COVID-19 pandemic as a new material risk factor that could negatively affect its business, operations, and financial performance[139][140] - Specific pandemic-related risks include significant supply chain constraints, delays in new product introductions, and potential impacts on the ability to raise capital due to market volatility[141][142] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports unregistered stock awards, including 830,486 shares for a payroll reduction program, issued under Section 4(a)(2) of the Securities Act of 1933 - The company issued 830,486 shares to employees, officers, and directors as part of its voluntary payroll reduction program, vesting on January 15, 2021[142] - These unregistered sales of equity securities were made in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act of 1933[141] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The exhibits filed include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[143] - Interactive data files (Inline XBRL) are also included as exhibits[143]