Innovative Eyewear Inc

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

March 31, 2025 and 2024 (Unaudited)

NOTE 1 –GENERAL INFORMATION

Innovative Eyewear, Inc. (the “Company,” “us,” “we,” or “our”) is a corporation organized under the laws of the State of Florida that develops and sells cutting-edge smart eyewear – including prescription eyeglasses, ready-to-wear sunglasses, safety glasses, and sport glasses – which are designed to allow our customers to remain connected to their digital lives. The Company was founded by Lucyd Ltd., a portfolio company of Tekcapital Plc through Tekcapital Europe, Ltd. (collectively, together with Lucyd Ltd., “Tekcapital and Affiliates”), which owned approximately 11% of our issued and outstanding shares of common stock as of March 31, 2025. Innovative Eyewear has licensed the exclusive rights to the Lucyd® brand from Lucyd Ltd., which includes the exclusive use of all of Lucyd’s intellectual property, including our core product line, Lucyd Lyte®, and has also licensed the right to sell branded smart eyewear under the Nautica®, Eddie Bauer®, and Reebok® brands.

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed balance sheet as of December 31, 2024 (which has been derived from audited financial statements) and the unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows.

In the opinion of management, all adjustments considered necessary for the fair presentation of the financial statements for the periods presented have been included. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected for future periods or the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, particularly given the significant uncertainties associated with the current state of international trade and the overall economic environment.

Cash Equivalents

All highly liquid investments with original maturities of three months or less, including money market funds, certificates of deposit, and U.S. Treasury bills purchased three months or less from maturity, are considered cash equivalents.

Investments

As of December 31, 2024, the Company held investments in U.S. Treasury bills, which were purchased in September 2024 and matured in March 2025. These investments were classified as “held-to-maturity” and, as of December 31, 2024, were recorded at amortized cost of $4,895,184 in the accompanying condensed balance sheet. The aggregate fair value of these investments as of December 31, 2024, based on quoted prices (unadjusted) in active markets for identical assets, was $4,957,750, which included an unrealized gain of $62,566. Upon maturity of these investments, the Company recognized a realized gain $104,816 for the three months ended March 31, 2025.

Receivables and Credit Policy

Accounts receivable are uncollateralized obligations due from customers under normal trade terms. For direct-to-consumer sales, payment is required before product is shipped. For wholesale orders, we offer “net 30” payment terms on wholesale orders of $1,500 or more in accordance with industry standards. The Company, by policy, routinely assesses the financial strength of its customers.

Accounts receivable are reported at the amount billed to the customer, net of an allowance for credit losses. The allowance for credit losses is determined based upon a variety of judgments and factors. Factors considered in determining the allowance include historical collection, write-off experience, and management’s assessment of collectibility from customers, including current conditions, reasonable forecasts, and expectations of future collectibility and collection efforts. Management continuously assesses the collectibility of receivables and adjusts estimates based on actual experience and future expectations. Receivable balances are written-off against the allowance when such balances are deemed to be uncollectible. The Company recognized bad debt expense (recovery) of $880 and $(4,891) for the three months ended March 31, 2025 and 2024, respectively.

A roll forward of the allowance for credit losses for the three months ended March 31, 2025 and 2024 is as follows:

Inventory

Our inventory predominantly consists of purchased eyewear and related accessories, and is stated at the lower of cost or net realizable value, with cost determined on a specific identification method of inventory costing which attaches the actual cost to an identifiable unit of product. Also included within inventory at March 31, 2025 was $82,454 of electronic components purchased from a third-party supplier for use by our manufacturer in their future production of our eyewear; there were no such comparable amounts in inventory at December 31, 2024.

Provisions for excess, obsolete, or slow-moving inventory are recorded after periodic evaluation of historical sales, current economic trends, forecasted sales, estimated product life cycles, and estimated inventory levels. Such provisions were $0 as of both March 31, 2025 and December 31, 2024.

Intangible Assets

Intangible assets relate to patent costs received in conjunction with the initial capitalization of the Company and internally developed utility and design patents. The Company amortizes these assets over the estimated useful life of the patents. The Company reviews its intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Property and Equipment

Property and equipment assets are depreciated using the straight-line method over their estimated useful lives or lease terms if shorter. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred.

Income Taxes

The Company accounts for income taxes under an asset and liability approach that recognizes deferred tax assets and liabilities based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse (i.e., when taxes are actually paid or recovered).

The Company periodically assesses the realizability of its net deferred tax assets. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all relevant available positive and negative evidence is considered, including the Company’s current and past performance, the market environment in which the Company operates, length of carryback and carryforward periods, and existing contracts that will result in future profits.

Stock-Based Compensation

The Company recognizes compensation expense for stock-based awards to employees and directors and others based on the grant date fair value of such awards. Forfeitures are accounted for as a reduction of compensation expense in the period when such forfeitures occur.

For stock option awards, the Black-Scholes-Merton option pricing model is used to estimate the fair value of share-based awards. For awards of restricted stock units and shares of common stock, the fair value of the award is based on the quoted market price of our common shares on the NASDAQ stock exchange.

Revenue Recognition

Our revenue is primarily generated from the sales of prescription and non-prescription optical glasses and sunglasses, and shipping charges which are charged to the customer associated with these purchases. We sell products through our retail store resellers, distributors, on our own website Lucyd.co, and on Amazon.com. We have also recently started to generate revenue from the sale of subscriptions to the “Pro” version of our Lucyd app, which provides unlimited ChatGPT interactions and priority tech support for a monthly or annual fee.

To determine revenue recognition, we perform the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy a performance obligation. At contract inception, we assess the goods or services promised within each contract and determine those that are performance obligations, and also assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

In instances where the collectibility of contractual consideration is not probable at the time of sale, the revenue is deferred on our balance sheet as a contract liability, and the associated cost of goods sold is deferred on our balance sheet as a contract asset; subsequently, we recognize such revenue and cost of goods sold as payments are received. During the three months ended March 31, 2025 and 2024, we recognized $7,500 of revenue for each period, that was included in the contract liability balances as of January 1, 2025 and 2024, respectively.

All revenue, including sales processed online and through our retail store resellers and distributors, is reported net of discounts, returns, and sales taxes collected from customers on behalf of taxing authorities. Amounts billed to a customer for shipping and handling are reported as revenues; costs incurred for shipping and handling are included in cost of goods sold at the time the related revenue is recognized.

For sales generated through our e-commerce channels, we identify the contract with a customer upon online purchase of our eyewear and transaction price at the manufacturer suggested retail price (“MSRP”). Our e-commerce revenue is recognized upon meeting of the performance obligation when the eyewear is shipped to the end customer. For sales processed through our website, U.S. consumers enjoy free USPS first class postage on orders over $149, with faster delivery options available for extra cost. For Amazon sales, shipping is free for U.S. consumers while international customers pay shipping charges on top of MSRP. Any costs associated with fees charged by the online platforms (i.e., Amazon.com, or Shopify for sales through our Lucyd.co website) are not recharged to customers and are recorded as a component of cost of goods sold as incurred. The Company charges applicable state sales taxes in addition to the MSRP for both online channels and all other marketplaces on which we sell products.

For sales to our retail store partners, we identify the contract with a customer upon receipt of an order of our eyewear through our Shopify wholesale portal or direct purchase order. Revenue is recognized upon meeting the performance obligation, which is delivery of the Company’s eyewear products to the retail store, and is also recorded net of returns and discounts. Our wholesale pricing for eyewear sold to retail store partners includes volume discounts, 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.

For sales to distributors, we identify the contract with a customer upon receipt of an order of our eyewear through a direct purchase order. If collectibility of substantially all of the contract consideration is probable, revenue is recognized upon meeting the performance obligation, which is delivery of our eyewear products to the distributor, and is also recorded net of returns and discounts. Our wholesale pricing for eyewear sold to retail store partners and distributors includes volume discounts, due to the nature of large quantity orders. The pricing does not include shipping. Due to the nature of wholesale retail orders, no marketplace fees are applicable, only credit card processing fees.

For sales of subscriptions to the “Pro” version of our Lucyd app, we identify the individual contracts with customers through detailed transaction reports from the Apple App Store or Google Play Store, with each individual transaction representing a separate contract. Revenue is recognized upon meeting the performance obligation, which is the right and availability of each customer to access the “Pro” features of the Lucyd app. For those customers that purchase such access on a month-to-month basis, we recognize revenue in the month in which the purchase of such access is made. For those customers that purchase an annual subscription, we recognize revenue on a straight-line basis over the subscription period, using a mid-month convention. The balance of unearned revenue related to app subscriptions that has been deferred on our balance sheet as a contract liability was $2,811 and $2,401 as of March 31, 2025 and December 31, 2024, respectively. During the three months ended March 31, 2025, we recognized $1,030 of revenue that was included in the contract liability balance as of January 1, 2025.

We allow our customers to return our physical products, subject to our refund policy, which allows any customer to return our physical products for any reason and receive a full refund for frames (prescription lenses excluded) within the first 7 days for sales made through our website (Lucyd.co), 30 days for sales made through Amazon, and 30 days for sales to most wholesale retailers and distributors (although certain sales to independent distributors are ineligible for returns). We charge a standard $15 restocking fee for standard frame returns, which is deducted from applicable refunds to cover shipping and restocking costs, and our return policy prohibits discretionary returns of glasses with prescription lenses.

For all of our product sales, at the time of sale, we establish a reserve for returns, based on historical experience and expected future returns as well as review of individual returns received in the month following the balance sheet date; such reserve is recorded as a reduction of sales. The Company recorded an allowance for sales returns of $5,746 and $15,746 as March 31, 2025 and December 31, 2024, respectively.

Segment Reporting

The Company has a single reportable segment, which generates revenue from the sales of smartglasses, and related accessories and apps. The Company derives revenue primarily in North America and manages its business activities on a consolidated basis. The accounting policies of our single reportable segment are the same as those for the Company as a whole.

The Company’s chief operating decision maker, as such term is defined under GAAP, is our Chief Executive Officer. The chief operating decision maker assesses performance for the single reportable segment and decides how to allocate resources based on net income that also is reported on the income statement as consolidated net income. The measure of segment assets is reported on the balance sheet as total consolidated assets. The Company does not have intra-entity sales or transfers.

NOTE 3 –GOING CONCERN

The Company has a limited operating history. The Company’s business and operations are sensitive to general business and economic conditions in the United States. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse conditions may include recession, downturn, or otherwise, changes in regulations or restrictions in imports, competition, or changes in consumer taste. These adverse conditions could affect the Company’s financial condition and the results of its operations.

The Company meets its day-to-day working capital requirements using monies raised through sales of eyewear and issuances of equity. On April 14, 2025, the Company closed on a warrant inducement transaction for gross proceeds of approximately $1.8 million (see Note 10 for details). The Company has also entered into an agreement with a related party, under which the Company may borrow up to $1.25 million (see Note 6 for details); as of March 31, 2025, the Company has not borrowed any amounts under this agreement. The Company’s forecasts and projections indicate that the Company expects to have sufficient liquidity to fund operations through at least thenext 12 months. However, the Company may raise additional funds if management believes it would be beneficial to do so.

NOTE 4 –INCOME TAX PROVISION / BENEFIT

At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods. The Company hasnot recorded an income tax provision or benefit for the three months ended March 31, 2025 and 2024 as it maintains a full valuation allowance against its net deferred tax assets.

NOTE 5 –TANGIBLE AND INTANGIBLE ASSETS

Depreciation expense for the three months ended March 31, 2025 and 2024 was $21,202 and $21,659, respectively.

Amortization expense for the three months ended March 31, 2025 and 2024 was $12,672 and $7,814, respectively.

NOTE 6 –RELATED PARTY TRANSACTIONS AND AGREEMENTS

Management Service Agreement

The Company has entered into a management services agreement with Tekcapital Europe, Ltd., for which the Company is billed $35,000 quarterly. While the agreement does not stipulate a specific maturity date, it can be terminated with 30 calendar days written notice by any party.

The related party currently provides the following services:

During the three months ended March 31, 2025 and 2024, the Company incurred $35,000 in each respective period under the management services agreement.

Rent of Office Space

Under an agreement between the Company and Tekcapital, Tekcapital bills the Company for an allocation of rent paid by Tekcapital on the Company’s behalf. The Company recognized $39,653 and $23,231 of expense related to this month-to-month arrangement for the three months ended March 31, 2025 and 2024, respectively.

Loan to Tekcapital Europe, Ltd.

On January 11, 2024, the Company entered into an intercompany loan agreement (as lender) with Tekcapital Europe, Ltd. (as borrower) and Tekcapital Plc, the parent of Tekcapital Europe, Ltd. Pursuant to this agreement, the Company loaned 600,000 British pounds sterling (equivalent to approximately $768,000) to Tekcapital Europe, Ltd. The loan bore simple interest at a rate of 10% per annum and was required to be repaid on or before April 11, 2024. Tekcapital Plc executed the agreement as guarantor for Tekcapital Europe, Ltd. on the full amount of the loan.

Tekcapital Europe, Ltd. subsequently repaid all of the outstanding balance of the loan (including principal and accrued interest), and as of December 31, 2024, no amounts remained outstanding or payable to us under this agreement.

Lucyd Ltd. Financing Agreement

On March 1, 2024, the Company entered into an agreement with Lucyd Ltd. pursuant to which the Company can receive up to $1,250,000 either (a) in services provided by Lucyd Ltd. to the Company or (b) in cash upon request of funds by the Company. Once funds or services are received by the Company, it will issue a convertible note to Lucyd Ltd. that will bear interest at 10% per annum and include the option to convert the note into shares of the Company’s common stock upon certain defined events. Upon issuance, the convertible note will have a maturity date of September 1, 2025, at which time all outstanding principal and accrued interest, if any, will be payable in full in cash or in the Company’s common stock. The Company will be able to prepay the convertible notes at any time with the written consent of Lucyd Ltd.

On March 1, 2025, the Company and Lucyd Ltd. entered into an amendment of this agreement, such that upon issuance, the convertible note will have a maturity date of September 1, 2026. There were no other changes to the terms and provisions of the agreement.

The Company has not borrowed any amounts under this agreement.

NOTE 7 –COMMITMENTS AND CONTINGENCIES

Legal Matters

We are not currently the subject of any material pending legal proceedings; however, we may from time to time become a party to various legal proceedings arising in the ordinary course of business.

License Agreements

In 2022 and 2023, we entered into various multi-year license agreements which grant us the right to sell certain branded smart eyewear, including the Nautica, Eddie Bauer, and Reebok brands worldwide. These agreements require us to pay royalties based on a percentage of net retail and wholesale sales during the period of the license, and also require guaranteed minimum royalty payments. The agreements have base terms of 10 years but are cancellable at the option of the Company during the fifth year.

The aggregate future minimum payments due under these license agreements are as follows:

Also, on January 3, 2024, we entered into a multi-year non-exclusive license agreement with a third party (IngenioSpec, LLC) for multiple smart eyewear patents. Pursuant to this license agreement, the Company added licenses for 46 new patents to its portfolio of owned and licensed patents and applications. The Company fully prepaid this license for the term of the agreement and does not have any obligation for future payments under this agreement.

The Company recognized $133,336 and $61,160 of expense related to all license agreements for the three months ended March 31, 2025 and 2024, respectively.

Leases

Our executive offices are located at 11900 Biscayne Blvd., Suite 630 Miami, Florida 33181. Our executive offices are provided to us by a related party (see Note 6). We consider our current office space adequate for our current operations.

Other Commitments

See related party management services agreement discussed in Note 6.

NOTE 8 –STOCK-BASED COMPENSATION

Stock Options

Summary information regarding stock options as of and during the three months ended March 31, 2025 is as follows:

During the three months ended March 31, 2025, we recognized $36,646 of expense related to stock options. As of March 31, 2025, the aggregate intrinsic value for all options outstanding as well as all options exercisable was zero, and unrecognized stock option expense of approximately $97,000 remains to be recognized over the next 0.76 years.

Restricted Stock Units

During the three months ended March 31, 2025, we recognized $140,930 of expense related to restricted stock units that were awarded to the Company’s officers, management, and non-management employees in the fourth quarter of 2024. As of March 31, 2025, unrecognized restricted stock unit expense of approximately $1,284,000 remains to be recognized over of the next 2.30 years.

During the three months ended March 31, 2024, we recognized $5,075 of expense related to restricted stock units that were awarded to an influencer in 2023. As of March 31, 2025, no expense remains to be recognized related to this award.

Stock Grant

On April 1, 2024, we entered into a brand ambassador agreement with an individual for a two-year term. As compensation for the first year of the agreement, we issued the individual 4,500 shares of our common stock. The value of the consideration transferred, measured using the fair value of our common stock at the date of issuance, was $21,690. During the three months ended March 31, 2025 and 2024, we recognized $5,423 and $5,422, respectively, of expense related to this arrangement.

NOTE 9 –EARNINGS PER SHARE

The Company calculates earnings/(loss) per share data by calculating the quotient of earnings/(loss) divided by the weighted average number of common shares outstanding during the respective period. Due to the net losses for all periods presented in the unaudited condensed statements of operations, all shares underlying the common stock options, common stock warrants, and related party convertible debt were excluded from the earnings per share calculation due to their anti-dilutive effect.

Thecalculation of net earnings/(loss) per share is as follows:

NOTE 10 –SUBSEQUENT EVENTS

Share Issuance to Brand Ambassador

Effective April 1, 2025, pursuant to the terms of the brand ambassador agreement described in Note 8, the Company issuedan individual 11,539 shares of our common stock as compensation for the second year of the agreement. The value of the consideration transferred, measured using the fair value of our common stock at the date of issuance, was $30,000, which will be recognized as expense on a straight-line basis through March 31, 2026.

April 2025 Warrant Inducement Transaction

On April 11, 2025, the Company entered into inducement letter agreements with certain holders of certain of its existing warrants to purchase an aggregate of 595,188 shares of the Company’s common stock, of which warrants to purchase 121,500 shares were originally issued to the holders on September 4, 2024 with an original exercise price of $5.00 per share, and warrants to purchase 473,688 shares were originally issued to the holders on September 24, 2024 with an original exercise price of $9.50 per share.

Pursuant to the inducement letter agreements, the holders agreed to exercise the existing warrants for cash at a reduced exercise price of $2.60 per share in consideration of the Company’s agreement to issue new unregistered Series G warrants to purchase up to an aggregate of 218,646 shares of common stock and new unregistered Series H warrants to purchase up to an aggregate of 1,724,814 shares of common stock, each at a purchase price of $0.125 per warrant. The Series G Warrants have an exercise price of $2.60 per share, are exercisable immediately upon issuance, and have a term of exercise equal to five and one-half years following the effective date of the Resale Registration Statement (as definedin the applicable agreements). The Series H Warrants have an exercise price of $2.60 per share, are exercisable immediately upon issuance, and have a term of exercise equal to eighteen months following the effective date of the Resale Registration Statement.

This transaction closed on April 14, 2025, and the gross proceeds to the Company were approximately $1.8 million prior to deducting placement agent fees and offering expenses. The Company intends to use the net proceeds from this transaction for working capital and general corporate purposes.

H.C. Wainwright & Co., LLC (“HCW”) acted as the exclusive placement agent for the offering. As compensation for such placement agent services, the Company agreed to pay HCW an aggregate cash fee equal to 7.5% of the gross proceeds received by the Company from this transaction, plus a management fee equal to 1.0% of the gross proceeds received by the Company, accountable expenses of $50,000, non-accountable expenses of $25,000, and $15,950 for clearing expenses. The Company also agreed to issue to HCW or its designees warrants to purchase up to 44,639 shares of common stock (“PA Warrants”). The PA Warrants are immediately exercisable, have a term of five and one-half years following the effective date of the Resale Registration Statement, and have an exercise price of $3.25 per share.

New Loan Facility to Tekcapital Europe, Ltd.

On April 23, 2025, the Company entered into an intercompany loan agreement (as lender) with Tekcapital Europe, Ltd. (as borrower) and Tekcapital Plc, the parent of Tekcapital Europe, Ltd. (as guarantor). Pursuant to this agreement, the Company agreed to make a loan facility available to Tekcapital Europe, Ltd. for up to a maximum of $500,000. Tekcapital Europe, Ltd. may receive advances under this facility upon request through October 23, 2025. Any amounts advanced to Tekcapital Europe, Ltd. will bear simple interest at a rate of 10% per annum, and are required to be repaid on or before July 23, 2026.

Tekcapital Europe, Ltd. has not borrowed any amounts under this agreement.

International Trade and Tariffs

Beginning in April of 2025, the U.S. government has announced new or increased tariffs on goods imported from various countries to the U.S., and countries subject to such tariffs have imposed or may in the future impose retaliatory tariffs and other trade measures. We are actively monitoring the ongoing tariff developments and continue to evaluate the potential impacts to our business, cost structure, supply chain, and the broader economic environment. We are also considering and assessing our ability to potentially offset all or a portion of cost increases through pricing actions and/or cost savings efforts.

While these recent developments have not had a material impact on our financial condition or results of operations to date, due to their evolving nature, we cannot predict with certainty the ultimate impacts they may have on our business and results in the future, but those impacts could be material.