UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 20222023

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

For the transition period from __________ to __________

Commission file number 001-41392

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

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files.) Yes ☒   No ☐

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

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

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

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

As of September 22, 2022,August 8, 2023, there were 7,307,157 12,917,239shares of the Company’s common stock issued and outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

Innovative Eyewear, Inc.

Table of Contents

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

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

INNOVATIVE EYEWEAR, INC.

CONDENSED BALANCE SHEETS

June 30, 20222023 (Unaudited) and December 31, 20212022

See accompanying Notes to the Financial Statements.

INNOVATIVE EYEWEAR, INC.

CONDENSED STATEMENTS OF OPERATIONS

For the three and six months ended June 30, 20222023 and 20212022

(Unaudited)

See accompanying Notes to the Financial Statements.

INNOVATIVE EYEWEAR, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) EQUITY

For the three and six months ended June 30, 20222023 and 20212022

(Unaudited)

See accompanying Notes to the Financial Statements.

INNOVATIVE EYEWEAR, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

For the six months ended June 30, 20222023 and 20212022

(Unaudited)

See accompanying Notes to the Financial Statements.

INNOVATIVE EYEWEAR, INC.

NOTES TO THE FINANCIAL STATEMENTS

June 30, 20222023 and 2021 2022
(Unaudited)

NOTE 1 –GENERAL INFORMATION

General Information – INNOVATIVE EYEWEAR, INC., (“the “Company”Innovative Eyewear, Inc. (the “Company,” “us,” “we,” or “we”“our”) is a corporation organized under the laws of the State of Florida that develops and sells cutting-edge eyeglasses and sunglasses, which are designed to allow our customers to remain connected to their digital lives, while also offering prescription eyewear and sun protection. The Company was founded by Lucyd Ltd. (the “Parent” or “Lucyd”), which currently owns approximately 71% of our issued and outstanding shares of common stock, a portfolio company of Tekcapital Plc through Tekcapital Europe, Ltd. (collectively, the “Parent and Affiliates”)., which owned approximately 40% of our issued and outstanding shares of common stock as of June 30, 2023. Innovative Eyewear has licensed the exclusive rights to the Lucyd® brand from Lucyd Ltd., which includes the exclusive use of all of Lucyd’s intellectual property, including our main product, Lucyd Lyte® glasses.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

In the opinion of management, all adjustments considered necessary for the fair presentation of the financial statements for the periods presented have been included. The results of operations for the three and six months ended June 30, 2022,2023 are not necessarily indicative of the results to be expected for future periods or the full year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaGAAP 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 social and economic disruptions and uncertainties associated with the ongoing coronavirus pandemic (“COVID-19”)economic environment, including potential supply chain constraints.

Cash Equivalents

All highly liquid investments with original maturities of three months or less, including money market funds, certificates of deposit, and COVID-19 control responses.US Treasury bills purchased three months or less from maturity, are considered cash equivalents.

Investments

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

Receivables and Credit Policy

Trade receivables from customers are uncollateralized customer obligations due under normal trade terms, primarily requiringterms. For direct-to-consumer sales, payment is required before product is shipped. Trade receivables are stated at the amount billed to the customer. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoice. The Company, by policy, routinely assesses the financial strength of its customers. To comply with industry standards, we offer “net 30” payments on wholesale orders of $1,500 or more. For Wholesalewholesale orders, to acquire an order on net 30 terms, the customer is provided a credit check application as well as a credit card authorization form. The authorization form explicitly states when and for much we will bill the customer via credit card. As a result, the Company believes that its accounts receivable credit risk exposure is limited and it has not experienced any significant write-downs in its accounts receivable balances. As of June 30, 2022, and December 31, 2021, the Company had no allowance for bad debt.

Capitalized Software

Accounts receivable are reported net of the allowance for doubtful accounts. The allowance for doubtful accounts is based on the Company’s evaluation of each customer’s payment history, account aging, and financial position. The Company incurred software development costs related to developmentrecognized bad debt expense of $5,672 and $5,814 for the Vyrb app. The Company capitalized these costs in accordance with ASC 985-20, Software – Coststhree and six months ended June 30, 2023, respectively, and had an allowance for doubtful accounts of Software to be Sold, Leased, or Marketed, considering it is$98,318 as of June 30, 2023. There was no bad debt expense recognized for the Company’s intention to marketthree and sell the software externally. Planning, designing, coding and testing occurred necessary to meet Vyrb’s design specifications. As such, all coding, development and testing costs incurred subsequent to establishing technical feasibility were capitalized. We have launched a beta version of the Vyrb application in December 2021 that demonstrates the functionality of the software. We expect an estimated useful life of five years for this product.six months ended June 30, 2022.

Inventory

Our

The Company’s inventory includes purchased eyewear and is stated at the lower of cost or net realizable value, with cost determined on a specific identification method of inventory costing which attaches the actual cost to an identifiable unit of product. Provisions for excess, obsolete, or slow-moving inventory are recorded after periodic evaluation of historical sales, current economic trends, forecasted sales, estimated product life cycles, and estimated inventory levels. No provisions were determined as needed atas of June 30, 20222023 and as of December 31, 2021.2022.

As of June 30, 20222023 and December 31, 2021,2022, the Company recorded an inventory prepayment in the amount of $59,409366,626 and $64,715197,750, respectively, related to down payment onfor eyewear purchased from the manufacturer, prior to shipment of the product that occurred after June 30, 20222023 and December 31, 20212022, respectively.

Intangible Assets

Intangible assets as of June 30, 2022 and December 31, 2021 relate to patentspatent costs received in conjunction with the initial capitalization of the Company and internally developed utility and design patents. The Company amortizes these assets ofover the estimated useful life of the patents.

The Company reviews its intangibles assets for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Capitalized Software

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

Property and Equipment

Property and equipment assets are depreciated using the straight-line method over thetheir estimated useful lives or lease terms if shorter. Depreciation expense for the three months ended June 30, 2023 and 2022 was $10,307 and $3,916, respectively. Depreciation expense for the six months ended June 30, 2023 and 2022 was $3,91628,979 and $7,899 respectively as compared to $0 for the same period in 2021., respectively. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred.

Income Taxes

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

The Company follows a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The guidance relates to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. 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 on an annual basis.assets. If, after considering all relevant positive and negative evidence, it is more likely than not that some portion or all of the net deferred tax assets will not be realized, the Company will reduce the net deferred tax assets by a valuation allowance. The realization of net deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of net operating loss carryforwards.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees and directors in accordance with FASB ASC Topic 718, which requires that compensation expense be recognized in the financial statements for stock-based awards based on the grant date fair value. For stock option awards, the Black-Scholes-Merton option pricing model wasis 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 wasis estimated based on the simplified method as allowed by Staff Accounting Bulletin 107 (SAB 107).

The share price volatility at the grant date is estimated using historical stock prices of comparably profiled public companies based upon the expected term of the options granted, using stock prices of comparably profiled public companies.award being valued. The risk-free interest rate assumption is determined using the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

Revenue Recognition

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

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

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

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

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

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

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

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

For all of our sales, at the time of sale, we establish a reserve for returns, based on historical experience and expected future returns, which is recorded as a reduction of sales. Additionally, we reviewed all individual returns received in July and August 20222023 pertaining to orders processed prior to June 30, 2022.2023. As a result, the Company determined that an allowance for sales returns was necessary. The Company recorded $22,266 inan allowance for sales returns as of December 31, 2021$4,441 and $12,60424,897 as of June 30, 2022.2023 and December 31, 2022, respectively.

Shipping and Handling

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

Earnings/loss per share

The Company presents earnings and loss per share data by calculating the quotient of earnings/(loss) and loss divided by the number of common shares outstanding (common shares as of June 30, 2022 and December 31, 2021) as required by ASC 260-10-50. As of June 30, 2022 and December 31, 2021, all shares underlying the related party convertible debt and common stock options were excluded from the earnings per share calculation due to their anti-dilutive effect.

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 including the economic impacts from the COVID-19 pandemic.taste. These adverse conditions could affect the Company’s financial condition and the results of its operations.

The Company meets its day to dayday-to-day working capital requirements throughusing monies raised through sales of eyewear and issuesissuances of equity, including crowdfunding.our initial public offering completed in August 2022, a secondary public offering completed in June 2023, and exercises of warrants by stockholders (see Note 9 for additional details). The Company also haspreviously issued a convertible note held by its parent company.company, which was repaid in full during the six months ended June 30, 2023. The Company’s forecasts and projections indicate that the Company expects to have sufficient cash reserves and future income to operate within the level of its current facilities. In August 2022, the Company completed its initial public offering and received net proceeds totaling approximately $6.2 million. The Company anticipates that thisits available liquidity will be sufficient to fund operations through at least the end of 2023.August 2024.

NOTE 4 –INCOME TAX PROVISION

At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods. Accordingly,The Company has not recorded a tax provision for the Company’s effective tax rate for thethree and six months ended June 30, 2023 and 2022 was 0%, compared to the effective tax rate of 0% for the six months ended June 30, 2021. The Company’s effective tax rates for both periods were affected primarily byas it maintains a full valuation allowance on domesticagainst its net deferred tax assets.

NOTE 5 –INTANGIBLE ASSETS

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

Amortization expense totalled $2,442 and $4,181 for the three and six months ended June 30, 2022, as compared to $0 and $3,483 for the same periods in 2021. Future amortization is expected to approximate $11,500 per year.respectively.

NOTE 6 – RELATED PARTY ADVANCES AND OTHER INTERCOMPANY AGREEMENTS

Convertible Note and Due to Parent and Affiliates

During the six months ended June 30, 20222023 and during 2021,2022, the Company had the availability of, but not the contractual right to, intercompany financing from the Parent and Affiliates in the form of either cash advances or borrowings under a convertible note (as discussed below).

The convertible notes balances were $1,937,76861,356 at December 31, 2022. In January 2023, the Company borrowed an additional $48,143 under such convertible notes, and $subsequently repaid the outstanding balances of the convertible notes in full in February 2023, such that there were 289,029 noat amounts outstanding under convertible notes as of June 30, 2022 and December 31, 2021, respectively. The increase of $1,648,739 was mainly due to working capital contributions from the Parent.2023.

Management Service Agreement

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

The related party currently provides the following services:

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

Rent of Office Space

Prior to the February 1, 2022 amendment of the aforementioned management services agreement, the Company was provided with rent-free office space by the Parent and Affiliates. Effective February 1, 2022, Tekcapital began to bill the Company for an allocation of rent paid by Tekcapital on the Company’s behalf. The Company recognized $22,992 and $45,760 of expense related to this month-to-month arrangement for the three and six months ended June 30, 2022, the Company incurred $35,000 and $70,000 respectively under its agreement with Tekcapital Europe Ltd.2023, respectively.

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Legal Matters

The Company is

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

Leases

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

License Agreements

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

Other Commitments

See related party management services agreement discussed in Note 6.

NOTE 8 – STOCK BASEDSTOCK-BASED COMPENSATION

No option awards were granted duringDuring the six months ended June 30, 2022.2023, we granted the following option awards, all of which had an exercise price of $1.275 per share and expire on January 13, 2028:

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

Details of the number of sharestock options and the weighted average exercise price outstanding as of and during the six months ended June 30, 2022 and2023 are as follows: