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Vuzix Corp (VUZI)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2016

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-35955

VUZIX CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (585) 359-5900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of August 15, 2016, there were 17,356,161 shares of the registrant’s common stock outstanding.

Vuzix Corporation

INDEX

Page
No.
Part I – Financial Information 3
Item 1. Condensed Consolidated Financial Statements (Unaudited): 3
Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 3
Consolidated Statement of Changes in Stockholder’s Equity for the Six Months Ended June 30, 2016 4
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015 5
Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2016 and 2015 6
Notes to the Unaudited Condensed Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Controls and Procedures 28
Part II – Other Information 29
Item 1. Legal Proceedings 29
Item 1A. Risk Factors 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 3. Defaults Upon Senior Securities 29
Item 4. Mine Safety Disclosure 29
Item 5. Other Information 29
Item 6. Exhibits 30
Signatures 31

Part 1: FINANCIAL INFORMATION

VUZIX CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)
June 30, December 31,
2016 2015
ASSETS
Current Assets
Cash and Cash Equivalents $ 4,586,333 $ 11,877,058
Accounts Receivable 101,883 325,694
Inventories, Net 3,470,954 3,349,098
Manufacturing Vendor Prepayments 424,574 369,411
Prepaid Expenses and Other Assets 869,000 608,950
Total Current Assets 9,452,744 16,530,211
Fixed Assets, Net 2,551,228 2,015,433
Patents and Trademarks, Net 520,403 515,697
Software Development Costs, Net 358,063 501,288
Total Assets $ 12,882,438 $ 19,562,629
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable $ 1,057,169 $ 907,434
Current Portion of Long-Term Debt, net of discount 1,468,396 55,790
Customer Deposits 34,970 27,847
Unearned Revenue 261,135 69,481
Accrued Expenses 915,062 734,497
Income and Other Taxes Payable 18,400 7,073
Total Current Liabilities 3,755,132 1,802,122
Long-Term Liabilities
Long-Term Derivative Liability 238,799 240,786
Long-Term Portion of Term Debt, net of discount 1,227,550
Long-Term Portion of Accrued Expenses 33,333 38,333
Long-Term Portion of Accrued Interest 160,967
Total Long-Term Liabilities 272,132 1,667,636
Total Liabilities 4,027,264 3,469,758
Stockholders’ Equity
Preferred Stock — $.001 Par Value, 5,000,000 Shares Authorized; 49,626 Shares Issued and Outstanding June 30, 2016, and December 31, 2015 50 50
Common Stock — $.001 Par Value, 100,000,000 Shares Authorized; 16,155,529 Shares Issued and Outstanding June 30, 2016 and 16,087,951 on December 31, 2015 16,156 16,088
Additional Paid-in Capital 74,307,065 73,665,601
Accumulated Deficit (65,468,097 ) (57,588,868 )
Total Stockholders’ Equity 8,855,174 16,092,871
Total Liabilities and Stockholders’ Equity $ 12,882,438 $ 19,562,629

The accompanying notes are an integral part of these consolidated financial statements.

VUZIX CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Preferred Stock Common Stock Additional Accumulated
Shares Amount Shares Amount Paid-In Capital Deficit Total
Balance — December 31, 2015 49,626 $ 50 16,087,951 $ 16,088 $ 73,665,601 $ (57,588,868 ) $ 16,092,871
Stock Based Compensation Expense 349,206 349,206
Conversion of Note Payable & Accrued Interest 10,000 10 22,490 22,500
Exercise of Warrants 15,000 15 44,985 45,000
Common Stock Award 10,000 10 50,790 50,800
Stock Issues for Services 32,578 33 173,993 174,026
Net Loss for the Six Months Ended June 30, 2016 (7,879,229 ) (7,879,229 )
Balance — June 30, 2016 49,626 $ 50 16,155,529 $ 16,156 $ 74,307,065 $ (65,468,097 ) $ 8,855,174

The accompanying notes are an integral part of these consolidated financial statements.

VUZIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For Three Months For Six Months
Ended June 30, Ended June 30,
2016 2015 2016 2015
Sales of Products $ 421,377 $ 427,812 $ 785,217 $ 1,123,386
Sales of Engineering Services 139,500 139,500 113,581
Total Sales 560,877 427,812 924,717 1,236,967
Cost of Sales — Products 647,871 392,548 1,250,848 977,938
Cost of Sales — Engineering Services 39,060 39,060 45,432
Total Cost of Sales 686,931 392,548 1,289,908 1,023,370
Gross Profit (Loss) (exclusive of depreciation shown separately below) (126,054 ) 35,264 (365,191 ) 213,597
Operating Expenses:
Research and Development 1,669,043 732,491 2,943,756 1,247,198
Selling and Marketing 651,547 345,262 1,778,046 702,809
General and Administrative 1,199,427 1,023,244 2,085,744 3,958,149
Depreciation and Amortization 183,686 78,548 352,874 138,187
Loss from Operations (3,829,757 ) (2,144,281 ) (7,525,611 ) (5,832,746 )
Other Income (Expense)
Interest Income 3,324 12,779
Other Taxes (13,904 ) (2,290 ) (34,625 ) (14,065 )
Foreign Exchange (Loss) Gain (3,536 ) (4,223 ) (7,484 ) 1,048
Gain (Loss) on Derivative Valuation (99,679 ) (23,279 ) 1,987 (1,026,706 )
Amortization of Senior Term Debt Discount (114,816 ) (178,981 ) (236,022 ) (519,941 )
Amortization of Deferred Financing Costs (11,580 ) (11,580 ) (23,160 ) (23,032 )
Interest Expenses (33,542 ) (37,693 ) (67,093 ) (77,737 )
Total Other Income (Expense) (273,733 ) (258,046 ) (353,618 ) (1,660,433 )
Loss Before Income Taxes (4,103,490 ) (2,402,327 ) (7,879,229 ) (7,493,179 )
Provision (Benefit) for Income Taxes
Net Loss (4,103,490 ) (2,402,327 ) (7,879,229 ) (7,493,179 )
Preferred Stock Dividends (399,715 ) (376,545 ) (793,540 ) (735,483 )
Loss Attributable to Common Stockholders $ (4,503,205 ) $ (2,778,872 ) $ (8,672,769 ) $ (8,228,662 )
Loss per Share
Basic and Diluted Loss per Share (Note 2) $ (0.28 ) $ (0.17 ) $ (0.54 ) $ (0.56 )
Weighted-average Shares Outstanding Basic and Diluted 16,137,419 15,934,279 16,135,881 14,754,298

The accompanying notes are an integral part of these condensed consolidated financial statements

VUZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the Six Months Ended
June 30,
2016 2015
Cash Flows from Operating Activities
Net Loss $ (7,879,229 ) $ (7,493,179 )
Non-Cash Adjustments
Depreciation and Amortization 352,874 138,187
Amortization of Software Development Costs in Cost of Sales products 143,225 143,225
Common Stock Awards Compensation Expense 50,800 1,475,000
Stock Based Option Compensation Expense 349,206 252,331
Amortization of Term Debt Discount and Debt Issuance Costs 259,182 542,973
Common Stock and Warrants Issued for Services
124,874 821,121
(Gain) Loss on Derivative Valuation (1,987 ) 1,026,706
(Increase) Decrease in Operating Assets
Accounts Receivable 223,811 299,153
Inventories (121,856 ) (174,889 )
Vendor Prepayments (55,163 ) (687,681 )
Prepaid Expenses and Other Assets (210,899 ) (90,547 )
Increase (Decrease) in Operating Liabilities
Accounts Payable 149,734 (1,495,169 )
Accrued Expense 179,151 20,770
Customer Deposits 7,123 (98,678 )
Unearned Revenue 191,654 15,188
Income and Other Taxes Payable 11,327 (28,426 )
Accrued Interest & Long-Term Accrued Interest Converted (160,967 ) 43,954
Net Cash Flows Used in Operating Activities (6,387,140 ) (5,289,961 )
Cash Flows from Investing Activities
Purchases of Tooling and Equipment (836,541 ) (171,243 )
Purchases of Marketable Securities (5,000,000 )
Investments in Patents and Trademarks (56,834 ) (126,975 )
Net Cash Used in Investing Activities (893,375 ) (5,298,218 )
Cash Flows from Financing Activities
Proceeds from Exercise of Warrants 45,000 1,217,626
Repayment of Capital Leases (10,873 )
Repayment of Long-Term Debt and Notes Payable (55,210 ) (141,883 )
Proceeds from Preferred Stock Offering 24,813,000
Issuance Costs on Preferred Stock Offering (214,169 )
Net Change in Line of Credit (112,500 )
Net Cash Flows (Used in ) Provided by Financing Activities (10,210 ) 25,551,201
Net (Decrease) Increase in Cash and Cash Equivalents (7,290,725 ) 14,963,022
Cash and Cash Equivalents — Beginning of Period 11,877,058 84,967
Cash and Cash Equivalents — End of Period $ 4,586,333 $ 15,047,989
Supplemental Disclosures
Interest Paid in Cash $ 11,444 $ 25,495
Common Stock and Warrants Issued for Services, Initially Classified as Prepaid Expense $ 174,025 $ 843,937
Conversion of Long-Term Debt and Accrued Interest $ 22,500 $ 427,500
Reclassification of Derivative Liability to Paid-In Capital upon Waiver of Certain Anti-Dilutive Provisions of Warrants and Convertible Debt $ $ 11,543,354
Reclassification of Derivative Liability Upon Warrant Exercises $ $ 2,855,463

The accompanying notes are an integral part of these condensed consolidated financial statements.

VUZIX CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Vuzix Corporation and Subsidiaries (“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 Article 8 of Regulation S-X of the Securities and Exchange Commission. Accordingly, the unaudited Condensed Consolidated Financial Statements do not include all of the 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. The condensed consolidated balance sheet as of December 31, 2015 was derived from the audited Consolidated Financial Statements in Form 10-K.

The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of the Company as of December 31, 2015, as reported in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

For the six months ended June 30, 2016 one customer accounted for approximately 22% of sales. There was no single customer in the 2015 period that accounted for over 10% of total sales. Accounts receivable as of June 30, 2016 is 64% composed of amounts owed by that same customer.

The accompanying Condensed 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 Condensed 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 net loss for the first six months of 2016 was $7,879,229. The Company has incurred a net loss consistently over the last 2 years. The Company incurred annual net losses of $13,427,478 in 2015 and $7,868,858 in 2014, and has an accumulated deficit of $65,468,097 as of June 30, 2016.

The Company’s cash requirements are primarily for funding operating losses, working capital, research, debt service 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 these cash needs by borrowings under notes, sales of convertible debt, and the sales of equity.

On July 11, 2016, the Company closed its public offering of 1,150,000 shares of common stock, at a public offering price of $5.75 per share. Total gross proceeds from the public offering were $6,612,500. Net proceeds after underwriting discounts and commissions and other offering expenses payable by Vuzix were approximately $5,996,000.

On January 2, 2015, the Company closed a sale of Series A Preferred Stock to Intel Corporation (the “Series A Private Placement”), for an aggregate purchase price of $24,813,000. Since the closing of the Company’s Series A Private Placement in January 2015, the Company has had the financial resources to better execute on its business plan. However, the Company will need to become profitable and continue implementing a focused new product development plan that can help grow revenues within reasonable timeframes.

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 capital. The Company in the second half of 2016 will begin shipping all new models and products as compared to its offerings in 2015. However, if these products 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 by these methods, the ownership interest of existing stockholders may be diluted. The amount of such dilution could increase due to the issuance of new warrants or securities with other dilutive characteristics, such as full ratchet anti-dilution clauses or price resets.

However, there can be no assurance that we will be able to raise capital in the future or that if we raise additional capital it will be sufficient to execute our business plan. To the extent that we are unable to raise sufficient additional capital, we will be required to substantially modify our business plan and our plans for operations, which could have a material adverse effect on us and our financial condition.

Note 2 – Loss Per Share

Basic loss per share is computed by dividing the loss by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution from the assumed exercise of stock options and warrants, and the conversion of any convertible debt and convertible preferred shares. During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are antidilutive. Since the Company reported a net loss for the three and six months ended June 30, 2016 and 2015, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. As of June 30, 2016 and December 31, 2015, there were 7,324,230 and 7,366,036 respectively, common stock share equivalents potentially issuable under convertible debt agreements, conversion of preferred shares, options, and warrants that could potentially dilute basic earnings per share in the future.

Note 3 — Inventories, Net

Inventories are stated at the lower of cost (determined on the first-in, first-out or specific identification method) or market and consisted of the following:

June 30, 2016 December 31, 2015
Purchased Parts and Components $ 3,217,769 $ 3,069,261
Work in Process 505,110 154,880
Finished Goods 343,477 612,451
Less: Reserve for Obsolescence (595,402 ) (487,494 )
Net $ 3,470,954 $ 3,349,098

Note 4 — Accrued Expenses

Accrued expenses consisted of the following:

June 30, 2016 December 31, 2015
Accrued Wages and Related Costs $ 84,538 $ 102,792
Accrued Compensation 358,719 358,719
Accrued Professional Services 79,208 89,000
Accrued Warranty Obligations 55,997 64,002
Accrued Interest 326,600 109,984
Other Accrued Expenses 10,000 10,000
Total $ 915,062 $ 734,497

Included in the above accrued compensation are amounts owed to officers of the Company for services rendered that remain outstanding. The amounts were $327,469 as of June 30, 2016 and December 31, 2015. The related interest amounts on the officer’s accrued compensation included in Accrued Interest were $115,051 and $97,801 respectively as of June 30, 2016 and December 31, 2015. These amounts are not subject to a fixed repayment schedule and they bear interest at a rate of 8% per year, compounding monthly. The related interest expense amounts for the six months ended June 30, 2016 and 2015 were $17,249 and $18,171 respectively.

The Company has warranty obligations in connection with the sale of certain of its products. The warranty period for its products is generally one year except in certain European countries where it is two years. The costs incurred to provide for these warranty obligations are estimated and recorded as an accrued liability at the time of sale. The Company estimates its future warranty costs based on product-based historical performance rates and related costs to repair. The changes in the Company’s accrued warranty obligations for the six months ended June 30, 2016 were as follows:

Accrued Warranty Obligations at December 31, 2015 $ 64,002
Reductions for Settling Warranties (31,173 )
Warranties Issued During Period 23,168
Accrued Warranty Obligations at June 30, 2016 $ 55,997

Note 5 – Derivative Liability and Fair Value Measurements

The Company recognized a derivative liability for the warrants to purchase shares of its common stock issued in connection with the equity offering and related debt conversions on August 5, 2013. Those warrants have a cashless exercise provision and an exercise price that is subject to adjustment in the event of subsequent equity sales at a lower purchase price (subject to certain exceptions) along with full-ratchet anti-dilution provisions. In accordance with FASB ASC 815-10-25, we measured the derivative liability using a Monte Carlo Options Lattice pricing model at their issuance date and subsequently remeasured the liability on each reporting date.

Accordingly, at the end of each quarterly reporting date, the derivative fair market value is remeasured and adjusted to current market value. As at June 30, 2016 and December 31, 2015 a total of 45,100 warrants were outstanding that contained a full-ratchet anti-dilution provision. In connection with the closing of the Series A Private Placement on January 2, 2015, holders of approximately 86% of outstanding warrants issued by the Company in its 2013 public offering and in connection with the conversion by certain holders of the Company’s outstanding debt in connection with the Company’s public offering (collectively, the “Public Offering Warrants”) agreed to irrevocably waive their rights to anti-dilution protection under Section 2(b) of the Public Offering Warrants in the event the Company issues additional securities at a per share price lower than the exercise price of the Public Offering Warrants (the “Public Offering Warrant Waiver”). As a result the related derivative liability was reversed to Nil on January 2, 2015 and reclassified into stockholders equity under Additional Paid-in Capital.

The Company recognized a derivative liability during the year ended December 31, 2014 for the $3,000,000 of senior convertible notes issued on June 3, 2014, with a conversion price that is subject to adjustment in the event of subsequent equity sales at a lower purchase price (subject to certain exceptions). In accordance with FASB ASC 815-10-25, we measured the derivative liability of this embedded conversion option using a Monte Carlo Options Lattice pricing model at the June 3, 2014 issuance date as $1,938,988. The value of the derivative liability at issuance was recorded as a discount against the notes in the Long-Term Liabilities section of the balance sheet. Accordingly, at the end of each quarterly reporting date the derivative fair market value is remeasured and adjusted to current market value.

In connection with the closing of the Series A Private Placement on January 2, 2015, each of the holders of notes issued by the Company on June 3, 2014 (the “June 2014 Notes”) agreed to irrevocably waive their rights to anti-dilution protection under Section 5(b) of the June 2014 Notes in the event the Company issues additional securities at a per share price lower than the conversion price of the June 2014 Notes (the “June 2014 Note Waiver”). As a result this derivative liability was reversed to Nil and reclassified into stockholders equity under Additional Paid-in Capital.

The Company has adopted FASB ASC Topic 820 for financial instruments measured at fair value on a recurring basis. FASB ASC Topic 820 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

- Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

- Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

- Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximates their fair value due to their short maturity. The carrying amount of notes payable approximates fair value because stated or implied interest rates approximate current interest rates that are available for debt with similar terms.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2016:

Total Level 1 Level 2 Level 3
Warrant Liability $ 238,799 $ $ $ 238,799
Total liabilities measured at fair value (Long-Term) $ 238,799 $ $ $ 238,799

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2015:

Fair value – December 31, 2015 $ 240,786
Change in fair value for the period of warrant derivative liability (1,987 )
Fair value – June 30, 2016 $ 238,799

The Monte Carlo Options Lattice pricing model was used to estimate the fair value of the warrants outstanding:

June 30,
2016
December 31,
2015
Assumptions for Pricing Model:
Expected term in years 2.10 2.60
Volatility 108 % 103 %
Risk-free interest rate 0.71 % 1.06 %
Expected annual dividends None None
Value of warrants outstanding:
Fair value of warrants $ 238,799 $ 240,786

Fluctuations in the variables used in calculating the value of the Company’s derivative liability could have a significant impact on the resulting valuation.

Note 6 — Long-Term Debt

Long-term debt consisted of the following:

June 30,
2016
December 31,
2015
Note payable for research and development equipment. The principal is subject to a fixed semi-annual repayment schedule commencing October 31, 2013 over 48 months. The note carries a 0% interest rate. $ 21,665 $ 59,917
The note carries a 0% interest rate, but imputed interest has been accrued based on a 12% discount rate and is reflected as a reduction in the principal. (8,434 ) (21,085 )
Note payable for which the principal and interest is subject to a fixed blended repayment schedule of 36 months, commencing July 15, 2013. The loan bears interest at 12% per year and is secured by a subordinated position in all the assets of the Company. 16,958
Convertible, Senior Secured Notes payable. The principal is due June 3, 2017 and no principal payments are required prior to maturity. The notes carry a 5% interest rate, payable upon the notes’ maturity. Both the principal plus accrued interest is convertible into shares of the Company’s common stock at $2.25 per share, subject to normal adjustments. The notes are secured by a first security position in all the assets of the Company. 1,896,240 1,915,155
Convertible, Senior Secured Notes Payable Issuance Costs of $139,340, net of accumulated amortization. The estimated aggregate amortization expense is approximately $23,000 for the remainder of fiscal 2016 and approximately $20,000 in the following fiscal year. (42,914 ) (66,074 )
Unamortized debt discount related to derivative liability associated with above notes’ conversion price that was subject to adjustment in the event of subsequent equity sales at a lower purchase price (subject to certain exceptions). Upon issuance on June 3, 2014 the discount was $1,938,988. (398,161 ) (621,531 )
1,468,396 1,283,340
Less: Amount Due Within One Year (1,468,396 ) (55,790 )
Amount Due After One Year $ $ 1,227,550

The calendar year aggregate maturities for all long-term debt exclusive of discounts as of June 30, 2016 are as follows:

Total Aggregate Maturity For Period Amounts
2016 $ 21,665
2017 1,896,240
Total Required Principal Payments Exclusive of Debt Discounts 1,917,905
Total Unamortized Debt Discounts and Deferred Costs (449,509 )
Total Net Long-Term Borrowings as of June 30, 2016 $ 1,468,396

Of the Convertible, Senior Secured Notes, a total of $18,915 were converted into 8,407 shares of common stock and a total of $3,585 of accrued interest on these Notes were converted into 1,593 shares of common stock during the six months ended June 30, 2016.

Note 7 — Income Taxes

The Company’s effective income tax rate is a combination of federal, state and foreign tax rates and differs from the U.S. statutory rate due to taxes on foreign income, permanent differences including tax-exempt interest, and the resolution of tax uncertainties, offset by a valuation allowance against U.S. deferred income tax assets.

Note 8 — Capital Stock

Preferred stock

The Company may issue shares of undesignated preferred stock in one or more series. The Board of Directors is authorized to establish and designate the different series and to fix and determine their voting powers and other special rights and qualifications. A total of 5,000,000 shares of preferred stock are authorized as of June 30, 2016 and December 31, 2015, 49,626 of which are designated as Series A Preferred Stock.

There were 49,626 shares of Series A Preferred...


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