Lightwave Logic, Inc. 10-Q

Item 1 Financial Statements LIGHTWAVE LOGIC, INC. FINANCIAL STATEMENTS SEPTEMBER 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 September 30, 2023 December 31, 2022 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 30,876,646 $ 24,102,151 Prepaid expenses and other current assets 563,023 611,345 Loan receivable — 642,120 TOTAL CURRENT ASSETS 31,439,669 25,355,616 PROPERTY AND EQUIPMENT - NET 3,597,111 2,519,267 OTHER ASSETS Intangible assets - net 1,182,693 1,030,335 Operating Lease - Right of Use - Building 2,884,544 358,254 TOTAL OTHER ASSETS 4,067,237 1,388,589 TOTAL ASSETS $ 39,104,017 $ 29,263,472 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 429,520 $ 791,671 Accrued expenses 121,134 380,280 Accounts payable and accrued expenses - related parties 91,612 100,169 Deferred revenue 50,000 — Deferred lease liability 41,778 41,778 Operating lease liability 138,434 190,125 TOTAL CURRENT LIABILITIES 872,478 1,504,023 LONG TERM LIABILITIES Deferred lease liability 6,963 38,297 Operating lease liability 2,804,357 168,129 TOTAL LONG TERM LIABILITIES 2,811,320 206,426 TOTAL LIABILITIES 3,683,798 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, 116,683,977 and 112,882,793 issued and outstanding at September 30, 2023 and December 31, 2022 116,684 112,883 Additional paid-in-capital 158,731,989 134,406,825 Deferred compensation ( 496,737 ) ( 133,324 ) Accumulated deficit ( 122,931,717 ) ( 106,833,361 ) TOTAL STOCKHOLDERS' EQUITY 35,420,219 27,553,023 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 39,104,017 $ 29,263,472 See accompanying notes to these financial statements. 2 LIGHTWAVE LOGIC, INC. STATEMENTS OF COMPREHENSIVE LOSS FOR THE THREE MONTHS AND NINE MONTHS ENDING SEPTEMBER 30, 2023 AND 2022 (UNAUDITED) For the Three For the Three For the Nine For the Nine Months Ending Months Ending Months Ending Months Ending September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 NET SALES $ — $ — $ — $ — COST AND EXPENSE Research and development 4,040,941 3,587,692 12,006,758 8,994,047 General and administrative 1,345,335 1,144,624 3,879,515 3,017,191 TOTAL COST AND EXPENSE 5,386,276 4,732,316 15,886,273 12,011,238 LOSS FROM OPERATIONS ( 5,386,276 ) ( 4,732,316 ) ( 15,886,273 ) ( 12,011,238 ) OTHER INCOME (EXPENSE) Interest income 246,987 29,125 403,960 57,545 Commitment fee ( 25,302 ) ( 73,170 ) ( 607,728 ) ( 181,027 ) Other Expense — ( 27,022 ) ( 8,315 ) ( 27,022 ) NET LOSS $ ( 5,164,591 ) $ ( 4,803,383 ) $ ( 16,098,356 ) $ ( 12,161,742 ) LOSS PER SHARE Basic $ ( 0.04 ) $ ( 0.04 ) $ ( 0.14 ) $ ( 0.11 ) Diluted $ ( 0.04 ) $ ( 0.04 ) $ ( 0.14 ) $ ( 0.11 ) WEIGHTED AVERAGE NUMBER OF SHARES Basic 116,491,837 112,111,706 114,899,056 111,536,100 Diluted 116,491,837 112,111,706 114,899,056 111,536,100 See accompanying notes to these financial statements. 3 LIGHTWAVE LOGIC, INC. STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED) NINE-MONTH PERIOD ENDED SEPTEMBER 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 2,750,400 2,750 16,061,159 — — 16,063,909 Common stock issued for commitment shares 99,407 100 607,628 — — 607,728 Common stock sales at the market by investment banking company 172,115 172 1,378,302 — — 1,378,474 Exercise of options 504,408 504 466,820 — — 467,324 Exercise of warrants 169,000 169 164,581 — — 164,750 Options issued for services — — 5,085,114 — — 5,085,114 Restricted stock awards issued for future services 105,854 106 561,560 ( 561,666 ) — — Deferred compensation — — — 198,253 — 198,253 Net loss for the nine months ending September 30, 2023 — — — — ( 16,098,356 ) ( 16,098,356 ) BALANCE AT SEPTEMBER 30, 2023 (UNAUDITED) 116,683,977 $ 116,684 $ 158,731,989 $ ( 496,737 ) $ ( 122,931,717 ) $ 35,420,219 NINE-MONTH PERIOD ENDED SEPTEMBER 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 1,325,000 1,325 10,707,968 — — 10,709,293 Common stock issued for commitment shares 19,672 19 181,008 — — 181,027 Exercise of options 268,200 268 229,672 — — 229,940 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 — — 4,288,172 — — 4,288,172 Restricted stock awards issued for future services 28,500 29 274,995 ( 275,024 ) — — Deferred compensation — — — 67,467 — 67,467 Net loss for the nine months ending September 30, 2022 — — — — ( 12,161,742 ) ( 12,161,742 ) BALANCE AT SEPTEMBER 30, 2022 (UNAUDITED) 112,374,427 $ 112,375 $ 130,654,002 $ ( 207,557 ) $ ( 101,764,623 ) $ 28,794,197 See accompanying notes to these financial statements. 4 LIGHTWAVE LOGIC, INC. STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED) THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2023 Additional Number of Common Paid-in Deferred Accumulated Shares Stock Capital Compensation Deficit Total BALANCE AT JUNE 30, 2023 (UNAUDITED) 116,184,724 $ 116,185 $ 154,946,488 $ ( 519,466 ) $ ( 117,767,126 ) $ 36,776,081 Common stock issued to institutional investor 175,000 175 1,113,325 — — 1,113,500 Common stock issued for commitment shares 3,777 4 25,298 — — 25,302 Common stock sales at the market by investment banking company 97,115 97 734,848 — — 734,945 Exercise of options 198,123 198 160,825 — — 161,023 Exercise of warrants 19,000 19 14,231 14,250 Options issued for services — — 1,695,310 — — 1,695,310 Restricted stock awards issued for future services 6,238 6 41,664 ( 41,670 ) — Deferred compensation — — — 64,399 — 64,399 Net loss for the three months ending September 30, 2023 — — — — ( 5,164,591 ) ( 5,164,591 ) BALANCE AT SEPTEMBER 30, 2023 (UNAUDITED) 116,683,977 $ 116,684 $ 158,731,989 $ ( 496,737 ) $ ( 122,931,717 ) $ 35,420,219 THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2022 Additional Number of Common Paid-in Deferred Accumulated Shares Stock Capital Compensation Deficit Total BALANCE AT JUNE 30, 2022 (UNAUDITED) 111,887,124 $ 111,888 $ 125,040,332 $ ( 231,803 ) $ ( 96,961,240 ) $ 27,959,177 Common stock issued to institutional investor 450,000 450 4,003,150 — — 4,003,600 Common stock issued for commitment shares 7,353 7 73,163 — — 73,170 Exercise of options 29,950 30 47,735 — — 47,765 Options issued for services — — 1,489,622 — — 1,489,622 Deferred compensation — — — 24,246 — 24,246 Net loss for the three months ending September 30, 2022 — — — — ( 4,803,383 ) ( 4,803,383 ) BALANCE AT SEPTEMBER 30, 2022 (UNAUDITED) 112,374,427 $ 112,375 $ 130,654,002 $ ( 207,557 ) $ ( 101,764,623 ) $ 28,794,197 See accompanying notes to these financial statements. 5 LIGHTWAVE LOGIC, INC. STATEMENTS OF CASH FLOW (UNAUDITED) For the Nine For the Nine Months Ending Months Ending September 30, 2023 September 30, 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 16,098,356 ) $ ( 12,161,742 ) Adjustments to reconcile net loss to net cash used in operating activities Stock options issued for services 5,085,114 4,288,172 Amortization of deferred compensation 198,253 67,467 Cashless option exercise — 53,219 Common stock issued for services and fees 607,728 181,027 Depreciation and amortization of patents 797,500 758,285 Amortization of right of use asset 138,502 132,556 Loss on disposal of property and equipment 581 — (Increase) decrease in assets Prepaid expenses and other current assets 87,058 ( 414,766 ) (Decrease) increase in liabilities Accounts payable ( 362,151 ) 367,048 Accrued expenses ( 259,146 ) ( 1,004,081 ) Accounts payable and accrued expenses- related parties ( 8,557 ) 131,368 Deferred revenue 50,000 — Deferred lease liability ( 31,334 ) ( 31,334 ) Operating lease liability ( 118,990 ) ( 132,556 ) Net cash used in operating activities ( 9,913,798 ) ( 7,765,337 ) CASH FLOWS FROM INVESTING ACTIVITIES Cost of intangibles ( 215,061 ) ( 47,705 ) Purchase of property and equipment ( 1,813,813 ) ( 1,171,530 ) Loan repayment 642,120 ( 588,180 ) Sale of property and equipment 590 — Net cash used in investing activities ( 1,386,164 ) ( 1,807,415 ) CASH FLOWS FROM FINANCING ACTIVITIES Exercise of options and warrants 632,074 470,690 Cashless option exercise tax payments — ( 18,201 ) Issuance of common stock, institutional investor 16,063,909 10,709,293 At the market sale by investment banking company 1,378,474 — Net cash provided by financing activities 18,074,457 11,161,782 NET INCREASE IN CASH AND CASH EQUIVALENTS 6,774,495 1,589,030 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 24,102,151 23,432,612 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 30,876,646 $ 25,021,642 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 SEPTEMBER 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 nine months ending September 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 SEPTEMBER 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 SEPTEMBER 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 September 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 September 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 $ 1,750,000 of expenditures per month over the next 12 months. Our current cash position enables us to finance our operations through April 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 $ 876,250 in October and November 2023 and a remaining available amount of $ 16,907,148 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 10). There were no sales of shares of the Company’s common stock pursuant to the sales agreement in October and November 2023. The 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). During October 2023, the licensee requisitioned material under this agreement. 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. 9 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2023 AND 2022 NOTE 3 – REVENUE The Company's first commercial agreement occurred in May 2023, the form of a (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 nine month period ending September 30, 2023 since the licensee did not requisition material as of September 30, 2023. An up-front licensing fee in the amount of $ 50,000 was paid during the nine month period ending September 30, 2023 and is recorded in short term liability deferred revenue in the Company’s balance sheet as of September 30, 2023. Contract balances are as follows: Schedule of contract balances September 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 SEPTEMBER 30, 2023 AND 2022 NOTE 3 – REVENUE (CONTINUED) 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 nine months ended September 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 September 30, 2023 December 31, 2022 Insurance $ 316,315 $ 218,767 License 79,357 94,195 Prototype devices 40,473 40,473 Lease incentive receivable 38,736 — Rent 36,525 36,525 Investor relations 33,433 18,250 Other 18,184 45,675 Legal — 83,941 Deposit for equipment — 59,850 Loan interest receivable — 13,669 Prepaid expenses and other current assets $ 563,023 $ 611,345 NOTE 6 – PROPERTY AND EQUIPMENT Property and equipment consist of the following: Schedule of property and equipment September 30, 2023 December 31, 2022 Office equipment $ 136,734 $ 119,404 Lab equipment 7,852,126 6,234,777 Furniture 74,119 33,128 Leasehold Improvements 321,815 184,843 8,384,794 6,572,152 Less: Accumulated depreciation 4,787,683 4,052,885 $ 3,597,111 $ 2,519,267 11 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2023 AND 2022 NOTE 6 – PROPERTY AND EQUIPMENT (CONTINUED) Depreciation expense for the nine months ending September 30, 2023 and 2022 was $ 734,798 and $ 699,423 . Depreciation expense for the three months ending September 30, 2023 and 2022 was $ 242,454 and $ 246,507 . During the nine months ending September 30, 2023, the Company sold equipment for proceeds of $ 590 and a loss of $ 581 . During the three and nine months ending September 30, 2022, the Company retired $ 70,963 of leasehold improvements. 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 September 30, 2023 December 31, 2022 Patents $ 1,821,124 $ 1,606,064 Less: Accumulated amortization 638,431 575,729 Total intangible assets $ 1,182,693 $ 1,030,335 Amortization expense for the nine months ending September 30, 2023 and 2022 was $ 62,703 and $ 58,862 . Amortization expense for the three months ending September 30, 2023 and 2022 was $ 24,000 and $ 15,229 . There were no patent costs written off for the three and nine months ending September 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 was 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 SEPTEMBER 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 non-lease 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. 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 $ 91,550 2024 376,364 2025 387,666 2026 399,199 2027 411,174 Thereafter 2,781,183 4,447,136 Less discounted interest ( 1,504,345 ) TOTAL $ 2,942,791 13 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2023 AND 2022 NOTE 8 – LEASES (CONTINUED) Rent expense amounting to $ 160,660 and $ 53,553 is included in research and development and general and administrative expenses for the nine months ended September 30, 2023. Rent expense amounting to $ 103,796 and $ 34,599 is included in research and development and general and administrative expenses for the nine months ended September 30, 2022. Rent expense amounting to $ 85,104 and $ 28,368 is included in research and development and general and administrative expenses for the three months ended September 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 September 30, 2022. NOTE 9 – INCOME TAXES There is no income tax benefit for the losses for the nine months ended September 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 September 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 SEPTEMBER 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 September 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 nine month periods ending September 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 September 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 September 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 nine month period ending September 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 September 30, 2023, the Company did not issue any shares pursuant to this purchase agreement. All of the registered shares under the purchase agreement have been issued as of September 30, 2023. 15 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2023 AND 2022 NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED) Common Stock Options and Warrants (Continued) 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 September 30, 2023, the institutional investor purchased 1,970,455 shares of common stock for proceeds of $ 12,216,602 and the Company issued 41,447 shares of common stock as additional commitment fee, valued at $ 290,176 , fair value. During the three month period ending September 30, 2023, pursuant to the purchase agreement, the institutional investor purchased 175,000 shares of common stock for proceeds of $ 1,113,500 and the Company issued 3,777 shares of common stock as additional commitment fee, valued at $ 25,302 fair value. During October and November 2023, pursuant to the purchase agreement, the institutional investor purchased 200,000 shares of common stock for proceeds of $ 876,250 and the Company issued 2,972 shares of common stock as additional commitment fee, valued at $ 14,221 , fair value, leaving 57,362 in reserve 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 nine month period ending September 30, 2023, pursuant to the sales agreement, the investment banking company sold 172,115 shares of the Company’s common stock for proceeds of $ 1,378,474 after a payment of the commission in the amount of $ 42,634 to the investment banking company. During the three month period ending September 30, 2023, pursuant to the sales agreement, the investment banking company sold 97,115 shares of the Company’s common stock for proceeds of $ 734,945 after a payment of the commission in the amount of $ 22,731 to the investment banking company. During October and November 2023, pursuant to the sales agreement, the investment banking company did not sell any shares of the Company’s common stock. 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. On August 1, 2023, the Compensation Committee of the Board of Directors approved a grant totaling 6,238 Restricted Stock Awards to the Company’s outside director. The new RSA had a grant date fair value of $ 6.68 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 RSA was granted under the 2016 Equity Incentive Plan (“2016 Plan”). 218 shares from this grant vested on August 1, with the remaining vesting in 28 equal monthly installments in total of 215 shares beginning September 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. 16 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2023 AND 2022 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”). Effective June 24, 2016, the 2007 Plan was terminated. As of September 30, 2023, options to purchase 2,473,000 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 September 30, 2023, options to purchase 6,022,307 shares of common stock have been issued and are outstanding, 129,174 restricted shares of common stock have been awarded under the 2016 Plan. As of September 30, 2023, 5,497,284 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 4.27 % 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 September 30, 2023, there was $ 3,866,879 of unrecognized compensation expense related to non-vested market-based share awards that is expected to be recognized through September 2026. 17 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2023 AND 2022 NOTE 11 – STOCK BASED COMPENSATION (CONTINUED) Share-based compensation was recognized as follows: Schedule of stock-based compensation plans For the Nine For the Nine Months Ending Months Ending September 30, 2023 September 30, 2022 2007 Employee Stock Option Plan $ — $ — 2016 Equity Incentive Plan 5,085,114 4,288,172 2016 Equity Incentive Plan restricted stock awards 198,253 67,467 Warrants — — Total share-based compensation $ 5,283,367 $ 4,355,639 The following tables summarize all stock option and warrant activity of the Company during the nine months ended September 30, 2023: Schedule of 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 1,751,667 $ 4.28 - $ 7.67 $ 5.29 Forfeited ( 37,125 ) $ 6.25 - $ 8.93 $ 7.13 Exercised ( 673,408 ) $ 0.67 - $ 5.22 $ 0.94 Outstanding, September 30, 2023 9,114,307 $ 0.51 - $ 16.81 $ 2.61 Exercisable, September 30, 2023 8,113,938 $ 0.51 - $ 16.81 $ 2.24 The aggregate intrinsic value of options and warrants outstanding and exercisable as of September 30, 2023 was $ 23,062,130 . 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 $ 4.47 for the Company’s common stock on September 30, 2023. During the nine month period ending September 30, 2023, 504,408 options were exercised for proceeds of $ 467,324 . During the nine month period ending September 30, 2023, 169,000 warrants were exercised for proceeds of $ 164,750 . Schedule of non-qualified stock options and warrants outstanding, by exercise price range Non-Qualified Stock Options and Warrants Outstanding Range of Exercise Prices Number Outstanding Currently Exercisable at September 30, 2023 Weighted Average Remaining Contractual Life Weighted Average Exercise Price of Options and Warrants Currently Exercisable $ 0.51 - $ 16.81 8,113,938 5.28 Years $ 2.24 18 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2023 AND 2022 NOTE 11 – 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 nine month period ending September 30, 2023 is as follows: Schedule of nonvested restricted stock units activity Restricted Stock Awards Nine month period ended September 30, 2023 Weighted Average Number of Fair Value Shares per Share Non-vested, beginning of period 13,816 $ 9.65 Granted 105,854 5.31 Vested ( 25,367 ) 5.24 Cancelled and forfeited — — Non-vested, end of period 94,303 $ 5.96 Restricted stock awards are being amortized to expense over the vesting period. As of September 30, 2023 and 2022, the unamortized value of the restricted stock awards was $ 496,736 and $ 0 , respectively. NOTE 12 – RELATED PARTY At September 30, 2023 the Company had a legal accrual to related party of $ 99,500 , travel and office expense accrual of officers in the amount of $ 10,550 , accounting service fee accrual and expense reimbursements to related parties of $ 7,962 offset by prepaid director operations committee fees in the amount of $ 26,400 . 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 nine months ending September 30, 2023 and 2022, a contribution of $ 51,413 and $ 40,585 was charged to expense for all eligible non-executive participants. For the three months ending September 30, 2023 and 2022, a contribution of $ 18,554 and $ 13,498 was charged to expense for all eligible non-executive participants. NOTE 14 – SUBSEQUENT EVENTS During October 2023, the licensee requisitioned material under the material supply and license agreement that incorporates the Company’s patented electro-optic polymer materials for use in manufacturing photonic devices. 19