Innovative Eyewear, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial statements are unaudited. The company develops and sells smart eyewear under the Lucyd brand through e-commerce and retail partners; its parent, Lucyd Ltd., held approximately 71% of common shares at June 30.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $204,741 | $127,027 | $440,763 | $244,152 |
| Gross profit | $43,247 | $32,656 | $117,637 | $41,996 |
| Gross margin | 21.1% | 25.7% | 26.7% | 17.2% |
| Operating expenses | $1,189,614 | $550,459 | $2,452,189 | $776,157 |
| Net loss | $(1,193,812) | $(536,600) | $(2,400,371) | $(758,313) |
| Basic and diluted loss per share | $(0.20) | $(0.10) | $(0.40) | $(0.16) |
Revenue increased 61% in Q2 and 81% in the first half year over year, reflecting expanded sales following the January 2021 launch of Lucyd Lyte. For the first half, sales were approximately 25% through Lucyd.co, 34% through Amazon, and 41% through reseller partners. Gross margin improved year over year for the first half but declined in Q2, as cost of goods sold rose faster than quarterly revenue.
Operating expenses rose substantially, particularly general and administrative and sales and marketing costs. First-half stock-based compensation was $833,902, including $638,958 of general and administrative stock compensation and $194,944 related to sales and marketing. Management attributed spending growth to staffing, consultants, advertising, influencers, trade shows, and product development.
Cash, liquidity, and debt
- At June 30, cash was $34,878, versus $79,727 at December 31, 2021. Current assets were $835,469 and current liabilities were $2,453,402, implying negative working capital of approximately $1.62 million.
- First-half operating cash outflow was $1,136,112; investing outflow was $97,754; financing inflow was $1,189,017. Financing was principally $1,245,000 of related-party convertible debt proceeds.
- Current liabilities included $1,937,768 of related-party convertible debt and $231,030 due to the parent and affiliates. The filing reports that the parent paid $474,047 of company expenses during the first half.
- After quarter-end, the August 2022 IPO generated net proceeds of $6,189,734. The company said this liquidity was expected to fund operations through at least the end of 2023; it also expected operating losses to continue in the foreseeable future.
Outlook, risks, and notable developments
- Management anticipated slightly improved 2022 gross profit, supported by expected economies of scale, and further growth in both wholesale and e-commerce sales. It expected sales and marketing costs to increase as the company expands brand awareness and retail distribution. No specific revenue or earnings guidance was provided.
- The company reported more than 200 retail stores selling Lucyd Lyte and a 32.7% store reorder rate as of June 30. It had received more than 9,827 online customer orders.
- The August 17 IPO sold 980,000 units at $7.50 each, comprising 980,000 common shares and 1,960,000 warrants, before underwriting discounts and expenses. The underwriters also exercised an option for 294,000 additional warrants. The company separately issued underwriter warrants for up to 58,800 shares. As of August 15, Lucyd Ltd. had converted $2,002,280 of its convertible note into 260,970 shares, leaving approximately $254,000 outstanding.
- The company cited risks including its limited operating history, continuing losses and cash needs, reliance on retail expansion and reorders, manufacturing in Asia, potential supply-chain and COVID-19 impacts, and the possibility of needing further financing. It reported no current litigation and no off-balance-sheet arrangements. Management noted no material change in risk factors from its effective Form S-1.
- The report states the company had not filed all required Exchange Act reports during the preceding 12 months. It also says management’s internal-control assessment was omitted under the SEC transition rules for newly public companies.
Key facts for investors to verify
- Whether post-IPO cash, spending, and sales performance support management’s stated runway through at least the end of 2023.
- The terms, conversion balance, interest, and repayment or conversion status of related-party debt, including the approximately $254,000 reported outstanding after the August conversion.
- The potential dilution from IPO warrants, underwriter warrants, outstanding options, and future financing needs; the filing reported 7,307,157 common shares outstanding as of September 22, 2022.
- Whether retail-store expansion translates into sustained reorders and improved gross margins, given the reported 32.7% reorder rate and Q2 margin decline.
- The significance of the reported filing-compliance checkbox and the timing of future internal-control disclosures as the company transitions to public-company reporting.