Innovative Eyewear Inc 10-Q for FY2024 Q1
Innovative Eyewear Inc (LUCY)
About this 10-Q
Innovative Eyewear Inc filed this 10-Q on May 14, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $383.47K
- up 164.6% from $144.92K a year earlier
- Net loss
- $1.97M
- compared with a net loss of $1.43M a year earlier
- Diluted EPS
- -$0.15
- compared with -$0.19 a year earlier
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.
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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 May 8, 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 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
March 31, 2024 (Unaudited) and December 31, 2023
| 2024 | 2023 | |||||||
| TOTAL ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowances of $ |
||||||||
| 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 (Note 7) | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock (par value $, shares authorized, and and shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying Notes to the Condensed Financial Statements.
1
INNOVATIVE EYEWEAR, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2024 and 2023
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 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 (Expense) | ||||||||
| Interest Expense | ( |
) | ||||||
| Total Other Income (Expense), net | ( |
) | ||||||
| Net Loss | $ | ( |
) | $ | ( |
) | ||
| Weighted average number of shares outstanding | ||||||||
| Loss per share, basic and diluted | $ | ) | $ | ) | ||||
See accompanying Notes to the Condensed Financial Statements.
2
INNOVATIVE EYEWEAR, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the three months ended March 31, 2024 and 2023
(Unaudited)
| Common Stock | Additional Paid In |
Accumulated | Total Stockholders’ |
|||||||||||||||||
| Shares | Amount | Capital | 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 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Balances as of January 1, 2023 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Exercises of warrants by stockholders | ||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balances as of March 31, 2023 | $ | $ | $ | ( |
) | $ | ||||||||||||||
See accompanying Notes to the Condensed Financial Statements.
3
INNOVATIVE EYEWEAR, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 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 | ( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Prepaid expenses | ( |
) | ||||||
| Inventory | ( |
) | ( |
) | ||||
| Other assets | ( |
) | ( |
) | ||||
| Contract assets and liabilities | ||||||||
| Net cash flows from operating activities | ( |
) | ( |
) | ||||
| Investing Activities | ||||||||
| Loan made to Tekcapital Europe, Ltd. (see Note 6) | ( |
) | ||||||
| Repayment of amounts loaned to Tekcapital Europe, Ltd. (see Note 6) | ||||||||
| Patent costs | ( |
) | ( |
) | ||||
| Purchases of property and equipment | ( |
) | ( |
) | ||||
| Net cash flows from investing activities | ( |
) | ( |
) | ||||
| Financing Activities | ||||||||
| Proceeds from exercises of warrants | ||||||||
| Repayment of related party convertible debt (see Note 6) | ( |
) | ||||||
| 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 | ||||||||
See accompanying Notes to the Condensed Financial Statements.
4
INNOVATIVE EYEWEAR, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 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 40% of our issued and outstanding shares of common stock and was our largest shareholder as of March 31, 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 months ended March 31, 2024 are not necessarily indicative of the results to be expected for future periods or the full year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, particularly given the significant uncertainties associated with the current geopolitical and economic environment.
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.
Receivables and Credit Policy
Trade receivables from customers are uncollateralized customer obligations due under normal trade terms. For direct-to-consumer sales, payment is required before product is shipped. Trade receivables are stated at the amount billed to the customer. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoice. The Company, by policy, routinely assesses the financial strength of its customers. To comply with industry standards, we offer “net 30” payment terms on wholesale orders of $1,500 or more. For wholesale orders, to acquire an order on “net 30” payment 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.
5
Accounts receivable are reported net of the 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 three months ended March 31, 2024 and 2023 is as follows:
| Schedule of allowance for doubtful accounts | ||||||||
| 2024 | 2023 | |||||||
| Balance at January 1 | $ | $ | ||||||
| Bad debt expense (recovery) | ( |
) | ||||||
| Write-offs | ( |
) | ||||||
| Other | ||||||||
| Balance at March 31 | $ | $ | ||||||
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 March 31, 2024 and December 31, 2023, the Company recorded an inventory prepayment in the amount of $
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 has incurred software development costs related to development of the Vyrb application, and has capitalized certain of these costs as 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.
Although we have launched an open beta version of Vyrb (for both iOS and Android) and have continued to add new features to the app, the revenue-generating features of Vyrb have not yet been launched and are planned to launch later in 2024. Amortization of the capitalized software costs related to the Vyrb app will begin once revenue-generating operations associated with the software have commenced.
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.
6
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.
For stock option awards, the Black-Scholes-Merton option pricing model is used to estimate the fair value of share-based awards. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and share price volatility.
| ● | The expected term of the stock options is estimated based on the simplified method as allowed by Staff Accounting Bulletin 107 (SAB 107). |
| ● | The share price volatility 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 restricted stock units, the fair value of the share-based award is based on the quoted market price of our common shares on the NASDAQ stock exchange.
Revenue Recognition
Our revenue is generated from the sales of prescription and non-prescription optical glasses, sunglasses, and shipping charges, which are charged to the customer, associated with these purchases. We sell products through our retail store resellers, distributors, on our own website Lucyd.co, and on Amazon.com.
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 three months ended March 31, 2024 and 2023, we recognized $
7
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. 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.
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.
We allow our customers to return our products, subject to our refund policy, which allows any customer to return our 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, our return policy was updated to prohibit discretionary returns of prescription lenses. Additionally in January 2024, we instituted a standard $
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 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 $
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.
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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. On
May 1, 2024, the Company closed on an offering of common stock and warrants for gross proceeds of approximately $
NOTE 4 – INCOME TAX PROVISION
At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods. The Company has
NOTE 5 – TANGIBLE AND INTANGIBLE ASSETS
| Schedule of property, plant and equipment | ||||||||
| March 31, | December 31, | |||||||
| Property & Equipment | 2024 | 2023 | ||||||
| Mobile Kiosk Display | $ | $ | ||||||
| Computer Equipment | ||||||||
| Office Equipment | ||||||||
| Internal-Use Software | ||||||||
| Property and equipment, gross | ||||||||
| Less: Accumulated depreciation | ( |
) | ( |
) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the three months ended March 31, 2024 and 2023 was $
| Schedule of intangible assets | ||||||||
| March 31, | December 31, | |||||||
| Finite-lived intangible assets | 2024 | 2023 | ||||||
| Patent Costs | $ | $ | ||||||
| Intangible assets, gross | ||||||||
| Less: Accumulated amortization | ( |
) | ( |
) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization expense for the three months ended March 31, 2024 and 2023 was $
9
NOTE 6 – RELATED PARTY TRANSACTIONS AND AGREEMENTS
Convertible Note and Due to Tekcapital and Affiliates
Through December 31, 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 (as discussed below).
The convertible notes balances were $
New Lucyd Ltd. Agreement
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 $
Tekcapital Europe, Ltd. repaid the substantially all of the principal balance of the loan in March 2024. As of March 31, 2024, the only amounts remaining outstanding and payable to us under the loan were 7,616 British pounds sterling of principal and 10,717 British pounds sterling of accrued interest (in total, approximately $
Management Service Agreement
The Company has entered into a management services agreement with Tekcapital Europe, Ltd., for which the Company is billed at $
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 March 31, 2024, 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 $
10
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 several 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:
| Schedule of future minimum payments due | |||
| Remainder of 2024 | $ | ||
| 2025 | |||
| 2026 | |||
| 2027 | |||
| 2028 | |||
| Thereafter (through 2033) | |||
| Total | $ |
Also, on January 3, 2024, 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 as of March 31, 2024 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.
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During the three months ended March 31, 2024, we granted options to purchase an aggregate of
Summary information regarding the number of options, exercise price, and remaining contractual life as of and during the three months ended March 31, 2024 is as follows:
| Schedule of number of share options and the weighted average exercise price outstanding | ||||||||||||
|
Weighted Average Exercise |
Options (Number) |
Weighted Average Remaining Contractual Life (Years) |
||||||||||
| As at January 1, 2024 | ||||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited / Expired | ( |
) | ||||||||||
| As at March 31, 2024 | ||||||||||||
| Exercisable as at March 31, 2024 | ||||||||||||
As of March 31, 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 next years.
Also during the three months ended March 31, 2024, we recognized $
Additionally, on March 28, 2024, we entered into an agreement for a third party to provide us with financial advisory and investment banking services. As consideration for the services provided to the Company, we issued to the counterparty
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 the three months ended March 31, 2024 and 2023, all shares underlying the related party convertible debt, common stock warrants, and common stock options were excluded from the earnings per share calculation due to their anti-dilutive effect.
The calculation of net earnings/(loss) per share is as follows:
| Schedule of calculation of net earnings per common share - basic and diluted | ||||||||
| For the three months ended |
||||||||
| March 31, | March 31, | |||||||
| 2024 | 2023 | |||||||
| Basic and diluted: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Weighted-average number of common shares | ||||||||
| Basic and diluted net loss per common share | $ | ) | $ | ) | ||||
12
NOTE 10 – SUBSEQUENT EVENTS
At-the-Market Offering
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. In accordance with the terms of the offering agreement, Form S-3 shelf registration, and related prospectus documents filed with
the SEC, the Company offered to sell up to $
From April 15, 2024 through April 28, 2024, the
Company sold shares of common stock at purchase prices of approximately $
Following the May 1, 2024 registered direct offering
described below, the Company filed an amended prospectus document, reducing the maximum remaining aggregate offering amount under the
at-the-market facility to $
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
13
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.
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.
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.
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.
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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. We anticipate launching the Eddie Bauer® Powered by Lucyd and Reebok® Powered by Lucyd smart eyewear collections later in 2024.
Our current product offering consists of 29 different models, which offers a similar amount of style variety as many traditional eyewear collections. All styles are each available with 80+ different lens types, resulting in thousands of variations of products currently available. The Company currently has over 100 licensed patents and applications.
Since the launch of Lucyd Lyte, we have witnessed interest and demand from customers throughout the United States and have sold thousands of our smart glasses. Within six months of the launch of Lucyd Lyte, several optical stores in the United States and Canada have on-boarded the product and we have had discussions with several other large eyewear chains regarding on-boarding our product. We believe smart eyewear is a product category whose time has come, and we believe we are well positioned to capitalize on and help develop this exciting new sector – where eyewear meets electronics in a user-friendly, mass market format, priced similarly to designer eyewear.
Apps
The Vyrb app launched in open beta on iOS and Android app stores in 2021, as the Company’s first social media platform.
In 2022, we introduced key features in the Vyrb app, including live broadcasts for up to 100 users in one digital “room,” and the ability to upload external audio content into Vyrb, enabling longstanding content creators to import their existing libraries swiftly into the platform.
In the first quarter of 2023, we introduced several new features for the Vyrb app, including market-leading audio accessibility features for social media, such as the ability to create and listen to a feed of audio content completely hands-free, using unique voice assistant commands created for the app. We plan to continue to develop the expansive Vyrb platform into a feature-rich social toolbox for customers. This includes the introduction of revenue-generating features such as native ads and in-app upgrades, as well as gamification features such as a points and rewards system.
Additional new features for the Vyrb app are planned to launch in 2024, including a fully upgraded user interface. Once this update to the interface is completed, the app will be considered officially launched, and the Company will begin to promote it and capitalize on it in earnest.
In April 2023, we introduced another 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 upgrade. We believe this development makes our Lucyd eyewear perhaps the smartest smartglasses available today, and represents a significant marketing opportunity for the Company’s core smartglass product. In addition, the Company plans to launch new features for the Lucyd app in 2024, including a paid “Pro” version of the app, which will provide another potential incremental revenue stream for the Company from glasses customers.
Key Factors Affecting Performance
Expansion of retail points of purchase
In addition to sustained growth of our e-commerce business, our future revenues are correlated positively with our placement of Lucyd glasses in optical stores, as well as sporting goods stores and other specialty stores. To address this, we have assembled a team with decades of experience in the eyewear industry and are offering a strong co-op marketing program and reordering incentives program. We currently offer an expansive line of 29 different styles and several accessories, and are in the process of expanding our product offerings to include cobranded eyewear with well-known brands like Nautica, Eddie Bauer, and Reebok. In total, the Company expects to offer 38 total smart eyewear SKUs across these brands and Lucyd by the end of 2024.
15
Retail store client retention and re-orders
Our ability to sustain and increase revenue is correlated positively with our ability to receive re-orders from stores, either directly or through our wholesale distributors. To support our sales to retail stores directly, we offer a strong co-op marketing program that includes free and paid store display materials. As part of this strategy, we have launched a new modular display system with engaging video screens and audio testing capabilities for our resellers to help educate their in-store customers about Lucyd Lyte and enable customers to try them on. This proprietary display system is central to our efforts to introduce traditional retail customers to Lucyd eyewear, and we are planning further enhancements to our merchandising displays to enable more immersive experiences. Additionally, we consistently incorporate retail partner feedback directly into our frames to better serve our end users. As of March 31, 2024, 45 display systems have been deployed so far to retailers.
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.
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. Many of our Lyte XL variants carry a 4.0/5 rating or higher. 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 March 31, 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 expect to allocate a significant portion of our advertising expenditures towards influencer marketing programs.
16
Components of Results of Operations
Revenues
Our revenue is 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.
Our newest 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. 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 e-commerce partners only include non-prescription glasses (with rare exceptions, such as a reseller ordering a customized unit for display purposes).
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.
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.
17
Gross Profit and Gross Margin
We define gross profit as 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 our Vyrb social media app 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.
Results of Operations
The following table summarizes our results of operations for the three months ended March 31, 2024 (the “current quarter”) and the three months ended March 31, 2023 (the “prior year quarter”):
| Three months ended | Three months ended | ||||||||||||||||||||
| March 31, | March 31, | ||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||
| Revenues, net | $ | 383,471 | 100 | % | $ | 144,921 | 100 | % | $ | 238,550 | 165 | % | |||||||||
| Less: Cost of Goods Sold | (376,520 | ) | 98 | % | (134,630 | ) | 93 | % | (241,890 | ) | 180 | % | |||||||||
| Gross Profit | 6,951 | 2 | % | 10,291 | 7 | % | (3,340 | ) | -32 | % | |||||||||||
| Operating Expenses: | |||||||||||||||||||||
| General and administrative | (1,108,946 | ) | 289 | % | (993,772 | ) | 686 | % | (115,174 | ) | 12 | % | |||||||||
| Sales and marketing | (661,295 | ) | 172 | % | (259,297 | ) | 179 | % | (401,998 | ) | 155 | % | |||||||||
| Research and development | (216,301 | ) | 56 | % | (151,169 | ) | 104 | % | (65,132 | ) | 43 | % | |||||||||
| Related party management fee | (35,000 | ) | 9 | % | (35,000 | ) | 24 | % | - | 0 | % | ||||||||||
| Total Operating Expenses | (2,021,542 | ) | 527 | % | (1,439,238 | ) | 993 | % | (582,303 | ) | 40 | % | |||||||||
| Other Income (Expense) | 43,280 | -11 | % | 76 | 0 | % | 43,204 | n/m | |||||||||||||
| Interest Expense | - | 0 | % | (1,939 | ) | 1 | % | 1,939 | -100 | % | |||||||||||
| Total Other Income (Expense), net | 43,280 | -11 | % | (1,863 | ) | 1 | % | 45,143 | n/m | ||||||||||||
| Net Loss | $ | (1,971,311 | ) | 514 | % | $ | (1,430,810 | ) | 987 | % | $ | (540,501 | ) | 38 | % | ||||||
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Revenues
Our revenues for the three months ended March 31, 2024 were $383,471, representing an increase of 165% as compared to revenues of $144,921 during the three months ended March 31, 2023. The increase in revenue was primarily attributable to significant growth in the e-commerce channel, largely driven by our significant investments in advertising and marketing initiatives during the latter portion of 2023 and through the current quarter, combined with recent new product launches (including the Lyte XL and Nautica® Powered by Lucyd collections). Net sales through our Lucyd.co website and Amazon.com grew by more than 400% and over 150%, respectively, from the prior year quarter. This growth in e-commerce sales was partially offset by significant price discounts granted in the current quarter, in order to respond to aggressive discounts offered by key competing products, and to support our continued market share growth.
Wholesale revenue decreased approximately 72% 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 6-24 months.
For the three months ended March 31, 2024, approximately 67% of sales were processed on our online store (Lucyd.co), 29% on Amazon.com, and 4% with reseller partners. 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 March 31, 2024, we generated an aggregate of $272,742 of revenue from sales of non-prescription frames and accessories, and $110,729 from sale of frames with prescription lenses. All of the $113,619 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 $255,920 in online sales generated through Lucyd.co, $110,729 was related to frames with prescription lenses and $145,191 was related to glasses with non-prescription lenses. E-commerce sales remain to be the most material portion of our sales to date.
For the three months ended March 31, 2023, approximately 35% of sales were processed on our online store (Lucyd.co), 31% on Amazon.com, and 34% with reseller partners. For the three months ended March 31, 2023, we generated $33,350 of revenue from sales of non-prescription frames and accessories and $16,918 was generated from sales of frames with prescription lenses. All of the $45,045 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 $50,268 in online sales generated through Lucyd.co, $16,918 related to frames with prescription lenses and $33,350 of glasses sold were with non-prescription lenses.
Cost of Goods Sold
Our total cost of goods sold increased to $376,520 for the three months ended March 31, 2024, as compared to $134,630 for the prior year quarter. This year-over-year increase of 180% was primarily driven by higher sales volumes during the current quarter as compared with the prior year quarter. Cost of frames increased by approximately 150% from the prior year quarter, which was generally in-line with (although slightly lower than) the increase in net sales from the prior year quarter, both proportionally and on an absolute dollar basis.
Cost of lenses increased by more than 300% from the prior year quarter, mainly driven by the combination of (i) the introduction of our new proprietary Blueshift premium lenses in August 2023, which are more expensive than other lenses to produce, and (ii) sales channel mix, as a higher relative proportion of our sales in the current quarter 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.
Cost of goods sold for the three months ended March 31, 2024 included but was not limited to the cost of frames of $184,978; cost of prescription lenses incurred with our third-party vendor of $103,069; commissions, affiliate referral fees, and e-commerce platform fees of $42,826; shipping and logistics costs of $15,914; and quality assurance costs related to our products sold of $4,238. Out of $376,520 of our total cost of goods sold for the current quarter, $103,069 related to orders with prescription lenses, while $273,451 pertained to non-prescription orders.
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Cost of goods sold for the three months ended March 31, 2023 included the cost of frames of $73,798; cost of prescription lenses incurred with our third-party vendor of $22,123; commissions, affiliate referral fees, and e-commerce platform fees of $18,696; shipping and logistics costs of $8,313; and quality assurance costs related to our products sold of $11,700. Out of $134,630 of our total cost of goods sold for the three months ended March 31, 2023, $22,123 related to orders with prescription lenses, while $112,507 pertained to non-prescription orders. Also, during the current quarter we incurred approximately $29,000 of product certification costs to support the expansion of our product sales in jurisdictions outside the U.S.
We anticipate further growth in sales in 2024. We also expect corresponding growth in total cost of goods sold, primarily from additional product related costs. 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. We have also launched 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. Additionally, we have been informed by key suppliers that significant price reductions over 10% are possible as we continue to scale our production quantities.
Gross Profit
Our gross profit for the current quarter was $6,951, as compared to $10,291 for the prior year quarter. Our gross margin was 2% and 7% in the current quarter and prior year quarter, respectively.
This decline in gross profit and gross margin was primarily attributable to the aforementioned increase in the cost of lenses. While we have started to realize some economies of scale in the cost of frames, and in the area of shipping and logistics, the cost of prescription lenses has grown disproportionately and significantly more than our revenue, which has had a significant negative impact on our gross profit margin. Prescription smart eyewear offered direct-to-consumer has been a key unique selling point used to attract new customers, bringing an important marketing benefit since it is not offered by most of our competitors. We are working with our current prescription lens provider to explore opportunities to reduce costs and we are also actively in discussions with alternative prescription lens suppliers whom we believe may help further lower our lens fulfilment costs. Ultimately, we believe that the majority of our business will come from frame sales to distributors and eyewear retailers, who will outfit lenses themselves for the final customer. We anticipate that the launches of more co-branded products later this year will help us progress towards our long-term goal of shifting our sale mix over time more towards the wholesale channel, which carries higher margins for us as such sales to our third-party retail store partners do not include the cost of prescription lenses.
Also, during the current quarter we incurred approximately $29,000 of product certification costs to support the expansion of our product sales in jurisdictions outside the U.S.
Operating Expenses
Our operating expenses increased by 40% to $2,021,542 for the three months ended March 31, 2024, as compared to $1,439,238 for the three months ended March 31, 2023. This increase was primarily due to the continued investments in the future growth and development of our business and included, but was not limited to, the following:
General and administrative expenses
Our general and administrative expenses increased by 12% to $1,108,946 for the three months ended March 31, 2024, as compared to $993,772 for the prior year quarter. This increase was largely driven by the combination of (i) additional team members, (ii) the cost of various licensing agreements we have entered into in order to support our co-branding initiatives and expand our patent portfolio, which are assessed annually in January, and (iii) higher legal expenses. We expect our general and administrative expenses to be lower in future quarters due to certain one-time fees this quarter.
Sales and marketing expenses
Our sales and marketing expenses increased by 155% to $661,295 for the three months ended March 31, 2024, as compared to $259,297 for the three months ended March 31, 2023. This year-over-year increase is primarily attributable to the restructuring of our e-commerce business during the prior year quarter, 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 quarter, 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.
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Research and development costs
Our research and development costs increased by 43% to $216,301 for the three months ended March 31, 2024, as compared to $151,169 for the three months ended March 31, 2023.
This increase was primarily attributable to additional resources added to the team for app development, and new mold costs associated with the creation of the safety and sport (Reebok) product format.
Related party management fee
Our related party management fee was $35,000 for each of the three months ended March 31, 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 March 31, 2024 was $43,280. 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 three months ended March 31, 2023 was $(1,863), and was primarily comprised of interest expense on financing from a related party in the form of borrowings under a convertible note, which was repaid in full during the prior year quarter.
Liquidity and Capital Resources
Cash Flow
| Three months ended | Three months ended | |||||||
| March 31, | March 31, | |||||||
| 2024 | 2023 | |||||||
| Net cash flows from operating activities | $ | (1,467,355 | ) | $ | (1,362,443 | ) | ||
| Net cash flows from investing activities | (95,538 | ) | (136,960 | ) | ||||
| Net cash flows from financing activities | (75,988 | ) | 1,358,122 | |||||
| Net Change in Cash | $ | (1,638,881 | ) | $ | (141,281 | ) | ||
Net cash flows used in operating activities for the three months ended March 31, 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 three months ended March 31, 2024 are mainly related to the continuing growth and expansion of our patent portfolio.
Net cash flows used in financing activities for the three months ended March 31, 2024 are mainly driven by the payment to Tekcapital and affiliates for services provided under related party agreements.
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Registered Direct Offering
On May 1, 2024, the Company closed on a registered direct offering of 4,200,822 shares of its common stock and, in a concurrent private placement, warrants to purchase up to 4,200,822 shares of common stock at an exercise price of $0.244 per share, for a combined purchase price per share and warrant of $0.244. In exchange, the Company received approximately $1.0 million of gross proceeds, before deducting placement agent fees and expenses. In addition, the Company issued to the placement agent warrants to purchase up to 315,062 shares of common stock at an exercise price of $0.305 per share. The net proceeds received by the Company from this transaction amounted to approximately $732,000. We intend to use the net proceeds of this offering primarily for working capital and general corporate purposes.
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 aforementioned May 2024 registered direct offering), plus planned future sales of our common stock through our at-the-market offering facility, and the availability to borrow funds through the March 2024 related party agreement with Lucyd Ltd., will be sufficient to fund our operations for at least the next twelve months.
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 March 31, 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 March 31, 2024.
There was no change in our internal control over financial reporting during the first quarter of fiscal year 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
22
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
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
23
Item 6. Exhibits
24
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: May 14, 2024 | By: | /s/ Harrison Gross |
| Harrison Gross | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 14, 2024 | By: | /s/ Konrad Dabrowski |
| Konrad Dabrowski | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
25
Exhibit 10.1
Schedul e 1 INNOVATIV E EYEWEAR, INC. CONVERTIBL E NOTE
CONTENTS Clause Page 1. DEFINITIONS AND INTERPRETATIO N ............................ . . ........ . . ....... . ...................... . ! LOA N NOTES 2 TERMS 2 4. NOT E CONVERSION 2 5. REPAYMEN T AN D PREPAYMENT 3 6. INTEREST 3 7. CERTIFICATES 4 WARRANTIES AN D REPRESENTATIONS 4 INDEMNIT Y AN D TA X GROSS UP 4 8. 9. 10 . U.S . SECURITIES AC T O F 1933 5 1 1 . HOLDER LIABILITIES 5 12. HOLDER OPTION 5 13. COST S AN D EXPENSES 5 14. COMMUNICATIONS 5 15. ENTTR E AGREEMENT 5 16. V A RI A TION 6 17. ASSIGNMENT 6 18. NO WAIVER 6 19. RIGHT S AN D REMEDIES 6 20. SEVERANCE 6 21. ARBITRATION 6 22 . GOVERNING LAW 6 SCHEDUL E 1 CERTIFICATE 8
THI S CONVERTIBL E NOTE i s executed a s a dee d e ffe ctive Marc h 1st 2024. PARTY Innovative Eyewear, Inc . a Florid a corporation ("Company"). BACKGROUND B y exercising th e powers conferred o n them by th e constitutional documents o f th e Company , the Company resolve d t o creat e unsecured conve rtibl e loan note s u p t o th e principa l amount of $ 1 ,250,000 US D an d t o constitute thes e loa n note s i n th e manne r set ou t i n thi s Instrument. OPERATIV E PROVISIONS 1. DEFINITIONS AND INTERPRETATION 1.1 I n thi s Instrument: "Commencemen t Date " mean s th e e ff ectiv e date o f thi s Instrument . "Group " mean s i n relation t o a company, that company , each an d an y subsidiar y o r holding company fro m tim e t o tim e o f that company , an d eac h an d any subsidiary from tim e to tim e o f a holding compan y of tha t company o r a n a ff iliate . "Holder" mean s Lucyd Lt d ( 09522087 ) o r it s assignee s which can include group companie s such a s Tekcapita l Europe Limited at it s sol e discretion . "Instrument " mean s thi s unsecured convertibl e loa n note, issued o n th e Commencement Dat e which i s for th e principal amount o f $ 1 , 250 , 00 0 USD , th e term s o f which are established herein . "Loa n Note " means the unsecure d loan note s o f th e Compan y constitute d b y this Instrument, o r th e principal amoun t fro m tim e t o tim e issued o r draw n dow n fo r a facility a s th e cas e ma y require . "Maturit y Date" mean s unless conve rt ed earlie r i n accordance wit h Claus e 4 o r delayed o n mutua l written agreement , th e principa l an d accrue d interes t o n thi s Ins tr umen t shal l be due an d payable eightee n month s fro m th e Commencement Dat e o f thi s Instrument . "Party" mean s th e Compan y o r th e Holder . 1.2 Cons tr uction 1.2.1 Unles s a contra ry indication appear s a reference i n thi s Instrument to: (a) a "person" include s any individual, fi rm, company , corporation, government, stat e o r agenc y o f a stat e o r an y association, trust, joint venture , consortiu m o r pa rtnership (whethe r o r no t havin g separate legal personality) ; a "regulation" includes any regulation , rule , o ff icia l directive, reques t or guidelin e (whethe r o r no t having th e force o f law) o f any governmental, intergovernmenta l o r supranationa l body, agency , department o r o f any regulatory , self - regulatory o r other authorit y o r organisation ; - 1 -
(c) reference s i n this Instrument t o th e singular includ e reference s t o th e plural an d vic e ve rs a; and (d) a provisio n oflaw i s a referenc e t o that provisio n a s amended o r re - enacted. 1.2.2 Section, Clause an d Schedul e h ea ding s ar e fo r eas e o f reference only. 2. LOAN NOTES 2. 1 The ag gr egat e principal amoun t o f th e Loa n Notes shall tota l US D $ 1 ,250,000. 2.2 Subjec t t o thi s Ins trument , th e Loa n Note s shal l ran k par i pass u equall y an d rateably without discriminatio n o r preference betwee n them an d a s unsecured obligations o f the Compan y unde r thi s Instrument . 2.3 Interest shal l b e payable o n th e Loan Notes i n accordanc e wit h Claus e 6. This Instrument ma y b e one o f a serie s which hav e th e exac t same fi nancial term s except a s t o th e date o f issuanc e an d tenor. 3. TERMS Pursuan t t o (i ) an y services agr ee men t which compensates a Grou p com pa n y o f Tekcapital pic , (ii) a directio n o f th e Boar d and/o r (iii) receip t o f an y fund s then th e Loan Note s shall b e issue d prio r t o th e Maturit y Date i n denomination s an d integral multiples o f U S D $ 0 . 0 I (o r suc h othe r multiple s o r currency a s th e Compan y shal l permit) an d shal l b e hel d subject t o th e term s se t ou t i n thi s Instrument . 4. NOT E CONVERSION 4.1 A t th e electio n o f th e Holder, th e Loa n Note s an d al l interes t accrue d o n them may be converte d anytim e a ft e r th e occurrence o f an y o f th e following event s (th e "Conversion Events") : 4.1.1 i n th e event tha t th e Company consummates a n equity fi nancing pursuan t to whic h i t raise s a n aggregate amount o f no t les s tha n $250,00 0 USD; 4.1.2 i n th e even t tha t th e Company enter s int o a tr ansaction pursuant t o whic h the Compan y sell s no t les s tha n 10 % o f th e Company's currentl y issu ed shares, excludin g an y an d al l convertible notes whic h ar e convertible int o shares ; and 4.1.3 i f th e Holder a t it s sol e discretion determines that i t wants t o convert th e Not e for an y reason. Upo n th e occurrenc e o f an y Conversio n Even t described i n Clause 4 . 1 , th e Holder may, b y writte n notic e t o th e Compan y (th e "Conversion Notice") , conver t all , o r a portio n of, outstandin g principa l an d accrue d interes t unde r th e Note int o tha t numbe r o f Company shares equa l t o th e quotient obtaine d b y dividing th e amoun t o f al l outstanding principal an d interes t o f th e Not e bein g converted b y th e Holder b y (i ) i n th e case o f Clause 4 . 1 . 1 an d Claus e 4 . 1 . 2 above , th e pe r share purchase price pai d fo r b y investor s unde r th e terms o f such eq uit y fi nancing , (ii ) i n th e cas e o f 4 . 1 . 3 above , th e closin g pric e o f th e Company's tradin g shares o n th e relevant public exchang e fo r th e day immediately preceding th e date o f conversio n o f th e Not e o r (iii) i n th e case o f 3 . 1 . 4 th e valuation o f th e las t equity
investment . I f the Holder covert s the note o r any portio n thereo f int o shares, an d th e shares i f no t fre e trading , the n the Holder o f th e convertible note ma y request that a registration statemen t i s fi le d withi n th e nex t 3 0 days t o registe r an y an d all shares th e Holder ha s in thei r possession . - 3 - 4.2 I n th e event tha t th e Holder doe s no t e ffe ct t o convert th e entir e Note an d accrue d interest thereunde r before th e Maturit y Date , th e Compan y shall repay i n cas h th e ful l principal amount an d al l accrue d interest o n th e Note . 4.3 Upo n conversio n o f the Loan Notes: th e Compan y shal l issu e certi fi cates evidencing th e shares ; and th e Holder shall (i) hav e th e same right s provided t o a purchaser o f th e share s in th e equity fi nancing , includin g without limitation , t o th e extent gr anted therein, information an d registration rights an d subject t o an y minimum shar e ownership threshold s an d (ii) join int o any such agreement entered int o between the Compan y an d a purchase r o f th e shares i n suc h equity fi nancin g evidencing the rights describe d i n Clause 4 . 3 . 2 (i) . 4.4 Th e Compan y shall no t b e require d t o issue fractional share s upo n exercis e o f th e Note . A s t o any fractiona l shar e tha t th e Holde r woul d otherwis e b e entitle d t o upo n conversion the n th e Compan y shal l pa y t o th e Holder the di ff erence i n cas h b y wir e transfer of immediately available funds . 5. REPAYMEN T AND PREPAYMENT 5.1 Repayment Th e Compan y shall repay i n ful l th e principa l amoun t an d al l accrue d interes t o n th e Note o n o r be for e th e Maturity Date. 5.2 Prepayment Th e Compan y ma y wit h th e prior written consen t o f th e Holder, no t t o b e unreasonably withheld , prepay th e whol e o f th e Not e a t any tim e prio r t o receip t o f a Conversio n Notice . There i s n o prepaymen t fee . 5.3 Lat e Payment I n th e even t that th e Compan y fails t o pay any amoun t due unde r thi s Instrumen t o n the Maturity Dat e the n i t shal l b e liabl e t o pa y $15 0 US D fo r eac h da y tha t th e overdu e amount remain s due an d payable. INTEREST 6.1 Th e Compan y wil l pay t o th e Noteholder s interes t (less any withholdin g tax ) o n the principa l amoun t o f th e Loa n Note s fo r th e tim e bein g hel d b y them a t a n annual rat e equal t o 10 pe r cen t with effec t fr o m th e dat e o f issu e o f th e Loa n Note s unti l th e Maturit y Date i n accordance wit h this Ins trument . 6.2 Interes t shal l accru e from day - to - da y an d shal l b e calculated o n th e basis o f a yea r o f 365 day s an d th e actua l num be r o f day s i n th e perio d fo r which i t i s paid.
6.3 - 4 - Interes t shal l be pai d or waive d (or , a t th e electio n o f th e Holde r i n it s sole converted ) simultaneously wit h th e conversio n o r repayment o f th e Loa n Notes. 7. CERTIFICATES Each Noteholde r shall b e entitle d withou t charg e t o a certi fi cat e fo r th e Loa n Note s held b y them. 8. WARRANTIE S AN D REPRESENTATIONS Th e Compan y makes th e representation s an d warrantie s set ou t i n thi s Claus e 8 t o the Holder. 8.1 Binding obligations Tha t th e obligation s expressed t o b e assume d b y i t i n thi s Instrumen t ar e legal, valid, bindin g an d enforceabl e obligations. 8.2 Non - con flic t wit h othe r obligations Th e entry int o an d perf ormanc e b y i t of , an d th e transactions contemplated b y this Instrumen t d o no t an d wil l no t conflic t with: 8.2. 1 an y la w o r regulation applicabl e t o th e Company; 8.2. 2 an y o f th e Company's organisationa l an d constitutional documents; or 8 . 2 . 3 an y agreemen t o r instrumen t bindin g upo n th e Company o r an y o f it s asset s to th e exten t suc h con fl ic t migh t reasonabl y be expected t o have a materia l adverse effect . 8.3 Powe r an d authori ty 8.3.1 I t ha s th e powe r t o ente r into , perform an d deliver , an d ha s taken all necessary actio n t o authoris e it s entry into , perfonnance an d deliver y of , thi s Instrument. 8.3.2 I t ha s dul y authorised an d approve d th e tenns o f thi s Instrumen t an d th e issuance o f thi s Instrument, i n eac h cas e i n accordance wit h th e provision s o f th e la w and its constitutiona l documents . 8.4 Validit y an d admissibilit y in evidence All Authorisations required o r desirable: 8.4. 1 t o enable i t lawfully t o ente r into , exercise it s right s an d compl y wit h i ts obligations; and 8.4. 2 t o mak e th e document s t o whic h i t i s a party admissibl e i n evidenc e in its jurisdictio n o f incorporation, hav e been obtaine d or effected an d ar e in ful l forc e an d effect. 9. INDEMNIT Y AND TA X GROS S UP 9.1 Th e Compan y shall indemni fy an d hol d harmles s th e Holde r fro m an d agains t an d in respec t o f al l losse s su ff ere d o r incurred b y th e Holder an d an y reductio n i n th e value of
- 5 - the Notes hel d b y the Holder , arisin g ou t o f o r i n connectio n wit h tax, stam p du t y , registratio n fee s o r other simila r costs. 9.2 Al l amounts se t out , o r expressed t o b e payable unde r thi s Ins t r ument shal l b e deemed to be exclusive o f any VA T o r simila r servic e charge ("Charge") an d if any amount is chargeable o n any suppl y the n th e Company shal l pa y t o th e Holde r (i n additio n t o an d at th e sam e tim e a s payin g th e consideration) an amount equa l t o th e Charge . 10. U.S. SECURITIES ACT OF 1933 10.1 The Company wil l compl y wit h al l regulation s o f th e United State s Securities Ac t o f 1933, a s amended (th e "Sec u ri t ies Act") ) wit h res pe c t to th e Notes. 11. HOLDER LIABILITIES Thi s Instrument does no t confe r upo n th e Holde r any liabilitie s a s a shareholde r prio r to th e conversion o f the Note. 12. HOLDER OPTION Th e Holder , i n its sol e discretion , ca n transfe r th e Not e t o a membe r o f the Grou p an d the Compan y wil l undertak e any actio n requeste d t o e ff ec t th e transfer. 13. COST S AN D EXPENSES Excep t a s provide d otherwise i n thi s In s tr ument , each Party shal l pay th e cost s and expenses incurre d b y it i n connection wit h this Instrument. 14. COMMUNICATIONS 14.1 Communications unde r thi s Ins tr umen t shal l b e i n Englis h i n writin g an d delivere d (i ) by han d o r sen t b y recorded delivery pos t (o r airmail , if th e destinatio n i s outside th e country o f origin ) t o its registere d address o r (ii ) b y emai l a s se t ou t below : 14.2 N o pres s release s o r any othe r forms o f communicatio n t o thir d parties , which mention bot h Parties , shal l b e release d withou t the prio r writte n conse n t an d approva l o f the Holder. 15. ENTIRE AGREEMENT 15.1 This Instrumen t constitute s th e entire agreement betwee n th e Parties an d supersede s and e x ti nguishe s all previou s dra f t s, a g r eements , arrangement s an d unders ta ndings between them , whethe r writte n o r oral , relating t o its subjec t matter . Holde r (Lucyd ltd) Emai l addresses: & minglis@tekcapital.com Physical address: 12 Ne w Fette r Lan e London , EC4A I J P United Kingdom Compan y (Innovative Eyewear Inc.) Emai l address: Physical address: 1 1900 Biscayne Blvd , Suite 630, North Miami, F l 33181
15.2 - 6 - Eac h Party acknowledges tha t i n enterin g int o thi s Instrument i t doe s not rel y on, an d shall hav e n o remedie s i n respec t of, any representation o r warranty (whether mad e innocently o r negligently) tha t i s no t se t ou t i n thi s Instrument . N o Party shal l have an y clai m for innocen t or negligent misrepresentatio n base d upo n an y statement i n thi s Instru ment . 15.3 Nothing i n thi s Clause shal l limit o r exclude an y liability fo r fraud. 16. VARIATION N o variation, amendment o r modi fi cation o f thi s Instrument shal l be effective unless i t is i n writing an d signed b y o r o n behal f o f each Party. 17. ASSIGNMENT Th e Compan y ma y no t assign o r transfe r it s right s and/o r obligations unde r thi s Ins tr ument withou t the prior written consen t fro m the Holder. 18. N O WAIVER N o failur e o r dela y b y a Part y t o exercis e an y righ t o r remed y provide d unde r this Instrumen t o r b y Jaw shal l constitut e a waive r o f tha t o r any othe r righ t o r remedy, nor shal l it preclude or restrict the furthe r exercis e o f that o r an y other righ t o r remedy . No singl e o r partia l exercis e o f suc h righ t o r remed y shal l preclude o r restric t th e further exercis e o f tha t o r an y other righ t o r remedy . 19. RIGHT S AN D REMEDIES Excep t a s expressl y provide d i n thi s Instrument , the rights an d remedie s provide d under thi s Instrumen t ar e i n addition to , an d no t exclusiv e of, an y right s o r remedie s provide d by law . 20. SEVERANCE 20.1 I f an y cour t o r com pe tent authority fmd s that any provision o f thi s Instrumen t (o r pa r t of an y provision) i s invalid , illegal o r unenforceable , tha t provisio n o r part - provisio n shall, t o th e exten t required , b e deeme d t o be deleted, an d th e validit y an d enforceabilit y o f the other provisions o f thi s Instrument s h all no t be a ff ected. 20.2 I f an y invalid , unenforceable o r illega l provision o f thi s Ins trument would b e valid, enforceable an d lega l i f som e par t o f i t wer e deleted , the provisio n shal l apply wit h the minimum m od ificatio n necessary t o mak e i t legal, vali d an d enforceable . 21. ARBITRATION An y disput e arisin g fro m or i n connectio n wit h thi s Instrumen t (including a dispute relating t o the existence , exercise , validity o r terminatio n o f thi s Instrumen t o r th e consequences o f it s nullit y o r an y non - contractua l obligatio n arising ou t or i n connectio n with this Instrument ) shal l b e referred t o an d fi nally resolved b y arbitratio n under th e Arbitration Rule s o f the Londo n Court o f Inte rn ationa l Arbitration (LCIA) b y a sol e arbitrator with th e sea t o f arbi tr ation i n London unde r the English language . 22. GOVERNIN G LAW Thi s Instrumen t an d an y non - contractua l obligations arising out o f o r i n connection with i t shal l be gove rn e d b y and construed i n accordanc e with Englis h Law.
EXECUTED - 7 - SIGNE D as a DEED B y INNOVATIVE EYEWEA R, IN C . . . k . : . . . . . . . . . . . . . . . . . . . . . . . N am e: Konrad Dabrowski Confirmed By LUCY D LTD . (Holder) M a x Inglis
SCHEDULE 1 CERTIFICATE INNOVATIV E EYEWEA R IN C (TH E "COMPANY") US D $[•] UNSECURE D CONVERTIBL E LOA N NOTES Certi fi cat e N o . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount USD $ .................. . Issue d pursuan t t o th e B y Laws o f th e Company. Date d [•] THI S I S T O CERTIF Y THA T [•] of[• ] is/ar e th e registere d holder(s ) ofUS D $[• ] ofth e USD $[ • ] Convertibl e Loa n Note s (th e "Loa n Notes") constitute d by a n Instrumen t entere d int o b y the Company o n [ • ] (th e "Instrument" ) an d issue d wit h th e bene fi t of, an d subject t o th e provisions containe d i n th e Instrument. Wher e th e context permits , term s defined i n th e Instrument shal l hav e th e sam e meanin g when use d i n thi s Certificate. Thi s Certificat e ha s bee n execute d as a deed an d delivere d o n th e dat e set ou t above. - 8 - SIGNE D a s a DEED B y INNOVATIVE EYEWEA R INC. Witness: Name: Address: Occupation:
Exhibit 31.1
CERTIFICATIONS
I, Harrison Gross, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Innovative Eyewear, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 14, 2024 | By: | /s/ Harrison Gross |
| Harrison Gross | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Konrad Dabrowski, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Innovative Eyewear, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 14, 2024 | By: | /s/ Konrad Dabrowski |
| Konrad Dabrowski | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Innovative Eyewear, Inc. (the “Company”) for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission (the “Report”), I, Harrison Gross, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the report. |
| Date: May 14, 2024 | By: | /s/ Harrison Gross |
| Harrison Gross | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Innovative Eyewear, Inc. (the “Company”) for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission (the “Report”), I, Konrad Dabrowski, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the report. |
| Date: May 14, 2024 | By: | /s/ Konrad Dabrowski |
| Konrad Dabrowski | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |