Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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.

Overview

Executive Summary and Outlook

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We achieved strong top-line growth in the third quarter of 2026, with revenues for the three months ended September 30, 2026 increasing by 51% as compared to the third quarter of 2025. On a year-to-date basis, our revenues for the first nine months of 2026 increased by 64% from the comparable period in 2025, which is in line with our full -year 2025 year-over-year growth rate of 63%, and demonstrates continued positive momentum for our business. For both the quarter and year-to-date periods, the growth in revenues was primarily driven by increases in unit volumes for our Lucyd Armor smart safety glasses, and also reflects notable growth in our wholesale channel, with significant shipments made to two new large retail partners in the U.S. and Canada in the third quarter of 2026.

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Our gross profit margin for the third quarter of 2026 was 32%, compared to 37% in the third quarter of 2025. This year-over-year decline was primarily attributable to the recognition of a large inventory reserve in the current quarter for certain excess cobranded inventory, partly offset by the receipt of tariff refunds during the current quarter, and continued improvements in product sourcing costs. On a year-to-date basis, our gross profit margin was essentially flat year-over-year.

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Operating expenses increased by 23% in the third quarter of 2026 as compared to the third quarter of 2025, while increasing by 11% on a nine-month basis. For both the quarter and year-to-date periods, most of the year-over-year increase was attributable to general and administrative expenses, which were primarily driven by the combination of higher payments due under our multi-year license agreements, and increased compensation and benefit costs due to additional staff to drive growth. Research and development costs also increased significantly for both the quarter and year-to-date periods, primarily driven by new investments to update and upgrade our award-winning and highly popular Lucyd Armor line of smart safety glasses. These increases were partially offset by more efficient spending on sales and marketing efforts.

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We believe we are strongly positioned to continue our momentum of growth in the fourth quarter of 2026 and beyond into 2027, based on the following:

○

New Product Launches - In April 2026, we launched the new Reebok® Powered by Lucyd optical collection, which is our highest average selling price frame collection to date, driving more profit on a single frame sale than ever before. In October 2026, we launched the new Lucyd Aero® collection, which represents our lightest and most advanced smartglasses to date. Management believes both of these product lines have strong growth potential, with Lucyd Aero particularly notable for its disruptive qualities in traditional optical channels.

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Wholesale and International Expansion - In July 2026, we announced a significant new retail launch with FYihealth group, operators of the FYidoctors optical chain in Canada; we began shipping initial stock and demonstration units during the third quarter, and our products will be available across 345 locations across Canada by the end of the year. In September 2026, we received and fulfilled an initial purchase order from one of the largest big-box retailers in the U.S.; under this arrangement with this retailer, our products are scheduled to be sold in over 150 big-box stores across the U.S. starting in the fourth quarter of 2026. Also in September 2026, we received orders for more than 3,000 smart eyewear units from Directed Electronics, our new exclusive distributor for Australia and New Zealand, who plans to place our products in national electronics retail chains across the region; we expect to ship these units to Directed Electronics in the fourth quarter of 2026.

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Anticipated New Corporate Customers and Partners - Several leading industrial and logistics companies are testing Lucyd products for their workforce use. Lucyd Armor is a unique workforce solution that bridges communication barriers on heavy industry teams, enabling hands-free open-ear communication and translations between teammates. We have launched a white-label offering and are in advanced negotiations with a major automotive retailer for our first white-label program; vendor onboarding is underway.

General Product and Corporate Overview

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.

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 continued to expand our product offerings over the years - including the launch of Lucyd Lyte 2.0 and Lyte XL smartglasses in 2023, the launch of the Lucyd Armor, Nautica^® Powered by Lucyd, and Eddie Bauer ^® Powered by Lucyd smart eyewear collections in 2024, the launch of the Reebok^® Powered by Lucyd sport collection in 2025, and the recent launch of the Reebok^® Powered by Lucyd optical collection in April 2026. The variety of smartglasses we offer underpins our goal 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 currently offer an expansive line of over 40 different models of glasses and several accessories.

Our products are currently sold through two major types of channels:

1.

E-commerce - primarily via our website (Lucyd.co) and Amazon.com, as well as through various other websites such as Walmart.com, Target.com, BestBuy.com, and DicksSportingGoods.com; and,

2.

A growing network of retail stores, including independent eyewear stores and national eyewear chains - as of the end of 2025, we had over 400 retail stores selling our products (across over 300 unique wholesale accounts), and are continually working to expand our network. During 2026, we added two new large retail partners in the U.S. and Canada, such that we expect our products to be offered in approximately 900 retail locations across the U.S. and Canada by the end of 2026.

All of our products are designed in Miami and manufactured in Asia. 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.

Software and Apps

The Lucyd app, available for iOS and Android, is a free application that enables the user to converse with popular AI large language models (including ChatGPT, Claude, and Gemini) on our glasses, to instantly gain the benefit of some of the world's most powerful AI assistants in a hands-free ergonomic interface. First launched in 2023, the app deploys powerful and unique integration with AI APIs, developed internally by the Company. The Company has filed a patent application related to this software.

In 2024, we added a "Pro" version of the app, which provides unlimited AI interactions and priority tech support for a monthly or annual fee. We also launched a new feature called "Walkie" for the Lucyd app in 2024, which enables thousands of users to join each other on walkie-talkie style communication channels. This feature was designed with our Lucyd Armor safety glass product in mind, to enable coworking teams to communicate freely on smart eyewear.

In 2025, we updated and enhanced the Lucyd app's Walkie feature, enabling premium subscribers access to secure and private walkie channels, providing businesses and organizations with a powerful tool to communicate confidentially and seamlessly through Lucyd smart eyewear. Also during 2025, we added a new translation feature to the Lucyd app, which allows for voice-based translation between multiple languages in real time.

In the first quarter of 2026, the Lucyd app received an overhaul to the user interface, with general improvements to usability. The app has been redeveloped as an "app store within an app," enabling an expansive and highly customizable Lucyd software platform to be housed conveniently within the iOS and Android app stores. The Company envisions that this new structure of the app will support third party applet development for Lucyd eyewear partners and users in the near future, and help in attracting developer talent to the platform by giving them a way to monetize new features and content for Lucyd eyewear.

In July and August 2026, the Lucyd app was updated to provide for Claude and Gemini AI integration, and allow users to access Claude, Gemini, 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 also expanded that app's hands-free voice interface, allowing users choose which AI model answers to the user's verbal prompts.

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.

Kiosks and Retail Fixtures

We provide certain retail partners with point-of-sale display materials, including virtual try-on kiosks, modular display units, and interactive LCD fixtures designed to support in-store product education and demonstrations. Many of our retail fixtures allow for customization to suit our retail store partners' needs, and our newer fixtures feature a proprietary kiosk app that we developed in-house.

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, we have shipped approximately 100 display units to more than 30 retail customers as of September 30, 2026.

Key Performance Indicators

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 2025. During 2026, we added two new large retail partners:

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In July 2026, we began shipping to FYihealth Group for its network of approximately 345 FYidoctors, Visique, and Solis optical clinics in Canada, including in-store demonstration units for its clinics.

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In September 2026, we shipped an initial order of our products to one of the largest big-box retailers in the U.S. for its in-store program in more than 150 of its stores. Our products are scheduled to be sold in these stores in the fourth quarter of 2026.

With these new partners, we expect our products to be offered in approximately 900 retail locations across the U.S. and Canada by the end of 2026.

Customer Ratings (B2C) - 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. 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.

International Trade and Tariffs

Beginning in April 2025, the U.S. government 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. These developments negatively impacted our results of operations during the year ended December 31, 2025. Management has taken various actions to mitigate the negative impacts of tariffs on our financial results; these actions have been largely successful thus far. However, the current international geopolitical climate related to tariffs is fluid and continues to evolve, and we cannot provide any assurance that actions that have been taken by management or that may be taken by management in the future will be successful in future periods. As such, we cannot predict with certainty the ultimate impacts that international trade and tariff developments may have on our business and financial results in the future, but those impacts could be material.

In February 2026, the U.S. Supreme Court issued a ruling invalidating some of the tariffs imposed by the U.S. government. During the three months ended September 30, 2026, the Company received refunds related to certain tariffs previously paid by the Company totaling approximately $125,000; such amounts were recognized as a reduction to cost of goods sold in the Company's condensed financial statements.

In October 2026, the Company filed additional claims for tariff refunds; however, significant uncertainty remains as to the timing and amount that will ultimately be received from these additional claims.

Results of Operations - Quarterly

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

		Three months ended								Three months ended
		September 30,								September 30,
		2026								2025								Change
Revenues, net		$	1,009,696				100	%		$	668,128				100	%		$	341,568				51	%
Less: Cost of Goods Sold			(688,786	)			68	%			(423,291	)			63	%			(265,495	)			63	%
Gross Profit (Deficit)			320,910				32	%			244,837				37	%			76,073				31	%
Operating Expenses:
General and administrative			(1,578,047	)			156	%			(1,277,308	)			191	%			(300,739	)			24	%
Sales and marketing			(622,883	)			62	%			(723,372	)			108	%			100,489				-14	%
Research and development			(423,353	)			42	%			(129,984	)			19	%			(293,369	)			226	%
Related party management fee			(35,000	)			3	%			(35,000	)			5	%			-				0	%
Total Operating Expenses			(2,659,283	)			263	%			(2,165,664	)			324	%			(493,619	)			23	%
Other Income (Expense), net			51,232				-5	%			84,560				-13	%			(33,328	)			-39	%
Net Loss		$	(2,287,141	)			227	%		$	(1,836,267	)			275	%		$	(450,874	)			25	%

Revenues

Our revenues for the three months ended September 30, 2026 were $1,009,696, representing an increase of 51% as compared to revenues of $668,128 during the three months ended September 30, 2025. The increase in revenue was predominantly attributable to significant volume increases, of which the majority related to the initial shipments to major new retail partners in the U.S. and Canada. The impact of volume increases on revenue was partially offset by unfavorable price/mix impacts.

Our unit volumes increased approximately 89% year-over-year, inclusive of approximately 1,100 demonstration units shipped to a new retail partner in Canada; excluding those units, unit volumes increased approximately 68% year-over-year. Overall, the increase in unit volumes was primarily driven by our award-winning and highly popular Lucyd Armor line of smart safety glasses. We sold approximately 7,800 units of Lucyd Armor smartglasses in the current quarter, representing an increase from the prior year quarter of 164%, of which approximately 2,300 units were related to the fulfilment of the initial purchase order from one of the largest big-box retailers in the U.S. Our cobranded Reebok smartglasses were also a significant driver of the current quarter volume increases, as we sold over 1,400 units of Reebok smartglasses in the current quarter, up from approximately 1,100 units of Reebok smartglasses in the prior year quarter; this volume increase was predominantly attributable to the April 2026 launch of the new Reebok optical collection. These strong increases in unit volumes for Lucyd Armor and Reebok smartglasses were partially offset by volume declines in our other product lines.

The unfavorable price/mix impacts were related to the combination of (i) the aforementioned demonstration units and (ii) channel mix. The unfavorable channel mix impact was driven by the significant number of products sold to our major new retail partners in the U.S. and Canada in the current quarter, as we earn lower revenue per unit on sales to retail partners due to the inherent nature of wholesale pricing, which is lower than pricing on direct-to-consumer sales generated through e-commerce channels.

For the three months ended September 30, 2026, approximately 48% of sales were processed on our online store (Lucyd.co), 29% on Amazon.com, and 22% through reseller partners, with approximately 1% of our net revenues generated from Lucyd "Pro" app subscriptions. For the three months ended September 30, 2025, approximately 56% of sales were processed on our online store (Lucyd.co), 40% on Amazon.com, and 4% through reseller partners.

The current quarter results notably reflect significant progress made over the past year towards our long-term goals of increasing revenue in the wholesale channel, with such revenues growing to more than eight times the prior year quarter in terms of absolute dollar amounts (from $25,796 in the third quarter of 2025 to $223,305 in the current quarter), and to more than five times the prior year quarter as a percentage of total sales. 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, and that the opportunity to grow volumes through the wholesale channel significantly outweighs the negative aspect of lower revenue per unit in that channel.

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.

Cost of Goods Sold

Our total cost of goods sold increased to $688,786 for the three months ended September 30, 2026, as compared to $423,291 for the prior year quarter. This year-over-year increase of 63% outpaced our 51% growth in revenues and was primarily driven by the recognition of significant provisions for excess and slow-moving inventory during the current quarter related to certain cobranded smart eyewear products; this was partially offset by the positive impact of tariff refunds received during the current quarter, which reduced our cost of goods sold. The impact of volume increases was essentially offset by ongoing improvements in product sourcing costs.

Cost of goods sold for the three months ended September 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 $359,976; tariff refunds of $(124,854); provisions for excess and slow-moving inventory of $301,341; the cost of prescription lenses incurred with our third-party vendor of $13,512; commissions, affiliate referral fees, and e-commerce platform fees of $83,762; shipping and logistics costs of $33,045; and product certification costs of $21,085.

Cost of goods sold for the three months ended September 30, 2025 included but was not limited to the cost of frames (inclusive of the cost of tariffs, importation costs, and other inventory adjustments) of $324,030; the cost of prescription lenses incurred with our third-party vendor of $45,365; commissions, affiliate referral fees, and e-commerce platform fees of $30,759; and shipping and logistics costs of $23,137.

Gross Profit

Our gross profit for the current quarter was $320,910, compared to $244,837 for the prior year quarter. Our gross profit margin was 32% in the current quarter and 37% in the prior year quarter, representing a decrease of approximately 5 percentage points from the prior year period.

The year-over-year decrease in gross profit margin compared with the prior year quarter was predominantly attributable to the aforementioned provision recorded in the current quarter for excess and slow-moving inventory related to certain cobranded smart eyewear; this reduced gross profit margin by approximately 30 percentage points. Higher commissions, affiliate referral fees, and e-commerce platform fees also reduced gross profit margin by approximately 4 percentage points. Partially offsetting these negative impacts to gross profit were (i) the positive impact of tariff refunds received in the current quarter, which increased gross profit margin by approximately 12 percentage points, and (ii) 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 - which increased gross profit margin by approximately 18 percentage points.

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 should conditions materially change.

Operating Expenses

Our operating expenses increased by 23% to $2,659,283 for the three months ended September 30, 2026, as compared to $2,165,664 for the three months ended September 30, 2025. This increase was primarily due to the following:

General and administrative expenses

Our general and administrative expenses increased by $300,739 or approximately 24% to $1,578,047 for the three months ended September 30, 2026, as compared to $1,277,308 for the prior year quarter. This increase was mainly attributable to the combination of (i) higher employee compensation and benefit costs, which increased by approximately $90,000 as compared to the prior year quarter, and which was mainly due to the addition of staff to drive growth, (ii) higher spending on public relations and branding initiatives, for which costs increased by approximately $53,000 as compared to the prior year quarter, and (iii) higher payments due under our multi-year license agreements, which increased our licensing expense by approximately $84,000, to approximately $209,000 for the current quarter.

Sales and marketing expenses

Our sales and marketing expenses for the current quarter decreased by $100,489 or approximately 14% to $622,883 for the current quarter, as compared to $723,372 for the prior year quarter. This decrease was primarily driven by more efficient spending in this area. We continue to strategically allocate our sales and 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.

Research and development costs

Our research and development costs were $423,353 for the three months ended September 30, 2026, as compared to $129,984 for the three months ended September 30, 2025, representing a year-over-year increase of $293,369 or approximately 226%, primarily driven by development fees paid to third parties for new product development initiatives. Due to the overwhelming growth and success of the Lucyd Armor line, we are investing heavily in the advancement of this product line, with end-to-end hardware and software enhancements in development for an updated and upgraded collection in the first half of 2027. We are seeking to build a comprehensive enterprise offering on this platform, which will answer diverse needs for practical applications of smart safety eyewear in many workplaces. Our research and development resources are substantially invested in this new platform, alongside improvements to our optical lines.

Related party management fee

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

Other Income (Expense), net

Total other income (expense), net was $51,232 in the current quarter, reflecting a decline of $33,328 or approximately 39% from $84,560 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.

Results of Operations - Year to Date

The following table summarizes our results of operations for the nine months ended September 30, 2026 (the "current nine months" or the "current period") and the nine months ended September 30, 2025 (the "prior year nine months" or the "prior year period"):

		Nine months ended								Nine months ended
		September 30,								September 30,
		2026								2025								Change
Revenues, net		$	2,793,776				100	%		$	1,701,859				100	%		$	1,091,917				64	%
Less: Cost of Goods Sold			(2,054,906	)			74	%			(1,249,154	)			73	%			(805,752	)			65	%
Gross Profit (Deficit)			738,870				26	%			452,705				27	%			286,165				63	%
Operating Expenses:
General and administrative			(4,386,667	)			157	%			(3,679,521	)			216	%			(707,146	)			19	%
Sales and marketing			(1,958,745	)			70	%			(2,055,090	)			121	%			96,345				-5	%
Research and development			(703,555	)			25	%			(608,784	)			36	%			(94,771	)			16	%
Related party management fee			(105,000	)			4	%			(105,000	)			6	%			-				0	%
Total Operating Expenses			(7,153,967	)			256	%			(6,448,395	)			379	%			(705,572	)			11	%
Other Income (Expense), net			147,770				5	%			274,626				16	%			(126,856	)			-46	%
Net Loss		$	(6,267,327	)			224	%		$	(5,721,064	)			336	%		$	(546,263	)			10	%

Revenues

Our revenues for the nine months ended September 30, 2026 were $2,793,776, representing an increase of 64% as compared to revenues of $1,701,859 during the nine months ended September 30, 2025. This year-over-year growth rate in revenues is consistent with our full-year 2025 growth rate of approximately 63%, and reflects continued positive momentum across the Company's smart eyewear portfolio.

The increase in revenue was predominantly attributable to significant volume increases, of which a significant portion related to the initial shipments to major new retail partners in the U.S. and Canada during the current nine months. Our unit volumes increased approximately 68% year-over-year, inclusive of approximately 1,100 demonstration units shipped to a new retail partner in Canada; excluding those units, unit volumes increased approximately 60% year-over-year. Overall, the increase in unit volumes was primarily driven by our award-winning and highly popular Lucyd Armor line of smart safety glasses. We sold approximately 16,600 units of Lucyd Armor smartglasses in the current nine months, representing a 119% increase from the prior year nine months, of which approximately 2,300 units were related to the fulfilment of the initial purchase order from one of the largest big-box retailers in the U.S. Additionally, 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's knowledge, remains the only smart safety glass on the platform with full safety certification in the U.S., Canada, and the European Union. Our cobranded Reebok smartglasses were also a significant driver of the current period volume increases, as we sold nearly 3,400 units of Reebok smartglasses in the current nine months; this volume increase was predominantly attributable to the April 2026 launch of the new Reebok optical collection. These strong increases in unit volumes for Lucyd Armor and Reebok smartglasses were partially offset by volume declines in our other product lines.

Price/mix impacts had a minimal net effect on the year-over-year change in revenue, as (i) unfavorable impacts related to channel mix, driven by the higher proportion of sales at wholesale pricing due to the significant number of products sold to our major new retail partners in the U.S. and Canada in the current period, were largely offset by (ii) favorable impacts related to product mix, driven by increased sales of the higher-priced Lucyd Armor line following price increases implemented in 2026 and the April 2026 launch of the Reebok optical collection at premium price points.

For the nine months ended September 30, 2026, approximately 52% of sales were processed on our online store (Lucyd.co), 34% on Amazon.com, and 13% through reseller partners, with approximately 1% of our net revenues generated from Lucyd "Pro" app subscriptions. For the nine months ended September 30, 2025, approximately 55% of sales were processed on our online store (Lucyd.co), 40% on Amazon.com, and 4% through reseller partners, with 1% of our net revenues generated from Lucyd "Pro" app subscriptions.

The current period results notably reflect significant progress made over the past year towards our long-term goals of increasing revenue in the wholesale channel, with such revenues growing to more than five times the prior year period in terms of absolute dollar amounts (from $70,405 in the prior year nine months to $358,443 in the current nine months), and more than tripling in terms of percentage of total sales. 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, and that the opportunity to grow volumes through the wholesale channel significantly outweighs the negative aspect of lower revenue per unit in that channel.

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 prioritizing larger retailers whose economics are more aligned with consumer electronics and safety categories, including home-improvement and big-box stores, and believe that 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.

Cost of Goods Sold

Our total cost of goods sold increased to $2,054,906 for the nine months ended September 30, 2026, as compared to $1,249,154 for the prior year nine months. This year-over-year increase of 65%, which was in line with our growth in revenues, was primarily driven by the combination (i) the increase in the volume of products sold, as discussed above, (ii) the recognition of significant provisions for excess and slow-moving inventory during the current nine months related to certain cobranded smart eyewear products, and (iii) higher costs related to platform / marketplace fees and commissions, partially offset by (iv) the positive impact of tariff refunds received during the current nine months, which reduced our cost of goods sold.

Cost of goods sold for the nine months ended September 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 $1,303,859; tariff refunds of $(124,854); provisions for excess and slow-moving inventory of $331,763; the cost of prescription lenses incurred with our third-party vendor of $134,533; commissions, affiliate referral fees, and e-commerce platform fees of $230,836; shipping and logistics costs of $91,826; and product certification costs of $59,228.

Cost of goods sold for the nine months ended September 30, 2025 included but was not limited to the cost of frames (inclusive of the cost of tariffs, importation costs, and other inventory adjustments) of $890,966; the cost of prescription lenses incurred with our third-party vendor of $184,513; commissions, affiliate referral fees, and e-commerce platform fees of $90,011; and shipping and logistics costs of $65,901.

Gross Profit

Our gross profit for the current nine months was $738,870, compared to $452,705 for the prior year nine months. Our gross profit margin was 26.4% in the current period and 26.6% in the prior year period, or essentially flat year-over-year.

The negligible net change year-over-year in gross profit margin was reflective of the combination of (i) the aforementioned provision recorded in the current period for excess and slow-moving inventory related to certain cobranded smart eyewear, which reduced gross profit margin by approximately 12 percentage points, and (ii) higher commissions, affiliate referral fees, and e-commerce platform fees, which reduced gross profit margin by approximately 3 percentage points, partially offset by (iii) 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 - which increased gross profit margin by approximately 12 percentage points, and (iv) the positive impact of tariff refunds received in the current nine months, which increased gross profit margin by approximately 4 percentage points.

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 should trade conditions materially change.

Operating Expenses

Our operating expenses increased by 11% to $7,153,967 for the current period, as compared to $6,448,395 for the prior year period. This increase was primarily due to the following:

General and administrative expenses

Our general and administrative expenses increased by $707,146 or approximately 19% to $4,386,667 for the nine months ended September 30, 2026, as compared to $3,679,521 for the prior year nine months. This increase was mainly attributable to the combination of (i) higher employee compensation and benefit costs (approximately $181,000), mainly due to the addition of staff to drive growth, (ii) higher spending on public relations and branding initiatives (approximately $141,000), and (iii) higher payments due under our multi-year license agreements, which increased our licensing expense by approximately $239,000, to approximately $644,000 for the current period.

Sales and marketing expenses

Our sales and marketing expenses decreased by $96,345 or approximately 5% to $1,958,745 for the current nine months, as compared to $2,055,090 for the prior year nine months. This decrease was primarily driven by more efficient spending in this area. We continue to strategically allocate our sales and 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.

Research and development costs

Our research and development costs were $703,555 for the nine months ended September 30, 2026, as compared to $608,784 for the nine months ended September 30, 2025, representing a year-over-year increase of approximately 16%. This increase was primarily driven by new product development cycles in the current nine months. Specifically, during the earlier portion of the current period, we incurred various costs to develop the Reebok optical collection, which launched in April 2026, and in the third quarter of 2026, we incurred significant development fees related to the planned update and upgrade to our Lucyd Armor line.

Due to the overwhelming growth and success of the Lucyd Armor line, we are investing heavily in the advancement of this product line, with end-to-end hardware and software enhancements in development for an updated and upgraded collection in the first half of 2027. We are seeking to build a comprehensive enterprise offering on this platform, which will answer diverse needs for practical applications of smart safety eyewear in many workplaces. Our research and development resources are substantially invested in this new platform, alongside improvements to our optical lines.

Related party management fee

Our related party management fee was $105,000 for each of the nine-month periods ended September 30, 2026 and 2025, based on the terms of the management services agreement between us and Tekcapital.

Other Income (Expense), net

Total other income (expense), net was $147,770 in the current period, reflecting a decline of approximately 46% from $274,626 in the prior year nine months. 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 period, and lower dividend yields from money market funds and lower interest rates on U.S. Treasury bills as compared to the prior year period.

Liquidity and Capital Resources

As of September 30, 2026 and December 31, 2025, our cash and cash equivalents were approximately $3.2 million and $6.5 million, respectively. As of September 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 $4.5 million and $6.5 million, respectively.

Our working capital (current assets less current liabilities) was approximately $6.7 million and $8.4 million as of September 30, 2026 and December 31, 2025, respectively.

The Company did not have any debt obligations as of September 30, 2026 or December 31, 2025.

We had previously entered into a financing agreement with Lucyd Ltd. (a related party), under which we could borrow up to $1,250,000 in exchange for issuing a convertible note to Lucyd Ltd (see Note 8 for details). On October 23, 2026, the Company and Lucyd Ltd. entered into an amendment of this financing agreement, such that upon issuance, the convertible note will have a maturity date of April 30, 2028. The amendment also gives the Company an irrevocable right to draw down up to $1,250,000, funded within ten business days of each request, and limits conversions to 19.99% of the Company's common stock outstanding on the date of the amendment, and the holding of Lucyd Ltd. and its affiliates to 19.99%, in each case unless stockholder approval is obtained. The principal amount, the 10% interest rate, and the conversion events are unchanged, and no fee is payable. The Company has not borrowed any amounts under this agreement.

Contractual commitments for payments due under multi-year license agreements are scheduled to increase in future periods; payments due under such contracts are $45,000 for the remainder of 2026, $1,290,000 for fiscal year 2027, and $1,543,000 for fiscal year 2028. If the Company were to exercise its contractual cancellation rights during the fifth year of each agreement, the aggregate future minimum payments due under these license agreements would be reduced from $12,785,000 to $3,428,000, although there would be no change to the payments due in fiscal year 2027 and 2028.

We believe our total overall liquidity, plus the availability to borrow funds via our aforementioned financing agreement with Lucyd Ltd., will be sufficient to fund our operations for at least the next twelve months.

Cash Flow

		Nine months ended				Nine months ended
		September 30,				September 30,
		2026				2025
Net cash flows from operating activities		$	(5,902,500	)		$	(5,924,987	)
Net cash flows from investing activities			(1,355,554	)			3,651,077
Net cash flows from financing activities			3,944,079				6,344,438
Net Change in Cash		$	(3,313,975	)		$	4,070,528

Net cash flows used in operating activities for the nine months ended September 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 nine months was relatively consistent and comparable with the prior year nine months; however, the current period's use of cash in operating activities notably reflects higher payments made under multi-year licensing agreements, whereas the prior year period's use of cash in operating activities is more reflective of payments made to purchase inventory.

Net cash flows from investing activities in both the current nine months and prior year nine months primarily reflect the timing of purchases and redemptions of short-term U.S. Treasury bills, which do not impact our total overall liquidity (as previously defined above).

Net cash flows from financing activities for the current nine months are primarily attributable to at-the-market offerings of common stock and a warrant inducement transaction (both as described in more detail below), while net cash flows from financing activities for the prior year period are primarily attributable to multiple warrant inducement transactions and other warrant exercises.

Equity Transactions

At-the-Market Offerings

In January 2026, we sold 820,800 shares of common stock and received approximately $1.5 million of gross proceeds before deducting sales agent commissions and offering expenses. The net proceeds received by the Company from these transactions amounted to approximately $1.4 million, and will be used for working capital and general corporate purposes.

Currently, there is no remaining availability under the Company's at-the-market facility for future sales of common stock. We may seek to open a new at-the-market facility by filing a new registration statement in the future, and raise additional funds under such facility in the future, if management believes it would be beneficial to do so.

July 2026 Warrant Inducement Transaction

In July 2026, we entered into an inducement letter agreement with a holder of certain of our existing Series G and Series I warrants to purchase an aggregate of 2,200,544 shares of the Company's common stock, which were originally issued to the holder in April and June 2025, each having an original exercise price of $2.60 per share.

Pursuant to the inducement letter agreement, the holder agreed to exercise its existing Series G and Series I warrants for cash at a reduced exercise price of $1.35 per share in consideration of the Company's agreement to issue new unregistered Series J warrants to purchase up to an aggregate of 6,601,632 shares of common stock. The Series J Warrants have an exercise price of $1.10 per share, are exercisable immediately upon issuance, and have a term of exercise equal to 24 months following the effective date of the Resale Registration Statement (as defined in the applicable agreement), which was subsequently filed by the Company and became effective August 7, 2026.

This transaction closed on July 9, 2026, and the gross proceeds to the Company were approximately $3.0 million prior to deducting placement agent fees and offering expenses. The Company intends to use the net proceeds from this transaction of approximately $2.6 million for working capital and general corporate purposes.

Other Factors

We expect that operating losses could continue in the foreseeable future as we continue to invest in the expansion and development of our business. We believe our existing cash and cash equivalents, plus the availability to borrow funds via the related party agreement with Lucyd Ltd., will be sufficient to fund our operations for at least the next twelve months. However, our future capital requirements will depend on many factors, including, but not limited to, growth in the number of retail store customers, licenses, the needs of our e-commerce business and retail distribution network, expansion of our product and software offerings, and the timing of investments in technology and personnel to support the overall growth of our business. We expect a modest increase in marketing and retail-support expenses over the next twelve months, with such investments being discretionary and adjustable as needed. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. Geopolitical and macroeconomic factors could cause disruption in the global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected.

Off-Balance Sheet Arrangements

As of September 30, 2026, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Significant Estimates

There have been no material changes in our critical accounting policies and significant estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on March 25, 2026.