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Item 7. Management’s Discussion and Analysis

2024-03-25 compared with 2023-03-24 · 287 added, 546 removed, 25 unchanged (97% of the section changed)

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

should read the following discussion and analysis of our financial condition and results of operations together with the accompanying

“Index to Consolidated Financial Statements” included within this Annual Report on Form 10-K.

Except for historical

information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations

are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning factors that are beyond our

develop and sell smart eyeglasses and sunglasses, which are designed to allow our customers to remain connected to their digital lives,

while also offering vision correction and protection.

Our flagship product, Lucyd Lyte, enables the wearer to listen to music, take and

make calls, and use voice assistants to perform many common smartphone tasks hands-free.

Innovative Eyewear owns the exclusive rights

to the Lucyd brand and the Lyte product line.

mission is to Upgrade Your Eyewear ® .

Our smart eyewear is a fusion of headphones with glasses, bringing vision correction

and protection together with digital connectivity and clear audio, while also offering a solution for listening to music outdoors (as

compared to in-ear headphones).

The convenience of having a Bluetooth headset and comfortable glasses in one, especially for those who

are already accustomed to all-day eyewear use, offers a lifestyle upgrade at a price similar to traditional prescription eyewear.

the full launch of Lucyd Lyte in January 2021, we had strong interest and demand from customers in the U.S.

and have since sold

thousands of our smart eyewear.

In order to meet the growing demand for our products, and in an effort to expand our reach, we have engaged

over 180 unique wholesale accounts.

All of our products are designed in Miami, manufactured in Asia, and currently sold through two major

types of channels:

primarily via our website (Lucyd.co) and marketplaces such as Amazon, Bestbuy.com, and DicksSportingGoods.com;

growing network of independent eyewear and sporting goods stores.

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 all of our online channels, with our wholesale pricing

offering volume discounts to these prices.

Please refer to discussion in the Components of Results of Operations for more details regarding

our pricing structure.

are working to expand these channels with national eyewear chains, big box retail stores (electronics, sporting goods, general merchandise)

and specialty retail stores.

view this business model as capital light, by electing not to build our own manufacturing facilities and Company-owned retail distribution,

but rather contract with existing sources of production and proven consumer-facing retail distribution.

of COVID-19 on Our Business

March 11, 2020, the World Health Organization officially declared the outbreak of the COVID-19 virus a “pandemic.” This

contagious disease outbreak has continued to spread across the globe and has had an impact on worldwide economic activity and financial

In light of the uncertain and rapidly evolving situation relating to the spread of COVID-19, we took precautionary measures

intended to minimize the risk of the virus to our employees, by following the CDC guidelines.

Specifically, we set up a system that enabled

our employees to work remotely when it was beneficial for them or when they felt ill.

Additionally, precautionary measures that have

been adopted may negatively affect our ability to sell our products.

This includes, for example, reducing company attendance at trade

Additionally, our product is manufactured in China and shipped from China on a regular basis.

We have not experienced substantial

delays in manufacturing or shipping due to COVID-19;

however, we are exposed to such risk in the future as a potential impact of COVID-19.

More generally, the outbreak of COVID-19 could adversely affect economies and financial markets globally, potentially leading to an economic

downturn, which could decrease consumer spending and adversely affect demand for our products.

Factors Affecting Performance

of retail points of purchase

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

We currently offer an expansive line of 16 different styles and several accessories, with plans to continuously expand this

offering over time.

store client retention and re-orders

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 the Lucyd Digital Try-on Display for our resellers

to help educate their in-store customers about Lucyd Lyte and enable customers to try them on virtually.

This proprietary virtual try

on software and display 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.

in business growth

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.

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.

Performance Indicators

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 250 retail stores selling Lucyd Lyte primarily in the United States

and Canada, across 180 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.

of the retail stores that placed initial stocking orders, either directly or through our wholesale distributors, have also placed follow-on

orders in the few short months since launching our wholesale business in June 2021.

As of December 31, 2022, 28.6% of stores

have re-ordered our product.

Smart eyewear is still a new, emerging category for our optical sales partners.

As such it can be expected

that their sell-through rate is slower compared to traditional eyewear, and we expect many accounts to take some time to familiarize

their clientele with the product category before reordering.

We believe our reorder rate is a positive signal, given the overall lack

of awareness of smart eyewear among consumers.

The fact that a reasonable portion of our retail partners are experiencing enough early

success and sell-through with our products to drive them to reorder, is an indication that success can be had with our product for the

stores willing to put in the effort to merchandise it well, and educate staff and customers about it.

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 virtual try-on kiosks into retail stores, to facilitate customer education and product sell-through.

of online orders (B2C)

our e-commerce business, we track the number of online orders as an indicator of the success of our online marketing efforts.

As of December 31,

2022, we received a total of 11,988 orders from customers online.

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.

You should read the following discussion and analysis of our financial condition and results of operations together with the accompanying “Index to Consolidated Financial Statements” included within this Annual Report on Form 10-K.

Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning factors that are beyond our control.

We develop and sell cutting-edge smart eyeglasses and sunglasses, which are designed to allow our customers to remain connected to their digital lives, while also offering vision correction and protection.

Our flagship product, Lucyd Lyte, enables the wearer to listen to music, take and make calls, and use voice assistants and ChatGPT to perform many common smartphone tasks hands-free.

Our mission is to Upgrade Your Eyewear ® .

Our smart eyewear is a fusion of headphones with glasses, bringing vision correction and protection together with digital connectivity and clear audio, while also offering a solution for listening to music outdoors (as compared to in-ear headphones).

The convenience of having a Bluetooth headset and comfortable glasses in one, especially for those who are already accustomed to all-day eyewear use, offers a lifestyle upgrade at a price most consumers can afford.

Since the initial launch of Lucyd Lyte in 2021, we have sold thousands of our smartglasses, and have significantly upgraded and expanded our product offerings – including the launch of Lucyd Lyte 2.0 and Lyte XL smartglasses in 2023, and most recently with the launch of the Nautica® Powered by Lucyd smart eyewear collection in January 2024.

We plan to further expand our product offerings through the launch of new cobranded collections with Eddie Bauer and Reebok later in 2024.

All of our products are designed in Miami, manufactured in Asia, and currently sold through two major types of channels:

E-commerce – primarily via our website (Lucyd.co) and Amazon.com, as well as through Walmart.com, BestBuy.com, DicksSportingGoods.com, Brookstone.com, and eBay;

A growing network of retail stores, including independent eyewear stores and national eyewear chains – we currently have approximately 350 retail stores selling our products (across just over 300 unique wholesale accounts), and are continually working to expand our network.

We apply a manufacturer suggested retail price (“MSRP”) of $149 – $199 for non-prescription, polarized sunglass, and blue light blocking glasses across all of our online channels, with our wholesale pricing offering volume discounts to these prices.

Please refer to discussion in the Components of Results of Operations for more details regarding our pricing structure.

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

Key Factors Affecting Performance

Expansion of retail points of purchase

In addition to sustained growth of our e-commerce business, our future revenues are correlated positively with our placement of Lucyd glasses in optical stores, as well as sporting goods stores and other specialty stores.

To address this, we have assembled a team with decades of experience in the eyewear industry and are offering a strong co-op marketing program and reordering incentives program.

We currently offer an expansive line of 29 different styles and several accessories, and are in the process of expanding our product offerings to include cobranded eyewear with well-known brands like Nautica, Eddie Bauer, and Reebok.

In total, the Company expects to offer 38 total smart eyewear SKUs across these brands and Lucyd by the end of 2024.

During 2023, we added approximately 136 new wholesale accounts, primarily independent optical stores.

Retail store client retention and re-orders

Our ability to sustain and increase revenue is correlated positively with our ability to receive re-orders from stores, either directly or through our wholesale distributors.

To support our sales to retail stores directly, we offer a strong co-op marketing program that includes free and paid store display materials.

As part of this strategy, we have launched a new modular display system with engaging video screens and audio testing capabilities for our resellers to help educate their in-store customers about Lucyd Lyte and enable customers to try them on.

This proprietary display system is central to our efforts to introduce traditional retail customers to Lucyd eyewear, and we are planning further enhancements to our merchandising displays to enable more immersive experiences.

Additionally, we consistently incorporate retail partner feedback directly into our frames to better serve our end users.

As of December 31, 2023, 45 display systems have been deployed so far to retailers.

Investing in business growth

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

We are offering a strong co-op marketing program with retail stores, and intend to expand our sales, marketing, and brand ambassador teams to broaden our brand awareness and online presence.

Key Performance Indicators

Store Count (B2B)

We believe that one of the key indicators for our business is the number of retail stores onboarded to sell Lucyd Lyte.

We started onboarding our first retail stores in June 2021.

Currently, we have approximately 350 retail stores selling Lucyd Lyte primarily in the United States and Canada, across just over 300 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 2024.

Customer Ratings (B2C)

The Lucyd Lyte version 2.0 product is receiving higher ratings online compared to our previous products, indicating that customers are appreciative of improvements in product design, functionality, and build quality.

Many of our version 2.0 variants carry a 4.0/5 rating or higher, compared to most products with an approximate 3.5/5 rating from our previous collection.

This is a strong signal of positive feedback on our products that indicates our ability to grow and scale with America’s largest online retailer and other platforms.

Number of online orders (B2C)

For our e-commerce business, we track the number of online orders as an indicator of the success of our online marketing efforts.

As of December 31, 2023, we had over 20,000 cumulative total orders from customers online since inception, up from a cumulative total of approximately 12,000 as of December 31, 2022.

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.

of Results of Operations

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.

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 $169 and $199, respectively, to support our retail partners with guaranteed minimum pricing.

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 bifocal 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

consumers enjoy free USPS first class postage, with faster delivery options available for extra cost, for sales processed through our

Components of Results of Operations

Our revenue is generated from the sales of prescription and non-prescription optical glasses and sunglasses, and shipping charges associated with these purchases, which are charged to the customer.

We sell products through our retail store resellers, distributors, on our own website Lucyd.co, and on Amazon.com.

Our newest flagship Lucyd Lyte XL brand frames are priced at $179 on acetate models and $199 on titanium models for non-prescription glasses across all of our online channels.

When adding a prescription lens upgrade to our glasses on the Lucyd.co website, the price can increase from between $40 for a basic clear prescription lens, all the way up to $500 for our proprietary Blueshift Polarized transitional blue light lenses in a progressive format.

Glasses with prescription lenses are provided by the Company through our website Lucyd.co, while our sales through Amazon and to our e-commerce partners only include non-prescription glasses (with rare exceptions, such as a reseller ordering a customized unit for display purposes).

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 sell.

wholesale pricing for eyewear sold to retail store partners and distributors includes volume discounts, due to the nature of large quantity

Any costs associated with fees charged by the online platforms (Shopify for our Lucyd.co website and Amazon.com) are not recharged to customers.

We charge applicable state sales taxes for online channels and all other marketplaces on which sell.

Our wholesale pricing for eyewear sold to retail store partners and distributors includes volume discounts, due to the nature of large quantity orders.

The pricing 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.

of Goods Sold

of goods sold includes the costs incurred to acquire materials, assemble, and sell our finished products.

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 RX glasses,

(iv) merchant fees, (v) fees paid to third-party e-commerce platforms, and (vi) cost of shipping the product to the consumer.

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.

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.

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.

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.

to expand our products with line extensions and new models and broaden our presence in retail stores carrying our products.

Profit and Gross Margin

define gross profit as net revenues less cost of goods sold.

Due to the nature of wholesale retail orders, no e-commerce fees are applicable.

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, compared to 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.

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.

operating expenses consist primarily of:

& administrative expenses that include primarily consulting and payroll expenses, IT

& software, legal, stock compensation expense, postage and non-customer product shipping,

and other administrative expense;

and marketing expenses including cost of online and TV advertising, marketing agency fees,

influencers, trade shows, and other initiatives;

party management fees for a range of back-office services provided by Tekcapital LLC and

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.

and Other Income, Net

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

for Income Taxes

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.

of Operations

Ended December 31, 2022 and 2021

Year ended December 31,

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 half 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, and 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.

These issues were resolved and remediated by the end of the second quarter of 2023, and we do not expect such impacts on our gross margins going forward.

Additionally, in late 2022, the cost of nearly all lenses produced by our supplier increased by approximately 10% from previous levels, which adversely impacted our gross margins in 2023;

we do not anticipate similar increases in the cost of lenses in the foreseeable future.

We have numerous products at different price points which impact the gross margins on each pair sold.

Although price points of Lucyd-branded frames have been reduced from their peak at the launch of the Lyte 2.0 in February 2023, while also costing slightly more to manufacture, the Company has reduced the size of discounts available, and has needed to send fewer warranty replacements due to improvements in product durability and comfort.

Therefore, we do not believe the increase in cost of goods sold has a material effect on our gross margins year over year.

Operating Expenses

Our operating expenses consist primarily of:

general & administrative expenses that include primarily consulting and payroll expenses, IT & software, legal, and other administrative expenses;

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;

research and development expenses related to (i) development of new styles and features of our smart eyewear, (ii) development and improvement of our e-commerce website, and (iii) development of our Vyrb social media app for wearables.

Interest and Other Income, Net

Interest and other income, net, primarily includes interest, dividends, and investment returns from our investments in money market funds and U.S.

Treasury bills, and interest expense paid on convertible note loan due to Tekcapital (which was repaid in full in February 2023).

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

Years Ended December 31, 2023 (“current year”) and December 31, 2022 (“prior year”)

2023 and 2022

Revenues, net

Cost of Goods Sold

Gross Deficit

Operating Expenses:

General & administrative

General and administrative

Sales and marketing

Research and development

Research & development

Related party management fee

2 unchanged sentences

Interest Expense

Total Other Income/(Expense)

revenues for the year ended December 31, 2022, were $659,788, representing a decrease of approximately 4% as compared to revenues

of $690,670 during the year ended December 31, 2021.

Our revenue is generated entirely from sales of eyewear products, namely smart

frames, lenses, and accessories.

The decline in revenue was primarily attributable to several factors, including unfavorable channel

mix as described in the following paragraph, partially offset by higher unit volumes, and favorable price impacts as we increased the

MSRP of our flagship product line with the launch of the version 2.0 models in the current year.

Additionally, due to the relative age

of the version 1.0 models on the market, we deployed significant discounts on those models to assist in inventory turnover.

we experienced an increase in the rate of customer returns due to minor product imperfections that were the result of supplier inaccuracies

in manufacturing.

These manufacturing imperfections have been wholly addressed with our new version 2.0 product line.

In addition, we

anticipate that new licensing agreements which we entered into during 2022 will help to increase our sales in 2023 and beyond.

the year ended December 31, 2022, approximately 32% of sales were processed on our online store (Lucyd.co), 38% on Amazon, and 30%

with reseller partners.

This sales channel mix impacted our revenue for the period, due to the fact we charge an additional $35 to $275

for our prescription lenses available only on Lucyd.co.

For the year ended December 31, 2022, we generated $579,214 of revenue from

sales of non-prescription frames and accessories and $80,574 was generated from sales of frames with prescription lenses.

$252,799 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 $208,477 in online sales generated through Lucyd.co, $80,574 related to frames with prescription lenses

and $127,873 of glasses sold were with non-prescription lenses.

E-commerce sales are the most material portion of our sales to date.

There were several notable advances in the Company’s technology products and partnerships in 2022 which speak to the potential

to grow revenues well beyond the current level.

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.

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.

Company believes that Nautica Powered by Lucyd line launching in 2023, made possible by the exclusive agreement with Authentic Brands

Group for the Nautica brand, represents significant revenue potential in the coming year.

The Company intends to partner with Nautica-branded

sales channels, and expects to be able to increase our presence in other retail channels via the Nautica brand, a household name in dozens

of countries.

the year ended December 31, 2021, approximately 41% of sales were processed on our online store (Lucyd.co), 39% on Amazon and 20%

with retail store partners.

This sales channel mix 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 year ended December 31, 2021, we generated $530,885 of revenue from

sales of nonprescription frames and $159,815 was generated from sales of frames with prescription lenses.

All of the $266,733 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 $282,364 in online sales generated through Lucyd.co, $159,785 related to frames with prescription lenses and $122,579 of glasses

sold were with non-prescription lenses.

Lucyd.co sales are the most material portion of our sales to date, aided by higher price compared

to retail store pricing as well as additional revenue recorded due to sales of prescription lenses.

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 pursued growth in retail store segment in the year ended 2021 and during 2022, growing our

retail store presence to over 250 stores as of December 31, 2022.

of goods sold

total cost of goods sold increased to $716,077 for the year ended December 31, 2022, as compared to $542,416 for the year ended

December 31, 2021.

This increase was primarily driven by the combination of (i) a $78,288 write-off of inventory as a result of

our physical inventory count procedures performed in December 2022 and (ii) damaged inventory received from one of our suppliers

in 2022, which resulted in write-offs of $69,532 of inventory.

Subsequently, we have engaged new suppliers for our product sourcing.

The Company faced a supply chain challenge in 2022, and received two shipments of glasses that included a few thousand defective units.

Once the high rate of defects became apparent, the Company immediately undertook a second 100% inspection of all inventory, and discovered

the extent of the issue.

The Company then worked to pull any problematic units from standing inventory, and also offered immediate replacement

to any customers experiencing issues with any units from these batches.

As a result of these problems, the Company severed the relationship

with that supplier and conducted a detailed research investigation in China to identify better potential manufacturers of our products,

and settled on two new suppliers.

the Company was reimbursed for a portion of these units from the old supplier, in some cases the units were not discovered to be defective

until many months after receipt from the manufacturer and were not able to be compensated.

customer feedback on the Lyte 2.0 products and feedback from our independent inspection team, indicates that our products from our new

suppliers have improved reliability and build quality compared to the original Lyte product, therefore the Company expects significantly

less damaged inventory in the future.

regards to the Company’s overall cost of goods, they have remained relatively constant with an increase of only $4-5 per unit compared

to the previous supplier - however the improved components and aesthetics allowed the company to adjust the retail MSRP of our products

upward by $50, which compensates well for this increase.

Our wholesale prices adjusted $10 upward to compensate for this increase.

positive development in COGs is a significant decrease in air shipping costs in the latter half of 2022 ($6.50 per unit at the height

of the pandemic to $3.50 per unit in Q4 2022), with the company able to ship goods at approximately just over half the price per unit

by air compared to 2021 and H1 2022, and with a new sea route available through our local 3PL partner at approximately $1.50/unit.

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, the Company expects that its per unit cost will decrease as its order volumes increase.

components of cost of goods sold for the year ended December 31, 2022 included, but were not limited to, the cost of frames of $478,020,

cost of prescription lenses incurred with our third-party vendor of $104,217, affiliate referral fees, sales commission expense, and

e-commerce platform fees of $128,340, and quality assurance costs related to our products sold of $5,500.

Out of our total cost of goods

sold for the year ended December 31, 2022, $113,024 related to orders with prescription lenses, while $639,294 pertained to non-prescription

the year ended December 31, 2022, approximately 32% of sales were processed on our online store (Lucyd.co), 38% on Amazon, and 30%

with reseller partners.

This sales channel mix impacted our cost of goods sold, as the cost of prescription lenses attributable to our

Lucyd.co sales increased our cost of goods sold through Lucyd.co while not impacting cost of goods sold for sales realized through Amazon

or retail store partners.

As we continue to grow our business, we expect that our cost of goods sold per unit will decrease as we realize

economies of scale.

components of cost of goods sold for the year ended December 31, 2021 included, but were not limited to, the cost of frames of $303,909,

cost of prescription lenses incurred with our third-party vendor of $144,957, affiliate referral fees, sales commission expense, e-commerce

platform fees of $89,950, and quality assurance costs related to our products sold of $3,600.

In Q4 2022, the company standardized all

custom lens profit margins at 35%, except one variant, the basic Single Vision clear prescription lens, which is sold at a 17.5% margin

to enable the company to advertise an competitive $40 basic prescription upgrade price.

number of factors in 2022 caused our overall lens lab vendor costs to be higher than revenue from lenses sold:

a large number of prescription units are provided annually as promotional items to influencers,

investors, online and traditional media, and other press outlets for the purpose of gaining

various forms of brand awareness, investor interest and site traffic for the company.

lens lab charges the Company $3,000 annually for the storage of frames in their facility.

cut prescriptions, and pairs lost in transit, both infrequent occurrences, are typically

replaced for free to enhance customer retention and customer lifetime value.

a frame does not properly fit a customer, sometimes a new lens set is provided for free in

a different frame that will fit the customer properly.

replacements sometimes require a new lens set to be made at no cost to the consumer.

7-day return policy provides customers comfort when trying our products, but sometimes causes

a prescription pair to be returned (custom lenses are refunded in store credit, which may

be used to purchase an additional lens set).

With active customer care, we are able to keep

our return rate low on Lucyd.co (our only prescription channel).

conclusion, prescription lenses can often be expensive, running to the hundreds of dollars

per set for specialty and bifocal lenses, so a seemingly low number of free prescription

pairs can cause a large deficit.

However, prescription fitted smart eyewear is a USP of the

Company and an incredibly useful tool for attracting positive media coverage.

As we continue

to scale up the volume of our ecommerce business, we fully expect the standardized lens profit

margin to bring more revenue than overall lens costs in the future.

of our total cost of goods sold for the year ended December 31, 2021, $211,620 related to orders with prescription lenses, while

$330,796 pertained to non-prescription orders.

For the year ended December 31, 2021, approximately 41% of sales were processed on

our online store (Lucyd.co), 39% on Amazon and 20% from retail store partners.

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

anticipate growth in both wholesale and e-commerce channel sales in 2023, and we also expect corresponding growth in total cost of goods

sold, primarily from additional product related costs.

(deficit) profit

gross profit decreased to negative $56,289 for the year ended December 31, 2022, as compared to positive $148,254 for the year ended

December 31, 2021.

This decrease was primarily driven by the aforementioned inventory write-offs during the current year totaling

expect gross profit for the fiscal year ending December 31, 2023, to improve, primarily due to economies of scale from large, anticipated

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 increased by 65% to $5,520,373 for the year ended December 31, 2022, as compared to $3,353,327 for the year ended

December 31, 2021.

This increase was primarily due to the expansion of our business following the launch of Lucyd Lyte in January 2021

and included, but was not limited to, the following:

and administrative expenses

general and administrative expenses increased by 102% to $2,796,669 for the year ended December 31, 2022, as compared to $1,386,079

for the year ended December 31, 2021.

This increase was primarily attributable to (i) an increase of approximately $436,000 in employee-related

costs, resulting from increases in our staffing and new employment agreements entered into with executives, (ii) increased costs associated

with being a publicly-traded company, including directors’ remuneration, legal and insurance expense, and public and investor relations,

which altogether resulted in an increase in expense of approximately $416,000, (iii) bad debt expense in the current year of approximately

$116,000, and (iv) an increase in consulting fees of approximately $103,000 as a result of our growth and increased used of consultants.

and marketing expenses

sales and marketing expenses increased by 16% to $2,059,012 for the year ended December 31, 2022, as compared to $1,771,012 for

the year ended December 31, 2021.

The increase was primarily due to our multi-prong sales and marketing strategy, growing continuously

over the past two years after the launch of our main product in January 2021.

anticipate these costs to further increase as we continue to invest in and build our brand, expand the number of e-commerce platforms

we sell our products on, 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.

party management fee

related party management fee was $140,000 for the year ended December 31, 2022, as compared with $109,975 for the year ended December 31,

This increase was due to increased scope of assistance received under the agreement, corresponding to continuous scale-up of Company’s

operations after launch of its flagship product in the first quarter of 2021.

The management fees are related to the management services

agreement between us and an affiliate of our Parent.

and development costs

research and development costs increased by 508% to $524,692 for the year ended December 31, 2022, as compared with $86,261 for

the year ended December 31, 2021.

The increase was primarily due to stock-based compensation totaling $263,612 in addition to the

increased cost of new frame development as the Company continued to expand its product line.

Eyewear R&D includes the purchase and

testing of new components, the compensation of staff involved primarily in frame design and the creation of new eyewear molds.

R&D includes the portion of the work hours spent by the CEO and CTO on new software development on the Vyrb app and our glasses,

and external coding teams we have engaged to write the programming for our software, and enhance our software user experiences with code

Other software costs such as the Apple Developer program are nominal fees only.

and Capital Resources

Total Other Income (Expense), net

Our revenues for the year ended December 31, 2023, were $1,167,479, representing an increase of approximately 77% as compared to revenues of $659,788 during the year ended December 31, 2022.

The increase in revenue was primarily attributable to the combination of higher unit volumes, favorable channel mix as described more fully below, and a larger number of styles available in 2023.

These positive factors were partially offset by significant discounts offered during the current year in order to help drive unit sales and grow our market share.

Key competing products dropped their prices to or below the price point of Lucyd frames during temporary and extended discount sales;

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 imminent diversification of our products with the new cobranded Powered by Lucyd lines (including Nautica, which launched in January 2024, and Eddie Bauer and Reebok, which are expected to launch later in 2024) is expected to reduce the need for discounting to support customer acquisition in the future, due to the global renown of our partner brands.

Overall, we believe that the significant increase in revenues in the current year is reflective of the high quality and cutting-edge technology of our Lucyd Lyte 2.0 and Lyte XL smartglasses, and our investment in marketing to grow our brand and our company.

For the year ended December 31, 2023, approximately 47% of sales were processed on our online store (Lucyd.co), 33% on Amazon.com, and 20% with reseller partners.

This product mix represents the fact that the e-commerce channels have grown more rapidly than our wholesale business.

This sales channel mix positively impacted our revenue for the current year as compared with the prior year, due to the fact we charge additional $35 to $275 for our prescription lenses available only on Lucyd.co.

For the year ended December 31, 2023, we generated $978,405 of revenue from sales of non-prescription frames and accessories, and $189,074 from sales of frames with prescription lenses.

All of the $384,293 in sales generated on Amazon.com during the current year were for non-prescription frames and accessories, as we only offer prescription lenses through our website and our optical store partners.

Of the $554,060 in online sales generated through Lucyd.co, $189,074 was related to frames with prescription lenses and $364,986 was related to glasses with non-prescription lenses.

E-commerce sales are the most material portion of our sales to date since inception.

For the year ended December 31, 2022, approximately 32% of sales were processed on our online store (Lucyd.co), 38% on Amazon.com, and 30% with reseller partners.

For the year ended December 31, 2022, we generated $579,214 of revenue from sales of non-prescription frames and accessories and $80,574 was generated from sales of frames with prescription lenses.

All of the $252,799 in sales generated on Amazon.com during the prior year were for non-prescription frames and accessories, as we only offer prescription lenses through our website.

Of the $208,447 in online sales generated through Lucyd.co, $80,574 related to frames with prescription lenses and $127,873 of glasses sold were with non-prescription lenses.

E-commerce sales are the most material portion of our sales to date since inception.

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 approximately 350 stores, up from over 250 stores as of December 31, 2022.

We anticipate that a partnership with a major eyeglass distributor will substantially increase our wholesale sales.

Cost of goods sold

Our total cost of goods sold increased to $1,240,171 for the year ended December 31, 2023, as compared to $716,077 for the year ended December 31, 2022.

This increase was primarily driven by higher volumes of products sold during the current year.

This increase was primarily driven by increased cost of lenses and frames largely as a result of higher volumes of products sold in the current year.

The increase in the cost of lenses was also driven by (i) a 10% increase in the production cost of lenses sourced through supplier in late 2022, and (ii) the introduction of our new proprietary Blueshift premium lenses in August 2023, which are more expensive than other lenses to produce.

Cost of goods sold was also impacted by sales channel mix, as a higher relative proportion of our sales in the current year were through our online store (Lucyd.co), and the cost of prescription lenses attributable to this channel increased our cost of goods sold while not impacting cost of goods sold for sales realized through Amazon or retail store partners.

Also contributing to the increase in cost of goods sold in the current year were replacement products provided to customers free of charge (which could be due to warranty, improperly cut prescription lenses, or improperly fitting frames), and about 500 product samples distributed as promotional and content generation pieces to influencers, investors, online and traditional media, and other press outlets for the purpose of gaining various forms of brand awareness, investor interest, and site traffic.

We believe our product margins are competitive relative to other smartglasses.

This provides ample margins to support the higher cost of customer acquisition for an emerging product category.

Our relationship with a new supplier with lower cost of goods than our main supplier has enabled us to plan to launch the Reebok and Smart Safety lines at even more competitive prices than our current offering.

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, the Company expects that its per unit cost will decrease as its order volumes increase and we realize economies of scale.

Key components of cost of goods sold for the year ended December 31, 2023 included, but were not limited to, the cost of frames of $756,795, which was made much larger due to the high number of warranty replacements for product flaws which have since been eliminated.

Cost of prescription lenses incurred with our third-party vendor of $271,229, affiliate referral fees, sales commission expense, and e-commerce platform fees of $190,326, and quality assurance costs related to our products sold of $13,100.

Out of our total cost of goods sold for the year ended December 31, 2023, $271,229 related to orders with prescription lenses, while $969,064 pertained to non-prescription orders.

Key components of cost of goods sold for the year ended December 31, 2022 included, but were not limited to, the cost of frames of $478,020, cost of prescription lenses incurred with our third-party vendor of $104,217, affiliate referral fees, sales commission expense, and e-commerce platform fees of $128,340, and quality assurance costs related to our products sold of $5,500.

Out of our total cost of goods sold for the year ended December 31, 2022, $113,024 related to orders with prescription lenses, while $639,294 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 2024.

We also expect corresponding growth in total cost of goods sold, primarily from additional product related costs.

As we continue to refine our SKU mix with sales data, we anticipate reducing our unit costs by reducing the variety of SKUs produced per product line compared to the past, to focus only on the highest volume styles.

Additionally, we have been informed by key suppliers that significant price reductions over 10% are possible as we continue to scale our production quantities.

Gross profit (deficit)

Our gross profit was negative $72,692 for the year ended December 31, 2023, as compared to negative $56,289 for the year ended December 31, 2022.

This decrease was primarily driven by the factors outlined above.

We expect gross profit for the fiscal year ending December 31, 2024, to improve, primarily due to economies of scale from large, anticipated orders.

As we expect retail stores to eventually become our primary sales channel as we onboard new stores, we also expect our overall gross margin to improve, since no e-commerce platform fees or prescription lens costs apply in wholesale channels.

Operating expenses

Our operating expenses increased by 22% to $6,736,213 for the year ended December 31, 2023, as compared to $5,520,373 for the year ended December 31, 2022.

This increase was primarily due to the following:

General and administrative expenses

Our general and administrative expenses increased by 39% to $3,886,960 for the year ended December 31, 2023, as compared to $2,796,669 for the year ended December 31, 2022.

This increase was primarily attributable to (i) an increase of approximately $560,000 in employee-related costs, resulting from increases in our staffing and new employment agreements entered into with executives, (ii) increased costs associated with being a publicly-traded company, including directors’ remuneration, insurance expense, public and investor relations, and filing fees, which altogether resulted in an increase in expense of approximately $430,000, (iii) higher license costs, which increased approximately $146,000, and (iv) and increase in depreciation and amortization expense of approximately $53,000.

These increased expenses were partially offset by recoveries of bad debts, and lower costs related to consultants and other outside service providers.

Sales and marketing expenses

Our sales and marketing expenses were essentially flat year-over-year at $2,047,069 for the year ended December 31, 2023, as compared with $2,059,012 in the prior year.

During the first quarter of the current year, we temporarily paused and postponed our marketing spending while we restructured our e-commerce business, and management made a tactical decision to preserve a significant portion of our marketing budget for later in the year, in order to better align the timing of marketing spending with major new product launches and thus maximize impact.

Our overall actual spending on advertising and promotions in 2023 increased significantly over prior year, particularly in the areas of spending on paid ads on websites and social media platforms, as well as spending on influencers, but was largely offset by 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 during the current year without ever having vested, as the related performance conditions (sales quotas) for those awards were not met.

We anticipate our marketing costs to increase in 2024 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 and displays to help educate in-store customers about our products, and increase our brand’s physical presence and role in the eyewear industry.

Related party management fee

Our related party management fee was $140,000 for each of the years ended December 31, 2023 and 2022, based on the terms of the management services agreement between us and Tekcapital.

Research and development costs

Our research and development costs increased by 26% to $662,184 for the year ended December 31, 2023, as compared with $524,692 the year ended December 31, 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.

Liquidity and Capital Resources

Cash Flow Data:

Net cash flows from operating activities

$ (3,224,418 )

$ (1,214,160 )

Net cash flows from investing activities

1 unchanged sentence

Net Change in Cash

Public Offering

August 17, 2022, the Company closed on its initial public offering of 980,000 units, consisting of 980,000 shares of its common

stock and 1,960,000 warrants to purchase 1,960,000 shares of common stock, at a combined offering price of $7.50 per unit in exchange

for gross proceeds of approximately $7.35 million, before deducting underwriting discounts and offering expenses.

Each share of common

stock was sold together with two warrants, each warrant to purchase one share of common stock at an exercise price of $7.50 per share.

In addition, the Company granted the underwriters a 45-day option to purchase up to an additional 147,000 shares of common stock and/or

warrants to purchase up to an additional 294,000 shares of common stock to cover over-allotments, of which the underwriter exercised

its option to purchase additional warrants to purchase 294,000 shares of common stock.

deducting underwriting discounts and offering expenses, net proceeds received by the Company amounted to $6,189,734.

We intend to use

proceeds from this offering primarily on (i) sales and marketing, (ii) expanding our inventory, (iii) updating and developing our in-store

displays, (iv) developing new smart eyewear styles and sizes, as well as further development and commercialization of the Vyrb app, and

(v) working capital and other general corporate purposes.

expect that operating losses could continue in the foreseeable future as we continue to invest in the expansion and development of our

We believe our existing cash and cash equivalents, proceeds from the aforementioned offering, proceeds received from investors’

exercises of warrants, 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.

In February 2023, investors exercised warrants to purchase an aggregate

of 408,600 shares of our common stock, at an adjusted exercise price of $3.75 per share, resulting in cash proceeds to us of $1,532,250.

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.

Operating Activities

Net cash flows used in operating activities for the years ended December 31, 2023 and 2022 are primarily reflective of our net losses, 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 asset levels grew significantly during 2023 as we have procured additional inventory to position us for future anticipated sales growth.

Investing Activities

During the current year, the Company used low-risk bonds and similar investment instruments for the purpose of earning interest on its cash balance.

The Company also continued to invest in its growing intellectual property portfolio, making expenditures to file for various new patents.

Financing Activities

Net cash flows provided by financing activities for year ended December 31, 2023 are mainly driven by the various capital-raising activities undertaken during the current year, including our second public offering completed in June 2023 and exercises of warrants by stockholders earlier in the year, partially offset by repayment of advances and convertible debt to related parties.

Net cash flows provided by financing activities for the year ended December 31, 2022 are mainly driven by our initial public offering completed in August 2022, and, to a lesser extent, by net proceeds from related party borrowings through convertible debt.

Initial Public Offering

On August 17, 2022, the Company closed on its initial public offering of 980,000 units, consisting of 980,000 shares of its common stock and 1,960,000 warrants to purchase 1,960,000 shares of common stock, at a combined offering price of $7.50 per unit in exchange for gross proceeds of approximately $7.35 million, before deducting underwriting discounts and offering expenses.

Each share of common stock was sold together with two warrants, each warrant to purchase one share of common stock at an exercise price of $7.50 per share.

In addition, the Company granted the underwriters a 45-day option to purchase up to an additional 147,000 shares of common stock and/or warrants to purchase up to an additional 294,000 shares of common stock to cover over-allotments, of which the underwriter exercised its option to purchase additional warrants to purchase 294,000 shares of common stock.

The net proceeds received by the Company from this offering amounted to $6,189,734.

We used the proceeds from this offering primarily on (i) sales and marketing, (ii) expanding our inventory, (iii) updating and developing our in-store displays, (iv) developing new smart eyewear styles and sizes, as well as further development and commercialization of the Vyrb app, and (v) working capital and other general corporate purposes.

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.

We intend to use the net proceeds of this offering primarily for working capital and general purposes.

New Convertible Loan Note

Effective March 1, 2024, the Company issued a convertible note to Lucyd Ltd., the largest stockholder of the Company, for up to $1,250,000 that bears interest at 10% per annum, which includes the option to convert the debt into the Company’s common stock at market price.

The note can be converted into shares of common stock of the Company upon the occurrence of certain events, as defined in the note, or for any reason at the sole discretion of Lucyd Ltd.

The note has a maturity date of September 1, 2025, at which time all outstanding principal and accrued interest is payable in full.

As of the date of this Annual Report on Form 10-K, we have not borrowed any amounts under this convertible note.

Other Factors

We expect that operating losses could continue in the foreseeable future as we continue to invest in the expansion and development of our business.

We believe our existing cash and cash equivalents (including the proceeds from the aforementioned second public offering and proceeds received from investors’ exercises of warrants), plus planned capital-raising 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.

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.

that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all.

pandemic along with other geopolitical and macroeconomic factors has caused disruption in the global financial markets, which could reduce

our ability to access capital and negatively affect our liquidity in the future.

If we are unable to raise additional capital when required,

or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business,

results of operations, financial condition, and cash flows would be adversely affected.

Sheet Arrangements

of December 31, 2022, we did not have any off-balance sheet arrangements.

Accounting Policies and Significant Developments and Estimates

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.

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 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.

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.

Current geopolitical and macroeconomic factors have caused disruption in the global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future.

If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected.

Off-Balance Sheet Arrangements

As of December 31, 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.

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 December 31, 2023 and 2022.

of December 31, 2022 and 2021, we recorded an inventory prepayment in the amount of $197,750 and $64,715, respectively, related

to down payment on eyewear purchased from the manufacturer, prior to shipment of the product that occurred after December 31, 2022

and 2021, respectively.

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.

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

be recoverable.

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.

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.

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.

term of the stock options was estimated based on the simplified method as allowed by Staff Accounting Bulletin 107 (SAB 107).

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

As of December 31, 2023 and 2022, we recorded an inventory prepayment in the amount of $323,520 and $197,750, respectively, related to down payment on eyewear purchased from the manufacturer, prior to shipment of the product that occurred after the respective balance sheet dates.

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.

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 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 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.

fair value of common stock used in the option pricing model for stock-based awards granted in 2021 was determined using the most recent

price paid by independent investors through a Regulation Crowdfunding (“CF”) securities offering undertaken by the Company.

For the majority of time during which stock option awards were granted by the Company in 2021, we had been raising funds from investors

under Regulation CF campaigns, with a significant number of transactions from both accredited and non-accredited investors.

Specifically:

June 2020 to April 2021, we were conducting a REG CF offering of our shares of

common stock at a price of $1 per share, and we utilized this $1 per share price to issue

and value our stock-based awards during such period, and

May 2021 to September 2021, we were conducting a second REG CF offering of our

shares of common stock at a price of $3.56 per share, and we utilized this $3.56 per share

price to issue and value our stock-based awards during such period.

pre-money valuation determining price per share was agreed upon each time with the crowdfunding platform, who has a great deal of experience

in setting the proper pre-money valuations for companies that list on their platforms.

The determination was made using our business

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.

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.

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.

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.

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.

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.

For options granted after our initial public offering on August 17, 2022, the fair value of common stock used in the option pricing model is based on the quoted market price of our common shares on the NASDAQ stock exchange.

For options granted prior to our initial public offering, the fair value of common stock used in the option pricing model was determined using the most recent price paid by independent investors through a Regulation Crowdfunding (“CF”) securities offering undertaken by the Company.

For restricted stock units, the fair value of the share-based award is based on the quoted market price of our common shares on the NASDAQ stock exchange.

Revenue Recognition

Our revenue is generated from the sales of prescription and non-prescription optical glasses, sunglasses, and shipping charges, which are charged to the customer, associated with these purchases.

We sell products through our retail store resellers, distributors, on our own website Lucyd.co, and on Amazon.com.

To determine revenue recognition, we perform the following steps:

(i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy a performance obligation.

At contract inception, we assess the goods or services promised within each contract and determine those that are performance obligations, and also assess whether each promised good or service is distinct.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

In instances where the collectibility of contractual consideration is not probable at the time of sale, the revenue is deferred on our balance sheet as a contract liability, and the associated cost of goods sold is deferred on our balance sheet as a contract asset;

subsequently, we recognize such revenue and cost of goods sold as payments are received.

During the year ended December 31, 2023, we recognized $17,500 of revenue that was included in the contract liability balance as of January 1, 2023.

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.

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 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.

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.

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

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

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

all of our sales, at the time of sale, we establish a reserve for returns, based on historical experience and expected future returns,

which is recorded as a reduction of sales.

Additionally, we review all individual returns received in the month following the balance

sheet date pertaining to orders processed prior to the balance sheet date in order to determine whether an allowance for sales returns

is necessary.

The Company recorded an allowance for sales returns of $24,897 and $22,266 as of December 31, 2022 and 2021, respectively.

incurred for shipping and handling are included in cost of goods sold at the time the related revenue is recognized.

Amounts billed to

a customer for shipping and handling are reported as revenues.

Earnings/loss

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.

As of December 31, 2022 and December 31, 2021, all shares

underlying the related party convertible debt and common stock options were excluded from the earnings per share calculation, due to

their anti-dilutive effect.

For sales to distributors, we identify the contract with a customer upon receipt of an order of our eyewear through a direct purchase order.

If 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 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 $25,933 and $24,897 as of December 31, 2023 and 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.

As of December 31, 2023 and December 31, 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.

Quantitative and Qualitative Disclosures About Market Risk .

required for a smaller reporting company.

Not required for smaller reporting companies.

Financial Statements and Supplementary Data .

accompanying “Index to Consolidated Financial Statements.”

See accompanying “Index to Consolidated Financial Statements.”

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis