UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

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

For the transition period from __________ to __________

Commission file number 001-41392

INNOVATIVE EYEWEAR, INC.

(Exact name of registrant as specified in its charter)

Florida		84-2794274
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11900 Biscayne Blvd., Suite 630, North Miami, Florida 33181

(Address of Principal Executive Offices, including zip code)

(786) 785-5178

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically 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 such files.) Yes ☒ No ☐

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

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller Reporting Company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value	LUCY	The Nasdaq Capital Market LLC
Warrants to purchase Common Stock	LUCYW	The Nasdaq Capital Market LLC

As of August 8, 2023, there were 12,917,239 shares of the Company’s common stock issued and outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The discussions in this Quarterly Report on Form 10-Q contain forward-looking statements reflecting our current expectations that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements concerning any potential future impact of the coronavirus disease (“COVID-19”) pandemic on our business, supply chain constraints, our strategy, competition, future operations and production capacity, future financial position, future revenues, projected costs, profitability, expected cost reductions, capital adequacy, expectations regarding demand and acceptance for our technologies, growth opportunities and trends in the market in which we operate, prospects and plans and objectives of management. The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission (the “SEC”). We do not assume any obligation to update any forward-looking statements.

Innovative Eyewear, Inc.

Table of Contents

		Page No.
Part I. Financial Information		1

Item 1.	Condensed Financial Statements (Unaudited)	1

	Condensed Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022	1

	Condensed Statements of Operations for the three and six months ended June 30, 2023 and 2022 (Unaudited)	2

	Condensed Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 (Unaudited)	3

	Condensed Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (Unaudited)	4

	Notes to the Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	30

Part II. Other Information		31

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Defaults Upon Senior Securities	31

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	32

Signatures		33

Unless specifically set forth to the contrary, when used in this report the terms “Innovative Eyewear,” the “Company,” “we,” “our,” “us,” and similar terms refer to Innovative Eyewear, Inc. The information which appears on our website lucyd.co is not part of this report.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

INNOVATIVE EYEWEAR, INC.

CONDENSED BALANCE SHEETS

June 30, 2023 (Unaudited) and December 31, 2022


	2023			2022
TOTAL ASSETS
Current Assets
Cash and cash equivalents	$	5,356,445		$	3,591,109
Investments in debt securities, at amortized cost (fair value of $1,950,220)		1,949,204			-
Accounts receivable, net of allowances of $98,318 and $92,646, respectively		130,655			110,258
Prepaid expenses		271,276			210,673
Inventory prepayment		366,626			197,750
Inventory		659,867			94,701
Other current assets		36,240			36,240
Total Current Assets		8,770,313			4,240,731

Non-Current Assets
Patent costs, net		251,363			137,557
Capitalized software costs		110,073			110,073
Property and equipment, net		125,200			119,744
Other non-current assets		82,719			81,779
TOTAL ASSETS	$	9,339,668		$	4,689,884

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current Liabilities
Accounts payable and accrued expenses	$	148,982		$	275,660
Deferred revenue		30,000			30,000
Due to Parent and Affiliates		151,612			232,989
Related party convertible debt		-			61,356
Total Current Liabilities		330,594			600,005

Non-Current Liabilities
Deferred revenue		57,950			65,450
TOTAL LIABILITIES		388,544			665,455

Commitments and contingencies		-			-

Stockholders’ Equity
Common stock (par value $0.00001, 50,000,000 shares authorized, and 12,917,239 and 7,307,157 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)		129			73
Additional paid-in capital		21,975,594			14,330,343
Accumulated deficit		(13,024,599	)		(10,305,987	)
TOTAL STOCKHOLDERS’ EQUITY		8,951,124			4,024,429
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	9,339,668		$	4,689,884

See accompanying Notes to the Financial Statements.

INNOVATIVE EYEWEAR, INC.

CONDENSED STATEMENTS OF OPERATIONS

For the three and six months ended June 30, 2023 and 2022

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenues, net	$	169,929		$	204,741		$	314,850		$	440,763
Less: Cost of Goods Sold		(199,745	)		(161,494	)		(334,375	)		(323,126	)
Gross (Deficit) Profit		(29,816	)		43,247			(19,525	)		117,637

Operating Expenses:
General and administrative		(968,354	)		(710,135	)		(1,962,126	)		(1,317,108	)
Sales and marketing		(103,643	)		(391,919	)		(362,940	)		(976,714	)
Research and development		(197,478	)		(52,560	)		(348,647	)		(88,367	)
Related party management fee		(35,000	)		(35,000	)		(70,000	)		(70,000	)
Total Operating Expenses		(1,304,475	)		(1,189,614	)		(2,743,713	)		(2,452,189	)

Other Income (Expense)		47,586			(2,059	)		47,662			(2,558	)
Interest Expense		(1,097	)		(45,386	)		(3,036	)		(63,261	)
Total Other Income (Expense)		46,489			(47,445	)		44,626			(65,819	)

Net Loss	$	(1,287,802	)	$	(1,193,812	)	$	(2,718,612	)	$	(2,400,371	)

Weighted average number of shares outstanding		8,570,035			6,060,187			8,072,340			6,060,187
Loss per share, basic and diluted	$	(0.15	)	$	(0.20	)	$	(0.34	)	$	(0.40	)

See accompanying Notes to the Financial Statements.

INNOVATIVE EYEWEAR, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the three and six months ended June 30, 2023 and 2022

(Unaudited)


	Common Stock				Additional Paid In			Stock Subscription			Accumulated			Total Stockholders’ Equity
	# Shares		Amount		Capital			Receivable			Deficit			(Deficit)
Balances, January 1, 2023		7,307,157	$	73	$	14,330,343		$	-		$	(10,305,987	)	$	4,024,429

Stock based compensation		-		-		424,431			-			-			424,431
Exercises of warrants by stockholders (see Note 9)		408,600		4		1,532,246			-			-			1,532,250
Net loss		-		-		-			-			(1,430,810	)		(1,430,810	)
Balances, March 31, 2023		7,715,757	$	77	$	16,287,020		$	-		$	(11,736,797	)	$	4,550,300

Stock based compensation		-		-		(40,180	)		-			-			(40,180	)
Exercises of stock options		230,362		2		17,648			-			-			17,650
Exercises of warrants by stockholders (see Note 9)		321,120		3		1,204,197			-			-			1,204,200
Exercises of warrants related to private placement transaction (see Note 9)		150,000		2		391,266			-			-			391,268
Second public offering (see Note 9)		4,500,000		45		4,115,643			-			-			4,115,688
Net loss		-		-		-			-			(1,287,802	)		(1,287,802	)
Balances, June 30, 2023		12,917,239	$	129	$	21,975,594		$	-		$	(13,024,599	)	$	8,951,124

Balances, January 1, 2022		6,060,187	$	60	$	4,842,836		$	(11,226	)	$	(4,624,154	)	$	207,516

Stock based compensation		-		-		416,951			-			-			416,951
Net loss		-		-		-			-			(1,206,559	)		(1,206,559	)
Balances, March 31, 2022		6,060,187	$	60	$	5,259,787		$	(11,226	)	$	(5,830,713	)	$	(582,092	)

Stock based compensation		-		-		416,951			-			-			416,951
Collection of stock subscription receivable		-		-		-			6,684						6,684
Net loss		-		-		-			-			(1,193,812	)		(1,193,812	)
Balances, June 30, 2022		6,060,187	$	60	$	5,676,738		$	(4,542	)	$	(7,024,525	)	$	(1,352,269	)

See accompanying Notes to the Financial Statements.

INNOVATIVE EYEWEAR, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2023 and 2022

(Unaudited)


	2023			2022
Operating Activities
Net Loss	$	(2,718,612	)	$	(2,400,371	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization		17,816			4,181
Depreciation		28,979			7,899
Non cash interest expense		3,036			64,512
Stock based compensation expense		384,251			833,902
Expenses paid by parent and affiliates		151,467			474,047
Provision for doubtful accounts		5,814			-
Changes in operating assets and liabilities:
Accounts receivable		(26,211	)		(143,487	)
Accounts payable and accrued expenses		(129,714	)		53,042
Prepaid expenses		(60,603	)		14,770
Inventory		(734,042	)		(44,607	)
Other current assets		(10,000	)		-
Other current liabilities		(184,701	)		-
Contract assets and liabilities		1,560			-
Net cash flows from operating activities		(3,270,960	)		(1,136,112	)

Investing Activities
Purchases of financial investments (debt securities)		(1,949,204	)		-
Patent costs		(131,622	)		(38,512	)
Purchases of property and equipment		(34,435	)		(40,394	)
Capitalized software expenditures		-			(18,848	)
Net cash flows from investing activities		(2,115,261	)		(97,754	)

Financing Activities
Proceeds from second public offering (see Note 9)		4,115,688			-
Proceeds from exercises of warrants related to private placement transaction (see Note 9)		391,268			-
Proceeds from exercise of warrants by stockholders (see Note 9)		2,736,450			-
Proceeds from exercise of stock options		17,650			-
Collection of stock subscription receivable		-			6,684
Payment of deferred offering costs		-			(62,667	)
Proceeds from related party convertible debt		-			1,245,000
Repayment of related party convertible debt		(109,499	)		-
Net cash flows from financing activities		7,151,557			1,189,017

Net Change In Cash		1,765,336			(44,849	)
Cash at Beginning of Period	$	3,591,109		$	79,727
Cash at End of Period	$	5,356,445		$	34,878

Significant Non-Cash Transactions
Expenses paid for by Parent reported as increase in Due to Parent and Affiliates and related party convertible debt		151,467			474,047

See accompanying Notes to the Financial Statements.

INNOVATIVE EYEWEAR, INC.

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2023 and 2022
(Unaudited)

NOTE 1 – GENERAL INFORMATION

Innovative Eyewear, Inc. (the “Company,” “us,” “we,” or “our”) is a corporation organized under the laws of the State of Florida that develops and sells cutting-edge eyeglasses and sunglasses, which are designed to allow our customers to remain connected to their digital lives, while also offering prescription eyewear and sun protection. The Company was founded by Lucyd Ltd. (the “Parent” or “Lucyd”), a portfolio company of Tekcapital Plc through Tekcapital Europe, Ltd. (collectively, the “Parent and Affiliates”), which owned approximately 40% of our issued and outstanding shares of common stock as of June 30, 2023. Innovative Eyewear has licensed the exclusive rights to the Lucyd® brand from Lucyd Ltd., which includes the exclusive use of all of Lucyd’s intellectual property, including our main product, Lucyd Lyte® glasses.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed balance sheet as of December 31, 2022 (which has been derived from audited financial statements) and the unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows.

In the opinion of management, all adjustments considered necessary for the fair presentation of the financial statements for the periods presented have been included. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for future periods or the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, particularly given the significant economic disruptions and uncertainties associated with the ongoing economic environment, including potential supply chain constraints.

Cash Equivalents

All highly liquid investments with original maturities of three months or less, including money market funds, certificates of deposit, and US Treasury bills purchased three months or less from maturity, are considered cash equivalents.

Investments

As of June 30, 2023, the Company held an investment in U.S. Treasury bills, which matures in December 2023. This investment is classified as “held-to-maturity” and is recorded at amortized cost of $1,949,204 in the accompanying condensed balance sheet. The fair value of this investment, based on quoted prices (unadjusted) in active markets for identical assets, is $1,950,220 as of June 30, 2023, which includes an unrealized gain of $1,016.

Receivables and Credit Policy

Trade receivables from customers are uncollateralized customer obligations due under normal trade terms. For direct-to-consumer sales, payment is required before product is shipped. Trade receivables are stated at the amount billed to the customer. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoice. The Company, by policy, routinely assesses the financial strength of its customers. To comply with industry standards, we offer “net 30” payments on wholesale orders of $1,500 or more. For wholesale orders, to acquire an order on net 30 terms, the customer is provided a credit check application as well as a credit card authorization form. The authorization form explicitly states when and for much we will bill the customer via credit card.

Accounts receivable are reported net of the allowance for doubtful accounts. The allowance for doubtful accounts is based on the Company’s evaluation of each customer’s payment history, account aging, and financial position. The Company recognized bad debt expense of $5,672 and $5,814 for the three and six months ended June 30, 2023, respectively, and had an allowance for doubtful accounts of $98,318 as of June 30, 2023. There was no bad debt expense recognized for the three and six months ended June 30, 2022.

Inventory

The Company’s inventory includes purchased eyewear and is stated at the lower of cost or net realizable value, with cost determined on a specific identification method of inventory costing which attaches the actual cost to an identifiable unit of product. Provisions for excess, obsolete, or slow-moving inventory are recorded after periodic evaluation of historical sales, current economic trends, forecasted sales, estimated product life cycles, and estimated inventory levels. No provisions were determined as needed as of June 30, 2023 and as of December 31, 2022.

As of June 30, 2023 and December 31, 2022, the Company recorded an inventory prepayment in the amount of $366,626 and $197,750, respectively, related to down payment for eyewear purchased from the manufacturer, prior to shipment of the product that occurred after June 30, 2023 and December 31, 2022, respectively.

Intangible Assets

Intangible assets relate to patent costs received in conjunction with the initial capitalization of the Company and internally developed utility and design patents. The Company amortizes these assets over the estimated useful life of the patents. The Company reviews its intangibles assets for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Capitalized Software

The Company incurred software development costs related to development of the Vyrb app. The Company capitalized these costs in accordance with ASC 985-20, “Software – Costs of Software to be Sold, Leased, or Marketed,” considering it is the Company’s intention to market and sell the software externally. Planning, designing, coding, and testing occurred necessary to meet Vyrb’s design specifications. As such, all coding, development, and testing costs incurred subsequent to establishing technical feasibility were capitalized. The Company launched a beta version of the Vyrb application in December 2021 that demonstrates the functionality of the software. Management is planning the commercial launch of Vyrb in the fourth quarter of 2023, and expects an estimated useful life of five years for this product.

Property and Equipment

Property and equipment assets are depreciated using the straight-line method over their estimated useful lives or lease terms if shorter. Depreciation expense for the three months ended June 30, 2023 and 2022 was $10,307 and $3,916, respectively. Depreciation expense for the six months ended June 30, 2023 and 2022 was $28,979 and $7,899, respectively. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred.

Income Taxes

The Company accounts for income taxes under an asset and liability approach that recognizes deferred tax assets and liabilities based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

The Company follows a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. Any interest and penalties accrued related to uncertain tax positions are recorded in tax expense.

The Company periodically assesses the realizability of its net deferred tax assets. If, after considering all relevant positive and negative evidence, it is more likely than not that some portion or all of the net deferred tax assets will not be realized, the Company will reduce the net deferred tax assets by a valuation allowance. The realization of net deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of net operating loss carryforwards.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees and directors in accordance with ASC Topic 718, which requires that compensation expense be recognized in the financial statements for stock-based awards based on the grant date fair value. For stock option awards, the Black-Scholes-Merton option pricing model is used to estimate the fair value of share-based awards. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and share price volatility.

The expected term of the stock options is estimated based on the simplified method as allowed by Staff Accounting Bulletin 107 (SAB 107). The share price volatility at the grant date is estimated using historical stock prices of comparably profiled public companies based upon the expected term of the award being valued. The risk-free interest rate assumption is determined using the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

Revenue Recognition

Our revenue is generated from the sales of prescription and non-prescription optical glasses, sunglasses, and shipping charges, which are charged to the customer, associated with these purchases. We sell products through our retail store resellers, distributors, on our own website Lucyd.co, and on Amazon.

To determine revenue recognition, we perform the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy a performance obligation. At contract inception, we assess the goods or services promised within each contract and determine those that are performance obligations, and also assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. In instances where the collectability of contractual consideration is not probable at the time of sale, the revenue is deferred on our balance sheet as a contract liability, and the associated cost of goods sold is deferred on our balance sheet as a contract asset; subsequently, we recognize such revenue and cost of goods sold as payments are received.

All revenue, including sales processed online and through our retail store resellers and distributors, is reported net of sales taxes collected from customers on behalf of taxing authorities, returns, and discounts.

For sales generated through our e-commerce channels, we identify the contract with a customer upon online purchase of our eyewear and transaction price at the manufacturer suggested retail price (“MSRP”) for non-prescription, polarized sunglass and blue light blocking glasses across all of our online channels. Our e-commerce revenue is recognized upon meeting the performance obligation when the eyewear is shipped to end customers. Only U.S. consumers enjoy free USPS first class postage, with faster delivery options available for extra cost, for sales processed through our website and on Amazon. For Amazon sales, shipping is free for U.S consumers while international customers pay shipping charges on top of MSRP. Any costs associated with fees charged by the online platforms (Shopify for Lucyd.co website and Amazon) are not recharged to customers and are recorded as a component of cost of goods sold as incurred. The Company charges applicable state sales taxes in addition to the MSRP for both online channels and all other marketplaces on which the company sells products.

For sales to our retail store partners, we identify the contract with a customer upon receipt of an order of our eyewear through our Shopify wholesale portal or direct purchase order. Revenue is recognized upon meeting the performance obligation, which is delivery of the Company’s eyewear products to the retail store and is also recorded net of returns and discounts. Our wholesale pricing for eyewear sold to the retail store partners includes volume discounts, due to the nature of large quantity orders. The pricing includes shipping charges, while excluding any state sales tax charges applicable. Due to the nature of wholesale retail orders, no e-commerce fees are applicable.

For sales to distributors, we identify the contract with a customer upon receipt of an order of our eyewear through a direct purchase order. Revenue is recognized upon meeting the performance obligation, which is delivery of our eyewear products to the distributor and is also recorded net of returns and discounts. Our wholesale pricing for eyewear sold to distributors includes volume discounts, due to the nature of large quantity orders. The pricing includes shipping charges, while excluding any state sales tax charges applicable. Due to the nature of wholesale orders, no e-commerce fees are applicable.

The Company’s sales do not contain any variable consideration.

We allow our customers to return our products, subject to our refund policy, which allows any customer to return our products for any reason within the first:

●

7 days for sales made through our website (Lucyd.co)

●

30 days for sales made through Amazon

●

30 days for sales to most wholesale retailers and distributors (although certain sales to independent distributors are ineligible for returns)

For all of our sales, at the time of sale, we establish a reserve for returns, based on historical experience and expected future returns, which is recorded as a reduction of sales. Additionally, we reviewed all individual returns received in July 2023 pertaining to orders processed prior to June 30, 2023. As a result, the Company determined that an allowance for sales returns was necessary. The Company recorded an allowance for sales returns of $4,441 and $24,897 as of June 30, 2023 and December 31, 2022, respectively.

Shipping and Handling

Costs incurred for shipping and handling are included in cost of revenue at the time the related revenue is recognized. Amounts billed to a customer for shipping and handling are reported as revenues.

NOTE 3 – GOING CONCERN

The Company has a limited operating history. The Company’s business and operations are sensitive to general business and economic conditions in the United States. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse conditions may include recession, downturn, or otherwise, changes in regulations or restrictions in imports, competition, or changes in consumer taste. These adverse conditions could affect the Company’s financial condition and the results of its operations.

The Company meets its day-to-day working capital requirements using monies raised through sales of eyewear and issuances of equity, including our initial public offering completed in August 2022, a secondary public offering completed in June 2023, and exercises of warrants by stockholders (see Note 9 for additional details). The Company also previously issued a convertible note held by its parent company, which was repaid in full during the six months ended June 30, 2023. The Company’s forecasts and projections indicate that the Company expects to have sufficient cash reserves and future income to operate within the level of its current facilities. The Company anticipates that its available liquidity will be sufficient to fund operations through at least the end of August 2024.

NOTE 4 – INCOME TAX PROVISION

At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods. The Company has not recorded a tax provision for the three and six months ended June 30, 2023 and 2022 as it maintains a full valuation allowance against its net deferred tax assets.

NOTE 5 – INTANGIBLE ASSETS

Schedule of intangible assets
	June 30,			December 31,
Finite-lived intangible assets	2023			2022
Patent Costs	$	287,818		$	156,196
Intangible assets, gross		287,818			156,196

Less: Accumulated amortization		(36,455	)		(18,639	)
Intangible assets, net	$	251,363		$	137,557

Amortization expense totalled $11,860 and $17,816 for the three and six months ended June 30, 2023, respectively.

Amortization expense totalled $2,442 and $4,181 for the three and six months ended June 30, 2022, respectively.

NOTE 6 – RELATED PARTY ADVANCES AND OTHER INTERCOMPANY AGREEMENTS

Convertible Note and Due to Parent and Affiliates

During the six months ended June 30, 2023 and during 2022, the Company had the availability of, but not the contractual right to, intercompany financing from the Parent and Affiliates in the form of either cash advances or borrowings under a convertible note (as discussed below).

The convertible notes balances were $61,356 at December 31, 2022. In January 2023, the Company borrowed an additional $48,143 under such convertible notes, and subsequently repaid the outstanding balances of the convertible notes in full in February 2023, such that there were no amounts outstanding under convertible notes as of June 30, 2023.

Management Service Agreement

In 2020, the Company entered into a management services agreement with Tekcapital Europe Ltd. (a related party, related through common ownership), for which the Company was billed $25,000 quarterly. Effective February 1, 2022, the original management services agreement was amended to have the Company billed at $35,000 quarterly. While the agreement does not stipulate a specific maturity date, it can be terminated with 30 calendar days written notice by any party.

The related party currently provides the following services:

●

Support and advice to the Company in accordance with their area of expertise;

●

Research, technical review, legal review, recruitment, software development, marketing, public relations, and advertisement; and

●

Advice, assistance, and consultation services to support the Company or in relation to any other related matter.

During the three months ended June 30, 2023 and 2022, the Company incurred $35,000 in each respective period under the management services agreement. During the six months ended June 30, 2023 and 2022, the Company incurred $70,000 in each respective period under the management services agreement.

Rent of Office Space

Prior to the February 1, 2022 amendment of the aforementioned management services agreement, the Company was provided with rent-free office space by the Parent and Affiliates. Effective February 1, 2022, Tekcapital began to bill the Company for an allocation of rent paid by Tekcapital on the Company’s behalf. The Company recognized $22,992 and $45,760 of expense related to this month-to-month arrangement for the three and six months ended June 30, 2023, respectively.

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Legal Matters

We are not the subject of any material pending legal proceedings; however, we may from time to time become a party to various legal proceedings arising in the ordinary course of business.

Leases

Our executive offices are located at 11900 Biscayne Blvd., Suite 630 Miami, Florida 33181. Our executive offices are provided to us by the parent of Tekcapital (see Note 6). We consider our current office space adequate for our current operations.

License Agreements

In 2022 and 2023, we entered into various multi-year license agreements which grant us the right to sell certain branded smart eyewear, including the Nautica, Eddie Bauer, and Reebok brands. These agreements require us to pay royalties based on a percentage of net retail and wholesale sales during the period of the license, and also require guaranteed minimum royalty payments. The aggregate future minimum payments due under these license agreements are as follows:

Schedule of future minimum payments due
2023	$	-
2024		161,210
2025		436,000
2026		834,000
2027		1,290,000
Thereafter (through 2033)		10,550,000
Total	$	13,271,210

Other Commitments

See related party management services agreement discussed in Note 6.

NOTE 8 – STOCK-BASED COMPENSATION

During the six months ended June 30, 2023, we granted the following option awards, all of which had an exercise price of $1.275 per share and expire on January 13, 2028:

●

Options to purchase an aggregate of 330,000 shares of common stock were issued to the Company’s officers and management, of which 1/3 vested immediately, 1/3 shall vest on January 13, 2024, and the remaining 1/3 shall vest on January 13, 2025.

●

Options to purchase an aggregate of 75,000 shares of common stock were issued to non-management directors, which vest evenly over three years, whereby 1/3 shall vest on each of January 13, 2024, January 13, 2025, and January 13, 2026.

●

Options to purchase an aggregate of 162,000 shares of common stock were issued to certain employees and consultants, which vest evenly over three years, whereby 1/3 shall vest on each of January 13, 2024, January 13, 2025, and January 13, 2026.

●

Options to purchase an aggregate of 75,000 shares of common stock were issued an employee, which vest evenly over three years, whereby 1/6 of the options shall vest every six months.

●

Options to purchase an aggregate of 6,000 shares of common stock were issued to a consultant, which vested immediately.

Additionally, on June 1, 2023, we modified the terms of certain options awarded in 2021 to purchase an aggregate of 140,000 shares of common stock, in order to extend their expiration dates from July 21, 2023 to July 21, 2024. There were no changes to the exercise price or other terms of these stock options, and these options were already fully vested prior to the modification. As a result of this modification, we recognized incremental stock option expense of $9,188 for the three and six months ended June 30, 2023.

Details of the number of stock options and the weighted average exercise price outstanding as of and during the six months ended June 30, 2023 are as follows:


	Average Exercise price per share $		Options (Number)
As at January 1, 2023		2.61		2,332,500
Granted		1.28		648,000
Exercised		1.01		(316,000	)
Forfeited / Expired		3.56		(200,000	)
As at June 30, 2023		2.39		2,464,500
Exercisable as at June 30, 2023		2.65		1,485,231

As of June 30, 2023, the weighted average remaining contractual life of options was 2.22 years for outstanding options, and 1.58 years for exercisable options.

As of June 30, 2023, unrecognized stock option expense of $1,193,562 remains to be recognized over next 1.39 years.

NOTE 9 – STOCKHOLDERS’ EQUITY

Second Public Offering

On June 26, 2023, the Company closed on a public offering of 4,500,000 units consisting of 4,500,000 shares of its common stock and 4,500,000 warrants to purchase 4,500,000 shares of common stock (the “Common Warrants”) at a combined offering price of $1.05 per unit in exchange for gross proceeds of approximately $4.73 million, before deducting underwriting discounts and offering expenses. Each share of common stock was sold together with one warrant. Each Common Warrant is exercisable to purchase one share of common stock at an initial exercise price of $1.05 per share, subject to certain adjustments as set forth in the warrant agreement. In addition, pursuant to the terms of the placement agency agreement for the offering, the Company issued to the placement agent certain other warrants to purchase up to 180,000 shares of the Company’s common stock at an exercise price of $1.31 per share. The net proceeds received by the Company from this offering amounted to $4,115,688.

Warrants

On August 17, 2022, as part of the Company’s initial public offering, the Company issued a total of 2,254,000 warrants to purchase 2,254,000 shares of common stock, which began trading and are currently trading on the Nasdaq Capital Market, under the symbol “LUCYW” (which we refer to as the “Listed Warrants”). Additionally, pursuant to the terms of the related underwriting agreement for the initial public offering, the Company issued to the underwriter certain other warrants to purchase up to 58,800 shares of the Company’s common stock , which have an exercise price of $8.228 per share.

In February 2023, holders of the Company’s Listed Warrants exercised such warrants to purchase an aggregate of 408,600 shares of the Company’s common stock, at an adjusted exercise price of $3.75 per share, resulting in cash proceeds to the Company of $1,532,250.

Between April 1, 2023 and April 16, 2023, holders of the Company’s Listed Warrants exercised such warrants to purchase an aggregate of 321,120 shares of the Company’s common stock, at an adjusted exercise price of $3.75 per share, resulting in cash proceeds to the Company of $1,204,200.

On April 17, 2023, the Company entered into a warrant exercise inducement letter agreement (“Inducement Letter”) with certain accredited investors that were existing holders of the Company’s Listed Warrants to purchase an aggregate of 150,000 shares of the Company’s common stock for cash, wherein the investors agreed to exercise all of their existing Listed Warrants at an exercise price of $3.75 per share. The gross proceeds to the Company from this transaction, before deducting estimated expenses and fees, was $562,000. In consideration for the immediate exercise of the existing Listed Warrants for cash, the exercising holders received new warrants to purchase up to an aggregate of 300,000 shares of common stock (the “Private Warrants”) in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The Private Warrants are immediately exercisable upon issuance at an exercise price of $3.75 per common share and will expire on April 19, 2028. The Private Warrants were offered in a private placement pursuant to an applicable exemption from the registration requirements of the Securities Act and, along with the shares of common stock issuable upon their exercise, have not been registered under the Securities Act of 1933, and may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from such registration requirements. The securities were offered only to accredited investors. The net proceeds received by the Company from this transaction amounted to $391,268.

None of the aforementioned other warrants issued to underwriters and placement agents have been exercised.

As of June 30, 2023, the Company’s remaining outstanding warrants are as follows:


Warrant Type	Warrants Outstanding		Exercise Price		Expiration Date
Listed Warrants		1,374,280	$	3.75	8/17/27
Common Warrants		4,500,000	$	1.05	6/26/28
Private Warrants		300,000	$	3.75	4/19/28
Underwriter warrants		58,800	$	8.23	8/12/27
Placement agent warrants		180,000	$	1.05	6/26/28
Total		6,413,080

NOTE 10 – EARNINGS PER SHARE

The Company calculates earnings/(loss) per share data by calculating the quotient of earnings/(loss) divided by the weighted average number of common shares outstanding during the respective period as required by ASC 260-10-50. Due to the net losses for the three and six months ended June 30, 2023 and 2022, all shares underlying the related party convertible debt, common stock warrants, and common stock options were excluded from the earnings per share calculation due to their anti-dilutive effect.

Calculation of net earnings per common share — basic and diluted:


	For the three months ended						For the six months ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Basic and diluted:
Net loss	$	(1,287,802	)	$	(1,193,812	)	$	(2,718,612	)	$	(2,400,371	)
Weighted-average number of common shares		8,570,035			6,060,187			8,072,340			6,060,187
Basic and diluted net loss per common share	$	(0.15	)	$	(0.20	)	$	(0.34	)	$	(0.40	)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report.

Overview

The mission of our company is to upgrade the world’s eyewear, by adding useful tech features to comfortable and stylish sunglasses and eyeglasses. Our products enable seamless Bluetooth connection to your digital life and prescription vision correction in one affordable and convenient package. Our flagship brand of smart eyewear is called Lucyd, and Lucyd eyewear is enjoyed by thousands of people around the world who want the convenience and utility of wireless headphones and glasses in one. Furthermore, we are revolutionizing the concept of eyewear overall, by enabling connection to the powerful ChatGPT AI assistant right on our glasses, using a novel and ergonomic voice interface. The Company believes the advent of this powerful feature to our eyewear will significantly enhance user adoption of Lucyd frames, and provide a new revenue stream for the business in the form of in-app purchases.

In January 2021, we officially launched our first commercial product, Lucyd Lyte® (“Lucyd Lyte”). This initial product offering embodied our goal of creating smart eyewear for all day wear that looks like and is priced similarly to designer eyewear, but is also light weight and comfortable, and enables the wearer to remain connected to their digital lives. The product was initially launched with six styles, and in September 2021, an additional six styles were added.

We recently launched version 2.0 of our Lucyd Lyte eyewear, and our current product offering consists of 15 version 2.0 models, which offers a similar amount of style variety as many traditional eyewear collections. All styles are each available with 80+ different lens types, resulting in hundreds of variations of products currently available.

The new Lucyd Lyte version 2.0 collection features several key breakthroughs for the smart eyewear product category:

Music playback and call time were extended to 12 hours, a 50% increase over the version 1.0 and making Lyte one of the longest-lasting true wireless audio devices on the market.

A four-speaker array was introduced, improving audio fidelity significantly compared to the version 1.0 model and many other smart eyewear products.

Styling of the frames deployed the Company’s new expert design team, producing smart eyewear that follows trending styles in 2023 in the traditional eyeglasses and sunglasses markets. The collection features many style firsts for a smart eyewear collection designed in the United States, that have proven commercially successful in traditional eyewear, such as titanium rose gold and champagne crystal styles for women, and gunmetal gray and acetate aviator styles for men.

The upgrade to a Bluetooth 5.2 chip improves connection stability, especially for older devices.

Responsiveness of touch controls improved with an audible tone added to alert the wearer when they have used a command successfully.

The transition of the LED status indicators to the interior of the temples, a change based on consumer feedback, makes the product more discreet.

Since the launch of Lucyd Lyte, we witnessed interest and demand from customers throughout the United States and have sold thousands of our smart glasses. Within six months of the launch of Lucyd Lyte, several optical stores in the United States and Canada have on- boarded the product and we have had discussions with several other large eyewear chains (by number of locations) regarding onboarding our product. We believe smart eyewear is a product category whose time has come, and we believe we are well positioned to capitalize on and help develop this exciting new sector–where eyewear meets electronics in a user-friendly, mass market format, priced similarly to designer eyewear.

In first quarter of 2022 we introduced a virtual try-on kiosk for select retail stores. This device introduces our products to prospective retail customers and enables them to digitally try on our line of smart glasses in a touch-free manner.

We anticipate introducing eight styles of Nautica smart eyewear, six to twelve additional styles of Lucyd Lyte glasses, and our first Bluetooth safety glasses in 2023. In addition, we anticipate the following upgrades to accessory products in 2023:

●

The patent-pending Lucyd charging dock will be upgraded to feature a charging status LED and USB data capability, enabling it to be used as a USB multi-device hub for computers in addition to a charging hub.

●

We will complete a total overhaul of our retail fixtures in the third quarter of this year, offering our new enhanced video and audio demo displays to all current and prospective retail partners. Our new modular display system, of which the first units shipped in the late second quarter, incorporates two different center stations focused on audio and video experiences, along with side pieces for stores with additional counter space to exhibit any number of our frames. Over the course of the third quarter of this year, we plan to upgrade the store fixtures of most of our retail partners to the new display systems, which we believe will enhance sell-through of our products. Initial retailer feedback on the new display system has been positive, as it eliminates key issues with the Company’s previous displays, by providing enough consumer information to make an educated buying decision, by allowing the customer to interact with and listen to music on live products, and by the addition of a security tether to make it suitable for all retail environments.

In the fourth quarter of 2022, we introduced key features in the Vyrb app, including live broadcasts for up to 100 users in one digital “room”, and the ability to upload external audio content into Vyrb, enabling longstanding content creators to import their existing libraries swiftly into the platform. This new feature allows content creators to share content they made outside of Vyrb on the Vyrb network, and in the future we plan to allow users to monetize this content as well as the content they generate originally on the platform. For example, we plan to enable podcasters to import their existing podcast library into Vyrb, and set a paywall for other users to access the content. Also in the fourth quarter of 2022, we completed development of core audio eyewear product improvements, such as upgrading all frames to quadraphonic sound, which have been rolled out across all new eyewear models as of January 2023.

In April 2023, we introduced a major software upgrade for our glasses with the launch of the Lucyd app for iOS/Android. This free application enables the user to converse with the extremely popular ChatGPT AI language model on the glasses, to instantly gain the benefit of one of the world’s most powerful AI assistants in a hands-free ergonomic interface. The app deploys a powerful and unique Siri and Google Voice integration with the Open AI API for ChatGPT, developed internally by the company and now pending patent. This development instantly makes all Lucyd eyewear perhaps the smartest smartglasses available today, and represents a significant marketing opportunity for the company’s core smartglasses product, and a potential in-app purchase revenue stream for the Company.

We apply a manufacturer suggested retail price (“MSRP”) of $199 (for our standard frames) to $229 (for our titanium frames) for non-prescription, polarized sunglass and blue light blocking glasses across our online channels, with our wholesale pricing offering volume discounts to these prices. Please refer to discussion in the Components of Results of Operations section below for more details regarding our pricing structure.

Our business model is capital light, as we have elected not to build our own manufacturing facilities and Company-owned retail distribution, but rather have contracted with existing sources of production and proven consumer-facing retail distribution.

In summation, the ultimate synopsis from management on the status of the Company at the end of the second quarter of 2023 is as follows:

●

The Company’s products are in their best position ever to lead the wearables market and the optical market, and pioneer a breakthrough of smart eyewear to the mainstream consumer. This includes a number of factors, including the development of new custom components launching in the third quarter; the overall improvement of fit, style, and functionality coming to our products with each successive launch; and the combination of our core technology with the globally renowned Nautica, Eddie Bauer, and Reebok brands pending launch over the next three to six months.

●

The Company has built its strongest team to date, with 12 full-time staff extremely devoted to building the global standard in smart eyewear.

●

The Company was the first to market with a touch-free voice interface for ChatGPT, demonstrating our ability to rapidly incorporate new innovations into our core product to the immediate and great benefit of all users.

●

The Company has launched a very sophisticated and attractive modular display system that is primed to introduce smart eyewear to lay customers and maximize sell-through in any retail environment suitable for our products.

●

The optical industry itself has begun to recognize us as a leader of innovation in optics, as shown in recent coverage that lists us alongside major, well-established players in the space.

●

Consumer feedback on our products is generally more favorable with each successive release, as evidenced by improving Amazon ratings.

●

Although we underwent some significant challenges with product defects and returns, primarily in 2022 but also leading into 2023, the result of this was a total overhaul of our supply chain that yielded more reliable factories and an overall significant quality improvement on all of our glasses, positioning us well for the future.

Key Factors Affecting Performance

Expansion of retail points of purchase

In addition to sustained growth of our e-commerce business, our future revenues are correlated positively with our placement of Lucyd glasses in optical stores, as well as sporting goods stores and other specialty stores such as cellular shops. To address this, we assembled a team with decades of experience in the eyewear industry and are offering a strong co-op marketing program and reordering incentives program. We currently offer an expansive line of 16 different styles and several accessories, with plans to continuously expand this offering over time. In the first quarter of 2023, we added approximately 50 new retail partners, comprised of independent optical stores, and in the second quarter of 2023 we added approximately 25 new independent optical stores and seven Duty Free stores operated by Privato Inc.

Retail store client retention and re-orders

Our ability to sustain and increase revenue is correlated positively with our ability to receive re-orders from stores, either directly or through our wholesale distributors. To support our sales to retail stores directly, we offer a strong co-op marketing program that includes free and paid store display materials. As part of this strategy, we have launched a new modular display system with engaging video screens and audio testing capabilities for our resellers to help educate their in-store customers about Lucyd Lyte and enable customers to try them on. This proprietary display system is central to our efforts to introduce traditional retail customers to Lucyd eyewear, and we are planning further enhancements to our merchandising displays to enable more immersive experiences. Additionally, we consistently incorporate retail partner feedback directly into our frames to better serve our end users.

Investing in business growth

We believe that people care about what they wear on their faces, and because we understand that customers have diverse preferences about the shape, size and design of their eyewear, we aim to continuously invest in the design and development of new models in an effort to provide the consumer with a wide selection of styles, colors, and finishes.

We are offering a strong co-op marketing program with retail stores, and intend to expand our sales, marketing and brand ambassador teams to broaden our brand awareness and online presence. We will also increase our general and administrative expenses in the foreseeable future to cover the additional costs for finance, compliance, supply chain, quality assurance and investor relations as we grow as a public company.

Key Performance Indicators

Store Count (B2B)

We believe that one of the key indicators for our business is the number of retail stores onboarded to sell Lucyd Lyte. We started onboarding our first retail stores in June 2021. Currently, we have over 300 retail stores selling Lucyd Lyte, primarily located within the United States and Canada, across 250+ unique wholesale accounts. Based on the existing demand for our products, current distribution, and recently consummated supply agreements, we anticipate that our products will be available in a significant number of new third-party retail locations in 2023.

We expect this number to gradually increase as we continue to improve our product, roll out our co-op marketing program and introduce more of our modular display systems into retail stores, to facilitate customer education and product sell-through. The Company has consistently introduced its products in dozens of new points of sale every quarter; however, we expect a more notable increase with the rollout of our Powered by Lucyd branded products over the next year. The introduction of fashion-branded products from our partnerships with Nautica, Eddie Bauer, and Reebok are expected to significantly increase our retail store presence due to the popularity and built-in following of these brands, particularly Nautica which has a large audience for their traditional eyewear, and Eddie Bauer due to their large US brick-and-mortar retail presence.

Customer Ratings (B2C)

The Lucyd Lyte version 2.0 product is receiving significantly higher ratings online compared to our previous products, indicating that customers are appreciative of improvements in product design, functionality and build quality. 11 out of 15 of the sunglass styles on Amazon carry a 4.1/5 rating or higher, compared to most products with an approximate 3.5/5 rating from our previous collection. This is a very strong signal of early positive feedback on our products that indicates our ability to grow and scale with America’s largest online retailer and other platforms.

Number of online orders (B2C)

SEC Form 10-Q filed by Innovative Eyewear Inc.