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Kits Eyecare Ltd. — Management Reports 2025
Aug 5, 2025
47986_rns_2025-08-05_fdd6d406-a4bf-4755-8254-88c03283b95b.pdf
Management Reports
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025
The following Management's Discussion and Analysis ("MD&A") dated August 5, 2025 provides information concerning the financial condition and results of operations of Kits Eyecare Ltd. (together with its consolidated subsidiaries, referred to herein as "KITS", the "Company", "we", "us" or "our"). This MD&A should be read in conjunction with our unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2025 and June 30, 2024, including the related notes thereto. In addition, this MD&A should be read in conjunction with the our audited consolidated financial statements for the years ended December 31, 2024 and 2023, including the related notes thereto, and the related Management's Discussion and Analysis for the year ended December 31, 2024, each filed on March 5, 2025. This discussion contains forward-looking information that involves risks and uncertainties. Our actual results, performance and achievements could differ materially from those implied by such forward-looking information as a result of various factors discussed below, particularly under "Forward-Looking Information" and "Risk Factors". Unless otherwise noted, all dollar amounts in this MD&A are in thousands of Canadian Dollars.
Forward-Looking Information
This MD&A contains "forward-looking information" within the meaning of applicable securities laws in Canada. Forward-looking information may relate to our future financial outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategies, budgets, operations, financial results, taxes, dividend policy, plans and objectives. Particularly, information regarding our expectations of future results, performance, achievements, prospects or opportunities or the markets in which we operate is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "budget", "scheduled", "estimates", "outlook", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "does not anticipate", "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will", "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances.
Forward-looking information is based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. The factors and assumptions on which forward-looking information is based include, but are not limited to the expansion and enhancement of our fulfillment network, including our optical laboratory for glasses and warehouse facilities; our future plans for marketing and expenditures related thereto; the growth of our business; our ability to leverage new technologies; the performance of our existing technologies and online tools; premium lens adoption and smart eyewear expansion; our ability to drive sales growth and expectations regarding customer conversion into the Company's premium offerings; our ability to maintain, enhance, and grow within our addressable market; our ability to sustain customer growth and continue to attract and retain customers; trends and customers habits and preferences; our ability to drive ongoing development and innovation of our exclusive brands and product categories; our ability to continue directly sourcing from third party suppliers and manufacturers; our ability to retain key personnel; our ability to maintain and expand distribution capabilities; our ability to continue investing in infrastructure to support our growth; our ability to obtain and maintain existing financing on acceptable terms; currency exchange and interest rates; the impact of competition and our position within the market we operate in; the changes and trends in our industry or the global economy; exchangeable securities vesting rights and the changes in laws, rules, regulations, and global standards.
Forward-looking information is necessarily based on a number of opinions, estimates and assumptions that we considered appropriate and reasonable as of the date such statements are made, and are subject to known and
unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to the risk factors described in greater detail in the Company's Annual Information Form for the year ended December 31, 2024, which was filed on March 5, 2025 (the "AIF"). If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. A copy of the AIF and the Company's other publicly filed documents can be accessed under the Company's profile on the System for Electronic Data Analysis and Retrieval ("SEDAR+") at www.sedarplus.ca.
We caution that the list of risk factors and uncertainties described in the MD&A and the AIF is not exhaustive and other factors could also adversely affect our results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such information. The forward-looking information contained in this MD&A represents our expectations as of the date of this MD&A (or as of the date they are otherwise stated to be made) and are subject to change after such date. However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws. If we do update certain forward-looking information, no inference should be made that we will further update such or other forward-looking information.
All of the forward-looking information contained in this MD&A is expressly qualified by the foregoing cautionary statements.
Overview
KITS makes eyecare easy. KITS is a fast-growing consumer technology vision care brand using vertical integration to provide eyecare for eyes everywhere. KITS is redefining how the world experiences eyecare. As a fast-growing, vertically integrated vision care platform, we combine digital innovation, operational excellence, and customer obsession to make eyecare easy, accessible, and affordable. Through our advanced technology stack and proprietary suite of online vision tools, including OpticianAI™, our AI-powered fitting engine trained on more than one million customer interactions, we help customers find their perfect fit. Whether selecting high-quality contact lenses or exclusive KITS-designed eyeglasses, we believe our platform delivers precision, personalization, and confidence. Our end-to-end infrastructure, from in-house frame design and North American optical lab to just-in-time manufacturing and intelligent fulfillment, enables us to deliver made-to-order products with category-leading speed, accuracy, and value. By removing intermediaries and leveraging real-time data, we strive to offer competitive prices, exceptional customer service, and a seamless digital shopping experience. Our Autoship subscription program enhances convenience by ensuring recurring delivery of vision essentials with minimal effort and maximum reliability. At KITS, our mission is to earn our customers' lifelong trust by delivering beautiful products they love, service they remember, and an experience that sets a new standard for the future of eyecare.
Recent Key Events
KITS Delivers Another Record Quarter: 31% Year-over-Year Revenue Growth with Over 44% Year-over-Year Increase in Glasses Revenue and 44% Year-over-Year growth in the Canadian market, Eleventh Consecutive Quarter of Positive Adjusted EBITDA
KITS delivered strong performance in the second quarter, underscoring the durability of our model and the distinctiveness of our strategy. We continue to lead with a customer-first approach—focusing on the most valuable vision-corrected consumers in the category and leveraging proprietary technology to deliver a level of convenience, value, and personalization that traditional eyecare providers cannot match.
Our foundation is built on acquiring and retaining a growing base of annuity-like customers who return to KITS for their evolving vision needs. As we broaden our portfolio of eyewear and optical products, we aim to ensure that every customer visit is met with exceptional service, selection, and value.
Building on the strong momentum from Q1 2025, KITS delivered another record-setting quarter, driven by disciplined execution, strategic investment in customer acquisition, and deepening engagement with our core customer base. Q2 revenue was $49.6 million, an increase of 31.0% compared to the same quarter in 2024 and representing an annualized revenue run rate of over $198 million. For the six-month period ended June 30, 2025, total revenue increased to a record $96.2 million, up 32.4% from $72.6 million during the first half of 2024. Gross margins were 36.3% in the quarter and 36.5% in the first six months, resulting in a record gross profit of $18.0 million and $35.1 million as compared to $12.4 million and $23.6 million last year.
During the quarter, we led North America in optical category revenue growth, with particularly strong momentum in Canada, where revenue rose approximately 44.0% year-over-year—driven by gains across both new and returning customers and across both glasses and contact lens segments.
Glasses continued to strengthen as a category with revenue rising 44.4% year-over-year to $7.2 million, up from $5.0 million in the prior-year period. Unit volume reached 112,000 pairs, representing a 53.4% increase over the same quarter last year. Our targeted "first-pair-free" program remained a highly effective customer acquisition lever in select markets, delivering approximately 60,000 pairs of glasses to first-time KITS customers during the quarter. While initial orders from new customers often reflect entry-level price points, we continue to see a strong cohort-based trend of repeat purchases at higher average order values. As these customers engage more deeply with the KITS brand and product ecosystem, we see a natural progression toward premium offerings and increased purchase frequency, underscoring the strength of our model and the long-term value of our customer base.
Premium lens upgrades remained a key contributor to category growth, accounting for approximately 46% of total glasses revenue in the quarter. Revenue from these high-value enhancements grew nearly 58% year-over-year, which we believe reflects an increasing customer demand for solutions that enhance both visual acuity and personal expression.
In Q2 2025, we welcomed a record 111,300 new customers, representing approximately 39.4% of total revenue for the period. We believe this continued influx of first-time buyers underscores the growing resonance of the KITS brand and the scalability of our platform. Our two-year Active Customer count grew to over 991,000, an increase of 13.3% year-over-year, highlighting strong demand and deepening customer engagement.
Returning customers contributed 60.6% of total revenue in the quarter, reinforcing the strength of our core customer cohort and the value of our recurring revenue base. We fulfilled a record 269,300 patient orders during the quarter, with average order value (AOV) rising to $184, up from $182 in the prior-year period. As expected, the mix shift toward new customers, who typically begin with lower-value trial orders, resulted in a modest sequential decline in AOV relative to Q1 2025. This trend aligns with our strategic approach: expand the top of the funnel through acquisition, then grow lifetime value through repeat purchases and premium upgrades.
To support our growth, we increased marketing investment to 15.2% of revenue, up from 13.4% in the prior-year period. These elevated efforts focused on accelerating new customer acquisition, deepening brand awareness, and enhancing conversion efficiency particularly in our highest-opportunity markets.
The results reflect the effectiveness of our growth strategy. We delivered our eleventh consecutive quarter of positive Adjusted EBITDA, totaling $2.6 million, or 5.2% of revenue, while continuing to invest in strategic initiatives (refer to the "Non-IFRS Measures and Industry Metrics" section). Operational efficiency improved, with fulfillment expenses declining as a percentage of revenue from 11.2% to 10.7% year-over-year, driven by increased scale and ongoing process optimization. General and administrative expenses remain consistent from 7.2% to 7.3% as we invested in infrastructure to support our long-term trajectory. We recorded a non-operating exchange loss in the quarter due to the strengthening of the Canadian dollar relative to the U.S. dollar. This impact stems primarily from the unrealized exchange loss from the revaluation of intercompany balances and long term lease obligations.
During the quarter, we generated positive free cash flow from operations of $1.6 million in Q2 and $2.0 million year-to-date, ending the quarter with a strong cash position of $18.1 million.
In July 2025, we launched the beta version of OpticianAI™, our proprietary artificial intelligence platform designed to deliver a seamless, personalized, and accessible online vision care experience. This milestone represents a significant advancement in our mission to make eyecare easy, affordable, and convenient for all. Powered by a dynamic, optician-led interface, OpticianAI™ guides customers through every step of their eyewear journey, replicating and enhancing key elements of the in-clinic experience. Early customer feedback has been encouraging, with strong engagement and satisfaction metrics validating the platform's potential. The launch underscores KITS' continued leadership in digital eyecare innovation and reflects our commitment to delivering sustainable, long-term value through customer-centric technology, operational discipline, and profitable growth.
Financial Highlights
We measure our business using both financial and operating data and use the following metrics and measures to assess the near term and long-term performance of our overall business, including identifying trends, formulating financial projections, making strategic decisions, assessing operational efficiencies, and monitoring our business. See the sections in this MD&A entitled "Components of Our Results of Operations and Trends Affecting Our Business" and "Non-IFRS Measures and Industry Metrics". The following table summarizes our financial highlights for the three and six months ended June 30, 2025 and June 30, 2024.
| Financial and Operating Data | Three Months Ended | Six Months Ended | ||
|---|---|---|---|---|
| June 30, 2025 (unaudited) | June 30, 2024 (unaudited) | June 30, 2025 (unaudited) | June 30, 2024 (unaudited) | |
| Revenue | $ 49,580 | $ 37,852 | $ 96,175 | $ 72,634 |
| Exchange loss / (gain) | $ 1,684 | $ (358) | $ 1,771 | $ (1,179) |
| Net income (loss) | $ (694) | $ 187 | $ 909 | $ 251 |
| Net income (loss) per share | ||||
| Basic | $ (0.02) | $ 0.01 | $ 0.03 | $ 0.01 |
| Diluted | $ (0.02) | $ 0.01 | $ 0.03 | $ 0.01 |
| Non-IFRS Measures (a): | ||||
| Constant currency revenue | $ 49,145 | $ 37,852 | $ 93,804 | $ 72,634 |
| EBITDA | $ 243 | $ 1,131 | $ 3,345 | $ 2,288 |
| Adjusted EBITDA | $ 2,575 | $ 1,316 | $ 6,036 | $ 1,925 |
| Adjusted EBITDA Margin % | 5.2% | 3.5% | 6.3% | 2.7% |
Notes:
(a) Refer to the "Non-IFRS Measures and Industry Metrics" section.
Non-IFRS Measures and Industry Metrics
In addition to our results determined in accordance with IFRS, we believe the following non-IFRS measures and industry metrics provide useful information both to management and investors in measuring the financial performance and financial condition of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies, and they should not be construed as an alternative to other financial measures determined in accordance with IFRS.
Non-IFRS Measures
Management uses these non-IFRS financial measures to exclude the impact of certain expenses and income that management does not believe are reflective of the Company's underlying operating performance and make comparisons of underlying financial performance between periods difficult. From time to time, the Company may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance.
"Constant Currency Revenue" As a majority of our sales are transacted in U.S. dollars, the comparability of revenue reported in Canadian dollars is affected by foreign currency exchange rate fluctuations of U.S. dollars
compared to the Canadian dollar over time. The rate fluctuations can have a significant impact on our reported results. Therefore, in addition to financial measures prepared in accordance with IFRS, our revenue discussions may contain references to constant currency measures, which are calculated by translating current period results in local currency using the conversion rates from the comparative period. This measure should not be considered in isolation or as a substitute for any standardized measure under IFRS and the most directly comparable financial measure that is disclosed in our financial statements is revenue. We present constant currency financial information, which is a non-IFRS financial measure, as a supplement to our reported operating results. We use constant currency information to provide a framework to assess how our business performed excluding the effects of foreign currency exchange rate fluctuations. We believe this information is useful to investors to facilitate comparisons of operating results and better identify trends in our businesses. Other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure. The following table provides a quantitative reconciliation of reported revenue to revenue on a constant currency basis for the periods presented:
| Three Months Ended | Six Months Ended | |||
|---|---|---|---|---|
| June 30, 2025 (unaudited) | June 30, 2024 (unaudited) | June 30, 2025 (unaudited) | June 30, 2024 (unaudited) | |
| Reconciliation of constant currency revenue | ||||
| Revenue | $ 49,580 | $ 37,852 | $ 96,175 | $ 72,634 |
| Foreign exchange impact | (435) | - | (2,371) | - |
| Constant Currency Revenue | $ 49,145 | $ 37,852 | $ 93,804 | $ 72,634 |
| Change in constant currency | $ 11,293 | $ 21,170 | ||
| Change in constant currency % | 29.8% | 29.1% |
"Adjusted EBITDA" is defined as EBITDA, adjusted for the impact of certain items, including non-cash items such as stock-based compensation, unrealized foreign exchange gains or losses and other items we consider non-recurring and not representative of our ongoing operating performance. The most directly comparable financial measure that is disclosed in our financial statements is net income (loss).
"Adjusted EBITDA Margin" is defined as Adjusted EBITDA divided by revenue from the same period.
"EBITDA" is defined as consolidated net income (loss) before depreciation and amortization, finance cost and provision for income taxes.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin are financial measures that are not defined under IFRS. We use these non-IFRS financial measures, and believe they enhance an investor's understanding of our financial and operating performance from period to period, because they exclude certain material non-cash items and certain other adjustments, which we believe are not reflective of our ongoing operations and our performance. Accordingly, we use these metrics to measure our core financial and operating performance for business planning purposes and as a component in the determination of incentive compensation for salaried employees.
In addition, we believe EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin are measures commonly used by investors to evaluate companies in the e-commerce industry. However, they are not presentations made in accordance with IFRS and the use of the terms Adjusted EBITDA and Adjusted EBITDA Margin vary from others in our industry. These financial measures are not intended to represent and should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with IFRS as measures of operating performance or operating cash flows or as measures of liquidity.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under IFRS. For example, these financial measures:
- exclude certain tax payments that may reduce cash available to us;
- do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;
- do not reflect changes in, or cash requirements for, our working capital needs; and
- do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt.
The following table provides a quantitative reconciliation of net loss to EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the periods presented:
| Three Months Ended | Six Months Ended | |||
|---|---|---|---|---|
| June 30, 2025 (unaudited) | June 30, 2024 (unaudited) | June 30, 2025 (unaudited) | June 30, 2024 (unaudited) | |
| Reconciliation of Adjusted EBITDA | ||||
| Net income (loss) for the period | $ (694) | $ 187 | $ 909 | $ 251 |
| Add back: | ||||
| Income taxes | 205 | 207 | 909 | 225 |
| Finance costs – net | 128 | 147 | 299 | 467 |
| Depreciation and amortization | 604 | 590 | 1,228 | 1,345 |
| EBITDA | $ 243 | $ 1,131 | $ 3,345 | $ 2,288 |
| Add back | ||||
| Share-based compensation (a) | $ 644 | $ 539 | $ 913 | $ 809 |
| Exchange loss / (gain) | 1,684 | (358) | 1,771 | (1,179) |
| One-time costs (b) | 4 | 4 | 7 | 7 |
| Adjusted EBITDA | $ 2,575 | $ 1,316 | $ 6,036 | $ 1,925 |
| Revenue | $ 49,580 | $ 37,852 | $ 96,175 | $ 72,634 |
| Adjusted EBITDA Margin % (c) | 5.2% | 3.5% | 6.3% | 2.7% |
Notes:
(a) Represents non-cash share-based compensation expense associated with restricted share rights ("RSRs") and options recognized in the period.
(b) One-time IPO, directors' and officers' insurance costs which are expensed over the insurance coverage period.
(c) Represents Adjusted EBITDA divided by revenue from the same period.
Industry Metrics
"Active Customers" As of the last date of each reporting period, we determine our number of active customers by counting the total number of individual customers who have ordered, and for whom an order has shipped, at least once during the preceding stated period. We introduced this number for a 2-year period to provide greater visibility in measuring our business performance as a 2-year period more closely reflects the frequency of repeat purchases in the eyecare sector. The change in active customers in the reporting period captures both the inflow of new customers and the outflow of customers who have not made a purchase in the stated period. We view the number of active customers as a key indicator of our growth—acquisition and retention of customers—and, as such, an indicator of the results of our marketing efforts and the value we provide to our customers.
"Autoship Subscribers" We define Autoship Subscribers as customers that have an active Autoship subscription as of the last date of each reporting period.
Summary of Factors Affecting Performance
We believe that our performance and future success depend on a number of factors that present significant opportunities. These factors are also subject to a number of inherent risks and challenges, some of which are discussed below and in the "Risk Factors" section of the AIF.
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Repeat Customer Behaviour
As of June 30, 2025, we had over 991,000 2-year Active Customers, up from 875,000 as at June 30, 2024. We continue to successfully attract a record number of new customers and serve past customers. Repeat revenue in the three months ended June 30, 2025 reached a record of over $30.0 million, an increase of $6.0 million from the same period in 2024. In this quarter, we continued to focus our marketing spend on attracting higher value new orders and orders from repeat customers. We served a total of 111,300 new customers in the second quarter of 2025.
A significant component of our repeat business is driven by our Autoship subscription program. We believe that our recurring revenues anchored in our subscription program gives KITS a competitive advantage over other eyecare providers. Our Autoship subscription delivery program delivered $6.2 million in revenue for the three months ended June 30, 2025 and represents an increase of 16.8% year over year. Autoship offers the “set it and forget it” convenience to our community of customers, free upgraded shipping, and complimentary vision perks. We believe that our Autoship program gives us a competitive advantage over traditional optical providers and ecommerce providers alike. With an approximate $24.8 million dollar annuity and minimal costs associated with maintaining these customers, we believe that our Autoship program will continue to deliver value and convenience to our customers with minimal acquisition costs and provide higher lifetime customer value.
Growth of Our Glasses Business
The North American glasses market is undergoing a significant transformation, with consumers increasingly shifting away from traditional, fragmented retailers toward providers that offer greater value, convenience, and personalization. This shift is accelerating as digital tools enhance the online shopping experience, making it easier for customers to confidently purchase eyewear without the need for in-store visits.
We believe that this evolving market presents an opportunity for KITS to redefine the eyewear shopping experience through a seamless, direct-to-consumer model that offers top-tier products at industry-leading prices. A key differentiator in our approach is our Virtual Try-On (VTO) technology, available on all KITS-branded frames. Customers who engage with our Virtual Try-On experience exhibit higher purchase intent, resulting in stronger conversion rates and greater adoption of premium lens upgrades. By integrating cutting-edge technology with our vertically integrated onshore manufacturing, we believe that KITS is uniquely positioned to lead the shift in eyewear retail, ensuring efficiency, scale, and an elevated customer experience.
With modern, automated manufacturing facilities and no legacy infrastructure constraints, KITS delivers one of the most efficient and scalable solutions in the market. Our vertically integrated model enables us to control both acquisition and production costs, allowing us to pass on significant savings, a broader selection, and added convenience to our customers.
As part of our evolving pricing strategy, we offer a diversified pricing structure, offering both new and returning customers greater flexibility and choice. This pricing structure not only improved accessibility across a wider product range but also contributed to an increase in average order value. Our KITS-branded frames continue to resonate strongly with consumers seeking a compelling blend of style, quality, and value. As more customers discover the craftsmanship, affordability, and design versatility of our in-house frames, we are seeing a growing preference for KITS-branded eyewear—reinforcing customer loyalty and driving repeat purchases.
Revenue from glasses delivered grew 44.4% year-over-year to $7.2 million for the three months ended June 30, 2025, up from $5.0 million in 2024. This strong growth was fueled by a combination of higher unit volume and an increasing in premium lens upgrades, reinforcing the continued strength of our product offering and customer engagement.
Returning customers played a significant role in revenue growth in Q2 2025, with many opting for higher-value orders and premium lens upgrades. This trend underscores the increasing customer preference for high-quality, customized eyewear and further validates the effectiveness of our pricing strategy and product tiering
approach. Glasses delivered to repeat customers grew by 18.2% year-over-year, increasing from 44,000 in 2024 to over 52,000 in 2025.
We expanded our glasses assortment through strategic partnerships to introduce a just-in-time branded glasses model. This initiative increased our style offerings, giving customers even more choices while improving inventory efficiency. By leveraging just-in-time inventory management, we successfully expanded our selection without increasing working capital requirements. This approach enables us to offer customers a wider range of premium and branded eyewear at competitive prices, while maintaining operational flexibility and ensuring an optimal balance between inventory and demand.
These partnerships have been particularly impactful, as many customers continue to opt for premium lens upgrades, reflecting the growing demand for high-quality, customized eyewear. Even with the addition of new branded eyewear options, customers continue to experience KITS' exceptional craftsmanship and outstanding customer service, reinforcing our reputation for quality, precision, and superior value.
We ended the quarter with over 472,000 frames in stock and more than 12,212 styles, ensuring that KITS remains a leading destination for premium, affordable eyewear while maintaining an efficient and scalable supply chain.
Components of Our Results of Operations and Trends Affecting Our Business
Revenue
We derive revenue primarily from sales of our own brand of KITS contact lenses and glasses, as well as third-party contact lenses and glasses. Revenue is recognized when products are delivered, net of promotional discounts and refund allowances. Revenue is primarily driven by the number of Active Customers and the frequency with which customers repurchase products from KITS.
Cost of Sales
Cost of goods sold consists of the cost of materials, assembly, KITS contact lenses and glasses as well as third-party products sold to customers, inventory freight, inventory shrinkage costs, and inventory valuation adjustments, offset by reductions for promotions and percentage or volume rebates offered by our suppliers, which may depend on reaching minimum purchase thresholds. During the reporting period, the Company did not experience a material impact from inflation on input costs or operating expenses. While broader economic inflationary trends have affected many industries, KITS has effectively managed its procurement costs through ongoing negotiations with vendors. The Company remains vigilant in monitoring cost fluctuations and is prepared to strategically adjust selling prices if necessary to maintain profitability. At this time, inflationary pressures have not had a material effect on revenue or gross profit. However, KITS continues to assess market conditions and will take appropriate pricing actions as needed.
Fulfillment
Fulfillment costs primarily consist of those costs incurred in operating and staffing our fulfillment, optical lab, and customer service centers, third party fulfillment costs, and payment processing costs. Fulfillment costs as a percentage of revenue may vary due to several factors, such as payment processing and related transaction costs, our level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, the timing of fulfillment network and optical lab expansion, the extent to which we utilize fulfillment services provided by third parties, mix of products and services sold, and our ability to increase efficiency per shipment by implementing improvements in our operations and enhancements to our customer self-service features.
We continue to expand our fulfillment network to accommodate a greater selection and facilitate faster delivery times. We regularly evaluate our facility and lab requirements. We are continuing to automate and optimize our consolidated manufacturing and distribution center.
8
Marketing
We are focused on providing exceptional products, service and post purchase experience to drive customer loyalty and brand awareness. Organic word-of-mouth and our loyal repeat customers are essential to our growth. We believe that the company with the highest net promoter score, or NPS, in any category ultimately derives the highest value in the category. Accordingly, we work hard to ensure we deliver exceptional products and service to customers and actively invest in delivering exceptional experiences across all customer touch points, to ensure customers long-term and lifetime value. We believe this allows our customers to become advocates for our brand and share their KITS experience with friends and family becoming our most efficient marketing channel and validated by our incredible retention rates. Most of our customers arrive at our sites directly, which we believe is fueled by word-of-mouth and customer engagement. Since launching glasses, we have continued to see our NPS increase steadily. Our goal is to maintain the highest customer satisfaction metrics in the category.
Marketing includes brand development, advertising and payroll and related expenses for personnel engaged in marketing and selling activities. We direct customers to our platforms through a number of marketing channels, such as our TV advertising, performance search, third party customer referrals, social media influencers, online advertising, and other initiatives. Our marketing costs are largely variable and can be adjusted to align with growth objectives. In general, our marketing expenditures have been getting more efficient over time as word of mouth continues to grow. To the extent there is increased or decreased competition for these traffic sources, or to the extent our mix of these channels' shifts, we would expect to see a corresponding change in our marketing costs. As the majority of our business is repeat or subscription-based, and the majority of our store traffic and customers come to us via word of mouth, we expect to become less reliant on external forms of marketing over time. We believe our return on invested capital is among the highest in the category and that our lifetime value metrics demonstrate that the investments we are making in sales and marketing are balanced to ensure long-term sustainable growth. We specifically design differentiated and relevant marketing programs to accelerate word-of-mouth adoption and to decrease reliance on large providers such as Google and Facebook.
Selected Quarterly Consolidated Financial Information
The following table summarizes our recent results of operations for the periods indicated. The selected consolidated financial information set out below for the three and six months ended June 30, 2025 and June 30, 2024 has been derived from our condensed interim consolidated financial statements and related notes.
| Financial and Operating Data | Three Months Ended | Six Months Ended | ||
|---|---|---|---|---|
| June 30, 2025 (unaudited) | June 30, 2024 (unaudited) | June 30, 2025 (unaudited) | June 30, 2024 (unaudited) | |
| CAD $000s, unless otherwise noted | ||||
| Revenue | $ 49,580 | $ 37,852 | $ 96,175 | $ 72,634 |
| Cost of sales | 31,576 | 25,441 | 61,057 | 49,050 |
| Gross profit | 18,004 | 12,411 | 35,118 | 23,584 |
| Fulfillment | 5,320 | 4,243 | 10,408 | 8,382 |
| Marketing | 7,517 | 5,057 | 13,811 | 9,581 |
| General and administrative | 3,625 | 2,711 | 6,567 | 5,124 |
| Exchange (gain)/loss | 1,684 | (358) | 1,771 | (1,179) |
| Depreciation and amortization | 219 | 217 | 444 | 733 |
| Operating income (loss) | (361) | 541 | 2,117 | 943 |
| Finance costs, net | 128 | 147 | 299 | 467 |
| Income (loss) before income taxes | $ (489) | $ 394 | $ 1,818 | $ 476 |
| Income tax expense | 205 | 207 | 909 | 225 |
| Net Income (loss) | $ (694) | $ 187 | $ 909 | $ 251 |
| Non-IFRS measures (a) | ||||
| Constant currency revenue | $ 49,145 | $ 37,852 | $ 93,804 | $ 72,634 |
| EBITDA | $ 243 | $ 1,131 | $ 3,345 | $ 2,288 |
| Three Months Ended | Six Months Ended | |||
|---|---|---|---|---|
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | |
| Financial and Operating Data | (unaudited) | (unaudited) | (unaudited) | (unaudited) |
| Adjusted EBITDA | $ 2,575 | $ 1,316 | $ 6,036 | $ 1,925 |
| Adjusted EBITDA Margin % | 5.2% | 3.5% | 6.3% | 2.7% |
Notes:
(a) Refer to the "Non-IFRS Measures and Industry Metrics" section.
Three and Six Months Ended June 30, 2025, Compared to Three and Six Months Ended June 30, 2024
The following section provides an overview of our financial performance during the three and six months ended June 30, 2025 to the three and six months ended June 30, 2024. The selected consolidated financial information contained herein for these periods has been derived from our condensed interim consolidated financial statements and related notes.
Revenue
Revenue was $49,580 and $96,175 respectively in the three and six months ended June 30, 2025, an increase of 31.0% and 32.4%, compared to $37,852 and $72,634 in the three and six months ended June 30, 2024. On a Constant Currency Revenue basis, revenue was $49,145 and $93,804 in the three and six months ended June 30, 2025 an increase of 29.8% and 29.1%, compared to the three and six months ended June 30, 2024.
Revenue from our eyeglasses delivered increased 44.4% to $7,186 and 45.3% to $13,909 for the three and six months ended June 30, 2025, an increase of $2,208 and $4,337 from $4,978 and $9,572 for the three and six months ended June 30, 2024. The increase in revenue from eyeglasses is driven by our growing base of repeat customers and the strong growth of new customers. During the three months ended June 30, 2025, 52,000 Eyeglasses were delivered to returning customers compared to 44,000 eyeglasses in the three months ended June 30, 2024 and 102,000 eyeglasses in the six months ended June 30, 2025 compared to 85,000 eyeglasses in the six months ended June 30, 2024. In addition to an increased number of repeat purchases, repeat customers often placed orders with higher average order values compared to their initial purchases. This trend is primarily driven by their increased propensity to invest in lens upgrades on orders subsequent to their first order.
Gross Profit
Gross profit increased by 45.1% and 48.9% to a record $18,004 and $35,118 in the three and six months ended June 30, 2025, compared to $12,411 and $23,584 in the three and six months ended June 30, 2024. Gross margins were 36.3% and 36.5% for the three and six months ended June 30, 2025, compared to 32.8% and 32.5% in the three and six months ended June 30, 2024. This improvement was achieved through strategic pricing, optimizing product mix, and implementing targeted promotions intended to boost customer acquisition and encourage repeat purchases.
Fulfillment
Fulfillment expenses as a percentage of revenue improved to 10.7% and 10.8% in the three and six months ended June 30, 2025 respectively, compared to 11.2% and 11.5% of revenue in the three and six months ended June 30, 2024. Fulfillment expenses totaled $5,320 and $10,408 in the three and six months ended June 30, 2025, compared to $4,243 and $8,382 in the three and six months ended June 30, 2024. We continued to advance automation in our cutting-edge manufacturing and distribution center, boosting shipping efficiencies and optimizing operations. By refining shipping logistics and order consolidation, we aimed to maximize order volumes and enhance overall operational performance. Our vertically integrated optical lab continues to be a significant competitive edge, enabling us to uphold top-tier production quality. This in-house capability allows us to deliver faster, higher-quality products, resulting in an un-matched customer experience, which we believe strengthens our leadership in the direct-to-consumer eyewear market.
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Marketing
Marketing expenses totaled $7,517 and $13,811 in the three and six months ended June 30, 2025 compared to $5,057 and $9,581 in the three and six months ended June 30, 2024. Marketing expenses as a percentage of revenue were 15.2% and 14.4% in the three and six months ended June 30, 2025 compared to 13.4% and 13.2% in the three and six months ended June 30, 2024. The increase in marketing spend as a percentage of revenue is attributable to our continued investment in customer acquisition. We acquired a record of over 111,300 new customers, who accounted for approximately 39.4% of total revenue. Average order value for the three months ended June 30, 2025, increased to $184, a 1.1% increase as compared to $182 for the three months ended June 30, 2024, and repeat customers contributed approximately 60.6% of revenue. As our loyal customer base and brand awareness continue to grow, we anticipate further efficiencies within our marketing initiatives.
General and administrative
General and administrative expenses as a percentage of revenue were 7.3% and 6.8% in the three and six months ended June 30, 2025, compared to 7.2% and 7.1% in the three and six months ended June 30, 2024. General and administrative expenses increased by $914 and $1,443 to $3,625 and $6,567 in the three and six months ended June 30, 2025, compared to $2,711 and $5,124 in the three and six months ended June 30, 2024. Excluding share-based compensation, general and administrative expenses as a percentage of revenue were 6.1% and 5.9% in the three and six months ended June 30, 2025, compared to 5.8% and 6.0% in the three and six months ended June 30, 2024. The year-over-year increase in general and administrative expense as a percentage of revenue for the second quarter was primarily driven by higher wages, salaries, and share-based compensation. For the six-month period, general and administrative growth was outpaced by top-line revenue growth, enabling us to capture scale efficiencies and reinforcing our ongoing focus on disciplined cost management and resource allocation. As a result, we continue to effectively manage operational overhead while supporting strategic investments and long-term business objectives.
Exchange (gain)/loss
Exchange loss was $1,684 and $1,771 in the three and six months ended June 30, 2025, compared to an exchange gain of $358 and $1,179 in the three and six months ended June 30, 2024. The exchange losses in the three and six months ended June 30, 2025 were due to the strengthening of the Canadian dollar against the US dollar as compared to a weakening of the Canadian dollar against the US dollar in the same period of the prior year. As our operating entity's functional currency is US dollars, the Canadian dollar denominated balances such as intercompany loans, long term lease obligations and accounts payable were revalued at quarter-end in accordance with IFRS. This revaluation resulted in an unrealized exchange loss.
EBITDA and Adjusted EBITDA
EBITDA was $243 and $3,345 in the three and six months ended June 30, 2025, compared to $1,131 and $2,288 in the three and six months ended June 30, 2024. Adjusted EBITDA was $2,575 and $6,036 in the three and six months ended June 30, 2025, compared to $1,316 and $1,925 in the three and six months ended June 30, 2024.
EBITDA as a percentage of revenue was 0.5% and 3.5% in the three and six months ended June 30, 2025, compared to 3.0% and 3.2% in the three and six months ended June 30, 2024. Adjusted EBITDA as a percentage of revenue was 5.2% and 6.3% in the three and six months ended June 30, 2025, compared to 3.5% and 2.7% in the three and six months ended June 30, 2024.
The year-over-year change in the three months ended June 30, 2025 EBITDA was primarily driven by a foreign exchange loss recognized during the quarter, despite continued improvements in revenue, fulfillment efficiency, and marketing performance. For the six-month ended June 30, 2025, both EBITDA and Adjusted EBITDA improved meaningfully, reflecting a more stable base of recurring customer orders that provided reliable revenue and profit contribution. Strategic efforts to control marketing spend, reduce promotional activity, improve gross margins, and optimize fulfillment costs contributed to stronger operating leverage and enhanced margin profile.
Looking ahead, we expect to realize continued efficiency gains across gross margin, marketing, fulfillment, and G&A expenses as we scale, further strengthening our path toward sustainable, profitable growth.
Finance costs
Finance costs in the three and six months ended June 30, 2025 decreased by $19 and$ 168 from $147 and $467 in the three and six months ended June 30, 2024 to $128 and $299. The decrease is primarily due to a lower interest expense on the BDC Loan (as defined below) due to lower principal outstanding as we continued to pay down $750 per quarter on the principal of the BDC Loan.
Income Taxes
Income taxes decreased by $2 in the three months ended June 30, 2025 and increased by$ 684 in the six months ended June 30, 2025 to an income tax expense of $205 and $909 respectively, compared to an income tax expense of $207 and $225 in the three and six months ended June 30, 2024, primarily as a result of generating income during the year within the operating entity.
Net Income (loss)
Net income before exchange loss was $990 and$ 2,680 in the three and six months ended June 30, 2025 and $0.03 per share and $0.08 per share respectively. Net income (loss) was $(694)$ and $909 in the three and six months ended June 30, 2025, a change of $881 and $658 compared to a net income of $187 and $251 in the three and six months ended June 30, 2024.
The change in net income was mainly attributed to the foreign exchange loss recognized in 2025, despite the improvement in our revenue, fulfillment and marketing efficiency. Refer to the factors discussed above related to the variance in the costs incurred in the current quarter.
Quarterly Results and Performance Measures
The following table summarizes the results of KITS' operations for the last eight most recently completed quarters. This unaudited quarterly information, other than comparable sales growth, has been prepared in accordance with IFRS.
| CAD $000s, unless otherwise noted | Summary of Quarterly Results | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | March 31, 2024 | December 31, 2023 | September 30, 2023 | |
| Revenue | $ 49,580 | $ 46,595 | $ 44,833 | $ 41,871 | $ 37,852 | $ 34,782 | $ 31,663 | $ 31,150 |
| Net income (loss) | $(694) | $ 1,603 | $ 2,733 | $ 132 | $ 187 | $ 64 | $(491) | $ 480 |
| Weighted average number of shares | ||||||||
| Basic | 32,013,063 | 31,858,190 | 31,583,405 | 31,565,907 | 31,461,257 | 31,450,102 | 31,437,460 | 31,398,691 |
| Diluted | 32,013,063 | 33,848,924 | 33,879,476 | 33,884,309 | 33,640,629 | 33,551,070 | 31,437,460 | 33,234,812 |
| Net income (loss) per share | ||||||||
| Basic | $(0.02) | $ 0.05 | $ 0.09 | $ 0.00 | $ 0.01 | $ 0.00 | $(0.02) | $ 0.02 |
| Diluted | $(0.02) | $ 0.05 | $ 0.08 | $ 0.00 | $ 0.01 | $ 0.00 | $(0.02) | $ 0.01 |
| Average US$/Canadian dollar exchange rate (a) | $ 1.3838 | $ 1.4352 | $ 1.3995 | $ 1.3640 | $ 1.3683 | $ 1.3482 | $ 1.3607 | $ 1.3413 |
Notes:
(a) Average US$/Canadian dollar exchange rate is the average of Bank of Canada daily noon rates based on calendar days within the quarter.
Revenue
Over the last eight quarters, revenue has been impacted by the following:
- the growth in orders and increased new and returning customers;
- vision corrected customers seeking more affordable and convenient eyecare offerings;
- the successful growth of our Kits.com and Kits.ca sites and amalgamation of some of our other web properties;
- the rollout of our own KITS-branded glasses offering and expanded lens offering;
- the integration of insurances programs with our web properties
- the launch of our progressive glasses offerings
- the introduction and continued focus to grow our Autoship subscription program; and
- the continual increase in branded eyeglass frames selection and inventory.
Net Income (loss)
Net income (loss) has been affected by the following factors over the last eight quarters:
- the impact of the items noted in revenue above;
- improved margins from higher margin categories;
- growth of recurring revenue;
- increase in average order sizes;
- launch and growth of our progressive category;
- growth of Kits branded contact lens category;
- growth of insurance partnership revenues;
- reduction in marketing spend growth in our Autoship subscription business and glasses offering;
- the increase in brand, marketing, and personnel costs to support our brand and corporate growth, and expanded operating capabilities including the optical lab expansion;
- the investment in our fulfillment and optical lab center; and
- the impact of foreign exchange on our revenue and costs.
Financial Condition, Liquidity and Capital Resources
Overview
The objectives of our capital management strategy are to invest in growing our business while maintaining our financial and operating flexibility, provide benefits to our stakeholders, and provide an adequate return on investment to our shareholders. We allocate capital based on our assessment of the expected risk and return profile of each investment. This strategy is adjusted with changes in the economic environment and risks of the underlying investments. We are currently subject to working capital and minimum cash requirements through the BDC Loan agreement.
Our primary need for liquidity is to fund working capital requirements of our business, capital expenditures, debt service, and general corporate purposes. Our primary source of liquidity is funds generated by operating activities and proceeds from our IPO. Our ability to fund our operations, to make planned capital expenditures, to make scheduled debt payments, and to repay or refinance indebtedness depends on our future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business, and other factors, some of which are beyond our control.
Working Capital
The Company's objectives in managing capital are to ensure sufficient liquidity to pursue its growth strategy, to establish a strong capital base to satisfy its obligations towards its creditors, and to provide an adequate return to shareholders.
Our primary sources of cash flow are from sales growth, operations, debt financing, and equity issuances. Our approach to managing liquidity is to ensure, to the extent possible, that we optimize the working capital funded by our operations and maintain sufficient liquidity to meet our liabilities as they become due. We do so by monitoring cash flow and performing budget-to-actual analysis on a regular basis.
The working capital as at June 30, 2025 was $10,454 compared to $6,322 as at December 31, 2024. Similar to other e-commerce businesses, customers pay for purchases upfront and we deliver goods from inventory or from suppliers. Overall, regarding purchase and expenses, we have favorable payment terms from suppliers, which typically provides a net source of cash from working capital. We believe that cash generated from our operations and our current cash balance will adequately meet our capital requirements and operational needs for the next 12 months. Additionally, our growth-focused marketing budget provides a lever the Company can use to increase cash generated from operations. Our goal is to produce capital as we grow and remain an asset-light eyecare company.
Indebtedness
The Company entered into a secured loan agreement (the "BDC Loan") for $23.4 million with BDC Capital Inc. ("BDC") on March 26, 2019, with a repayment date of April 15, 2026 and a monthly contractual principal payment of $250. As at June 30, 2025, the carrying amount of the BDC Loan is $2,413 (2024: $4,761). The change is due to the monthly principal repayment and a one-time cash sweep payment of $850 made during the period in accordance with the terms of the Company's loan agreement with BDC.
Effective as of January 15, 2021, the BDC Loan bears interest at the BDC floating rate plus a variance of 4.45% per annum and is payable on a monthly basis. The Company is required to make a one-time payment to BDC equal to 0.45% of the Company's annual gross sales at maturity. As at June 30, 2025, the interest rate was 10.50% (December 31, 2024: 11.00%). The BDC Loan is secured by a first-ranking security interest in all present and after acquired personal property and all present and future intellectual property of the Company. The Company is subject to various covenants under the BDC Loan, including requirements to maintain certain financial ratios. As at June 30, 2025, the BDC Loan is in good standing and the Company is in compliance with its debt covenants.
On January 18, 2021, in connection with the conversion of all of the Company's outstanding preferred shares ("Preferred Shares"), the Company issued a promissory note of $2,412 (the "Promissory Note") which represents the accrued dividends payable to the former holders of Preferred Shares. The Promissory Note bears no interest and matures on the earlier of January 31, 2026 or the date after the BDC Loan has been repaid in full (the "Maturity Date"). Subject to the consent of BDC unpaid principal shall be payable in quarterly installments of $121 beginning on March 31, 2021. Any unpaid principal shall be payable in full upon the Maturity Date. As at June 30, 2025, the carrying amount of the Promissory Note is $290 (December 31, 2024: $2,396). During the three and six months ended June 30, 2025, a total principal of $nil and $2,122 (three and six months ended June 30, 2024: $nil and $nil) was paid to the Promissory Note holders.
Cash Flows
The following table presents cash and cash equivalents as at June 30, 2025 and June 30, 2024:
| Three Months Ended | Six Months Ended | |||
|---|---|---|---|---|
| June 30, 2025 (unaudited) | June 30, 2024 (unaudited) | June 30, 2025 (unaudited) | June 30, 2024 (unaudited) | |
| Net cash provided by operating activities | $ 1,591 | $ 2,876 | $ 2,066 | $ 7,002 |
| Net cash (used in) financing activities | (1,980) | (1,238) | (4,085) | (2,482) |
| Net cash provided by (used in) investing activities | (8) | (512) | 5 | (538) |
| Increase (decrease) in cash | (397) | 1,126 | (2,014) | 3,982 |
| Cash and cash equivalents, end of period | $ 18,115 | $ 19,310 | $ 18,115 | $ 19,310 |
Analysis of Cash Flows for the three and six months ended June 30, 2025, compared to the three and six months ended June 30, 2024
Cash Provided by Operating Activities
Cash flow provided by operating activities was $1,591 and $2,066 in the three and six months ended June 30, 2025, compared to cash provided by operating activities of $2,876 and $7,002 in the three and six months ended
June 30, 2024, changes of $1,285 and $4,936. The changes in cash generated from operating activities for the three and six months ended June 30, 2025, were primarily driven by fluctuations in working capital, particularly the timing of vendor payments. We expect cash flows related to working capital to vary from quarter to quarter, reflecting normal business seasonality and the timing of routine receipts and disbursements.
Cash Used in Financing Activities
Cash flows used in financing activities were $1,980 and $4,085 in the three and six months ended June 30, 2025, compared to $1,238 and $2,482 of cash flow used in financing activities in the three and six months ended June 30, 2024. Cash flows used in financing activities increased by $742 and $1,603 in the three and six months ended June 30, 2025 due to the repayments made to the promissory note holders and a one-time cash sweep payment to BDC, offset by a lower interest expense on the BDC Loan due to a reduced principal balance and a lower interest rate and proceeds received from the exercise of stock options.
Cash Used in Investing Activities
Cash flow provided by (used in) investing activities was $(8) and $5 for the three and six months ended June 30, 2025, compared to $512 and $538 of cash flow used in investing in the three and six months ended June 30, 2024. These changes were mainly due to proceeds received from the disposal of equipment in the six months ended June 30, 2024, partially offset by minor equipment purchase during the quarter.
Off-Balance Sheet Arrangements and Commitments
We have no off-balance sheet arrangements or commitments.
Contractual Obligations
The following table summarizes certain of our significant contractual obligations and other obligations as at June 30, 2025:
| Payments Due by Period ($ in thousands) | |||||
|---|---|---|---|---|---|
| Contractual obligations | Contractual cash flows | Less than 1 year | 1-3 years | 4-5 years | After 5 years |
| Accounts payable and accrued liabilities | $ 21,041 | $ 21,041 | $ - | $ - | $ - |
| Loan Principal amount | 2,450 | 2,450 | - | - | - |
| Loan Interest | 49 | 49 | - | - | - |
| Promissory note | 290 | 290 | - | - | - |
| Lease liability | 6,537 | 1,151 | 2,559 | 1,385 | 1,442 |
| Total Contractual obligations | $ 30,367 | $ 24,981 | $ 2,559 | $ 1,385 | $ 1,442 |
As of June 30, 2025, we had additional liabilities which included pending or in-transit orders and sales returns. These liabilities have not been included in the table above as the timing and amount of future payments are uncertain.
Financial Instruments
The Company's financial instruments comprise of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, the BDC Loan and the Promissory Note.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and Promissory Note approximate their fair value because of the short-term nature of these financial instruments.
These financial instruments and the BDC Loan are classified as financial assets and liabilities at amortized cost. There were no financial liabilities that are measured at fair value as at June 30, 2025.
BDC Loan
As at June 30, 2025, the carrying amount of the BDC Loan is $2,413 (December 31, 2024: $4,761), and the principal amount owing is $1,550 (December 31, 2024: $3,900). For the three and six months ended June 30, 2025, the Company made repayments of $1,669 and $2,517 (three and six months ended June 30, 2024: $939 and $1,900) and recognized $75 and $169 (three and six months ended June 30, 2024: $164 and $348) of interest expense in finance costs. Interest expense is calculated by applying the effective interest rate of 10.50% (December 31, 2024: 11.00%).
Promissory Note
As at June 30, 2025, the carrying value of the Promissory Note is $290 (December 31, 2024: $2,396). During the three and six months ended June 30, 2025, a total principal of $nil and $2,122 (three and six months ended June 30, 2024: $nil and $nil) was paid to the Promissory Note holders, with the consent of BDC. The Company recorded accretion expense of $nil and $16 (three and six months ended June 30, 2024: $40 and $79) in finance costs. Accretion expense is calculated by applying the effective interest rate of 8.00%.
Risk Factors
For a detailed description of risk factors associated with the Company, refer to the "Risk Factors" section of the AIF, which is available on SEDAR at www.sedarplus.ca.
In addition, we are exposed to a variety of financial risks in the normal course of operations including foreign exchange, interest rate, credit, liquidity, and equity price risk, as summarized below. We believe that our overall risk management program and business practices help minimize any potential adverse effects on our consolidated financial performance.
The impact of future and proposed changes in U.S. trade policy, including tariffs, duties or adjustments to existing trade agreements, remains uncertain. We continue to monitor developments and adapt our strategies as needed to manage potential impacts. While these policies may affect costs, operations, or market dynamics, we remain focused on mitigating risks and maintaining flexibility in our business approach.
Risk management is carried out under practices approved by our board of directors (the "Board"). This includes reviewing the adequacy of our risk management policies and procedures with regard to identifying the Company's principal risks and implementing appropriate systems and controls to manage these risks. Risk management covers many areas of risk including, but not limited to, foreign exchange risk, interest rate risk, credit risk, liquidity risk and equity price risk.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to a variety of financial risks in the normal course of operations including foreign exchange, interest rate, credit, and liquidity risk. Our overall risk management program and business practices seek to minimize any potential adverse effects on our consolidated financial performance. For a detailed description of risk factors associated with the Company, refer to the "Risk Factors" section of the AIF, which is available on SEDAR at www.sedarplus.ca.
Foreign Exchange Risks
The presentation currency for our consolidated financial statements is the Canadian dollar. As we recognize sales in the United States in U.S. dollars, if the U.S. dollar weakens against the Canadian dollar, it would have a negative impact on our U.S. operating results upon translation of those results into Canadian dollars for the purposes of financial statement consolidation. We may face similar risks in other foreign jurisdictions where sales are recognized in foreign currencies. A 10% strengthening in the Canadian dollar against the U.S. dollar on net monetary
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accounts would, with all other variables being constant, have an approximate unfavorable impact of $723 on the six months ended June 30, 2025 consolidated income.
Interest Rate Risks
We are exposed to changes in interest rates on our cash and cash equivalents, loans and borrowings. Debt issued at variable rates exposes us to cash flow interest rate risk. During the period, we had a variable interest rate loan from BDC. The principal amount outstanding under the loan was $1,550 as at June 30, 2025 which currently bears interest at 10.50%. A 1.00% increase in the floating interest rate would have increased interest paid by $14 and finance costs by $13 for six months ended June 30, 2025.
Credit Risks
Credit risk refers to the possibility that we can suffer financial losses due to the failure of our counterparties to meet their payment obligations. We are exposed to minimal credit risk. We do not extend credit to customers but do have some receivables exposure with respect to payment processors transferring customer funds to us and to rebates receivable from our vendors. The majority of accounts receivable are settled in under 30 days. To reduce this risk, we use industry leading payment processors, including Braintree Payment Gateway, American Express, and PayPal. We deposit our cash and cash equivalents with major financial institutions that have been assigned high credit ratings by internationally recognized credit rating agencies. We do not have any derivative contracts.
Liquidity Risk
Liquidity risk is the risk that we cannot meet a demand for cash or fund our obligations as they come due. We manage liquidity risk by managing our balance sheet and monitoring actual and projected cash flows, considering the seasonality of our revenue, income and working capital needs.
Risks Associated with Financial Instruments
We are currently indebted under the BDC Loan and we may incur additional indebtedness in the future. We are exposed to changes in interest rates on our bank indebtedness and long-term debt. Debt issued at variable rates exposes us to cash flow and interest rate risk while debt issued at fixed rates exposes us to fair value interest rate risk. The BDC Loan contains restrictive financial and other covenants which affect, among other things, the manner in which we may structure or operate our business. Our ability to satisfy these restrictive covenants could be affected by factors outside our control which could further restrict our corporate activities
Related Party Transactions
During the three and six months ended June 30, 2025, the Company recorded $31 and $62 (three and six months ended June 30, 2024: $31 and $62) of Board fees to its directors (the "Directors") and $56 and $113 (three and six months ended June 30, 2024: $56 and $113) of share-based compensation. $31 of Board fees remain unpaid as at June 30, 2025. The Promissory Note holders are former holders of Preferred Shares and include certain key management of the Company and their affiliates. For further details regarding the Promissory Note, see "Financial Condition, Liquidity and Capital Resources" and "Financial Instruments" above.
Key management compensation
Key management consists of the directors and officers of the Company. Key management compensation comprises of wages and employee benefits. For the three and six months ended June 30, 2025, the Company paid $439 and $872 (three and six months ended June 30, 2024: $523 and $906) of wages and employee benefits to key management and recorded $438 and $604 (three and six months ended June 30, 2024: $439 and $621) of key management share-based compensation.
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Critical Accounting Estimates and Judgments
Our financial statements have been prepared in accordance with IFRS as issued by the International Account Standards Board. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and are based on a set of underlying data that may include our historical experience, knowledge of current events and conditions and other factors that are believed to be reasonable under the circumstances. We continually evaluate the estimates and judgments used in the preparation of the financial statements. Actual results could differ from these estimates. Areas requiring the most significant estimates and judgments are outlined below.
Inventories
In estimating the net realizable value of inventory, we use estimates related to fluctuations in inventory levels, planned production, customer behavior, obsolescence, future selling prices, and costs necessary to sell the inventory.
Revenue
Revenue is recognized when the goods are delivered and have been accepted by customers. The critical assumptions and estimates used in determining the total revenue to be recognized for each reporting period are based on an estimated couriers' average transit time it takes for the customer to accept the goods.
Leases
We exercise judgment when contracts are entered into that may give rise to a right-of-use asset that would be accounted for as a lease and determine the appropriate lease term on a lease-by-lease basis. Changes in the economic environment or changes in the retail industry may impact the assessment of the lease term and any changes in the estimate of lease terms may have a material impact on the Company's consolidated statements of financial position.
The critical assumptions and estimates used in determining the present value of future lease payments require us to estimate the incremental borrowing rate specific to each leased asset or portfolio of leased assets. We determine the incremental borrowing rate of each leased asset or portfolio of leased assets by incorporating the Company's creditworthiness, the security, term, and value of the underlying leased asset, and the economic environment in which the leased asset operates. The incremental borrowing rates are subject to change mainly due to macroeconomic changes in the environment.
Impairment of non-financial assets (goodwill, intangible assets, property, plant & equipment, and right-of-use assets)
We are required to exercise judgment in determining the grouping of assets to identify their cash-generating units (CGUs) for the purposes of testing non-financial assets for impairment. In determining the recoverable amount of the CGU, various estimates are employed. These estimates include projected future revenues, margins, costs, and capital investment consistent with strategic plans presented to the Board and key management. Discount rates are consistent with external industry information reflecting the risk associated with the Company and its cash flows.
Share-based payments
Compensation expense for share-based compensation granted is measured at the fair value at the grant date using the Black-Scholes option pricing model. The critical assumptions used under the option valuation model at the grant date are forfeiture rate, expected time to exercise in years, expected dividend yield, and volatility.
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Income and other taxes
In determining the recoverable amount of deferred tax assets, the Company forecasts future taxable income by legal entity and the period in which the income occurs to ensure that sufficient taxable income exists to utilize the attributes. Inputs to those projections are management's financial forecasts and statutory tax rates.
Significant New Accounting Standards Not Yet Adopted
There are no IFRS or International Financial Reporting Interpretations Committee interpretations that are not yet effective that would be expected to have a material impact on the Company's condensed interim consolidated financial statements.
Current Share Information
As at August 5, 2025, an aggregate of 32,136,217 Common Shares were issued and outstanding. There were no Preferred Shares issued and outstanding as of such date.
As at August 5, 2025, there were 2,199,542 options and 4,488 restricted share rights outstanding under the Company's equity incentive plans, of which 2,170,543 options and 4,488 restricted share rights were vested as of such date. Each option is exercisable for one Common Share. We expect that vested restricted share rights will be paid at settlement through the issuance of one Common Share per restricted share right.
Additional Information
Additional information relating to the Company, including the AIF, is available on SEDAR at www.sedarplus.ca. Our Common shares are listed for trading on the TSX under the symbol "KITS".