Innovative Eyewear, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results; comparisons are with the corresponding 2022 periods. The company develops and sells smart eyewear and related products under the Lucyd brand.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $169,929 | $204,741 | $314,850 | $440,763 |
| Gross profit (loss) | $(29,816) | $43,247 | $(19,525) | $117,637 |
| Gross margin | (17.5%) | 21.1% | (6.2%) | 26.7% |
| Operating expenses | $1,304,475 | $1,189,614 | $2,743,713 | $2,452,189 |
| Net loss | $(1,287,802) | $(1,193,812) | $(2,718,612) | $(2,400,371) |
| Basic and diluted loss per share | $(0.15) | $(0.20) | $(0.34) | $(0.40) |
At June 30, 2023, cash and cash equivalents were $5.36 million and held-to-maturity U.S. Treasury bills were $1.95 million (fair value $1.95 million). Current assets were $8.77 million; current liabilities were $330,594; total liabilities were $388,544. The company had no related-party convertible debt outstanding, having repaid it in February 2023.
For the first six months, operating cash use was $3.27 million, investing cash use was $2.12 million, and financing cash inflow was $7.15 million. Financing was primarily from the June public offering and warrant exercises. Inventory and inventory prepayments totaled approximately $1.03 million at period end.
Changes versus prior periods
- Revenue declined 17% year over year in Q2 and 29% for the six-month period. Management cited competitor discounting, company promotions and lower marketing spend; the six-month decline also reflected a nonrecurring prior-year wholesale sale, product defects and first-quarter shipping delays.
- Gross results shifted from profit to deficit in both comparisons. Management attributed pressure to discounts, returns and customer concessions, import duties and fees, and replacement units associated with product quality issues.
- Six-month net loss widened by $318,241. Operating expenses rose 12% in Q2 and 12% for the half-year, despite lower reported sales and marketing expense; general and administrative and research and development costs increased.
- Cash rose from $3.59 million at year-end 2022 to $5.36 million at June 30, following significant equity financing. Common shares outstanding increased from 7.31 million to 12.92 million during the period.
Outlook, commentary and risks
- Management expects operating losses may continue, but believes available liquidity can fund operations through at least August 2024. Additional capital may be needed depending on growth, product development and operating requirements; further equity financing would dilute shareholders.
- Management expects 2023 gross profit to improve, citing anticipated larger wholesale and retail orders and scale benefits. It anticipated growth in wholesale and e-commerce sales in the second half of 2023; these are forward-looking expectations, not guarantees.
- Planned initiatives include further Lucyd Lyte models, Nautica-branded smart eyewear, retail display upgrades and a commercial Vyrb launch targeted for Q4 2023. The company also launched a Lucyd app integrating access to ChatGPT in April 2023. Nautica products were expected to reach Nautica.com and stores in 2024.
- Management cited intense competition and discounting, supply-chain and product-quality risks, returns, and the company’s need for continued investment. The company has multi-year brand license agreements with aggregate future minimum royalty payments of $13.27 million through 2033, including $161,210 in 2024.
- Disclosure controls and procedures were reported as ineffective as of June 30, 2023 due to material weaknesses in internal control over financial reporting. The filing reports no material change in those controls during the quarter.
- The company reported no material pending legal proceedings and no material changes to previously disclosed risk factors. It reported no off-balance-sheet arrangements.
Key facts for investors to verify
- Whether revenue growth, retail reorders and planned product launches materialize, and whether discounts and marketing changes improve demand.
- Whether gross margins recover as management expects, given recent negative gross margins and quality, returns and import-cost pressures.
- Cash burn, available liquidity and the timing or terms of any further capital raise; also consider dilution from the 6.41 million warrants outstanding at June 30, 2023.
- Progress in remediating the material weaknesses that caused disclosure controls to be deemed ineffective.
- Execution of brand licensing plans and the ability to support the associated minimum royalty commitments.