Innovative Eyewear Inc

INNOVATIVE EYEWEAR, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

September 30, 2024 and 2023 (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., a portfolio company of Tekcapital Plc through Tekcapital Europe, Ltd. (collectively, together with Lucyd Ltd., “Tekcapital and Affiliates”), which owned approximately 10.8% of our issued and outstanding shares of common stock as of September 30, 2024. Innovative Eyewear has licensed the exclusive rights to the Lucyd® brand from Lucyd Ltd., which includes the exclusive use of all of Lucyd’s intellectual property, including our main product, Lucyd Lyte® glasses.

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed balance sheet as of December 31, 2023 (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 and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for future periods or the full year.

Certain prior period amounts have been reclassified to conform to current period presentation; approximately $22,000 of capitalized costs related to the Company’s website previously reported within Capitalized software costs are now reported within Property and equipment, net.

Change in Capital Structure

As described more fully in Note 9, effective July 18, 2024, the Company effected a 1-for-20 reverse stock split for all of its issued and outstanding common stock. All share and per share related amounts presented in these financial statements and accompanying notes, including but not limited to shares issued and outstanding, dollar amounts of common stock and additional paid-in capital, earnings/(loss) per share, and warrants and options, have been retroactively adjusted for all periods presented in order to reflect this change in capital structure. There were no changes to the total number of authorized common shares or par value per common share as a result of this change.

Use of Estimates

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

Cash Equivalents

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

Investments

As of September 30, 2024, the Company held investments in U.S. Treasury bills, which mature in March 2025. These investments are classified as “held-to-maturity” and are recorded at amortized cost of $4,895,184 in the accompanying condensed balance sheet. The aggregate fair value of these investments, based on quoted prices (unadjusted) in active markets for identical assets, is $4,901,300 as of September 30, 2024, which includes an unrealized gain of $6,116.

Receivables and Credit Policy

Trade receivables from customers are uncollateralized customer obligations due under normal trade terms. 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. We generally offer “net 30” payment terms on wholesale orders of $1,500 or more, subject to the wholesale customer’s completion of a credit check application and credit card authorization form. For direct-to-consumer sales, payment is required before product is shipped.

Accounts receivable are reported at the amount billed to the customer, net of an allowance for doubtful accounts. The allowance for doubtful accounts is determined based upon a variety of judgments and factors. Factors considered in determining the allowance include historical collection, write-off experience, and management’s assessment of collectibility from customers, including current conditions, reasonable forecasts, and expectations of future collectibility and collection efforts. Management continuously assesses the collectibility of receivables and adjusts estimates based on actual experience and future expectations based on economic indicators. Receivable balances are written-off against the allowance when such balances are deemed to be uncollectible.

A roll forward of the allowance for doubtful accounts for the nine months ended September 30, 2024 and 2023 is as follows:

Inventory

The Company’s 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. Such provisions were $0 and $31,637 as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024 and December 31, 2023, the Company recorded an inventory prepayment in the amount of $139,065 and $323,520, respectively, related to down payments for eyewear purchased from the manufacturer, prior to shipment of the product that occurred after the respective balance sheet dates.

Intangible Assets

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

Capitalized Software

The Company had previously incurred costs related to development of the Vyrb software application, and had previously capitalized approximately $88,000 of these costs related to coding, development, and testing (subsequent to establishing technical feasibility of the app), as it was the Company’s intention to market and sell this software externally.

Although we launched Vyrb as an open beta version in 2021, and continued to add new features to Vyrb throughout 2022 and 2023, we had not officially launched the Vyrb app. During 2024, management decided to shift our primary software development focus to the Lucyd app, which was launched in April 2023 as a free application that enables the user to converse with the extremely popular ChatGPT AI language model on our glasses. Certain elements and features developed for the Vyrb app may potentially be incorporated into future releases of the Lucyd app.

Based on this decision, during the nine months ended September 30, 2024, we expensed the previously-capitalized Vyrb software development costs totalling approximately $88,000 to research and development expense.

Property and Equipment

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

Income Taxes

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

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.

Stock-Based Compensation

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

For stock option awards, the Black-Scholes-Merton option pricing model is used to estimate the fair value of share-based awards. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and share price volatility.

For awards of restricted stock units and shares of common stock, the fair value of the award is based on the quoted market price of our common shares on the NASDAQ stock exchange.

Revenue Recognition

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

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

In instances where the collectibility of contractual consideration is not probable at the time of sale, the revenue is deferred on our balance sheet as a contract liability, and the associated cost of goods sold is deferred on our balance sheet as a contract asset; subsequently, we recognize such revenue and cost of goods sold as payments are received. During the nine months ended September 30, 2024 and 2023, we recognized $22,500 of revenue for each period, that was included in the contract liability balances as of January 1, 2024 and 2023, respectively.

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. Amounts billed to a customer for shipping and handling are reported as revenues; costs incurred for shipping and handling are included in cost of goods sold at the time the related revenue is recognized.

For sales generated through our e-commerce channels, we identify the contract with a customer upon online purchase of our eyewear and transaction price at the manufacturer suggested retail price (“MSRP”) for non-prescription, polarized sunglass and blue light blocking glasses across all of our online channels. Our e-commerce revenue is recognized upon meeting of the performance obligation when the eyewear is shipped to end customers. U.S. consumers enjoy free USPS first class postage on orders over $149, with faster delivery options available for extra cost, for sales processed through our website. 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 retail store partners includes volume discounts, due to the nature of large quantity orders. The pricing includes shipping charges, while excluding any state sales tax charges applicable. Due to the nature of wholesale retail orders, no e-commerce fees are applicable.

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

For sales of subscriptions to the “Pro” version of our Lucyd app, we identify the individual contracts with customers through detailed transaction reports from the Apple App Store or Google Play Store, with each individual transaction representing a separate contract. Revenue is recognized upon meeting the performance obligation, which is the right and availability of each customer to access the “Pro” features of the Lucyd app. For those customers that purchase such access on a month-to-month basis, we recognize revenue in the month in which the purchase of such access is made. For those customers which purchase an annual subscription, we recognize revenue on a straight-line basis over the subscription period, using a mid-month convention. The balance of unearned revenue related to app subscriptions that has been deferred on our balance sheet as a contract liability was $2,513 as of September 30, 2024.

We allow our customers to return our physical products, subject to our refund policy, which allows any customer to return our physical products for any reason and receive a full refund for frames (prescription lenses excluded) within the first 7 days for sales made through our website (Lucyd.co), 30 days for sales made through Amazon, and 30 days for sales to most wholesale retailers and distributors (although certain sales to independent distributors are ineligible for returns). As of January 2024, we updated our return policy to prohibit discretionary returns of prescription lenses, and also instituted a standard $15 restocking fee for standard frame returns, which is deducted from applicable refunds to cover shipping and restocking costs.

For all of our product sales, at the time of sale, we establish a reserve for returns, based on historical experience and expected future returns, which is recorded as a reduction of sales. Additionally, we review all individual returns received in the month following the balance sheet date pertaining to orders processed prior to the balance sheet date in order to determine whether an allowance for sales returns is necessary. The Company recorded an allowance for sales returns of $5,302 and $40,933 as September 30, 2024 and December 31, 2023, respectively.

NOTE 3 –GOING CONCERN

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

The Company meets its day-to-day working capital requirements using monies raised through sales of eyewear and issuances of equity. During the nine months ended September 30, 2024, the Company raised approximately $10.4 million of net cash proceeds through the issuance of equity via a combination of at-the-market offerings, registered direct offerings, and warrant exercises (see Note 9 for details). The Company has also entered into an agreement with a related party, under which the Company may borrow up to $1.25 million (see Note 6 for details); as of September 30, 2024, the Company has not borrowed any amounts under this agreement. The Company’s forecasts and projections indicate that the Company expects to have sufficient liquidity to fund operations through at least thenext 12 months. However, the Company may raise additional funds if management believes it would be beneficial to do so.

NOTE 4 –INCOME TAX PROVISION / BENEFIT

At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods. The Company hasnot recorded an income tax provision or benefit for the three and nine months ended September 30, 2024 and 2023 as it maintains a full valuation allowance against its net deferred tax assets.

NOTE 5 –TANGIBLE AND INTANGIBLE ASSETS

Depreciation expense for the three months ended September 30, 2024 and 2023 was $23,956 and $17,017, respectively.

Depreciation expense for the nine months ended September 30, 2024 and 2023 was $83,907 and $45,996, respectively.

Amortization expense for the three months ended September 30, 2024 and 2023 was $9,902 and $2,214, respectively.

Amortization expense for the nine months ended September 30, 2024 and 2023 was $25,199 and $20,030, respectively.

NOTE 6 –RELATED PARTY TRANSACTIONS AND AGREEMENTS

Convertible Note and Due to Tekcapital and Affiliates

Through December 1, 2023, the Company had the availability of, but not the contractual right to, intercompany financing from Tekcapital and Affiliates in the form of either cash advances or borrowings under a convertible note. The convertible notes balances were $61,356 at January 1, 2023. 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. No further amounts were borrowed under these convertible notes for the remainder of 2023, and the convertible notes matured on December 1, 2023 with no amounts outstanding.

New Lucyd Ltd. Financing Agreement

On March 1, 2024, the Company entered into an agreement with Lucyd Ltd. pursuant to which the Company can receive up to $1,250,000 either (a) in services provided by Lucyd Ltd. to the Company or (b) in cash upon request of funds by the Company. Once funds or services are received by the Company, it will issue a convertible note to Lucyd Ltd. that will bear interest at 10% per annum and include the option to convert the note into shares of the Company’s common stock upon certain conversion events. Upon issuance, the convertible note will have a maturity date of September 1, 2025, at which time all outstanding principal and accrued interest, if any, will be payable in full in cash or in the Company’s common stock. The Company will be able to prepay the convertible notes at any time with the written consent of Lucyd Ltd. The Company has not borrowed any amounts under this agreement.

Loan to Tekcapital Europe, Ltd.

On January 11, 2024, the Company entered into an intercompany loan agreement (as lender) with Tekcapital Europe, Ltd. (as borrower) and Tekcapital Plc, the parent of Tekcapital Europe, Ltd. Pursuant to this agreement, the Company loaned 600,000 British pounds sterling (equivalent to approximately $768,000) to Tekcapital Europe, Ltd. The loan bore simple interest at a rate of 10% per annum and was required to be repaid on or before April 11, 2024. Tekcapital Plc executed the agreement as guarantor for Tekcapital Europe, Ltd. on the full amount of the loan. Tekcapital Europe, Ltd. subsequently repaid all of the outstanding balance of the loan (including principal and accrued interest) during the nine months ended September 30, 2024, and no amounts remain outstanding or payable to us under this agreement.

Management Service Agreement

The Company has entered into a management services agreement with Tekcapital Europe, Ltd., for which the Company is 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:

During the three months ended September 30, 2024 and 2023, the Company incurred $35,000 in each respective period under the management services agreement. During the nine months ended September 30, 2024 and 2023, the Company incurred $105,000 in each respective period under the management services agreement.

Rent of Office Space

Under an agreement between the Company and Tekcapital, Tekcapital bills the Company for an allocation of rent paid by Tekcapital on the Company’s behalf. The Company recognized $22,904 and $22,992 of expense related to this month-to-month arrangement for the three months ended September 30, 2024 and 2023, respectively, and recognized $69,409 and $68,752 of expense related to this month-to-month arrangement for the nine months ended September 30, 2024 and 2023, respectively.

NOTE 7 –COMMITMENTS AND CONTINGENCIES

Legal Matters

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

On January 3, 2024, we settled and resolved certain matters with a third party, including a complaint that had been brought before the International Trade Commission and an investigation instituted by the International Trade Commission in 2023, and entered into a multi-year non-exclusive license agreement with the third party covering multiple smart eyewear patents (as described more fully below).

License Agreements

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

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

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

Leases

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

Other Commitments

See related party management services agreement discussed in Note 6.

NOTE 8 –STOCK-BASED COMPENSATION

Stock Options

Summary information regarding the number of options, exercise price, and remaining contractual life as of and during the nine months ended September 30, 2024 (as retroactively adjusted for the reverse stock split described in Note 9) is as follows:

During the three and nine months ended September 30, 2024, we recognized $100,000 and $495,309 of expense, respectively, related to stock options. As of September 30, 2024, the aggregate intrinsic value for all options outstanding as well as all options exercisable was zero, and unrecognized stock option expense of approximately $193,000 remains to be recognized over the next 1.10 years.

On January 11, 2024, we granted options to purchase an aggregate of 500 shares of common stock at $8.402 per share to an employee, of which 1/5 vested immediately, and 1/5 were to vest on each six-month anniversary of the grant date. The options were to expire on January 11, 2029. However, the employee later separated from the Company, and these options were all forfeited or expired as of September 30, 2024.

Restricted Stock Units

During the three and nine months ended September 30, 2024, we recognized $5,075 and $15,225 of expense, respectively, related to restricted stock units awarded in 2023; as of September 30, 2024, unrecognized restricted stock unit expense of $3,383 remains to be recognized between October 1, 2024 and November 30, 2024.

Stock Grants

On March 28, 2024, we entered into an agreement for a third party to provide us with financial advisory and investment banking services, for a minimum term of six months. As consideration for the services provided to the Company, we issued to the counterparty 15,000 shares of our common stock. The total value of consideration transferred, measured using the fair value of our common stock at the date of issuance, was $81,900. During the three and nine months ended September 30, 2024, we recognized $40,950 and $81,900, respectively, of expense related to this arrangement.

On April 1, 2024, we entered into a brand ambassador agreement with an individual for a two-year term. As compensation for the first year of the agreement, we issued the individual 4,500 shares of our common stock. The value of the consideration transferred, measured using the fair value of our common stock at the date of issuance, was $21,690. During the three and nine months ended September 30, 2024, we recognized $5,423 and $10,845, respectively, of expense related to this arrangement, and will recognize the remaining expense for these shares awarded of $10,845 on a straight-line basis from October 1, 2024 through March 31, 2025.

NOTE 9 –STOCKHOLDERS’ EQUITY

Change in Capital Structure – Reverse Stock Split

At our annual meeting of shareholders on July 8, 2024, the Company’s shareholders approved an amendment to the Company’s articles of incorporation to effect a reverse stock split of our issued and outstanding common stock at a ratio between 1-for-14 and 1-for-24. Subsequently, the board of directors authorized a reverse stock split in a ratio of 1-for-20 shares, and we filed with the Florida Secretary of State a certificate of amendment to our articles of incorporation.

Effective July 18, 2024, each 20 shares of the Company’s issued and outstanding common stock were combined into one share of common stock, except to the extent that the reverse stock split would have resulted in any of the Company’s stockholders owning a fractional share, in which case such fractional share was rounded up to the next highest whole share. Additionally, pursuant to their terms, the shares of common stock underlying the Company’s outstanding stock options and warrants were similarly adjusted along with corresponding adjustments to their exercise prices.

All share and per share amounts presented in these financial statements and accompanying notes, included but not limited to shares issued and outstanding, earnings/(loss) per share, and warrants and options, as well as the dollar amounts of common stock and additional paid-in capital, have been retroactively adjusted for all periods presented in order to reflect this change in capital structure.

There was no change to the total number of authorized common shares of 50,000,000, and there was no change in the par value per common share of $0.00001.

At-the-Market Offerings

On April 15, 2024, the Company entered into an at-the-market offering agreement with H.C. Wainwright & Co., LLC, as sales agent (“HCW”), relating to the sale of common stock.

The Company also paid $50,000 of legal fees to HCW during the nine months ended September 30, 2024; this payment has been reflected in the unaudited condensed financial statements as a reduction to additional paid in capital, as it represents a related cost of the at-the-market equity offering transactions.

First Registered Direct Offering

On May 1, 2024, the Company closed on a registered direct offering of 210,043 shares of its common stock and, in a concurrent private placement, warrants to purchase up to 210,043 shares of common stock at an exercise price of $4.88 per share, for a combined purchase price per share and warrant of $4.88. In exchange, the Company received approximately $1.0 million of gross proceeds, before deducting underwriting discounts and offering expenses. In addition, the Company issued to the placement agent warrants to purchase up to 15,754 shares of common stock at an exercise price of $6.10 per share. The net proceeds received by the Company from this transaction amounted to approximately $837,000. We intend to use the net proceeds of this offering primarily for working capital and general corporate purposes.

Approximately $100,000 of the net proceeds received from this registered direct offering were used to pay a former agent for their waiver of a contractual right of first refusal; such payment has been reflected in the unaudited condensed financial statements as a reduction to additional paid in capital, as it represents a related cost of the equity transaction.

Second Registered Direct Offering

On May 29, 2024, the Company closed on a registered direct offering of 263,159 shares of its common stock and, in a concurrent private placement, warrants to purchase up to 263,159 shares of common stock at an exercise price of $9.50 per share, for a combined purchase price per share and warrant of $9.50. In exchange, the Company received approximately $2.5 million of gross proceeds, before deducting underwriting discounts and offering expenses. In addition, the Company issued to the placement agent warrants to purchase up to 19,737 shares of common stock at an exercise price of $11.876 per share. The net proceeds received by the Company from this transaction amounted to approximately $2.1 million. We intend to use the net proceeds of this offering primarily for working capital and general corporate purposes.

Warrant Exercises

During September 2024, the Company entered into multiple warrant inducement transactions with certain holders of its existing warrants. The Company intends to use the net proceeds from these transactions for working capital and general corporate purposes.

In connection with each of the aforementioned warrant inducement transactions, the Company issued placement agent warrants to HCW, the relevant details of which are outlined in the table below.

On September 23, 2024, one of the holders of the Series A and Series B warrants exercised an aggregate of 40,000 warrants on a cashless basis and received 20,482 shares of common stock.

In addition, on September 24, 2024, one of the holders of the warrants issued in connection with the First Registered Direct Offering elected to exercise their warrants to purchase an aggregate of 61,475 shares of common stock. The Company received approximately $300,000 of gross proceeds from this exercise.

As of September 30, 2024, the Company’s remaining outstanding warrants were as follows:

Rights Plan

On September 25, 2024, our board of directors approved the adoption of a limited duration stockholder rights plan (the “Rights Plan”), and declared a dividend to stockholders of record at the close of business on September 25, 2024 of one common stock purchase right (a “Right”) for each outstanding share of our common stock. Each Right entitles the holder to purchase from the Company six shares of our common stock at an exercise price of $6.21 per share. The Rights are evidenced by and trade with the certificates for the shares of our common stock outstanding as of September 25, 2024, and will accompany any new shares of our common stock that are issued after that date.

Under the Rights Plan, the Rights generally will become exercisable only if a person or group acquires beneficial ownership of 20% or more of our common stock in a transaction not approved by our board of directors. In that situation, each holder of a Right (other than the acquiring person or group, whose rights will become void and will not be exercisable) will have the right to purchase, upon payment of the exercise price and in accordance with the terms of the Rights Plan, a number of shares of our common stock having a market value of twice such price.

The Rights expire at or prior to the earlier of (i) September 25, 2025, (ii) the redemption or exchange of the Rights in accordance with the terms of the Rights Plan, (iii) the closing of certain merger or other acquisition transactions involving the Company, and (iv) the date of the Company’s next meeting of its stockholders.

The Rights Plan is not intended to prevent a takeover of the Company and should not interfere with any merger or other business combination approved by our board of directors. However, the Rights Plan may cause substantial dilution to a person or group that acquires beneficial ownership of twenty percent (20%) or more of our outstanding common stock.

Other Matters

During the nine months ended September 30, 2024, the Company made a release payment of $325,000 to a shareholder counterparty for the waiver of certain of that counterparty’s pre-existing contractual rights related to the Company’s equity offerings described above. This payment is reflected within General and administrative expenses in the unaudited condensed statements of operations.

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.

Due to the net losses for all periods presented in the unaudited condensed statements of operations, all shares underlying the common stock options, common stock warrants, and related party convertible debt were excluded from the earnings per share calculation due to their anti-dilutive effect.

The calculation of net earnings/(loss) per share (as retroactively adjusted for the reverse stock split described in Note 9) is as follows:

NOTE 11 –SUBSEQUENT EVENTS

In October 2024, the Company issued an aggregate of 20,498 shares of common stock to certain holders of the Company’s Series A and Series B Warrants who had elected to exercise such warrants; the Company received approximately $102,000 of gross proceeds from these exercises.