Innovative Eyewear, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Innovative Eyewear develops and sells connected eyewear, including Lucyd smart glasses, through its website, Amazon, retail partners and distributors. Lucyd Ltd. and affiliates owned approximately 67% of the company at quarter-end.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net revenue | $144,921 | $236,022 |
| Gross profit (margin) | $10,291 (7%) | $74,390 (32%) |
| Operating expenses | $1,439,238 | $1,262,575 |
| Net loss | $1,430,810 | $1,206,559 |
| Basic and diluted loss per share | $0.19 | $0.20 |
| Net cash used in operating activities | $1,427,072 | $630,869 |
| Net cash used in investing activities | $136,960 | $82,661 |
| Net cash provided by financing activities | $1,422,751 | $675,554 |
At March 31, cash and cash equivalents were $3.45 million, current assets $4.54 million, and current liabilities $505,000. Total assets were $5.11 million, total liabilities $563,000, and stockholders’ equity $4.55 million. Inventory was $743,000, up from $95,000 at year-end 2022. The company had no convertible-note balance at quarter-end; it repaid the related-party note in February. It reported $182,421 due to its parent and affiliates. No other borrowings are disclosed in the balance sheet.
Changes versus prior-year quarter
- Revenue fell 39%, which management attributed primarily to manufacturing and shipping delays after COVID-related factory shutdowns in China.
- Gross margin declined to 7% from 32%; management cited lower sales volume and higher fees and quality-assurance costs.
- Operating expenses rose 14%. General and administrative expense increased 64%, including higher public-company and employee costs; research and development increased as software initiatives expanded. Sales and marketing expense decreased 56% as the company reworked its e-commerce presence and restrained advertising.
- Net loss increased by $224,251. Operating cash use more than doubled, with inventory purchases a significant use of cash.
- Warrant exercises generated $1.53 million in Q1 financing proceeds. Shares outstanding increased to 7,715,757 at quarter-end from 7,307,157 at December 31, 2022.
Outlook, commentary and risks
- Management expects losses could continue while it invests in growth. It forecasts available liquidity sufficient to fund operations through at least May 2024; it also states that existing resources are expected to cover at least the next twelve months. These are management estimates, not guaranteed outcomes.
- Management expects 2023 gross profit to improve, citing anticipated larger orders and economies of scale, and anticipates growth in wholesale and e-commerce sales. No specific revenue or earnings guidance is provided.
- Plans include additional Lucyd and Nautica eyewear styles, Bluetooth safety glasses, and a commercial Vyrb app launch planned for Q4 2023. In April 2023, the company launched a Lucyd mobile app enabling ChatGPT access through its glasses; management described potential marketing and in-app revenue opportunities.
- The company reported more than 280 retail stores and 230 wholesale accounts, including 50 new wholesale accounts in Q1. It had received 13,174 online customer orders through March 31.
- Liquidity depends in part on equity and warrant proceeds; the company may need additional financing, which could dilute shareholders or impose debt obligations. Subsequent to quarter-end, warrant exercises produced $1.20 million through April 16; an April 17 inducement transaction generated $562,000 gross and issued replacement warrants for up to 300,000 shares.
- Licensing agreements for Nautica and Eddie Bauer include guaranteed minimum royalties. Each provides for approximately $1.1 million of minimum payments during the noncancelable 2022–2027 period and approximately $3.6 million during 2028–2032; 2023 minimum payments for each are less than $25,000.
- Management concluded disclosure controls were ineffective as of March 31, 2023 because of material weaknesses in internal control over financial reporting. The company reported no material pending legal proceedings and no material changes to risk factors from its 2022 Form 10-K.
Key facts for investors to verify
- Whether manufacturing and shipping delays have eased and whether sales recover from the 39% year-over-year decline.
- Whether gross margin and unit costs improve as sales volumes and retail distribution grow.
- Cash burn, inventory levels, and the assumptions supporting management’s liquidity runway through May 2024.
- The terms, dilution effects and subsequent exercise activity associated with warrants, including the new April 2023 warrants.
- Minimum royalty obligations, product-launch timing and commercial adoption of the Lucyd app, Vyrb and licensed-brand eyewear.
- Remediation progress for the material weaknesses in internal control over financial reporting.