LUCYW 10-K & 10-Q changes, risk factors and insider trading

We compete directly with large, integrated optical players that sell both at the retail level and online such as Ray-Ban® that have multiple products, well regardedwell-regarded brands and retail banners, as well as established and well-regarded consumer electronics companies. This diversified and capable competition takes place both in physical retail locations as well as online, for smart glasses. To compete effectively, we must continue to create, invest in, or acquire, advanced technology, incorporate this technology into our products, obtain regulatory approvals in a timely manner where required, and process and successfully market our products.

We have had net losses since inception, had a net loss of $7,665,515$7.5 million for the year ended December 31, 2024,2025, and had a net loss of $6,663,428$7.8 million for the year ended December 31, 2023.2024. As of December 31, 2024,2025, we had an accumulated deficit of $24,735,930.$32.3 million. Because we have a limited operating history it is difficult for us to predict our future operating results. We will need to generate and sustain increased revenue and manage our costs to achieve profitability. Even if we do, we may not be able become orto increase our profitability.profitability or become profitable.

We have limited experience in the smart eyewear space. If we are unable to manage our growth effectively, our brand “Lucyd” and our financial performance may suffer, which may have a material adverse effect on our business, financial condition, and operating results.

Meeting customer demand partially depends on our ability to obtain timely and adequate delivery of components for our products and services. All of the components that go into the manufacturing of our products and services are sourced from a limited number of third-party suppliers predominantly in the U.S. and China. There is currently a tariff on all products imported from China in the amount of 20%; we cannot determine at this time how this will affect our future profitability, whether it will reduce the number of smart glasses that we sell, or whether we could pass these tariff costs on to our customers through pricing adjustments. Our contract manufacturers purchase and provide many of these components on our behalf, including sun lenses, demo lenses, hinge and chip sets and other electronic components, and we do not have long-term arrangements with most of our component suppliers. We are therefore subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products. In addition, the lead times associated with certain components are lengthy and may preclude rapid changes in design, quantities, and delivery schedules. Our ability to meet temporary unforeseen increases in demand has been, and may in the future be, impacted by our reliance on the availability of components from these suppliers. We may in the future experience component shortages, and the predictability of the availability of these components may be limited in certain situations. In the event of a component shortage or supply interruption from suppliers of these components, we may experience supply chain delays. Developing alternate sources of supply for these components may be time-consuming, difficult, and costly, and we may not be able to source these components on terms that are acceptable to us, or at all, which may undermine our ability to fill our orders in a timely manner. Any interruption or delay in the supply of any of these parts or components, or the inability to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to timely ship our products to our customers.

We source components from suppliers located in China. Effective September 1, 2019, the U.S. government implemented a 15% tariff on specified products imported into the U.S. from China and effective February 14, 2020, the 15% tariff was reduced to 7.5%. In June 2020, the U.S. government granted a temporary exclusion for plastic and metal frames with a retroactive effective date of September 1, 2019, and such exclusion expired in September 2020. Recently,Beginning in April of 2025, the tariffU.S. wasgovernment announced new or increased tariffs on goods imported from various countries to 20%.the ThereU.S.; as of April 2025, smart eyewear products that entered the U.S. from China had a total effective duty of 27.5%. In February 2026, the Supreme Court of the U.S. struck down a portion of the tariffs that were announced in April 2025. Currently, there remains to be uncertainty as to what the impact of the increased tariff will be or whether there will be any other changes to U.S. government trade policy. IfAlthough management took actions during 2025 which were largely successful in mitigating the impacts of the tariffs in effect at the time, and continues to monitor the evolving international trade and tariff situation and has developed contingency sourcing options should conditions materially change, we arecannot unablepredict with certainty the impact that tariffs may have on our business and financial results in the future, and cannot provide any assurance that any actions we may take in the future to mitigate the full impactimpacts of the enacted and increased tariffs (including whether we could pass these tariff costs on to our customers through pricing adjustments, and if so, whether such increased prices would decrease the number of glasses that we sell), our financial results may be negatively affected. While it is too early to predict how the current and future China tariffs will impact our business, our financial results may also be impacted by any resulting economic slowdown.successful.

Maintaining and enhancing our appeal and reputation as a stylish, innovative, and coveted brand is critical to attracting and expanding our relationships with customers. The successful promotion of our brand and the market’s awareness of our products and services will depend on a number of factors, including our marketing efforts, ability to continue to develop our products and services, and ability to successfully differentiate our offerings from competitive offerings. We expect to invest substantial resources to promote and maintain our brand, but there is no guarantee that our brand development strategies will enhance the recognition of our brand or lead to increased sales. The strength of our brand will depend largely on our ability to provide stylish, technologically enhanced products and quality services at competitive prices. Brand promotion activities may not yield increased net revenue, and even if they do, the increased net revenue may not offset the expenses we incur in promoting and maintaining our brand and reputation. In order to protect our brand, we also plan to expend substantial resources to register and defend our trademarks and to prevent others from using the same or substantially similar marks. Despite these efforts, we and Lucyd Ltd. may not always be successful in protecting theour trademarks we license from Lucyd Ltd.trademarks. Our trademarks may be diluted, and we may suffer harm to our reputation, or other harm to our brand. If our efforts to cost-effectively promote and maintain our brand are not successful, our results of operations and our ability to attract and engage customers, partners, and employees may be adversely affected.

If we fail to successfully launch, or after we launch receive insufficient revenue from our cobranded collections with Nautica, Eddie Bauer, and Reebok, our business, financial condition, and results of operations would be harmed.

We recently launched our cobranded collections with Nautica and Eddie Bauer in the first and second quarters of 2024, respectively.respectively, Weand also plan to launchlaunched our Reebok cobranded collection in the second quarter of 2025. We believe these brand partnerships will grow our company due to the global renown of these partners, and we believe that these brand partnerships will play a significant role in our future revenue growth by offering a more diversified product portfolio that speaks to consumers from different demographics (for example, Nautica generally appeals to a more fashion-forward customer than Lucyd Lyte,customer, and Eddie Bauer generally appeals to an older demographic than our other lines).

However, if we are unable to successfully launch the Reebok cobranded collection, we may not be able to grow as currently anticipated and may be required to shift our current business plans. Further, following the launch our cobranded collections with Nautica, Eddie Bauer, and Reebok, there is no guarantee that we will receive sufficient revenue to pay the licensing fees that would be owed to Nautica, Eddie Bauer, and Reebok. Specifically, the aggregate future minimum payments due under the license agreements related to these brands is $14,010,000$13.57 million over the next nineeight years, although we have the option to cancel the agreements during the fifth year.year of the respective agreements. If we are not able to successfully market and sell our cobranded products, we will not receive sufficient revenue to pay the licensing fees and would need to use the proceeds from our other products to pay the fees. There can be no assurance that we will be able to profitably manage these cobranded collections, or that they will achieve anticipated revenues and earnings.

Our success depends to a significant degree on Lucyd Ltd.’sour ability to obtain, maintain, protect, and enforce our licensed intellectual property rights, including those in our proprietary technologies, know-how, and brand. To protect our rights to our intellectual property, we rely on a combination of patent, trademark, copyright and trade secret laws, domain name registrations, confidentiality agreements, and other contractual arrangements with our employees, affiliates, clients, strategic partners, and others. However, the protective steps we have taken and plan to take may be inadequate to deter misappropriation or other violation of or otherwise protect our intellectual property rights. We may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Effective patent, trademark, copyright, and trade secret protection may not be available to us or available in every jurisdiction in which we offer or intend to offer our services. Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary technology and content, and adversely affect our ability to compete effectively. Further, even if we are successful, defending our intellectual property rights could result in the expenditure of significant financial and managerial resources, which could adversely affect our business, financial condition, and results of operations.

If we fail to protect our intellectual property rights adequately, our competitors may gain access to our licensed intellectual property and proprietary technology and develop and commercialize substantially identical offerings or technologies. Any patents, trademarks, copyrights, or other intellectual property rights that we have or may obtain may be challenged or circumvented by others or invalidated or held unenforceable through administrative process, including re-examination, inter partes review, interference and derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings), or litigation. There can be no assurance that our patent applications will result in issued patents and we may be unable to obtain or maintain patent protection for our technology. In addition, any patents issued from pending or future patent applications or licensed to us in the future may not provide us with claims sufficiently broad to provide meaningful competitive advantages or may be successfully challenged by third parties. There is also no guarantee that our pending trademark applications for any mark will proceed to registration; our pending applications may be opposed by a third party prior to registration; and even those trademarks that are registered could be challenged by a third party, including by way of revocation or invalidity actions. For example, we have registrations in a number of foreign countries in which we are not currently offering goods or services, and those registrations could be subject to invalidation proceedings if we cannot demonstrate use of the marks by the applicable use deadlines in those countries. In addition, because patent applications in the United States are currently maintained in secrecy for a period of time prior to issuance, and patent applications in certain other countries generally are not published until more than 18 months after they are first filed, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first creator of inventions covered by our pending patent applications or that we were the first to file patent applications on such inventions. To maintain a proprietary market position in foreign countries, we may seek to protect some of our proprietary inventions through foreign counterpart patent applications. Statutory differences in patentable subject matter may limit the protection we can obtain on some of our inventions outside of the United States. The diversity of patent laws may make our expenses associated with the development and maintenance of intellectual property in foreign jurisdictions more expensive than we anticipate. We probably will not be able to obtain the same patent protection in every market in which we may otherwise be able to potentially generate revenue. Further, the laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. Moreover, policing unauthorized use of our technologies, trade secrets, and intellectual property may be difficult, expensive, and time-consuming. Despite our precautions, it may be possible for unauthorized third parties to copy our offerings and capabilities and use information that we regard as proprietary to create offerings that compete with ours. Third parties may apply to register our trademarks or other trademarks similar to our trademarks in jurisdictions before us, thereby creating risks relating to our ability to use and register our trademarks in those jurisdictions. In addition, there could be potential trade name or trademark ownership or infringement claims brought by owners of other rights, including registered trademarks, in our marks or marks similar to ours. Any claims of infringement, brand dilution, or consumer confusion related to our brand (including our trademarks) or any failure to renew key license agreements on acceptable terms could damage our reputation and brand identity and substantially harm our business and results of operations. The value of our intellectual property could diminish if others assert rights in or ownership of our trademarks and other intellectual property rights, or trademarks that are similar to our trademarks. We may be unable to successfully resolve these types of conflicts to our satisfaction. In some cases, litigation or other actions may be necessary to protect or enforce our trademarks and other intellectual property rights.

Domain names generally are regulated by internet regulatory bodies, and the regulation of domain names is subject to change. Regulatory bodies have and may continue to establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. We may not be able to, or it may not be cost-effective to, acquire or maintain all domain names that utilize the name “Lucyd Ltd.” or “Innovative Eyewear” in all of the countries in which we currently conduct or intend to conduct business. If we lose the ability to use a domain name, we could incur significant additional expenses to market our products within that country, including the development of new branding. This could substantially harm our business, results of operations, financial condition and prospects.

We develop and sell cutting-edge smart eyeglasseseyewear – including prescription eyeglasses, ready-to-wear sunglasses, safety glasses, and sunglasses,sport which are designed to allow our customers to remain connected to their digital lives, while also offering vision correction and protection.glasses. Our flagshipsmart product,eyewear Lucydproducts Lyte, enablesenable the wearer to listen to music, take and make calls, and use voice assistants and ChatGPT to perform many common smartphone tasks hands-free.

Our mission is to Upgrade Your Eyewear®. by creating smart eyewear for all-day wear that looks like and is priced similarly to designer eyewear, but is also lightweight and comfortable, and enables the wearer to remain connected to their digital lives. 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 most consumers can afford.

Since the initial launch of Lucyd Lyte in 2021, we have sold thousands of our smartglasses, and have significantlycontinued upgradedto and expandedexpand our product offerings over the years – including the launch of Lucyd Lyte 2.0 and Lyte XL smartglasses in 2023, and most recently with the launch of the Lucyd Armor™,ArmorTM, Nautica® Powered by Lucyd, and Eddie Bauer ® Powered by Lucyd smart eyewear collections in 2024.2024, and the launch of the Reebok® Powered by Lucyd sport collection in 2025. The variety of smartglasses we offer underpinunderpins theour Company’s missiongoal to provide a smart alternative for all of the major types of eyewear used by consumers, offering a seamless upgrade in styles of eyewear they already enjoy. We plancurrently tooffer furtheran expandexpansive our product offerings through the launchline of new34 cobrandeddifferent collectionsmodels withof Reebokglasses inand 2025.several accessories.

We apply a manufacturer suggested retail price (“MSRP”) of $149 – $199 for non-prescription, polarized sunglass, and photochromic glasses across all of our online channels, with our wholesale pricing offering volume discounts to these prices. The Company believes having pricing that is competitive with traditional designer eyewear is essential for building market share in this new category, by eliminating the “cost of switching” for the average consumer.

We view our business model as capital light, as we have elected not to build our own manufacturing facilities and Company-owned retail distribution, but rather leverage existing sources of production and retail distribution. This allows us to focus on our core competency of smart eyewear design and manufacturing.marketing.

In addition to sustained growth of our e-commerce business, our future revenues are correlated positively with our placement of Lucyd glasses in optical stores, as well as sporting goods stores and other specialty stores. To address this, we have assembled a team with decades of experience in the eyewear industry and are offeringoffer a strong co-op marketing program and reordering incentives program. We currently offer an expansive line of 26 different models of glasses, and by mid-2025, we will offer 34 different styles and several accessories, including cobranded eyewear with well-known brands like Nautica, Reebok, and Eddie Bauer. In total, the Company expects to offer over 40 total smart eyewear SKUs across these brands and Lucyd by the end of 2025.

Our ability to sustain and increase revenue is correlated positively with 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 new modular display system with engaging video screens and audio testing capabilities for our resellers to help educate their in-store customers about Lucyd productsproducts. andThese display systems, which have been installed in limited number of locations, enable customers to engage in music demos on a physical unit, explore social and tutorial content, and virtually try themon on.all available units, an experience offered by no other smartglass display on the market today. This proprietary display system is central to our efforts to introduce traditional retail customers to Lucyd eyewear, and we are planning further enhancements to our merchandising displays to enable more immersive experiences. Additionally, we consistently incorporate retail partner feedback directly into our frames to better serve our end users. We have deployed 45 such display systems to retailers.

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 have two continuous trajectories of general product improvement: (i) engineering, where we seek to improve the sound quality, temple thinness, and battery life of our frames; and (ii) digital, where we are adding new features via the Lucyd app and improved component programming. We view these continually ongoing R&D investments as essential to maintaining our competitive edge.

We are offering a strong co-op marketing program with retail stores, and intendhave to expandexpanded our sales, marketing,sales and brand ambassadormarketing teams to broaden our brand awareness and online presence.

The Company’s latest products are receiving higher ratings online compared to our previous products, indicating that customers are appreciative of improvements in product design, functionality, and build quality. For example, our new Lucyd Armor product has a 4/5 rating on Amazon. This is a strong signal of positive feedback on our products that indicates our ability to grow and scale with America’s largest online retailer and other platforms.

RevenueRevenues

Our revenues for the year ended December 31, 2024,2025, were $1,636,440,$2,661,669, representing an increase of approximately 42%63% as compared to revenues of $1,152,479$1,636,440 during the yearprior endedyear. December 31, 2023. TheThis increase in revenue wasis primarily attributable to significant growthvolume increases, slightly offset by the impacts of higher discounts on products sold and shifts in theproduct e-commerce channel, with net sales through our Lucyd.co website and Amazon.com increasing by approximately 89% and 14%, respectively, from the prior year, while wholesale revenues declined by approximately 27%.price/mix.

With the continued success and momentum of the recently-launched Lucyd Armor smartglasses for the safety/industrial segmentsegment, (which represents a growing market in which we currently have little or no direct competition),competition, and the anticipated success of the upcomingrecent launch of Reebok® Powered by Lucyd smartglasses for the sport/active lifestyle segment (in which we believe we will have a distinct advantage, as most sport smartglasses are very low quality Aliexpress products),segment, we believe we are very well positioned to generate significant revenue growth in 2025.2026. In addition, during the latter half of 2025, we have begun to focus more efforts on international expansion, including the development of new partnerships with distributors and retailers in the UK, EU, Canada, and Latin America, as well as securing initial orders from key European markets.

Key components of costCost of goods sold for thecurrent year ended December 31, 2024 included,included but werewas not limited to,to the cost of frames (inclusive of $862,529the cost of tariffs, importation costs, and other inventory adjustments) of approximately $1,483,000; the cost of prescription lenses incurred with our third-party vendorsvendor of $256,860approximately $246,000; commissions, affiliate referral fees, and e-commerce platform fees of $158,327approximately $124,000; shipping and logistics costs of $95,363approximately $140,000; provisions for excess, obsolete, and slow-moving inventory of $59,000; and product certification costs of $33,150;approximately and quality assurance costs of $11,240. Out of our total cost of goods sold for the year ended December 31, 2024, $256,860 related to orders with prescription lenses, while $1,164,390 pertained to non-prescription orders.$25,000.

Key components of costCost of goods sold for theprior year ended December 31, 2023 included,included but werewas not limited to,to the cost of frames (inclusive of $756,795importation costs and inventory adjustments) of approximately $863,000; the cost of prescription lenses incurred with our third-party vendor of $271,229approximately $257,000; commissions, affiliate referral fees, and e-commerce platform fees of $201,686approximately $160,000; shipping and logistics costs of $20,415approximately $95,000; and qualityproduct assurancecertification costs of $13,100.approximately Out of our total cost of goods sold for the year ended December 31, 2023, $271,229 related to orders with prescription lenses, while $1,000,579 pertained to non-prescription orders.$33,000.

Gross profit (deficit)Profit

Our operating expenses increased by 21%$923,523, or approximately 11%, to $9,062,415 for the year ended December 31, 2025, as compared to $8,138,892 for the year ended December 31, 2024, as compared to $6,736,213 for the year ended December 31, 2023.2024. This increase was primarily due to the following:

TheAlthough Companywe maintainshave recently hired some new employees to help drive and support our growth and expansion, we generally maintain a lean staff salaried at market rates, and a significant portion of our general and administrative expenses consist of corporate overhead type costs which are fixed or semi-fixed in nature (e.g., rent, compliance, legal and professional services, etc.); as such, our general and administrative expenses are not expected to scale up significantly as our revenue increases over time.

At the same time, we have continued to make significant investments in paid ads in order to build brand awareness, attract new customers, and increase our market share. Our marketing planspend forin 2025 iswas strategically allocated to support our phasedlaunch productof rolloutnew (e.g., the cobranded Reebok® Powered by Lucyd collections in the secondproducts, and fourth quarters), while continuing to build overall brand awareness and presence. Wewe are using data-driven decision-making to refine and optimize our marketing campaigns, in order to make our spending in this area more efficient, thus maximizing returns on our marketing investments. We anticipate that our total 2025 marketing spending will be between 2023 and 2024 levels.

FromIn athe long-termnear perspective,to whilemedium term, we expect that our total sales and marketing expenses will continue to scale up to some degree as our revenue increases,grows. From a long-term perspective, we anticipate that such increases in sales and marketing expenses will be mitigated somewhat by our plannedplan focusto ongrow growingour business in the wholesale optical channel, which, due to the nature of that channel, inherently does not require costly marketing campaigns to acquire each customer and does not require the platform fees associated with e-commerce sales, and as a result typically carries a lower marketing cost per unit sold. Additionally, we generally expect that a retailer who is successful with our products will reorder in large quantities, also without significant marketing expenditure.

We develop and sell cutting-edge smart eyewear – including prescription eyeglasses, ready-to-wear sunglasses, safety glasses, and sport glasses. Our smart eyewear products enable the wearer to listen to music, take and make calls, and use voice assistants and ChatGPT and/or Claude to perform many common smartphone tasks hands-free.

In July 2026, the Lucyd app was updated to provide for Claude AI integration, and allow users to access both Claude and ChatGPT from a single interface and switch between AI models during conversations. New features also include AI image generation, document analysis, conversation history, web-sourced responses, and an optional private chat mode. We plan to release a hands-free Claude voice interface in late Q3 2026, which will allow users to interact without unlocking their phones We believe these developments make our Lucyd eyewear perhaps the smartest smartglasses available today, and represent a significant marketing opportunity for our core smartglass products. The Lucyd app delivers an updated user experience over time without requiring costly hardware changes. Additionally, the overall flexibility of Bluetooth connectivity and ability to connect to a variety of voice assistants, including device-native assistants and AI language models, make our glasses a “device- and AI- agnostic” peripheral suitable for use with almost any desktop or mobile computing platform. This aspect of our products makes them a highly compatible interface accessory and distinguishes them from accessories designed to enhance a specific platform, such as Apple AirPods for iOS or gaming headsets for desktop computers.

We currently offer three key display systems: (1) Hero Displays, which are unpowered branding stands, (2) Counter Kiosks, which offer digital and interactive demo experiences, and (3) the Lucyd Kiosk, which is a freestanding screen for larger stores. Across all display systems offered by the Company, approximately 100160 displays have been deployed to vendorsretail partners as of MarchJune 31,30, 2026.

Store Count (B2B) – We believe that the number of retail stores selling our products is an important indicator of wholesale growth. The Company has increased the number of retail store locations in which its products are sold from over 350 at the beginning of 2025 to over 400 by the end of the 2025. WeThe remain optimistic thatrecently-announced partnership with FYihealth group, operators of the FYidoctors optical chain in Canada, is expected to add approximately 345 retail locations, with initial shipments having commenced in July 2026. Together with our previously-announced retail test with a nationalmajor U.S. retailer willand increaseother partnerships in progress, we expect the number of retail locations offering our storeproducts countto significantlyapproximately indouble during 2026.

The following table summarizes our results of operations for the three months ended MarchJune 31,30, 2026 (the “current quarter”) and the three months ended MarchJune 31,30, 2025 (the “prior year quarter”):

Our revenues for the three months ended MarchJune 31,30, 2026 were $773,561,$1,010,519, representing an increase of 70%74% as compared to revenues of $454,501$579,230 during the three months ended MarchJune 31,30, 2025. This year-over-year growth in revenues represents an acceleration from the full-year 2025 growth rate of approximately 63%,63% compared to full-year 2024 and first quarter 2026 growth rate of 70% compared to the first quarter of 2025, and reflects continued positive momentum across the Company’sCompany's smart eyewear portfolio.

The increase in revenue iswas primarilypredominantly attributable to significant volume increases,increases. whichOur wereunit predominantlyvolumes increased approximately 73% year-over-year, with this increase primarily driven by our award-winning and highly popular Lucyd Armor line of smart safety glasses. We sold approximately 4,1004,700 units of Lucyd Armor smartglasses in the current quarter, whichrepresenting representeda approximatelynearly two-thirds100% ofincrease our total smartglass units sold duringfrom the prior year quarter. According to a recent third-party analysis, Lucyd Armor holds an approximate 44% market share of smart safety glasses on Amazon.com, and to the Company’sCompany's knowledge, remains the only smart safety glass on the platform with full safety certification in the U.S., Canada, and the European Union. WeOur believecobranded Reebok sport smartglasses and Reebok optical smartglasses were also a significant driver of the current quarter volume increases, as we sold over 1,600 units of Reebok smartglasses in the current quarter, up from approximately 400 units of Reebok smartglasses in the prior year quarter; roughly half of this productvolume lineincrease willwas continueattributable to growthe April 2026 launch of the new Reebok optical collection. These strong increases in futureunit quarters, as several leading industrial and logistics companies are testing Lucyd productsvolumes for their workforce use. The volume increases from Lucyd Armor and Reebok smartglasses were partially offset by volume declines in certain of our other smartglass product lines.

For the three months ended MarchJune 31,30, 2026, approximately 56%52% of sales were processed on our online store (Lucyd.co), 40%36% on Amazon.com, and 3%11% through reseller partners, with approximately 1% of our net revenues generated from Lucyd “Pro” app subscriptions. For the three months ended MarchJune 31,30, 2025, approximately 40%56% of sales were processed on our online store (Lucyd.co), 52%41% on Amazon.com, and 7%2% through reseller partners, with approximately 1% of our net revenues generated from app subscriptions. The decline in the proportional share of reseller sales versus the prior year quarter reflects the combination of (i) the uncertainty of the current economic environment in light of the current tariff and international trade situation, which we believe has led to delays in getting large retailers to commit to placing orders for new products such as ours, and (ii) an intentional shift by the Company away from small optical accounts and the timing of purchase orders from prospective big-box and home-improvement retailers currently under evaluation.

Overall, e-commerce sales remain to be the most material portion of our sales since inception; however, we continue to believe that the wholesale channel is the most scalable and most promising long-term opportunity for future growth. To date, several factors have constrained wholesale sell-through: (i) the optical retail ecosystem is fragmented and insurance-driven, which supports higher margins on conventional frames and can compress retailer margins on smart eyewear at mainstream price points; (ii) smart eyewear requires interactive merchandising and in-store demos to educate consumers, which lengthens onboarding lead times; and (iii) national retailers typically require category sell-through evidence, certifications, and planogram resets with long decision cycles. However, large national retailers have recently started to recognize smart eyewear as proven category and are starting to move in the direction of selling more smart eyewear. We are currently prioritizing larger retailers whose economics are more aligned with consumer electronics and safety categories, including home-improvement and big-box stores, and believe that – with our recently expanded Lucyd Armor and Reebok® product lines – we have the product and merchandising set needed to scale wholesale placements over time. Therefore, we expect that e-commerce channels (Lucyd.co and Amazon) will remain a larger proportional share of our revenue in the near to medium term, with wholesale contributions increasing over time. In the long term, we anticipate that wholesale sales will comprise a larger proportional share of our revenue, which should bring consistent, large-scale orders with minimal marketing costs.

Our total cost of goods sold increased to $598,116$768,004 for the three months ended MarchJune 31,30, 2026, as compared to $233,968$591,895 for the prior year quarter. This year-over-year increase of 156%30% was primarily driven by theincreased combinationunit (i) the increase in the volume of products sold, as discussed above, and (ii) the fact that the prior year quarter amount was positively impacted by certain credits and inventory adjustments totalling approximately $132,000, which did not recur in subsequent quarters. These factors, which led to the year-over-year increase in cost of goods sold, werevolumes, partially offset by the ongoing improvements in product sourcing costs for both frames and prescription lenses – largely related to realization of greater economies of scale as our manufacturing order volumes have grown and our cost per unit has decreased.

Cost of goods sold for the three months ended MarchJune 31,30, 2026 included but was not limited to the cost of frames (inclusive of the cost of tariffs, importation costs, and other inventory adjustments) of $432,814$541,490; the cost of prescription lenses incurred with our third-party vendor of $67,065$53,956; commissions, affiliate referral fees, and e-commerce platform fees of $58,528$88,546; shipping and logistics costs of $25,895$32,886; and product certification costs of $13,320.$24,823. Cost of goods sold for the three months ended MarchJune 31,30, 2025 included but was not limited to the cost of frames (inclusive of $72,869the cost of tariffs, importation costs, and other inventory adjustments) of $494,236; the cost of prescription lenses incurred with our third-party vendor of $68,051$71,097; and commissions, affiliate referral fees, and e-commerce platform fees of $31,043; shipping and logistics costs of $57,163; and quality assurance costs related to our products sold of $4,002.$28,209.

Our gross profit for the current quarter was $175,445,$242,515, compared to $220,533a gross deficit of $(12,665) for the prior year quarter. Our gross profit margin was 23%24% in the current quarter and 49%-2% in the prior year quarter, representing aan decreaseincrease of approximately 26 percentage points from the prior year period. This decrease in profitability compared with the prior year quarter was predominantly attributable to the aforementioned positive impact in the prior year quarter of certain credits and inventory adjustments, which did not recur in subsequent quarters. Overall, the gross profit margin for the current quarter was relatively consistent with our gross profit margin for full fiscal year 2025 (21%) and the second half of fiscal year 2025 (22%).

In the near to medium term, we anticipate growth in total cost of goods sold corresponding with anticipated future growth in revenues, and do not expect significant decreases in gross profit margins from current levels. We are continually refining our product mix with sales data, and anticipate further reducing our unit costs by focusing on the highest volume, market-tested styles. Additionally, we continue to monitor trade policy and have contingency sourcing options in Southeast Asia should the U.S.‑ChinaU.S.-China tariff conditions materially change.

Our operating expenses increaseddecreased by 20%10% to $2,547,210$1,947,474 for the three months ended MarchJune 31,30, 2026, as compared to $2,124,324$2,158,407 for the three months ended MarchJune 31,30, 2025. This increasedecrease was primarily due to the following:

Our general and administrative expenses increaseddecreased by $498,703$92,296 or approximately 46%7% to $1,590,051$1,218,569 for the three months ended MarchJune 31,30, 2026, as compared to $1,091,348$1,310,865 for the prior year quarter. This increasedecrease was mainly attributable to thelower combinationexpenses offor legal counsel and other outside consultants and service providers, partially offset by (i) higher amountsspending paidon topublic outside service providers for various corporaterelations and compliancebranding functions, including public and investor relations, audit and accounting, and legal services (approximately $178,000), (ii) higher employee compensation (including stock-based compensation) and benefit costs (approximately $137,000)initiatives, and (iiiii) higher payments due under our multi-year license agreements, which increased our licensing expense by approximately $75,000,$80,000, to approximately $209,000$227,000 for the current quarter.

Our sales and marketing expenses for the current quarter wereincreased slightly by $7,494 or approximately $784,050,1% essentiallyto flat$551,812 for the current quarter, as compared withto $544,318 for the prior year quarter expense of $787,400.quarter. We continue to strategically allocate our marketing spending as needed and on a dynamic basis between a combination of key events and trade shows (to grow and expand our network of potential business partners and retailers), paid ads (to build brand awareness, attract new customers, and increase our market share), and supporting launches of new products. We utilize data-driven decision-making to refine and optimize our marketing campaigns, in order to make our spending in this area more efficient, thus maximizing returns on our marketing investments.

Our research and development costs were $138,109$142,093 for the three months ended MarchJune 31,30, 2026, as compared to $210,576$268,224 for the three months ended MarchJune 31,30, 2025, representing a year-over-year decrease of approximately 34%,47%, primarily driven by the timing of product development cycles. We are continuously developing improvements on our core product lines, as well as new modalities of smart eyewear. The costs of these developments are primarily connected to molding and tooling costs with our manufacturing partners, as well as component sourcing and testing. These costs are ongoing and vary quarter to quarter; such costs generally tend to decrease after an initial collection launch, since the majority of research and development costs are borne in the initial production.

Our related party management fee was $35,000 for each of the three-month periods ended MarchJune 31,30, 2026 and 2025, based on the terms of the management services agreement between us and Tekcapital.

Total other income (expense), net was $62,397$34,141 in the current quarter, reflecting a decline of approximately 50%47% from $125,088$64,978 in the prior year quarter. These amounts were primarily comprised of dividends from our investments in money market funds and interest income from investments in U.S. Treasury bills. The year-over-year decrease in other income (expense), net was primarily attributable to the combination of lower average cash equivalent and investment balances as compared to the prior year quarter, and lower dividend yields from money market funds and lower interest rates on U.S. Treasury bills as compared to the prior year quarter.

As of MarchJune 31,30, 2026 and December 31, 2025, our cash and cash equivalents were approximately $4.4$2.5 million and $6.5 million, respectively. As of MarchJune 31,30, 2026 and December 31, 2025, our total overall liquidity (cash and cash equivalents plus investments in short-term U.S. Treasury bills), which management believes provides a more accurate depiction of the Company’s liquidity and economic position, was approximately $5.7$3.7 million and $6.5 million, respectively.

Our working capital (current assets less current liabilities) was approximately $7.7$6.2 million and $8.4 million as of MarchJune 31,30, 2026 and December 31, 2025, respectively.

Net cash flows used in operating activities for the threesix months ended MarchJune 31,30, 2026 are primarily reflective of our net loss for the period, resulting from various operating costs to support and grow our business. We continue to make significant investments in marketing spending in order to build brand awareness, attract new customers, and increase our market share.

Total use of cash in operating activities during the current quartersix months was of a similar order of magnitude and roughly comparable with the prior year quartersix months; however, the current quarter’speriod’s use of cash in operating activities notably reflects higher payments made under multi-year licensing agreements, whereas the prior year quarter’speriod’s use of cash in operating activities is more reflective of payments made to purchase inventory and the pay down of accounts payable and accrued liabilities.inventory.