LUCYW filing — read by section

UNITED
STATES 

 SECURITIES
AND EXCHANGE COMMISSION 

 Washington,
D.C. 20549 

 FORM 10-Q 

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

 For
the quarterly period ended June 30, 2023 

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

 For
the transition period from __________ to __________ 

 Commission
file number 001-41392 

 INNOVATIVE EYEWEAR, INC. 

 (Exact
 name of registrant as specified in its charter) 

 Florida 
 
 84-2794274 

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

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

 (Address
 of Principal Executive Offices, including zip code) 

 (786) 
 785-5178 

 (Registrant’s
 telephone number, including area code) 

 Not
 Applicable 

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

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

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

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

 Large
 Accelerated Filer 
 ☐ 
 Accelerated
 Filer 
 ☐ 

 Non-accelerated Filer 
 ☒ 
 Smaller
 Reporting Company 
 ☒ 

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

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

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

 Title
 of each class 
 
 Trading
 Symbol(s) 
 
 Name
 of each exchange on which registered 

 Common
 Stock, $0.00001 par value 
 
 LUCY 
 
 The
 Nasdaq Capital Market LLC 

 Warrants
 to purchase Common Stock 
 
 LUCYW 
 
 The
 Nasdaq Capital Market LLC 

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

 CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS 

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

 Innovative
Eyewear, Inc. 

 Table
of Contents 

 Page
 No. 

 Part
 I. Financial Information 
 
 1 

 Item 1. 
 
 Condensed
 Financial Statements (Unaudited) 
 
 1 

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

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

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

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

 Notes
 to the Financial Statements (Unaudited) 
 
 5 

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

 Item 3. 
 
 Quantitative
 and Qualitative Disclosures About Market Risk 
 
 30 

 Item 4. 
 
 Controls
 and Procedures 
 
 30 

 Part
 II. Other Information 
 
 31 

 Item 1. 
 
 Legal
 Proceedings 
 
 31 

 Item 1A. 
 
 Risk
 Factors 
 
 31 

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

 Item 3. 
 
 Defaults
 Upon Senior Securities 
 
 31 

 Item 4. 
 
 Mine
 Safety Disclosures 
 
 31 

 Item 5. 
 
 Other
 Information 
 
 31 

 Item 6. 
 
 Exhibits 
 
 32 

 Signatures 
 
 33 

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

 i 

 PART
I - FINANCIAL INFORMATION 

 Item 1.
Financial Statements 

 INNOVATIVE
EYEWEAR, INC. 

 CONDENSED
BALANCE SHEETS 

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

 2023 
 
 2022 
 
 TOTAL
 ASSETS 
 
 Current
 Assets 
 
 Cash
 and cash equivalents 
 
 $ 
 5,356,445 
 
 $ 
 3,591,109 
 
 Investments
 in debt securities, at amortized cost (fair value of $ 1,950,220 ) 
 
 1,949,204 
 
 - 
 
 Accounts
 receivable, net of allowances of $ 98,318 and $ 92,646 , respectively 
 
 130,655 
 
 110,258 
 
 Prepaid
 expenses 
 
 271,276 
 
 210,673 
 
 Inventory
 prepayment 
 
 366,626 
 
 197,750 
 
 Inventory 
 
 659,867 
 
 94,701 
 
 Other
 current assets 
 
 36,240 
 
 36,240 
 
 Total
 Current Assets 
 
 8,770,313 
 
 4,240,731 
 
 Non-Current
 Assets 
 
 Patent
 costs, net 
 
 251,363 
 
 137,557 
 
 Capitalized
 software costs 
 
 110,073 
 
 110,073 
 
 Property
 and equipment, net 
 
 125,200 
 
 119,744 
 
 Other
 non-current assets 
 
 82,719 
 
 81,779 
 
 TOTAL
 ASSETS 
 
 $ 
 9,339,668 
 
 $ 
 4,689,884 
 
 LIABILITIES
 AND STOCKHOLDERS’ EQUITY 
 
 Liabilities 
 
 Current
 Liabilities 
 
 Accounts
 payable and accrued expenses 
 
 $ 
 148,982 
 
 $ 
 275,660 
 
 Deferred
 revenue 
 
 30,000 
 
 30,000 
 
 Due
 to Parent and Affiliates 
 
 151,612 
 
 232,989 
 
 Related
 party convertible debt 
 
 - 
 
 61,356 
 
 Total
 Current Liabilities 
 
 330,594 
 
 600,005 
 
 Non-Current
 Liabilities 
 
 Deferred
 revenue 
 
 57,950 
 
 65,450 
 
 TOTAL
 LIABILITIES 
 
 388,544 
 
 665,455 
 
 Commitments
 and contingencies 
 
 - 
 
 - 
 
 Stockholders’
 Equity 
 
 Common
 stock (par value $ 0.00001 , 50,000,000 shares authorized, and 12,917,239 and 7,307,157 shares issued and outstanding as of June 30,
 2023 and December 31, 2022, respectively) 
 
 129 
 
 73 
 
 Additional
 paid-in capital 
 
 21,975,594 
 
 14,330,343 
 
 Accumulated
 deficit 
 
 ( 13,024,599 
 ) 
 
 ( 10,305,987 
 ) 

 TOTAL
 STOCKHOLDERS’ EQUITY 
 
 8,951,124 
 
 4,024,429 
 
 TOTAL
 LIABILITIES AND STOCKHOLDERS’ EQUITY 
 
 $ 
 9,339,668 
 
 $ 
 4,689,884 
 
 See
accompanying Notes to the Financial Statements. 

 1 

 INNOVATIVE
EYEWEAR, INC. 

 CONDENSED
STATEMENTS OF OPERATIONS 

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

 (Unaudited) 

 Three
 Months Ended
 June 30, 
 
 Six
 Months Ended
 June 30, 
 
 2023 
 
 2022 
 
 2023 
 
 2022 
 
 Revenues,
 net 
 
 $ 
 169,929 
 
 $ 
 204,741 
 
 $ 
 314,850 
 
 $ 
 440,763 
 
 Less:
 Cost of Goods Sold 
 
 ( 199,745 
 ) 
 
 ( 161,494 
 ) 
 
 ( 334,375 
 ) 
 
 ( 323,126 
 ) 

 Gross
 (Deficit) Profit 
 
 ( 29,816 
 ) 
 
 43,247 
 
 ( 19,525 
 ) 
 
 117,637 
 
 Operating
 Expenses: 
 
 General
 and administrative 
 
 ( 968,354 
 ) 
 
 ( 710,135 
 ) 
 
 ( 1,962,126 
 ) 
 
 ( 1,317,108 
 ) 

 Sales
 and marketing 
 
 ( 103,643 
 ) 
 
 ( 391,919 
 ) 
 
 ( 362,940 
 ) 
 
 ( 976,714 
 ) 

 Research
 and development 
 
 ( 197,478 
 ) 
 
 ( 52,560 
 ) 
 
 ( 348,647 
 ) 
 
 ( 88,367 
 ) 

 Related
 party management fee 
 
 ( 35,000 
 ) 
 
 ( 35,000 
 ) 
 
 ( 70,000 
 ) 
 
 ( 70,000 
 ) 

 Total
 Operating Expenses 
 
 ( 1,304,475 
 ) 
 
 ( 1,189,614 
 ) 
 
 ( 2,743,713 
 ) 
 
 ( 2,452,189 
 ) 

 Other
 Income (Expense) 
 
 47,586 
 
 ( 2,059 
 ) 
 
 47,662 
 
 ( 2,558 
 ) 

 Interest
 Expense 
 
 ( 1,097 
 ) 
 
 ( 45,386 
 ) 
 
 ( 3,036 
 ) 
 
 ( 63,261 
 ) 

 Total
 Other Income (Expense) 
 
 46,489 
 
 ( 47,445 
 ) 
 
 44,626 
 
 ( 65,819 
 ) 

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

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

 See
accompanying Notes to the Financial Statements. 

 2 

 INNOVATIVE
EYEWEAR, INC. 

 CONDENSED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) 

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

 (Unaudited) 

 Common
 Stock 
 
 Additional

 Paid In 
 
 Stock

 Subscription 
 
 Accumulated 
 
 Total

 Stockholders’
 Equity 
 
 #
 Shares 
 
 Amount 
 
 Capital 
 
 Receivable 
 
 Deficit 
 
 (Deficit) 
 
 Balances,
 January 1, 2023 
 
 7,307,157 
 
 $ 
 73 
 
 $ 
 14,330,343 
 
 $ 
 - 
 
 $ 
 ( 10,305,987 
 ) 
 
 $ 
 4,024,429 
 
 Stock
 based compensation 
 
 - 
 
 - 
 
 424,431 
 
 - 
 
 - 
 
 424,431 
 
 Exercises
 of warrants by stockholders (see Note 9) 
 
 408,600 
 
 4 
 
 1,532,246 
 
 - 
 
 - 
 
 1,532,250 
 
 Net
 loss 
 
 - 
 
 - 
 
 - 
 
 - 
 
 ( 1,430,810 
 ) 
 
 ( 1,430,810 
 ) 

 Balances,
 March 31, 2023 
 
 7,715,757 
 
 $ 
 77 
 
 $ 
 16,287,020 
 
 $ 
 - 
 
 $ 
 ( 11,736,797 
 ) 
 
 $ 
 4,550,300 
 
 Stock
 based compensation 
 
 - 
 
 - 
 
 ( 40,180 
 ) 
 
 - 
 
 - 
 
 ( 40,180 
 ) 

 Exercises
 of stock options 
 
 230,362 
 
 2 
 
 17,648 
 
 - 
 
 - 
 
 17,650 
 
 Exercises
 of warrants by stockholders (see Note 9) 
 
 321,120 
 
 3 
 
 1,204,197 
 
 - 
 
 - 
 
 1,204,200 
 
 Exercises
 of warrants related to private placement transaction (see Note 9) 
 
 150,000 
 
 2 
 
 391,266 
 
 - 
 
 - 
 
 391,268 
 
 Second
 public offering (see Note 9) 
 
 4,500,000 
 
 45 
 
 4,115,643 
 
 - 
 
 - 
 
 4,115,688 
 
 Net
 loss 
 
 - 
 
 - 
 
 - 
 
 - 
 
 ( 1,287,802 
 ) 
 
 ( 1,287,802 
 ) 

 Balances,
 June 30, 2023 
 
 12,917,239 
 
 $ 
 129 
 
 $ 
 21,975,594 
 
 $ 
 - 
 
 $ 
 ( 13,024,599 
 ) 
 
 $ 
 8,951,124 
 
 Balances,
 January 1, 2022 
 
 6,060,187 
 
 $ 
 60 
 
 $ 
 4,842,836 
 
 $ 
 ( 11,226 
 ) 
 
 $ 
 ( 4,624,154 
 ) 
 
 $ 
 207,516 
 
 Stock
 based compensation 
 
 - 
 
 - 
 
 416,951 
 
 - 
 
 - 
 
 416,951 
 
 Net
 loss 
 
 - 
 
 - 
 
 - 
 
 - 
 
 ( 1,206,559 
 ) 
 
 ( 1,206,559 
 ) 

 Balances,
 March 31, 2022 
 
 6,060,187 
 
 $ 
 60 
 
 $ 
 5,259,787 
 
 $ 
 ( 11,226 
 ) 
 
 $ 
 ( 5,830,713 
 ) 
 
 $ 
 ( 582,092 
 ) 

 Stock
 based compensation 
 
 - 
 
 - 
 
 416,951 
 
 - 
 
 - 
 
 416,951 
 
 Collection
 of stock subscription receivable 
 
 - 
 
 - 
 
 - 
 
 6,684 
 
 6,684 
 
 Net
 loss 
 
 - 
 
 - 
 
 - 
 
 - 
 
 ( 1,193,812 
 ) 
 
 ( 1,193,812 
 ) 

 Balances,
 June 30, 2022 
 
 6,060,187 
 
 $ 
 60 
 
 $ 
 5,676,738 
 
 $ 
 ( 4,542 
 ) 
 
 $ 
 ( 7,024,525 
 ) 
 
 $ 
 ( 1,352,269 
 ) 

 See
accompanying Notes to the Financial Statements. 

 3 

 INNOVATIVE
EYEWEAR, INC. 

 CONDENSED
STATEMENTS OF CASH FLOWS 

 For
the six months ended June 30, 2023 and 2022 

 (Unaudited) 

 2023 
 
 2022 
 
 Operating
 Activities 
 
 Net
 Loss 
 
 $ 
 ( 2,718,612 
 ) 
 
 $ 
 ( 2,400,371 
 ) 

 Adjustments
 to reconcile net loss to net cash used in operating activities: 
 
 Amortization 
 
 17,816 
 
 4,181 
 
 Depreciation 
 
 28,979 
 
 7,899 
 
 Non
 cash interest expense 
 
 3,036 
 
 64,512 
 
 Stock
 based compensation expense 
 
 384,251 
 
 833,902 
 
 Expenses
 paid by parent and affiliates 
 
 151,467 
 
 474,047 
 
 Provision
 for doubtful accounts 
 
 5,814 
 
 - 
 
 Changes
 in operating assets and liabilities: 
 
 Accounts
 receivable 
 
 ( 26,211 
 ) 
 
 ( 143,487 
 ) 

 Accounts
 payable and accrued expenses 
 
 ( 129,714 
 ) 
 
 53,042 
 
 Prepaid
 expenses 
 
 ( 60,603 
 ) 
 
 14,770 
 
 Inventory 
 
 ( 734,042 
 ) 
 
 ( 44,607 
 ) 

 Other
 current assets 
 
 ( 10,000 
 ) 
 
 - 
 
 Other
 current liabilities 
 
 ( 184,701 
 ) 
 
 - 
 
 Contract
 assets and liabilities 
 
 1,560 
 
 - 
 
 Net
 cash flows from operating activities 
 
 ( 3,270,960 
 ) 
 
 ( 1,136,112 
 ) 

 Investing
 Activities 
 
 Purchases
 of financial investments (debt securities) 
 
 ( 1,949,204 
 ) 
 
 - 
 
 Patent
 costs 
 
 ( 131,622 
 ) 
 
 ( 38,512 
 ) 

 Purchases
 of property and equipment 
 
 ( 34,435 
 ) 
 
 ( 40,394 
 ) 

 Capitalized
 software expenditures 
 
 - 
 
 ( 18,848 
 ) 

 Net
 cash flows from investing activities 
 
 ( 2,115,261 
 ) 
 
 ( 97,754 
 ) 

 Financing
 Activities 
 
 Proceeds
 from second public offering (see Note 9) 
 
 4,115,688 
 
 - 
 
 Proceeds
 from exercises of warrants related to private placement transaction (see Note 9) 
 
 391,268 
 
 - 
 
 Proceeds
 from exercise of warrants by stockholders (see Note 9) 
 
 2,736,450 
 
 - 
 
 Proceeds
 from exercise of stock options 
 
 17,650 
 
 - 
 
 Collection
 of stock subscription receivable 
 
 - 
 
 6,684 
 
 Payment
 of deferred offering costs 
 
 - 
 
 ( 62,667 
 ) 

 Proceeds
 from related party convertible debt 
 
 - 
 
 1,245,000 
 
 Repayment
 of related party convertible debt 
 
 ( 109,499 
 ) 
 
 - 
 
 Net
 cash flows from financing activities 
 
 7,151,557 
 
 1,189,017 
 
 Net
 Change In Cash 
 
 1,765,336 
 
 ( 44,849 
 ) 

 Cash
 at Beginning of Period 
 
 $ 
 3,591,109 
 
 $ 
 79,727 
 
 Cash
 at End of Period 
 
 $ 
 5,356,445 
 
 $ 
 34,878 
 
 Significant
 Non-Cash Transactions 
 
 Expenses
 paid for by Parent reported as increase in Due to Parent and Affiliates and related party convertible debt 
 
 151,467 
 
 474,047 
 
 See
accompanying Notes to the Financial Statements. 

 4 

 INNOVATIVE
EYEWEAR, INC. 

 NOTES
TO THE FINANCIAL STATEMENTS 

 June 30,
2023 and 2022

(Unaudited) 

 NOTE
1 – GENERAL INFORMATION 

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

 NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

 Basis
of Presentation 

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

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

 Use
of Estimates 

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

 Cash
Equivalents 

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

 Investments 

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

 5 

 Receivables
and Credit Policy 

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

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

 Inventory 

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

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

 Intangible
Assets 

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

 Capitalized
Software 

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

 Property
and Equipment 

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

 Income
Taxes 

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

 6 

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

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

 Stock-Based
Compensation 

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

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

 Revenue
Recognition 

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

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

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

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

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

 7 

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

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

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

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

 ● 
 30
 days for sales made through Amazon 

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

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

 Shipping
and Handling 

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

 NOTE
3 – GOING CONCERN 

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

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

 NOTE
4 – INCOME TAX PROVISION 

 At
the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This
estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods.
The Company has no t recorded a tax provision for the three and six months ended June 30, 2023 and 2022 as it maintains a full valuation
allowance against its net deferred tax assets. 

 8 

 NOTE
5 – INTANGIBLE ASSETS 

 Schedule of intangible assets 
 
 June 30, 
 
 December 31, 
 
 Finite-lived
 intangible assets 
 
 2023 
 
 2022 
 
 Patent
 Costs 
 
 $ 
 287,818 
 
 $ 
 156,196 
 
 Intangible
 assets, gross 
 
 287,818 
 
 156,196 
 
 Less:
 Accumulated amortization 
 
 ( 36,455 
 ) 
 
 ( 18,639 
 ) 

 Intangible
 assets, net 
 
 $ 
 251,363 
 
 $ 
 137,557 
 
 Amortization
expense totalled $ 11,860 and $ 17,816 for the three and six months ended June 30, 2023, respectively. 

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

 NOTE
6 – RELATED PARTY ADVANCES AND OTHER INTERCOMPANY AGREEMENTS 

 Convertible
Note and Due to Parent and Affiliates 

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

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

 Management
Service Agreement 

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

 The
related party currently provides the following services: 

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

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

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

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

 Rent
of Office Space 

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

 9 

 NOTE
7 – COMMITMENTS AND CONTINGENCIES 

 Legal
Matters 

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

 Leases 

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

 License
Agreements 

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

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

 See
related party management services agreement discussed in Note 6. 

 10 

 NOTE
8 – STOCK-BASED COMPENSATION 

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

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

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

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

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

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

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

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

 Schedule of number of share options and the weighted average exercise price outstanding 
 
 Average
 Exercise
 price per share
 $ 
 
 Options

 (Number) 
 
 As at January 1, 2023 
 
 2.61 
 
 2,332,500 
 
 Granted 
 
 1.28 
 
 648,000 
 
 Exercised 
 
 1.01 
 
 ( 316,000 
 ) 

 Forfeited / Expired 
 
 3.56 
 
 ( 200,000 
 ) 

 As
 at June 30, 2023 
 
 2.39 
 
 2,464,500 
 
 Exercisable
 as at June 30, 2023 
 
 2.65 
 
 1,485,231 
 
 As
of June 30, 2023, the weighted average remaining contractual life of options was 2.22 years for outstanding options, and 1.58 years
for exercisable options. 

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

 11 

 NOTE
9 – STOCKHOLDERS’ EQUITY 

 Second
Public Offering 

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

 Warrants 

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

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

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

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

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

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

 Schedule of stockholders' equity note, warrants or rights 
 
 Warrant
 Type 
 
 Warrants

 Outstanding 
 
 Exercise

Price 
 
 Expiration

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

 NOTE
10 – EARNINGS PER SHARE 

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

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

 Schedule of calculation of net earnings per common share - basic and diluted 
 
 For
 the
 three months ended 
 
 For
 the
 six months ended 
 
 June 30,

 2023 
 
 June 30,

 2022 
 
 June 30,

 2023 
 
 June 30,

 2022 
 
 Basic
 and diluted: 
 
 Net
 loss 
 
 $ 
 ( 1,287,802 
 ) 
 
 $ 
 ( 1,193,812 
 ) 
 
 $ 
 ( 2,718,612 
 ) 
 
 $ 
 ( 2,400,371 
 ) 

 Weighted-average
 number of common shares 
 
 8,570,035 
 
 6,060,187 
 
 8,072,340 
 
 6,060,187 
 
 Basic
 and diluted net loss per common share 
 
 $ 
 ( 0.15 
 ) 
 
 $ 
 ( 0.20 
 ) 
 
 $ 
 ( 0.34 
 ) 
 
 $ 
 ( 0.40 
 ) 

 13 

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

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

 Overview 

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

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

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

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

 1. 
 Music
 playback and call time were extended to 12 hours, a 50% increase over the version 1.0 and making Lyte one of the longest-lasting
 true wireless audio devices on the market. 

 2. 
 A
 four-speaker array was introduced, improving audio fidelity significantly compared to the version 1.0 model and many other smart
 eyewear products. 

 3. 
 Styling
 of the frames deployed the Company’s new expert design team, producing smart eyewear that follows trending styles in 2023 in
 the traditional eyeglasses and sunglasses markets. The collection features many style firsts for a smart eyewear collection designed
 in the United States, that have proven commercially successful in traditional eyewear, such as titanium rose gold and champagne crystal
 styles for women, and gunmetal gray and acetate aviator styles for men. 

 4. 
 The
 upgrade to a Bluetooth 5.2 chip improves connection stability, especially for older devices. 

 5. 
 Responsiveness
 of touch controls improved with an audible tone added to alert the wearer when they have used a command successfully. 

 6. 
 The
 transition of the LED status indicators to the interior of the temples, a change based on consumer feedback, makes the product more
 discreet. 

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

 14 

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

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

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

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

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

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

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

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

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

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

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

 15 

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

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

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

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

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

 Key
Factors Affecting Performance 

 Expansion
of retail points of purchase 

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

 Retail
store client retention and re-orders 

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

 Investing
in business growth 

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

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

 16 

 Key
Performance Indicators 

 Store
Count (B2B) 

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

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

 Customer
Ratings (B2C) 

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

 Number
of online orders (B2C) 

 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 June
30, 2023, we had 15,422 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.

 Components
of Results of Operations 

 Net
Revenue 

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

 Our
flagship product line increased in price with the launch of the version 2.0 models, from $149 to $199 on acetate models, and $179 to
$229 on titanium models for non-prescription glasses across all of our online channels. In addition, we have introduced a minimum advertised
price on the new models of $139 and $159, respectively, to support our retail partners with guaranteed minimum pricing. 

 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 $450 for the latest Transitions® progressive lens. Glasses with prescription lenses are only
available through our website Lucyd.co, while our sales through Amazon and to our retail partners only include non-prescription glasses
with rare exceptions such as a reseller ordering a customized unit for display purposes. 

 U.S.
consumers enjoy free USPS first class postage, 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 Lucyd.co website and Amazon) are not recharged to customers. We charge applicable
state sales taxes for both online channels and all other marketplaces on which we 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 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. 

 17 

 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 on one of our e-commerce channels, these costs include (i) product costs held 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 online store, we save approximately 12-15% on marketplace fees than when consumers place
their orders directly from third-party platforms like Amazon and eBay. 

 We
expect our cost of goods sold to fluctuate as a percentage of net revenue primarily due to product mix, customer preferences and resulting
demand, customer shipping costs, and management of our inventory and merchandise mix. 

 Over
time we expect our total cost of goods sold on a per unit basis to decrease as a result of an increase in scale. Increase in scale is
achieved as a result of increase in volumes from both business to consumer and business to business (retail store) orders. We continue
to expand our products with line extensions and new models and broaden our presence in retail stores carrying our products. 

 Gross
Profit and Gross Margin 

 We
define gross profit as net revenues less cost of goods sold. Gross margin is gross profit expressed as a percentage of net revenues.
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. 

 We
anticipate 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. 

 Gross
margins in 2022 and the first six months of 2023 were adversely impacted by supply chain challenges with our previous manufacturer. We
received a high number of defective frames in 2022 despite our rigorous inspection procedure, which involves a third-party inspection
agency reviewing 100% of new units as they come off the production line, testing every pair of glasses for sound quality and basic functionality.
Despite this, a large number of inaccurately-tested frames made it to our customers, precipitating a large number of replacement units
and lenses which negatively impacted margins. To address this problem, we immediately underwent a new manufacturer search program in
2022 which we believe yielded two higher-quality factories, that are now producing all of our glasses to a higher quality standard. 

 Operating
Expenses 

 Our
operating expenses consist primarily of: 

 ● 
 general & administrative
 expenses that include primarily consulting and payroll expenses, IT & software, legal, postage and non-customer product shipping,
 and other administrative expense; 

 ● 
 sales
 and marketing expenses including cost of online and TV advertising, marketing agency fees, influencers, trade shows, and other initiatives; 

 ● 
 related
 party management fees for a range of back-office services provided by Tekcapital LLC; 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. 

 18 

 Interest
and Other Income, Net 

 Interest
and other income, net, consists primarily of interest expense paid on convertible note loan due to the Parent. 

 Provision
for Income Taxes 

 Provision
for income taxes consists of income taxes related to foreign and domestic federal and state jurisdictions in which we conduct business,
adjusted for allowable credits, deductions, and valuation allowance against deferred tax assets. 

 Results
of Operations 

 Three
Months Ended June 30, 2023 and 2022 

 The
following table summarizes our results of operations for the three months ended June 30, 2023 (the “current quarter”)
and the three months ended June 30, 2022 (the “prior quarter”): 

 Three
 months ended
 June 30,
 2023 
 
 %
 of
 Revenues 
 
 Three
 months ended
 June 30,
 2022 
 
 %
 of
 Revenues 
 
 Change

 between the
 three months ended
 June 30,
 2023 and 2022 
 
 %

 Change 
 
 Revenues,
 net 
 
 $ 
 169,929 
 
 100 
 % 
 
 $ 
 204,741 
 
 100 
 % 
 
 $ 
 (34,812 
 ) 
 
 -17 
 % 

 Less:
 Cost of Goods Sold 
 
 (199,745 
 ) 
 
 118 
 % 
 
 (161,494 
 ) 
 
 79 
 % 
 
 (38,251 
 ) 
 
 24 
 % 

 Gross
 (Deficit) Profit 
 
 (29,816 
 ) 
 
 -18 
 % 
 
 43,247 
 
 21 
 % 
 
 (73,063 
 ) 
 
 -169 
 % 

 Operating
 Expenses: 
 
 General
 and administrative 
 
 (968,354 
 ) 
 
 570 
 % 
 
 (710,135 
 ) 
 
 347 
 % 
 
 (258,219 
 ) 
 
 36 
 % 

 Sales
 and marketing 
 
 (103,643 
 ) 
 
 61 
 % 
 
 (391,919 
 ) 
 
 191 
 % 
 
 288,276 
 
 -74 
 % 

 Research
 & development 
 
 (197,478 
 ) 
 
 116 
 % 
 
 (52,560 
 ) 
 
 26 
 % 
 
 (144,918 
 ) 
 
 276 
 % 

 Related
 party management fee 
 
 (35,000 
 ) 
 
 21 
 % 
 
 (35,000 
 ) 
 
 17 
 % 
 
 - 
 
 0 
 % 

 Total
 Operating Expenses 
 
 (1,304,475 
 ) 
 
 768 
 % 
 
 (1,189,614 
 ) 
 
 581 
 % 
 
 (114,861 
 ) 
 
 10 
 % 

 Other
 Income (Expense) 
 
 47,586 
 
 -28 
 % 
 
 (2,059 
 ) 
 
 1 
 % 
 
 49,645 
 
 -2411 
 % 

 Interest
 Expense 
 
 (1,097 
 ) 
 
 1 
 % 
 
 (45,386 
 ) 
 
 22 
 % 
 
 44,289 
 
 -98 
 % 

 Total
 Other Income (Expense) 
 
 46,489 
 
 -27 
 % 
 
 (47,445 
 ) 
 
 23 
 % 
 
 93,934 
 
 -198 
 % 

 Net
 Loss 
 
 $ 
 (1,287,802 
 ) 
 
 758 
 % 
 
 $ 
 (1,193,812 
 ) 
 
 583 
 % 
 
 $ 
 (93,990 
 ) 
 
 8 
 % 

 19 

 Revenue 

 Our
revenues for the three months ended June 30, 2023 were $169,929, representing a decrease of approximately 17% as compared to revenues
of $204,741 during the three months ended June 30, 2022. Our revenue is generated entirely from sales of eyewear products, namely smart
frames, lenses, and accessories. The decline in revenue was primarily driven by significant discounts offered by key competing products
including the Amazon Echo Frames, Ray Ban Stories, and Bose Frames, all of which dropped their prices to or below the price point of
Lucyd frames during temporary and extended discount sales .
The power of these recognizable brands coupled with aggressive discounting meant that the competitive landscape was more saturated compared
to 2021. To help respond to the ramp-up in the competition’s discounts, the Company introduced several promotions in 2023 to support
our continued market share growth. Additionally, the reduction in revenue is partly attributable to a significant decrease in spending
on marketing by the Company compared to 2022, due to the Company’s decision to preserve more for our marketing budget for the fourth
quarter of 2023, when we anticipate the Company’s significantly improved Lyte 2.0 XL and Nautica Powered by Lucyd product lines
will be available. 

 On
a sequential quarter basis, our current quarter net revenues grew approximately 17% from the three months ended March 31, 2023. 

 For
the three months ended June 30, 2023, approximately 32% of sales were processed on our online store (Lucyd.co), 36% on Amazon, and
32% with reseller partners. This sales channel mix negatively impacted our revenue for the period as compared with the prior 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
June 30, 2023, we generated $137,686 of revenue from sales of non-prescription frames and accessories, and $30,784 from sales of
frames with prescription lenses. All of the $62,212 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 $52,389 in online sales generated through Lucyd.co,
$30,784 was related to frames with prescription lenses and $21,605 was related to glasses with non-prescription lenses. E-commerce sales
are the most material portion of our sales to date. 

 For
the three months ended June 30, 2022, approximately 35% of sales were processed on our online store (Lucyd.co), 36% on Amazon, and
29% with retail store partners. For the three months ended June 30, 2022, we generated $161,107 of revenue from sales of non-prescription
frames, and $43,634 from sales of frames with prescription lenses. All of the $73,959 in sales generated on Amazon during the period
were for non-prescription frames, as we only offer prescription lenses through our website. Of the $71,910 in online sales generated
through Lucyd.co, $8,128 was related to frames with prescription lenses and $63,782 was related to glasses with non-prescription lenses. 

 Despite
the decline in net revenues, there have recently been several notable advances in our technology products and partnerships which speak
to the potential to grow revenues well beyond the current level: 

 ● 
 Key
 hardware improvements include the development of a new proprietary four-speaker audio temple for the Lucyd Lyte flagship line, the
 increase in battery life of all of our flagship to 12 hours of playback, which is longer than the vast majority of wireless audio
 products, and design improvements to the frames overall that were the result of hiring two new expert eyewear designers. 

 ● 
 Key
 software improvements include the development of a live broadcasting feature on the Company’s proprietary Vyrb mobile app,
 the ability to import any form of audio content into Vyrb to support the migration of existing audio content creators to the platform,
 and the introduction of the Company’s Digital Try-on Display into dozens of retail stores, to offer an immersive product experience
 for in-store shoppers at our partner locations. 

 ● Our partnership with Authentic Brands Group,
which provides us with the right to use the Nautica, Eddie Bauer, and Reebok brands, foretells significantly improved consumer adoption,
due to the global popularity of these brands and existing traditional eyewear customers who already buy eyewear under these three brands.
The anticipated upcoming launch of the Nautica Powered by Lucyd line later this year, made possible by the exclusive agreement with Authentic
Brands Group, represents significant revenue potential. We intend to partner with Nautica-branded sales channels and expect to be able
to increase our presence in other retail channels via the Nautica brand, a household name in dozens of countries. We anticipate rolling
out our Nautica Powered by Lucyd line on Nautica.com and in Nautica stores in 2024. 

 Over
time, we expect that the online portion of our sales will gradually decrease on a percentage basis but remain an important component
of our total sales as we onboard more retail stores. We currently have a retail store presence in over 280 stores. 

 20 

 Cost
of goods sold 

 Our
total cost of goods sold increased to $199,745 for the three months ended June 30, 2023, as compared to $161,494 for the three months
ended June 30, 2022. This increase is primarily attributable to significant custom duties and importation fees paid during the current
quarter, as well as higher Amazon fees, partially offset by lower cost of frames as a result of the decrease in sales volumes during
the current quarter as compared with the prior quarter. Additionally, a large number of replacement units provided for customer retention
due to the supply chain challenges mentioned above, and free units supplied for unbiased reviews and influencer content creation purposes,
contributed significantly to the increase in cost of goods sold. Furthermore, smart eyewear is a highly specialized product that has
the combined specifications and component requirements of a wireless Bluetooth headset and optical eyewear in one, meaning it is expensive
to manufacture in small quantities of a few thousand at a time. As demand and awareness for smart eyewear continues to grow over time,
the Company expects that its per unit cost will decrease as its order volumes increase. 

 Cost
of goods sold for the three months ended June 30, 2023 included the cost of frames of $71,564; cost of prescription lenses incurred
with our third-party vendor of $33,092; affiliate referral fees, sales commission expense, and e-commerce platform fees of $50,794; and
custom duties and importation fees of $44,295. Out of $199,745 of our total cost of goods sold for the three months ended June 30,
2023, $33,092 related to orders with prescription lenses, while $166,653 pertained to non-prescription orders. 

 Cost
of goods sold for the three months ended June 30, 2022 included the cost of frames of $94,230; cost of prescription lenses incurred
with our third-party vendor of $20,661; and affiliate referral fees, sales commission expense, e-commerce platform fees of $44,406. Of
our total cost of goods sold for the three months ended June 30, 2022, $19,584 related to orders with prescription lenses, while
$141,910 pertained to non-prescription orders. 

 Over
time, we expect third-party retail stores to become our primary sales channel as we onboard additional stores. Consequently, we expect
sales of prescription lens, offered through our website to decrease, as our third-party retail partners outfit our Lyte frames with more
prescriptions. As a result, over time we expect prescription lens costs to gradually decrease as a percentage of our overall cost of
goods sold. We anticipate growth in both wholesale and e-commerce channel sales in the second half of 2023 ,
and we also expect corresponding growth in total cost of goods sold, primarily from additional product related costs. We believe this
growth will be attributable to several factors: our products continue to improve with each successive launch, notably in terms of comfort
and sound quality; consumer awareness of our category continues to grow with smartglass sales overall increasing every year; and finally
the Company is deploying new marketing tactics focused heavily on influencer content which we believe will better inform consumers about
our products. 

 Gross (deficit) profit 

 Our
gross deficit was $29,816 for the three months ended June 30, 2023, as compared to a gross profit of $43,247 for the three months ended
June 30, 2022. This decrease was primarily due to the combination of increased returns and concessions made for customer retention, significant
discounts offered during the current quarter in order to help drive unit sales and grow our market share, and the aforementioned significant
custom duties and importation fees paid during the current quarter, partially offset by modest growth in the wholesale and Lucyd.co sales
channels. All told however, this is a minimal loss for a company producing significant innovations in both wearable hardware and software,
and management believes that the Company can be successful in the future with moderate advances in consumer sentiment surrounding smart
eyewear, via the further enhancement of the AI capabilities of our glasses with the Lucyd app, and via the powerful multi-brand partnership
with Authentic Brands Group. 

 We
expect gross profit for the fiscal year ending December 31, 2023 to improve, primarily due to economies of scale from large, anticipated
wholesale / retail partner orders. As we expect retail stores to become our primary sales channel as we on-board new stores, we also
expect our overall gross margin to be better than that of the wholesale channel, since no e-commerce platform fees or prescription lens
costs apply in wholesale channels. 

 21 

 Operating
expenses 

 Our
operating expenses increased by 10% to $1,304,475 for the three months ended June 30, 2023, as compared to $1,189,614 for the three
months ended June 30, 2022. 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 36% to $968,354 for the three months ended June 30, 2023, as compared to $710,135 for
the three months ended June 30, 2022. This increase was primarily due to an increase in employee-related costs, resulting from increases
in our staffing and new employment agreements entered into with executives in the latter portion of 2022. 

 Sales
and marketing expenses 

 Our
sales and marketing expenses decreased by 74% to $103,643 for the three months ended June 30, 2023, as compared to $391,919 for
the three months ended June 30, 2022. The decrease was primarily due to the reversal of approximately $309,000 of previously-recognized
stock-based compensation for certain individuals within the Company’s sales and marketing function whose awards expired without
ever having vested, as the related performance conditions (sales quotas) for those awards were not met. This decrease was partially offset
by costs associated with ongoing efforts to further develop the Company’s brand presence and awareness across all of our sales
channels. 

 We
anticipate these costs to further increase as we continue to invest in and build our brand, expand the number of e-commerce platforms
on which we sell our products, invest in retail store co-op marketing programs to help educate our in-store customers about Lucyd Lytes,
and increase our brand’s physical presence and role in the eyewear industry. 

 Research
and development costs 

 Our
research and development costs increased by 276% to $197,478 for the three months ended June 30, 2023, as compared to $52,560 for the
three months ended June 30, 2022. This increase was primarily attributable to an expansion of the Company’s software initiatives
to include the Lucyd app, and therefore increased the portion of the work hours spent by the CEO and CTO (as well as a portion of their
stock-based compensation expense) on new software development on the Vyrb app, the new Lucyd app, and our glasses, as well as external
coding teams we have engaged to write the programming for our software and enhance our software user experiences with code updates. Some
planned features include the ability to access AI other than ChatGPT from the Lucyd app, the addition of an audio content library for
users to enjoy, and further enhancements to the core AI functionality. In terms of the Vyrb app, we are planning launching a full peer-to-peer
content marketplace in the style of Patreon, but with a focus on audio and content designed on and for wearables. Additionally, the Company
hired a new full-time software engineer, and spent significant amounts on new product molds to enhance our core product offering. 

 Related
party management fee 

 Our
related party management fee was $35,000 for each of the three months ended June 30, 2023 and 2022, based on the terms of the management
services agreement between us and an affiliate of our Parent. 

 Other
income (expense) 

 Total
other income (expense), net in the three months ended June 30, 2023 was $46,489, and was primarily comprised of refunds of certain
amounts that had been previously charged to the Company from the Parent and Affiliates in prior periods. 

 Total
other income (expense) net in the three months ended June 30, 2021 was $(47,445), and was primarily comprised of interest expense
on intercompany financing from the Parent and Affiliates in the form of borrowings under a convertible note. The convertible notes were
repaid in full during the six months ended June 30, 2023, and there were no amounts remaining outstanding under such convertible
notes as of June 30, 2023. 

 22 

 Six
Months Ended June 30, 2023 and 2022 

 The
following table summarizes our results of operations for the six months ended June 30, 2023 (the “current year period”)
and the six months ended June 30, 2022 (the “prior year period”): 

 Six
 months ended
 June 30,
 2023 
 
 %
 of
 Revenues 
 
 Six
 months ended
 June 30,
 2022 
 
 %
 of
 Revenues 
 
 Change

 between the
 six months ended
 June 30,
 2023 and 2022 
 
 %

 Change 
 
 Revenues,
 net 
 
 $ 
 314,850 
 
 100 
 % 
 
 $ 
 440,763 
 
 100 
 % 
 
 $ 
 (125,913 
 ) 
 
 -29 
 % 

 Less:
 Cost of Goods Sold 
 
 (334,375 
 ) 
 
 106 
 % 
 
 (323,126 
 ) 
 
 73 
 % 
 
 (11,249 
 ) 
 
 3 
 % 

 Gross
 (Deficit) Profit 
 
 (19,525 
 ) 
 
 -6 
 % 
 
 117,637 
 
 27 
 % 
 
 (137,162 
 ) 
 
 -31 
 % 

 Operating
 Expenses: 
 
 General
 and administrative 
 
 (1,962,126 
 ) 
 
 623 
 % 
 
 (1,317,108 
 ) 
 
 299 
 % 
 
 (645,018 
 ) 
 
 146 
 % 

 Sales
 and marketing 
 
 (362,940 
 ) 
 
 115 
 % 
 
 (976,714 
 ) 
 
 222 
 % 
 
 613,774 
 
 -139 
 % 

 Research
 & development 
 
 (348,647 
 ) 
 
 111 
 % 
 
 (88,367 
 ) 
 
 20 
 % 
 
 (260,280 
 ) 
 
 59 
 % 

 Related
 party management fee 
 
 (70,000 
 ) 
 
 22 
 % 
 
 (70,000 
 ) 
 
 16 
 % 
 
 - 
 
 0 
 % 

 Total
 Operating Expenses 
 
 (2,743,713 
 ) 
 
 871 
 % 
 
 (2,452,190 
 ) 
 
 556 
 % 
 
 (291,523 
 ) 
 
 66 
 % 

 Other
 Income (Expense) 
 
 47,662 
 
 -15 
 % 
 
 (2,558 
 ) 
 
 50,220 
 
 -11 
 % 

 Interest
 Expense 
 
 (3,036 
 ) 
 
 1 
 % 
 
 (63,261 
 ) 
 
 14 
 % 
 
 60,225 
 
 -14 
 % 

 Total
 Other Income (Expense) 
 
 44,626 
 
 -14 
 % 
 
 (65,819 
 ) 
 
 15 
 % 
 
 110,445 
 
 -25 
 % 

 Net
 Loss 
 
 $ 
 (2,718,612 
 ) 
 
 863 
 % 
 
 $ 
 (2,400,371 
 ) 
 
 545 
 % 
 
 $ 
 (318,241 
 ) 
 
 72 
 % 

 Revenue 

 Our revenues for the six months ended June 30,
2023 were $314,850, representing a decrease of approximately 29% as compared to revenues of $440,763 during the six months ended June
30, 2022. Our revenue is generated entirely from sales of eyewear products, namely smart frames, lenses, and accessories. The decline
in revenue was primarily attributable to significant discounts offered during the current year period in order to help drive unit sales
and grow our market share, which accounted for slightly more than half of the total revenue decline. Key competing products, including
the Amazon Echo Frames, Ray Ban Stories, and Bose Frames, dropped their prices to or below the price point of Lucyd frames during temporary
and extended discount sales; the power of these recognizable brands coupled with aggressive discounting meant that the competitive landscape
was more saturated compared to 2021. To help respond to the ramp-up in the competition’s discounts, we introduced several promotions
in 2023 to support our continued market share growth. The decline in revenue was also partially attributable to (i) lower revenues generated
through the wholesale sales channel, which accounted for almost 40% of the total revenue decline, due in large part to a significant
one-time sale to a retail store reseller / distributor in the prior year period, which was non-recurring in the current year period,
and (ii) the negative impact of manufacturing defects as discussed above, along with shipping delays of new product during the first
quarter as a result of factory shutdowns related to COVID-19 outbreaks in China.

 For
the six months ended June 30, 2023, approximately 33% of sales were processed on our online store (Lucyd.co), 34% on Amazon, and
33% with reseller partners. For the six months ended June 30, 2023, we generated $265,689 of revenue from sales of non-prescription
frames and accessories, and $47,702 from sales of frames with prescription lenses. All of the $107,257 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 $102,657
in online sales generated through Lucyd.co, $47,702 was related to frames with prescription lenses and $54,955 was related to glasses
with non-prescription lenses. E-commerce sales are the most material portion of our sales to date. 

 23 

 For
the six months ended June 30, 2022, approximately 25% of sales were processed on our online store (Lucyd.co), 34% on Amazon, and
41% with reseller partners. This sales channel mix negatively impacted our revenue for the period, due to the fact we charge additional
$35 to $275 for our prescription lenses available only on Lucyd.co. For the six months ended June 30, 2022, we generated $368,412
of revenue from sales of non-prescription frames and $72,351 was generated from sales of frames with prescription lenses. All of the
$135,534 in sales generated on Amazon.com during the period were for non-prescription frames as we only offer prescription lenses through
our website. Of the $124,740 in online sales generated through Lucyd.co, $35,508 related to frames with prescription lenses and $89,232
of glasses sold were with non-prescription lenses. Ecommerce sales are the most material portion of our sales to date. 

 Despite
the decline in net revenues, there have recently been several notable advances in our technology products and partnerships which speak
to the potential to grow revenues well beyond the current level: 

 ● 
 Key
 hardware improvements include the development of a new proprietary four-speaker audio temple for the Lucyd Lyte flagship line, the
 increase in battery life of all of our flagship to 12 hours of playback, which is longer than the vast majority of wireless audio
 products, and design improvements to the frames overall that were the result of hiring two new expert eyewear designers. 

 ● 
 Key
 software improvements include the development of a live broadcasting feature on the Company’s proprietary Vyrb mobile app,
 the ability to import any form of audio content into Vyrb to support the migration of existing audio content creators to the platform,
 and the introduction of the Company’s Digital Try-on Display into dozens of retail stores, to offer an immersive product experience
 for in-store shoppers at our partner locations. 

 ● Our partnership with Authentic Brands Group,
which provides us with the right to use the Nautica, Eddie Bauer, and Reebok brands, foretells significantly improved consumer adoption,
due to the global popularity of these brands and existing traditional eyewear customers who already buy eyewear under these three brands.
The anticipated upcoming launch of the Nautica Powered by Lucyd line later this year, made possible by the exclusive agreement with Authentic
Brands Group, represents significant revenue potential. We intend to partner with Nautica-branded sales channels and expect to be able
to increase our presence in other retail channels via the Nautica brand, a household name in dozens of countries. We anticipate rolling
out our Nautica Powered by Lucyd line on Nautica.com and in Nautica stores in 2024. 

 Over
time, we expect that the online portion of our sales will gradually decrease on a percentage basis but remain an important component
of our total sales as we onboard more retail stores. We currently have a retail store presence in over 280 stores. 

 Cost
of goods sold 

 Our
total cost of goods sold increased to $334,375 for the six months ended June 30, 2023, as compared to $323,126 for the six months
ended June 30, 2022. This increase is primarily attributable to significant custom duties, importation fees, and quality assurance
inspection fees paid during the current year period, largely offset by lower cost of frames. Smart eyewear is a highly specialized product
that has the combined specifications and component requirements of a wireless Bluetooth headset and optical eyewear in one, meaning it
is expensive to manufacture in small quantities of a few thousand at a time. As demand and awareness for smart eyewear continues to grow
over time, the Company expects that its per unit cost will decrease as its order volumes increase. 

 Cost
of goods sold for the six months ended June 30, 2023 notably included, but was not limited to, the cost of frames of $136,303; cost
of prescription lenses incurred with our third-party vendor of $55,215; affiliate referral fees, sales commission expense, and e-commerce
platform fees of $67,382; custom duties and importation fees of $44,295; and quality assurance costs related to our products sold of
$11,700. Out of $334,375 of our total cost of goods sold for the six months ended June 30, 2023, $55,215 related to orders with
prescription lenses, while $279,159 pertained to non-prescription orders. 

 Cost
of goods sold for the six months ended June 30, 2022 included, but were not limited to, the cost of frames of $195,818; cost of
prescription lenses incurred with our third-party vendor of $55,081; and affiliate referral fees, sales commission expense, and e-commerce
platform fees of $69,987. Out of $323,126 of our total cost of goods sold for the six months ended June 30, 2022, $63,888 related
to orders with prescription lenses, while $259,238 pertained to non-prescription orders. 

 24 

 Over time, we expect third-party retail stores
to become our primary sales channel as we onboard additional stores. Consequently, we expect sales of prescription lenses as a proportion
of total sales to decrease, as our third-party retail partners outfit our Lyte frames with more prescriptions. As a result, over time
we expect prescription lens costs to gradually decrease as a percentage of our overall cost of goods sold. We anticipate growth in both
wholesale and e-commerce channel sales in the second half of 2023, and we also expect corresponding growth in total cost of goods sold,
primarily from additional product related costs. We believe this growth will be attributable to several factors: our products continue
to improve with each successive launch, notably in terms of comfort and sound quality; consumer awareness of our category continues to
grow with smartglass sales overall increasing every year; and finally, we are deploying new marketing tactics focused heavily on influencer
content which we believe will better inform consumers about our products.

 Gross (deficit) profit 

 Our gross deficit was $19,525 for the six months
ended June 30, 2023, as compared to a gross profit of $117,637 for the six months ended June 30, 2022. This decrease was primarily due
to the combination of the aforementioned significant discounts offered during the current year period in order to help drive unit sales
and grow our market share, and the aforementioned significant custom duties and importation fees paid during the current year period,
largely offset by lower costs of frames.

 We
expect gross profit for the fiscal year ending December 31, 2023 to improve, primarily due to economies of scale from large, anticipated
wholesale / retail partner orders. As we expect retail stores to become our primary sales channel as we on-board new stores, we also
expect our overall gross margin to be better than that of the wholesale channel, since no e-commerce platform fees or prescription lens
costs apply in wholesale channels. 

 Operating
expenses 

 Our
operating expenses increased by 66% to $2,743,713 for the six months ended June 30, 2023, as compared to $2,452,190 for the six
months ended June 30, 2022. 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 146% to $1,962,126 for the six months ended June 30, 2023, as compared to $1,317,108
for the six months ended June 30, 2022. This increase was primarily attributable to (i) increased costs associated with being a
publicly-traded company, including but not limited to directors’ remuneration, insurance expense, and public and investor relations,
which resulted in an increase in expense of approximately $320,000, and (ii) an increase of approximately $434,000 in employee-related
costs, resulting from increases in our staffing and new employment agreements entered into with executives in the latter portion of 2022.
These increases were partially offset by a decrease in consulting expenses. 

 Sales
and marketing expenses 

 Our
sales and marketing expenses decreased by 139% to $362,940 for the six months ended June 30, 2023, as compared to $976,714 for the
six months ended June 30, 2022. The decrease was primarily due to (i) the reversal of approximately $309,000 of previously-recognized
stock-based compensation for certain individuals within the Company’s sales and marketing function whose awards expired without
ever having vested, as the related performance conditions (sales quotas) for those awards were not met, and (ii) a temporary pause and
postponement on marketing spending during the first quarter of the 2023 while the Company restructured its e-commerce business. These
restructuring efforts were completed as of March 31, 2023, and since then we have begun to scale back up to our former level of
advertising spend, with a lower average cost of sale as a result of the improved web presence and product improvements. 

 We
anticipate these costs to further increase as we continue to invest in and build our brand, expand the number of e-commerce platforms
on which we sell our products, invest in retail store co-op marketing programs to help educate our in-store customers about Lucyd Lytes,
and increase our brand’s physical presence and role in the eyewear industry. 

 25 

 Research
and development costs 

 Our research and development costs increased
by 59% to $348,647 for the six months ended June 30, 2023, as compared to $88,367 for the six months ended June 30, 2022. This increase
was primarily attributable to a large number of new temple and frontplate molds as we expand our core offering, an expansion of the Company’s
software initiatives to include the Lucyd app, and therefore increased the portion of the work hours spent by the CEO and CTO (as well
as a portion of their stock-based compensation expense) on new software development on the Vyrb app, the new Lucyd app, and our glasses,
as well as the hiring of an additional full-time software engineer to support our CTO. Some planned features for our Lucyd app include
the ability to access AI other than ChatGPT, the addition of an audio content library for users to enjoy, and further enhancements to
the core AI functionality. In terms of the Vyrb app, we are planning launching a full peer-to-peer content marketplace in the style of
Patreon, but with a focus on audio and content designed on and for wearables.

 Related
party management fee 

 Our
related party management fee was $70,000 for each of the six months ended June 30, 2023 and 2022, based on the terms of the management
services agreement between us and an affiliate of our Parent. 

 Other
income (expense) 

 Total
other income (expense), net in the six months ended June 30, 2023 was $44,626, and was primarily comprised of refunds of certain
amounts that had been previously charged to the Company from the Parent and Affiliates in prior periods. 

 Total
other income (expense) net in the six months ended June 30, 2021 was $(65,819), and was primarily comprised of interest expense
on intercompany financing from the Parent and Affiliates in the form of borrowings under a convertible note. The convertible notes were
repaid in full during the six months ended June 30, 2023, and there were no amounts remaining outstanding under such convertible
notes as of June 30, 2023. 

 Liquidity
and Capital Resources 

 Cash
Flow Data: 

 Six
 months ended
 June 30,
 2023 
 
 Six
 months ended
 June 30,
 2022 
 
 Net
 cash flows from operating activities 
 
 $ 
 (3,270,960 
 ) 
 
 $ 
 (1,136,112 
 ) 

 Net
 cash flows from investing activities 
 
 (2,115,261 
 ) 
 
 (97,754 
 ) 

 Net
 cash flows from financing activities 
 
 7,151,557 
 
 1,189,017 
 
 Net
 Change in Cash 
 
 $ 
 1,765,336 
 
 $ 
 (44,849 
 ) 

 Net
cash flows used in operating activities for the six months ended June 30, 2023 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, research
and development, and various costs associated with being a publicly-traded company. Additionally, our operating assets levels grew significantly
as we have procured additional inventory to position us for future anticipated sales growth. 

 Net
cash flows used in investing activities for the six months ended June 30, 2023 are primarily related to the investment of a portion
of the proceeds from our recent capital-raising activities, in order to generate a return on those funds until they are needed, while
also maintaining appropriate liquidity levels. Net cash flows from investing activities also reflect the continuing growth and expansion
of our patent portfolio. 

 Net
cash flows provided by financing activities for the six months ended June 30, 2023 are mainly driven by the various capital-raising
activities undertaken during the current year period, including our second public offering completed in June 2023, and exercises
of warrants by stockholders. 

 26 

 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, as well as proceeds from our various capital-raising activities undertaken
in the six months ended June 30, 2023 (including our second public offering in June 2023, as described in Note 9 of the unaudited condensed
financial statements), funds available under our existing credit facility, and cash flows from operating activities 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,
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. 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 June 30, 2023, we did not have any off-balance sheet arrangements. 

 Critical
Accounting Policies and Significant Developments and Estimates 

 Management’s
discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared
in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred
during the reporting periods, as well as related disclosures. Our estimates are based on our historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions, and any such differences may be material. We believe that
the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate
to the more significant areas involving management’s judgments and estimates. 

 We
believe that our application of accounting policies, and the estimates inherently required therein, are reasonable. We periodically re-evaluate
these accounting policies and estimates and make adjustments when facts and circumstances dictate a change. Historically, we have found
our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using
necessary estimates. 

 Inventory 

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

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

 27 

 Intangible
Assets 

 Intangible
assets relate to: 

 ● 
 Internally-developed and
 licensed utility and design patents. We amortize these assets over the estimated useful life of the patents. 

 ● 
 Capitalized software costs
 incurred due to development of the Vyrb app. We amortize these assets over the estimated useful life of the software application. 

 We
review our intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. 

 Income
Taxes 

 We
are taxed as a C corporation. We comply with Financial Accounting Standards Board (FASB) ASC 740 for accounting for uncertainty in income
taxes recognized in a company’s financial statements, which prescribes a recognition threshold and measurement process for financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized,
a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. FASB ASC 740 also provides guidance
on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. Based on our evaluation, we
have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. We believe that
our income tax positions would be sustained on audit and do not anticipate any adjustments that would result in a material change to
the Company’s financial position. 

 We
have incurred taxable losses since inception but are current in our tax filing obligations. We are not presently subject to any income
tax audit in any taxing jurisdiction. 

 Stock-Based
Compensation 

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

 The
share price volatility at the grant date is estimated using historical stock prices 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. 

 Revenue
Recognition 

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

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

 28 

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

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

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

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

 Our
sales to both retail partners and through our e-commerce channels do not contain any variable consideration. 

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

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

 ● 
 30 days for sales made
 through Amazon 

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

 For
all of our sales, at the time of sale, we establish a reserve for returns, based on historical experience and expected future returns,
which is recorded as a reduction of sales. Additionally, we 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. We recorded an allowance for sales returns of $4,441 and $24,897 as of June 30, 2023 and December 31, 2022, respectively. 

 Shipping
and Handling 

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

 Earnings/loss
per share 

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

 29 

 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 June 30, 2023.

 There was no change
in our internal control over financial reporting during the second quarter of fiscal year 2023 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

 30 

 Part
II. Other Information 

 Item 1.
Legal Proceedings 

 We
are not the subject of any material pending legal proceedings; however, from time to time we may 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,
2022, which was filed with the SEC on March 24, 2023. 

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

 On
April 12, 2023, in connection with an individual’s cashless exercise of 300,000 stock options, 85,638 shares of common stock
were exchanged from that individual in connection with the exercise cost. The 85,638 shares of stock were considered repurchased and
retired by the Company during the three months ended June 30, 2023; the price paid for the shares was $4.40, and the fair value
of the shares repurchased was $376,800. 

 On August 17, 2022, we consummated our initial
public offering of 980,000 units at a price to the public of $7.50 per unit, each unit consisting of one share of the Company’s
common stock, par value $0.00001 per share (the “Common Stock”) and two warrants (the “Warrants”), with each Warrant
exercisable to acquire one share of common stock, pursuant to that certain underwriting agreement, dated as of August 14, 2022 (the “Underwriting
Agreement”), between the Company and Maxim Group LLC, as representative (the “Representative”) of the several underwriters
named in the Underwriting Agreement for aggregate gross proceeds of approximately $7,350,000. In addition, pursuant to the Underwriting
Agreement, the Company granted the Representative a 45-day option to purchase up to 147,000 additional shares of Common Stock, and/or
up to 294,000 additional Warrants, to cover over-allotments in connection with the offering, which the Representative partially exercised
to purchase 294,000 Warrants.

 The securities sold in the offering were registered
under the Securities Act on a registration statement on Form S-1 (No. 333-261616). The SEC declared the registration statement effective
on August 12, 2022.

 Of the gross proceeds received from the initial
public offering, we received approximately $6.1 million, and we paid a total of approximately $588,000 in underwriting discounts and commissions
and $600,000 for other costs and expenses related to the initial public offering. The proceeds from this offering were primarily used
for (i) sales and marketing, (ii) expanding our inventory, (iii) updating our in-store displays, (iv) development of new smart eyewear
styles and sizes, as well as further development and commercialization of the Vyrb app, and (v) working capital and general corporate
purposes.

 Item 3.
Defaults Upon Senior Securities. 

 None. 

 Item 4.
Mine Safety Disclosures. 

 Not
Applicable. 

 Item 5.
Other Information. 

 None. 

 31 

 Item 6.
Exhibits 

 31.1 
 
 Certification
 of Principal Executive Officer of Innovative Eyewear, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 

 31.2 
 
 Certification
 of Principal Financial Officer of Innovative Eyewear, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 

 32.1 
 
 Certification
 of Principal Executive Officer of Innovative Eyewear, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

 32.2 
 
 Certification
 of Principal Financial Officer of Innovative Eyewear, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

 101.INS 
 
 Inline
 XBRL Instance Document 

 101.SCH 
 
 Inline
 XBRL Taxonomy Extension Schema Document. 

 101.CAL 
 
 Inline
 XBRL Taxonomy Extension Calculation Linkbase Document. 

 101.DEF 
 
 Inline
 XBRL Taxonomy Extension Definition Linkbase Document. 

 101.LAB 
 
 Inline
 XBRL Taxonomy Extension Label Linkbase Document. 

 101.PRE 
 
 Inline
 XBRL Taxonomy Extension Presentation Linkbase Document. 

 104 
 
 Cover
 Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). 

 32 

 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:
 August 11, 2023 
 By:
 
 /s/
 Harrison Gross 

 Harrison
 Gross 

 Chief
 Executive Officer 

 (Principal
 Executive Officer) 

 Date:
 August 11, 2023 
 By:
 
 /s/
 Konrad Dabrowski 

 Konrad
 Dabrowski 

 Chief
 Financial Officer 

 (Principal
 Financial Officer and Principal Accounting Officer) 

 33
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
Innovative Eyewear Inc 10-Q
