Innovative Eyewear Inc 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . 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. 40 Overview 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 Lucyd Armor ™ , Nautica ® Powered by Lucyd , and Eddie Bauer ® Powered by Lucyd smart eyewear collections in 2024. The variety of smartglasses we offer underpin the Company’s mission to provide a smart alternative for all of the major types of eyewear used by consumers, offering a seamless upgrade in styles of eyewear they already enjoy. We plan to further expand our product offerings through the launch of new cobranded collections with Reebok in 2025. All of our products are designed in Miami, manufactured in Asia, and currently sold through two major types of channels: 1. E-commerce – primarily via our website (Lucyd.co) and Amazon.com, as well as through Walmart.com, Target.com, BestBuy.com, DicksSportingGoods.com, Brookstone.com, and eBay; and, 2. A growing network of retail stores, including independent eyewear stores and national eyewear chains – we currently have over 540 retail stores selling our products (across 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 photochromic glasses across all of our online channels, with our wholesale pricing offering volume discounts to these prices. The Company believes having pricing that is competitive with traditional designer eyewear is essential for building market share in this new category, by eliminating the “cost of switching” for the average consumer. 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 leverage existing sources of production and retail distribution. This allows us to focus on our core competency of smart eyewear design and manufacturing. 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 26 different models of glasses, and by mid-2025, we will offer 34 different styles and several accessories, including cobranded eyewear with well-known brands like Nautica, Reebok, and Eddie Bauer. In total, the Company expects to offer over 40 total smart eyewear SKUs across these brands and Lucyd by the end of 2025. 41 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 products and enable customers to virtually 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. We have deployed 45 such display systems 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 our products. We started onboarding our first retail stores in June 2021, and since then have continue to grow through the current year. Currently, we have over 540 retail stores selling our smart eyeglasses, primarily in the United States and Canada, across 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 2025. Customer Ratings (B2C) The Company’s latest products are receiving higher ratings online compared to our previous products, indicating that customers are appreciative of improvements in product design, functionality, and build quality. For example, our new Lucyd Armor product has a 4/5 rating on Amazon. 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. 42 Results of Operations Years Ended December 31, 2024 (“current year”) and December 31, 2023 (“prior year”) Year ended December 31, 2024 Year ended December 31, 2023 Change Revenues, net $ 1,636,440 100 % $ 1,152,479 100 % $ 483,961 42 % Less: Cost of Goods Sold (1,421,250 ) 87 % (1,271,808 ) 110 % (149,442 ) 12 % Gross Profit (Deficit) 215,190 13 % (119,329 ) -10 % 334,519 280 % Operating Expenses: General and administrative (4,473,292 ) 273 % (3,886,960 ) 337 % (586,332 ) 15 % Sales and marketing (2,706,213 ) 165 % (2,047,069 ) 178 % (659,144 ) 32 % Research and development (819,387 ) 50 % (662,184 ) 57 % (157,203 ) 24 % Related party management fee (140,000 ) 9 % (140,000 ) 12 % - 0 % Total Operating Expenses (8,138,892 ) 497 % (6,736,213 ) 584 % (1,402,679 ) 21 % Other Income (Expense) 157,187 10 % 195,150 17 % (37,963 ) -19 % Interest Expense - 0 % (3,036 ) 0 % 3,036 100 % Total Other Income (Expense), net 157,187 10 % 192,114 17 % (34,927 ) -18 % Net Loss $ (7,766,515 ) 475 % $ (6,663,428 ) 578 % $ (1,103,087 ) 17 % Revenue Our revenues for the year ended December 31, 2024, were $1,636,440, representing an increase of approximately 42% as compared to revenues of $1,152,479 during the year ended December 31, 2023. The increase in revenue was primarily attributable to significant growth in the e-commerce channel, with net sales through our Lucyd.co website and Amazon.com increasing by approximately 89% and 14%, respectively, from the prior year, while wholesale revenues declined by approximately 27%. Overall, our revenue growth was primarily attributable to higher unit volumes, largely driven by our new product launches over the past year (including the cobranded Nautica ® Powered by Lucyd and Eddie Bauer ® Powered by Lucyd collections which were launched in January 2024 and April 2024, respectively, and the Lucyd Armor product line which was launched in October 2024). We sold over 2,000 units of Lucyd Armor glasses in the fourth quarter of 2024 alone. With respect to our cobranded collections, we sold over 3,000 units during the current year, and sales of the Nautica ® Powered by Lucyd line have continued to increase each quarter since their initial launch. While Eddie Bauer ® Powered by Lucyd styles have not been as successful as others thus far, likely due to their higher price point, the Nautica ® cobranded collection has been very popular, with several of those styles ranking among our top products. We believe our brand partnerships play a significant role in our revenue growth by offering a more diversified product line that speaks to consumers from different demographics (for example, Nautica ® generally appeals to a more fashion-forward customer than Lucyd Lyte, and Eddie Bauer ® generally appeals to an older demographic than our other lines). We also believe the cobranded collections have been useful in attracting retail partnerships, as merchandisers are more comfortable with well-known brands when introducing new products. Also contributing to our growth in revenues were our continued investments in marketing and advertising initiatives, as well as increased public interest and growth in smart glasses and the wearable products category. The decline in wholesale revenues was largely driven by a change in our focus during the current year from small, independent retailers to major national retailers, the latter of which have slower product approval and purchasing cycles. However, we believe that focusing on introducing our product in major national retailers will have a significant positive impact on the Company’s revenues within the next 12 months. 43 For the year ended December 31, 2024, approximately 64% of sales were processed on our online store (Lucyd.co), 26% on Amazon.com, and 10% with reseller partners. As the relative proportion of sales processed through Lucyd.co for the current year increased as compared to the relative proportion of sales processed through Lucyd.co in the prior year, this shift in sales channel mix positively impacted our revenue for the current year as compared with the prior year, 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, 2024, we generated an aggregate of $1,137,849 of revenue from sales of non-prescription frames and accessories, $494,085 from sales of frames with prescription lenses, and $4,506 of revenue from app subscriptions. All of the $427,671 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. Of the $1,036,713 in online sales generated through Lucyd.co, $494,085 was related to frames with prescription lenses and $542,628 was related to glasses with non-prescription lenses. 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. For the year ended December 31, 2023, we generated $963,405 of revenue from sales of non-prescription frames and accessories, and $189,074 from sales of frames with prescription lenses. All of the $375,513 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 $547,850 in online sales generated through Lucyd.co, $189,074 was related to frames with prescription lenses and $358,776 was related to glasses with non-prescription lenses. Overall, e-commerce sales remain to be the most material portion of our sales to date since inception; however, out of all of our sales channels, we believe that the wholesale optical channel represents the most promising opportunity for future growth in the long-term. To date, we believe e-commerce has been best suited to sell smart eyewear because of the enhanced product exposure opportunity compared to product on a shelf in a physical store – as online, prospective customers are able to learn more about products, conduct virtual try-ons, and comparison shop across the web with ease. However, we anticipate that as smart eyewear becomes a more normalized product category and becomes more common for prescription wear, major national eye care providers will begin to onboard smart eyewear products, and we believe we are the value leader in that sector. We have already started to see major retailers begin to offer smart eyewear in-store. Thus, we believe that selling wholesale into brick-and-mortar retailers represents our largest growth opportunity for a number of reasons, including: ● Our products are competitive with the few smart eyewear products that are currently sold in big box brick-and-mortar stores. ● Consumer awareness of the category is improving, driving consumer interest to try smart eyewear in-store. ● The optical channel is becoming more receptive to smart eyewear than in the past. ● We have been in direct negotiations with some of the largest retailers in the world in the last 12 months in regards to onboarding our products. ● Online competition in the category is only going increase, but with limited shelf space available in brick-and-mortar, only the strongest products will make it in-store. ● Overall marketing and acquisition costs for wholesale sales per unit is much lower than direct to consumer online sales. With the success of the recently-launched Lucyd Armor smartglasses for the safety/industrial segment (which represents a growing market in which we currently have little or no direct competition), and the anticipated success of the upcoming launch of Reebok ® Powered by Lucyd smartglasses for the sport/active lifestyle segment (in which we believe we will have a distinct advantage, as most sport smartglasses are very low quality Aliexpress products), we believe we are very well positioned to generate significant revenue growth in 2025. 44 Cost of goods sold Our total cost of goods sold increased to $1,421,250 for the year ended December 31, 2024, as compared to $1,271,808 for the year ended December 31, 2023. This increase was primarily driven by higher volumes of products sold during the current year, partially offset by lower costs. Cost of frames increased by approximately 14% on an absolute dollar basis from the prior year, primarily related to the increase in sales volumes and also partially attributable to higher cost of goods sold associated with the new Eddie Bauer ® Powered by Lucyd collection, due to the increased number of components, deluxe finishes, and materials for that product line. However, cost of frames as a percentage of net sales declined by 13 percentage points from the prior year, due to the combination of our switch to new suppliers with higher quality and lower manufacturing costs during 2023, and greater economies of scale driven by higher unit volumes. 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 smaller quantities of a few thousand at a time. As demand and awareness for smart eyewear continue to grow, we expect that our per unit cost will continue to decrease as order volumes increase. Cost of lenses decreased by approximately 5% on an absolute dollar basis from the prior year, and decreased as a percentage of net sales by 8 percentage points from the prior year. These decreases were mainly driven by actions taken by management in the current year to better manage lens fulfillment costs, including (i.) the launch of the new Lucyd Shift and Lucyd Blueshift transitional lenses in place of branded third-party transitional lenses, offering similar functionality for a lower cost of goods, while also enabling a slightly lower cost to the customer, and (ii.) the engagement of a new lower-cost lens supplier based in Miami, Florida. These decreases were also impacted by sales channel mix, as a lower relative proportion of our sales in the current year were through our online store (Lucyd.co) in the current year than in the prior year, and all sales of glasses with prescription lenses are attributable to that channel. Key components of cost of goods sold for the year ended December 31, 2024 included, but were not limited to, the cost of frames of $862,529; cost of prescription lenses incurred with third-party vendors of $256,860; commissions, affiliate referral fees, and e-commerce platform fees of $158,327; shipping and logistics costs of $95,363; product certification costs of $33,150; and quality assurance costs of $11,240. Out of our total cost of goods sold for the year ended December 31, 2024, $256,860 related to orders with prescription lenses, while $1,164,390 pertained to non-prescription orders. 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; cost of prescription lenses incurred with our third-party vendor of $271,229; commissions, affiliate referral fees, and e-commerce platform fees of $201,686; shipping and logistics costs of $20,415; and quality assurance costs 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 $1,000,579 pertained to non-prescription orders. With the recent (October 2024) launch of the Lucyd Armor line and the upcoming launch of the Reebok ® Powered by Lucyd collection in 2025, we expect that our cost of goods sold will improve even more in future periods, as the frames for the aforementioned product lines are designed differently from our other products and accordingly have fewer components, thus reducing their price. We estimate that the unit cost of for the Lucyd Armor and cobranded Reebok ® product lines will be at least 30% lower than our Lucyd Lyte models. Thus, while we anticipate that the total dollar value of our cost of goods sold will increase in 2025, primarily from greater volumes of products sold, we anticipate reduced unit costs (i.e., lower cost of goods sold as a percentage of net sales) as we continue to refine our stock-keeping unit (“SKU”) mix and scale our production quantities. Additionally, in the moderate to long term timeframe, we expect third-party retail stores will 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. 45 Gross profit (deficit) We had gross profit of $215,190, or 13% of net sales, for the year ended December 31, 2024, as compared to a gross deficit of $119,329, or negative 10% of net sales, for the year ended December 31, 2023. This improvement of $334,519 or 23 percentage points was primarily driven by the factors outlined above. We expect that our gross profit margins will continue to improve in 2025, due to the factors outlined above. Operating expenses Our operating expenses increased by 21% to $8,138,892 for the year ended December 31, 2024, as compared to $6,736,213 for the year ended December 31, 2023. This increase was primarily due to the following: General and administrative expenses Our general and administrative expenses increased by 15% to $4,473,292 for the year ended December 31, 2024, as compared to $3,886,960 for the year ended December 31, 2023. This increase was primarily driven by the combination of (i) a $325,000 release payment made to a shareholder counterparty during the current year for the waiver of certain of that counterparty’s pre-existing contractual rights related to the Company’s equity offerings during the second quarter of 2024, (ii) an increase in legal costs of approximately $318,000, largely as a result of various shareholder and equity-related matters during the current year period. These increases were partially offset by lower insurance costs. The Company maintains a lean staff salaried at market rates, and a significant portion of our general and administrative expenses consist of corporate overhead type costs which are fixed or semi-fixed in nature (e.g., rent, compliance, legal and professional services, etc.); as such, our general and administrative expenses are not expected to scale up significantly as our revenue increases over time. Sales and marketing expenses Our sales and marketing expenses increased by 32% to $2,706,213 for the year ended December 31, 2024, as compared to $2,047,069 for the year ended December 31, 2023. This increase was primarily driven by the combination of (i) increased spending on paid ads to drive sales growth, and (ii) higher stock-based compensation recognized expense in the current year, mainly due to the fact that the prior year expense amount included the impact of a significant reversal of previously-recognized stock-based compensation for certain individuals within the Company’s sales and marketing function whose awards expired in 2023 without ever having vested, as the related performance conditions (sales quotas) for those awards were not met. Our marketing plan for 2025 is strategically allocated to support our phased product rollout (e.g., the cobranded Reebok ® Powered by Lucyd collections in the second and fourth quarters), while continuing to build overall brand awareness and presence. We are using data-driven decision-making to refine and optimize our marketing campaigns, in order to make our spending in this area more efficient, thus maximizing returns on our marketing investments. We anticipate that our total 2025 marketing spending will be between 2023 and 2024 levels. From a long-term perspective, while we expect that our total sales and marketing expenses will scale up to some degree as our revenue increases, we anticipate that such increases in sales and marketing expenses will be mitigated somewhat by our planned focus on growing the wholesale optical channel, which, due to the nature of that channel, inherently does not require costly marketing campaigns to acquire each customer and as a result typically carries a lower marketing cost per unit sold. Additionally, we generally expect that a retailer who is successful with our products will reorder in large quantities, also without significant marketing expenditure. 46 Research and development costs Our research and development costs increased by 24% to $819,387 for the year ended December 31, 2024, as compared with $662,184 the year ended December 31, 2023. This increase was primarily attributable to the 2024 write-off of approximately $88,000 of previously-capitalized software costs related to the development of the Vyrb app (which was launched as an open beta version in 2021, and had new features added over time, but had never been officially launched) as a result of management’s decision in 2024 to de-emphasize the Vyrb app in favor of shifting our primary software development focus to the Lucyd app. Certain elements and features developed for the Vyrb app may potentially be incorporated into future releases of the Lucyd app. Also contributing to the increase in research and development costs were the impacts of product development cycles and timing of associated research and development spending. We have expanded our software team with additional vendors and specialists to support feature enhancements to the Lucyd app, and we hired a new audio engineering team in 2024 to support our frames with enhanced audio input and output. Related party management fee Our related party management fee was $140,000 for each of the years ended December 31, 2024 and 2023, based on the terms of the management services agreement between us and Tekcapital. Liquidity and Capital Resources Cash Flow Data: Year ended December 31, 2024 Year ended December 31, 2023 Net cash flows from operating activities $ (6,739,630 ) $ (5,766,303 ) Net cash flows from investing activities (5,162,157 ) (198,753 ) Net cash flows from financing activities 10,243,327 6,661,394 Net Change in Cash $ (1,658,460 ) $ 696,338 The above table reflects changes in our cash and cash equivalents only, and reflects the Company’s investments in short-term U.S. Treasury bills as a cash outflow (reduction). The Company held $4,895,184 of such investments as of December 31, 2024. Including such investments in the table above as part of the Company’s overall liquidity (which management believes provides a more accurate depiction of the Company’s liquidity and economic position) would result in a net change in the Company’s overall liquidity of positive $3,236,724 for the year ended December 31, 2024. Operating Activities Net cash flows used in operating activities for the years ended December 31, 2024 and 2023 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 have grown significantly during 2023 and 2024 as we have procured additional inventory to position us for future anticipated sales growth. 47 Investing Activities Net cash flows used in investing activities for the year ended December 31, 2024 were primarily reflective of the investment of a portion of the proceeds from our recent equity offerings (as described below) in 6-month U.S. Treasury bills. At the same time, the Company continued to invest in its growing intellectual property portfolio, making expenditures to file for various new patents. Net cash flows used in investing activities for the year ended December 31, 2023 were primarily reflective of the Company’s purchase and redemption of low-risk government 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 the year ended December 31, 2024 were mainly driven by proceeds from multiple equity offering transactions as described below. Net cash flows provided by financing activities for year ended December 31, 2023 were mainly driven by the various capital-raising activities undertaken during the 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. Second Public Offering On June 26, 2023, the Company closed on a public offering of 252,494 units, with each unit consisting of one share of the Company’s common stock and warrants to purchase one share of common stock (the “Common Warrants”), in exchange for gross proceeds of approximately $4.7 million, before deducting underwriting discounts and offering expenses. 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 9,000 shares of the Company’s common stock at an exercise price of $26.25 per share. The net proceeds received by the Company from this offering amounted to approximately $4,116,000, and were used by the Company primarily for working capital and general purposes. At-the-Market Offerings On April 15, 2024, the Company entered into an at-the-market offering agreement with H.C. Wainwright & Co., LLC, as sales agent (“HCW”), relating to the sale of common stock. ● From April 15, 2024 through April 28, 2024, the Company sold 2,828 shares of common stock and received approximately $13,000 of gross proceeds before deducting sales agent commissions and offering expenses. The net proceeds received by the Company from these transactions amounted to approximately $12,000. ● Following the first registered direct offering described below, from May 2, 2024 through May 24, 2024, the Company sold 34,900 shares of common stock and received approximately $536,000 of gross proceeds before deducting sales agent commissions and offering expenses. The net proceeds received by the Company from these transactions amounted to approximately $518,000. ● Following the second registered direct offering described below, from June 13, 2024 through June 30, 2024, the Company sold 246,742 shares of common stock and received approximately $1,918,000 of gross proceeds before deducting sales agent commissions and offering expenses. The net proceeds received by the Company from these transactions amounted to approximately $1,845,000. ● From July 12, 2024 through August 30, 2024, the Company sold 273,517 shares of common stock and received approximately $1,446,000 of gross proceeds before deducting sales agent commissions and offering expenses. The net proceeds received by the Company from these transactions amounted to approximately $1,399,000. Approximately $50,000 of the net proceeds received from these offerings were used to pay legal fees to HCW. We intend to use the remaining net proceeds from these offerings primarily for working capital and general purposes. 48 First Registered Direct Offering On May 1, 2024, the Company closed on a registered direct offering of 210,043 shares of its common stock and, in a concurrent private placement, warrants to purchase up to 210,043 shares of common stock at an exercise price of $4.88 per share, for a combined purchase price per share and warrant of $4.88. In exchange, the Company received approximately $1.0 million of gross proceeds, before deducting underwriting discounts and offering expenses. In addition, the Company issued to the placement agent warrants to purchase up to 15,754 shares of common stock at an exercise price of $6.10 per share. The net proceeds received by the Company from this transaction amounted to approximately $837,000. Approximately $100,000 of the net proceeds received from this registered direct offering were used to pay a former agent for their waiver of a contractual right of first refusal; the remaining net proceeds received were used by the Company primarily for working capital and general purposes. Second Registered Direct Offering On May 29, 2024, the Company closed on a registered direct offering of 263,160 shares of its common stock and, in a concurrent private placement, warrants to purchase up to 263,160 shares of common stock at an exercise price of $9.50 per share, for a combined purchase price per share and warrant of $9.50. In exchange, the Company received approximately $2.5 million of gross proceeds, before deducting underwriting discounts and offering expenses. In addition, the Company issued to the placement agent warrants to purchase up to 19,737 shares of common stock at an exercise price of $11.876 per share. The net proceeds received by the Company from this transaction amounted to approximately $2,134,000, and were used by the Company primarily for working capital and general purposes. Warrants On August 17, 2022, as part of the Company’s initial public offering, the Company issued warrants to purchase 112,700 shares of common stock, which began trading and are currently trading on the Nasdaq Capital Market, under the symbol “LUCYW” (which we refer to as the “Listed Warrants”). In February 2023, holders of the Company’s Listed Warrants exercised such warrants to purchase an aggregate of 22,926 shares of the Company’s common stock, at an adjusted exercise price of $75.00 per share, resulting in net cash proceeds to the Company of approximately $1,532,000. Between April 1, 2023 and April 16, 2023, holders of the Company’s Listed Warrants exercised such warrants to purchase an aggregate of 18,019 shares of the Company’s common stock, at an adjusted exercise price of $75.00 per share, resulting in net cash proceeds to the Company of approximately $1,204,000. On April 17, 2023, the Company entered into a warrant exercise inducement letter agreement with certain accredited investors that were existing holders of the Company’s Listed Warrants to purchase an aggregate of 8,417 shares of the Company’s common stock for cash, wherein the investors agreed to exercise all of their existing Listed Warrants at an exercise price of $75.00 per share. The net proceeds received by the Company from this transaction amounted to approximately $391,000. In consideration for the immediate exercise of the existing Listed Warrants for cash, the exercising holders received new warrants to purchase up to an aggregate of 15,000 shares of common stock (the “Private Warrants”) in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The Private Warrants are immediately exercisable upon issuance at an exercise price of $75.00 per common share and will expire on April 19, 2028. Subsequently, the shares of common stock issuable upon exercise of these warrants were registered with the SEC through a Form S-1 filing. During September 2024, the Company entered into multiple warrant inducement transactions with certain holders of its previously-issued warrants. 49 ● On September 3, 2024, the Company entered into inducement letter agreements with certain holders of existing warrants (originally issued on June 26, 2023) to purchase an aggregate of 126,699 shares of common stock. The warrant holders exercised for cash the existing warrants at a reduced exercise price of $5.00 per share, resulting in gross proceeds to the Company of approximately $633,000; in addition to the shares of common stock issued as a result of the warrant exercise, the warrant holders also received new unregistered Series A and Series B warrants. This transaction closed on September 4, 2024, and the net proceeds received by the Company amounted to approximately $489,000. ● On September 18, 2024, the Company entered into inducement letter agreements with certain holders of existing warrants (originally issued on May 1, 2024 in connection with the First Registered Direct Offering described above) to purchase an aggregate of 148,567 shares of common stock. The warrant holders exercised for cash the existing warrants at an adjusted exercise price of $5.13 per share, resulting in gross proceeds to the Company of approximately $762,000; in addition to the shares of common stock issued as a result of the warrant exercise, the warrant holders also received new unregistered Series C and Series D warrants. This transaction closed on September 19, 2024, and the net proceeds received by the Company amounted to approximately $672,000. ● On September 22, 2024, the Company entered into inducement letter agreements with certain holders of existing warrants (originally issued on May 29, 2024 in connection with the Second Registered Direct Offering described above) to purchase an aggregate of 263,160 shares of common stock. The warrant holders exercised for cash the existing warrants at an adjusted exercise price of $9.875 per share, resulting in gross proceeds to the Company of approximately $2.6 million; in addition to the shares of common stock issued as a result of the warrant exercise, the warrant holders also received new unregistered Series E and Series F warrants. This transaction closed on September 24, 2024, and the net proceeds received by the Company amounted to approximately $2,343,000. New Lucyd Ltd. Financing Agreement On March 1, 2024, the Company entered into an agreement with Lucyd Ltd. pursuant to which the Company can receive up to $1,250,000 either (a) in services provided by Lucyd Ltd. to the Company or (b) in cash upon request of funds by the Company. Once funds or services are received by the Company, it will issue a convertible note to Lucyd Ltd. that will bear interest at 10% per annum and include the option to convert the note into shares of the Company’s common stock upon certain defined events. Upon issuance, the convertible note will have a maturity date of September 1, 2025, at which time all outstanding principal and accrued interest, if any, will be payable in full in cash or in the Company’s common stock. The Company will be able to prepay the convertible notes at any time with the written consent of Lucyd Ltd. On March 1, 2025, the Company and Lucyd Ltd. entered into an amendment of the March 1, 2024 convertible note financing agreement, such that upon issuance, the convertible note will have a maturity date of September 1, 2026. There were no other changes to the terms and provisions of the agreement. The Company has not borrowed any amounts under this agreement. Other Factors We expect that operating losses could continue in the foreseeable future as we continue to invest in the expansion and development of our business. We believe our existing cash and cash equivalents (including the proceeds from the equity offerings described above), plus the availability to borrow funds via the March 2024 related party agreement with Lucyd Ltd., will be sufficient to fund our operations for at least the next twelve months. 50 However, our future capital requirements will depend on many factors, including, but not limited to, growth in the number of retail store customers, licenses, the needs of our e-commerce business and retail distribution network, expansion of our product and software offerings, and the timing of investments in technology and personnel to support the overall growth of our business. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. Geopolitical and macroeconomic factors could cause disruption in the global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected. Off-Balance Sheet Arrangements As of December 31, 2024, we did not have any off-balance sheet arrangements. Critical Accounting Policies and Significant Developments and Estimates Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods, as well as related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. We believe that our application of accounting policies, and the estimates inherently required therein, are reasonable. We periodically re-evaluate these accounting policies and estimates and make adjustments when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates. Inventory Our inventory consists of purchased eyewear and related accessories, and is stated at the lower of cost or net realizable value, with cost determined on a specific identification method of inventory costing which attaches the actual cost to an identifiable unit of product. Provisions for excess, obsolete, or slow-moving inventory are recorded after periodic evaluation of historical sales, current economic trends, forecasted sales, estimated product life cycles, and estimated inventory levels. Such provisions were $0 and $31,637 as of December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, the Company recorded an inventory prepayment in the amount of $424,594 and $323,520, respectively, related to down payments on eyewear purchased from the manufacturer, prior to shipment of the product that occurred after the respective balance sheet dates. 51 Intangible Assets Intangible assets recognized on the Company’s books relate to: ● Internally-developed and licensed utility and design patents. We amortize these assets over the estimated useful life of the patents, and review our intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable. ● Capitalized software costs. We had previously incurred costs related to development of the Vyrb software application, and had previously capitalized approximately $88,000 of these costs related to coding, development, and testing (subsequent to establishing technical feasibility of the app), as it was our intention to market and sell this software externally. Although we launched Vyrb as an open beta version in 2021, and continued to add new features to Vyrb throughout 2022 and 2023, we had not officially launched the Vyrb app. During 2024, management decided to shift our primary software development focus to the Lucyd app, which was launched in April 2023 as a free application that enables the user to converse with the extremely popular ChatGPT AI language model through our glasses. Based on this decision, during the year ended December 31, 2024, we expensed the previously-capitalized Vyrb software development costs totaling approximately $88,000 to research and development expense, and as of December 31, 2024, we had no remaining capitalized software costs recorded on our balance sheet. Income Taxes We are taxed as a C corporation. 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. We account for income taxes under an asset and liability approach that recognizes deferred tax assets and liabilities based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse (i.e., when taxes are actually paid or recovered). We assess the realizability of our net deferred tax assets on an annual basis. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all relevant available positive and negative evidence is considered, including the Company’s current and past performance, the market environment in which the Company operates, length of carryback and carryforward periods, and existing contracts that will result in future profits. After reviewing all relevant available evidence, the Company has recorded a full valuation allowance against its deferred tax assets as of December 31, 2024 and 2023. We account for uncertainty in income taxes recognized in our financial statements by using 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. 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. Stock-Based Compensation We recognize compensation expense for stock-based awards to employees and directors and others based on the grant date fair value of such awards. Forfeitures are accounted for as a reduction of compensation expense in the period when such forfeitures occur. 52 For stock option awards, the Black-Scholes-Merton option pricing model is used to estimate the fair value of share-based awards. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and share price volatility. ● The expected term of the stock options is estimated based on the simplified method as allowed by Staff Accounting Bulletin No. 107. ● The share price volatility is estimated using historical stock prices based upon the expected term of the options granted, using stock prices of comparably profiled public companies. ● The risk-free interest rate assumption is determined using the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. For awards of restricted stock units and shares of common stock, the fair value of the award is based on the quoted market price of our common shares on the NASDAQ stock exchange. Revenue Recognition Our revenue is primarily generated from the sales of prescription and non-prescription optical glasses and sunglasses, and shipping charges which are charged to the customer associated with these purchases. We sell products through our retail store resellers, distributors, on our own website Lucyd.co, and on Amazon.com. We have also recently started to generate revenue from the sale of subscriptions to the “Pro” version of our Lucyd app, which provides unlimited ChatGPT interactions and priority tech support for a monthly or annual fee. To determine revenue recognition, we perform the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy a performance obligation. At contract inception, we assess the goods or services promised within each contract and determine those that are performance obligations, and also assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. In instances where the collectibility of contractual consideration is not probable at the time of sale, the revenue is deferred on our balance sheet as a contract liability, and the associated cost of goods sold is deferred on our balance sheet as a contract asset; subsequently, we recognize such revenue and cost of goods sold as payments are received. During the years ended December 31, 2024 and 2023, we recognized $30,000 and $17,500 of revenue, respectively, that was included in the contract liability balance as of January 1, 2024 and 2023, respectively. All revenue, including sales processed online and through our retail store resellers and distributors, is reported net of discounts, returns, and sales taxes collected from customers on behalf of taxing authorities. Amounts billed to a customer for shipping and handling are reported as revenues; costs incurred for shipping and handling are included in cost of goods sold at the time the related revenue is recognized. For sales generated through our e-commerce channels, we identify the contract with a customer upon online purchase of our eyewear and transaction price at the manufacturer suggested retail price (“MSRP”) for non-prescription, polarized sunglass and blue light blocking glasses across all of our online channels. Our e-commerce revenue is recognized upon meeting of the performance obligation when the eyewear is shipped to end customers. U.S. consumers enjoy free USPS first class postage on orders over $149, with faster delivery options available for extra cost, for sales processed through our website. For Amazon sales, shipping is free for U.S. consumers while international customers pay shipping charges on top of MSRP. Any costs associated with fees charged by the online platforms (Shopify for Lucyd.co website and Amazon) are not recharged to customers and are recorded as a component of cost of goods sold as incurred. The Company charges applicable state sales taxes in addition to the MSRP for both online channels and all other marketplaces on which we sell products. 53 For sales to our retail store partners, we identify the contract with a customer upon receipt of an order of our eyewear through our Shopify wholesale portal or direct purchase order. Revenue is recognized upon meeting the performance obligation, which is delivery of the Company’s eyewear products to the retail store, and is also recorded net of returns and discounts. Our wholesale pricing for eyewear sold to retail store partners includes volume discounts, due to the nature of large quantity orders. The pricing includes shipping charges, while excluding any state sales tax charges applicable. Due to the nature of wholesale retail orders, no e-commerce fees are applicable. For sales to distributors, we identify the contract with a customer upon receipt of an order of our eyewear through a direct purchase order. If collectibility of substantially all of the contract consideration is probable, revenue is recognized upon meeting the performance obligation, which is delivery of our eyewear products to the distributor, and is also recorded net of returns and discounts. Our wholesale pricing for eyewear sold to retail store partners and distributors includes volume discounts, due to the nature of large quantity orders. The pricing does not include shipping. Due to the nature of wholesale retail orders, no marketplace fees are applicable, only credit card processing fees. For sales of subscriptions to the “Pro” version of our Lucyd app, we identify the individual contracts with customers through detailed transaction reports from the Apple App Store or Google Play Store, with each individual transaction representing a separate contract. Revenue is recognized upon meeting the performance obligation, which is the right and availability of each customer to access the “Pro” features of the Lucyd app. For those customers that purchase such access on a month-to-month basis, we recognize revenue in the month in which the purchase of such access is made. For those customers which purchase an annual subscription, we recognize revenue on a straight-line basis over the subscription period, using a mid-month convention. The balance of unearned revenue related to app subscriptions that has been deferred on our balance sheet as a contract liability was $2,401 as of December 31, 2024. The Company’s sales do not contain any variable consideration. We allow our customers to return our products, subject to our refund policy, which allows any customer to return our products for any reason within the first: ● 7 days for sales made through our website (Lucyd.co) ● 30 days for sales made through Amazon ● 30 days for sales to most wholesale retailers and distributors (although certain sales to independent distributors are ineligible for returns) For all of our sales, at the time of sale, we establish a reserve for returns, based on historical experience and expected future returns, which is recorded as a reduction of sales. Additionally, we 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 $15,746 and $25,933 as of December 31, 2024 and 2023, respectively. Item 7A. Quantitative and Qualitative Disclosures About Market Risk . Not required for smaller reporting companies. Item 8. Financial Statements and Supplementary Data . See accompanying “Index to Consolidated Financial Statements.” 54 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . None.