UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from __________ to __________
Commission file number
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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.
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.)
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 | ☐ |
| ☒ | 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 ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
As of November 5, 2024, there were 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, our strategy, competition, future operations and production capacity, our supply chain and logistics, 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, our Annual Report on Form 10-K for the year ended December 31, 2023, and in our other filings with the Securities and Exchange Commission. We do not assume any obligation to update any forward-looking statements except as required by law.
Innovative Eyewear, Inc.
Table of Contents
i
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
September 30, 2024 (Unaudited) and December 31, 2023
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investments in debt securities (U.S. Treasury bills) | ||||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Inventory prepayment | ||||||||
| Inventory | ||||||||
| Due from Tekcapital and Affiliates | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets | ||||||||
| Patent costs, net | ||||||||
| Capitalized software costs | ||||||||
| Property and equipment, net | ||||||||
| Other non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Deferred revenue | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (see Note 7) | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock (par value $, shares authorized, and and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively)(1) | ||||||||
| Additional paid-in capital(1) | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
| (1) |
See accompanying Notes to the Condensed Financial Statements.
1
INNOVATIVE EYEWEAR, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 2024 and 2023
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Less: Cost of Goods Sold | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Sales and marketing | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Research and development | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Related party management fee | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Total Operating Expenses | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other Income | ||||||||||||||||
| Interest Expense | ( |
) | ||||||||||||||
| Total Other Income (Expense), net | ||||||||||||||||
| Net Loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average number of shares outstanding(1) | ||||||||||||||||
| Loss per share, basic and diluted(1) | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| (1) |
See accompanying Notes to the Condensed Financial Statements.
2
INNOVATIVE EYEWEAR, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the three and nine months ended September 30, 2024 and 2023
(Unaudited)
| Common Stock | Additional Paid In |
Accumulated | Total Stockholders’ |
|||||||||||||||||
| Shares(1) | Amount(1) | Capital(1) | Deficit | Equity | ||||||||||||||||
| Balances as of January 1, 2024 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Issuance of shares to third party service provider | ||||||||||||||||||||
| Issuance of shares related to vesting of restricted share units | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balances as of March 31, 2024 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| At-the-Market Offerings | ||||||||||||||||||||
| First Registered Direct Offering | ||||||||||||||||||||
| Second Registered Direct Offering | ||||||||||||||||||||
| Issuance of shares to brand ambassador | ||||||||||||||||||||
| Issuance of shares related to vesting of restricted share units | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balances as of June 30, 2024 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| At-the-Market Offerings | ||||||||||||||||||||
| Exercises of warrants related to inducement agreements | ||||||||||||||||||||
| Exercises of warrants | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balances as of September 30, 2024 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Balances as of January 1, 2023 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Exercises of warrants by stockholders | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balances as of March 31, 2023 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Exercises of stock options | ||||||||||||||||||||
| Exercises of warrants by stockholders | ||||||||||||||||||||
| Exercises of warrants related to private placement transaction | ||||||||||||||||||||
| Second public offering | ||||||||||||||||||||
| Stock-based compensation | - | ( |
) | ( |
) | |||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balances as of June 30, 2023 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balances as of September 30, 2023 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| (1) |
See accompanying Notes to the Condensed Financial Statements.
3
INNOVATIVE EYEWEAR, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2024 and 2023
(Unaudited)
| 2024 | 2023 | |||||||
| Operating Activities | ||||||||
| Net Loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Non-cash interest expense | ||||||||
| Stock-based compensation expense | ||||||||
| Expenses paid by Tekcapital and Affiliates | ||||||||
| (Recovery of) provision for doubtful accounts | ( |
) | ( |
) | ||||
| Write-off of previously-capitalized software costs | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Accounts payable and accrued expenses | ( |
) | ||||||
| Prepaid expenses | ( |
) | ||||||
| Inventory | ( |
) | ( |
) | ||||
| Contract assets and liabilities | ||||||||
| Net cash flows from operating activities | ( |
) | ( |
) | ||||
| Investing Activities | ||||||||
| Purchases of debt securities (U.S. Treasury bills) | ( |
) | ( |
) | ||||
| Loan made to Tekcapital Europe, Ltd. | ( |
) | ||||||
| Repayment of amounts loaned to Tekcapital Europe, Ltd. | ||||||||
| Patent costs | ( |
) | ( |
) | ||||
| Purchases of property and equipment | ( |
) | ( |
) | ||||
| Net cash flows from investing activities | ( |
) | ( |
) | ||||
| Financing Activities | ||||||||
| Proceeds from offerings of common stock and warrants | ||||||||
| Proceeds from at-the-market offerings of common stock | ||||||||
| Proceeds from exercises of warrants | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Repayment of related party convertible debt | ( |
) | ||||||
| Repayment of amounts due to Tekcapital and Affiliates | ( |
) | ( |
) | ||||
| Net cash flows from financing activities | ||||||||
| Net Change In Cash | ||||||||
| Cash at Beginning of Period | $ | $ | ||||||
| Cash at End of Period | $ | $ | ||||||
| Significant Non-Cash Transactions | ||||||||
| Expenses paid for by Tekcapital and Affiliates, reported as increase in Due to/from Tekcapital and Affiliates and related party convertible debt | ||||||||
| Issuance of shares for prepayment to third party service provider | ||||||||
| Issuance of shares for prepayment to brand ambassador | ||||||||
See accompanying Notes to the Condensed Financial Statements.
4
INNOVATIVE EYEWEAR, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
September 30, 2024 and 2023 (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., a portfolio company of Tekcapital Plc through Tekcapital Europe, Ltd. (collectively, together with Lucyd Ltd., “Tekcapital and Affiliates”), which owned approximately 10.8% of our issued and outstanding shares of common stock as of September 30, 2024. 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, 2023 (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 nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for future periods or the full year.
Certain prior period amounts have been reclassified to conform to current period presentation; approximately $22,000 of capitalized costs related to the Company’s website previously reported within Capitalized software costs are now reported within Property and equipment, net.
Change in Capital Structure
As described more fully in Note 9, effective July 18, 2024, the Company effected a 1-for-20 reverse stock split for all of its issued and outstanding common stock. All share and per share related amounts presented in these financial statements and accompanying notes, including but not limited to shares issued and outstanding, dollar amounts of common stock and additional paid-in capital, earnings/(loss) per share, and warrants and options, have been retroactively adjusted for all periods presented in order to reflect this change in capital structure. There were no changes to the total number of authorized common shares or par value per common share as a result of this change.
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 uncertainties associated with the current geopolitical and economic environment.
5
Cash Equivalents
All highly liquid investments with original maturities of three months or less, including money market funds, certificates of deposit, and U.S. Treasury bills purchased three months or less from maturity, are considered cash equivalents.
Investments
As of September 30, 2024, the Company held investments in U.S. Treasury bills, which mature in March 2025. These investments are classified as “held-to-maturity” and are recorded at amortized cost of $
Receivables and Credit Policy
Trade receivables from customers are uncollateralized customer obligations due under normal trade terms. 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. We generally offer “net 30” payment terms on wholesale orders of $1,500 or more, subject to the wholesale customer’s completion of a credit check application and credit card authorization form. For direct-to-consumer sales, payment is required before product is shipped.
Accounts receivable are reported at the amount billed to the customer, net of an allowance for doubtful accounts. The allowance for doubtful accounts is determined based upon a variety of judgments and factors. Factors considered in determining the allowance include historical collection, write-off experience, and management’s assessment of collectibility from customers, including current conditions, reasonable forecasts, and expectations of future collectibility and collection efforts. Management continuously assesses the collectibility of receivables and adjusts estimates based on actual experience and future expectations based on economic indicators. Receivable balances are written-off against the allowance when such balances are deemed to be uncollectible.
A roll forward of the allowance for doubtful accounts for the nine months ended September 30, 2024 and 2023 is as follows:
| 2024 | 2023 | |||||||
| Balance at January 1 | $ | $ | ||||||
| Bad debt expense (recovery) | ( |
) | ||||||
| Write-offs(1) | ( |
) | ||||||
| Other(1) | ( |
) | ||||||
| Balance at September 30 | $ | $ | ||||||
| (1) |
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. Such provisions were $
As of September 30, 2024 and December 31, 2023, the Company recorded an inventory prepayment in the amount of $
6
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 intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Capitalized Software
The Company had previously incurred costs related to development of the Vyrb software application, and had previously capitalized approximately $88,000 of these costs related to coding, development, and testing (subsequent to establishing technical feasibility of the app), as it was the Company’s intention to market and sell this software externally.
Although we launched Vyrb as an open beta version in 2021, and continued to add new features to Vyrb throughout 2022 and 2023, we had not officially launched the Vyrb app. During 2024, management decided to shift our primary software development focus to the Lucyd app, which was launched in April 2023 as a free application that enables the user to converse with the extremely popular ChatGPT AI language model on our glasses. Certain elements and features developed for the Vyrb app may potentially be incorporated into future releases of the Lucyd app.
Based on this decision, during the nine months ended September 30, 2024, we expensed the previously-capitalized Vyrb software development costs totalling approximately $
Property and Equipment
Property and equipment assets are depreciated using the straight-line method over their estimated useful lives or lease terms if shorter. 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 recognizes compensation expense for stock-based awards to employees and directors and others based on the grant date fair value of such awards. Forfeitures are accounted for as a reduction of compensation expense in the period when such forfeitures occur.
7
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 No. 107. |
| ● | The share price volatility is estimated using historical stock prices based upon the expected term of the options granted, using stock prices of comparably profiled public companies. |
| ● | 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. |
For awards of restricted stock units and shares of common stock, the fair value of the award is based on the quoted market price of our common shares on the NASDAQ stock exchange.
Revenue Recognition
Our revenue is primarily 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.com. We have also recently started to generate revenue from the sale of subscriptions to the “Pro” version of our Lucyd app, which provides unlimited ChatGPT interactions and priority tech support for a monthly or annual fee.
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 collectibility 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. During the nine months ended September 30, 2024 and 2023, we recognized $
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. Amounts billed to a customer for shipping and handling are reported as revenues; costs incurred for shipping and handling are included in cost of goods sold at the time the related revenue is recognized.
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 of the performance obligation when the eyewear is shipped to end customers. U.S. consumers enjoy free USPS first class postage on orders over $149, with faster delivery options available for extra cost, for sales processed through our website. 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.
8
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 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. If collectibility of substantially all of the contract consideration is probable, 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 retail store partners and distributors includes volume discounts, due to the nature of large quantity orders. The pricing does not include shipping. Due to the nature of wholesale retail orders, no marketplace fees are applicable, only credit card processing fees.
For sales of subscriptions to the “Pro” version of our Lucyd app, we identify the individual contracts with customers through detailed transaction reports from the Apple App Store or Google Play Store, with each individual transaction representing a separate contract. Revenue is recognized upon meeting the performance obligation, which is the right and availability of each customer to access the “Pro” features of the Lucyd app. For those customers that purchase such access on a month-to-month basis, we recognize revenue in the month in which the purchase of such access is made. For those customers which purchase an annual subscription, we recognize revenue on a straight-line basis over the subscription period, using a mid-month convention. The balance of unearned revenue related to app subscriptions that has been deferred on our balance sheet as a contract liability was $
We allow our customers to return our physical products, subject to our refund policy, which allows any customer to return our physical products for any reason and receive a full refund for frames (prescription lenses excluded) within the first 7 days for sales made through our website (Lucyd.co), 30 days for sales made through Amazon, and 30 days for sales to most wholesale retailers and distributors (although certain sales to independent distributors are ineligible for returns). As of January 2024, we updated our return policy to prohibit discretionary returns of prescription lenses, and also instituted a standard $
For all of our product 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 review all individual returns received in the month following the balance sheet date pertaining to orders processed prior to the balance sheet date in order to determine whether an allowance for sales returns is necessary. The Company recorded an allowance for sales returns of $
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. During the nine months ended September 30, 2024, the Company raised approximately $10.4 million of net cash proceeds through the issuance of equity via a combination of at-the-market offerings, registered direct offerings, and warrant exercises (see Note 9 for details). The Company has also entered into an agreement with a related party, under which the Company may borrow up to $1.25 million (see Note 6 for details); as of September 30, 2024, the Company has not borrowed any amounts under this agreement. The Company’s forecasts and projections indicate that the Company expects to have sufficient liquidity to fund operations through at least the next 12 months. However, the Company may raise additional funds if management believes it would be beneficial to do so.
9
NOTE 4 – INCOME TAX PROVISION / BENEFIT
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
NOTE 5 – TANGIBLE AND INTANGIBLE ASSETS
| September 30, | December 31, | |||||||
| Property & Equipment | 2024 | 2023 | ||||||
| Mobile Kiosk Display | $ | $ | ||||||
| Computer Equipment | ||||||||
| Office Equipment | ||||||||
| Internal-Use Software and Website Costs | ||||||||
| Property and equipment, gross | ||||||||
| Less: Accumulated depreciation | ( |
) | ( |
) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the three months ended September 30, 2024 and 2023 was $
Depreciation expense for the nine months ended September 30, 2024 and 2023 was $
| September 30, | December 31, | |||||||
| Finite-lived intangible assets | 2024 | 2023 | ||||||
| Patent Costs | $ | $ | ||||||
| Less: Accumulated amortization | ( |
) | ( |
) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization expense for the three months ended September 30, 2024 and 2023 was $
Amortization expense for the nine months ended September 30, 2024 and 2023 was $
NOTE 6 – RELATED PARTY TRANSACTIONS AND AGREEMENTS
Convertible Note and Due to Tekcapital and Affiliates
Through December 1, 2023, the Company had the availability of, but not the contractual right to, intercompany financing from Tekcapital and Affiliates in the form of either cash advances or borrowings under a convertible note. The convertible notes balances were $
10
New Lucyd Ltd. Financing Agreement
On March 1, 2024, the Company entered into an agreement with Lucyd Ltd. pursuant to which the Company can receive up to $
Loan to Tekcapital Europe, Ltd.
On January 11, 2024, the Company entered into an intercompany loan agreement (as lender) with Tekcapital Europe, Ltd. (as borrower) and Tekcapital Plc, the parent of Tekcapital Europe, Ltd. Pursuant to this agreement, the Company loaned 600,000 British pounds sterling (equivalent to approximately $
Management Service Agreement
The Company has entered into a management services agreement with Tekcapital Europe, Ltd., for which the Company is 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 and 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 September 30, 2024 and 2023, the Company incurred $
Rent of Office Space
Under an agreement between the Company and Tekcapital, Tekcapital bills the Company for an allocation of rent paid by Tekcapital on the Company’s behalf. The Company recognized $
11
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Legal Matters
We are not currently 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.
On January 3, 2024, we settled and resolved certain matters with a third party, including a complaint that had been brought before the International Trade Commission and an investigation instituted by the International Trade Commission in 2023, and entered into a multi-year non-exclusive license agreement with the third party covering multiple smart eyewear patents (as described more fully below).
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 worldwide. 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:
| Remainder of 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter (through 2033) | |||||
| Total | $ |
Also, on January 3, 2024, we entered into a multi-year non-exclusive license agreement with a third party (IngenioSpec, LLC) for multiple smart eyewear patents. Pursuant to this license agreement, the Company added licenses for 46 new patents to its portfolio of owned and licensed patents and applications. The Company fully prepaid this license for the term of the agreement and does not have any obligation for future payments under this agreement.
Leases
Our executive offices are located at 11900 Biscayne Blvd., Suite 630 Miami, Florida 33181. Our executive offices are provided to us by a related party (see Note 6). We consider our current office space adequate for our current operations.
Other Commitments
See related party management services agreement discussed in Note 6.
12
Stock Options
Summary information regarding the number of options, exercise price, and remaining contractual life as of and during the nine months ended September 30, 2024 (as retroactively adjusted for the reverse stock split described in Note 9) is as follows:
| Options (Number) |
Weighted Average Exercise Price per share ($) |
Weighted Average Remaining Contractual Life (Years) |
||||||||||
| As at January 1, 2024 | ||||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited / Expired | ( |
) | ||||||||||
| As at September 30, 2024 | ||||||||||||
| Exercisable as at September 30, 2024 | ||||||||||||
During the three and nine months ended September 30, 2024, we recognized $ and $ of expense, respectively, related to stock options. As of September 30, 2024, the aggregate intrinsic value for all options outstanding as well as all options exercisable was zero, and unrecognized stock option expense of approximately $ remains to be recognized over the next years.
On January 11, 2024, we granted options to purchase an aggregate of
Restricted Stock Units
During the three and nine months ended September 30, 2024, we recognized $
Stock Grants
On March 28, 2024, we entered into an agreement for a third party to provide us with financial advisory and investment banking services, for a minimum term of six months. As consideration for the services provided to the Company, we issued to the counterparty shares of our common stock. The total value of consideration transferred, measured using the fair value of our common stock at the date of issuance, was $
On April 1, 2024, we entered into a brand
ambassador agreement with an individual for a two-year term. As compensation for the first year of the agreement, we issued the
individual
shares of our common stock. The value of the consideration transferred, measured using the fair value of our common stock at the
date of issuance, was $
13
NOTE 9 – STOCKHOLDERS’ EQUITY
Change in Capital Structure – Reverse Stock Split
At our annual meeting of shareholders on July 8, 2024, the Company’s shareholders approved an amendment to the Company’s articles of incorporation to effect a reverse stock split of our issued and outstanding common stock at a ratio between 1-for-14 and 1-for-24. Subsequently, the board of directors authorized a reverse stock split in a ratio of
Effective July 18, 2024, each 20 shares of the Company’s issued and outstanding common stock were combined into one share of common stock, except to the extent that the reverse stock split would have resulted in any of the Company’s stockholders owning a fractional share, in which case such fractional share was rounded up to the next highest whole share. Additionally, pursuant to their terms, the shares of common stock underlying the Company’s outstanding stock options and warrants were similarly adjusted along with corresponding adjustments to their exercise prices.
All share and per share amounts presented in these financial statements and accompanying notes, included but not limited to shares issued and outstanding, earnings/(loss) per share, and warrants and options, as well as the dollar amounts of common stock and additional paid-in capital, have been retroactively adjusted for all periods presented in order to reflect this change in capital structure.
There was no change to the total number of authorized common shares of , and there was no change in the par value per common share of $.
At-the-Market Offerings
On April 15, 2024, the Company entered into an at-the-market offering agreement with H.C. Wainwright & Co., LLC, as sales agent (“HCW”), relating to the sale of common stock.
| ● | From April 15, 2024 through April 28, 2024, the Company sold shares of common stock and received approximately $ |
| ● | Following the first registered direct offering described below, from May 2, 2024 through May 24, 2024, the Company sold shares of common stock and received approximately $ |
| ● | Following the second registered direct offering described below, from June 13, 2024 through June 30, 2024, the Company sold shares of common stock and received approximately $ |
| ● | From July 12, 2024 through August 30, 2024, the Company sold shares of common stock and received approximately $ |
The Company also paid $
14
First Registered Direct Offering
On May 1, 2024, the Company closed on a registered direct offering of shares of its common stock and, in a concurrent private placement, warrants to purchase up to
Approximately $
Second Registered Direct Offering
On May 29, 2024, the Company closed on a registered direct offering of shares of its common stock and, in a concurrent private placement, warrants to purchase up to
Warrant Exercises
During September 2024, the Company entered into multiple warrant inducement transactions with certain holders of its existing warrants. The Company intends to use the net proceeds from these transactions for working capital and general corporate purposes.
| ● | On September 3, 2024, the
Company entered into inducement letter agreements with certain holders of existing warrants (originally issued on June 26, 2023) to
purchase an aggregate of |
| ● | On September 18, 2024, the
Company entered into inducement letter agreements with certain holders of existing warrants (originally issued on May 1, 2024 in
connection with the First Registered Direct Offering described above) to purchase an aggregate of |
| ● | On September 22, 2024, the
Company entered into inducement letter agreements with certain holders of existing warrants (originally issued on May 29, 2024 in
connection with the Second Registered Direct Offering described above) to purchase an aggregate of |
In connection with each of the aforementioned warrant inducement transactions, the Company issued placement agent warrants to HCW, the relevant details of which are outlined in the table below.
On September 23, 2024,
15
In addition, on September 24, 2024,
As of September 30, 2024, the Company’s remaining outstanding warrants were as follows:
| Warrant Type | Warrants Outstanding to Purchase X Shares |
Exercise Price | Issuance Date | Expiration Date | ||||||||||
| Listed (IPO) Warrants | $ | |||||||||||||
| Common (SPO) Warrants | $ | |||||||||||||
| Private Warrants | $ | |||||||||||||
| Series A Warrants | $ | |||||||||||||
| Series B Warrants | $ | |||||||||||||
| Series C Warrants | $ | |||||||||||||
| Series D Warrants | $ | |||||||||||||
| Series E Warrants | $ | |||||||||||||
| Series F Warrants | $ | |||||||||||||
| Underwriter / Placement Agent Warrants | $ | |||||||||||||
| Underwriter / Placement Agent Warrants | $ | |||||||||||||
| Underwriter / Placement Agent Warrants | $ | |||||||||||||
| Underwriter / Placement Agent Warrants | $ | |||||||||||||
| Underwriter / Placement Agent Warrants | $ | |||||||||||||
| Underwriter / Placement Agent Warrants | $ | |||||||||||||
| Underwriter / Placement Agent Warrants | $ | |||||||||||||
| Total | ||||||||||||||
Rights Plan
On September 25, 2024, our board of directors approved the adoption of a limited duration stockholder rights plan (the “Rights Plan”), and declared a dividend to stockholders of record at the close of business on September 25, 2024 of one common stock purchase right (a “Right”) for each outstanding share of our common stock. Each Right entitles the holder to purchase from the Company six shares of our common stock at an exercise price of $
Under the Rights Plan, the Rights generally will become exercisable only if a person or group acquires beneficial ownership of 20% or more of our common stock in a transaction not approved by our board of directors. In that situation, each holder of a Right (other than the acquiring person or group, whose rights will become void and will not be exercisable) will have the right to purchase, upon payment of the exercise price and in accordance with the terms of the Rights Plan, a number of shares of our common stock having a market value of twice such price.
The Rights expire at or prior to the earlier of (i) September 25, 2025, (ii) the redemption or exchange of the Rights in accordance with the terms of the Rights Plan, (iii) the closing of certain merger or other acquisition transactions involving the Company, and (iv) the date of the Company’s next meeting of its stockholders.
The Rights Plan is not intended to prevent a takeover of the Company and should not interfere with any merger or other business combination approved by our board of directors. However, the Rights Plan may cause substantial dilution to a person or group that acquires beneficial ownership of twenty percent (20%) or more of our outstanding common stock.
Other Matters
During the nine months ended September 30, 2024, the Company made a release payment of $
16
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.
Due to the net losses for all periods presented in the unaudited condensed statements of operations, all shares underlying the common stock options, common stock warrants, and related party convertible debt were excluded from the earnings per share calculation due to their anti-dilutive effect.
The calculation of net earnings/(loss) per share (as retroactively adjusted for the reverse stock split described in Note 9) is as follows:
| For the three months ended |
For the nine months ended | |||||||||||||||
| September 30, 2024 |
September 30, 2023 |
September 30, 2024 |
September 30, 2023 | |||||||||||||
| Basic and diluted: | ||||||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted-average number of common shares | ||||||||||||||||
| Basic and diluted net loss per common share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
NOTE 11 – SUBSEQUENT EVENTS
In October 2024, the Company issued an aggregate
of
shares of common stock to certain holders of the Company’s Series A and Series B Warrants who had elected to exercise such warrants; the Company received approximately
$
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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
Our mission is to Upgrade Your Eyewear®. We develop and sell cutting-edge smart eyeglasses and sunglasses, which are designed to allow our customers to remain connected to their digital lives, while also offering vision correction and protection. Our smart eyewear is a fusion of headphones with glasses, bringing vision correction and protection together with digital connectivity and clear audio, while also offering a safer solution for listening to music outdoors (as compared to in-ear headphones). The convenience of having a Bluetooth headset and comfortable glasses in one, especially for those who are already accustomed to all-day eyewear use, offers a lifestyle upgrade at a price most consumers can afford.
Our flagship product, Lucyd Lyte®, enables the wearer to listen to music, take and make calls, and use voice assistants and ChatGPT to perform many common smartphone tasks hands-free. Notably, by the end of the first quarter of 2025 the Company anticipates completing its mission to introduce a smart upgrade for all four of the major types of eyewear: prescription eyeglasses, ready-to-wear sunglasses, safety glasses, and sport glasses. We believe this will expand our customer base significantly by having a large eyeglass and sunglass offering that better aligns with the needs of optical retailers. To date, most Lucyd products have been designed for sunglass use, but starting in 2024 we have begun to offer alternative lens options such as blue light and transitional lenses on our stock frames, allowing for more customization without increasing unit price. Additionally, the Lucyd Armor and Reebok® Powered by Lucyd frames will align with the style and performance needs of safety and sport eyewear users respectively, for which we have not previously had a suitable product offering.
The Company believes its diversification into safety and sport smartglasses (Lucyd Armor and Reebok®), for which high-quality competing products are scarce, will buttress our position in the emerging smart eyewear market by offering a unique value proposition to customers. Since these products are very competitively priced against their traditional counterparts, we believe in their potential to enhance the Company’s revenues and open new retail partnerships with businesses outside of the optical market.
Products and History
In January 2020, we introduced our first beta product and began market testing.
In January 2021, we officially launched our first commercial product, 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 lightweight 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, including the Company’s first titanium-front smart eyewear. A final four styles were added to this collection in 2022, including the Company’s first matte finish and tortoise style models, along with improvements to hinge design.
In the 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. In the fourth quarter of 2022, we completed development of core audio eyewear product improvements, such as upgrading all frames to quadraphonic sound, which was subsequently rolled out across all of our new eyewear models.
In February 2023, we launched version 2.0 of our Lucyd Lyte eyewear with 15 different styles, incorporating several key breakthroughs for the smart eyewear product category – including a four-speaker audio array, 12-hour music playback and call time, and improved styling as well as technical upgrades. In October 2023, we launched six new styles of smart eyewear, branded as Lyte XL, bringing even more advancements – including patent-pending flexible hinges for a more comfortable fit and a wider range of suitable head sizes, significant improvements to speaker and microphone quality, thinner and more ergonomic temples, and post-consumer recycled packaging.
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Also during 2023, we completed upgrades to our accessory products, including the charging dock and virtual try-on kiosk. The patent-pending Lucyd charging dock was upgraded to version 2.0 edition, featuring auto-adjusting connectors to fit any size of smart eyewear we produce, a new charging status LED, and USB data capability, enabling it to be used as a USB hub for computers in addition to a charging hub. The Lucyd virtual try-on kiosk was replaced with a fully modular display system, with eight available components for stores to mix and match to suit their display needs. The display can be deployed as a countertop display or freestanding, making it suitable for almost any retail environment.
In January 2024, we launched the Nautica® Powered by Lucyd smart eyewear collection in eight different styles, along with various branded accessories including a power brick, cleaning cloth, and a slipcase adorned with the iconic Nautica sail logo. This collection introduced the Company’s first “global fit” style, which supports low nose bridge customers.
In April 2024, we launched the Eddie Bauer® Powered by Lucyd smart eyewear collection in four different styles, which showcases the first-to-market rimless smart eyewear design. We believe the Eddie Bauer collection is the Company’s most premium product to date, and features brushed titanium hardware, improved sound quality, and includes the patent-pending Lucyd Dock with every unit.
In October 2024, we launched the Lucyd Armor line, an ANSI-certified smart safety glass designed for all-day wear. This new line provides all the powerful features of Lucyd eyewear in a stylish safety wrap.
With the addition of the Lucyd Armor line, our current product offering consists of 34 different models, which offers a similar amount of style variety as many traditional eyewear collections. The Company is continuously iterating and improving its frame lineup, offering a mixture of “Lucyd icons” (styles that have consistently performed well since the introduction of Lucyd Lyte) and new styles seasonally to align with market trends and evolving consumer demand. All styles are available with 80+ different lens types, resulting in thousands of variations of products currently available. The Company currently has over 100 licensed patents and applications.
We plan to launch the Reebok® Powered by Lucyd sport smart glasses collection in the first quarter of 2025, followed by a Reebok® Optical Smart Eyewear collection in mid-2025.
Since the initial launch of Lucyd Lyte, we have witnessed growing interest and demand from customers throughout the United States and have sold thousands of our smart glasses. Over the past few years, numerous optical stores in the United States and Canada have onboarded our products, and we continue to pursue expansion with various large eyewear chains and other large retailers regarding our frames. 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.
Software and Apps
In April 2023, we introduced a major software upgrade for our glasses with the launch of the Lucyd app for iOS and Android. This free application enables the user to converse with the extremely popular ChatGPT AI language model on our 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 integration with the Open AI API for ChatGPT, developed internally by the Company. The Company has filed a patent application related to this software.
In the second quarter of 2024, we added a “Pro” version of the app, which provides unlimited ChatGPT interactions and priority tech support for a modest monthly or annual fee. This is a new revenue stream for our business, and represents our first diversification in product revenue from frames and lenses.
In July 2024, we launched a new feature called “Walkie” for the Lucyd app, which enables thousands of users to join each other on walkie-talkie style communication channels. This feature was designed with the upcoming smart safety glass product in mind, to enable coworking teams to communicate freely on smart eyewear. We plan to launch more new features for the Lucyd app in the future, such as an audio equalizer enabling the user to optimize sound output for different types of content such as calls and podcasts, a “Find My Glasses” feature, and touch control customizations.
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We believe these developments make our Lucyd eyewear perhaps the smartest smartglasses available today, and represent a significant marketing opportunity for our core smartglass products.
A large part of our strategy is not just to provide a leading smart eyewear platform, but to build a highly functional mobile software and interactive retail fixture ecosystem to support user adoption and “stickiness” with our products. While the Lucyd app provides additional value to end users after purchase, we also wanted to make the purchase process itself more engaging and tech-forward. To this end, we have also developed all-new interactive LCD retail fixtures, featuring a new proprietary kiosk app that we have just recently developed in-house. These new displays offer a complete Lucyd experience, including virtual try-on, social media content, detailed product info and videos, and seamless music demos. The new display systems, installed with the Lucyd shopping app, are expected to provide an immersive onboarding experience for prospective customers in retail stores carrying our frames, and we have started deployment of these new display systems to customers as of October 2024.
Key Factors Affecting Performance
Expansion of retail points of purchase
In addition to sustained growth of our e-commerce business, we believe 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. To support this growth, we have partnered with Windsor Eyes as our premier distributor for the optical market. Windsor Eyes brings decades of experience in the eyewear industry and a team of experienced, professional eyewear sales reps. In July 2024, they have just started to market our frames, and have already introduced our frames into three new eyewear retailers.
We currently offer an expansive line of 34 different styles and several accessories (including our co-branded product offerings with Nautica and Eddie Bauer), and are in the process of expanding our product offerings to include co-branded eyewear with other well-known brands like Reebok. In total, the Company expects to offer 38 total smart eyewear models by the end of 2024.
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. Additionally, we consistently incorporate retail partner feedback directly into our frames to better serve our end users.
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. As of September 30, 2024, 73 digital display systems have been deployed to retailers. In October 2024, we began shipping and deploying to customers enhanced countertop and freestanding displays with large, interactive screens and engaging social media content.
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.
20
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 350 retail stores selling Lucyd Lyte primarily in the United States and Canada. 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 2024.
Customer Ratings (B2C)
The Lucyd Lyte version 2.0 product is receiving higher ratings online compared to our previous products, indicating that customers are appreciative of improvements in product design, functionality, and build quality. Our newest Amazon launch of the Eddie Bauer® Powered by Lucyd smart eyewear carries a 4.8/5 rating. This is a strong signal of 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)
For our e-commerce business, we track the number of online orders as an indicator of the success of our online marketing efforts. As of September 30, 2024, we had over 20,000 cumulative total orders from customers online since inception. We believe that the addition of new styles, as well as further investment in brand awareness, product ambassadors, and influencer campaigns, will enable continued growth of online orders in the foreseeable future. We allocate a sizeable portion of our advertising expenditures towards influencer marketing programs.
Components of Results of Operations
Revenues
Our revenue is primarily generated from the sales of prescription and non-prescription optical glasses and sunglasses, and shipping charges associated with these purchases, which are charged to the customer. We sell products through our retail store resellers, distributors, on our own website Lucyd.co, and on Amazon.com. We have also recently started to generate revenue from the sale of subscriptions to the “Pro” version of our Lucyd app, which provides unlimited ChatGPT interactions and priority tech support for a modest monthly or annual fee.
Our flagship Lucyd Lyte XL brand frames are priced at $179 on acetate models and $199 on titanium models for non-prescription glasses across all of our online channels. Our co-branded Nautica® Powered by Lucyd and Eddie Bauer® Powered by Lucyd frames are priced at $199 – $219 and $249 – $299, respectively.
When adding a prescription lens upgrade to our glasses on the Lucyd.co website, the price can increase from between $40 for a basic clear prescription lens, all the way up to $449 for our proprietary Blueshift transitional blue light lenses in a progressive high index (ultra-thin) format. Glasses with prescription lenses are provided by the Company through our website Lucyd.co, while our sales through Amazon and to our retail partners only include non-prescription glasses (with rare exceptions, such as a reseller ordering a customized unit for display purposes). Lens customizations remain an important product differentiator and upselling opportunity.
U.S. Lucyd.co consumers enjoy free USPS first class postage on orders over $149, with faster delivery options available for extra cost, for sales processed through our website. For Amazon sales, shipping is free for U.S. consumers while international customers pay shipping charges. Any costs associated with fees charged by the online platforms (Shopify for our Lucyd.co website and Amazon.com) are not recharged to customers. We charge applicable state sales taxes for online channels and all other marketplaces on which sell.
Our wholesale pricing for eyewear sold to retail store partners and distributors includes volume discounts, due to the nature of large quantity orders. The pricing does not include shipping. Due to the nature of wholesale retail orders, no marketplace fees are applicable, only credit card processing fees.
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Cost of Goods Sold
Cost of goods sold includes the costs incurred to acquire materials, assemble, and sell our finished products.
For retail sales placed through one of our e-commerce channels, these costs include (i) product costs stated at the lesser of cost and net realizable value and inclusive of inventory reserves, (ii) freight, import, and inspection costs, (iii) optical laboratory costs for prescription glasses, (iv) merchant fees, (v) fees paid to third-party e-commerce platforms, and (vi) cost of shipping the product to the consumer.
For wholesale sales, these costs include (i) product costs stated at the lesser of cost and net realizable value and inclusive of inventory reserves, (ii) freight, import, and inspection costs, and (iii) credit card fees.
When consumers place their orders directly on our website, we save approximately 12% - 15% on marketplace fees compared with orders placed through third-party platforms like Amazon and eBay.
We expect our cost of goods sold to fluctuate as a percentage of net revenue primarily due to product mix, customer preferences and resulting demand, customer shipping costs, and management of our inventory and merchandise mix.
Over time, we expect our total cost of goods sold on a per unit basis to decrease as a result of an increase in scale. Increase in scale is achieved as a result of increase in volumes from both business to consumer and business to business (retail store) orders. We continue to expand our products with line extensions and new models and broaden our presence in retail stores carrying our products.
Gross Profit and Gross Margin
Gross profit is net revenue less cost of goods sold. Gross margin is gross profit expressed as a percentage of net revenue.
Our gross margin may fluctuate in the future based on a number of factors, including the cost at which we can obtain, transport, and assemble our inventory, the rate at our vendor network expands, and how effective we can be at controlling costs in any given period. Over time, we anticipate that our cost of goods sold, on a per unit basis, will decrease with scale, and this will likely have a positive impact on our gross margins.
Operating Expenses
Our operating expenses consist primarily of:
| ● | general and administrative expenses that primarily include payroll and consulting expenses, IT & software, legal, and other administrative expenses; | |
| ● | sales and marketing expenses including cost of online advertising, marketing agency fees, influencers, trade shows, and other initiatives; | |
| ● | related party management fees for a range of back-office services provided by Tekcapital; and | |
| ● | research and development expenses related to (i) development of new styles and features of our smart eyewear, (ii) development and improvement of our e-commerce website, and (iii) development of software and apps for wearables. |
Interest and Other Income, Net
Interest and other income, net, primarily includes interest, dividends, and investment returns from our investments in money market funds and U.S. Treasury bills, as well as interest income and expense related to loans with related parties.
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Results of Operations – Quarterly
The following table summarizes our results of operations for the three months ended September 30, 2024 (the “current quarter”) and the three months ended September 30, 2023 (the “prior year quarter”):
| Three months ended September 30, 2024 |
Three months ended September 30, 2023 |
Change | ||||||||||||||||||||||
| Revenues, net | $ | 253,599 | 100 | % | $ | 221,875 | 100 | % | $ | 31,724 | 14 | % | ||||||||||||
| Less: Cost of Goods Sold | (194,255 | ) | 77 | % | (141,531 | ) | 64 | % | (52,724 | ) | 37 | % | ||||||||||||
| Gross Profit | 59,344 | 23 | % | 80,344 | 36 | % | (21,000 | ) | -26 | % | ||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||
| General and administrative | (1,121,972 | ) | 442 | % | (915,537 | ) | 413 | % | (206,435 | ) | 23 | % | ||||||||||||
| Sales and marketing | (533,066 | ) | 210 | % | (533,902 | ) | 241 | % | 836 | 0 | % | |||||||||||||
| Research and development | (131,369 | ) | 52 | % | (192,701 | ) | 87 | % | 61,332 | -32 | % | |||||||||||||
| Related party management fee | (35,000 | ) | 14 | % | (35,000 | ) | 16 | % | - | 0 | % | |||||||||||||
| Total Operating Expenses | (1,821,407 | ) | 718 | % | (1,677,140 | ) | 756 | % | (144,267 | ) | 9 | % | ||||||||||||
| Other Income (Expense) | 41,386 | -16 | % | 45,691 | -21 | % | (4,305 | ) | -9 | % | ||||||||||||||
| Interest Expense | - | 0 | % | - | 0 | % | - | |||||||||||||||||
| Total Other Income (Expense), net | 41,386 | -16 | % | 45,691 | -21 | % | (4,305 | ) | -9 | % | ||||||||||||||
| Net Loss | $ | (1,720,677 | ) | 679 | % | $ | (1,551,105 | ) | 699 | % | $ | (169,572 | ) | 11 | % | |||||||||
Revenues
Our revenues for the three months ended September 30, 2024 were $253,599, representing an increase of 14% as compared to revenues of $221,875 during the three months ended September 30, 2023. This increase is primarily attributable to strategic reductions in price discounts and adjustments to our pricing and Manufacturer’s Suggested Retail Price, aimed at enhancing profitability and attracting distributors to manage our wholesale channel. While the total number of units sold remained relatively stable compared to the prior year quarter, the higher average order value and focused efforts in specific channels contributed to the overall revenue growth. We believe these strategies reflect customers’ recognition of the quality and value proposition of our recent new product launches and support our long-term growth objectives. Additionally, we believe consumer awareness of smart eyewear is increasing, thanks in part to aggressive marketing from our main competitor, and the overall concept of our product is becoming less of a novelty and more of an accepted mobile computing platform.
Revenue generated through the e-commerce channel increased significantly from the prior year quarter, with net sales through our Lucyd.co website growing by 46%.
Wholesale revenue decreased approximately 11% from the prior year quarter, largely driven by a change in our focus from small, independent retailers to major national retailers, the latter of which have slower product approval and purchasing cycles. However, we believe that focusing on introducing our product in major national retailers will have a significant positive impact on the Company’s revenues in the next 3 to 18 months.
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For the three months ended September 30, 2024, approximately 54% of sales were processed on our online store (Lucyd.co), 22% on Amazon.com, and 23% through reseller partners, with 1% of our net revenues generated from Lucyd “Pro” app subscriptions. This sales channel mix positively impacted our revenue for the current quarter as compared with the prior year quarter, due to the fact we charge an additional $35 to $275 for our prescription lenses available only on Lucyd.co. For the three months ended September 30, 2024, we generated an aggregate of $187,568 of revenue from sales of non-prescription frames and accessories, $63,459 from sales of frames with prescription lenses, and $2,572 of revenue from app subscriptions. All of the $56,194 in sales generated on Amazon.com during the current quarter were for non-prescription frames and accessories, as we only offer prescription lenses through our website. Of the $137,135 in online sales generated through Lucyd.co, $63,459 was related to frames with prescription lenses and $73,676 was related to glasses with non-prescription lenses. E-commerce sales remain to be the most material portion of our sales to date; however, out of all of our sales channels, we believe that the wholesale optical channel represents the most promising opportunity for future growth. We anticipate that as smart eyewear becomes more normalized for prescription wear, major national eye care providers will begin to onboard smart eyewear products, and we believe we are the value leader in that sector.
For the three months ended September 30, 2023, approximately 42% of sales were processed on our online store (Lucyd.co), 29% on Amazon.com, and 29% with reseller partners. For the three months ended September 30, 2023, we generated $187,086 of revenue from sales of non-prescription frames and accessories, and $34,789 from sales of frames with prescription lenses. All of the $63,027 in sales generated on Amazon.com during the 2023 period were for non-prescription frames and accessories, as we only offer prescription lenses through our website. Of the $93,704 in online sales generated through Lucyd.co, $34,789 was related to frames with prescription lenses and $58,915 was related to glasses with non-prescription lenses.
Cost of Goods Sold
Our total cost of goods sold increased to $194,255 for the three months ended September 30, 2024, as compared to $141,531 for the prior year quarter. This year-over-year increase of 37% was driven by a combination of factors, including: (i.) higher cost of frames, largely attributable to the new Eddie Bauer® Powered by Lucyd collection, due to the increased number of components, deluxe finishes, and materials associated with that product line, (ii.) higher shipping and logistics costs, and (iii.) the impact of certain period costs and other one-off items, most notably including approximately $44,000 of credits related to custom duties and taxes included in the prior year quarter amounts which did not recur in the current quarter.
These increased costs were partially offset by significant decreases in lens fulfilment costs, which decreased by approximately 50% from the prior year quarter. This is primarily attributable to actions taken by management in the current year to better manage these costs, including (i.) the launch of the new Lucyd Shift and Lucyd Blueshift transitional lenses in place of branded third-party transitional lenses, offering similar functionality for a lower cost of goods, while also enabling a slightly lower cost to the customer, and (ii.) the engagement of a new lower-cost lens supplier based in Miami, Florida.
Cost of goods sold for the three months ended September 30, 2024 included the cost of frames of $107,469; cost of prescription lenses incurred with third-party vendors of $38,247; commissions, affiliate referral fees, and e-commerce platform fees of $24,413; and shipping and logistics costs of $22,512. Out of our total cost of goods sold for the current quarter of $194,255, $38,247 related to orders with prescription lenses, while $156,008 pertained to non-prescription orders. We anticipate that our cost of goods sold will improve in future periods as new products – i.e., Lucyd Armor and Reebok® Powered by Lucyd – sourced from a new supplier are launched in the fourth quarter of 2024 and first quarter of 2025, respectively, as the frames for these product lines are designed differently from our other products and accordingly have fewer components, thus reducing their price. We estimate that the unit cost of these new product lines will be at least 30% lower than our Lucyd Lyte models.
Cost of goods sold for the three months ended September 30, 2023 included the cost of frames of $79,410; cost of prescription lenses incurred with third-party vendors of $76,346; period costs (credits) of approximately $(44,000) related to custom duties and taxes; and other items including affiliate referral fees, e-commerce platform fees, commissions, and custom duties and importation fees for a total of $22,312. Out of our total cost of goods sold for the three months ended September 30, 2023 of $141,531, $76,346 related to orders with prescription lenses, while $65,185 pertained to non-prescription orders.
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We anticipate further growth in revenues in the fourth quarter of 2024, largely in part to the launch of our the new Lucyd Armor product line, along with corresponding growth in total cost of goods sold. As we continue to refine our product mix with sales data, we anticipate reducing our unit costs by focusing only on the highest volume, market-tested styles. Additionally, our new lower-cost supplier has indicated significant price breaks of up to 50% are possible as we increase unit volume, demonstrating the profit potential for Lucyd Armor and Reebok sunglasses.
Gross Profit
Our gross profit for the current quarter was $59,344, as compared to $80,344 for the prior year quarter. Our gross margin was 23% in the current quarter and 36% in the prior year quarter, representing a decline of approximately 13 percentage points from the prior year period. This decrease in gross profit and gross margin was primarily the result of higher cost of goods sold as a result of the factors described above, as well as the impact of period costs (credits) as described above. That said, the current quarter gross margin of 23% represents an improvement from our gross margin of 2% in the quarter ended March 31, 2024 and 18% in the quarter ended June 30, 2024. This indicates a positive trend, and we expect our gross margin to continue to improve given the ongoing impact of lower lens fulfilment costs coupled with the anticipated lower unit costs associated with the Lucyd Armor product line launching the fourth quarter of 2024 and the Reebok® Powered by Lucyd product line launching in the first quarter of 2025.
We believe that in the long term, the majority of our business will ultimately come from frame sales to distributors and eyewear retailers. We anticipate that the upcoming launches of new product lines in the fourth quarter of 2024 and first half of 2025 will help us progress towards our long-term goal of shifting our sales mix more towards the wholesale channel, which should bring consistent, large-scale orders with minimal marketing costs.
Operating Expenses
Our operating expenses increased by 9% to $1,821,407 for the three months ended September 30, 2024, as compared to $1,677,140 for the three months ended September 30, 2023. This increase was primarily due to the following:
General and administrative expenses
Our general and administrative expenses increased by $206,435 or 23% to $1,121,972 for the three months ended September 30, 2024, as compared to $915,537 for the prior year quarter. This increase was primarily attributable to an increase in legal costs of approximately $168,000, largely as a result of various shareholder and equity-related matters during the current quarter.
The Company maintains a lean staff salaried at market rates, and a significant portion of our general and administrative expenses consist of corporate overhead type costs which are fixed or semi-fixed in nature (e.g., rent, compliance, legal and professional services, etc.); as such, our general and administrative expenses are not expected to scale up significantly as our revenue increases over time.
Sales and marketing expenses
Our sales and marketing expenses were $533,066 for the three months ended September 30, 2024 and $533,902 for the three months ended September 30, 2023, or essentially flat year-over-year. Compared to the prior year quarter, we spent more on events and trade shows, and less on influencers and paid ads, in the current quarter; this reflects short-term tactical shifts in our marketing approach to react to current trends and opportunities as they arise, and make smart investments in advertising and marketing spending that we believe will maximize our impact and provide for future growth.
From a long-term perspective, while we expect that our total sales and marketing expenses will scale up to some degree as our revenue increases, we anticipate that such increases in sales and marketing expenses will be mitigated somewhat by our planned focus on growing the wholesale optical channel, which, due to the nature of that channel, inherently does not require costly marketing campaigns to acquire each customer and as a result typically carries a lower marketing cost per unit sold. Additionally, we generally expect that a retailer who is successful with our products will reorder in large quantities, also without significant marketing expenditure.
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Research and development costs
Our research and development costs decreased by 32% to $131,369 for the three months ended September 30, 2024, as compared to $192,701 for the three months ended September 30, 2023, primarily due to product development cycle timing.
Related party management fee
Our related party management fee was $35,000 for each of the three-month periods ended September 30, 2024 and 2023, based on the terms of the management services agreement between us and Tekcapital.
Other Income (Expense), net
Total other income (expense), net in the three months ended September 30, 2024 was $41,386. This amount was primarily comprised of dividends from our investments in money market funds, partially offset by other unrelated expenses.
Total other income (expense), net in the three months ended September 30, 2023 was $45,691. This amount was primarily comprised of interest, dividends, and investment returns from our investments in money market funds and U.S. Treasury bills.
Results of Operations – Year to Date
The following table summarizes our results of operations for the nine months ended September 30, 2024 (the “current nine months”) and the nine months ended September 30, 2023 (the “prior year nine months”):
| Nine months ended September 30, 2024 |
Nine months ended September 30, 2023 |
Change | ||||||||||||||||||||||||||
| Revenues, net | 14 | % | $ | 945,752 | 100 | % | $ | 536,725 | 100 | % | $ | 409,027 | 76 | % | ||||||||||||||
| Less: Cost of Goods Sold | 37 | % | (824,281 | ) | 87 | % | (475,906 | ) | 89 | % | (348,375 | ) | 73 | % | ||||||||||||||
| Gross Profit | -26 | % | 121,471 | 13 | % | 60,819 | 11 | % | 60,652 | 100 | % | |||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||||||
| General and administrative | 23 | % | (3,526,217 | ) | 373 | % | (2,877,663 | ) | 536 | % | (648,554 | ) | 23 | % | ||||||||||||||
| Sales and marketing | 0 | % | (1,636,794 | ) | 173 | % | (896,842 | ) | 167 | % | (739,952 | ) | 83 | % | ||||||||||||||
| Research and development | -32 | % | (604,472 | ) | 64 | % | (541,348 | ) | 101 | % | (63,124 | ) | 12 | % | ||||||||||||||
| Related party management fee | 0 | % | (105,000 | ) | 11 | % | (105,000 | ) | 20 | % | - | 0 | % | |||||||||||||||
| Total Operating Expenses | 9 | % | (5,872,483 | ) | 621 | % | (4,420,853 | ) | 824 | % | (1,451,629 | ) | 33 | % | ||||||||||||||
| Other Income (Expense) | -9 | % | 110,625 | -12 | % | 93,353 | -17 | % | 17,272 | 19 | % | |||||||||||||||||
| Interest Expense | - | 0 | % | (3,036 | ) | 1 | % | 3,036 | -100 | % | ||||||||||||||||||
| Total Other Income (Expense), net | -9 | % | 110,625 | -12 | % | 90,317 | -17 | % | 20,308 | 22 | % | |||||||||||||||||
| Net Loss | 11 | % | $ | (5,640,387 | ) | 596 | % | $ | (4,269,717 | ) | 796 | % | $ | (1,370,670 | ) | 32 | % | |||||||||||
Revenues
Our revenues for the nine months ended September 30, 2024 were $945,752, representing an increase of 76% as compared to revenues of $536,725 during the nine months ended September 30, 2023. The increase in revenue was primarily attributable to significant growth in the e-commerce channel, with net sales through our Lucyd.co website and Amazon.com increasing by approximately 190% and 45%, respectively, from the prior year nine months, while wholesale revenues declined by approximately 33%.
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Overall, our revenue growth is mainly driven by our new product launches over the past year (including the Lyte XL collection in the fourth quarter of 2023 and the co-branded Nautica® Powered by Lucyd and Eddie Bauer® Powered by Lucyd collections in the current year period). We believe our brand partnerships play a significant role in our revenue growth by offering a more diversified product line that speaks to consumers from different demographics (for example, Nautica® generally appeals to a more fashion-forward customer than Lucyd Lyte, and Eddie Bauer® generally appeals to an older demographic than our other lines). Also contributing to our growth in revenues are our continued investments in marketing and advertising initiatives, as well as increased public interest and growth in smart glasses and the wearable products category.
The decline in wholesale revenues was largely driven by a change in our focus during the current year from small, independent retailers to major national retailers, the latter of which have slower product approval and purchasing cycles. However, we believe that focusing on introducing our product in major national retailers will have a significant positive impact on the Company’s revenues in the next 3 to 18 months.
For the nine months ended September 30, 2024, approximately 61% of sales were processed on our online store (Lucyd.co), 26% on Amazon.com, and 13% with reseller partners. This sales channel mix positively impacted our revenue for the current nine months as compared with the prior year nine months, due to the fact we charge an additional $35 to $275 for our prescription lenses available only on Lucyd.co. For the nine months ended September 30, 2024, we generated an aggregate of $687,855 of revenue from sales of non-prescription frames and accessories, $255,325 from sales of frames with prescription lenses, and $2,572 of revenue from app subscriptions. All of the $246,455 in sales generated on Amazon.com during the current nine months were for non-prescription frames and accessories, as we only offer prescription lenses through our website. Of the $575,577 in online sales generated through Lucyd.co, $255,325 was related to frames with prescription lenses and $320,252 was related to glasses with non-prescription lenses. E-commerce sales remain to be the most material portion of our sales to date; however, out of all of our sales channels, we believe that the wholesale optical channel represents the most promising opportunity for future growth. We anticipate that as smart eyewear becomes more normalized for prescription wear, major national eye care providers will begin to onboard smart eyewear products, and we believe we are the value leader in that sector.
For the nine months ended September 30, 2023, approximately 37% of sales were processed on our online store (Lucyd.co), 32% on Amazon, and 31% with reseller partners. For the nine months ended September 30, 2023, we generated $454,233 of revenue from sales of non-prescription frames and accessories, and $82,492 from sales of frames with prescription lenses. All of the $170,284 in sales generated on Amazon.com during the period were for non-prescription frames and accessories as we only offer prescription lenses through our website. Of the $193,591 in online sales generated through Lucyd.co, $82,492 was related to frames with prescription lenses and $111,099 was related to glasses with non-prescription lenses.
Cost of Goods Sold
Our total cost of goods sold increased to $824,281 for the nine months ended September 30, 2024, as compared to $475,906 for the prior year nine months. This year-over-year increase of 73% was comparable to our year-over-year increase in net revenue of 76%, and was primarily driven by higher sales volumes and gross sales during the current nine months as compared with the prior year comparable period.
Cost of frames increased by approximately 90% from the prior year nine months, primarily related to the increase in sales volumes and also partially attributable to higher cost of goods sold associated with the new Eddie Bauer® Powered by Lucyd collection, due to the increased number of components, deluxe finishes, and materials for that product line.
Cost of lenses increased by approximately 49% from the prior year nine months, mainly driven by sales channel mix, as a higher relative proportion of our sales in the current nine months were through our online store (Lucyd.co), and the cost of prescription lenses attributable to this channel increased our cost of goods sold while not impacting cost of goods sold for sales realized through Amazon or retail store partners. These cost increases were partially offset by actions taken by management in the current year to better manage these costs, including (i.) the launch of the new Lucyd Shift and Lucyd Blueshift transitional lenses in place of branded third-party transitional lenses, offering similar functionality for a lower cost of goods, while also enabling a slightly lower cost to the customer, and (ii.) the engagement of a new lower-cost lens supplier based in Miami, Florida.
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Cost of goods sold for the nine months ended September 30, 2024 notably included, but was not limited to, the cost of frames of $434,876; cost of prescription lenses incurred with third-party vendors of $196,030; commissions, affiliate referral fees, and e-commerce platform fees of $94,444; shipping and logistics costs of $63,180; and product certification costs of $29,100. Out of our total cost of goods sold for the current nine months of $824,281, $196,030 related to orders with prescription lenses, while $628,251 pertained to non-prescription orders. We anticipate that our cost of goods sold will improve in future periods as new products – i.e., Lucyd Armor and Reebok® Powered by Lucyd – sourced from a new supplier are launched in the fourth quarter of 2024 and first quarter of 2025, respectively, as the frames for these product lines are designed differently from our other products and accordingly have fewer components, thus reducing their price. We estimate that the unit cost of these new product lines will be at least 30% lower than our Lucyd Lyte models.
Cost of goods sold for the nine months ended September 30, 2023 notably included, but was not limited to, the cost of frames of $215,713; cost of prescription lenses incurred with third-party vendors of $131,561; commissions, affiliate referral fees, and e-commerce platform fees of $89,694; and quality assurance costs related to our products sold of $11,700. Out of our total cost of goods sold for the prior year nine months of $475,906, $131,561 related to orders with prescription lenses, while $344,345 pertained to non-prescription orders.
We anticipate further growth in revenues in the fourth quarter of 2024, largely in part to the launch of our the new Lucyd Armor product line, along with corresponding growth in total cost of goods sold. As we continue to refine our product mix with sales data, we anticipate reducing our unit costs by focusing only on the highest volume, market-tested styles.
Gross Profit
Our gross profit for the current nine months was $121,471, as compared to $60,819 for the prior year nine months. Our gross margin was 13% in the current nine months and 11% in the prior year nine months, representing an improvement of approximately 2 percentage points from the prior year period.
This 100% improvement in gross profit (in absolute dollar terms) and the slight improvement in gross margins is the net result of the various factors discussed in detail above.
We continue to work with all of suppliers and vendors to reduce our unit costs. Our gross margins during the current year period are increasing and trending in a positive direction, and we expect our gross margin to continue to improve given the ongoing impact of lower lens fulfilment costs that have started to be realized in the current quarter, coupled with the anticipated lower unit costs associated with the Lucyd Armor product line launching the fourth quarter of 2024 and the Reebok® Powered by Lucyd product line launching in the first quarter of 2025.
We believe that in the long term, the majority of our business will ultimately come from frame sales to distributors and eyewear retailers. Additionally, we anticipate that the upcoming launches of new product lines in the fourth quarter of 2024 and first half of 2025 will help us progress towards our long-term goal of shifting our sales mix more towards the wholesale channel, which carries higher margins for us.
Operating Expenses
Our operating expenses increased by 33% to $5,872,483 for the nine months ended September 30, 2024, as compared to $4,420,853 for the nine months ended September 30, 2023. This increase was primarily due to the following:
General and administrative expenses
Our general and administrative expenses increased by 23% to $3,526,217 for the nine months ended September 30, 2024, as compared to $2,877,663 for the prior year nine months. This increase was largely driven by the combination of (i) a $325,000 release payment made to a shareholder counterparty during the current nine months for the waiver of certain of that counterparty’s pre-existing contractual rights related to the Company’s equity offerings during the second quarter of 2024, (ii) an increase in legal costs of approximately $187,000, largely as a result of various shareholder and equity-related matters during the current year period, (iii) the cost of various licensing agreements we have entered into in order to support our co-branding initiatives and expand our patent portfolio, and (iv) higher investor relations costs. These increases were partially offset by lower insurance costs.
28
The Company maintains a lean staff salaried at market rates, and a significant portion of our general and administrative expenses consist of corporate overhead type costs which are fixed or semi-fixed in nature (e.g., rent, compliance, legal and professional services, etc.); as such, our general and administrative expenses are not expected to scale up significantly as our revenue increases over time.
Sales and marketing expenses
Our sales and marketing expenses increased by 83% to $1,636,794 for the nine months ended September 30, 2024, as compared to $896,842 for the nine months ended September 30, 2024. This year-over-year increase is primarily attributable to the combination of the following main drivers:
| ● | the restructuring of our e-commerce business during the first half of 2023, during which we temporarily paused and postponed our marketing spending, and management made a tactical decision to preserve a significant portion of our marketing budget for later in the year, in order to better align the timing of marketing spending with major new product launches and thus maximize impact. In the latter portion of 2023 and continuing through the current nine months, we have significantly increased our advertising and marketing efforts, particularly in the areas of spending on paid ads on websites and social media platforms, in order to drive growth in our revenues and market share. |
| ● | the fact that the prior year nine months included a reversal of approximately $309,000 of previously-recognized stock-based compensation for certain individuals within the Company’s sales and marketing function whose awards expired without ever having vested, as the related performance conditions (sales quotas) for those awards were not met. |
From a long-term perspective, while we expect that our total sales and marketing expenses will scale up to some degree as our revenue increases, we anticipate that such increases in sales and marketing expenses will be mitigated somewhat by our planned focus on growing the wholesale optical channel, which, due to the nature of that channel, inherently does not require costly marketing campaigns to acquire each customer and as a result typically carries a lower marketing cost per unit sold. Additionally, we generally expect that a retailer who is successful with our products will reorder in large quantities, also without significant marketing expenditure.
Research and development costs
Our research and development costs increased by 12% to $604,472 for the nine months ended September 30, 2024, as compared to $541,348 for the nine months ended September 30, 2023.
This increase was primarily attributable to the write-off of approximately $88,000 of previously-capitalized software costs related to the development of the Vyrb app (which was launched as an open beta version in 2021, and has had new features added over time, but had never been officially launched) as a result of management’s decision in 2024 to de-emphasize the Vyrb app in favor of shifting our primary software development focus to the Lucyd app. Certain elements and features developed for the Vyrb app may potentially be incorporated into future releases of the Lucyd app.
The impact of the aforementioned write-off was partially offset by the impacts of product development cycles and timing of associated research and development spending.
Related party management fee
Our related party management fee was $105,000 for each of the nine months ended September 30, 2024 and 2023, based on the terms of the management services agreement between us and Tekcapital.
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Other Income (Expense), net
Total other income (expense), net in the nine months ended September 30, 2024 was $110,625. This amount was primarily comprised of dividends from our investments in money market funds, and, to a lesser extent, interest income earned on a short-term loan to a related party.
Total other income (expense), net in the nine months ended September 30, 2023 was $90,317, and was primarily comprised of the combination of (i) approximately $52,000 of interest, dividends, and investment returns from our investments in money market funds and U.S. Treasury bills; and (ii) approximately $35,000 of refunds of certain amounts that had been previously charged to the Company from the Parent and Affiliates in prior periods.
Liquidity and Capital Resources
As of September 30, 2024 and December 31, 2023, our cash and cash equivalents were approximately $4.5 million and $4.3 million, respectively. Our working capital (current assets less current liabilities) was approximately $10.3 million and $5.0 million as of September 30, 2024 and December 31, 2023, respectively.
Cash Flow
| Nine months ended | Nine months ended | |||||||
| September 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Net cash flows from operating activities | $ | (4,796,361 | ) | $ | (4,425,294 | ) | ||
| Net cash flows from investing activities | (5,100,736 | ) | (2,208,678 | ) | ||||
| Net cash flows from financing activities | 10,153,476 | 6,946,531 | ||||||
| Net Change in Cash | $ | 256,379 | $ | 312,559 | ||||
Net cash flows used in operating activities for the nine months ended September 30, 2024 are primarily reflective of our net loss for the period, resulting from our operating costs to support and grow our business, including employee-related costs, sales and marketing, and research and development.
Net cash flows used in investing activities for the nine months ended September 30, 2024 are mainly related to the investment of a portion of the proceeds from our recent equity offerings (as described below) in 6-month U.S. Treasury bills.
Net cash flows provided by financing activities for the nine months ended September 30, 2024 are mainly driven by proceeds from multiple equity offering transactions as described below.
Equity Offerings
At-the-Market Offerings
On April 15, 2024, we entered into an at-the-market offering agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as sales agent (“HCW”), relating to the sale of common stock. Under this agreement, during the nine months ended September 30, 2024, we sold a total of 557,988 shares and received approximately $3.9 million of gross proceeds, before deducting sales agent commissions and offering expenses. The net proceeds received by the Company from sales under the ATM Agreement amounted to approximately $3.7 million. We intend to use the net proceeds from sales under the ATM Agreement primarily for working capital and general corporate purposes.
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First Registered Direct Offering
On May 1, 2024, the Company closed on a registered direct offering of 210,043 shares of its common stock and, in a concurrent private placement, warrants to purchase up to 210,043 shares of common stock at an exercise price of $4.88 per share, for a combined purchase price per share and warrant of $4.88. In exchange, the Company received approximately $1.0 million of gross proceeds, before deducting underwriting discounts and offering expenses. In addition, the Company issued to the placement agent warrants to purchase up to 15,754 shares of common stock at an exercise price of $6.10 per share. The net proceeds received by the Company from this transaction amounted to approximately $0.8 million. We intend to use the net proceeds of this offering primarily for working capital and general corporate purposes.
Approximately $0.1 million of the net proceeds received from this registered direct offering were used to pay a former agent for their waiver of a contractual right of first refusal; such payment has been reflected in the unaudited condensed financial statements as a reduction to additional paid in capital, as it represents a related cost of this equity transaction.
Second Registered Direct Offering
On May 29, 2024, the Company closed on a registered direct offering of 263,159 shares of its common stock and, in a concurrent private placement, warrants to purchase up to 263,159 shares of common stock at an exercise price of $9.50 per share, for a combined purchase price per share and warrant of $9.50. In exchange, the Company received approximately $2.5 million of gross proceeds, before deducting underwriting discounts and offering expenses. In addition, the Company issued to the placement agent warrants to purchase up to 19,737 shares of common stock at an exercise price of $11.876 per share. The net proceeds received by the Company from this transaction amounted to approximately $2.1 million. We intend to use the net proceeds of this offering primarily for working capital and general corporate purposes.
Warrant Exercises
During September 2024, the Company entered into multiple warrant inducement transactions with certain holders of its existing warrants. Through these transactions, certain holders of various existing warrants to purchase an aggregate of 538,426 shares of common stock agreed to exercise such warrants (at adjusted or reduced exercise prices) in exchange for an aggregate of 538,426 shares of common stock plus new warrants (Series A through Series F warrants, with varying terms and exercise prices) to purchase an aggregate of 1,340,012 shares of common stock. In exchange, the Company received approximately $4.0 million of gross proceeds, before deducting underwriting discounts and offering expenses. The total net proceeds received by the Company from these transactions amounted to approximately $3.5 million. We intend to use the net proceeds of this offering primarily for working capital and general corporate purposes.
On September 23, 2024, one of the holders of the Series A and Series B warrants exercised an aggregate of 40,000 warrants on a cashless basis and received 20,482 shares of common stock.
In addition, on September 24, 2024, one of the holders of the warrants issued in connection with the First Registered Direct Offering elected to exercise their warrants to purchase an aggregate of 61,475 shares of common stock. The Company received approximately $300,000 of gross proceeds from this exercise.
Other Factors
We expect that operating losses could continue in the foreseeable future as we continue to invest in the expansion and development of our business. We believe our existing cash and cash equivalents (including the proceeds from the equity offerings described above), plus the availability to borrow funds via the March 2024 related party agreement with Lucyd Ltd., will be sufficient to fund our operations for at least the next twelve months.
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However, our future capital requirements will depend on many factors, including, but not limited to, growth in the number of retail store customers, licenses, the needs of our e-commerce business and retail distribution network, expansion of our product and software offerings, and the timing of investments in technology and personnel to support the overall growth of our business. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. Geopolitical and macroeconomic factors could cause disruption in the global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected.
Off-Balance Sheet Arrangements
As of September 30, 2024, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Significant Estimates
There have been no material changes in our critical accounting policies and significant estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 25, 2024.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13(a)-15(b) of the Exchange Act. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as a result of material weaknesses in our internal control over financial reporting, our disclosure controls and procedures were not effective as of September 30, 2024.
There was no change in our internal control over financial reporting during the third quarter of fiscal year 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
We are not currently 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.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 25, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During September 2024, the Company entered into multiple warrant inducement transactions with certain holders of its existing warrants.
| ● | On September 3, 2024, the Company entered into inducement letter agreements with certain holders of existing warrants (originally issued on June 26, 2023) to purchase an aggregate of 126,699 shares of common stock. The warrant holders exercised for cash the existing warrants at a reduced exercise price of $5.00 per share, resulting in gross proceeds to the Company of approximately $633,000; in addition to the shares of common stock issued as a result of the warrant exercise, the warrant holders also received new unregistered Series A and Series B warrants. This transaction closed on September 4, 2024, and the net proceeds received by the Company amounted to approximately $489,000. |
| ● | On September 18, 2024, the Company entered into inducement letter agreements with certain holders of existing warrants (originally issued on May 1, 2024) to purchase an aggregate of 148,567 shares of common stock. The warrant holders exercised for cash the existing warrants at an adjusted exercise price of $5.13 per share, resulting in gross proceeds to the Company of approximately $762,000; in addition to the shares of common stock issued as a result of the warrant exercise, the warrant holders also received new unregistered Series C and Series D warrants. This transaction closed on September 19, 2024, and the net proceeds received by the Company amounted to approximately $672,000. |
| ● | On September 22, 2024, the Company entered into inducement letter agreements with certain holders of existing warrants (originally issued on May 29, 2024) to purchase an aggregate of 263,160 shares of common stock. The warrant holders exercised for cash the existing warrants at an adjusted exercise price of $9.875 per share, resulting in gross proceeds to the Company of approximately $2.6 million; in addition to the shares of common stock issued as a result of the warrant exercise, the warrant holders also received new unregistered Series E and Series F warrants. This transaction closed on September 24, 2024, and the net proceeds received by the Company amounted to approximately $2.3 million. |
In connection with each of the aforementioned warrant inducement transactions, the Company issued placement agent warrants to H.C. Wainwright & Co., LLC.
The aforementioned securities issued under these transactions were sold and issued without registration under the Securities Act, in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as a transaction not involving a public offering and Rule 506 promulgated under the Securities Act as sales to accredited investors, and in reliance on similar exemptions under applicable state laws.
Subsequently, the Company filed a registration statement on Form S-1 in order to register the aforementioned securities issued under these transactions, and such registration was declared effective by the Securities and Exchange Commission on October 17, 2024.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5.
None.
Item 6. Exhibits
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Signatures
Pursuant to the requirements of the Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Innovative Eyewear, Inc. | ||
| (Registrant) | ||
| Date: November 12, 2024 | By: | /s/ Harrison Gross |
| Harrison Gross | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 12, 2024 | By: | /s/ Oswald Gayle |
| Oswald Gayle | ||
| Co-Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
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