Innovative Eyewear(LUCY) - 2025 Q2 - Quarterly Report

Part I. Financial Information This section presents the unaudited condensed financial statements and management's discussion and analysis for Innovative Eyewear, Inc. Item 1. Condensed Financial Statements (Unaudited) Presents Innovative Eyewear, Inc.'s unaudited condensed financial statements, including balance sheets, operations, equity, and cash flows. Condensed Balance Sheets Summarizes the Company's financial position, including assets, liabilities, and equity, as of June 30, 2025, and December 31, 2024. Condensed Balance Sheets as of June 30, 2025 and December 31, 2024 | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $7,627,382 | $2,628,987 | | Investments | $1,285,263 | $4,895,184 | | Total Current Assets | $11,332,989 | $9,238,216 | | TOTAL ASSETS | $11,935,772 | $9,838,309 | | Liabilities | | | | Total Current Liabilities | $606,060 | $737,718 | | TOTAL LIABILITIES | $658,518 | $743,168 | | Stockholders' Equity | | | | TOTAL STOCKHOLDERS' EQUITY | $11,277,254 | $9,095,141 | Condensed Statements of Operations Presents the Company's revenues, costs, and net loss for the three and six months ended June 30, 2025 and 2024. Condensed Statements of Operations for the three and six months ended June 30, 2025 and 2024 | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues, net | $579,230 | $308,682 | $1,033,731 | $692,153 | | Less: Cost of Goods Sold | $(591,895) | $(253,506) | $(825,863) | $(630,026) | | Gross (Deficit) Profit | $(12,665) | $55,176 | $207,868 | $62,127 | | Total Operating Expenses | $(2,158,407) | $(2,029,534) | $(4,282,731) | $(4,051,076) | | Net Loss | $(2,106,094) | $(1,948,399) | $(3,884,797) | $(3,919,710) | | Loss per share, basic and diluted | $(0.66) | $(1.87) | $(1.37) | $(4.37) | Condensed Statements of Stockholders' Equity Details changes in stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit, for the periods presented. Condensed Statements of Stockholders' Equity for the three and six months ended June 30, 2025 and 2024 | Metric | Balances as of January 1, 2025 | Balances as of June 30, 2025 | Balances as of January 1, 2024 | Balances as of June 30, 2024 | | :-------------------------------- | :----------------------------- | :--------------------------- | :----------------------------- | :--------------------------- | | Common Stock (Shares) | 2,452,632 | 4,828,884 | 747,416 | 1,527,034 | | Common Stock (Amount) | $25 | $48 | $7 | $15 | | Additional Paid In Capital | $33,831,046 | $39,897,933 | $22,528,234 | $28,233,205 | | Accumulated Deficit | $(24,735,930) | $(28,620,727) | $(16,969,415) | $(20,889,125) | | Total Stockholders' Equity | $9,095,141 | $11,277,254 | $5,558,826 | $7,344,095 | - Total Stockholders' Equity increased from $9,095,141 as of January 1, 2025, to $11,277,254 as of June 30, 2025, primarily due to warrant inducement transactions and other warrant exercises, which contributed significantly to additional paid-in capital[15] Condensed Statements of Cash Flows Outlines cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024. Condensed Statements of Cash Flows for the six months ended June 30, 2025 and 2024 | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash flows from operating activities | $(4,427,553) | $(3,396,689) | | Net cash flows from investing activities | $3,665,912 | $(113,811) | | Net cash flows from financing activities | $5,760,036 | $5,119,942 | | Net Change in Cash and cash equivalents | $4,998,395 | $1,609,442 | | Cash and cash equivalents at End of Period | $7,627,382 | $5,896,889 | - Net cash from investing activities significantly increased in H1 2025 due to proceeds from redemption of U.S. Treasury bills, offsetting increased cash used in operating activities[18] Notes to the Financial Statements Provides detailed explanations and disclosures supporting the unaudited condensed financial statements. NOTE 1 – General Information Outlines the Company's business, products, and ownership structure. - Innovative Eyewear, Inc. develops and sells smart eyewear, including prescription, sunglasses, safety, and sport glasses, under the Lucyd brand and licensed brands like Nautica, Eddie Bauer, and Reebok. Tekcapital Plc, through Tekcapital Europe, Ltd. and Lucyd Ltd., owned approximately 6% of the Company's common stock as of June 30, 2025[21] NOTE 2 – Summary of Significant Accounting Policies Describes the key accounting principles and methods used in preparing the financial statements. - The financial statements are prepared in accordance with GAAP for interim financial information, with certain disclosures condensed or omitted per SEC rules. Management's estimates are used, and actual results may differ due to economic uncertainties[22][23][24] - Investments in U.S. Treasury bills are classified as 'held-to-maturity' and recorded at amortized cost. A realized gain of $104,816 was recognized for the six months ended June 30, 2025, from matured investments[26][27] - Revenue is primarily from sales of smartglasses and accessories through various channels (website, Amazon, resellers, distributors) and recently from Lucyd app 'Pro' subscriptions. Revenue recognition follows a five-step model, with deferrals for uncollectible consideration or annual subscriptions[33][34][40] NOTE 3 – Going Concern Discusses the Company's ability to continue operations, liquidity, and future funding requirements. - The Company has a limited operating history and relies on eyewear sales and equity issuances for working capital. Recent warrant inducement transactions generated approximately $4.0 million, and unsolicited warrant exercises added $2.6 million. Management expects sufficient liquidity for at least the next 12 months, with potential for additional fundraising[45][46] NOTE 4 – Income Tax Provision / Benefit Explains the Company's income tax position, including the absence of a provision or benefit due to valuation allowance. - The Company has not recorded an income tax provision or benefit for the three and six months ended June 30, 2025 and 2024, due to maintaining a full valuation allowance against its net deferred tax assets[47] NOTE 5 – Tangible and Intangible Assets Provides details on the Company's property, equipment, and intangible assets, including depreciation and amortization expenses. Tangible and Intangible Assets, Net | Asset Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Property and equipment, net | $58,330 | $107,562 | | Intangible assets, net | $435,043 | $451,302 | Depreciation and Amortization Expense | Expense Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Depreciation expense | $17,168 | $38,292 | $38,370 | $59,951 | | Amortization expense | $22,707 | $7,843 | $35,379 | $15,297 | NOTE 6 – Related Party Transactions and Agreements Details transactions and agreements with related parties, including management services, loan facilities, and convertible notes. - The Company has a management services agreement with Tekcapital Europe, Ltd., incurring a $35,000 quarterly fee for various support services. Rent for office space is also allocated and billed by Tekcapital[53][54][55] - A new loan facility of up to $500,000 was made available to Tekcapital Europe, Ltd. in April 2025, bearing 10% simple interest. $250,000 was borrowed and repaid in full with interest by June 2025. Tekcapital Plc guarantees the loan[59][60] - An agreement with Lucyd Ltd. allows the Company to receive up to $1,250,000 in services or cash, issuing a convertible note with 10% interest and a maturity date of September 1, 2026. No amounts have been borrowed under this agreement[61][62][63] NOTE 7 – Commitments and Contingencies Outlines the Company's contractual obligations, including license agreements and the impact of new U.S. government tariffs. Aggregate Future Minimum Payments for License Agreements | Year | Aggregate Future Minimum Payments | | :---------------- | :------------------------------ | | Remainder of 2025 | $40,000 | | 2026 | $834,000 | | 2027 | $1,290,000 | | 2028 | $1,543,000 | | 2029 | $1,778,000 | | Thereafter (through 2033) | $8,129,000 | | Total | $13,614,000 | - The Company has multi-year license agreements for Nautica, Eddie Bauer, and Reebok brands, requiring royalties and guaranteed minimum payments totaling $13,614,000 through 2033. License expense for Q2 2025 was $146,634 (YoY +139.7%) and H1 2025 was $279,970 (YoY +128.9%)[64][65][66] - New U.S. government tariffs on imported goods, effective April 2025, have negatively impacted results, particularly gross profit margins. The Company is monitoring the situation and implementing mitigation strategies, including diversifying logistics and exploring alternative manufacturing[71][72] NOTE 8 – Stock-Based Compensation Details stock option and restricted stock unit activity, including related compensation expenses and unrecognized amounts. Stock Options Activity | Stock Options | As at January 1, 2025 | As at June 30, 2025 | | :-------------------------- | :-------------------- | :------------------ | | Options (Number) | 83,800 | 53,737 | | Weighted Average Exercise Price ($) | $37.21 | $18.26 | | Weighted Average Remaining Contractual Life (Years) | 2.33 | 2.95 | - Stock option expense for Q2 2025 was $31,811 and for H1 2025 was $68,457. Unrecognized stock option expense of approximately $65,000 remains to be recognized over the next 0.51 years[73] - Restricted stock unit expense for Q2 2025 was $132,903 and for H1 2025 was $273,832. Unrecognized RSU expense of approximately $1,124,000 remains to be recognized over the next 2.07 years[76] NOTE 9 – Stockholders' Equity Describes changes in stockholders' equity, including warrant inducement transactions and other equity issuances. - In April 2025, the Company completed a warrant inducement transaction, generating approximately $1.5 million in net proceeds by reducing the exercise price of existing warrants to $2.60 per share and issuing new Series G and H warrants. H.C. Wainwright & Co. received 7.5% cash fee plus 1.0% management fee and warrants for 44,639 shares[78][79][80][81] - In June 2025, another warrant inducement transaction generated approximately $1.9 million in net proceeds, involving the exercise of existing warrants at $2.60 per share and issuance of new Series I warrants. H.C. Wainwright & Co. received similar fees and warrants for 56,009 shares[83][84][85][86] - Other warrant exercises during Q2 2025 generated approximately $2.6 million in gross cash proceeds from 986,532 shares at $2.60 per share. Placement agent fees of approximately $0.3 million and warrants for 80,139 shares were paid to HCW[88][89] NOTE 10 – Earnings Per Share Presents the calculation of basic and diluted net loss per common share for the periods presented. Earnings Per Share Calculation | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(2,106,094) | $(1,948,399) | $(3,884,797) | $(3,919,710) | | Weighted-average number of common shares | 3,214,790 | 1,044,211 | 2,836,222 | 896,685 | | Basic and diluted net loss per common share | $(0.66) | $(1.87) | $(1.37) | $(4.37) | - Due to net losses, all common stock options, warrants, and related party convertible debt were excluded from EPS calculation due to their anti-dilutive effect. Shares held in abeyance (254,282) were included in the computation for Q2 and H1 2025[90][91] NOTE 11 – Subsequent Events Reports significant events occurring after the balance sheet date, including new legislation and intellectual property assignment. - The One Big Beautiful Bill Act (OBBBA) was signed into U.S. law on July 4, 2025, with tax provisions effective from 2025 to 2027. The Company is currently assessing its impact on financial statements[93] - On August 12, 2025, Lucyd Ltd. irrevocably assigned all registered and unregistered intellectual property rights and assets previously licensed to the Company, terminating the exclusive license agreements. The Company now holds full ownership of these IPs[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results for Q2 and H1 2025, covering revenue growth, tariff impacts, and mitigation strategies. Overview Provides a high-level summary of the Company's financial performance, including revenue growth, gross profit, and operating expenses. - Revenues for Q2 2025 increased by 88% YoY, and for H1 2025 by 49% YoY, driven by strong consumer demand, particularly for Lucyd Armor smart safety glasses and the new Reebok Powered by Lucyd sport smart sunglasses[97] - Gross profit margin for Q2 2025 decreased to -2% from 18% in Q2 2024, primarily due to significantly higher custom duties and tariffs on imported goods. The Company is implementing a multi-pronged approach to mitigate these impacts[97] - Operating expenses increased modestly by 6% in Q2 2025, mainly due to advertising and selling-related fees tied to higher sales volumes. Management believes revenues can scale faster than overhead due to fixed/semi-fixed general and administrative expenses[97] General Product and Corporate Overview Describes the Company's mission, smart eyewear product portfolio, and Lucyd app features. - Innovative Eyewear's mission is to 'Upgrade Your Eyewear' by developing smart eyewear that integrates headphones with glasses for digital connectivity and clear audio, offering a safer listening solution. Products include prescription, sunglasses, safety, and sport glasses[98][99] - The product portfolio includes 30 models across traditional (Lucyd Lyte, Nautica, Eddie Bauer), sport (Reebok), and safety (Lucyd Armor) categories, with thousands of variations. New versions of Lucyd Armor and Reebok premium optical collection are planned for Q4 2025[100][101] - The Lucyd app offers ChatGPT AI integration for hands-free smartphone tasks, with a 'Pro' version providing unlimited interactions and priority tech support (a new revenue stream). The app also features 'Walkie' for group communication, with secure channels for premium subscribers[102][103][104] Key Factors Affecting Performance Identifies factors influencing future revenue growth, client retention, and competitive advantage, including retail expansion and R&D. - Future revenue growth is positively correlated with the expansion of retail points of purchase, including optical, sporting goods, and specialty stores. The Company expects to offer over 40 smart eyewear SKUs by the end of 2025 and has expanded its sales team to support this growth[107][108] - Sustained revenue relies on retail store client retention and re-orders, supported by a co-op marketing program, new modular display systems with virtual try-on and audio testing, and incorporating retail partner feedback into product design[109] - Continuous investment in R&D for new models, improved sound quality, temple thinness, battery life, and digital features via the Lucyd app is crucial for maintaining a competitive edge. The Company also plans to expand sales, marketing, and brand ambassador teams[110][111] Key Performance Indicators Highlights key metrics used to assess business performance, such as retail store count and customer ratings. - The number of retail stores selling products is a key indicator; currently, over 540 retail stores across 300+ wholesale accounts in the US and Canada. Significant expansion into new third-party retail locations is anticipated in 2025[112] - Customer ratings for the latest products, such as Reebok styles (4.5/5 on Amazon), are higher than previous products, indicating appreciation for design, functionality, and build quality improvements[113] International Trade and Tariffs Discusses the impact of new U.S. tariffs on gross profit margins and the Company's mitigation strategies. - New or increased U.S. tariffs on imported goods, effective April 2025, negatively impacted gross profit margins for Q2 and H1 2025[114] - Mitigation strategies include: * Opening three new fulfillment centers (Europe, Canada, Shenzhen) to improve international factory direct business, which is not subject to U.S. tariffs * Expanding the lowest cost product line (Lucyd Armor) and developing a new discounted optical line for launch in H1 2026 * Conducting thorough investigations of alternatives to Chinese manufacturing, with contingency plans to shift to Taiwan and/or Vietnam if necessary * Instituting a minor price increase of $15 to most custom lens orders to help mitigate new tariff expenses[115][119] - These actions are expected to result in improvements in gross profit margins in subsequent quarters, with tariff expense reduced to a run rate of less than $15,000 per month by the end of Q2 2025[116][127] Results of Operations - Quarterly Analyzes the Company's financial performance for the three months ended June 30, 2025, compared to the prior year. Quarterly Results of Operations | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Revenues, net | $579,230 | $308,682 | $270,548 | 88% | | Less: Cost of Goods Sold | $(591,895) | $(253,506) | $(338,389) | 133% | | Gross (Deficit) Profit | $(12,665) | $55,176 | $(67,841) | n/m | | Operating Expenses: | | | | | | General and administrative | $(1,310,865) | $(1,295,299) | $(15,566) | 1% | | Sales and marketing | $(544,318) | $(442,433) | $(101,885) | 23% | | Research and development | $(268,224) | $(256,802) | $(11,422) | 4% | | Related party management fee | $(35,000) | $(35,000) | $- | 0% | | Total Operating Expenses | $(2,158,407) | $(2,029,534) | $(128,873) | 6% | | Other Income (Expense), net | $64,978 | $25,959 | $39,019 | 150% | | Net Loss | $(2,106,094) | $(1,948,399) | $(157,695) | 8% | - Revenue increased by 88% YoY to $579,230, driven by significant volume increases from new product launches (Lucyd Armor, Reebok Powered by Lucyd), partially offset by higher discounts due to planned Q2 promotions[120][121][122] - Cost of goods sold increased by 133% YoY to $591,895, primarily due to higher custom duties, tariffs, and importation costs, despite lower product sourcing costs for frames and lenses. Gross profit margin declined to -2% from 18% YoY[126][127][129] Results of Operations – Year to Date Analyzes the Company's financial performance for the six months ended June 30, 2025, compared to the prior year. Year-to-Date Results of Operations | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Revenues, net | $1,033,731 | $692,153 | $341,578 | 49% | | Less: Cost of Goods Sold | $(825,863) | $(630,026) | $(195,837) | 31% | | Gross Profit | $207,868 | $62,127 | $145,741 | 235% | | Operating Expenses: | | | | | | General and administrative | $(2,402,213) | $(2,404,245) | $2,032 | 0% | | Sales and marketing | $(1,331,718) | $(1,103,728) | $(227,990) | 21% | | Research and development | $(478,800) | $(473,103) | $(5,697) | 1% | | Related party management fee | $(70,000) | $(70,000) | $- | 0% | | Total Operating Expenses | $(4,282,731) | $(4,051,076) | $(231,655) | 6% | | Other Income (Expense), net | $190,066 | $69,239 | $120,827 | 175% | | Net Loss | $(3,884,797) | $(3,919,710) | $34,913 | -1% | - Revenue increased by 49% YoY to $1,033,731, driven by new product launches (Nautica, Eddie Bauer, Lucyd Armor, Reebok) and improved pricing. Lucyd Armor and Reebok launches are bringing new customer segments and sales categories[143][144][145] - Cost of goods sold increased by 31% YoY to $825,863, primarily due to volume increases and higher tariffs, partially offset by lower product sourcing costs and certification costs. Gross profit margin improved to 20% from 9% YoY due to cost reduction measures and increased average order value[149][150][153] Liquidity and Capital Resources Assesses the Company's ability to meet short-term and long-term obligations, including cash position and financing activities. Liquidity and Capital Resources Summary | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Cash and cash equivalents | $7.6 million | $2.6 million | | Total overall liquidity (Cash + Investments) | $8.9 million | $7.5 million | | Working capital | $10.7 million | $8.5 million | - Despite negative impacts from tariffs causing a gross deficit in Q2 2025, the Company believes it has sufficient liquidity for the next twelve months, supported by its at-the-market offering program with H.C. Wainwright & Co. and the ability to borrow from Lucyd Ltd. No debt obligations as of June 30, 2025[167][168] - Net cash used in operating activities for H1 2025 was $(4.4) million, reflecting net loss and investments in inventory. Net cash provided by investing activities was $3.7 million, mainly from U.S. Treasury bill redemptions. Net cash from financing activities was $5.8 million, primarily from warrant exercises and equity transactions[169][170][171] Other Factors Discusses future capital requirements, potential financing, and the absence of off-balance sheet arrangements. - Operating losses are expected to continue as the Company invests in business expansion. Future capital requirements depend on retail growth, licenses, e-commerce, product expansion, and technology investments. Additional equity or debt financing may be required, with potential for dilution or restrictive covenants[184][185] - The Company had no off-balance sheet arrangements as of June 30, 2025. No material changes in critical accounting policies or significant estimates from the 2024 Form 10-K[186][187] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Innovative Eyewear, Inc. is not required to provide market risk disclosures. - The Company is a smaller reporting company and is therefore not required to provide quantitative and qualitative disclosures about market risk[188] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2025, due to material weaknesses in internal control. - Disclosure controls and procedures were deemed ineffective as of June 30, 2025, due to material weaknesses in internal control over financial reporting[189] - No material changes in internal control over financial reporting occurred during the second quarter of fiscal year 2025[190] Part II. Other Information This section provides additional non-financial information, including legal proceedings, risk factors, equity sales, and intellectual property details. Item 1. Legal Proceedings The Company is not currently involved in any material pending legal proceedings. - The Company is not currently subject to any material pending legal proceedings[192] Item 1A. Risk Factors No material changes to the Company's risk factors have occurred since the 2024 Annual Report on Form 10-K. - No material changes to risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024[193] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details unregistered warrant and equity sales during H1 2025, generating proceeds for working capital under Section 4(a)(2) and Rule 506 exemptions. - The Company issued Series G, H, and I warrants, along with associated placement agent warrants, without registration under the Securities Act, relying on exemptions for sales to accredited investors[194][196][201] - The April 2025 warrant inducement transaction generated approximately $1.5 million in net proceeds, and the June 2025 transaction generated approximately $1.9 million in net proceeds. Both were used for working capital and general corporate purposes[197][202] - H.C. Wainwright & Co. acted as the exclusive placement agent for these offerings, receiving cash fees (7.5% of gross proceeds + 1.0% management fee) and warrants to purchase common stock[198][203] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period. - There were no defaults upon senior securities[205] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company. - Mine safety disclosures are not applicable to the Company[206] Item 5. Other Information Details intellectual property assignment from Lucyd Ltd., the Company's patent portfolio, and executive officer stock sales under Rule 10b5-1 plans. - On August 12, 2025, Lucyd Ltd. irrevocably assigned all registered and unregistered intellectual property rights and assets previously exclusively licensed to the Company, thereby terminating the original license agreements. The Company now holds full ownership of this IP[207] - The Company's patent portfolio includes 71 applications/patents, covering smartglasses, methods for using AI, design patents for various smartglasses styles, safety smartglasses, and charging cradles, with many already issued in the US, Canada, and China[208][209][210] - Several executive officers, including the CEO and Co-CFOs, sold shares during Q2 2025 pursuant to Rule 10b5-1 trading plans adopted in December 2024[214][215][216] Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including SOX certifications from executive officers and Inline XBRL documents. - Key exhibits include: * Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 * Inline XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase Documents * Cover Page Interactive Data File[218] Signatures The report is signed by Harrison Gross, CEO, and Oswald Gayle, Co-CFO, on behalf of Innovative Eyewear, Inc. on August 14, 2025. - The report was signed by Harrison Gross, Chief Executive Officer, and Oswald Gayle, Co-Chief Financial Officer, on August 14, 2025[221]