Innovative Eyewear Inc 10-Q

Item 1. Financial Statements INNOVATIVE EYEWEAR, INC. CONDENSED BALANCE SHEETS March 31, 2023 (Unaudited) and December 31, 2022 2023 2022 TOTAL ASSETS Current Assets Cash and cash equivalents $ 3,449,828 $ 3,591,109 Accounts receivable, net of allowance of $ 92,646 127,642 110,258 Prepaid expenses 185,313 210,673 Inventory prepayment - 197,750 Inventory 743,084 94,701 Other current assets 36,240 36,240 Total Current Assets 4,542,107 4,240,731 Non-Current Assets Patent costs, net 240,426 137,557 Capitalized software costs 110,073 110,073 Property and equipment, net 137,572 119,744 Other non-current assets 82,719 81,779 TOTAL ASSETS $ 5,112,897 $ 4,689,884 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Current Liabilities Accounts payable and accrued expenses $ 292,226 $ 275,660 Deferred revenue 30,000 30,000 Due to Parent and Affiliates 182,421 232,989 Related party convertible debt - 61,356 Total Current Liabilities 504,647 600,005 Non-Current Liabilities Deferred revenue 57,950 65,450 TOTAL LIABILITIES 562,597 665,455 Commitments and contingencies - - Stockholders’ Equity Common stock (par value $ 0.00001 , 50,000,000 shares authorized, and 7,715,757 and 7,307,157 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively) 77 73 Additional paid-in capital 16,287,020 14,330,343 Accumulated deficit ( 11,736,797 ) ( 10,305,987 ) TOTAL STOCKHOLDERS’ EQUITY 4,550,300 4,024,429 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 5,112,897 $ 4,689,884 See accompanying Notes to the Financial Statements. 1 INNOVATIVE EYEWEAR, INC. CONDENSED STATEMENTS OF OPERATIONS For the three months ended March 31, 2023 and 2022 (Unaudited) Three Months Ended March 31, 2023 2022 Revenues, net $ 144,921 $ 236,022 Less: Cost of Goods Sold ( 134,630 ) ( 161,632 ) Gross Profit 10,291 74,390 Operating Expenses: General and administrative ( 993,772 ) ( 606,972 ) Sales and marketing ( 259,297 ) ( 584,796 ) Research and development ( 151,169 ) ( 35,807 ) Related party management fee ( 35,000 ) ( 35,000 ) Total Operating Expenses ( 1,439,238 ) ( 1,262,575 ) Other Income (Expense) 76 ( 499 ) Interest Expense ( 1,939 ) ( 17,875 ) Total Other Expense ( 1,863 ) ( 18,374 ) Net Loss $ ( 1,430,810 ) $ ( 1,206,559 ) Weighted average number of shares outstanding 7,569,115 6,060,187 Loss per share, basic and diluted $ ( 0.19 ) $ ( 0.20 ) See accompanying Notes to the Financial Statements. 2 INNOVATIVE EYEWEAR, INC. CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) For the three months ended March 31, 2023 and 2022 (Unaudited) Common Stock Additional Paid In Stock Subscription Accumulated Total Stockholders’ Equity # Shares Amount Capital Receivable Deficit (Deficit) Balances, January 1, 2023 7,307,157 $ 73 $ 14,330,343 $ - $ ( 10,305,987 ) $ 4,024,429 Stock based compensation - - 424,431 - - 424,431 Exercise of warrants by stockholders 408,600 4 1,532,246 - - 1,532,250 Net loss - - - - ( 1,430,810 ) ( 1,430,810 ) Balances, March 31, 2023 7,715,757 $ 77 $ 16,287,020 $ - $ ( 11,736,797 ) $ 4,550,300 Balances, January 1, 2022 6,060,187 $ 60 $ 4,842,836 $ ( 11,226 ) $ ( 4,624,154 ) $ 207,516 Stock based compensation - - 416,951 - - 416,951 Net loss - - - - ( 1,206,559 ) ( 1,206,559 ) Balances, March 31, 2022 6,060,187 $ 60 $ 5,259,787 $ ( 11,226 ) $ ( 5,830,713 ) $ ( 582,092 ) See accompanying Notes to the Financial Statements. 3 INNOVATIVE EYEWEAR, INC. CONDENSED STATEMENTS OF CASH FLOWS For the three months ended March 31, 2023 and 2022 (Unaudited) 2023 2022 Operating Activities Net Loss $ ( 1,430,810 ) $ ( 1,206,559 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization 5,956 1,739 Depreciation 10,307 3,983 Non cash interest expense 1,939 17,875 Stock based compensation expense 424,431 416,951 Expenses paid by parent and affiliates 62,204 235,719 Provision for doubtful accounts 142 - Changes in operating assets and liabilities: Accounts receivable ( 17,526 ) ( 110,329 ) Accounts payable and accrued expenses 14,627 38,042 Prepaid expenses 25,360 13,114 Inventory ( 450,633 ) ( 41,404 ) Other current assets ( 10,000 ) - Other current liabilities ( 64,629 ) - Contract assets and liabilities 1,560 - Net cash flows from operating activities ( 1,427,072 ) ( 630,869 ) Investing Activities Patent costs ( 108,825 ) ( 31,744 ) Purchases of property and equipment ( 28,135 ) ( 32,106 ) Capitalized software expenditures - ( 18,811 ) Net cash flows from investing activities ( 136,960 ) ( 82,661 ) Financing Activities Payment of deferred offering cost - ( 59,446 ) Proceeds from exercise of warrants by stockholders 1,532,250 - Proceeds from related party convertible debt - 735,000 Repayment of related party convertible debt ( 109,499 ) - Net cash flows from financing activities 1,422,751 675,554 Net Change In Cash ( 141,281 ) ( 37,976 ) Cash at Beginning of Period $ 3,591,109 $ 79,727 Cash at End of Period $ 3,449,828 $ 41,751 Significant Non-Cash Transactions Expenses paid for by Parent reported as increase in Due to Parent and Affiliates and related party convertible debt 62,204 235,719 See accompanying Notes to the Financial Statements. 4 INNOVATIVE EYEWEAR, INC. NOTES TO THE FINANCIAL STATEMENTS March 31, 2023 and 2022 (Unaudited) NOTE 1 – GENERAL INFORMATION Innovative Eyewear, Inc. (the “Company,” “us,” “we,” or “our”) is a corporation organized under the laws of the State of Florida that develops and sells cutting-edge eyeglasses and sunglasses, which are designed to allow our customers to remain connected to their digital lives, while also offering prescription eyewear and sun protection. The Company was founded by Lucyd Ltd. (the “Parent” or “Lucyd”), a portfolio company of Tekcapital Plc through Tekcapital Europe, Ltd. (collectively, the “Parent and Affiliates”), which owned approximately 67% of our issued and outstanding shares of common stock as of March 31, 2023. Innovative Eyewear licensed the exclusive rights to the Lucyd® brand from Lucyd Ltd., which includes the exclusive use of all of Lucyd’s intellectual property, including our main product, Lucyd Lyte® glasses. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying condensed balance sheet as of December 31, 2022 (which has been derived from audited financial statements) and the unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, all adjustments considered necessary for the fair presentation of the financial statements for the periods presented have been included. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for future periods or the full year. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, particularly given the significant economic disruptions and uncertainties associated with the ongoing economic environment, including potential supply chain constraints. Receivables and Credit Policy Trade receivables from customers are uncollateralized customer obligations due under normal trade terms. For direct-to-consumer sales, payment is required before product is shipped. Trade receivables are stated at the amount billed to the customer. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoice. The Company, by policy, routinely assesses the financial strength of its customers. To comply with industry standards, we offer “net 30” payments on wholesale orders of $1,500 or more. For wholesale orders, to acquire an order on net 30 terms, the customer is provided a credit check application as well as a credit card authorization form. The authorization form explicitly states when and for much we will bill the customer via credit card. Accounts receivable are reported net of the allowance for doubtful accounts. The allowance for doubtful accounts is based on the Company’s evaluation of each customer’s payment history, account aging, and financial position. The Company recognized bad debt expense of $ 142 for the three months ended March 31, 2023, and had an allowance for doubtful accounts of $ 92,646 as of March 31, 2023. 5 Capitalized Software The Company incurred software development costs related to development of the Vyrb app. The Company capitalized these costs in accordance with ASC 985-20, “Software – Costs of Software to be Sold, Leased, or Marketed,” considering it is the Company’s intention to market and sell the software externally. Planning, designing, coding, and testing occurred necessary to meet Vyrb’s design specifications. As such, all coding, development, and testing costs incurred subsequent to establishing technical feasibility were capitalized. We launched a beta version of the Vyrb application in December 2021 that demonstrates the functionality of the software. We are planning the commercial launch of Vyrb in the fourth quarter of 2023, and expect an estimated useful life of five years for this product. Inventory Our inventory includes purchased eyewear and is stated at the lower of cost or net realizable value, with cost determined on a specific identification method of inventory costing which attaches the actual cost to an identifiable unit of product. Provisions for excess, obsolete, or slow-moving inventory are recorded after periodic evaluation of historical sales, current economic trends, forecasted sales, estimated product life cycles, and estimated inventory levels. No provisions were determined as needed as of March 31, 2023 and as of December 31, 2022. As of December 31, 2022, the Company recorded an inventory prepayment in the amount of $ 197,750 , related to a down payment for eyewear purchased from the manufacturer; this product was shipped during the three months ended March 31, 2023, and there was no prepayment balance remaining as of March 31, 2023. Intangible Assets Intangible assets relate to patent costs received in conjunction with the initial capitalization of the Company and internally developed utility and design patents. The Company amortizes these assets over the estimated useful life of the patents. The Company reviews its intangibles assets for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Property and Equipment Property and equipment are depreciated using the straight-line method over the estimated useful lives or lease terms if shorter. Depreciation expense for the three months ended March 31, 2023 and 2022 was $ 10,307 and $ 3,983 , respectively. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred. Income Taxes The Company accounts for income taxes under an asset and liability approach that recognizes deferred tax assets and liabilities based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company follows a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. Any interest and penalties accrued related to uncertain tax positions are recorded in tax expense. The Company periodically assesses the realizability of its net deferred tax assets. If, after considering all relevant positive and negative evidence, it is more likely than not that some portion or all of the net deferred tax assets will not be realized, the Company will reduce the net deferred tax assets by a valuation allowance. The realization of net deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of net operating loss carryforwards. 6 Stock-Based Compensation The Company accounts for stock-based compensation to employees and directors in accordance with ASC Topic 718, which requires that compensation expense be recognized in the financial statements for stock-based awards based on the grant date fair value. For stock option awards, the Black-Scholes-Merton option pricing model is used to estimate the fair value of share-based awards. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and share price volatility. The expected term of the stock options is estimated based on the simplified method as allowed by Staff Accounting Bulletin 107 (SAB 107). The share price volatility at the grant date is estimated using historical stock prices of comparably profiled public companies based upon the expected term of the award being valued. The risk-free interest rate assumption is determined using the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. Revenue Recognition Our revenue is generated from the sales of prescription and non-prescription optical glasses, sunglasses, and shipping charges, which are charged to the customer, associated with these purchases. We sell products through our retail store resellers, distributors, on our own website Lucyd.co, and on Amazon. To determine revenue recognition, we perform the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy a performance obligation. At contract inception, we assess the goods or services promised within each contract and determine those that are performance obligations, and also assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. In instances where the collectability of contractual consideration is not probable at the time of sale, the revenue is deferred on our balance sheet as a contract liability, and the associated cost of goods sold is deferred on our balance sheet as a contract asset; subsequently, we recognize such revenue and cost of goods sold as payments are received. All revenue, including sales processed online and through our retail store resellers and distributors, is reported net of sales taxes collected from customers on behalf of taxing authorities, returns, and discounts. For sales generated through our e-commerce channels, we identify the contract with a customer upon online purchase of our eyewear and transaction price at the manufacturer suggested retail price (“MSRP”) for non-prescription, polarized sunglass and blue light blocking glasses across all of our online channels. Our e-commerce revenue is recognized upon meeting the performance obligation when the eyewear is shipped to end customers. Only U.S. consumers enjoy free USPS first class postage, with faster delivery options available for extra cost, for sales processed through our website and on Amazon. For Amazon sales, shipping is free for U.S consumers while international customers pay shipping charges on top of MSRP. Any costs associated with fees charged by the online platforms (Shopify for Lucyd.co website and Amazon) are not recharged to customers and are recorded as a component of cost of goods sold as incurred. The Company charges applicable state sales taxes in addition to the MSRP for both online channels and all other marketplaces on which the company sells products. For sales to our retail store partners, we identify the contract with a customer upon receipt of an order of our eyewear through our Shopify wholesale portal or direct purchase order. Revenue is recognized upon meeting the performance obligation, which is delivery of the Company’s eyewear products to the retail store and is also recorded net of returns and discounts. Our wholesale pricing for eyewear sold to the retail store partners includes volume discounts, due to the nature of large quantity orders. The pricing includes shipping charges, while excluding any state sales tax charges applicable. Due to the nature of wholesale retail orders, no e-commerce fees are applicable. 7 For sales to distributors, we identify the contract with a customer upon receipt of an order of our eyewear through a direct purchase order. Revenue is recognized upon meeting the performance obligation, which is delivery of our eyewear products to the distributor and is also recorded net of returns and discounts. Our wholesale pricing for eyewear sold to distributors includes volume discounts, due to the nature of large quantity orders. The pricing includes shipping charges, while excluding any state sales tax charges applicable. Due to the nature of wholesale orders, no e-commerce fees are applicable. The Company’s sales do not contain any variable consideration. We allow our customers to return our products, subject to our refund policy, which allows any customer to return our products for any reason within the first: ● 7 days for sales made through our website (Lucyd.co) ● 30 days for sales made through Amazon ● 30 days for sales to most wholesale retailers and distributors (although certain sales to independent distributors are ineligible for returns) For all of our sales, at the time of sale, we establish a reserve for returns, based on historical experience and expected future returns, which is recorded as a reduction of sales. Additionally, we reviewed all individual returns received in April 2023 pertaining to orders processed prior to March 31, 2023. As a result, the Company determined that an allowance for sales returns was necessary. The Company recorded an allowance for sales returns of $ 1,925 and $ 24,897 as of March 31, 2023 and December 31, 2022, respectively. Shipping and Handling Costs incurred for shipping and handling are included in cost of revenue at the time the related revenue is recognized. Amounts billed to a customer for shipping and handling are reported as revenues. NOTE 3 – GOING CONCERN The Company has a limited operating history. The Company’s business and operations are sensitive to general business and economic conditions in the United States. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse conditions may include recession, downturn, or otherwise, changes in regulations or restrictions in imports, competition, or changes in consumer taste including the economic impacts from the COVID-19 pandemic. These adverse conditions could affect the Company’s financial condition and the results of its operations. The Company meets its day to day working capital requirements through monies raised through sales of eyewear and issuances of equity, including the initial public offering completed on August 2022 and subsequent exercises of warrants by stockholders. The Company also previously issued a convertible note held by its parent company, which was repaid in full during the three months ended March 31, 2023. The Company’s forecasts and projections indicate that the Company expects to have sufficient cash reserves and future income to operate within the level of its current facilities. The Company anticipates that its available liquidity will be sufficient to fund operations through at least the end of May 2024. NOTE 4 – INCOME TAX PROVISION At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods. The Company has no t recorded a tax provision for the three months ended March 31, 2023 and 2022 as it maintains a full valuation allowance against its net deferred tax assets. 8 NOTE 5 – INTANGIBLE ASSETS Schedule of intangible assets March 31, December 31, Finite-lived intangible assets 2023 2022 Patent Costs $ 265,022 $ 156,196 Intangible assets, gross 265,022 156,196 Less: Accumulated amortization ( 24,595 ) ( 18,639 ) Intangible assets, net $ 240,426 $ 137,557 Amortization expense totalled $ 5,956 and $ 1,739 for the three months ended March 31, 2023 and 2022, respectively. Future amortization is expected to approximate $ 23,800 per year. NOTE 6 – RELATED PARTY ADVANCES AND OTHER INTERCOMPANY AGREEMENTS Convertible Note and Due to Parent and Affiliates During the three months ended March 31, 2023 and during 2022, the Company had the availability of, but not the contractual right to, intercompany financing from the Parent and Affiliates in the form of either cash advances or borrowings under a convertible note (as discussed below). The convertible notes balances were $ 61,356 at December 31, 2022. In January 2023, the Company borrowed an additional $ 48,143 under such convertible notes, and subsequently repaid the outstanding balances of the convertible notes in full in February 2023, such that there were no amounts outstanding under convertible notes as of March 31, 2023. Management Service Agreement In 2020, the Company entered into a management services agreement with a related party (related through common ownership), for which the Company was billed $25,000 quarterly. Effective February 1, 2022, the original management services agreement was amended to have the Company billed at $35,000 quarterly. While the agreement does not stipulate a specific maturity date, it can be terminated with 30 calendar days written notice by any party. The related party currently provides the following services: ● Support and advice to the Company in accordance with their area of expertise; ● Research, technical review, legal review, recruitment, software development, marketing, public relations, and advertisement; and ● Advice, assistance, and consultation services to support the Company or in relation to any other related matter. During the three months ended March 31, 2023 and 2022, the Company incurred $ 35,000 in each period under its agreement with Tekcapital Europe Ltd. Rent of Office Space Prior to the February 1, 2022 amendment of the aforementioned management services agreement, the Company was provided with rent-free office space by the Parent and Affiliates. Effective February 1, 2022, Tekcapital began to bill the Company for an allocation of rent paid by Tekcapital on the Company’s behalf. The Company recognized $ 22,769 of expense related to this arrangement for the three months ended March 31, 2023. 9 NOTE 7 – COMMITMENTS AND CONTINGENCIES Legal Matters We are not the subject of any material pending legal proceedings; however, we may from time to time become a party to various legal proceedings arising in the ordinary course of business. Leases Our executive offices are located at 11900 Biscayne Blvd., Suite 630 Miami, Florida 33181. Our executive offices are provided to us by the parent of our majority stockholder, Tekcapital (see Note 6). We consider our current office space adequate for our current operations. License Agreements On September 28, 2022, we entered into a multi-year global licensing agreement with Nautica Apparel, Inc., which became effective July 1, 2022. Pursuant to this agreement, we received a license to utilize the global lifestyle brand Nautica® for our smart eyewear products. This agreement requires us to pay royalties based on a percentage of net retail and wholesale sales, and also requires guaranteed minimum royalty payments. The agreement has a base term of 10 years but is cancellable at our option during the fifth year. The future minimum payments due during the noncancelable portion of the contract term (2022-2027) are approximately $1.1 million in aggregate; future minimum payments due during the remaining term of the contract (2028-2032) are approximately $3.6 million in aggregate. Guaranteed minimum royalty payments due during the 2023 calendar year are less than $ 25,000 . On December 23, 2022, we entered into a multi-year global licensing agreement with Authentic Brands Group, which became effective October 1, 2022. Pursuant to this agreement, we received a license to utilize the outdoor brand Eddie Bauer® for our smart eyewear products. This agreement requires us to pay royalties based on a percentage of net retail and wholesale sales, and also requires guaranteed minimum royalty payments. The agreement has a base term of 10 years but is cancellable at our option during the fifth year. The future minimum payments due during the noncancelable portion of the contract term (2022-2027) are approximately $1.1 million in aggregate; future minimum payments due during the remaining term of the contract (2028-2032) are approximately $3.6 million in aggregate. Guaranteed minimum royalty payments due during the 2023 calendar year are less than $ 25,000 . Other Commitments See related party management services agreement discussed in Note 6. NOTE 8 – STOCK-BASED COMPENSATION During the three months ended March 31, 2023, we granted the following option awards, all of which had an exercise price of $ 1.275 per share, and expire on January 13, 2028: ● Options to purchase an aggregate of 330,000 shares of common stock were issued to the Company’s officers and management, of which 1/3 vested immediately, 1/3 shall vest on January 13, 2024, and the remaining 1/3 shall vest on January 13, 2025. ● Options to purchase an aggregate of 75,000 shares of common stock were issued to non-management directors, which vest evenly over three years, whereby 1/3 shall vest on each of January 13, 2024, January 13, 2025, and January 13, 2026. ● Options to purchase an aggregate of 162,000 shares of common stock were issued to certain employees and consultants, which vest evenly over three years, whereby 1/3 shall vest on each of January 13, 2024, January 13, 2025, and January 13, 2026. 10 ● Options to purchase an aggregate of 75,000 shares of common stock were issued an employee, which vest evenly over three years, whereby 1/6 of the options shall vest every six months. ● Options to purchase an aggregate of 6,000 shares of common stock were issued to a consultant, which vested immediately. Details of the number of share options and the weighted average exercise price outstanding as of and during the three months ended March 31, 2023 are as follows: Schedule of number of share options and the weighted average exercise price outstanding Av. Exercise price per share $ Options (Number) As at January 1, 2023 2.61 2,332,500 Granted 1.28 648,000 Exercised - - Forfeited - - As at March 31, 2023 2.32 2,980,500 Exercisable as at March 31, 2023 2.16 1,339,154 As of March 31, 2023, the weighted average remaining contractual life of options was 2.16 years for outstanding options, and 1.80 years for exercisable options. As of March 31, 2023, unrecognized stock option expense of $ 1,627,154 remains to be recognized over next 3.29 years. NOTE 9 – STOCKHOLDERS’ EQUITY On August 17, 2022, as part of the Company’s initial public offering, the Company issued 1,960,000 warrants to purchase 1,960,000 shares of common stock, which began trading and are currently trading on the Nasdaq Capital Market, under the symbol “LUCYW.” Additionally, pursuant to the terms of the underwriting agreement for the offering, the Company issued to the underwriter certain other warrants to purchase up to 58,800 shares of the Company’s common stock. In February 2023, holders of the Company’s publicly-traded warrants exercised such warrants to purchase an aggregate of 408,600 shares of the Company’s common stock, at an adjusted exercise price of $ 3.75 per share, resulting in cash proceeds to the Company of $ 1,532,250 . As of March 31, 2023, 1,551,400 of such warrants remain outstanding. None of the warrants issued to the underwriter have been exercised as of March 31, 2023. 11 NOTE 10 – EARNINGS PER SHARE The Company calculates earnings/(loss) per share data by calculating the quotient of earnings/(loss) divided by the weighted average number of common shares outstanding during the respective period as required by ASC 260-10-50. Due to the net losses for the three months ended March 31, 2023 and 2022, all shares underlying the related party convertible debt, common stock warrants, and common stock options were excluded from the earnings per share calculation due to their anti-dilutive effect. Calculation of net earnings per common share — basic and diluted: Schedule of calculation of net earnings per common share - basic and diluted For the three months ended March 31, 2023 March 31, 2022 Basic and diluted: Net loss ( 1,430,810 ) ( 1,206,559 ) Weighted-average number of common shares 7,569,115 6,060,187 Basic and diluted net loss per common share $ ( 0.19 ) $ ( 0.20 ) NOTE 11 – SUBSEQUENT EVENTS Warrant Transactions Between April 1, 2023 and April 16, 2023, holders of the Company’s warrants (see Note 9) exercised warrants to purchase an aggregate of 321,120 shares of the Company’s common stock, at an adjusted exercise price of $ 3.75 per share, resulting in cash proceeds to the Company of $ 1,204,200 . On April 17, 2023, the Company entered into a warrant exercise inducement letter agreement (“Inducement Letter”) with certain accredited investors that were existing holders of warrants to purchase an aggregate of 150,000 shares of the Company’s common stock for cash, wherein the investors agreed to exercise all of their existing warrants at an exercise price of $ 3.75 per share. The gross proceeds to the Company from this transaction, before deducting estimated expenses and fees, was $ 562,000 . In consideration for the immediate exercise of the existing warrants for cash, the exercising holders received new warrants to purchase up to an aggregate of 300,000 shares of common stock (the “New Warrants”) in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The New Warrants are immediately exercisable upon issuance at an exercise price of $ 3.75 per common share and will expire on April 19, 2028. The New Warrants and the shares of common stock issuable upon their exercise, have not been registered under the Securities Act of 1933, and may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from such registration requirements. The New Warrants were offered only to accredited investors. 12