October 16, 2009
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Mr. Mark P. Shulman, Branch Chief Legal
Mr. Matthew Crispino
Mr. Morgan Youngwood
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Mail Stop: 4561
Washington, D.C. 20549
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Via EDGAR and
Federal Express |
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Re: |
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Vuzix Corporation Amendment No. 3 to Registration Statement on Form S-1
(File No. 333-160417) |
Gentlemen:
On behalf of Vuzix Corporation (the Registrant), attached for your review is a copy of
Amendment No. 3 (the Amendment) to Registration Statement on Form S-1, File No. 333-160417 (as
previously amended, the Registration Statement), as filed with the Securities and Exchange
Commission (the Commission) on the date hereof via EDGAR and marked to show changes from the
Registration Statement filed with the Commission on September 4, 2009.
The Amendment is being filed in response to comments received from the staff of the Commission
(the Staff) by letter dated October 2, 2009, with respect to the Registration Statement (the
Comments) and our telephone conference with the staff accountant on October 8, 2009. The
numbering of the paragraphs below corresponds to the numbering of the Comments, which for the
Staffs convenience, have been incorporated into this response letter. Page references in the text
of this response letter correspond to the page numbers in the Amendment.
Cover Page
1. We note your response to prior comment 5. The cover page, however, remains excessively
detailed. As noted in our prior comment, your cover page disclosure should be limited to
information that is required by Item 501 of Regulation S-K or t hat is key information about the
offering. For example, the discussion of the circumstances under which you may accelerate the
expiration date of the warrants does not need to be explained on prospectus cover page. Also, the
detailed information about your Canadian offering is not key information needed by U.S. investors.
We also continue to believe that you should remove the proceeds table from cover page. See prior
comment 4. Please revise your cover page as necessary to comply with
the requirements of Rule 421 of Regulation C. See also the Plain English guidance available on our
web site at http://sec.gov/divisions/corpfin/cfguidance.shtml#english.
Securities and Exchange Commission
Division of Corporation Finance
October 16, 2009
Page 2
We have revised the cover page to eliminate excessive detail. We believe that the revised
cover page contains disclosure material to investors. Please see the cover page in the Amendment.
2. We note the disclosure on the cover page that you are offering your securities on a
commercially reasonable efforts basis and the disclosure on page 96 that the offering is being
made on a commercially reasonable best efforts basis. We are unfamiliar with the term
commercially reasonable efforts in connection with a best efforts offering. Please explain what
is meant by the term.
We understand that the term commercially reasonable efforts basis in connection with a
public offering has a well-established meaning in Canada and had used that term in our prospectus
at the request of our Canadian agents. We do not believe that the term has any meaning distinct
from best efforts basis in the context of a US public offering. Accordingly, we have changed
each reference to commercially reasonable efforts basis or commercially reasonable best
efforts basis throughout the prospectus to best efforts basis. Please see the cover page,
offering summary and page 96 of the Amendment.
3. We note your disclosure that neither you nor your agents will receive any funds in payment for
the securities sold in this offering until the closing and, therefore, you have no arrangements to
place funds in an escrow account. In your response letter, please explain who will collect payment
for the securities and when such payment will be collected. Also, since neither the company nor
its agents will collect the funds, explain how the company will know at the closing if it has
reached the required minimum gross proceeds for the offering. Finally, please tell us how you
intend to comply with Rules 10b-9 and 15c2-4 of the Exchange Act without appointing an escrow
agent.
We will appoint JP Morgan Chase Bank, National Association, or one of its affiliates, as
escrow agent to collect payment for the securities in order for us to comply with Rules 10b-9 and
15c2-4 of the Exchange Act. We have revised the prospectus accordingly. Please see the cover page
and underwriting section of the Amendment.
Risk Factors
There is currently no trading market for our securities..., page 20
Securities and Exchange Commission
Division of Corporation Finance
October 16, 2009
Page 3
4. We note your response to prior comment 14. Please move the discussion regarding shareholders
inability to exercise the warrants in the absence of an effective registration statement to a
separately captioned risk factor. Disclose in that risk factor those states, if any, in which you
intend to register or otherwise qualify your securities for sale. Highlight the fact that
investors will not be able to exercise the warrants in states where your common stock has not been
registered.
The requested changes and additional disclosures have been made. Please see the new risk
factor on page 20 of the Amendment.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and capital resources, page 48
5. Your response to prior comment No. 22 indicates that you offer significant early payment
discounts on your accounts receivable balances. Please clarify how you account for these early
payment discounts and tell us how such discounts are recorded in your consolidated statements of
operations.
Historically, we have accounted for early payment discounts as a cost of goods sold in our
consolidated statements of operations. The following table shows the total early payment discounts
in dollars and as a percentage of total sales for the years ended December 31, 2006, 2007 and 2008
and the six months ended July 31, 2009:
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Period |
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Early Payment Discounts |
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Percentage of Total Sales |
Year Ended December 31, 2006
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$ |
25,419.00 |
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0.267 |
% |
Year Ended December 31, 2007
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$ |
13,937.03 |
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0.137 |
% |
Year Ended December 31, 2008
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$ |
74,603.14 |
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0.59 |
% |
Six Months Ended June 30, 2009
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$ |
37,315.08 |
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0.73 |
% |
After further research we have concluded that early payment discounts are typically
presented as a reduction in sales rather than as a cost of goods sold and we will account for them
accordingly. We have also restated our sales and cost of sales for our year ended December 31, 2008
and for the three and six month periods ended June 30, 2009 and 2008 in this Amendment. We have not
restated those accounts in our financial statements for the years ended December 2006 and 2007 as
the necessary adjustments would be immaterial and the current treatment did not result in any
misstatement of gross margin or net income for those years.
6. Your response to prior comment No. 24 indicates that you believe there was no uncertainty in
your going concern assumptions when preparing your financial statements for the year ended December
31, 2008. Please explain, in greater detail, the basis for your conclusion. In this regard, your
analysis did not consider the $500,000 convertible note payable due in
Securities and Exchange Commission
Division of Corporation Finance
October 16, 2009
Page 4
January 2009 that is past due. Further, you indicate that your suppliers would continue to extend
credit and that you have the ability to raise capital consistently, however, you do not address the
ability of each of these sources of financing to continue to support your operations. Explain how
your operating budget for 2009 compares to your actual cash flows from operations during the six
months ended June 30, 2009 and the nine months ended September 30, 2009. Demonstrate why you
believed that you would have positive cash flows in 2009 while in all prior years you have
experienced negative cash flows. That is, describe why you believed you would have positive cash
flow (e.g., reduction of operating expenses, increased revenue based on executed contracts). Tell
us any other conditions or events that you considered in reaching your conclusion that there was no
uncertainty in your going concern assumptions. Revise your disclosures to provide similar
information outlined in your response.
We
concluded that there was no substantial uncertainty in our going concern assumptions when preparing our
financial statements for the year ended December 31, 2008 based upon the factors described in our
response to prior comment No. 24 and upon the following additional factors:
Date of Opinion
Our auditors issued their opinion with respect to our 2008 financial statements on June 17, 2009.
By then, almost six months of the 2009 calendar year had elapsed, and our financial performance was
reasonably consistent with our projections. This bolstered our conclusion that there was no
substantial uncertainty that we would continue to operate as a going concern at least until the end of
2009.
$500,000 convertible note payable due in January 2009
The
$500,000 convertible note due in January 2009 is payable to Sally
Hyde Burdick. Prior to the maturity of the note, we approached Ms. Burdick to negotiate an
extension of the maturity of the note. Although the note was not
formally extended, Ms. Burdick orally agreed not to demand
immediate repayment provided that we make monthly interest payments on the principal amount
of the note at the annual rate of 18% to which we agreed. When we prepared our 2008 financial statements in June 2009, we
had made the required monthly interest payments for four consecutive months and we believed
that we would continue to be able to make these interest payments for the foreseeable future from
our budgeted cash flows from operations. To date we have done so.
Based upon our long relationship
with Ms. Burdick and her statements regarding her personal financial
position, we believed Ms. Burdick was unlikely to demand payment so long as she was receiving the
return that we had agreed upon. We also believed that if Ms. Burdick demanded payment of the note,
our management would be able to raise the funds necessary to pay the amount due either from their
personal resources or those of other stockholders, who had provided financial resources to us in
the past. As described in more detail below, since 2000 our management has raised approximately
$11.8 million from those and other private sources. Accordingly, in June 2009, we concluded that
our default under the note did not create any substantial uncertainty in our going concern
assumptions.
Securities and Exchange Commission
Division of Corporation Finance
October 16, 2009
Page 5
The ability of suppliers to continue to support our operations
We
have relied on extensions of credit from three of our major suppliers: Kopin Corporation;
Vast Technologies, Inc.; and KEK Associates, Inc. Kopin, the largest of our trade creditors, is
a public company. In order to determine whether Kopin would be able to continue to extend credit to
us we reviewed its Quarterly Report on Form 10-Q for the three month period ended March 28, 2009
filed with the Commission on May 6, 2009. According to that report, as of March 28, 2009, Kopin had
cash and equivalents and marketable securities of $104,056,727, working capital of $117,411,466
and net income $2,099,700 for the three month then ended.
Accordingly, we determined that Kopin would be able to continue to extend credit to us in manner consistent with past practice.
Kopin is also a substantial
shareholder in us, and we believed that based upon our relationship
with its management and its equity interest in us, it would be willing to continue to extend trade
credit, including by providing us with advance payments on their orders for night vision display electronics
that we build for them. We also believed that Kopin would continue to take advantage of our 2% early payment discounts as they have done in the past. To date they have continued to do so. It should be noted that our sales
to Kopin/DRS continue to represent 20% of our revenues.
Vast and KEK are both private companies and we had no direct access to
their financial condition.
However, each of Vast and KEK are wholly-owned by one of our stockholders.
Our management has longstanding relationships with these individuals.
Based on conversations with these individuals and our
course of dealing with those companies, we concluded that they would
be willing and able to
continue to extend credit to us in manner consistent with their past practice.
Availability
of Additional Capital
Since December 2000, we have raised $11,858,000 in equity and debt financing through private
placements. We have also raised an additional $1,626,000 in
loans (in addition to the loan from Ms. Burdick), of which $650,000 was borrowed from current management and stockholders. As disclosed in our
prospectus, our Chief Executive Officer and Chief Financial Officer
loaned us an aggregate of $209,208 more than five years ago to finance our operations; in October 2008, our Chief
Executive Officer loan us an additional $165,500 under a revolving loan
agreement; in August 2009 we borrowed $200,000 from three stockholders (including $50,000 from our
Vice President of Quality Assurance, the beneficial owner of approximately 9% of our issued and
outstanding common stock). Based on our
knowledge of the financial resources of our management and these stockholders, we concluded that,
if necessary, they would be able to continue to loan money to us to finance our operations in a manner consistent with
their past practice.
Accordingly, in June 2009, we concluded that our reliance on our suppliers to continue to
extend credit and our reliance on management and other stockholders as sources of capital to
finance our operations eliminated a substantial uncertainty in our going concern assumptions. We respectfully
note that, from the time we prepared our 2008 financial statements to date, all three of the
suppliers named above have continued to extend credit to us in manner consistent with their past
practice and that we were in fact able to raise $300,000 in equity financing from those sources in January 2009 and to borrow $200,000 from those sources in August 2009.
Our operating budget for the six
months ended June 30, 2009 and the nine months ended
September 30, 2009 compared to our actual cash flows from operations
Securities and Exchange Commission
Division of Corporation Finance
October 16, 2009
Page 6
Our operating budget for the six months ended June 30, 2009 provided for gross profit of
$2,251,320 on net revenues of $6,460,869 and net income before tax of $(747,785). Our actual
results of operations (unaudited) for the six months ended June 30, 2009 were gross profit of
$1,860,226 on net revenues of $5,119,402 and net income before tax of $(1,487,565). Our operating
budget for the nine months ended September 30, 2009 provided for gross profit of $3,023,035 on net
revenues of $8,983,253 and net income before tax of $(1,787,865). Our estimated actual results of
operations (unaudited) for the nine months ended September 30, 2009 were gross profit of $2,892,259
on net revenues of $7,690,675 and net income before tax of $(1,784,658). More details regarding the
comparisons of our operating budgets for the six months ended June 30, 2009 and the nine months
ended September 30, 2009 to our actual results for those periods, and our operating budget for the
current fiscal quarter, are set forth on Exhibit A attached to this letter.
After adding back depreciation to our losses for those periods, our cash flow for the six
months ended June 30, 2009 was ($1,052,442) as compared to a budgeted operating cash flow for the
period of ($459,488). Our operating cash flow for the nine months ended September 30, 2009 was
($1,191,710) an improvement over our budgeted operating cash flow for the period of
($1,311,702).
Why we believed we would have positive cash flow in 2009
In June 2009, we concluded that, with the continued support of our note holders and suppliers
as described above, we would have positive cash flow for 2009 for two reasons: We had
substantially reduced our costs and our revenues for the year to date had increased and were
expected to continue to increase.
In November 2008, we implemented a cost reduction program, which included a 20% reduction in
our work force. Reductions were made in most areas of the company, although slightly higher
reductions took place in research and development and smaller reductions were made in
revenue-generating areas such as sales and marketing. We also reduced our use of external
consultants for development work. As a result, we achieved a 32% reduction in research and
development expenses and a 10% reduction in general and administrative expense in the first quarter
of 2009 compared to the first quarter of 2008. We believed that we would be able to maintain these
savings throughout 2009 and estimated that they would result in an aggregate reduction in expenses
of $1,500,000 for 2009 as compared to 2008, without adversely affecting our sales.
Our revenues for the first quarter of 2009 increased by 77% over revenues for the first
quarter of 2008. This increase was primarily attributable to increased orders for defense products
from our night vision display drive electronics customer and increased distribution of our consumer
Video Eyewear products in the United Kingdom and Japan. We believed these increases would continue
through 2009, due in part to the fact that our business is seasonal, with our greatest revenues
occurring during the third and fourth quarters, and that it was therefore reasonable to expect
further increases in sales for the third and fourth quarters of 2009.
As a result of our increased sales, cost reductions and increased expenses, our net loss for
the first quarter of 2009 was approximately 73% lower than our net loss for the first quarter of
2008. In June 2009, based on the preliminary information then available to us, we concluded that
our results of operations for the first six months of 2009 would show that our reductions in
expenses and increased sales of consumer Video Eyewear products had continued. As disclosed in the financial statements included in the prospectus, our actual net loss for the
second quarter of 2009 was $(1,038,976), a decrease of $(76,348) or approximately 7% from our net
loss for the second quarter of 2008 and our cash flow was ($741,045) an improvement decrease of
$207,324, or approximately 22% from our negative cash flow for the second quarter of 2008.
In conclusion we feel that our determination that there was no substantial uncertainty
regarding our ability to continue as a going concern was reasonable and correct. And finally we
would like to point out that today, nearly ten months after December 31, 2008, we are still
operating as a going concern as additional confirmation that those assumptions were still valid.
Securities and Exchange Commission
Division of Corporation Finance
October 16, 2009
Page 7
As you requested, we have revised our prospectus to provide similar information to that
outlined in this response. Please see the new paragraph under Current Financial Position in the
Managements Discussion and Analysis section beginning on page 50 of the Amendment.
7. Explain how your auditors concluded that there is no uncertainty in your going concern
assumption. Specifically, describe why they believe that a commercial reasonable basis
(originally, best efforts) offering is a sufficient basis to overcome uncertainty in your going
concern assumption. That is, it appears that without this offering the company would experience
material adverse effects on its ability to continue to operate.
Our auditors concluded that there is no uncertainty in our going concern assumption based upon
the factors described in our response to comment No. 6 above and in our response to prior comment
No. 24. More specifically, at the time their opinion was rendered in June 2009, our auditors reviewed the
actual financial performance and cash flows of the company for the five months ended March 31, 2009
compared to the budget and the prior year comparable periods. Our auditors also reviewed the
available resources of affiliates including the historical and continuing capital infusion from
those affiliates in reaching their conclusion that a substantial doubt about our ability to
continue as a going concern was overcome. Our auditors expressly excluded our proposed public offering from their consideration of
any uncertainty in our going concern assumption.
8. Your response to prior comment No. 24 indicates that your suppliers are shareholders of the
company. If so, please add the appropriate disclosures for related party transactions as outlined
in SFAS 57.
In our response to prior comment No. 24, we referred to three of our major suppliers: Kopin
Corporation; Vast Technologies, Inc.; and KEK Associates, Inc. Kopin, the largest of our trade
creditors, beneficially owns 7,973,646 shares of our common stock or approximately 3.6% of our
outstanding common stock and accordingly our transactions with Kopin have been fully disclosed in
Note 25 to our financial statements in accordance with SFAS 57. Neither Vast nor KEK beneficially
owns any of our common stock. The president and sole stockholder of Vast, the second largest of our
trade creditors, beneficially owns 2,000,000 shares of our common stock or approximately 0.9% of
our outstanding common stock. The president and sole stockholder of KEK, the third largest of our
trade creditors, beneficially owns 656,765 shares of our common stock or approximately 0.3% of our
outstanding common stock. We respectfully submit that under SFAS 57 no additional disclosure is
required regarding our transactions with Vast and KEK because the percentages of our outstanding
common stock owned by their affiliates are immaterial. Accordingly, no additional disclosure has
been made in response to this comment.
Management, page 66
9. In your response to prior comment 26, you state that Mr. Russell is not involved in any of your
daily accounting functions, which are performed by your controller. However, Mr. Russell is
identified as your principal accounting officer on the signature page of the registration
statement. In your response letter, please describe Mr. Russells role and responsibilities as
your principal accounting officer.
Securities and Exchange Commission
Division of Corporation Finance
October 16, 2009
Page 8
As our principal accounting officer, Mr. Russells responsibilities are to:
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oversee and ensure that the monthly and annual financial statements
and other financial information are prepared timely and accurately to facilitate
effective decision making and our financial reporting requirements; |
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coordinate capital requests and reconciliation of budgets to actual
for reporting to our management and board of directors on a regular basis; |
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coordinate with our auditors and attorneys on regulatory filings; |
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oversee the construction and monitoring of systems, policies and
procedures that ensure adequate internal controls and financial procedures; |
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oversee the maintenance of appropriate internal controls and financial
procedures; and |
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identify risks to the Company and ensure the maintenance of adequate
insurance coverage. |
Related Party Transactions
Shareholder Loan, page 80
10. We note that you have not disclosed the name of the individual lender from whom you borrowed
the $500,000 or the basis on which he or she is a related person. See Item 404(a)(1) of Regulation
S-K. Please disclose this information in this section or tell us why you believe it is not
required to be disclosed.
The requested disclosure has been made. Please see page 80 of the Amendment.
Description of Capital Stock
Warrants, page 88
11. We note your response to prior comment 31. It does not appear that you have amended the
registration statement to describe the factors you considered in determining the exercise price of
the warrants being sold in the offering. Please advise.
The requested disclosure has been made. Please see page 88 of the Amendment.
Securities and Exchange Commission
Division of Corporation Finance
October 16, 2009
Page 9
Convertible Debt, page 80
12. We note your response to prior comment 33. We are unable to concur with your conclusion that
the company may refrain from filing the promissory note as an exhibit in reliance on paragraphs (A)
and (B) of Item 601(b)(4)(iii). The exception at Item 601(b)(4)(iii)(A) does not appear to apply
because the outstanding principal balance on the note exceeds 10% of the companys total assets at
June 30, 2009. Also, note that if the accrued and unpaid interest on the promissory note is added
to the principal balance, the outstanding balance on the note exceeds 10% of the companys current
assets at March 31, 2009 as well as at June 30, 2009. The exception at Item 601(b)(4)(iii)(B) also
does not appear applicable. You indicate in your response that you intend to repay the note from
the proceeds of the offering. Since the offering will not close unless the company receives
minimum gross proceeds of Cdn $6,000,000, however, it does not appear that the company has taken
appropriate steps to assure that the note will be redeemed or retired prior or upon to delivery
of the registered securities. Accordingly, please file the promissory note as an exhibit to your
next amendment.
We have filed the promissory note as an exhibit to the Amendment. Please see Exhibit 10.20 to
the Amendment.
Consolidated Financial Statements
Consolidated Statements of Changes in Stockholders Equity page F-4
13. Please clarify the guidance that you relied upon to record the direct IPO associated expenses
as a reduction of additional-paid-in-capital.
SEC Staff Accounting Bulletin: Codification of Staff Accounting Bulletins, Topic 5.A, S25-1,
paragraph 340-10-S99-1 provides that the specific incremental costs directly attributable to a
proposed offering of securities may be properly deferred and charged against the gross proceeds of
the offering. Deferred costs of an aborted offering may not be deferred and charged against
proceeds of a subsequent offering. A short postponement (up to 90 days) does not represent an
aborted offering. Topic 340-10-S99 covers setting such costs as an asset and topic 505-10-S25
refers to the equity component. Both these sections also refer to Topic 5.A.
Since this is an interim reporting period and the amounts involved are not material we did not
record our direct IPO associated expenses as an asset. We concluded that it was better to reflect
those expenses on that part of the balance in which they would be reflected upon the closing of the
offering. At this time we still expect to close our offering in the forth quarter of 2009. If the
offering is not closed, these expenses will be treated operating expenses in the future.
Additionally, we respectfully note that this deferral is fully disclosed in our consolidated
statement of cash flows.
Securities and Exchange Commission
Division of Corporation Finance
October 16, 2009
Page 10
Consolidated Statements of Operations, page F-6 and F-7
14. Please clarify whether your calculation of basic and diluted earnings per share is computed
using the weighted average number of common shares outstanding for the period. In this respect, it
appears from your presentation on the face of your consolidated statements of operations that your
basic and diluted earnings per share were computed using the number of issued and outstanding
shares at the end of each respective period rather than the weighted average number of common
shares outstanding for the period.
Upon review, we have determined that our basic and diluted earnings per share were not
calculated using the weighted average number of common shares outstanding for the period and we
have corrected them accordingly. Please see pages F-6 and F-7 of the Amendment.
Note 2 Nature of Business and Summary of Significant Accounting Policies
Revenue Recognition, page F-11
15. Your response to prior comment No. 35 indicates from time to time, free software upgrades have
been made available on your product sales arrangements usually to add some new level of
functionality. Explain why you do not believe this is an indicator that the software is more than
incidental to your products as a whole. We refer you to paragraph 2 and footnote 2 of SOP 97-2.
Tell us how you determined that these software upgrades do not represent a separate element in your
product sales arrangements. In addition, explain how you satisfy the delivery criteria in SOP 97-2
and/or SAB 104 considering your history of offering free software upgrades that usually add some
new level of functionality to your products.
We respectfully note that to date we have only offered one free software upgrade. This upgrade
added a single new feature to one model of our Video Eyewear products, which already included
dozens of features. Specifically, the upgrade supported a new 3D video format that we thought some
purchasers of that model might like to try. We had no obligation to provide this upgrade and have
no obligation to provide any other upgrades in the future. We have no substantial obligations for
any post-sale customer support service offerings or for future releases of the embedded software.
We respectfully submit that the provisions of SOP 97-2 and SAB 104 do not apply because only
some of our Video Eyewear products have embedded software that can be upgraded. Therefore, our
software has been and is correctly considered incidental to our products as a whole. Our software
is not a deliverable that our customers have any expectation of receiving upon purchase of our
products. Any additional upgrades, if and when offered, will be made at our discretion and will not
be essential to the functionality of our products as delivered. Possible future upgrades are not
included in any of our marketing efforts. Accordingly, we feel our accounting for our Video
Eyewear product revenues is correct and thus the provisions of SOP 97-2 and SAB 104 do not apply.
Securities and Exchange Commission
Division of Corporation Finance
October 16, 2009
Page 11
Earnings per share, page F-13
16. We note your response to prior comment No. 36. Please clarify how you considered the guidance
in Issue 5 of EITF 03-6 when calculating your basis net loss per common share. In this respect,
please tell us whether your Series C Preferred Shares are entitled to participate in your net
losses.
Our Series C Preferred shares are not entitled (or required) to participate in our net losses
and do not share in our profits. Accordingly, we feel they should not be included in our basic net
loss per common share calculations other than for the accrual of their cumulative dividends. This
treatment is consistent with the guidance contained in Issue 5 of EITF 03-6.
Note 19 Stock Subscription Receivable, page F-26
17. Please clarify the guidance that you relied upon to account for the forgiveness of the
subscription receivable as a reduction of additional-paid-in-capital.
As requested by the Staff Accountant during our telephone conference of October 8, 2009, below
are the accounting entries that were originally used to set up the share subscriptions receivable
and its reversal in our last reporting period.
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Originally Recorded As:
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Subscription Rec.
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58,377.51 |
Subscription Rec.
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35,803.56 |
Additional Pd in Capital
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94,181.06 |
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Forgiveness:
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Wages
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58,377.51 |
Wages
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22,668.86 (reflects interest accrued up till date of forgiveness) |
Additional Paid in Capital
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13,134.69 |
Subscription Receivable
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94,181.06 |
As described above, the receivable was originally booked on a gross basis in 2001. This
treatment was consistent with the SEC Staff Accounting Bulletin Topic 4:E (now SAP 107), which
provides that the amount recorded as a receivable should be presented in the balance sheet as a
deduction from stockholders equity. This treatment is also consistent with Rule 5-02.30 of
Regulation S-X, which provides that accounts or notes receivable arising from transactions
involving the registrants capital stock should be presented as deductions from stockholders
equity and not as assets.
Securities and Exchange Commission
Division of Corporation Finance
October 16, 2009
Page 12
As a result of this adjustment, we have charged the amounts received for the shares and earned
interest to compensation expense and then reversed the unearned interest revenue portion that was
originally recorded to additional paid-in capital. Excluding the interest portion, we believe that
such a reversal is consistent with GAAP, but we have been unable to find specific reference
examples where the forgiveness included a gross interest reversal.
We have revised Note 19 to our consolidated financial statements to explain this treatment.
Please see the amended Note 19 on page F-26 of the Amendment. In addition, we have changed the
descriptions of these transactions on pages F-5 and F-8 to Adjustment of Subscriptions Receivable
Item 17, Undertakings, page II-6
18. We note your response to prior comment 40. Please provide the undertaking at Item 512(a)(5)(i)
or (a)(5)(ii), as appropriate.
The requested undertaking has been provided. Please see page II-6 of the Amendment.
Please do not hesitate to call me at (585) 238-3576, or my colleague, Lawrence Kallaur, at
(585) 238-3530, if you have any questions or would like any additional information regarding this
matter.
Very truly yours,
/s/ Robert
F. Mechur
Robert F. Mechur
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Messrs. Paul J. Travers
Grant Russell |
Exhibit A
Vuzix Corporation
Operating Budget Compared to Actual Results for the
Six Months Ended June 30, 2009
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|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
Actual |
|
|
|
Budget |
|
|
(unaudited) |
|
Revenue |
|
|
|
|
|
|
|
|
Defense & Industrial |
|
|
3,526,390 |
|
|
|
1,865,815 |
|
Engineering Services |
|
|
1,315,842 |
|
|
|
2,670,615 |
|
Consumer iWear |
|
|
1,513,434 |
|
|
|
565,355 |
|
Medical Vision Products |
|
|
105,203 |
|
|
|
17,617 |
|
Net Revenue |
|
|
6,460,869 |
|
|
|
5,119,402 |
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
|
|
4,209,549 |
|
|
|
3,259,177 |
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
2,251,320 |
|
|
|
1,860,225 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Research & Development |
|
|
746,198 |
|
|
|
945,897 |
|
Sales & Marketing |
|
|
1,218,755 |
|
|
|
976,041 |
|
General & Administrative |
|
|
745,855 |
|
|
|
990,729 |
|
Depreciation |
|
|
185,027 |
|
|
|
306,343 |
|
Sub-total of Operating Expenses |
|
|
2,895,835 |
|
|
|
3,219,010 |
|
|
|
|
|
|
|
|
|
|
Loss from Operations |
|
|
(644,515 |
) |
|
|
(1,358,785 |
) |
|
|
|
|
|
|
|
|
|
Net Other Income (Expense) Interest |
|
|
(103,270 |
) |
|
|
(127,005 |
) |
Income taxes |
|
|
|
|
|
|
(1,776 |
) |
|
|
|
|
|
|
|
|
|
Net Income Before Tax |
|
|
(747,785 |
) |
|
|
(1,487,566 |
) |
A-1
Vuzix Corporation
Operating Budget Compared to Actual Results for the
Nine Months ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Actual |
|
|
|
Budget |
|
|
(unaudited) |
|
Revenue |
|
|
|
|
|
|
|
|
Defense & Industrial |
|
|
4,472,550 |
|
|
|
4,317,639 |
|
Engineering Services |
|
|
1,693,842 |
|
|
|
833,210 |
|
Consumer iWear |
|
|
2,772,743 |
|
|
|
2,520,480 |
|
Medical Vision Products |
|
|
44,117 |
|
|
|
19,345 |
|
Net Revenue |
|
|
8,983,253 |
|
|
|
7,690,675 |
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
|
|
5,960,217 |
|
|
|
4,798,416 |
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
3,023,035 |
|
|
|
2,892,259 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Research & Development |
|
|
1,384,565 |
|
|
|
1,372,328 |
|
Sales & Marketing |
|
|
1,756,242 |
|
|
|
1,427,114 |
|
General & Administrative |
|
|
1,213,929 |
|
|
|
1,284,527 |
|
Depreciation |
|
|
281,411 |
|
|
|
424,273 |
|
Sub-total of Operating Expenses |
|
|
4,636,148 |
|
|
|
4,508,242 |
|
|
|
|
|
|
|
|
|
|
Loss from Operations |
|
|
(1,613,113 |
) |
|
|
(1,615,983 |
) |
|
|
|
|
|
|
|
|
|
Net Other Income (Expense) Interest |
|
|
(174,752 |
) |
|
|
(194,506 |
) |
Income taxes |
|
|
|
|
|
|
25,831 |
|
|
|
|
|
|
|
|
|
|
Net Income Before Tax |
|
|
(1,787,865 |
) |
|
|
(1,784,658 |
) |
A-2
Vuzix Corporation
Operating Budget for the Three Months Ending December 31, 2009
|
|
|
|
|
|
|
Three Months Ending |
|
|
December 31, 2009 |
|
|
Budget |
Revenue |
|
|
|
|
Defense & Industrial |
|
|
1,941,600 |
|
Engineering Services |
|
|
50,000 |
|
Consumer iWear |
|
|
4,159,853 |
|
Medical Vision Products |
|
|
127,262 |
|
Net Revenue |
|
|
6,278,715 |
|
|
|
|
|
|
Cost of Goods Sold |
|
|
3,946,193 |
|
|
|
|
|
|
Gross Profit |
|
|
2,332,522 |
|
|
|
|
|
|
Expenses |
|
|
|
|
Research & Development |
|
|
463,479 |
|
Sales & Marketing |
|
|
950,632 |
|
General & Administrative |
|
|
515,080 |
|
Depreciation |
|
|
107,893 |
|
Sub-total of Operating Expenses |
|
|
2,037,084 |
|
|
|
|
|
|
Loss from Operations |
|
|
295,438 |
|
|
|
|
|
|
Net Other Income (Expense) Interest |
|
|
(25,633 |
) |
Income taxes |
|
|
|
|
|
|
|
|
|
Net Income Before Tax |
|
|
269,804 |
|
A-3