INNOVATIVE EYEWEAR INC Management’s Discussion and Analysis of Financial Condition and Operating Results. (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read together with our financial statements and the related
notes and the other financial information included elsewhere in this Quarterly
Report. This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those discussed below and elsewhere in this Quarterly Report.

Insight

We develop and sell 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 to
perform many common smartphone tasks hands-free. Innovative Eyewear owns the
exclusive rights to the Lucyd brand and the Lyte product line.

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 similar to traditional prescription eyewear.

After the full launch of Lucyd Lyte in January 2021, we had strong interest and
demand from customers in the U.S. and have since sold thousands of our smart
eyewear. In order to meet the growing demand for our products, and in an effort
to expand our reach, we have engaged over 150 unique wholesale accounts. All of
our products are designed in Miami, manufactured in Asia, and currently sold
through two major sales channels:

(1) e-commerce primarily through our website (Lucyd.co) and marketplaces such as

     Amazon, Bestbuy.com and DicksSportingGoods.com.



(2) a growing network of independent eyewear stores.



We apply a manufacturer suggested retail price ("MSRP") of $149 (for our
standard frames) to $179 (for our titanium frames) for non-prescription,
polarized sunglass and blue light blocking glasses across all of our online
channels, with our wholesale pricing offering volume discounts to these prices.
Please refer to discussion in the Components of Results of Operations for more
details regarding our pricing structure.

We are gearing-up to expand these channels with national eyewear chains, big box
retail stores (electronics, sporting goods, general merchandise) and specialty
retail stores.

We view this business model as being more efficient with regards to the
deployment of capital, by electing not to build our own manufacturing facilities
and Company-owned retail distribution, but rather contract with existing sources
of production and consumer facing retail distribution.

Impact of COVID-19 on our business

On March 11, 2020, the World Health Organization officially declared the
outbreak of the COVID-19 virus a "pandemic." This contagious disease outbreak
has continued to spread across the globe and is impacting worldwide economic
activity and financial markets. In light of the uncertain and rapidly evolving
situation relating to the spread of COVID-19, we took precautionary measures
intended to minimize the risk of the virus to our employees, by following the
CDC guidelines. Specifically, we set up a system that enabled our employees to
work remotely when it was beneficial for them or when they felt ill.
Additionally, precautionary measures that have been adopted may negatively
affect our ability to sell our products. For example, reducing the marketplace
traction at trade shows, and retail store traffic for our re-sellers, and the
fulfilment of customer orders with customized lenses, shipping delays and other
operations of our suppliers and fulfilment partners. Additionally, our product
is manufactured in China and shipped from China on a regular basis. We have not
experienced substantial delays in manufacturing or shipping due to COVID-19,
however, we are exposed to such risk in the future as a potential impact of
COVID-19. More generally, the outbreak of COVID-19 could adversely affect
economies and financial markets globally, potentially leading to an economic
downturn, which could decrease consumer spending and adversely affect demand for
our products. It is not possible at this time to estimate the impact that
COVID-19 could have on our business, as the impact will depend on future
developments, which are highly uncertain and cannot be predicted.


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Key Factors Affecting Performance

Expansion of retail outlets

Our future depends in large part on our ability to place Lucyd Lyte in optical
stores as well as sporting goods stores and other specialty stores. To address
this, we 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 have 12 different styles available and plans to continuously
increase this number over time.

Retail store customer retention and replenishment

Our ability to sustain and increase revenue depends in large part on 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 digital try-on kiosk for our resellers
to help educate their in-store customers about Lucyd Lyte and enable customers
to try them on in a contact-less manner, to mitigate customer contact with
viral
pathogens.

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 also intend to invest in co-op marketing with retail stores, expansion of our
sales and marketing team (including influencers) to broaden our brand awareness
and online presence. We will also increase our general and administrative
expenses in the foreseeable future to cover the additional costs for finance,
compliance, supply chain, quality assurance and investor relations as we grow as
a public company.

Key Performance Indicators

Store Count (B2B)

We believe that one of the key indicators of our business is the number of retail stores onboarded to sell Lucyd Lyte. We started integrating our first retail stores in June 2021. Currently we have over 200 retail stores selling Lucyd Lyte mainly in United States and Canada.

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 2022.

Reorder rate (B2B)

Many of the retail stores that placed initial stocking orders, either directly
or through our wholesale distributors, have also placed follow-on orders in the
few short months since launching our wholesale business in June 2021. As of June
30, 2022, 32.7% of stores have re-ordered our product. We expect this number to
gradually increase as we roll out our co-op marketing program and introduce more
of our virtual try-on kiosks into retail stores, to facilitate customer
education and product sell-through.

Number of online orders (B2C)

For our ecommerce business, we track the number of online orders as an indicator
of the success of our online marketing efforts. As of June 30, 2022, we received
a total of over 9,827 orders from customers online. We believe that the addition
of new styles, as well as further investment in brand awareness, product
ambassadors and influencer campaigns, will enable continued growth of online
orders in the foreseeable future. We expect to allocate a significant portion of
our advertising expenditures towards influencer marketing programs.


                                       12



Components of operating results

Net revenue

Our revenue is generated from the sales of prescription and
non-prescription optical glasses, sunglasses and shipping charges, which are
charged to the customer, associated with these purchases. We sell products
through our retail store resellers, distributors and on our own website Lucyd.co
and on Amazon.

We apply a manufacturer suggested retail price ("MSRP") of $149 (for our
standard frames) to $179 (for our titanium frames) for non-prescription,
polarized sunglass and blue light blocking glasses across all of our online
channels. U.S. consumers enjoy free USPS first class postage, with faster
delivery options available for extra cost, for sales processed through our
website and on Amazon. For Amazon sales, shipping is free for U.S consumers
while international customers pay shipping charges. Any costs associated with
fees charged by the online platforms (Shopify for Lucyd.co website and Amazon)
are not recharged to customers. We charge applicable state sales taxes in
addition to the MSRP for both online channels and all other marketplaces on
which sell.

Our wholesale pricing for eyewear sold to retail store partners and distributors
includes volume discounts to the MSRP, 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.

Our prescription lens price currently ranges from $35 to $275, which is charged
in addition to the MSRP. Glasses with prescription lenses are only available
through our website Lucyd.co, while our sales through Amazon and to our retail
partners only include non-prescription glasses.

Cost of Goods Sold

Cost of goods sold includes costs incurred to acquire materials, assemble and sell our finished products.

For retail sales placed on one of our eCommerce channels these costs include
(i) product costs held at the lesser of cost and net realizable value and
inclusive of inventory reserves, (ii) freight, import, and inspection costs,
(iii) optical laboratory costs for RX glasses, (iv) merchant fees, (v) fees paid
to 3rd party eCommerce platforms (vi) and cost of shipping the product to the
consumer.

For wholesale sales, these costs include (i) product costs stated at the lower of cost and net realizable value and including inventory reserves, (ii) freight, import and inspection, (iii) and credit card charges.

When consumers place orders directly from our online store, our cost of goods sold on a unit basis is approximately 8% lower than when consumers place orders directly from third-party platforms.

We expect our cost of goods sold to fluctuate as a percentage of net sales primarily due to product mix, customer preferences and resulting demand, customer shipping costs and the management of our stocks and the range of goods.

Over time we expect our total cost of goods sold on a per unit basis to decrease
as a result of an increase in scale. Increase in scale is achieved as a result
of increase in volumes from both business to consumer and business to business
(retail store) orders. We continue to expand our products with line extensions
and new models and broaden our presence in retail stores carrying our products.

Gross profit and gross margin

We define gross profit as net revenues less cost of goods sold. Gross margin is
gross profit expressed as a percentage of net revenues. Our gross margin may
fluctuate in the future based on a number of factors, including the cost at
which we can obtain, transport, and assemble our inventory, the rate at our
vendor network expands, and how effective we can be at controlling costs, in any
given period.

We expect our cost of goods sold, on a unit basis, to decrease with scale, which will likely have a positive impact on our gross margins.

                                       13




Operating Expenses

Our operating expenses mainly consist of:

? general and administrative expenses which mainly include consulting services and payroll

expenses, IT and software, legal fees, stock compensation costs, postage and

shipping costs for non-customer products and other administrative costs;

? sales and marketing costs, including the cost of online and television advertising,

marketing agency fees, influencers, trade shows and other initiatives;

? related party management fees for a range of back office services provided by

   Lucyd Ltd.;



? research and development expenses related to (i) the development of new styles and

features of our smart glasses (ii) development and improvement of our e-commerce

   website (iii) development of our Vyrb social media app for wearables.

Interest and other income, net

Interest and other income, net, mainly includes interest expense paid on the convertible note loan due to the parent company.

Provision for income taxes

Provision for income taxes consists of income taxes related to foreign and
domestic federal and state jurisdictions in which we conduct business, adjusted
for allowable credits, deductions, and valuation allowance against deferred
tax
assets.

Results of Operations

Three months completed June 30, 2022 and 2021

The following table summarizes our operating results for the three months ended June 30, 2022 and 2021:

                                                                                          Change
                                                                                        between the
                                                                                           three
                                                                Three                     months
                                Three months                   months                      ended
                                    ended                       ended                    June 30,
                                  June 30,                    June 30,                   2022 and
                                    2022                        2021                       2021
Revenues, net                   $     204,741      100 %     $   127,027      100 %     $    77,714       61 %
Less: Cost of Goods Sold             (161,494 )     79 %         (94,371 )     74 %         (67,123 )     71 %
Gross profit/(loss)                    43,247       21 %          32,656       26 %          10,591       32 %

Operating Expenses:
General and administrative           (710,135 )    347 %        (225,545 )    178 %        (484,590 )    215 %
Sales and marketing                  (391,919 )    191 %        (270,811 )    213 %        (121,108 )     45 %
Research & development                (52,560 )     26 %         (19,128 )     15 %         (33,432 )    175 %
Related party management fee          (35,000 )     17 %         (34,975 )     28 %             (25 )      0 %
Total Operating Expenses           (1,189,614 )    581 %        (550,459 ) 

433% (639,155) 116%

Other Income                           (2,059 )      1 %          (3,837 )      3 %           1,778      -46 %
Interest Expense                      (45,386 )     22 %         (14,960 )     12 %         (30,426 )    203 %
Total Other (Expense)                 (47,445 )     23 %         (18,797 ) 
   15 %         (28,648 )    152 %

Net Loss                        $  (1,193,812 )    583 %     $  (536,601 )    422 %     $  (657,212 )    122 %




                                       14




Revenue

Our revenues for the three months ended June 30, 2022, were $204,741 as compared
to revenues of $127,027 during the three months ended June 30, 2021. Our revenue
is generated entirely from sales of eyewear products, namely smart frames,
lenses and accessories. The increase in revenue was due to the launch of Lucyd
Lytes, in January 2021, and subsequent scale up of sales and marketing
activities leading up to more product awareness.

For the three months ended June 30, 2022, approximately 35% of sales were
processed on our online store (Lucyd.co), 36 % on Amazon and 29% with reseller
partners. This sales channel mix impacted our revenue for the period, due to the
fact we charge additional $35 to $275 for our prescription lenses available only
on Lucyd.co. For the three months ended June 30, 2022, we generated $161,107 of
revenue from sales of non-prescription frames and $43,634 was generated from
sales of frames with prescription lenses. All of the $73,959 in sales generated
on Amazon.com during the period were for non-prescription frames as we only
offer prescription lenses through our website. Of the $71,910 in online sales
generated through Lucyd.co, $8,128 related to frames with prescription lenses
and $63,782 of glasses sold were with non-prescription lenses. Ecommerce sales
are the most material portion of our sales to date.

We expect that the online portion of our sales will gradually decrease on a
percentage basis, but remain an important component of our total sales as we
onboard more retail stores. We pursued growth in retail store segment in the
year ended 2021 and since the beginning of 2022, growing our retail store
presence to over 200 stores as of June 30, 2022.

Cost of Goods Sold

Our total cost of goods sold increased to $161,494 for the three months ended
June 30, 2022, as compared to $94,371 for the three months ended June 30, 2021.
This increase mirrors the increase in underlying sales discussed above. These
items included, but weren't limited to, the cost of frames of $94,230, cost of
prescription lenses incurred with our third-party vendor of $20,661and affiliate
referral fees, sales commission expense, ecommerce platform fees of $44,406 for
the three months period ended June 30, 2022. Out of $161,494 of our total cost
of goods sold for the three months ended June 30, 2022, $19,584 related to
orders with prescription lenses, while $141,910 pertained to non-prescription
orders.

Over time, we expect third-party retail stores to 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. As a result,
over time we expect prescription lens costs to gradually decrease as a
percentage of our overall cost of goods sold.

We anticipate growth in both wholesale and ecommerce channel sales in 2022, we
also expect corresponding growth in total cost of goods sold, primarily from
additional product related costs.

Gross profit

Our gross profit increased to $43,247 for the three months ended June 30, 2022,
as compared to $32,656 for the three months ended June 30, 2021. This increase
was due to the difference in the price of Lucyd Lytes versus products available
for sale in the second quarter of 2021, with new models introduced at higher
prices after the first quarter of 2021. We expect that gross profits for the
fiscal year ended 2022 to improve slightly, primarily due to economies of scale
from large anticipated orders. As we expect retail stores to become our primary
sales channel as we onboard new stores, we also expect our overall gross margin
to approximate that of the wholesale channel, where no e-commerce platform fees,
or prescription lens cost apply and volume related price discounts are included.


                                       15




Operating expenses

Our operating expenses increased to $1,189,614 for the three months ended June
30, 2022, as compared to $550,459 for the three months ended June 30, 2021. This
increase was primarily due to the expansion of our business following the launch
of Lucyd Lyte in January 2021 and included, but was not limited to, the
following:

General and administrative expenses

Our general and administrative expenses increased to $710,135 for the three
months ended June 30, 2022, as compared to $225,545 for the three months ended
June 30, 2021. This increase was primarily due to an increase of stock option
awards issued between April 2021 and September 2021, from $105,000 to $319,479,
resulting from increase in our staffing in 2021. Also, as a result of Company's
growth and increased used of consultants, consulting fees increased from $79,903
to $137,666.

Sales and marketing expenses
Our sales and marketing expenses increased to $391,919 for the three months
ended June 30, 2022, as compared to $270,811 for the three months ended June 30,
2021. The increase was primarily due to our multi-prong sales and marketing
approach, growing continuously over 2021 and in the first quarter of 2022 after
the launch of the main product in 2021, including the costs of online
advertising of $195,478, influencer costs of $22,459 and trade shows of $19,635.
We also hired four sales & marketing staff and booked $97,472 in related stock
compensation expense for the period.

We anticipate these costs to further increase as we continue to invest in and
build our brand, expand the number of ecommerce platforms we sell our products
on and invest in retail store co-op marketing programs to help educate our
in-store customers about Lucyd Lytes, and increase our brand's physical presence
and role in the eyewear industry.

Related party management fee

Our related party management fee was $35,000 for the three months ended June 30,
2022, as compared to $25,000 for the three months ended June 30, 2021. The
increase was due to increased scope of assistances received under the agreement,
corresponding to continuous scale up of Company's operations after launch of its
flagship product in the first quarter of 2021. The management fees are related
to the management services agreement between us and an affiliate of our Parent.

Research and development costs

Our research and development costs increased to $52,560 for the three months
ended June 30, 2022, as compared to $19,128 for the three months ended June 30,
2021. The increase was primarily attributable to the increased cost of new frame
development by $33,432, as the Company continued to expand its product line
after the flagship product was launched in the first quarter of 2021


                                       16



Semester completed June 30, 2022 and 2021



                                                                                                  Change between the
                                 Six months ended                 Six months ended                 six months ended
                                     June 30,                         June 30,                         June 30,
                                       2022                             2021                        2022 and 2021
Revenues, net                   $         440,763      100 %     $        244,152      100 %     $          196,611       81 %
Less: Cost of Goods Sold                 (323,126 )     73 %             (202,156 )     83 %               (120,970 )     60 %
Gross profit/(loss)                       117,637       27 %               41,996       17 %                 75,641      180 %

Operating Expenses:
General and administrative             (1,317,108 )    299 %             (298,428 )    122 %             (1,018,680 )    341 %
Sales and marketing                      (976,714 )    222 %             (390,857 )    160 %               (585,857 )    150 %
Research & development                    (88,367 )     20 %              (26,897 )     11 %                (61,470 )    229 %
Related party management fee              (70,000 )     16 %              (59,975 )     25 %                (10,025 )     17 %
Total Operating Expenses               (2,452,189 )    556 %             (776,157 )    318 %             (1,676,032 )    216 %

Other Income                               (2,558 )      1 %                   -         0 %                 (2,558 )
Interest Expense                          (63,261 )     14 %              (24,152 )     10 %                (39,109 )    162 %
Total Other (Expense)                     (65,819 )     15 %              (24,152 )     10 %                (41,667 )    173 %

Net Loss                        $      (2,400,371 )    545 %     $       (758,313 )    311 %     $       (1,642,058 )    217 %



Revenue

Our revenues for the six months ended June 30, 2022, were $440,763 as compared
to revenues of $244,152 during the six months ended June 30, 2021. Our revenue
is generated entirely from sales of eyewear products, namely smart frames,
lenses and accessories. The increase in revenue was due to the launch of Lucyd
Lytes, in January 2021, and subsequent scale up of sales and marketing
activities leading up to more product awareness.

For the six months ended June 30, 2022, approximately 25% of sales were
processed on our online store (Lucyd.co), 34% on Amazon and 41% with reseller
partners. This sales channel mix impacted our revenue for the period, due to the
fact we charge additional $35 to $275 for our prescription lenses available only
on Lucyd.co. For the six months ended June 30, 2022, we generated $368,412 of
revenue from sales of non-prescription frames and $72,351 was generated from
sales of frames with prescription lenses. All of the $135,534 in sales generated
on Amazon.com during the period were for non-prescription frames as we only
offer prescription lenses through our website. Of the $124,740 in online sales
generated through Lucyd.co, $35,508 related to frames with prescription lenses
and $89,232 of glasses sold were with non-prescription lenses. Ecommerce sales
are the most material portion of our sales to date.

We expect that the online portion of our sales will gradually decrease on a
percentage basis, but remain an important component of our total sales as we
onboard more retail stores. We pursued growth in retail store segment in the
year ended 2021 and the second quarter of 2022, growing our retail store
presence to over 200 stores as of June 30, 2022.

Cost of Goods Sold

Our total cost of goods sold increased to $323,126 for the six months ended June
30, 2022, as compared to $202,156 for the six months ended June 30, 2021. This
increase mirrors the increase in underlying sales discussed above. These items
included, but weren't limited to, the cost of frames of $195,818, cost of
prescription lenses incurred with our third-party vendor of $55,081and affiliate
referral fees, sales commission expense, ecommerce platform fees of $69,987 for
the six months period ended June 30, 2022. Out of $323,126 of our total cost of
goods sold for the six months ended June 30, 2022, $63,888 related to orders
with prescription lenses, while $259,238 pertained to non-prescription orders.


                                       17





For the six months ended June 30, 2022, approximately 25% of sales were
processed on our online store (Lucyd.co), 34% on Amazon and 41% from reseller
partners. This sales channel mix impacted our cost of goods sold, as the cost of
prescription lenses attributable to our Lucyd.co sales increased our cost of
goods sold through Lucyd.co while not impacting cost of goods sold for sales
realized through Amazon or retail store partners.


Over time, we expect third-party retail stores to 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. As a result,
over time we expect prescription lens costs to gradually decrease as a
percentage of our overall cost of goods sold.

We anticipate growth in both wholesale and ecommerce channel sales in 2022, we
also expect corresponding growth in total cost of goods sold, primarily from
additional product related costs.

Gross profit

Our gross profit increased to $117,637 for the six months ended June 30, 2022,
as compared to $41,996 for the six months ended June 30, 2021. This increase was
due to the difference in the price of Lucyd Lytes versus products available for
sale in the second quarter of 2021, with new models introduced at higher prices
after the first quarter of 2021. We expect that gross profits for the fiscal
year ended 2022 to improve slightly, primarily due to economies of scale from
large anticipated orders. As we expect retail stores to become our primary sales
channel as we onboard new stores, we also expect our overall gross margin to
approximate that of the wholesale channel, where no e-commerce platform fees, or
prescription lens cost apply and volume related price discounts are included.

Operating Expenses

Our operating expenses increased to $2,452,189 for the six months ended June 30,
2022, as compared to $776,157 for the six months ended June 30, 2021. This
increase was primarily due to the expansion of our business following the launch
of Lucyd Lyte in January 2021 and included, but was not limited to, the
following:

General and administrative expenses

Our general and administrative expenses increased to $1,317,108 for the six
months ended June 30, 2022, as compared to $298,428 for the six months ended
June 30, 2021. This increase was primarily due to an increase of stock option
awards issued between April 2021 and September 2021, resulting from increase in
our staffing in 2021, from $128,821 to $638,958. Also, as a result of Company's
growth and increased used of consultants, consulting fees increased from
$121,008 to $265,669.

Sales and marketing expenses


Our sales and marketing expenses increased to $976,714 for the six months ended
June 30, 2022, as compared to $390,857 for the six months ended June 30, 2021.
The increase was primarily due to our multi-prong sales and marketing approach,
growing continuously over 2021 and in the six months of 2022 after the launch of
the main product in 2021, including the costs of online advertising of $651,987,
influencer costs of $37,682 and trade shows of $80,099. We also hired four sales
& marketing staff and booked $194,944 in related stock compensation expense for
the period.


We anticipate these costs to further increase as we continue to invest in and
build our brand, expand the number of ecommerce platforms we sell our products
on and invest in retail store co-op marketing programs to help educate our
in-store customers about Lucyd Lytes, and increase our brand's physical presence
and role in the eyewear industry.

Related party management fee

Our related party management fee was $70,000 for the six months ended June 30,
2022, as compared to $59,975 for the six months ended June 30, 2021. The
increase was due to increased scope of assistances received under the agreement,
corresponding to continuous scale up of Company's operations after launch of its
flagship product in the first quarter of 2021. The management fees are related
to the management services agreement between us and an affiliate of our Parent.

Research and development costs

Our research and development costs increased to $88,367 for the six months ended
June 30, 2022, as compared to $26,897 for the six months ended June 30, 2021.
The increase was primarily attributable to the increased cost of new frame
development as the Company continued to expand its product line after the
flagship product was launched in the first quarter of 2021


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