What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-09 compared with 2023-05-10 · 433 added, 324 removed, 332 unchanged (70% of the section changed)

2 unchanged sentences

FINANCIAL STATEMENTS

MARCH 31, 2023

JUNE 30, 2023

Balance Sheets

3 unchanged sentences

Notes to Financial Statements

March 31, 2023

June 30, 2023

December 31, 2022

11 unchanged sentences

Accounts payable

Accrued bonuses and accrued expenses

Accrued expenses

Accounts payable and accrued expenses - related parties

Deferred revenue

Deferred lease liability

7 unchanged sentences

STOCKHOLDERS' EQUITY

Preferred stock, $ 0.001 par value, 1,000,000 authorized,

shares issued or outstanding

Common stock $ 0.001 par value, 250,000,000 authorized, 114,103,523

and 112,882,793 issued and outstanding at March 31, 2023 and December 31, 2022

Preferred stock, $ 0.001 par value, 1,000,000 authorized, No shares issued or outstanding

Common stock $ 0.001 par value, 250,000,000 authorized, 116,184,724 and 112,882,793 issued and outstanding at June 30, 2023 and December 31, 2022

Additional paid-in-capital

8 unchanged sentences

STATEMENTS OF COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDING MARCH 31, 2023 AND 2022

THE THREE MONTHS AND SIX MONTHS ENDING JUNE 30, 2023 AND 2022

For the Three

2 unchanged sentences

Months Ending

March 31, 2023

March 31, 2022

Months Ending

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

COST AND EXPENSE

5 unchanged sentences

( 3,768,352 )

( 10,500,578 )

( 7,278,921 )

OTHER INCOME (EXPENSE)

4 unchanged sentences

$ ( 3,802,598 )

$ ( 10,933,765 )

$ ( 7,358,359 )

LOSS PER SHARE

3 unchanged sentences

STATEMENT OF STOCKHOLDERS’

SIX-MONTH PERIOD ENDED JUNE 30, 2023

BALANCE AT DECEMBER 31, 2022

4 unchanged sentences

Common stock issued for commitment shares

Common stock sales at the market by investment banking company

Exercise of options

3 unchanged sentences

Deferred compensation

Net loss for the three months ending March 31, 2023

Net loss for the six months ending June 30, 2023

( 10,933,765 )

BALANCE AT MARCH 31, 2023 (UNAUDITED)

BALANCE AT JUNE 30, 2023 (UNAUDITED)

$ 154,946,488

1 unchanged sentence

$ ( 117,767,126 )

SIX-MONTH PERIOD ENDED JUNE 30, 2022

BALANCE AT DECEMBER 31, 2021

5 unchanged sentences

Cashless exercise of 4,375 options

Exercise of warrants

Options issued for services

1 unchanged sentence

Deferred compensation

Net loss for the three months ending March 31, 2022

Net loss for the six months ending June 30, 2022

( 7,358,359 )

BALANCE AT JUNE 30, 2022 (UNAUDITED)

$ 125,040,332

$ ( 231,803 )

$ ( 96,961,240 )

See accompanying notes to these financial statements.

OF STOCKHOLDERS’ EQUITY

THREE-MONTH PERIOD ENDED JUNE 30, 2023

BALANCE AT MARCH 31, 2023 (UNAUDITED)

2 unchanged sentences

$ ( 112,309,379 )

Common stock issued to institutional investor

Common stock issued for commitment shares

Common stock sales at the market by investment banking company

Exercise of options

Exercise of warrants

Options issued for services

Deferred compensation

Net loss for the three months ending June 30, 2023

( 5,457,747 )

BALANCE AT JUNE 30, 2023 (UNAUDITED)

$ 154,946,488

$ ( 519,466 )

$ ( 117,767,126 )

THREE-MONTH PERIOD ENDED JUNE 30, 2022

BALANCE AT MARCH 31, 2022 (UNAUDITED)

$ 120,118,908

$ ( 252,094 )

$ ( 93,158,642 )

Common stock issued to institutional investor

Common stock issued for commitment shares

Exercise of options

Exercise of warrants

Options issued for services

Deferred compensation

Net loss for the three months ending June 30, 2022

( 3,802,598 )

BALANCE AT JUNE 30, 2022 (UNAUDITED)

$ 125,040,332

$ ( 231,803 )

$ ( 96,961,240 )

See accompanying notes to these financial statements.

1 unchanged sentence

STATEMENTS OF CASH FLOW

For the Three

Months Ending

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

CASH FLOWS FROM OPERATING ACTIVITIES

3 unchanged sentences

Stock options issued for services

Amortization of deferred charges

Amortization of deferred compensation

Cashless option exercise

2 unchanged sentences

Amortization of right of use asset

Loss on disposal of property and equipment

(Increase) decrease in assets

Prepaid expenses and other current assets

Increase (decrease) in liabilities

(Decrease) increase in liabilities

Accounts payable

Accrued bonuses, accrued expenses and other liabilities

Accrued expenses

( 1,041,633 )

Accounts payable and accrued expenses- related parties

Deferred revenue

Deferred lease liability

Operating lease liability

Net cash used in operating activities

5 unchanged sentences

Loan repayment

Sale of property and equipment

Net cash used in investing activities

3 unchanged sentences

Issuance of common stock, institutional investor

At the market sale by investment banking company

Net cash provided by financing activities

2 unchanged sentences

CASH AND CASH EQUIVALENTS - END OF PERIOD

Supplemental Disclosure of Non-cash investing and financing activities :

Amended Operating Lease - Right of Use - Building and Operating lease liability

See accompanying notes to these financial statements.

1 unchanged sentence

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2023 AND 2022

NOTE 1 – NATURE OF BUSINESS AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

JUNE 30, 2023 AND 2022

NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statements

The accompanying unaudited financial statements

have been prepared by Lightwave Logic, Inc.

The accompanying unaudited financial statements have

been prepared by Lightwave Logic, Inc.

(the “Company”).

These statements include all adjustments (consisting only of

its normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared

on a consistent basis using the accounting polices described in the Summary of Significant Accounting Policies included in the financial

statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed

with the Securities and Exchange Commission on March 1, 2023 (the “2022 Annual Report”).

Certain financial information and

footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in

the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although

the Company firmly believes that the accompanying disclosures are adequate to make the information presented not misleading.

The financial

statements should be read in conjunction with the financial statements and notes thereto included in the 2022 Annual Report.

operating results for the three months ending March 31, 2023 may not be indicative of operating results expected for the full year.

These statements include all adjustments (consisting only of its normal

recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent

basis using the accounting polices described in the Summary of Significant Accounting Policies included in the financial statements and

notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities

and Exchange Commission on March 1, 2023 (the “2022 Annual Report”).

Certain financial information and footnote disclosures

normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have

been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company firmly

believes that the accompanying disclosures are adequate to make the information presented not misleading.

The financial statements should

be read in conjunction with the financial statements and notes thereto included in the 2022 Annual Report.

The interim operating results

for the three and six months ending June 30, 2023 may not be indicative of operating results expected for the full year.

Nature of Business

Lightwave Logic, Inc.

is a technology company

focused on the development of next generation photonic devices and non-linear optical polymer materials systems for applications in high

speed fiber-optic data communications and optical computing markets.

Currently the Company is in various stages of photonic device and

materials development and evaluation with potential customers and strategic partners.

The Company expects to obtain a revenue stream

from technology licensing agreements, technology transfer agreements and the production and direct sale of its own electro-optic device

a technology company focused on the development of next generation photonic devices and electro-optic polymer materials systems for applications

in high speed fiber-optic data communications, telecommunications and optical computing markets.

The Company's first revenue stream

is from a technology material supply and licensing agreement that incorporates the Company's patented electro-optic polymer

materials for use in manufacturing photonic devices.

Currently the Company is in various stages of photonic device and materials

development and evaluation with potential customers and strategic partners.

The Company expects to obtain additional revenue from material

supply and licensing agreements, technology transfer agreements and the production and direct sale of its own photonic devices.

The Company’s current

1 unchanged sentence

the Company’s technology now under development.

Revenue Recognition

In accordance with FASB ASC 606, Revenue from Contracts

with Customers, the Company recognizes revenue upon transfer of promised goods or services in an amount that reflects the consideration

expected to be received in exchange for those goods or services.

To determine revenue recognition for arrangements within the scope of

FASB ASC 606, the Company performs the following five steps:

Identify the contract with the customer.

Identify the performance obligations in the contract.

Determine the transaction price.

Allocate the transaction price to the performance obligations in the contract.

Recognize revenue as (or when) the performance obligations are satisfied.

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition (Continued)

sales, revenue will be recognized at a point in time when the product is shipped or is delivered to the customer’s location.

services performed, revenue will be recognized at a point in time when the service is performed.

However, for certain contracts, revenue

will be recognized over time as the customer simultaneously receives and consumes the benefits of performance as the Company performs

For license agreements, each contract is reviewed to determine the portion of the revenue recognition at the point in time

that the license is transferred to the customer and the portion of the revenue recognition to be recognized over time.

Stock-based Payments

The Company accounts for

stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)

718, "Compensation - Stock Compensation", which requires the measurement and recognition of compensation expense for all

stock-based awards made to employees and directors based on estimated fair values on the grant date.

The fair value of restricted stock

awards is estimated by the market price of the Company’s common stock at the date of grant.

Restricted stock awards are being amortized

to expense over the vesting period.

The Company estimates the fair value of option and warrant awards on the date of grant using the

Black-Scholes model.

The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite

service periods using the straight-line method.

In June 2018, the FASB issued ASU No.

2018-07, Compensation – Stock

Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (the “2018 Update).

The amendments

in the 2018 Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.

Prior to the 2018 Update, Topic 718 applied only to share-based transactions to employees.

Consistent with the accounting requirement

for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date

fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered

and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.

The Company has elected

to account for forfeiture of stock-based awards as they occur.

accounts for stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards

Codification (ASC) 718, "Compensation - Stock Compensation", which requires the measurement

and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the

The fair value of restricted stock awards is estimated by the market price of the Company’s common stock at the date

Restricted stock awards are being amortized to expense over the vesting period.

The Company estimates the fair value of option

and warrant awards on the date of grant using the Black-Scholes model.

The value of the portion of the award that is ultimately expected

to vest is recognized as expense over the requisite service periods using the straight-line method.

In June 2018, the FASB issued

2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting

(the “2018 Update).

The amendments in the 2018 Update expand the scope of Topic 718

to include share-based payment transactions for acquiring goods and services from nonemployees.

Prior to the 2018 Update, Topic 718 applied

only to share- based transactions to employees.

Consistent with the accounting requirement for employee share-based payment awards, nonemployee

share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity

is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the

right to benefit from the instruments have been satisfied.

has elected to account for forfeiture of stock-based awards as they occur.

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2023 AND 2022

JUNE 30, 2023 AND 2022

NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT

1 unchanged sentence

Loss Per Share

Company follows FASB ASC 260, “Earnings per Share”, resulting in the presentation of basic and diluted earnings per share.

Because the Company reported a net loss in 2023 and 2022, common stock equivalents, including stock options and warrants were anti-dilutive;

therefore, the amounts reported for basic and dilutive loss per share were the same.

The Company follows FASB ASC

260, “Earnings per Share”, resulting in the presentation of basic and diluted earnings per share.

Because the Company reported

a net loss in 2023 and 2022, common stock equivalents, including stock options and warrants were anti-dilutive;

therefore, the amounts

reported for basic and dilutive loss per share were the same.

Comprehensive

4 unchanged sentences

has no items of other comprehensive income (loss), comprehensive income (loss) is equal to net income (loss).

Recently Issued Accounting Pronouncements Not

As of March 31, 2023, there are no recently issued

accounting standards not yet adopted which would have a material effect on the Company’s financial statements.

Recently Issued Accounting Pronouncements Not Yet

As of June 30, 2023, there are no recently issued accounting standards

not yet adopted which would have a material effect on the Company’s financial statements.

Recently Adopted Accounting Pronouncements

As of March 31, 2023 and for the period then ended,

As of June 30, 2023 and for the period then ended,

there are no recently adopted accounting standards that have a material effect on the Company’s financial statements.

Reclassifications

Certain reclassifications have been made to the 2022 financial statement

in order to conform to the 2023 financial statement presentation.

Certain reclassifications have been

made to the 2022 financial statement in order to conform to the 2023 financial statement presentation.

NOTE 2 – MANAGEMENT’S PLANS

9 unchanged sentences

arrangements.

We expect that we will incur approximately $ 1,675,000 of

expenditures per month over the next 12 months.

Our current cash position enables us to finance our operations through July 2024.

July 2, 2021, the Company filed a $100,000,000 universal shelf registration statement with the U.S.

Securities and Exchange Commission

which became effective on July 9, 2021.

On October 4, 2021, the Company entered into a purchase agreement with the institutional investor

to sell up to $ 33,000,000

of common stock over a 36-month period (described in Note 9).

Pursuant to the purchase agreement, the Company received $ 1,347,933

in April and May 2023 and no remaining amounts are available to the Company per the agreement.

On February 28, 2023,

the Company entered into a purchase agreement with the institutional investor to sell up to $ 30,000,000

of common stock over a 36-month period (described in Note 9).

Pursuant to the purchase agreement, the Company received $ 0

in April and May 2023 and a remaining available amount of $ 26,999,998

is available to the Company per the agreement.

On December 9, 2022, the Company entered into a sales agreement with an investment

banking company whereby the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 35,000,000

from time to time through or to the investment banking company, as sales agent or principal (described in Note 9).

Our cash requirements

are expected to increase at a rate consistent with the Company’s path to revenue as we expand our activities and operations with

the objective of commercializing our electro-optic polymer technology.

We currently have no debt to service.

We expect that we will incur approximately $ 1,640,000 of expenditures per month over the next 12 months.

Our current cash position enables us to finance our operations through February 2025.

On February 28, 2023, the Company

entered into a purchase agreement with the institutional investor to sell up to $ 30,000,000 of common stock over a 36-month period (described

Pursuant to the purchase agreement, the Company received $ 677,925 in July and August 2023 and a remaining available amount

of $ 18,218,972 is available to the Company per the agreement.

On December 9, 2022, the Company entered into a sales agreement with an

investment banking company whereby the Company may offer and sell shares of its common stock having an aggregate offering price of up

to $ 35,000,000 from time to time through or to the investment banking company, as sales agent

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2023 AND 2022

JUNE 30, 2023 AND 2022

NOTE 2 – MANAGEMENT’S PLANS (CONTINUED)

or principal ( described

Pursuant to the sales agreement, the Company received $ 734,945 in July and August 2023 and a remaining available

amount of $ 33,578,860 is available to the Company per the agreement.

The Company's first commercial agreement occurred in May 2023 from

a material supply and license agreement that incorporates the Company's patented electro-optic polymer

materials for use in manufacturing photonic devices (described in Note 3).

Our cash requirements are expected to increase at a

rate consistent with the Company’s path to full commercialization as we expand our activities and operations.

We currently have

no debt to service.

NOTE 3 – REVENUE

The Company's first

commercial agreement occurred in May 2023, in the form of a four (4) year material supply and license agreement (the “License Agreement”)

that incorporates the Company's patented electro-optic polymer materials for use in manufacturing photonic devices (the “Licensed

The licensee shall pay the Company a running royalty with a minimum royalty paid on an annual basis over the term of

the License Agreement.

Additional future revenue will be generated from royalties from the licensee’s

sale of Licensed Product that exceed the minimum royalty payments.

The License Agreement is a non-exclusive material supply and license

Timing of Revenue Recognition and Contract

All revenues are

recognized over time commencing with the License Agreement in May 2023.

No revenues were recognized for the three and six month period

ending June 30, 2023 since the licensee did not requisition material as of June 30, 2023.

An up-front licensing fee in the amount of $ 50,000

was paid during the three and six month period ending June 30, 2023 and is recorded in short term liability deferred revenue in the Company’s

balance sheet as of June 30, 2023.

Contract balances

are as follows:

Schedule of contract balances

Accounts receivable, net

Short-term contract assets

Long-term contract assets

Short-term liability deferred revenue

Long-term liability deferred revenue

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

NOTE 3 – REVENUE (CONTINUED)

A roll forward of contract balances is

not disclosed since there were no contracts as of December 31, 2022.

Assets Recognized for the Costs to

Obtain a Contract

There are no assets recognized for the

costs to obtain the License Agreement.

NOTE 4 – LOAN RECEIVABLE

On September 7, 2022, the Company entered into a convertible

loan agreement (the “Loan”) with an entity and issued a loan on September 12, 2022 in the amount of EUR 600,000 bearing interest

at 7 % per annum with a maturity date of March 31, 2023 .

The loan and interest were repaid in February and March 2023.

recorded $ 0 and $ 11,125 of interest income for the three and six months ended June 30, 2023 and used the average exchange rate for the

conversion of the EUR denominated interest income for the period.

NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

1 unchanged sentence

Schedule of prepaid expenses and other current assets

March 31, 2023

June 30, 2023

December 31, 2022

Deposit for Equipment

Investor relations

Deposit for equipment

Prototype devices

Lease incentive receivable

Loan interest receivable

Prepaid expenses and other current assets

NOTE 4 – LOAN RECEIVABLE

On September 7, 2022, the Company entered into a

convertible loan agreement (the “Loan”) with an entity and issued a loan on September 12, 2022 in the amount of EUR 600,000

bearing interest at 7 % per annum with a maturity date of March 31, 2023 .

The loan and interest were repaid in February and March

The Company recorded $ 11,125 of interest income for the three months ended March 31, 2023 and used the average exchange rate for

the conversion of the EUR denominated interest income for the period.

NOTE 6 – PROPERTY AND EQUIPMENT

1 unchanged sentence

Schedule of property and equipment

March 31, 2023

June 30, 2023

December 31, 2022

3 unchanged sentences

Accumulated depreciation

Depreciation expense for the three months ending

March 31, 2023 and 2022 was $ 255,925 and $ 222,089 .

During the three months ending March 31, 2023 and 2022, the Company did no t retire

or sell any property and equipment.

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2023 AND 2022

JUNE 30, 2023 AND 2022

NOTE 6 – PROPERTY AND EQUIPMENT (CONTINUED)

Depreciation expense for the six months ending June

30, 2023 and 2022 was $ 492,344 and $ 452,916 .

Depreciation expense for the three months ending June 30, 2023 and 2022 was $ 236,419 and

During the three and six months ending June 30, 2023, the Company sold equipment for proceeds of $ 590 and a loss of $ 581 .

the three and six months ending June 30, 2022, the Company did no t retire or sell property and equipment.

NOTE 7 – INTANGIBLE ASSETS

4 unchanged sentences

Maintenance patent fees are paid to a government patent authority to maintain a granted patent in

Some countries require the payment of maintenance fees for pending patent applications.

Maintenance fees paid after a patent

is granted are expensed, as these are considered ongoing costs to “maintain a patent”.

Maintenance fees paid prior

to a patent grant date are capitalized to patent costs, as these are considered “patent application costs”.

No amortization

expense has been recorded on the remaining patent applications since patents have yet to be granted.

Patents consists of the following:

Some countries require the payment of maintenance fees for pending patent

applications.

Maintenance fees paid after a patent is granted are expensed, as these are considered ongoing costs to “maintain

Maintenance fees paid prior to a patent grant date are capitalized to patent costs, as these are considered “patent

application costs”.

No amortization expense has been recorded on the remaining patent applications since patents on these applications

have yet to be granted.

Patents consist of the following:

Schedule of Patents

March 31, 2023

June 30, 2023

December 31, 2022

1 unchanged sentence

Intangible assets - net

Amortization expense for the three months ending

March 31, 2023 and 2022 was $ 19,351 and $ 22,079 .

There were no patent costs written off for the three months ending March 31, 2023 and

NOTE 7 – COMMITMENTS

On October 30, 2017, the Company entered into a lease

agreement to lease approximately 13,420 square feet of office, laboratory and research and development space located in Colorado for

the Company’s principal executive offices and research and development facility.

The term of the lease is sixty- one ( 61 )

months, beginning on November 1, 2017 and ending on November 30, 2022 .

During January 2022, the term was extended for an additional

twenty-four ( 24 ) months.

Base rent for the first year of the lease term is approximately $ 168,824 , with an increase in annual base

rent of approximately 3 % in each subsequent year of the lease term.

As specified in the lease, the Company paid the landlord (i)

all base rent for the period November 1, 2017 and ending on October 31, 2019, in the sum of $ 347,045 ;

and (ii) the estimated amount of

tenant’s proportionate share of operating expenses for the same period in the sum of $ 186,293 .

Commencing on November 1, 2019,

monthly installments of base rent and one-twelfth of landlord’s estimate of tenant’s proportionate share of annual operating

expenses shall be due on the first day of each calendar month.

The lease also provides that (i) on November 1, 2019 landlord shall pay

the Company for the cost of the cosmetic improvements in the amount of $3.00 per rentable square foot of the premises, and (ii) on or

prior to November 1, 2019, the Company shall deposit with Landlord the sum of $ 36,524 as a security deposit which shall be held by landlord

to secure the Company’s obligations under the lease.

On October 30, 2017, the Company entered into an agreement with the

tenant leasing the premise from the landlord (“Original Lessee”) whereby the Original Lessee agreed to pay the Company the

sum of $260,000 in consideration of the Company entering into the lease and landlord agreeing to the early termination of the Original

Lessee’s lease agreement with landlord.

The consideration of $260,000 was received on November 1, 2017.

Amortization expense for the six months ending June

30, 2023 and 2022 was $ 38,702 and $ 43,633 .

Amortization expense for the three months ending June 30, 2023 and 2022 was $ 19,351 and $ 21,554 .

There were no patent costs written off for the three and six months ending June 30, 2023 and 2022.

NOTE 8 – LEASES

On October 30, 2017, the Company entered into a

lease agreement to lease approximately 13,420 square feet of office, chemistry, clean room and research and development space

located in Colorado for the Company’s principal executive offices and research and development facility.

The term of the

lease is sixty one ( 61 )

months, beginning on November

1, 2017 and ending on November

During January 2022, the term was extended for an additional twenty-four ( 24 )

Base rent for the first year of the lease term is approximately $ 168,824 ,

with an increase in annual base rent of approximately 3 %

in each subsequent year of the lease term.

As specified in the lease, the Company paid the landlord (i) all base rent for the

period November 1, 2017 and ending on October 31, 2019, in the sum of $ 347,045 ;

and (ii) the estimated amount of tenant’s proportionate share of operating expenses for the same period in the sum of $ 186,293 .

Commencing on November 1, 2019, monthly installments of base rent and one-twelfth of landlord’s estimate of tenant’s

proportionate share of annual operating expenses shall be due on the first day of each calendar month.

The lease also provides that (i) on November 1, 2019 landlord shall pay the Company for the cost of the cosmetic improvements in the amount

of $3.00 per rentable square foot of the premises, and (ii) on or prior to November 1, 2019, the Company shall deposit with Landlord the

sum of $ 36,525 as a security deposit which shall be held by landlord to secure the Company’s obligations under the lease.

On October 30, 2017, the Company entered into an agreement with the tenant leasing the premise from the landlord (“Original Lessee”)

whereby the Original Lessee agreed to pay the Company the sum of $260,000 in consideration of the Company entering into the lease and

landlord agreeing to the early termination of the Original Lessee’s lease agreement with landlord.

The consideration of $ 260,000

was received on November 1, 2017.

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2023 AND 2022

NOTE 7 – COMMITMENTS (CONTINUED)

JUNE 30, 2023 AND 2022

NOTE 8 – LEASES (CONTINUED)

Due to the adoption of the new lease standard, the

Company has capitalized the present value of the minimum lease payments commencing November 1, 2019, including the additional option

period using an estimated incremental borrowing rate of 6.5 %.

The minimum lease payments do not include common area annual expenses which

are considered to be nonlease components.

Company has capitalized the present value of the minimum lease payments commencing November 1, 2019, including the additional option period

using an estimated incremental borrowing rate of 6.5 %.

The minimum lease payments do not include common area annual expenses which are

considered to be nonlease components.

As of January 1, 2019 the operating lease right-of-use

3 unchanged sentences

warehouse space.

The Amended Lease is contingent upon the landlord entering into a written agreement with the existing tenant occupying

the expanded premise (“the Existing Tenant Lease Termination”) to terminate its lease prior to the expiration date thereof,

and to surrender the expansion premises to the landlord.

The term of the Amended Lease is one hundred twenty ( 120 ) months, with an effective

date estimated to be June 1, 2023 or earlier if the existing tenant terminates its lease prior to that date.

Base rent through October

31, 2023 of the Amended Lease term is approximately $ 30,517 per month.

The base rent for the next full year of the Amended Lease term

is approximately $ 377,288 , with an increase in annual base rent of approximately 3 % in each subsequent year of the lease term.

Commencing on the effective date, monthly installments of base rent and one-twelfth of landlord’s estimate of tenant’s proportionate

share of annual operating expenses shall be due on the first day of each calendar month.

The Amended Lease also provides an allowance

of up to $ 38,736 to be used solely for the cost of renovations to the additional lease premises.

As of March 31, 2023, the landlord did

not enter into the Existing Tenant Lease Termination.

As a result, the Company did not capitalize the present value of the minimum lease

payments under the Amended Lease.

The term of the Amended Lease is one hundred twenty ( 128 ) months, with an effective date of June 1, 2023 .

rent through January 31, 2024 of the Amended Lease term is approximately $ 30,517 per month.

The base rent for the next full year of the

Amended Lease term is approximately $ 377,288 , with an increase in annual base rent of approximately 3 % in each subsequent year of the

Commencing on June 1, 2023, monthly installments of base rent and one-twelfth of landlord’s estimate of tenant’s

proportionate share of annual operating expenses shall be due on the first day of each calendar month.

The Amended Lease also provides

an allowance of up to $ 38,736 to be used solely for the cost of renovations to the additional lease premises.

As of June 1, 2023, the

operating lease right-of-use asset and operating lease liability amounted to $ 2,945,322 .

The Company has elected not to recognize right-of-use

1 unchanged sentence

There are no other material operating leases.

The Company is obligated under the operating lease

for office and laboratory space.

The aggregate minimum future lease payments under the operating leases, including the extended term

are as follows:

Schedule of Future Lease Payments of Operating Leases

Total operating lease obligation

Less discounted

Rent expense totaling $ 36,142 and $ 12,047 is included

in research and development and general and administrative expenses for the three months ended March 31, 2023.

Rent expense totaling

$ 34,599 and $ 11,533 is included in research and development and general and administrative expenses for the three months ended March

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2023 AND 2022

JUNE 30, 2023 AND 2022

NOTE 8 – LEASES (CONTINUED)

The Company is obligated under the Amended Lease for

office, chemistry, clean room and research and development space.

The aggregate minimum future lease payments under the Amended Lease,

including the extended term are as follows:

Schedule of future lease payments of operating leases

Less discounted interest

( 1,564,838 )

Rent expense amounting to $ 75,556 and $ 25,185 is included

in research and development and general and administrative expenses for the six months ended June 30, 2023.

Rent expense amounting to

$ 69,197 and $ 23,066 is included in research and development and general and administrative expenses for the six months ended June 30,

Rent expense amounting to $ 39,414 and $ 13,138 is included in research and development and general and administrative expenses for

the three months ended June 30, 2023.

Rent expense amounting to $ 34,599 and $ 11,533 is included in research and development and general

and administrative expenses for the three months ended June 30, 2022.

NOTE 9 – INCOME TAXES

There is no income tax benefit for the losses for

the three months ended March 31, 2023 and 2022 since management has determined that the realization of the net deferred tax asset is

not assured and has created a valuation allowance for the entire amount of such benefits.

The Company’s policy is to record interest

and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations.

the six months ended June 30, 2023 and 2022 since management has determined that the realization of the net deferred tax asset is not

assured and has created a valuation allowance for the entire amount of such benefits.

The Company’s policy is to record interest and

penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations.

As of January 1, 2023,

the Company had no unrecognized tax benefits, or any tax related interest or penalties.

There were no changes in the Company’s

unrecognized tax benefits during the period ended March 31, 2023.

The Company did not recognize any interest or penalties during 2022

related to unrecognized tax benefits.

There were no changes in the Company’s unrecognized

tax benefits during the period ended June 30, 2023.

The Company did not recognize any interest or penalties during 2022 related to unrecognized

tax benefits.

With few exceptions, the U.S.

and state income tax returns filed for the tax years ending on December

31, 2019 and thereafter are subject to examination by the relevant taxing authorities.

and state income tax returns filed for the tax years ending on December 31, 2019 and thereafter

are subject to examination by the relevant taxing authorities.

NOTE 10 – STOCKHOLDERS’ EQUITY

10 unchanged sentences

of the Company’s business or a takeover from a third party.

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED)

Common Stock Options and Warrants

10 unchanged sentences

November 20, 2020.

During the period January 2019 through March 31, 2023, the institutional investor purchased 22,337,500 shares of common

During the period January 2019 through June 30, 2022 the institutional investor purchased 22,337,500 shares of common

stock for proceeds of $ 23,773,924 and the Company issued 772,666 shares of common stock as additional commitment fee, valued at $ 1,575,509 ,

fair value, leaving 39,834 in reserve for additional commitment fees.

During the three month period ending March 31, 2023, the institutional

investor did no t purchase any shares of common stock.

All of the registered shares under the purchase agreement have been issued as of

March 31, 2023.

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2023 AND 2022

NOTE 9 – STOCKHOLDERS’ EQUITY (CONTINUED)

Common Stock, Options and Warrants (Continued)

During the three and six month periods ending June 30, 2023, the

institutional investor did no t purchase any shares of common stock.

All the registered shares under the purchase agreement have been issued

as of June 30, 2023.

On July 2, 2021, the Company filed a $100,000,000

2 unchanged sentences

On October 4, 2021, the Company entered into a purchase

agreement with the institutional investor to sell up to $ 33,000,000

of common stock over a 36-month period.

Concurrently with entering into the purchase agreement, the Company also entered into

a registration rights agreement which provides the institutional investor with certain registration rights related to the shares issued

under the purchase agreement.

Pursuant to the purchase agreement, the Company issued 30,312

shares of common stock to the institutional investor as an initial commitment fee valued at $ 279,174 ,

agreement with the institutional investor to sell up to $ 33,000,000 of common stock over a 36-month period.

Concurrently with entering

into the purchase agreement, the Company also entered into a registration rights agreement which provides the institutional investor with

certain registration rights related to the shares issued under the purchase agreement.

Pursuant to the purchase agreement, the Company

issued 30,312 shares of common stock to the institutional investor as an initial commitment fee valued at $ 279,174 , fair value, and 60,623

shares of common stock are reserved for additional commitment fees to the institutional investor in accordance with the terms of the purchase

During the period October 4, 2021 through June 30, 2023, the institutional investor purchased 3,632,456 shares of common stock

for proceeds of $ 33,000,000 and the Company issued 60,623 shares of common stock as additional commitment fee, valued at $ 694,531 , fair

During the six month period ending June 30, 2023, pursuant to the purchase agreement, the institutional investor purchased 779,945

shares of common stock for proceeds of $ 3,847,307 and the Company issued 7,069 shares of common stock as additional commitment fee, valued

at $ 38,161 , fair value.

During the three month period ending June 30, 2023, pursuant to the purchase agreement, the institutional investor

purchased 304,945 shares of common stock for proceeds of $ 1,347,932 and the Company issued 2,479 shares of common stock as additional

commitment fee, valued at $ 11,735 , fair value, leaving 0 in reserve for additional commitment fees.

All of the registered shares under

the purchase agreement have been issued as of June 30, 2023.

On February 28, 2023, the Company entered

into a purchase agreement with an institutional investor to sell up to $ 30,000,000 of common stock over a 36-month period.

with entering into the purchase agreement, the Company also entered into a registration rights agreement which provides the institutional

investor with certain registration rights related to the shares issued under the purchase agreement.

Pursuant to the purchase agreement,

the Company issued 50,891 shares of common stock to the institutional investor as an initial

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED)

Common Stock Options and Warrants (Continued)

commitment fee valued at $ 279,391 ,

fair value, and 101,781

1 unchanged sentence

of the purchase agreement.

During the period October 4, 2021 through March 31, 2023, the institutional investor purchased 3,327,511

shares of common stock for proceeds of $ 31,652,068

and the Company issued 58,144

shares of common stock as additional commitment fee, valued at $ 682,796 ,

fair value, leaving 2,479

in reserve for additional commitment fees.

During the three month period ending March 31, 2023, pursuant to the purchase agreement,

the institutional investor purchased 475,000

shares of common stock for proceeds of $ 2,499,375

and the Company issued 4,590

shares of common stock as additional commitment fee, valued at $ 26,424 ,

During April and May 2023, pursuant to the purchase agreement, the institutional investor purchased 304,945

During the period February 28, 2023 through June 30, 2023, the institutional investor purchased 1,795,455

shares of common stock for proceeds of $ 11,103,102

1 unchanged sentence

shares of common stock as additional commitment fee, valued at $ 264,874 ,

fair value, leaving 0

in reserve for additional commitment fees.

All of the registered shares under the purchase agreement have been

issued as of May 9, 2023.

On February 28, 2023, the Company entered

into a purchase agreement with an institutional investor to sell up to $ 30,000,000

of common stock over a 36-month period.

Concurrently with entering into the purchase agreement, the Company also entered into

a registration rights agreement which provides the institutional investor with certain registration rights related to the shares issued

under the purchase agreement.

Pursuant to the purchase agreement, the Company issued 50,891

shares of common stock to the institutional investor as an initial commitment fee valued at $ 279,391 ,

fair value, and 101,781

shares of common stock are reserved for additional commitment fees to the institutional investor in accordance with the terms

of the purchase agreement.

During the period February 28, 2023 through March 31, 2023, the institutional investor purchased 545,455

During the three month period ending June 30, 2023, pursuant to the purchase agreement, the institutional investor purchased

shares of common stock for proceeds of $ 8,103,100

1 unchanged sentence

shares of common stock as additional commitment fee, valued at $ 208,997 ,

fair value, leaving 91,603

in reserve for additional commitment fees.

During April and May 2023, pursuant to the purchase agreement, the institutional investor

During July and August 2023, pursuant to the purchase agreement, the institutional investor purchased 100,000

shares of common stock for proceeds of $ 677,925

3 unchanged sentences

in reserve for additional for additional commitment fees.

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2023 AND 2022

NOTE 9 – STOCKHOLDERS’ EQUITY (CONTINUED)

Common Stock,

Options and Warrants (Continued)

On December 9, 2022, the Company entered into a sales

5 unchanged sentences

the market offering”.

The sales agent will be entitled to compensation under the terms of the sales agreement at a commission rate

equal to 3 % of the gross proceeds of the sales price of common stock that they sell.

The sales agent is entitled to compensation under the terms of the sales agreement at a commission rate equal

to 3 % of the gross proceeds of the sales price of common stock that they sell.

During the six and three month period ending June 30,

2023, pursuant to the sales agreement, the investment banking company sold 75,000 shares of its common stock for proceeds of $ 643,529

after a payment of the commission in the amount of $ 19,903 to the investment banking company.

During July and August 2023, pursuant to

the sales agreement, the investment banking company sold 97,115 shares of its common stock for proceeds of $ 734,945 after a payment of

the commission in the amount of $ 22,731 to the investment banking company.

Restricted Stock Awards

On March 16, 2023, the Compensation Committee of

the Board of Directors approved grants totaling 99,616 Restricted Stock Awards to the Company’s four outside directors.

had a grant date fair value of $ 5.22 which shall be amortized on a straight-line basis over the vesting period into director’s

compensation expenses within the Consolidated Statement of Comprehensive Loss.

Such RSAs were granted under the 2016 Equity Incentive

Plan (“2016 Plan”) and vest in total 8,338 shares on March 16, 2023, with the remaining vesting in 33 equal monthly installments

in total of 2,766 shares beginning April 1, 2023.

Upon the occurrence of a Change in Control, 100% of the unvested Restricted Stock shall

vest as of the date of the Change in Control.

On March 16, 2023, the Compensation Committee of the

Board of Directors approved grants totaling 99,616 Restricted Stock Awards to the Company’s four outside directors.

a grant date fair value of $ 5.22 which shall be amortized on a straight-line basis over the vesting period into director’s compensation

expenses within the Consolidated Statement of Comprehensive Loss.

Such RSAs were granted under the 2016 Equity Incentive Plan (“2016

Plan”) and vest in total 8,338 shares on March 16, 2023, with the remaining vesting in 33 equal monthly installments in total of

2,766 shares beginning April 1, 2023.

Upon the occurrence of a Change in Control, 100% of the unvested Restricted Stock shall vest as

of the date of the Change in Control.

Upon vesting, the restrictions on the shares lapse.

3 unchanged sentences

Under the 2007 Plan, the Company

is authorized to grant options to purchase up to 10,000,000 shares of common stock to directors, officers, employees and consultants

who provide services to the Company.

The 2007 Plan is intended to permit stock options granted to employees under the 2007 Plan

to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”).

All options granted under the 2007 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be non-qualified

options (“Non-Statutory Stock Options”).

Effective June 24, 2016, the 2007 Plan was terminated.

As of March 31, 2023, options

to purchase 2,895,000 shares of common stock have been issued and are outstanding.

is authorized to grant options to purchase up to 10,000,000 shares of common stock to directors, officers, employees and consultants who

provide services to the Company.

The 2007 Plan is intended to permit stock options granted to employees under the 2007 Plan to qualify

as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”).

All options granted under the 2007 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be non-qualified options

(“Non-Statutory Stock Options”).

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2023 AND 2022

JUNE 30, 2023 AND 2022

NOTE 11 – STOCK BASED COMPENSATION (CONTINUED)

Effective June 24, 2016, the 2007 Plan was terminated.

As of June 30, 2023, options to purchase 2,614,000 shares of common stock have been issued and are outstanding.

During 2016, the Board of Directors of the Company

5 unchanged sentences

stock available for issuance under the 2016 Plan was increased from 3,000,000 to 8,000,000 shares.

As of March 31, 2023, options

to purchase 5,712,923 shares of common stock have been issued and are outstanding and 122,936 restricted shares of common stock are issued.

As of March 31, 2023, 885,314 shares of common stock remain available for grants under the 2016 Plan.

Effective May 25, 2023, the number

of shares of the Company’s common stock available for issuance under the 2016 Plan was increased from 8,000,000 to 13,000,000 shares

and awards of restricted stock units are authorized for issuance.

As of June 30, 2023, options to purchase 5,937,638 shares of common

stock have been issued and are outstanding, 122,936 restricted shares of common stock have been awarded under the 2016 Plan.

30, 2023, 5,645,314 shares of common stock remain available for grants under the 2016 Plan.

Both plans are administered by the Company’s

15 unchanged sentences

expected life is based on the legal contractual life of options.

As of March 31, 2023, there was $ 5,427,714 of unrecognized

compensation expense related to non-vested market-based share awards that is expected to be recognized through December 1, 2025.

As of June 30, 2023, there was $ 4,896,489 of unrecognized

compensation expense related to non-vested market-based share awards that is expected to be recognized through April 2026.

Share-based compensation was recognized as follows:

Schedule of stock-based compensation plans

For the Three

Months Ending

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

2007 Employee Stock Option Plan

2016 Equity Incentive Plan option awards

2016 Equity Incentive Plan

2016 Equity Incentive Plan restricted stock awards

2 unchanged sentences

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2023 AND 2022

JUNE 30, 2023 AND 2022

NOTE 11 – STOCK BASED COMPENSATION (CONTINUED)

The following tables summarize all stock option and

warrant activity of the Company during the three months ended March 31, 2023:

warrant activity of the Company during the six months ended June 30, 2023:

Schedule of non-qualified stock options and warrants outstanding and exercisable

1 unchanged sentence

Stock Options and Warrants Outstanding and Exercisable

Weighted Average

Outstanding, December 31, 2022

2 unchanged sentences

$ 6.25 - $ 7.50

Outstanding, March 31, 2023

Exercisable, March 31, 2023

$ 0.67 - $ 5.22

Outstanding, June 30, 2023

$ 0.51 - $ 16.81

Exercisable, June 30, 2023

$ 0.51 - $ 16.81

The aggregate intrinsic value of options and warrants

outstanding and exercisable as of March 31, 2023 was $ 30,696,511 .

outstanding and exercisable as of June 30, 2023 was $ 41,420,894 .

The aggregate intrinsic value is calculated as the difference between

the exercise price of the underlying options and warrants and the closing stock price of $ 6.97 for the Company’s common stock on

March 31, 2023.

During the three month period ending March 31, 2023, 10,000 options were exercised for proceeds of $ 7,000 and 25,000

warrants were exercised for proceeds of $ 18,750 .

June 30, 2023.

During the six month period ending June 30, 2023, 306,285 options were exercised for proceeds of $ 306,301 .

During the six

month period ending June 30, 2023, 150,000 warrants were exercised for proceeds of $ 150,500 .

Schedule of non-qualified stock options and warrants outstanding, by exercise price range

Non-Qualified Stock

Options and Warrants Outstanding

Weighted Average

Number Outstanding

Currently Exercisable

Weighted Average

Exercise Price of Options and Warrants Currently

Non-Qualified Stock Options and

Warrants Outstanding

Number Outstanding Currently Exercisable

Weighted Average Remaining

Weighted Average Exercise Price of Options and Warrants

Exercise Prices

at March 31, 2023

Contractual Life

at June 30, 2023

$ 0.51 - $ 16.81

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2023 AND 2022

NOTE 10 – STOCK BASED COMPENSATION (CONTINUED)

The fair value of restricted stock awards is estimated

by the market price of the Company’s common stock at the date of grant.

Restricted stock activity during the three month period

ending March 31, 2023 is as follows:

Restricted stock activity during the six month period ending

June 30, 2023 is as follows:

Schedule of nonvested restricted stock units activity

Weighted Average

Grant Date Fair

Value per Share

Non-vested, beginning of period

1 unchanged sentence

Non-vested, end of period

Restricted stock awards are being amortized to expense over the vesting

As of March 31, 2023, the unamortized value of the RSAs was $ 579,822 .

LIGHTWAVE LOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

NOTE 11 – STOCK BASED COMPENSATION (CONTINUED)

Restricted stock awards are being amortized to expense

over the vesting period.

As of June 30, 2023 and 2022, the unamortized value of the restricted stock awards was $ 231,803 and $ 0 , respectively.

NOTE 12 – RELATED PARTY

At March 31, 2023 the Company had a legal accrual

to related party of $ 44,600 , travel and office expense accruals of officers in the amount of $ 22,125 , director and operations committee

fees in the amount of $ 19,750 and accruals for accounting and other service fees to related parties of $ 12,327 .

At December 31, 2022

the Company had a legal accrual to a related party of $ 60,577 , fees and consulting expense accruals of advisory board members in the

amount of $ 18,000 , fees to directors in the amount of $ 13,500 , travel and office expense accruals of officers in the amount of $ 4,859

and accounting service fee accrual and expense reimbursement to related parties of $ 3,233 .

At June 30, 2023 the Company had a legal accrual to

related party of $ 83,400 , director fees and travel expense accruals in the amount of $ 45,465 , travel and office expense accruals of officers

in the amount of $ 36,741 , consulting expense, fees and travel expense accruals of advisory board members in the amount of $ 29,773 and

accounting service fee accrual and expense reimbursements to related parties of $ 20,669 .

At December 31, 2022 the Company had a legal

accrual to a related party of $ 60,577 , fees and consulting expense accruals of advisory board members in the amount of $ 18,000 , fees to

directors in the amount of $ 13,500 , travel and office expense accruals of officers in the amount of $ 4,859 and accounting service fee

accrual and expense reimbursement to related parties of $ 3,233 .

NOTE 13 – RETIREMENT PLAN

The Company established a 401(k) retirement plan

covering all eligible employees beginning November 15, 2013.

For the three months ending March 31, 2023 and 2022, a contribution of $ 15,521

and $ 13,088 was charged to expense for all eligible non-executive participants.

The Company established a 401(k) retirement plan covering

all eligible employees beginning November 15, 2013.

For the six months ending June 30, 2023 and 2022, a contribution of $ 32,858 and $ 27,087

was charged to expense for all eligible non-executive participants.

For the three months ending June 30, 2023 and 2022, a contribution

of $ 17,882 and $ 13,999 was charged to expense for all eligible non-executive participants.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements