Lightwave Logic, Inc. 10-Q

Item 1 Financial Statements LIGHTWAVE LOGIC, INC. FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) Page Balance Sheets 2 Statements of Comprehensive Loss 3 Statement of Stockholders’ Equity 4 Statements of Cash Flow 6 Notes to Financial Statements 7 - 19 1 LIGHTWAVE LOGIC, INC. BALANCE SHEETS June 30, 2023 December 31, 2022 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 32,635,787 $ 24,102,151 Prepaid expenses and other current assets 812,829 611,345 Loan receivable — 642,120 TOTAL CURRENT ASSETS 33,448,616 25,355,616 PROPERTY AND EQUIPMENT - NET 3,004,312 2,519,267 OTHER ASSETS Intangible assets - net 1,168,878 1,030,335 Operating Lease - Right of Use - Building 2,930,233 358,254 TOTAL OTHER ASSETS 4,099,111 1,388,589 TOTAL ASSETS $ 40,552,039 $ 29,263,472 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 421,983 $ 791,671 Accrued expenses 54,894 380,280 Accounts payable and accrued expenses - related parties 216,048 100,169 Deferred revenue 50,000 — Deferred lease liability 41,778 41,778 Operating lease liability 132,864 190,125 TOTAL CURRENT LIABILITIES 917,567 1,504,023 LONG TERM LIABILITIES Deferred lease liability 17,408 38,297 Operating lease liability 2,840,983 168,129 TOTAL LONG TERM LIABILITIES 2,858,391 206,426 TOTAL LIABILITIES 3,775,958 1,710,449 STOCKHOLDERS' EQUITY 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 116,185 112,883 Additional paid-in-capital 154,946,488 134,406,825 Deferred compensation ( 519,466 ) ( 133,324 ) Accumulated deficit ( 117,767,126 ) ( 106,833,361 ) TOTAL STOCKHOLDERS' EQUITY 36,776,081 27,553,023 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,552,039 $ 29,263,472 See accompanying notes to these financial statements. 2 LIGHTWAVE LOGIC, INC. STATEMENTS OF COMPREHENSIVE LOSS FOR THE THREE MONTHS AND SIX MONTHS ENDING JUNE 30, 2023 AND 2022 (UNAUDITED) For the Three For the Three For the Six For the Six Months Ending Months Ending Months Ending Months Ending June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 NET SALES $ — $ — $ — $ — COST AND EXPENSE Research and development 4,166,110 2,781,215 7,965,817 5,406,355 General and administrative 1,174,590 987,137 2,534,761 1,872,566 TOTAL COST AND EXPENSE 5,340,700 3,768,352 10,500,578 7,278,921 LOSS FROM OPERATIONS ( 5,340,700 ) ( 3,768,352 ) ( 10,500,578 ) ( 7,278,921 ) OTHER INCOME (EXPENSE) Interest income 103,685 13,398 156,973 28,419 Commitment fee ( 220,732 ) ( 47,644 ) ( 582,426 ) ( 107,857 ) Other expense — — ( 7,734 ) — NET LOSS $ ( 5,457,747 ) $ ( 3,802,598 ) $ ( 10,933,765 ) $ ( 7,358,359 ) LOSS PER SHARE Basic $ ( 0.05 ) $ ( 0.03 ) $ ( 0.10 ) $ ( 0.07 ) Diluted $ ( 0.05 ) $ ( 0.03 ) $ ( 0.10 ) $ ( 0.07 ) WEIGHTED AVERAGE NUMBER OF SHARES Basic 114,857,638 111,593,709 114,089,465 111,243,676 Diluted 114,857,638 111,593,709 114,089,465 111,243,676 See accompanying notes to these financial statements. 3 LIGHTWAVE LOGIC, INC. STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED) SIX-MONTH PERIOD ENDED JUNE 30, 2023 Additional Number of Common Paid-in Deferred Accumulated Shares Stock Capital Compensation Deficit Total BALANCE AT DECEMBER 31, 2022 112,882,793 $ 112,883 $ 134,406,825 $ ( 133,324 ) $ ( 106,833,361 ) $ 27,553,023 Common stock issued to institutional investor 2,575,400 2,575 14,947,834 — — 14,950,409 Common stock issued for commitment shares 95,630 96 582,330 — — 582,426 Common stock sales at the market by investment banking company 75,000 75 643,454 — — 643,529 Exercise of options 306,285 306 305,995 — — 306,301 Exercise of warrants 150,000 150 150,350 — — 150,500 Options issued for services — — 3,389,804 — — 3,389,804 Restricted stock awards issued for future services 99,616 100 519,896 ( 519,996 ) — — Deferred compensation — — — 133,854 — 133,854 Net loss for the six months ending June 30, 2023 — — — — ( 10,933,765 ) ( 10,933,765 ) BALANCE AT JUNE 30, 2023 (UNAUDITED) 116,184,724 $ 116,185 $ 154,946,488 $ ( 519,466 ) $ ( 117,767,126 ) $ 36,776,081 SIX-MONTH PERIOD ENDED JUNE 30, 2022 Additional Number of Common Paid-in Deferred Accumulated Shares Stock Capital Compensation Deficit Total BALANCE AT DECEMBER 31, 2021 110,555,459 $ 110,556 $ 114,696,597 $ — $ ( 89,602,881 ) $ 25,204,272 Common stock issued to institutional investor 875,000 875 6,704,818 — — 6,705,693 Common stock issued for commitment shares 12,319 12 107,845 — — 107,857 Exercise of options 238,250 238 181,937 — — 182,175 Cashless exercise of 4,375 options 2,596 3 35,015 — — 35,018 Exercise of warrants 175,000 175 240,575 — — 240,750 Options issued for services — — 2,798,550 — — 2,798,550 Restricted stock awards issued for future services 28,500 29 274,995 ( 275,024 ) — — Deferred compensation — — — 43,221 — 43,221 Net loss for the six months ending June 30, 2022 — — — — ( 7,358,359 ) ( 7,358,359 ) BALANCE AT JUNE 30, 2022 (UNAUDITED) 111,887,124 $ 111,888 $ 125,040,332 $ ( 231,803 ) $ ( 96,961,240 ) $ 27,959,177 See accompanying notes to these financial statements. 4 LIGHTWAVE LOGIC, INC. STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED) THREE-MONTH PERIOD ENDED JUNE 30, 2023 Additional Number of Common Paid-in Deferred Accumulated Shares Stock Capital Compensation Deficit Total BALANCE AT MARCH 31, 2023 (UNAUDITED) 114,103,523 $ 114,104 $ 142,608,263 $ ( 579,822 ) $ ( 112,309,379 ) $ 29,833,166 Common stock issued to institutional investor 1,554,945 1,555 9,449,477 — — 9,451,032 Common stock issued for commitment shares 29,971 30 220,702 — — 220,732 Common stock sales at the market by investment banking company 75,000 75 643,454 — — 643,529 Exercise of options 296,285 296 299,005 — — 299,301 Exercise of warrants 125,000 125 131,625 131,750 Options issued for services — — 1,593,962 — — 1,593,962 Deferred compensation — — — 60,356 — 60,356 Net loss for the three months ending June 30, 2023 — — — — ( 5,457,747 ) ( 5,457,747 ) BALANCE AT JUNE 30, 2023 (UNAUDITED) 116,184,724 $ 116,185 $ 154,946,488 $ ( 519,466 ) $ ( 117,767,126 ) $ 36,776,081 THREE-MONTH PERIOD ENDED JUNE 30, 2022 Additional Number of Common Paid-in Deferred Accumulated Shares Stock Capital Compensation Deficit Total BALANCE AT MARCH 31, 2022 (UNAUDITED) 111,098,328 $ 111,099 $ 120,118,908 $ ( 252,094 ) $ ( 93,158,642 ) $ 26,819,271 Common stock issued to institutional investor 400,000 400 3,018,476 — — 3,018,876 Common stock issued for commitment shares 5,546 6 47,638 — — 47,644 Exercise of options 208,250 208 155,117 — — 155,325 Exercise of warrants 175,000 175 240,575 240,750 Options issued for services — — 1,459,618 — — 1,459,618 Deferred compensation — — — 20,291 — 20,291 Net loss for the three months ending June 30, 2022 — — — — ( 3,802,598 ) ( 3,802,598 ) BALANCE AT JUNE 30, 2022 (UNAUDITED) 111,887,124 $ 111,888 $ 125,040,332 $ ( 231,803 ) $ ( 96,961,240 ) $ 27,959,177 See accompanying notes to these financial statements. 5 LIGHTWAVE LOGIC, INC. STATEMENTS OF CASH FLOW (UNAUDITED) For the Six For the Six Months Ending Months Ending June 30, 2023 June 30, 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 10,933,765 ) $ ( 7,358,359 ) Adjustment to reconcile net loss to net cash used in operating activities Stock options issued for services 3,389,804 2,798,550 Amortization of deferred compensation 133,854 43,221 Cashless option exercise — 53,219 Common stock issued for services and fees 582,426 107,857 Depreciation and amortization of patents 531,046 496,549 Amortization of right of use asset 92,812 87,652 Loss on disposal of property and equipment 581 — (Increase) decrease in assets Prepaid expenses and other current assets ( 162,748 ) ( 550,988 ) (Decrease) increase in liabilities Accounts payable ( 369,688 ) 117,413 Accrued expenses ( 325,386 ) ( 1,041,633 ) Accounts payable and accrued expenses- related parties 115,879 56,345 Deferred revenue 50,000 — Deferred lease liability ( 20,889 ) ( 20,889 ) Operating lease liability ( 87,934 ) ( 87,652 ) Net cash used in operating activities ( 7,004,008 ) ( 5,298,715 ) CASH FLOWS FROM INVESTING ACTIVITIES Cost of intangibles ( 177,245 ) ( 41,905 ) Purchase of property and equipment ( 978,560 ) ( 372,660 ) Loan repayment 642,120 — Sale of property and equipment 590 — Net cash used in investing activities ( 513,095 ) ( 414,565 ) CASH FLOWS FROM FINANCING ACTIVITIES Exercise of options and warrants 456,801 422,925 Cashless option exercise tax payments — ( 18,201 ) Issuance of common stock, institutional investor 14,950,409 6,705,693 At the market sale by investment banking company 643,529 — Net cash provided by financing activities 16,050,739 7,110,417 NET INCREASE IN CASH AND CASH EQUIVALENTS 8,533,636 1,397,137 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 24,102,151 23,432,612 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 32,635,787 $ 24,829,749 Supplemental Disclosure of Non-cash investing and financing activities : Amended Operating Lease - Right of Use - Building and Operating lease liability $ 2,703,527 $ — See accompanying notes to these financial statements. 6 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS 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 “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. 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 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 development activities are subject to significant risks and uncertainties, including failing to secure additional funding to operationalize 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: 1. Identify the contract with the customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to the performance obligations in the contract. 5. Recognize revenue as (or when) the performance obligations are satisfied. 7 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) For product sales, revenue will be recognized at a point in time when the product is shipped or is delivered to the customer’s location. For 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 the service. 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. 8 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2023 AND 2022 NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Loss Per Share 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 Income The Company follows FASB ASC 220.10, “Reporting Comprehensive Income (Loss).” Comprehensive income (loss) is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income (loss). Since the Company has no items of other comprehensive income (loss), comprehensive income (loss) is equal to net income (loss). Recently Issued Accounting Pronouncements Not Yet Adopted 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 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. NOTE 2 – MANAGEMENT’S PLANS Our future expenditures and capital requirements will depend on numerous factors, including: the progress of our research and development efforts; the rate at which we can, directly or through arrangements with original equipment manufacturers, introduce and sell products incorporating our polymer materials technology; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; market acceptance of our products and competing technological developments; and our ability to establish cooperative development, joint venture and licensing arrangements. 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 in Note 10). 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 9 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2023 AND 2022 NOTE 2 – MANAGEMENT’S PLANS (CONTINUED) or principal ( described in Note 10). 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 Product”). 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 agreement. Timing of Revenue Recognition and Contract Balances 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 June 30, 2023 December 31, 2022 Accounts receivable, net $ — $ — Short-term contract assets $ — $ — Long-term contract assets $ — $ — Short-term liability deferred revenue $ 50,000 $ — Long-term liability deferred revenue $ — $ — 10 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. The Company 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 Prepaid expenses and other current assets consist of the following: Schedule of prepaid expenses and other current assets June 30, 2023 December 31, 2022 Insurance $ 448,853 $ 218,767 License 106,036 94,195 Investor relations 52,084 18,250 Deposit for equipment 47,951 59,850 Other 42,171 45,675 Prototype devices 40,473 40,473 Lease incentive receivable 38,736 — Rent 36,525 36,525 Legal — 83,941 Loan interest receivable — 13,669 Prepaid expenses and other current assets $ 812,829 $ 611,345 NOTE 6 – PROPERTY AND EQUIPMENT Property and equipment consist of the following: Schedule of property and equipment June 30, 2023 December 31, 2022 Office equipment $ 134,885 $ 119,404 Lab equipment 7,138,017 6,234,777 Furniture 33,128 33,128 Leasehold improvements 243,511 184,843 7,549,541 6,572,152 Less: Accumulated depreciation 4,545,229 4,052,885 $ 3,004,312 $ 2,519,267 11 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS 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 $ 230,827 . During the three and six months ending June 30, 2023, the Company sold equipment for proceeds of $ 590 and a loss of $ 581 . During the three and six months ending June 30, 2022, the Company did no t retire or sell property and equipment. NOTE 7 – INTANGIBLE ASSETS This represents legal fees and patent fees associated with the prosecution of patent applications. The Company has recorded amortization expense on patents granted, which are amortized over the remaining legal life. Maintenance patent fees are paid to a government patent authority to maintain a granted patent in force. 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 on these applications have yet to be granted. Patents consist of the following: Schedule of Patents June 30, 2023 December 31, 2022 Patents $ 1,783,308 $ 1,606,064 Less: Accumulated amortization 614,430 575,729 Intangible assets - net $ 1,168,878 $ 1,030,335 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 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 $ 36,525 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. 12 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS 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. As of January 1, 2019 the operating lease right-of-use asset and operating lease liability amounted to $ 885,094 with no cumulative-effect adjustment to the opening balance of retained earnings/accumulated deficit. On November 22, 2022, the Company entered into an amendment to the Lease (“the Amended Lease”) to lease an additional approximately 9,684 square feet of adjacent office and warehouse space. The term of the Amended Lease is one hundred twenty ( 128 ) months, with an effective date of June 1, 2023 . Base 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 lease term. 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 assets and lease liabilities arising from short-term leases. There are no other material operating leases. 13 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS 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 YEARS ENDING DECEMBER 31, AMOUNT 2023 $ 183,099 2024 376,364 2025 387,666 2026 399,199 2027 411,174 Thereafter 2,781,183 4,538,685 Less discounted interest ( 1,564,838 ) TOTAL $ 2,973,847 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, 2022. 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 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 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. NOTE 10 – STOCKHOLDERS’ EQUITY Preferred Stock Pursuant to the Company’s Articles of Incorporation, the Company’s board of directors is empowered, without stockholder approval, to issue series of preferred stock with any designations, rights and preferences as they may from time to time determine. The rights and preferences of this preferred stock may be superior to the rights and preferences of the Company’s common stock; consequently, preferred stock, if issued could have dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the common stock. Additionally, preferred stock, if issued, could be utilized, under special circumstances, as a method of discouraging, delaying or preventing a change in control of the Company’s business or a takeover from a third party. 14 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2023 AND 2022 NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED) Common Stock Options and Warrants In January 2019, the Company signed a purchase agreement with the institutional investor to sell up to $ 25,000,000 of common stock. The Company registered 9,500,000 shares pursuant to a registration statement filed on January 30, 2019 which became effective February 13, 2019. The Company issued 350,000 shares of common stock to the institutional investor as an initial commitment fee valued at $ 258,125 , fair value, and 812,500 shares of common stock are reserved for additional commitment fees to the institutional investor in accordance with the terms of the purchase agreement. The Company registered an additional 6,000,000 shares pursuant to a registration statement filed on January 24, 2020 which became effective February 4, 2020. The Company registered an additional 8,000,000 shares pursuant to a registration statement filed on November 20, 2020 which became effective November 20, 2020. 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 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 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. 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 agreement. 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 value. 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. 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 15 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 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 June 30, 2023, the institutional investor purchased 1,795,455 shares of common stock for proceeds of $ 11,103,102 and the Company issued 37,670 shares of common stock as additional commitment fee, valued at $ 264,874 , fair value. During the three month period ending June 30, 2023, pursuant to the purchase agreement, the institutional investor purchased 1,250,000 shares of common stock for proceeds of $ 8,103,100 and the Company issued 27,492 shares of common stock as additional commitment fee, valued at $ 208,997 , fair value. 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 and the Company issued 2,300 shares of common stock as additional commitment fee, valued at $ 16,293 fair value, leaving 61,811 in reserve for additional for additional commitment fees. On December 9, 2022, the Company entered into a sales agreement with an investment banking company. In accordance with the terms of this sales agreement, 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. Sales of shares of the Company’s common stock, if any, may be made by any method deemed to be an “at the market offering”. 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. Each RSA 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. Upon vesting, the restrictions on the shares lapse. NOTE 11 – STOCK BASED COMPENSATION During 2007, the Board of Directors of the Company adopted the 2007 Employee Stock Plan (“2007 Plan”) that was approved by the shareholders. 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”). 16 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS 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 adopted the 2016 Plan that was approved by the shareholders at the 2016 annual meeting of shareholders on May 20, 2016. Under the 2016 Plan, the Company is authorized to grant awards of incentive and non-qualified stock options and restricted stock to purchase up to 3,000,000 shares of common stock to employees, directors and consultants. Effective May 16, 2019, the number of shares of the Company’s common stock available for issuance under the 2016 Plan was increased from 3,000,000 to 8,000,000 shares. 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. As of June 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 Board of Directors or its compensation committee which determines the persons to whom awards will be granted, the number of awards to be granted, and the specific terms of each grant. Subject to the provisions regarding Ten Percent Shareholders, (as defined in the 2016 Plan), the exercise price per share of each option cannot be less than 100% of the fair market value of a share of common stock on the date of grant. Options granted under the 2016 Plan are generally exercisable for a period of 10 years from the date of grant and may vest on the grant date, another specified date or over a period of time. The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award, with the following assumptions for 2023: no dividend yield in all years, expected volatility, based on the Company’s historical volatility, 73.7 % to 77.2 %, risk-free interest rate between 3.37 % to 3.94 % and expected option life of 10 years. Prior to May 2018, the expected life is based on the estimated average of the life of options using the “simplified” method, as prescribed in FASB ASC 718, due to insufficient historical exercise activity during recent years. Starting in May 2018, the expected life is based on the legal contractual life of options. 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 Six For the Six Months Ending Months Ending June 30, 2023 June 30, 2022 2007 Employee Stock Option Plan $ — $ — 2016 Equity Incentive Plan 3,389,804 2,798,550 2016 Equity Incentive Plan restricted stock awards 133,854 43,221 Warrants — — Total share-based compensation $ 3,523,658 $ 2,841,771 17 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS 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 six months ended June 30, 2023: Schedule of non-qualified stock options and warrants outstanding and exercisable Non-Qualified Stock Options and Warrants Outstanding and Exercisable Number of Exercise Weighted Average Shares Price Exercise Price Outstanding, December 31, 2022 8,073,173 $ 0.51 - $ 16.81 $ 1.91 Granted 1,595,000 $ 4.28 - $ 7.67 $ 5.24 Forfeited ( 22,250 ) $ 6.25 - $ 7.50 $ 7.00 Exercised ( 456,285 ) $ 0.67 - $ 5.22 $ 1.00 Outstanding, June 30, 2023 9,189,638 $ 0.51 - $ 16.81 $ 2.52 Exercisable, June 30, 2023 7,974,346 $ 0.51 - $ 16.81 $ 2.04 The aggregate intrinsic value of options and warrants 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 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 Range of Number Outstanding Currently Exercisable Weighted Average Remaining Weighted Average Exercise Price of Options and Warrants Currently Exercise Prices at June 30, 2023 Contractual Life Exercisable $ 0.51 - $ 16.81 7,974,346 5.31 $ 2.04 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 six month period ending June 30, 2023 is as follows: Schedule of nonvested restricted stock units activity Weighted Average Number of Fair Value Shares per Share Non-vested, beginning of period 13,816 $ 9.65 Granted 99,616 5.22 Vested ( 16,636 ) 5.22 Cancelled and forfeited — — Non-vested, end of period 96,796 $ 5.85 18 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 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 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. 19