Lightwave Logic, Inc. 10-Q

Item 1 Financial Statements CONTENTS Page BALANCE SHEETS 2 STATEMENTS OF COMPREHENSIVE LOSS 3 STATEMENTS OF STOCKHOLDERS’ EQUITY 4 STATEMENTS OF CASH FLOWS 6 NOTES TO FINANCIAL STATEMENTS 7-19 1 LIGHTWAVE LOGIC, INC. BALANCE SHEETS June 30, 2024 December 31, 2023 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 29,195,815 $ 31,432,087 Accounts Receivable 8,065 30,376 Prepaid expenses and other current assets 760,891 1,237,621 TOTAL CURRENT ASSETS 29,964,771 32,700,084 PROPERTY AND EQUIPMENT - NET 5,811,905 4,990,790 OTHER ASSETS Intangible assets - net 1,278,700 1,254,501 Operating Lease - Right of Use - Building 2,743,457 2,838,210 TOTAL OTHER ASSETS 4,022,157 4,092,711 TOTAL ASSETS $ 39,798,833 $ 41,783,585 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 917,970 $ 1,447,596 Accrued bonuses and accrued expenses 216,778 599,430 Accounts payable and accrued expenses - related parties 152,260 313,483 Deferred revenue 31,541 39,875 Deferred lease liability 17,408 38,297 Operating lease liability 155,946 144,120 TOTAL CURRENT LIABILITIES 1,491,903 2,582,801 LONG TERM LIABILITIES Operating lease liability 2,685,037 2,766,970 TOTAL LONG TERM LIABILITIES 2,685,037 2,766,970 TOTAL LIABILITIES 4,176,940 5,349,771 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, 120,706,365 and 118,137,309 issued and outstanding at June 30, 2024 and December 31, 2023 120,707 118,137 Additional paid-in-capital 175,608,888 164,619,363 Deferred compensation ( 536,714 ) ( 432,293 ) Accumulated deficit ( 139,570,988 ) ( 127,871,393 ) TOTAL STOCKHOLDERS' EQUITY 35,621,893 36,433,814 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 39,798,833 $ 41,783,585 See accompanying notes to these financial statements 2 LIGHTWAVE LOGIC, INC. STATEMENTS OF COMPREHENSIVE LOSS FOR THE SIX MONTHS ENDING JUNE, 2024 AND 2023 (UNAUDITED) . For the Three For the Three For the Six For the Six Months Ending Months Ending Months Ending Months Ending June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 NET SALES $ 19,355 $ — $ 49,772 $ — COST AND EXPENSE Cost of sales — — 5,175 — Research and development 4,362,258 4,166,110 8,982,920 7,965,817 General and administrative 1,896,672 1,174,590 3,152,122 2,534,761 TOTAL COST AND EXPENSE 6,258,930 5,340,700 12,140,217 10,500,578 LOSS FROM OPERATIONS ( 6,239,575 ) ( 5,340,700 ) ( 12,090,445 ) ( 10,500,578 ) OTHER INCOME (EXPENSE) Interest income 251,730 103,685 505,066 156,973 Commitment fee ( 28,982 ) ( 220,732 ) ( 105,959 ) ( 582,426 ) Loss on disposal of property and equipment — — ( 3,166 ) — Other expense ( 2,857 ) — ( 5,091 ) ( 7,734 ) NET LOSS $ ( 6,019,684 ) $ ( 5,457,747 ) $ ( 11,699,595 ) $ ( 10,933,765 ) LOSS PER SHARE Basic $ ( 0.05 ) $ ( 0.05 ) $ ( 0.10 ) $ ( 0.10 ) Diluted $ ( 0.05 ) $ ( 0.05 ) $ ( 0.10 ) $ ( 0.10 ) WEIGHTED AVERAGE NUMBER OF SHARES Basic 120,179,570 114,857,638 119,552,430 114,089,465 Diluted 120,179,570 114,857,638 119,552,430 114,089,465 See accompanying notes to these financial statements 3 LIGHTWAVE LOGIC, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) SIX-MONTH PERIOD ENDED JUNE 30, 2024 Additional Number of Common Paid-in Deferred Accumulated Shares Stock Capital Compensation Deficit Total BALANCE AT DECEMBER 31, 2023 118,137,309 $ 118,137 $ 164,619,363 $ ( 432,293 ) $ ( 127,871,393 ) $ 36,433,814 Common stock issued to institutional investor 1,950,000 1,950 7,493,650 — — 7,495,600 Common stock issued for commitment shares 25,431 26 105,934 — — 105,960 Common stock sales at the market by investment banking company 127,150 127 499,756 — — 499,883 Exercise of options 355,000 355 230,645 — — 231,000 Exercise of warrants 19,000 19 14,231 — — 14,250 Options issued for services — — 2,337,460 — — 2,337,460 Restricted stock awards issued for future services 92,475 93 307,849 ( 307,942 ) — — Deferred compensation — — — 203,521 — 203,521 Net loss for the six months ending June 30, 2024 — — — — ( 11,699,595 ) ( 11,699,595 ) BALANCE AT JUNE 30, 2024 (UNAUDITED) 120,706,365 $ 120,707 $ 175,608,888 $ ( 536,714 ) $ ( 139,570,988 ) $ 35,621,893 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 See accompanying notes to these financial statements 4 LIGHTWAVE LOGIC, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) THREE-MONTH PERIOD ENDED JUNE 30, 2024 Additional Number of Common Paid-in Deferred Accumulated Shares Stock Capital Compensation Deficit Total BALANCE AT MARCH 31, 2024 (UNAUDITED) 119,795,941 119,796 170,998,846 ( 368,094 ( 133,551,304 ) 37,199,244 Common stock issued to institutional investor 700,000 700 2,342,550 — — 2,343,250 Common stock issued for commitment shares 7,949 8 28,975 — — 28,983 Common stock sales at the market by investment banking company 50,000 50 169,380 — — 169,430 Exercise of options 60,000 60 50,340 — — 50,400 Exercise of warrants — — — — — — Options issued for services — — 1,710,948 — — 1,710,948 Restricted stock awards issued for future services 92,475 93 307,849 ( 307,942 — — Deferred compensation — — — 139,322 — 139,322 Net loss for the three months ending June 30, 2024 — — — — ( 6,019,684 ) ( 6,019,684 ) BALANCE AT JUNE 30, 2024 (UNAUDITED) 120,706,365 $ 120,707 $ 175,608,888 $ ( 536,714 $ ( 139,570,988 ) $ 35,621,893 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 See accompanying notes to these financial statements 5 LIGHTWAVE LOGIC, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six For the Six Months Ending Months Ending June 30, 2024 June 30, 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 11,699,595 ) $ ( 10,933,765 ) Adjustments to reconcile net loss to net cash used in operating activities Stock options issued for services 2,337,460 3,389,804 Amortization of deferred compensation 203,521 133,854 Common stock issued for commitment shares 105,960 582,426 Depreciation and amortization of patents 804,737 531,046 Amortization of right of use asset 94,753 92,812 Loss on disposal of property and equipment 3,166 581 (Increase) decrease in assets Accounts receivable 22,311 — Prepaid expenses and other current assets 476,730 ( 162,748 ) (Decrease) increase in liabilities Accounts payable ( 529,626 ) ( 369,688 ) Accrued bonuses, accrued expenses and other liabilities ( 382,652 ) ( 325,386 ) Accounts payable and accrued expenses-related parties ( 161,223 ) 115,879 Deferred revenue ( 8,334 ) 50,000 Deferred lease liability ( 20,889 ) ( 20,889 ) Operating lease liability ( 70,107 ) ( 87,934 ) Net cash used in operating activities ( 8,823,788 ) ( 7,004,008 ) CASH FLOWS FROM INVESTING ACTIVITIES Cost of intangibles ( 67,445 ) ( 177,245 ) Purchase of property and equipment ( 1,585,772 ) ( 978,560 ) Repayment of loan — 642,120 Sale of property and equipment — 590 Net cash used in investing activities ( 1,653,217 ) ( 513,095 ) CASH FLOWS FROM FINANCING ACTIVITIES Exercise of options and warrants 245,250 456,801 Issuance of common stock, institutional investor 7,495,600 14,950,409 Common stock sales at the market by investment banking company 499,883 643,529 Net cash provided by financing activities 8,240,733 16,050,739 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 2,236,272 ) 8,533,636 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 31,432,087 24,102,151 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 29,195,815 $ 32,635,787 See accompanying notes to these financial statements 6 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 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, 2023, as filed with the Securities and Exchange Commission on February 29, 2024 (the “2023 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 2023 Annual Report. The interim operating results for the three and six months ending June 30, 2024 may not be indicative of operating results expected for the full year. Nature of Business Lightwave Logic, Inc. (the “Company”) is a technology company focused on the development of next generation electro-optic photonic devices made on its P2IC™ technology platform which we have detailed as: 1) Polymer Stack™, 2) Polymer Plus™, and 3) Polymer Slot™. Our unique polymer technology platform uses in-house proprietary high-activity and high-stability organic polymers. Electro-optical devices called modulators convert data from electric signals into optical signals for multiple applications. 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. Lightwave Logic, Inc. was organized under the laws of the State of Nevada in 1997, and it commenced with its current business plan in 2004. Revenue Recognition and Deferred Revenue The rights and benefits to the Company’s patented electro-optic polymer materials are conveyed to the customer through technology license and material supply agreements where the Company provides the licensee a supply of its proprietary polymers for use in the licensee’s manufacturing of photonic devices (the “Licensed Product”) as well as non-exclusive, royalty-bearing license to intellectual property rights in the Company’s patented polymer technology. The Company receives license and royalty payments under such commercial agreements, some of which are nonrefundable upfront payments for license fees. These advances are initially recorded as deferred revenue on the Company’s balance sheets. The Company believes that the licenses provided and materials transferred under such agreements are not distinct from each other for financial reporting purposes and as such, they are accounted for as a single performance obligation. Advance payments for license fees and minimum annual royalties are recognized on a pro-rata basis over the related contract term. Royalties from licensee’s sale of the Licensed Product that exceed the minimum annual royalty are recognized when cumulative royalties exceed the minimum royalty. Milestone license fees are recognized when the licensee reaches the milestone of selling a contractually specified number of units of the Licensed Product. 7 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue associated with the sale of the Company’s patented electro-optic polymer materials for incorporation into the customers’ commercial photonic devices or for their device development and evaluation activities will be recognized at the time title passes, which is typically at the time of shipment or at the time of delivery, depending upon the contractual agreement between the parties. Cost of Sales Cost of sales consists of labor costs, material costs and manufacturing overhead costs associated with the production of materials transferred to the customer under the technology license and material supply agreement at the Company’s facility. 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 non-employees. 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. 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 2024 and 2023, 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 (Loss) 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). 8 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Recently Issued Accounting Pronouncements Not Yet Adopted As of June 30, 2024, 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, 2024 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 2023 financial statement in order to conform to the 2024 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 $ 1,840,000 of expenditures per month over the next 12 months. Our current cash position enables us to finance our operations through October 2025. 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 (described in Note 10). Pursuant to the purchase agreement, the Company received $ 0 in July and August 2024 and the remaining available amount of $ 6,358,348 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 June and July 2024. The remaining available amount of $ 32,921,834 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). For the three and six months ended June 30, 2024, we recognized $ 19,355 and $ 36,022 in revenue, respectively, related to this agreement. Our cash requirements are expected to increase at a rate consistent with the Company’s path to revenue as we expand our activities and operations with the objective of increasing our revenue stream from the commercialization of our electro-optic polymer technology. We currently have no debt to service. NOTE 3 – REVENUE The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (Topic 606). The standard establishes the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows from a contract with a customer. 9 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 NOTE 3 – REVENUE (CONTINUED) The Company's first commercial agreement occurred in May 2023, in the form of a four-year material supply and license agreement (the “License Agreement”) that incorporates the Company's patented electro-optic polymer materials for use in manufacturing of 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 and milestone license fees. The License Agreement is a non-exclusive material supply and license agreement. During 2024, the Company performed device processing work for a customer. Timing of Revenue Recognition and Contract Balances Revenues related to the initial license fee and a minimum annual royalty are recognized over time commencing with the License Agreement in May 2023. An up-front license fee in the amount of $ 50,000 was paid during the period ending December 31, 2023. $ 31,541 of this amount is recorded in current liabilities on the Company’s balance sheet as of June 30, 2024. For the three and six months ended June 30, 2024, the Company recognized $ 19,355 and $ 36,022 , respectively, in revenue related to this agreement. In March 2024, the Company completed device processing work on the devices supplied by a customer. Revenue for this contract was recognized at the time of shipment of the devices back to the customer and amounted to $ 0 and $ 13,750 for the three and six months ended June 30, 2024, respectively. Contract balances are as follows: Schedule of contract balances June 30, 2024 December 31, 2023 Accounts receivable, net $ 8,065 $ 30,376 Short-term contract assets $ — $ — Long-term contract assets $ — $ — Short-term liability deferred revenue $ 31,541 $ 39,875 Significant changes in the contract balances for the period ended June 30, 2024 are as follows: Schedule of changes in contract balances Six Months Ended June 30, 2024 Assets Liabilities Balance at December 31, 2023 $ 30,376 $ ( 39,875 ) Revenue recognized that was previously included in deferred revenue — 8,334 Decreases/increases due to cash received ( 63,884 ) — Billed receivables recorded 33,508 — Transferred to receivables from unbilled receivables ( 19,624 ) — Unbilled receivables recorded 27,689 — Balance at June 30, 2024 $ 8,065 $ ( 31,541 ) A rollforward of contract balances is not disclosed for the period ended June 30, 2024 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. 10 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 NOTE 4 – 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, 2024 December 31, 2023 Insurance $ 389,267 $ 237,791 License 202,076 241,936 Investor relations 60,140 6,313 Prototype devices 54,763 161,267 Rent 36,525 36,525 Other 18,120 53,373 Materials fabrication — 475,936 Deposit for equipment — 20,000 Lease incentive receivable — 4,480 $ 760,891 $ 1,237,621 NOTE 5 – 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 6 – PROPERTY AND EQUIPMENT Property and equipment consist of the following: Schedule of property and equipment June 30, 2024 December 31, 2023 Office equipment $ 154,500 $ 146,196 Lab equipment 10,311,859 8,937,847 Furniture 74,119 74,119 Leasehold improvements 415,691 396,111 Software 125,943 111,077 11,082,112 9,665,350 Less: Accumulated depreciation 5,270,207 4,674,560 $ 5,811,905 $ 4,990,790 Depreciation expense for the three months ending June 30, 2024 and 2023 was $ 395,928 and $ 236,419 , respectively. Depreciation expense for the six months ending June 30, 2024 and 2023 was $ 761,491 and $ 492,344 , respectively. During the three months ending June 30, 2024, the Company retired fully depreciated property and equipment with the cost of $ 5,869 . During the six months ending June 30, 2024, the Company retired property and equipment with a cost of $ 169,010 and accumulated depreciation of $ 165,844 for a loss of $ 3,166 . During the three and six months ending June 30, 2023, the Company sold equipment for proceeds of $ 590 and a loss of $ 581 . 11 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 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 have yet to be granted. Patents consists of the following: Schedule of intangible assets June 30, 2024 December 31, 2023 Patents $ 1,981,196 $ 1,913,751 Less: Accumulated amortization 702,496 659,250 $ 1,278,700 $ 1,254,501 Amortization expense for the three months ending June 30, 2024 and 2023 was $ 22,311 and $ 19,351 , respectively. Amortization expense for the six months ending June 30, 2024 and 2023 was $ 43,246 and $ 38,702 , respectively. There were no patent costs written off for the three and six months ending June 30, 2024 and 2023. NOTE 8 – COMMITMENTS On October 30, 2017, the Company entered into a lease agreement (the “Lease”) 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. This extension did not require a lease modification as the additional option period was included in the original computation as of January 1, 2019. 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. $ 17,408 of this amount is recorded on the Company’s balance sheet as deferred lease liability as of June 30, 2024. 12 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 NOTE 8 – COMMITMENTS (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 $ 43,216 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 . As of June 30, 2024, the operating lease right-of-use asset and operating lease liability amounted to $ 2,743,457 and $ 2,840,983 , respectively. 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 2024 $ 188,644 2025 387,666 2026 399,199 2027 411,174 2028 423,612 Thereafter 2,357,571 4,167,866 Less discounted interest ( 1,326,883 ) TOTAL $ 2,840,983 Rent expense totaling $ 75,510 and $ 25,170 is included in research and development and general and administrative expenses, respectively, for the three months ended June 30, 2024. Rent expense totaling $ 151,021 and $ 50,340 is included in research and development and general and administrative expenses, respectively, for the six months ended June 30, 2024. Rent expense totaling $ 39,414 and $ 13,138 is included in research and development and general and administrative expenses, respectively, for the three months ended June 30, 2023. Rent expense totaling $ 75,556 and $ 25,185 is included in research and development and general and administrative expenses, respectively, for the six months ended June 30, 2023. 13 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 NOTE 9 – INCOME TAXES There is no income tax benefit for the losses for the three and six months ended June 30, 2024 and 2023 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, 2024, 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 three and six-month period ended June 30, 2024. The Company did no t recognize any interest or penalties during 2023 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, 2020 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. Common Stock, Options and Warrants 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. 14 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED) 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. All of the registered shares under the purchase agreement have been issued as of December 31, 2023. On February 28, 2023, the Company entered into a purchase agreement with an institutional investor to sell up to $ 30,000,000 of common stock over a 36-month period. Concurrently with entering into the purchase agreement, the Company also entered into a registration rights agreement which provides the institutional investor with certain registration rights related to the shares issued under the purchase agreement. Pursuant to the purchase agreement, the Company issued 50,891 shares of common stock to the institutional investor as an initial commitment fee valued at $ 279,391 fair value, and 101,781 shares of common stock are reserved for additional commitment fees to the institutional investor in accordance with the terms of the purchase agreement. During the period February 28, 2023 through June 30, 2024, the institutional investor purchased 4,820,455 shares of common stock for proceeds of $ 23,641,652 and the Company issued 80,210 shares of common stock as additional commitment fee, valued at $ 461,986 , fair value, leaving 21,571 in reserve for additional commitment fees. During the three-month period ending June 30, 2024, pursuant to the purchase agreement, the institutional investor purchased 700,000 shares of common stock for proceeds of $ 2,343,250 and the Company issued 7,949 shares of common stock as additional commitment fee, valued at $ 28,983 fair value. During July and August 2024, pursuant to the purchase agreement, the institutional investor didn’t purchase any shares of the Company’s common stock. 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 will be entitled to compensation under the terms of the sales agreement at a commission rate equal to 3 % of the gross proceeds of the sales price of common stock that they sell. During the three-month period ending June 30, 2024, pursuant to the sales agreement, the investment banking company sold 50,000 shares of the Company’s common stock for proceeds of $ 169,430 after a payment of the commission in the amount of $ 5,240 to the investment banking company. During the six-month period ending June 30, 2024, pursuant to the sales agreement, the investment banking company sold 127,150 shares of the Company’s common stock for proceeds of $ 499,883 after a payment of the commission in the amount of $ 15,461 to the investment banking company. During July and August 2024, pursuant to the sales agreement, the investment banking company did not sell any shares of the Company’s common stock. 15 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 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 June 30, 2024, options to purchase 2,063,000 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, 2024, options to purchase 6,905,057 shares of common stock have been issued and are outstanding and 221,649 restricted shares of common stock are issued. As of June 30, 2024, 4,167,059 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 2024: no dividend yield in all years, expected volatility, based on the Company’s historical volatility, 76.3 % to 77.1 % , risk-free interest rate between 3.91 % to 4.28 % 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, 2024, there was $ 3,777,227 of unrecognized compensation expense related to non-vested market-based share awards that is expected to be recognized through June 2027. 16 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 NOTE 11 – STOCK BASED COMPENSATION (CONTINUED) Share-based compensation was recognized as follows: Schedule of share-based compensation For the Six For the Six Months Ending Months Ending June 30, 2024 June 30, 2023 2007 Employee Stock Option Plan $ — $ — 2016 Equity Incentive Plan 2,337,460 3,389,804 2016 Equity Incentive Plan restricted stock awards 203,521 133,854 Warrants — — Total share-based compensation $ 2,540,981 $ 3,523,658 The following tables summarize all stock option and warrant activity of the Company during the six months ended June 30, 2024: Schedule of stock option and warrant activity Non-Qualified Stock Options and Warrants Outstanding and Exercisable Number of Exercise Weighted Average Shares Price Exercise Price Outstanding, December 31, 2023 8,809,807 $ 0.51 - $ 16.81 $ 2.76 Granted 1,041,000 $ 3.46 - $ 5.00 $ 4.75 Forfeited ( 8,750 ) $ 7.12 - $ 7.25 $ 7.23 Exercised ( 374,000 ) $ 0.57 - $ 1.15 $ 0.66 Outstanding, June 30, 2024 9,468,057 $ 0.51 - $ 16.81 $ 3.06 Exercisable, June 30, 2024 8,255,683 $ 0.51 - $ 16.81 $ 2.80 The aggregate intrinsic value of options and warrants outstanding and exercisable as of June 30, 2024 was $ 11,508,333 . 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 $ 2.99 for the Company’s common stock on June 30, 2024. During the six-month period ending June 30, 2024, 355,000 options were exercised for proceeds of $ 231,000 and 19,000 warrants were exercised for proceeds of $ 14,250 . Schedule of non-qualified stock options and warrants outstanding Non-Qualified Stock Options and Warrants Outstanding Range of Exercise Prices Number Outstanding Currently Exercisable at June 30, 2024 Weighted Average Remaining Contractual Life Weighted Average Exercise Price of Options and Warrants Currently Exercisable $ 0.51 - $ 16.81 8,255,683 5.5 Years $ 2.80 17 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 NOTE 11 – STOCK BASED COMPENSATION (CONTINUED) 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 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. On June 18, 2024, the Compensation Committee of the Board of Directors approved grants totaling 92,475 Restricted Stock Awards to the Company’s five outside directors. Each RSA had a grant date fair value of $ 3.33 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 15,455 shares on June 18, 2024, with the remaining vesting in 10 equal quarterly installments in total of 7,702 shares beginning July 1, 2024. 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. 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, 2024 is as follows: Schedule of fair value of restricted stock awards Weighted Average Number of Grant Date Fair Shares Value per Share Non-vested, beginning of period 78,452 $ 5.71 Granted 92,475 3.33 Vested ( 33,341 ) 4.40 Cancelled and forfeited — — Non-vested, end of period 137,586 $ 4.43 Restricted stock awards are being amortized to expense over the vesting period. As of June 30, 2024 and 2023, the unamortized value of the RSAs was $ 536,714 and $ 231,803 , respectively. 18 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023 NOTE 12 – RELATED PARTY At June 30, 2024 the Company had directors’ fees accrual in the amount of $ 51,250 , accruals for accounting service fees to related party of $ 29,824 , legal accrual to related party of $ 25,000 , accrual for consulting fees to related party of $ 22,500 , travel and office expense reimbursement accruals of officers in the amount of $ 17,686 , and consulting expense accruals of advisory committee members in the amount of $ 6,000 . At December 31, 2023 the Company had a legal accrual to a related party of $ 115,160 , accounting service fee accrual and expense reimbursement to related parties of $ 102,351 , fees and travel expense accruals to directors in the amount of $ 53,776 , fees, consulting expense and travel expense accruals of advisory board members in the amount of $ 33,746 , and travel and office expense accruals of officers in the amount of $ 8,450 . NOTE 13 – RETIREMENT PLAN The Company established a 401(k) retirement plan covering all eligible employees beginning November 15, 2013. For the three months ending June 30, 2024 and 2023, a contribution of $ 34,324 and $ 17,882 , respectively, was charged to expense for all eligible non-executive participants. For the six months ending June 30, 2024 and 2023, a contribution of $ 59,092 and $ 32,858 , respectively, was charged to expense for all eligible non-executive participants. NOTE 14 – SUBSEQUENT EVENTS On July 26, 2024, the Company filed a $ 100,000,000 universal shelf registration statement with the U.S. Securities and Exchange Commission which became effective on August 5, 2024. 19