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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission File Number 0-52567
-------
Lightwave Logic, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 82-049-7368
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2601 Annand Drive
Suite 16
Wilmington, DE 19808
-------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 998-8824
--------------
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act (check one).
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ]
Smaller Reporting Company [X]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of the registrant's Common Stock outstanding as of May
19, 2008 was 34,800,076.
===========================================================================
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1 Financial Statements..............................................1
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................22
Item 4T Controls and Procedures..........................................31
PART II - OTHER INFORMATION
Item 1 Legal Proceedings ...............................................32
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds .....33
Item 4 Submission of Matters to a Vote of Security Holders .............34
Item 6 Exhibits ........................................................35
Signatures ..............................................................35
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
LIGHTWAVE LOGIC, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
MARCH 31, 2008
(UNAUDITED)
CONTENTS
PAGE
----
BALANCE SHEETS 1
STATEMENTS OF OPERATIONS 2
STATEMENTS OF COMPREHENSIVE LOSS 3
STATEMENTS OF STOCKHOLDERS' EQUITY 4 - 5
STATEMENTS OF CASH FLOW 6 - 7
NOTES TO FINANCIAL STATEMENTS 8 - 21
LIGHTWAVE LOGIC, INC.
(A Development Stage Company)
BALANCE SHEETS
March 31, 2008 December 31, 2007
----------------- -----------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 175,463 $ 479,451
Deferred charges - 12,395
Prepaid expenses 4,899 7,294
Note receivable 100,000 100,000
Interest receivable 1,283 1,244
----------------- -----------------
281,645 600,384
AVAILABLE FOR SALE SECURITIES
Related party 41,266 26,779
Other 20,383 2,411
----------------- -----------------
61,649 29,190
PROPERTY AND EQUIPMENT - NET 73,564 67,276
OTHER ASSETS
Intangible assets 182,642 174,421
----------------- -----------------
TOTAL ASSETS $ 599,500 $ 871,271
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 173,976 $ 103,426
Accrued expenses 98,206 114,665
CONTINGENCY
----------------- -----------------
TOTAL LIABILITIES 272,182 218,091
----------------- -----------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value,
1,000,000 authorized
No shares issued or outstanding - -
Common stock $0.001 par value,
100,000,000 authorized
34,121,742 and 33,690,075 issued
and outstanding at March 31, 2008
and December 31, 2007 34,122 33,690
Additional paid-in-capital 11,250,496 10,449,763
Deferred charges (304,333) (154,667)
Unrealized loss on Available for
Sale Securities (26,151) (58,610)
Accumulated deficit (15,827) (15,827)
Deficit accumulated during
development stage (10,610,989) (9,601,169)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 327,318 653,180
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 599,500 $ 871,271
================= =================
See accompanying notes to these financial statements.
-1-
LIGHTWAVE LOGIC, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDING MARCH 31, 2008 AND
2007 AND FOR THE PERIOD JANUARY 1, 2004
(INCEPTION OF DEVELOPMENT STAGE) TO MARCH 31, 2008
(UNAUDITED)
Cumulative For the Three For the Three
Since Months Ending Months Ending
Inception March 31, 2008 March 31, 2007
------------ -------------- --------------
NET SALES $ - $ - $ -
COST AND EXPENSE
Research and development 4,267,592 704,835 568,725
General and administrative 6,399,950 308,767 176,419
------------ -------------- --------------
10,667,542 1,013,602 745,144
LOSS FROM OPERATIONS (10,667,542) (1,013,602) (745,144)
OTHER INCOME (EXPENSE)
Interest income 22,649 4,624 3
Dividend income 1,527 - -
Realized gain on investment 63,187 - -
Realized gain on disposal of assets 637 - -
Interest expense (31,447) (842) (2,008)
------------ -------------- --------------
NET LOSS $(10,610,989) $ (1,009,820) $ (747,149)
============ ============== ==============
Basic and Diluted Loss per Share $ (0.03) $ (0.03)
============== ==============
Basic and Diluted Weighted Average
Number of Shares 33,718,463 28,515,338
============== ==============
See accompanying notes to these financial statements.
-2-
LIGHTWAVE LOGIC, INC.
(A Development Stage Company)
STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDING MARCH 31, 2008 AND
2007 AND FOR THE PERIOD JANUARY 1, 2004
(INCEPTION OF DEVELOPMENT STAGE) TO MARCH 31, 2008
(UNAUDITED)
Cumulative For the Three For the Three
Since Months Ending Months Ending
Inception March 31, 2008 March 31, 2007
------------ -------------- --------------
NET LOSS $(10,610,989) $ (1,009,820) $ (747,149)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on Available
for Sale Securities (26,151) 32,459 6,029
------------ -------------- --------------
COMPREHENSIVE LOSS $(10,637,140) $ (977,361) $ (741,120)
============ ============== ==============
See accompanying notes to these financial statements.
-3-
LIGHTWAVE LOGIC, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 2004 (INCEPTION OF DEVELOPMENT
STAGE) TO MARCH 31, 2008
(UNAUDITED)
Deficit
Accumulated
Unrealized During
Number of Common Paid-in Subscription Deferred Loss on Accumulated Development
Shares Stock Capital Receivable Charges Securities Deficit Stage Total
---------- ------- ----------- ------------ -------- ---------- ----------- ----------- -----------
ENDING BALANCE AT
DECEMBER 31, 2003 100 $ 1 $ - $ - $ - $ - $ (15,827) $ - $ (15,826)
Retroactive
recapitalization
upon reverse
acquisition 706,973 706 (706) - - - - - -
---------- ------- ----------- ----------- --------- --------- --------- ---------- -----------
BALANCE AT
JANUARY 1, 2004 707,073 707 (706) - - - (15,827) - (15,826)
Common stock
issued to
founders 13,292,927 13,293 (13,293) - - - - - -
Common stock issued
for future services
in July 2004
at $0.16/share 1,600,000 1,600 254,400 - - - - - 256,000
Common stock issued
at merger 2,000,000 2,000 (2,000) - - - - - -
Common stock issued
for future services
in August 2004
at $0.12/share 637,500 638 74,362 - - - - - 75,000
Conversion of note
payable in December
2004 at $0.16/share 187,500 187 29,813 - - - - - 30,000
Net loss for the
year ended
December 31, 2004 - - - - - - - (722,146) (722,146)
---------- ------- ----------- ------------ --------- --------- --------- ---------- -----------
BALANCE AT
DECEMBER 31, 2004 18,425,000 18,425 342,576 - - - (15,827) (722,146) (376,972)
Common stock
issued in private
placement in April
2005 at $0.25/share 4,000,000 4,000 996,000 - - - - - 1,000,000
Conversion of notes
payable in May 2005
at $0.16/share 3,118,750 3,119 495,881 - - - - - 499,000
Subscription receivable - - - (6,500) - - - - (6,500)
Common stock issued
for future services
in August 2005,
valued at $2.79/share 210,000 210 585,290 - - - - - 585,500
Common stock issued
for future services
in August 2005,
valued at $2.92/share 200,000 200 583,800 - - - - - 584,000
Warrants issued for
services in May 2005,
vested during 2005,
valued at $1.13/share - - 37,000 - - - - - 37,000
Warrants issued for
services in September
2005, vested during
2005, valued at
$1.45/share - - 24,200 - - - - - 24,200
Warrants issued for
services in October
2005, vested during 2005,
valued at $0.53/share - - 15,900 - - - - - 15,900
Warrants issued for
future services in
December 2005, vested
during 2005, valued
at $1.45/share - - 435,060 - - - - - 435,060
Deferred charges for
common stock issued
for future services
in August 2005, valued
at $2.92/share - - - - (584,000) - - - (584,000)
Amortization of
deferred charges - - - - 265,455 - - - 265,455
Exercise of warrants
in December 2005
at $0.25/share 300,000 300 74,700 - - - - - 75,000
Net loss for the year
ended December 31, 2005 - - - - - - - (1,721,765)(1,721,765)
---------- ------- ----------- ----------- --------- -------- ----------- ---------- -----------
BALANCE AT
DECEMBER 31, 2005 26,253,750 26,254 3,590,407 (6,500) (318,545) - (15,827) (2,443,911) 831,878
Common stock issued
in private placement
during 2006 at
$0.50/share 850,000 850 424,150 - - - - - 425,000
Common stock issued
for future services
in February 2006,
valued at $0.90/share 300,000 300 269,700 - - - - - 270,000
Common stock issued
for future services
in May 2006, valued
at $1.55/share 400,000 400 619,600 - - - - - 620,000
Common stock issued
for future services
in June 2006, valued
at $1.45/share 25,000 25 36,225 - - - - - 36,250
Common stock issued
for future services
in November 2006,
valued at $0.49/share 60,000 60 29,340 - - - - - 29,400
Warrants issued for
services in September
2005, vested during 2006,
valued at $1.45/share - - 66,500 - - - - - 66,500
Warrants issued for
future services in
June 2006, vested
during 2006, valued
at $1.55/share - - 465,996 - - - - - 465,996
Options issued for
services in February
2006, vested during 2006,
valued at $1.01/share - - 428,888 - - - - - 428,888
Contributed capital
related to accrued
interest - - 35,624 - - - - - 35,624
Subscription receivable - - - 6,500 - - - - 6,500
Amortization of deferred
charges - - - - 318,545 - - - 318,545
Unrealzed gain (loss)
on securities - - - - - (26,000) - - (26,000)
Net loss for the year
ending December 31, 2006 - - - - - - (2,933,809) (2,933,809)
---------- ------- ----------- --------- --------- -------- ----------- ---------- -----------
See accompanying notes to these financial statements.
-4-
LIGHTWAVE LOGIC, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 2004 (INCEPTION OF DEVELOPMENT
STAGE) TO MARCH 31, 2008
(UNAUDITED)
Deficit
Accumulated
Unrealized During
Number of Common Paid-in Subscription Deferred Loss on Accumulated Development
Shares Stock Capital Receivable Charges Securities Deficit Stage Total
---------- ------- ----------- ------------ -------- ---------- ----------- ----------- -----------
BALANCE AT
DECEMBER 31, 2006 27,888,750 27,889 5,966,430 - - (26,000) (15,827) (5,377,720) 574,772
Common stock issued
in private placement
during 2007 at
$0.50/share 2,482,000 2,482 1,238,518 - - - - - 1,241,000
Common stock issued
in private placement
during 2007 at
$0.60/share 1,767,540 1,768 1,058,756 - - - - - 1,060,524
Common stock
subscription rescinded
during 2007 at
$0.50/share (400,000) (400) (199,600) - - - - - (200,000)
Common stock issued
for future services
in February 2007,
valued at $0.70/share 151,785 152 106,098 - - - - - 106,250
Common stock issued for
future services in
March 2007,
valued at $0.58/share 1,000,000 1,000 579,000 - - - - - 580,000
Common stock issued for
services and settlement
for accounts payable in
April 2007, valued
at $0.35/share 100,000 100 34,900 - - - - - 35,000
Common stock issued
for services in
October 2007, valued
at $0.68/share 150,000 150 101,850 - - - - - 102,000
Common stock issued
for services in
October 2007, valued
at $0.90/share 150,000 150 134,850 - - - - - 135,000
Common stock issued
for services in
November 2007, valued
at $0.72/share 400,000 400 287,600 - - - - - 288,000
Warrants issued
for services in
September 2005, vested
during 2007, valued
at $1.45/share - - 36,370 - - - - - 36,370
Warrants issued
for services in
March 2007, vested
during 2007, valued
at $0.63/share - - 52,180 - - - - - 52,180
Warrants issued for
services in April 2007,
vested during 2007,
valued at $0.69/share - - 293,476 - - - - - 293,476
Warrants issued for
services in April 2007,
vested during 2007,
valued at $0.63/share - - 140,490 - - - - - 140,490
Warrants issued for
services in May 2007,
vested during 2007,
valued at $0.56/share - - 52,946 - - - - - 52,946
Warrants issued for
services in October 2007,
vested during 2007,
valued at $0.61/share - - 61,449 - - - - - 61,449
Warrants issued for
services in October 2007,
vested during 2007, valued
at $0.78/share - - 52,292 - - - - - 52,292
Warrants issued for
services in December 2007,
vested during 2007, valued
at $0.55/share - - 1,159 - - - - - 1,159
Options issued for
services in February 2006,
vested during 2007, valued
at $1.01/share - - 17,589 - - - - - 17,589
Options issued for services
in February 2006, vested
during 2007, valued
at $1.09/share - - 43,757 - - - - - 43,757
Options issued for services
in November 2007, vested
during 2007, valued
at $0.60/share - - 41,653 - - - - - 41,653
Warrants issued for
future services in
April 2007, vested
during 2007, valued
at $0.70/share - - 348,000 - - - - - 348,000
Deferred charges for
common stock issued
for future services
in March 2007, valued
at $0.58/share - - - - (928,000) - - - (928,000)
Amortization of
deferred charges - - - - 773,333 - - - 773,333
Unrealzed gain (loss)
on securities - - - - - (32,610) - - (32,610)
Net loss for the year
ending December 31, 2007 - - - - - - - (4,223,449) (4,223,449)
---------- ------- ----------- --------- --------- -------- ----------- ---------- -----------
BALANCE AT
DECEMBER 31, 2007 33,690,075 $33,690 $10,449,763 $ - $(154,667) $(58,610) $ (15,827) $(9,601,169) $ 653,180
Common stock issued in
private placement
during 2008 at
$0.60/share 31,667 32 18,968 - - - - - 19,000
Common stock issued for
services in March 2008,
valued at $0.75/share 100,000 100 74,900 - - - - - 75,000
Exercise of warrants in
March 2008 at $0.25/
share 300,000 300 74,700 - - - - - 75,000
Warrants issued for
services in September
2005, vested during
2008, valued at
$1.45/share - - 9,043 - - - - - 9,043
Warrants issued for
services in March 2007,
vested during 2008,
valued at $0.63/share - - 10,885 - - - - - 10,885
Warrants issued for
services in April 2007,
vested during 2008,
valued at $0.69/share - - 103,513 - - - - - 103,513
Warrants issued for
services in April 2007,
vested during 2008,
valued at $0.63/share - - 47,177 - - - - - 47,177
Warrants issued for
services in May 2007,
vested during 2008,
valued at $0.56/share - - 21,040 - - - - - 21,040
Warrants issued for
services in December
2007, vested during
2008, valued at
$0.55/share - - 3,402 - - - - - 3,402
Options issued for
services in November
2007, vested during
2008, valued at
$0.60/share - - 86,851 - - - - - 86,851
Options issued for
services in January
2008, vested during
2008, valued at
$0.60/share - - 18,254 - - - - - 18,254
Warrants issued for
future services in
March 2008, vested
during 2008, valued
at $0.83/share - - 332,000 - (332,000) - - - -
Amortization of
deferred charges - - - - 182,334 - - - 182,334
Unrealzed gain (loss)
on securities - - - - - 32,459 - - 32,459
Net loss for the three
months ending March
31, 2008 - - - - - - - (1,009,820) (1,009,820)
---------- ------- ----------- --------- --------- -------- ----------- ----------- -----------
BALANCE AT
MARCH 31, 2008
(UNAUDITED) 34,121,742 $34,122 $11,250,496 $ - $(304,333) $(26,151) $ (15,827) $(10,610,989) $ 327,318
========== ======= =========== ========= ========= ======== =========== ============ ===========
See accompanying notes to these financial statements.
-5-
LIGHTWAVE LOGIC, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDING MARCH 31, 2008 AND 2007 AND
FOR THE PERIOD JANUARY 1, 2004 (INCEPTION OF DEVELOPMENT STAGE)
TO MARCH 31, 2008
(UNAUDITED)
Cumulative For the Three For the Three
Since Months Ending Months Ending
Inception March 31, 2008 March 31, 2007
------------ -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(10,610,989) $ (1,009,820) $ (747,149)
Adjustment to reconcile net loss to
net cash used in operating activities
Amortization of deferred charges 4,088,123 194,729 352,223
Warrants issued for services 1,029,022 195,060 18,672
Stock options issued for services 970,492 105,105 39,458
Common stock issued for services 605,292 75,000 -
Depreciation 49,057 3,919 3,711
Realized gain on investments (63,187) - -
Realized gain on disposal of assets (637) - -
(Increase) decrease in assets
Receivables (31,744) (39) -
Prepaid expenses (4,899) 2,395 4,366
Increase (decrease) in liabilities
Accounts payable 261,891 70,550 55,429
Accounts payable - related party - - (34,878)
Accrued expenses 32,691 (16,459) 3,499
------------ -------------- --------------
Net cash used in operating activities (3,674,888) (379,560) (304,669)
------------ -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of intangibles (182,642) (8,221) (100,480)
Proceeds from sale of available for
sale securities 175,387 - -
Purchase of available for sale
securities (200,000) - -
Purchase of equipment (85,371) (10,207) (40,200)
------------ -------------- --------------
Net cash used in investing activities (292,626) (18,428) (140,680)
------------ -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, private
placement 3,745,524 19,000 574,000
Common stock rescinded, private
placement (200,000) - -
Issuance of common stock, exercise
of warrants 75,000 75,000 -
Repayment of notes payable (14,970) - (1,207)
Proceeds from subscription receivable 6,500 - -
Advances to stockholders (3,435) - -
Proceeds from convertible notes 529,000 - -
Advances from officers - - -
------------ -------------- --------------
Net cash provided by financing activities 4,137,619 94,000 572,793
------------ -------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 170,105 (303,988) 127,444
CASH AND CASH EQUIVALENTS
- BEGINNING OF PERIOD 5,358 479,451 528
------------ -------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 175,463 $ 175,463 $ 127,972
============ ============== ==============
See accompanying notes to these financial statements.
-6-
LIGHTWAVE LOGIC, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDING MARCH 31, 2008 AND 2007 AND
FOR THE PERIOD JANUARY 1, 2004 (INCEPTION OF DEVELOPMENT STAGE)
TO MARCH 31, 2008
(UNAUDITED)
Cumulative For the Three For the Three
Since Months Ending Months Ending
Inception March 31, 2008 March 31, 2007
------------ -------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest $ 18,838 $ 842 $ 2,008
============ ============== ==============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Common stock issued in exchange for
deferred charges $ 3,142,400 $ - $ 686,250
Warrants issued in exchange for
deferred charges $ 1,581,056 $ 332,000 $ 348,000
Common stock issued as settlement
for accounts payable $ 29,708 $ - $ -
Increase/(Decrease) in fair value
of investment securities $ 26,151 $ (32,459) $ 6,029
Accrued interest contributed as
capital $ 35,624 $ - $ -
Common stock issued in the
conversion of notes payable $ 529,000 $ - $ -
Acquisition of automobile through
loan payable $ 24,643 $ - $ -
Common stock issued upon exercise
of a warrant in exchange for
receivable $ 75,000 $ - $ -
Insurance company pay off of note
payable $ 9,673 $ - $ -
See accompanying notes to these financial statements.
-7-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 1- FINANCIAL STATEMENTS
The accompanying unaudited financials 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 Accounting Policies included in the 2007 Annual
Report. Certain financial information and footnote disclosures
normally indicated in financial statements prepared in accordance
with accounting principals generally accepted in the United
States have been condensed or omitted pursuant to those rules and
regulations, 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 Company's Annual Report on Form 10-KSB
for the year ended December 31, 2007, as filed with the
Securities and Exchange Commission. The interim operating
results for the three months ending March 31, 2008 may not be
indicative of operating results expected for the full year.
Loss per Share
--------------
The company follows SFAS 128, "Earnings per Share", resulting in
the presentation of basic and diluted loss per share. The basic
loss per share calculations includes the change in capital
structure for all periods presented. Because the Company
reported a net loss for each of the three months ending March 31,
2008 and 2007, common stock equivalents consisting of options and
warrants were anti-dilutive; therefore, the basic and diluted net
loss per share for each of these periods was the same.
Recently Issued Accounting Pronouncements
-----------------------------------------
During September 2006, the Financial Accounting Standards Board
("FASB") issued SFAS No. 157, Fair Value Measurements ("SFAS
157"), which is effective for fiscal years beginning after
November 15, 2007 with earlier adoption encouraged. SFAS 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands
disclosures about fair value measurements. In February 2008, the
FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157, which delayed the effective date of SFAS 157
for all non-financial assets and liabilities, except those that
are recognized or disclosed at fair value in the financial
statements on a recurring basis, until January 1, 2009. The
Company adopted SFAS 157 on January 1, 2008 for all financial
assets and liabilities, but the implementation did not require
additional disclosures or have a significant impact on the
Company's financial statements. The Company has not yet
determined the impact the implementation of SFAS 157 will have on
the Company's non-financial assets and liabilities which are not
recognized or disclosed on a recurring basis. However, the
Company does not anticipate that the full adoption of SFAS 157
will significantly impact their consolidated financial
statements.
-8-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 1- FINANCIAL STATEMENTS (CONTINUED)
Recently Issued Accounting Pronouncements
-----------------------------------------
During February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities
- including an amendment of FASB Statement No. 115 ("SFAS 159"),
which permits entities to choose to measure many financial
instruments and certain other items at fair value. The
objective of SFAS 159 is to improve financial reporting by
providing entities with the opportunity to mitigate volatility
in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge
accounting provisions. The Company has adopted SFAS 159 on
January 1, 2008 and has elected not to measure any additional
financial assets, liabilities or other items at fair value.
In December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business Combinations ("SFAS 141R"). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in
the acquiree and the goodwill acquired. SFAS 141R also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
This statement is effective for the Company beginning January 1,
2009 and will change the accounting for business combinations on
a prospective basis.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements-an amendment of
Accounting Research Bulletin No. 51 ("SFAS 160"). SFAS 160
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parent's
ownership interest, and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated. SFAS 160
also establishes disclosure requirements that clearly identify
and distinguish between the interests of the parent and the
interests of the noncontrolling owners. This statement is
effective for the Company beginning January 1, 2009. This
statement is not currently applicable since it has no majority-
owned subsidiaries.
In March 2008, the FASB issued Statement No. 161, Disclosures
about Derivative Instruments and Hedging Activities ("SFAS 161"),
which is effective January 1, 2009. SFAS 161 requires enhanced
disclosures about derivative instruments and hedging activities
to allow for a better understanding of their effects on an
entity's financial position, financial performance, and cash
flows. Among other things, SFAS 161 requires disclosures of the
fair values of derivative instruments and associated gains and
losses in a tabular formant. The Company is in the process of
evaluating the effect, if any, the adoption of SFAS 161 will have
on its financial statements.
Reclassifications
-----------------
Certain reclassifications have been made to the March 31, 2007
financial statements to conform to the March 31, 2008
presentation.
NOTE 2 - RESTATEMENT
The accompanying March 31, 2007 financial statements have been
restated to reflect the adjusted valuation of warrants issued for
management services. Originally the warrant was valued at
$288,428 and amortized over the life of the contract, which is
one year. The adjusted valuation of the warrant was $348,000.
The effect of this restatement was a net increase in the net loss
of $4,965 for the additional amortization expense associated with
the adjusted valuation.
-9-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. The Company has
incurred significant losses and experienced negative cash flow
during the development stage. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The Company is in the development stage at March 31, 2008.
Currently, the Company has funds to maintain its operations
through September 2008. The Company's development is proceeding on
schedule and management hopes to demonstrate a prototype by
August 2008. Successful completion of the Company's prototype
could lead to adequate financing to fulfill its development
activities and achieve a level of revenue adequate to support the
Company's cost structure for the following three years.
Management is in the process of developing a business plan that
it believes will be attractive enough to investors to raise the
necessary capital. However, there can be no assurances that the
Company will be able to secure the necessary financing and/or
equity investment or achieve an adequate sales level.
NOTE 4 - DEFERRED CHARGES
Deferred charges represent the unamortized fair value of the
issuance of common stock and warrants for future services to non-
employees which was accounted for in accordance with Emerging
Issue Task Force No. 96-18, Accounting for Equity Instruments
That Are Issued To Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services, as follows:
March 31, 2008 December 31, 2007
-------------- -----------------
Common stock $ 2,811,400 $ 2,811,400
Warrants 1,581,056 1,249,056
-------------- -----------------
4,392,456 4,060,456
Less: Accumulated Amortization 4,088,123 3,893,394
-------------- -----------------
304,333 167,062
Less: Amount reflected as a
contra-equity account for
management consulting services
provided by related party 304,333 154,667
-------------- -----------------
$ - $ 12,395
============== =================
-10-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 5 - NOTE RECEIVABLE
Note Receivable consists of the following:
March 31, December 31,
2008 2007
-------------- ---------------
Note Receivable - Theater Xtreme $ 100,000 $ 100,000
Entertainment Group, Inc.,
bears interest at 14% per year,
matures one year from the date
of issue (August 15, 2008) and
may be prepaid at any time
without penalty. Pursuant to
the term of the Note, the
Company received warrants to
purchase 50,000 shares of
common stock at an exercise
price of $1.00 per share.
The value of the warrant is
$19,369 at March 31, 2008 and
$2,300 at December 31, 2007,
using the Black-Scholes pricing
formula. This value is included
in the investments.
-------------- ---------------
Total $ 100,000 $ 100,000
============== ===============
NOTE 6 - AVAILABLE FOR SALE SECURITIES
As described in Note 1, the Company partially adopted SFAS No.
157 on January 1, 2008. SFAS No. 157, among other things,
defines fair value, establishes a consistent framework for
measuring fair value and expands disclosure for each major asset
and liability category measured at fair value on either a
recurring or nonrecurring basis. SFAS No. 157 clarifies that
fair value is an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. As such,
fair value is a market-based measurement that should be
determined based on assumptions that market participants would
use in pricing an asset or liability. As a basis for considering
such assumptions, SFAS No. 157 establishes a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring
fair value as follows:
Level 1 Observe inputs such as quoted prices in active
markets;
Level 2 Inputs, other than the quoted prices in active markets,
that are observable either directly or indirectly; and
Level 3 Unobservable inputs in which there is little or no
market data, which require the reporting entity to
develop its own assumptions.
Assets measured at fair value on a recurring basis are as
follows:
Significant
Quoted Prices in Other Significant
Active Markets for Observable Unobservable
Fair Value Identical Assets Inputs Inputs
March 31, 2008 (Level 1) (Level 2) (Level 3)
-------------- ------------------ --------------- ---------------
Available for sale securities
Related Party $ 41,266 $ 41,266 $ - $ -
Other 20,383 1,014 - 19,369
-------------- ------------- ------------ -------------
Total available for sale
securities $ 61,649 $ 42,280 $ - $ 19,369
============== ============= ============ =============
-11-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 6 - AVAILABLE FOR SALE SECURITIES (CONTINUED)
Fair Value Measurement Using
Significant Unobservable Inputs
(Level 3)
-------------------------------
Beginning Balance, January 1, 2008 $ 2,300
Total gains or losses (realized/unrealized)
Included in earnings -
Included in other comprehensive income 17,069
Purchases, issuance and settlements -
-------------------------------
Ending Balance, March 31, 2008 $ 19,369
===============================
The amount of total gains or losses for
the period included in earnings
attributable to the change in
unrealized gains or losses relating
to assets still held at the reporting
date. $ -
===============================
NOTE 7 - EQUIPMENT
Equipment consists of the following:
March 31, December 31,
2008 2007
-------------- ---------------
Automobile $ - $ -
Office equipment 27,019 23,752
Lab equipment 82,105 75,165
-------------- ---------------
109,124 98,917
Less: Accumulated depreciation 35,560 31,641
-------------- ---------------
$ 73,564 $ 67,276
============== ===============
Depreciation expense for the three months ending March 31, 2008
and 2007 was $3,919 and $3,711.
NOTE 8 - INTANGIBLE ASSETS
This represents legal fees and patent fees associated with the
registration of patents. The Company has not recorded any
amortization expenses since the patents have yet to be declared
effective. Once issued, the cost of the patents will be
amortized over their legal lives, which is generally 20 years.
NOTE 9 - INCOME TAXES
There is no income tax benefit for the losses for the three
months ended March 31, 2008 and 2007 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.
There was no change in unrecognized tax benefits during the
period ended March 31, 2008 and there was no accrual for
uncertain tax positions as of March 31, 2008.
-12-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 10- STOCKHOLDERS' EQUITY
Preferred Stock
---------------
Pursuant to our Company's Articles of Incorporation, our 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 our 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 our business or a
takeover from a third party.
Common Stock and Warrants
-------------------------
The stockholders' deficit at January 1, 2004 has been
retroactively restated for the equivalent number of shares
received in the reverse acquisition at July 14, 2004 (Note 1)
after giving effect to the difference in par value with the
offset to additional paid-in-capital.
In July 2004, the Company issued 1,600,000 shares of its common
stock for professional services valued at $256,000, fair value.
In August 2004, the Company issued 637,500 shares of its common
stock for professional services valued at $75,000, fair value.
In December 2004, the Company converted a note payable of $30,000
into 187,500 shares of common stock at a conversion price of
$0.16 per share.
In April 2005, the Company issued 4,000,000 shares of its common
stock in a private placement for proceeds of $1,000,000.
On May 4, 2005, the Company converted the notes payable of
$499,000 into 3,118,750 shares of common stock at a conversion
price of $0.16 per share. An unpaid note payable in the amount
of $6,500 has been reflected as a subscription receivable.
During August 2005, the Company issued 210,000 shares of common
stock for professional services rendered valued at $585,500, fair
value. Consulting expense of $375,500 was recognized during 2005,
and at December 31, 2005, the remaining balance of $210,000 is
reflected as a deferred charge on the balance sheet. During
2006, consulting expense of $210,000 was recognized. This
agreement ended in May 2006.
In August 2005, in conjunction with a management services
contract, the Company issued 200,000 shares of common stock
valued at $584,000. Management expense of $265,455 was
recognized during 2005, and at December 31, 2005, the remaining
balance of $318,545 is reflected as a deferred charge in a contra-
equity account. During 2006, management expense of $318,545 was
recognized. This agreement ended in June 2006.
-13-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock and Warrants (Continued)
-------------------------------------
During May 2005, the Company issued Stock Purchase Warrants to
purchase 100,000 shares of common stock at an exercise price of
$2.10 in exchange for consulting services. The warrants are
exercisable until May 2008 and vest as follows: 50,000 shares
during the first year of the agreement, 25,000 shares during the
second year of the agreement, and 25,000 shares during the third
year. In accordance with the fair value method, the Company used
the Black-Scholes model to calculate the grant-date fair value,
with the following assumptions: no dividend yield, expected
volatility of 60%, risk-free interest rate of 3.8% and expected
life of option of three years. The fair market value of the
warrants was $113,250. In accordance with the fair value method
as described in accounting requirements of SFAS No. 123, the
Company recognized consulting expense of $37,000 in 2005. This
warrant was cancelled during 2006.
During September 2005, the Company issued Stock Purchase Warrants
to purchase 100,000 shares of common stock at an exercise price
of $2.00 in exchange for consulting services. The warrants expire
in September 2008 and vest as follows: 50,000 shares during the
first year of the agreement, 25,000 shares during the second year
of the agreement, and 25,000 shares during the third year of the
agreement. In accordance with the fair value method, the Company
used the Black-Scholes model to calculate the grant-date fair
value, with the following assumptions: no dividend yield,
expected volatility of 60%, risk-free interest rate of 3.8% and
expected life of option of three years. The fair market value of
the warrants was $145,100. The Company recognized consulting
expense of $36,370, $66,500 and $24,200 for the years ended
December 31, 2007, 2006 and 2005 in conjunction with this
agreement. For the three months ending March 31, 2008, the
Company recognized $9,043 in consulting expense.
On October 15, 2005, the Company issued Stock Purchase Warrants
to purchase 30,000 shares of common stock at an exercise price of
$1.40 in exchange for consulting services. The warrants expire in
October 2006 and are exercisable immediately. In accordance with
the fair value method, the Company used the Black-Scholes model
to calculate the grant-date fair value, with the following
assumptions: no dividend yield, expected volatility of 60%, risk-
free interest rate of 4.15% and expected life of option of one
year. The fair market value of the warrants was $15,900. In
accordance with the fair value method as described in accounting
requirements of SFAS No. 123, the Company recognized consulting
expense of $15,900 during 2005. These warrants expired in
October 2006.
In December 2005, in conjunction with a consulting contract, the
Company issued Stock Purchase Warrants to purchase 300,000 shares
of common stock at an exercise price of $0.25 per share valued at
$435,060, fair value. The warrants expire in December 2007 and
were exercisable immediately. In accordance with the fair value
method, the Company used the Black-Scholes model to calculate the
grant-date fair value, with the following assumptions: no
dividend yield, expected volatility of 60%, risk-free interest
rate of 4.41% and expected life of option of two years. In
accordance with the fair value method as described in accounting
requirements of SFAS No. 123, the Company recognized consulting
expense of $199,435, and at December 31, 2005, the remaining
balance in deferred charges amounted to $235,625. The 300,000
warrants were fully exercised on December 31, 2005 for $75,000.
The Company recognized $18,128 and $217,497 in consulting expense
in conjunction with this agreement for the years ended December
31, 2007 and 2006, which was cancelled during 2007.
-14-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock and Warrants (Continued)
-------------------------------------
During 2006, the Company issued 850,000 shares of common stock
and 425,000 warrants for proceeds of $425,000 in accordance to a
private placement memorandum amended December 18, 2006. Pursuant
to the terms of the amended offering, up to 20 units were offered
at the offering price of $50,000 per unit, with each unit
comprise of 100,000 shares and a warrant to purchase 50,000
shares of common stock at $0.50 per share. As of December 31,
2007, the 425,000 warrants are still outstanding.
During February 2006, the Company issued 300,000 shares of common
stock for professional services rendered valued at $270,000, fair
value. The Company recognized consulting expense of $16,875 and
$118,125 and legal expense of $16,875 and $118,125 during 2007
and 2006. The contracts expired during 2007.
During May 2006, the Company issued 400,000 shares of common
stock for professional services rendered valued at $620,000, fair
value. The Company recognized consulting expense of $258,333 and
$361,667 during 2007 and 2006, and at December 31, 2006. The
contracts expired during 2007.
During June 2006, the Company issued 25,000 shares of common
stock for professional services rendered valued at $36,250, fair
value. The Company recognized legal expense of $16,615 and
$19,635 during 2007 and 2006, and at December 31, 2006. The
contracts expired during 2007.
During November 2006, the Company issued 60,000 shares of common
stock for professional services valued at $29,400, fair value.
The Company recognized investor relations expense of $25,480 and
$3,920 during 2007 and 2006. The contract expired during 2007.
In June 2006, in conjunction with an addendum to an existing
consulting contract effective December 2005, the Company issued
Stock Purchase Warrants to purchase 300,000 shares of common
stock at an exercise price of $0.25 per share. The warrants
expire in June 2008 and were exercisable immediately. In
accordance with the fair value method, the Company used the Black-
Scholes model to calculate the grant-date fair value, with the
following assumptions: no dividend yield, expected volatility of
186%, risk-free interest rate of 4.41% and expected life of
option of two years. The fair market value of the warrants was
$465,996. During 2007 and 2006, the Company recognized
consulting expense of $330,948 and $135,048 in conjunction with
this agreement. The contract was cancelled during 2007. The
300,000 warrants were fully exercised on March 12, 2008 for
$75,000.
During 2006, the Company cancelled a warrant issued during May
2005 to purchase 100,000 shares of the Company's common stock at
an exercise price of $2.10, and issued an option to purchase
500,000 shares of the Company's common stock at an exercise price
of $1 per share and the same option's expiration and vesting
terms were modified during November 2006. The incremental cost
of the modified option was $394,030 and will be expensed over the
vesting terms. The Company recognized $17,589 and $406,215 as a
consulting expense in 2007 and 2006, which includes $337,290 of
the incremental cost of the modified option.
During February 2006, the Company awarded an employee with an
option to purchase 200,000 shares of common stock at an exercise
price of $1.00 per share under the 2005 Employee Stock Option
Plan. These options were valued at $217,628 using the Black-
Scholes Option Pricing Formula. The employee compensation
expense recognized during 2007 and 2006 is $43,757 and $22,673.
In June 2007, the employee was terminated and the vesting ceased.
After September 2007, the vested options expired.
-15-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock and Warrants (Continued)
-------------------------------------
During 2006, the Company recognized contributed capital of
$35,624 related to the conversion of accrued interest payable.
During 2006, the Company deemed an outstanding subscription
receivable of $6,500 to be uncollectible.
During 2007, the Company issued 2,482,000 shares of common stock
and 1,241,000 warrants for proceeds of $1,241,000 in accordance
to a private placement memorandum amended December 18, 2006.
Pursuant to the terms of the amended offering, up to 20 units
were offered at the offering price of $50,000 per unit, with each
unit comprised of 100,000 shares and a warrant to purchase 50,000
shares of common stock at $0.50 per share. As of March 31, 2008,
1,041,000 warrants are still outstanding.
During 2007, the Company issued 1,767,540 shares of common stock
and 883,770 warrants for proceeds of $1,060,524 in accordance to
a private placement memorandum issued on October 3, 2007.
Pursuant to the terms of the offerings, up to 20 units were
offered at the purchase price of $60,000 per unit, with each unit
comprised of 100,000 shares and a warrant to purchase 50,000
shares of common stock at $1.00 per share. As of March 31, 2008,
the 883,770 warrants are still outstanding.
During 2007, a shareholder that was issued 400,000 shares of the
Company's common stock and a warrant to purchase 200,000 shares
of the Company's common stock at $0.50 per share rescinded his
shares and warrant.
During February 2007, the Company issued 151,785 shares of common
stock for investor relations services valued at $106,250, fair
value, which was recorded as a deferred charge and amortized over
one year, the term of the services contract. During 2007, the
Company recognized $97,396 in investor relations expense. For
the three months ending March 31, 2008, the Company recognized
$8,854 in investor relations expense. This contract expired in
February 2008.
During February 2007, the Company terminated its then CEO. The
56,000 options that were recorded as deferred charges of $42,730
were not vested and were forfeited. The 444,000 options that
were vested expired during 2007.
During March 2007, the Company issued 1,000,000 shares of common
stock for management consulting services valued at $580,000, fair
value. During April 2007, the Company issued 500,000 warrants as
an addendum to the original contract for management consulting
services valued at $348,000, fair value. This contract was
recorded as a contra-equity deferred charges account and is
amortized over one year, the term of the contract. Management
consulting expense of $773,333 was recognized during 2007. For
the three months ending March 31, 2008, $154,667 was recognized
as management consulting expense. This contract expired in
February 2008.
During April 2007, the Company issued 100,000 shares of common
stock for legal services valued at $35,000, fair value, to settle
$29,708 of accounts payable and as payment for $5,292 of legal
services incurred in April 2007.
During October 2007, the Company issued 150,000 shares of common
stock for investor relations services valued at $102,000, fair
value. During 2007 the Company recognized $102,000 in investor
relation expense.
-16-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock and Warrants (Continued)
-------------------------------------
During October 2007, the Company issued 150,000 shares of common
stock for investor relation services pursuant to a contract
entered into by the Chief Executive Officer on behalf of the
Company. The value of these shares is $135,000, fair value.
During 2007, the Company recognized $135,000 in investor
relations expense.
During November 2007, the Company issued 400,000 shares of common
stock under the 2007 Stock Option Plan to the acting Chief
Executive Officer for services rendered valued at $288,000, fair
value. The Company recognized $288,000 in consulting expense
during 2007.
During March 2007, the Company issued a warrant to purchase
100,000 shares of common stock for consulting services at an
exercise price of $0.25 per share. The warrant was valued at
$63,065 using the Black-Scholes Option Pricing Formula and
expensed over the life of the contract associated with the
consulting services, which is one year. The consulting expense
recognized during 2007 is $52,180. For the three months ending
March 31, 2008 the Company recognized $10,885 of consulting
expense.
During April 2007, the Company issued warrants to purchase
900,000 shares of common stock for consulting services at an
exercise price of $0.25 per share. The warrants were valued at
$604,416 using the Black-Scholes Option Pricing Formula and
expensed over the life of the contracts associated with the
consulting services, which is one year. The consulting expense
recognized during 2007 is $433,966. For the three months ending
March 31, 2008, the Company recognized $150,690 in consulting
expense.
During May 2007, the Company issued a warrant to purchase 150,000
shares of common stock for consulting services at an exercise
price of $0.25 per share. The warrant was valued at $84,390
using the Black-Scholes Option Pricing Formula and expensed over
the life of the contract associated with the consulting services,
which is one year. The consulting expense recognized during 2007
is $52,946. For the three months ending March 31, 2008, the
Company recognized $21,040 in consulting expense.
During October 2007, the Company issued a warrant to purchase
100,000 shares of common stock at a purchase price of $0.25 per
share for accounting services rendered. The warrant was valued
at $61,449 using the Black-Scholes Option Pricing Formula. The
Company recognized $61,449 in accounting expense during 2007.
During October 2007, the Company issued a warrant to purchase
67,200 shares of common stock at a purchase price of $0.25 per
share for consulting services rendered. The warrant was valued
at $52,292 using the Black-Scholes Option Pricing Formula.
During 2007, the Company recognized $52,292 in consulting
expense.
During December 2007, the Company issued a warrant to purchase
25,000 shares of common stock at a purchase price of $0.50 per
share for accounting services rendered. The warrant was valued
at $13,646 using the Black-Scholes Option Pricing Formula and
expensed over the life of the contract, which is one year. The
Company recognized $1,159 in consulting expense during 2007. For
the three months ending March 31, 2008, the Company recognized
$3,402 in consulting expense.
-17-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock and Warrants (Continued)
-------------------------------------
During November 2007, under the 2007 Employee Stock Option Plan,
the Company issued options to purchase 1,752,000 shares of common
stock at a purchase price of $0.72 per share. The options were
valued at $1,045,077 using the Black-Scholes Option Pricing
Formula. During 2007, the Company recognized $41,653 in
consulting expense. For the three months ending March 31, 2008,
the Company recognized $86,851. The value of the options is
being recognized pro rata over the vesting terms.
In January 2008, under the 2007 Employee Stock Option Plan, the
Company issued options to purchase 100,000 shares of common stock
at a purchase price of $0.72 per share. The options were valued
at $59,490 using the Black-Scholes Option Pricing Formula. For
the three months ending March 31, 2008, the Company recognized
$18,254. The value of the options is being recognized pro rata
over the vesting terms.
During 2008, the Company issued 31,667 shares of common stock and
15,834 warrants for proceeds of $19,000 in accordance to a
private placement memorandum issued on October 3, 2007. Pursuant
to the terms of the offerings, up to 20 units were offered at the
purchase price of $60,000 per unit, with each unit comprised of
100,000 shares and a warrant to purchase 50,000 shares of common
stock at $1.00 per share. As of March 31, 2008, the 15,834
warrants are still outstanding.
During March 2008, the Company issued 400,000 warrants as an
addendum to the original contract for management consulting
services provided by a related party, valued at $332,000, fair
value. This contract was recorded as a contra-equity deferred
charges account and is amortized over one year beginning February
28, 2008, the term of the contract. Management consulting
expense of $27,667 was recognized for the three months ending
March 31, 2008.
During March 2008, the company issued 100,000 shares of common
stock for legal services valued at $75,000, fair value. The
Company recognized $75,000 of legal expense for the three months
ending March 31, 2008.
NOTE 11 - STOCK BASED COMPENSATION
The Company uses the Black-Scholes option pricing model to
calculate the grant-date fair value of an award, with the
following assumptions: no dividend yield, expected volatility
between 150% and 186%, risk-free interest rate between 3.8% and
5.1% and expected option life of ten years.
During the three months ended March 31, 2008, the Company's net
income was approximately $300,165 lower as a result of stock-
based compensation expense as a result of the adoption of SFAS
123(R). As of March 31, 2008, there was $1,056,684 of
unrecognized compensation expense related to non-vested market-
based share awards that is expected to be recognized.
-18-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 11 - STOCK BASED COMPENSATION (CONTINUED)
The following tables summarize all stock option and warrant
activity of the Company since December 31, 2004:
Non-Qualified Stock Options and Warrants Outstanding and Exercisable
--------------------------------------------------------------------
Number of Exercise Weighted Avereage
Shares Price Exercise Price
------------ ------------- --------------
Outstanding, December 31, 2007 6,293,971 $0.25 - $2.00 $ 0.48
Granted 515,833 $0.001- $1.00 $ 0.145
Exercised (300,000) $ 0.25 $ 0.25
------------ ------------- -------------
Outstanding, March 31, 2008 6,509,804 $0.001- $2.00 $ 0.74
Exercisable, March 31, 2008 4,762,204 $0.001- $2.00 $ 0.54
Non-Qualified Stock Options and Warrants Outstanding
-------------------------------------------------------------
Number Outstanding Weighted Average Weighted Average
Range of Currently Exercisable Remaining Exercise Price of Options and
Exercise Prices at March 31, 2008 Contractual Life Warrants Currently Exercisable
---------------- -------------------- ---------------- ------------------------------
$0.001 - $2.00 4,762,204 1.57 Years $ 0.54
NOTE 12 - CONTINGENCY
2005 Private Offering
---------------------
During 2005, the Company raised $1,000,000 through the sale of
4,000,000 shares of common stock in a limited offering to persons
believed to be accredited investors. The Company received a
legal opinion from third party outside counsel as to the
availability of an exemption from registration with the SEC with
respect to the limited offering. In December 2005, the Company
was informed by the SEC that it is investigating the
circumstances surrounding the $1,000,000 offering including the
subsequent public resale of certain shares originally sold in the
offering, along with related matters. The Company has further
been informed that the original issuance of the stock and
subsequent resale may have been done, in the opinion of the SEC,
in violation of the registration provisions of the Securities Act
of 1933, as amended. These matters could lead to enforcement
action by the SEC. The Company's management is committed to
cooperate fully with the SEC.
-19-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 12 - CONTINGENCY (CONTINUED)
Ronald R. Genova Lawsuit
------------------------
During July 2007, Ronald R. Genova filed a lawsuit in
Philadelphia County, Court of Common Pleas. Ronald R. Genova is
the Plaintiff. Third-Order Nanotechnologies, Inc., PSI-TEC
Holdings, Inc. and Universal Capital Management are each a
Defendant.
Ronald R. Genova ("Genova") served as a consultant and then as
the interim chief executive officer of our Company, Third-Order
Nanotechnologies, Inc. The Company terminated Genova effective
February 28, 2007. On March 26, 2007 the Company paid Genova
$9,806, which the Company determined was the full amount the
Company owed Genova. Genova sued, claiming he was owed an
additional $84,650 plus interest for unpaid consulting fees in
the amount of $32,516, a performance bonus in the amount of
$50,000, and an expense reimbursement in the amount of $2,135.
Pursuant to the complaint, Genova is alleging breach of contract,
fraud and promissory estoppel in an amount in excess of $180,000,
in addition to the right to exercise his options, that expired on
May 30, 2007, until February 13, 2016 or a judgment in an
additional amount equal to the monetary value of such options
plus punitive damages, interest and costs.
In May 2008, the parties were in the process of reaching a
settlement. The estimated settlement amount is included in
accounts payable as of March 31, 2008.
NOTE 13 - RELATED PARTY
The Company has available-for-sale securities of a related party
(NOTE 6). The information is summarized below and is recorded on
the balance sheet as "Available-for-sale securities". The
unrealized loss on this investment is included on the Statement
of Other Comprehensive Income.
Number Market Unrealized
of Shares Cost Value Loss
--------- -------- --------- -----------
Related party 43,900 $ 87,800 $ 41,266 $ (46,534)
Under the management agreement dated August 1, 2005, the related
party was issued 200,000 shares of common stock with a fair value
of $584,000 which was amortized over the term of the agreement
(one year), which expired in 2006. In February 2007, the Company
entered into a contract with the related party and issued
1,000,000 shares of common stock with a fair value of $580,000.
In addition, the Company issued a warrant to purchase 500,000
shares of its common stock with a fair value of $348,000. This
contract was renewed in March 2008 and the Company issued a
warrant to purchase 400,000 shares of its common stock in
exchange for management services for one year, valued at
$297,425, fair value. For the three months ending March 31, 2008
and 2007, the Company recognized $182,334 and $72,369 in
management expense. The unamortized expense is reflected as
deferred charges in the equity section of the balance sheet.
At March 31, 2008 the Company has accrued officer salaries of
$98,205.
-20-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
NOTE 14 - SUBSEQUENT EVENTS
Common Stock
------------
Through May 10, 2008, the Company issued 658,334 shares of its
common stock and warrants to purchase 329,167 shares of the
Company's common stock for proceeds of $395,000. In accordance
with Emerging Issue Task Force ("EITF") 00-19, the warrants will
be reflected as equity since the warrant contract requires
physical settlement or net share settlement and does not permit
net cash settlement of the contract.
Warrants
--------
Through May 10, 2008, stockholders exercised their rights to
purchase 45,000 shares of the Company's common stock for total
proceeds of $22,500.
-21-
LIGHTWAVE LOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements. The words "anticipate," "believe," "expect," "plan," "intend,"
"estimate," "project," "will," "could," "may" and similar expressions are
intended to identify forward-looking statements. Such statements reflect our
current views with respect to future events and financial performance and
involve risks and uncertainties. Should one or more risks or uncertainties
occur, or should underlying assumptions prove incorrect, actual results may
vary materially and adversely from those anticipated, believed, expected,
planned, intended, estimated, projected or otherwise indicated. We caution
you not to place undue reliance on these forward-looking statements, which we
have made as of the date of this Quarterly Report on Form 10-Q.
The following provides information that management believes is relevant
to an assessment and understanding of our plans and financial condition. The
following selected financial information is derived from our historical
financial statements and should be read in conjunction with such financial
statements and notes thereto set forth elsewhere herein and the "Forward-
Looking Statements" explanation included herein.
Overview
Lightwave Logic, Inc., formerly, Third-Order Nanotechnologies, Inc.,
formerly, PSI-TEC Holdings, Inc., formerly Eastern Idaho Internet Service,
Inc. was organized under the laws of the State of Nevada in 1997, where we
engaged in the business of marketing Internet services until June 30, 1998
when our operations were discontinued. We were then inactive until we
acquired PSI-TEC Corporation as our wholly owned subsidiary on July 14, 2004,
at which time our name was changed to PSI-TEC Holdings, Inc. On October 20,
2006, we completed a parent-subsidiary merger with PSI-TEC Corporation
whereby we were the surviving corporation of the merger, and our name was
changed to Third-Order Nanotechnologies, Inc. On March 10, 2008, we changed
our name to Lightwave Logic, Inc. to better suit our strategic business plan
and to facilitate stockholder recognition of our Company and its business.
We are a developmental stage company that has developed and continues
to develop high-activity, high-stability electro-optic polymers (plastics)
that we believe could have a broad range of applications in the electro-optic
device market. We engineer our proprietary electro-optic plastics at the
molecular level for superior performance, stability, cost-efficiency and ease
of processability. We expect our electro-optic plastics to broadly replace
more expensive, lower-performance materials that are currently used in fiber-
optic ground, wireless and satellite communication networks.
In order to transmit digital information at extremely high-speeds (wide
bandwidth) over the Internet, it is necessary to convert the electrical
signals produced by a computer into optical signals for transmission over
long-distance fiber-optic cable. The actual conversion of electricity to an
optical signal may be performed by a molecularly-engineered material known as
an electro-optic plastic.
-22-
We are currently developing electro-optic plastics that promise
performance many times faster than any technology currently available and
that have unprecedented thermal stability. High-performance electro-optic
materials produced by our Company have demonstrated stability as high as 350
degrees Celsius. Stability above 300 degrees Celsius is necessary for
vertical integration into many semi-conductor production lines. Our past
results, independently confirmed by the University of Arizona, have
demonstrated that the molecular performance of some of our Company's
molecular designs perform 650% better than competitive electro-optic
compounds.
Our revenue model relies substantially on the assumption that we will
be able to successfully develop electro-optic products for applications
within the industries described below. When appropriate, we intend to create
specific materials for each of these applications and use our proprietary
knowledge base to continue to enhance its discoveries.
* Satellite Reconnaissance
* Navigational Systems
* Radar Applications
* Telecommunications
* Backplane Optical Interconnects
* Entertainment
* Medical Applications
* Optical Computing
To be successful, we must, among other things:
* Develop and maintain collaborative relationships with strategic
partners;
* Continue to expand our research and development efforts for our
products;
* Develop and continue to improve on our manufacturing processes and
maintain stringent quality controls;
* Produce commercial quantities of our products at commercially
acceptable prices;
* Rapidly respond to technological advancements;
* Attract, retain and motivate qualified personnel; and
* Obtain and retain effective intellectual property protection for our
products and technology.
Plan of Operation
Since our inception, we have been engaged primarily in the research and
development of our polymer materials technologies and potential products. We
are devoting significant resources to engineer next-generation electro-optic
plastics for future applications to be utilized by electro-optic device
manufacturers, such as telecommunications component and systems
manufacturers, networking and switching suppliers, semiconductor companies,
aerospace companies and government agencies. We expect to continue to develop
products that we intend to introduce to these rapidly changing markets and to
seek to identify new markets. We expect to continue to make significant
operating and capital expenditures for research and development activities.
-23-
As we move from a development stage company to a product vendor, we
expect that our financial condition and results of operations will undergo
substantial change. In particular, we expect to record both revenue and
expense from product sales, to incur increased costs for sales and marketing
and to increase general and administrative expense. Accordingly, the
financial condition and results of operations reflected in our historical
financial statements are not expected to be indicative of our future
financial condition and results of operations.
On August 8, 2006, we contracted with Triple Play Communications
Corporation, a design and market consulting company, to deliver a
comprehensive market opportunity assessment report for high speed 40G
(commercial) & 100G+ (military/aerospace) modulators and system applications.
In August, 2006 we entered into a co-location agreement with InPlane
Photonics, a New Jersey-based micro-optics company that allowed our
scientists to establish a pre-production line in order to test and integrate
our organic materials into waveguide devices and system prototypes as a first
step toward product commercialization. This agreement was terminated at the
end of January 2007 so that we could focus on pursuing a strategic
relationship with Photon-X LLC, a Pennsylvania-based firm with extensive
experience in polymer waveguide processing. We entered into a non-binding
memorandum of understanding with Photon-X, LLC in December 2006 to work
towards creating a "fee for services" agreement with Photon-X, LLC to design,
develop, produce and market electro-optic components based upon our polymer
technology. Such an agreement with Photon-X, LLC would afford our Company
access to a full suite of fabrication facilities capable of producing
commercial quantities of precision micro-optic devices such as high-speed
(40GHz) telecom modulators, optical filters, and optical interconnects
important to military and civilian global information movement and management
markets.
On September 25, 2006 we obtained independent laboratory results that
confirmed the thermal stability of our Perkinamine electro-optic materials.
Thermal stability as high as 350 degrees Celsius was confirmed, significantly
exceeding many other commercially available high performance electro-optic
materials, such as CLD-1 which exhibits thermal degradation in the range of
250 degrees Celsius to 275 degrees Celsius. This high temperature stability
of our materials eliminates a major obstacle to vertical integration of
electro-optic polymers into standard microelectronic manufacturing processes
(e.g. wave/vapor-phase soldering) where thermal stability of at least 300
degrees Celsius is required. In independent laboratory tests, ten-percent
material degradation, a common evaluation of overall thermal stability, did
not occur until our Perkinamine material base was exposed to temperatures as
high as 350 degrees Celsius, as determined by Thermo-Gravimetric Analysis
(TGA). The test results supported our Company's progress to introduce our
materials into commercial applications such as optical interconnections,
high-speed telecom and datacom modulators, and military/aerospace components.
In July 2007, our Company developed an innovative process to integrate
our unique architecture into our anticipated commercial devices, whereby
dendritic spacer systems are attached to its core chromophore. In the event
we are successful in developing a commercially viable product, we believe
these dendrimers will reduce the cost of manufacturing materials and reduce
the cost and complexity of tailoring the material to specific customer
requirements.
-24-
In January 2008, we retained TangibleFuture, Inc., a San Francisco
based technology analysis and business development consulting company, to
generate an independent assessment of our business opportunities in the
fiber-optic telecommunications and optical computing sectors and develop
strategies to penetrate those potential markets. We recently received an
assessment from TangibleFuture, Inc. whereby they consider the existing high
speed, long reach, communication modulator market to approximate $140 million
per year.
In March 2008, we commenced production of our first prototype photonic
chip, which we delivered to our partner, Photon-X, LLC who will fabricate a
prototype polymer optical modulator and measure its technical properties. We
hope to be able to demonstrate this prototype early in the second quarter. We
intend to utilize the services of Dr. Robert Norwood at the University of
Arizona Photonics Department to perform the necessary proof of concept tests,
as we have in the past. We may incur delays in this process due to slower
than expected material production within our laboratories and/or delays
caused by the testing procedures at the University of Arizona. Should these
tests produce a functional 10 Gb/s or greater modulator we expect to go
forward with product marketing and development in the telecommunication
market with partners in the telecommunication field. We cannot anticipate the
details of the customer adoption cycle until we have produced a functional
prototype to create a credible technology offering.
We ultimately intend to use our next-generation electro-optic plastics
for future applications vital to the following industries. We expect to
create specific materials for each of these applications as appropriate:
* Satellite Reconnaissance
* Navigational Systems
* Radar Applications
* Telecommunications
* Backplane Optical Interconnects
* Entertainment
* Medical Applications
* Optical Computing
In an effort to maximize our future revenue stream from our electro-
optic polymer products, we are currently evaluating each of or some
combination of the following approaches:
* Licensing our technology for individual specific applications;
* Entering into collaborative or joint venture agreements with one or a
number of partners; or
* Selling our products directly to commercial customers.
Additionally, we must create an infrastructure, including operational
and financial systems, and related internal controls, and recruit qualified
personnel. Failure to do so could adversely affect our ability to support our
operations.
-25-
We have incurred substantial net losses since inception. We have
satisfied our capital requirements since inception primarily through the
issuance and sale of our common stock. During 2004 we raised approximately
$529,000 from the issuance of convertible promissory notes, of which $30,000
was converted into common stock of the company during 2004 and the remaining
$499,000 converted in 2005. Also, during 2005, we raised an aggregate of
$1,000,000 from the private sale of our common stock. During 2006, we raised
approximately $425,000 from the private sale of our common stock, of which
$200,000 was rescinded during 2007. During 2007, we raised approximately
$2,301,524 from the private sale of our common stock. During 2008, we raised
approximately $414,000 from the private sale of our common stock. We have
also issued shares of our common stock and warrants to purchase shares of our
common stock in exchange for services rendered to our company, including
professional services.
Award
On September 26, 2006, we were awarded the 2006 Electro-Optic Materials
Technology Innovation of the Year Award by Frost & Sullivan. Frost &
Sullivan's Technology Innovation of the Year Award is bestowed upon
candidates whose original research has resulted in innovations
that have, or are expected to bring, significant contributions to multiple
industries in terms of adoption, change, and competitive posture. This award
recognizes the quality and depth of our Company's research and development
program as well as the vision and risk-taking that enabled us to undertake
such an endeavor.
Results of Operations
Comparison of Three Months Ended March 31, 2008 to Three Months Ended
March 31, 2007
Revenues
We had no revenues during the three months ended March 31, 2008 and
2007 since we are a development stage company that has yet to commence
revenue creating operations.
Operating Expenses
Our operating expenses were $1,013,602 and $745,144 for the three
months ended March 31, 2008 and 2007, respectively, for an increase of
$268,458. This increase in operating expenses was due primarily to our
hiring additional personnel, significantly increasing our research and
development activities, and legal, accounting, investor relations and other
costs associated with being a fully reporting public company.
-26-
Included in our operating expenses for the three months ended March 31,
2008 was $704,835 for research and development expenses compared to $568,725
for the three months ended March 31, 2007, for an increase of $136,110.
Research and development expenses currently consist primarily of compensation
for employees and contractors engaged in internal research and product
development activities; laboratory operations, outsourced development and
processing work; fees and expenses related to patent applications and
intellectual property protection; costs incurred in acquiring and maintaining
licenses; and related operating expenses.
We expect to continue to incur substantial research and development
expense to develop commercial products that utilize our electro-optic
plastics. These expenses could increase as a result of continued development
and commercialization of our electro-optic materials technology;
subcontracting work to potential development partners; expanding and
equipping in-house laboratories; hiring additional technical and support
personnel; pursuing other potential business opportunities; and incurring
related operating expenses.
General and administrative expense consists primarily of compensation
and support costs for management and administrative staff, and for other
general and administrative costs, including executive, investor relations,
accounting and finance, legal, consulting and other operating expenses,
including laboratory space rental costs.
General and administrative expenses increased $132,348 to $308,767 for
the three months ended March 31, 2008 compared to $176,419 for the three
months ended March 31, 2007. The increase is due primarily to our increases
in accounting and auditing fees, legal fees, management fees, investor
relations fees, and wages and salaries, which were offset by a decrease in
rent, insurance, state income taxes, travel and entertainment, and other
costs.
Accounting and auditing fees were $29,173 and $16,501 for the three
months ended March 31, 2008 and 2007. The increase of $12,672 was primarily
due to the fees associated with the December 31, 2007 year end audit. Legal
fees increased $44,687 to $113,419 for the three months ended March 31, 2008
compared to $68,732 for the three months ended March 31, 2007 due to fees
associated with the preparation of the Form 10-KSB and other legal services
provided to our Company.
Market research fees were $75,319 and $0 for the three months ended
March 31, 2008 and 2007. During the first quarter of 2008, the Company
entered into a contract with a San Francisco based technology analysis and
business development consulting company, to generate an independent
assessment of our business opportunities in the fiber-optic
telecommunications and optical computing sectors and develop strategies to
penetrate those potential markets.
-27-
Wages and salaries increased $205,822 from $83,368 for the three months
ended March 31, 2007 to $289,190 for the three months ended March 31, 2008
due to the amortization of employee options and an increase in pay for some
of the officers. Consultant expense was $192,597 and $282,665 for the three
months ended March 31, 2008 and 2007. The decrease of $90,068 was due to
additional consultants being used during the three months ended March 31,
2007. Two of these consultants used during the three months ended
March 31, 2007 became employees as of January 1, 2008.
Management fees increased $105,000 to $182,334 from $77,334 for the
three months ended March 31, 2007 as a result of an additional contract
signed in February 2008. Investor relations fees increased $26,361 from
$27,210 for the three months ended March 31, 2007 to $53,571 for the three
months ended March 31, 2008 due to the Company becoming fully reporting with
the SEC and switching from the Pink Sheets to the Over-the-Counter Bulletin
Board.
We expect general and administrative expense to increase in future
periods as we increase the level of corporate and administrative activity,
including increases associated with our operation as a public company; and
significantly increase expenditures related to the future production and
sales of our products.
Other Income (Expense)
Other income was $3,782 for the three months ended March 31, 2008,
consisting of $4,624 of interest income on cash deposits and short term
investments offset by $842 of interest expense compared to other (expense)
of ($2,005) for the three months ended March 31, 2007, consisting of $3 of
interest income on cash deposits and short term investments offset by $2,008
of interest expense.
Net Loss
Net loss was $1,009,820 and $747,149 for the three months ended March
31, 2008 and 2007, respectively, for an increase of $262,671, primarily
resulting from research and development and general and administrative
expenses incurred as described above.
Critical Accounting Policies
The Company's accounting policies are more fully described in the Notes
to Financial Statements. As disclosed in Note 1 of Notes to Financial
Statements, the preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions about future events that affect
the amounts reported in the financial statements and accompanying notes.
Future events and their effects cannot be determined with absolute certainty.
Therefore, the determination of estimates requires the exercise of judgment.
Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements. The Company believes
that, of its significant accounting policies, the following may involve a
higher degree of judgment, estimation, or complexity than other accounting
policies.
-28-
Merger
On July 14, 2004, the Company acquired PSI-TEC Corporation. Under the
terms of the merger agreement, the stockholders of PSI-TEC Corporation
received 15,600,000 shares of common stock in exchange for its 2,206,280
shares. Following the merger, the Company changed its name to PSI-TEC
Holdings, Inc. Under accounting principles generally accepted in the United
States, the share exchange is considered to be a capital transaction in
substance rather than a business combination. That is, the share exchange is
equivalent to the issuance of stock by PSI-TEC Holdings, Inc. for the net
monetary assets of PSI-TEC Corporation, accompanied by a recapitalization,
and is accounted for as a change of capital structure. Accordingly, the
accounting for the share exchange will be identical to that resulting from a
reverse acquisition, except no goodwill will be recorded. Under reverse
takeover accounting, the post-reverse acquisition comparative historical
financial statements of the legal acquirer, PSI-TEC Holdings, Inc., are those
of the legal acquiree, PSI-TEC Corporation, which is considered to be the
accounting acquirer. On October 20, 2006, PSI-TEC Holdings, Inc. and PSI-TEC
Corporation merged and changed its name to Third-Order Nanotechnologies, Inc.
Stock Based Compensation
In December 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS 123 (revised 2004), Share-Based Payment ("SFAS 123R"). SFAS
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the
approach in SFAS 123(R) is similar to the approach described in SFAS 123.
However, SFAS 123(R) requires share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement
based on their fair values at the date of grant. Pro forma disclosure is no
longer an alternative.
On January 1, 2006, the Company adopted SFAS 123(R) using the modified
prospective method as permitted under SFAS 123(R). Under this transition
method, compensation cost recognized in the first quarter of 2006 includes
compensation cost for all share-based payments granted prior to but not yet
vested as of December 30, 2005, based on the grant-date fair value estimated
in accordance with the provisions of SFAS 123. In accordance with the
modified prospective method of adoption, the Company's results of operations
and financial position for prior periods have not been restated.
The Company uses the Black-Scholes option pricing model to calculate
the grant-date fair value of an award.
Liquidity and Capital Resources
During the three months ended March 31, 2008, net cash used in
operating activities was $379,560 and net cash used in investing activities
was $18,428, which was due primarily to the Company applying for patents and
the purchase of equipment. Net cash provided by financing activities for the
three months ended March 31, 2008 was $94,000. At March 31, 2008, our cash
and cash equivalents totaled $175,463, our assets totaled $599,500, our
liabilities totaled $272,182, and we had stockholders' equity of $327,318.
-29-
Sources and Uses of Cash
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 plastic 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 in excess of $1 million
of expenditures over the next 12 months. Our cash requirements are expected
to increase at a rate consistent with revenue growth as we expand our
activities and operations with the objective of commercializing our electro-
optic plastic technology during 2008.
Our business does not presently generate the cash needed to finance our
current and anticipated operations. We believe we have raised sufficient
capital to finance our operations for the next four months, however, we will
need to obtain additional future financing during 2008 to finance our
operations until such time that we can conduct profitable revenue-generating
activities. Such future sources of financing may include cash from equity
offerings, exercise of warrants and stock options and proceeds from debt
instruments; but we cannot assure you that such equity or borrowings will be
available or, if available, will be at rates or prices acceptable to us. If
adequate funds are not available to satisfy either short-term or long-term
capital requirements, or if planned revenues are not generated, we may be
required to substantially limit our operations. This limitation of operations
may include reductions in capital expenditures and reductions in staff and
discretionary costs.
We expect that our cash used in operations will increase beyond the
three months ended March 31, 2008 as a result of the following planned
activities:
* The addition of management, sales, marketing, technical and other staff
to our workforce;
* Increased spending for the expansion of our research and development
efforts, including purchases of additional laboratory and
production equipment;
* Increased spending in marketing as our products are introduced into the
marketplace;
* Developing and maintaining collaborative relationships with strategic
partners;
* Developing and improving our manufacturing processes and quality
controls; and
* Increases in our general and administrative activities related to our
operations as a reporting public company and related corporate
compliance requirements.
-30-
Analysis of Cash Flows
For the three moths ended March 31, 2008
Net cash used in operating activities was $379,560 for the three months
ended March 31, 2008, consisting of payments for management, legal,
professional and consulting expenses, rent and other expenditures necessary
to develop our business infrastructure, offset by $194,729 in deferred
charges, $195,060 in warrants issued for services, $105,105 in options issued
for services, $75,000 in common stock issued for services, $2,395 in prepaid
expenses and $54,091 in accounts payable and accrued expenses
Net cash used by investing activities was $18,428 for the three months
ended March 31, 2008, consisting of $8,221 for intangibles, as well as the
purchase of equipment for $10,207.
Net cash provided by financing activities was $94,000 for the three
months ended March 31, 2008 and consisted of $19,000 of proceeds from the
sale of our common stock and $75,000 from the exercise of a warrant.
Inflation and Seasonality
We do not believe that our operations are significantly impacted by
inflation. Our business is not seasonal in nature.
Item 4T Controls and Procedures
As of the end of the period covered by this report, an evaluation was
performed by management under the supervision and with the participation of
the Company's president and treasurer of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the
end of the period covered by this report. The evaluation revealed to the
Company's president and treasurer that the design and operation of the
Company's disclosure controls and procedures were effective as of the end of
the period covered by this report.
There was no change in our internal controls over financial reporting
that occurred during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
-31-
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Ronald R. Genova v. Third-Order Nanotechnologies, Inc., PSI-TEC
Holdings, Inc. and Universal Capital Management
This case was filed in Philadelphia County, Court of Common Pleas, on
July 23, 2007. Ronald R. Genova is the Plaintiff. Third-Order
Nanotechnologies, Inc., PSI-TEC Holdings, Inc. and Universal Capital
Management are each a Defendant.
Ronald R. Genova ("Genova") served as a consultant and then as the
interim chief executive officer of our Company, Third-Order Nanotechnologies,
Inc. The Company terminated Genova effective February 28, 2007. On March 26,
2007 the Company paid Genova $9,806, which the Company determined was the
full amount the Company owed Genova. Genova sued, claiming he was owed an
additional $84,650 plus interest for unpaid consulting fees in the amount of
$32,516, a performance bonus in the amount of $50,000, and an expense
reimbursement in the amount of $2,135. Pursuant to the complaint, Genova is
alleging breach of contract, fraud and promissory estoppel in an amount in
excess of $180,000, in addition to the right to exercise his options, that
expired on May 30, 2007, until February 13, 2016 or a judgment in an
additional amount equal to the monetary value of such options plus punitive
damages, interest and costs. Our position is that Genova has been fairly
paid all amounts due to him, that Genova's options expired and that he is not
entitled to exercise such options at any time now or in the future.
On September 4, 2007 our Company answered the complaint seeking
dismissal of all allegations contained in the complaint and denying that
Genova is entitled to any of the relief he is seeking. Additionally, our
Company counter-claimed Genova seeking an undetermined amount of damages from
Genova for fraud, breach of contract, breach of duty of loyalty, and breach
of duty of disclosure. No discovery has commenced in this proceeding to
date. We intend to vigorously contest the matter. Although the facts
ascertained to date indicate a favorable outcome is a likely result, it is
too early in the process to provide a detailed evaluation of the likelihood
of success. It is also too early to provide an estimate of the amount of
range of potential loss, although according to the complaint, Genova is
seeking in excess of $180,000, in addition to the right to exercise his
options, that expired on May 30, 2007, until February 13, 2016 or a judgment
in an additional amount equal to the monetary value of such options plus
punitive damages, interest and costs, so the assumption can be made that this
would be at the high end of that range.
We are not aware of any other litigation or threatened litigation of a
material nature.
-32-
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
During the period covered by this report, we sold the following
unregistered securities:
During October 2007, we authorized a $1,500,000 private offering of our
common stock and warrants to purchase our common stock. Pursuant to the terms
of this private offering, up to 25 units were offered at the offering price
of $60,000 per unit, with each unit comprised of 100,000 shares of common
stock, and a warrant to purchase 50,000 shares of common stock at $1.00 per
share. During January 2008 and February 2008, pursuant to this private
offering, we issued 31,667 shares of common stock, and warrants to purchase
an aggregate of 15,834 shares of common stock, for total proceeds of $19,000.
The warrants are immediately exercisable for a period of two (2) years from
the date of purchase. We relied on Section 4(2) and Rule 506 of Regulation D
of the Securities Act since the transaction does not involve any public
offering.
During January 2008, pursuant to our 2007 Employee Stock Option Plan,
we issued options to purchase 100,000 shares of our common stock at a
purchase price of $0.72 per share to one accredited person in exchange for
that person serving as a member of our board of directors. 25,000 options
vested at their time of issuance and the remaining options vest in three
equal annual installments of 25,000 options per year commencing January 2009.
All of the options expire on January 8, 2013. This person was the only
offeree in connection with these transactions. We relied on Section 4(2) of
the Securities Act since the transaction did not involve any public offering.
During March 2008, we issued 100,000 shares of our common stock to one
accredited person in exchange for professional services. The shares were
valued at approximately $0.75 per share for an aggregate amount of
approximately $75,000. This person was the only offeree in connection with
these transactions. We relied on Section 4(2) of the Securities Act since the
transaction did not involve any public offering.
During March 2008, we issued 300,000 shares of common stock to one
accredited person for $75,000 pursuant to a warrant to purchase 300,000
shares of our common stock at an exercise price of $0.25 per share. The
warrant was issued during June 2006. We relied on Section 4(2) of the
Securities Act since the transaction did not involve any public offering.
During March 2008, we issued to one accredited person a warrant to
purchase up to 400,000 shares of our common stock at an exercise price of
$0.001 per share for a period of up to five years in exchange for management
consulting services. The warrants were valued at $332,000, fair value. This
person was the only offeree in connection with this transaction. We relied on
Section 4(2) of the Securities Act since the transaction did not involve any
public offering.
No underwriters were utilized and no commissions or fees were paid with
respect to any of the above transactions.
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Item 4 Submission of Matters to a Vote of Security Holders
Upon the approval of our Board of Directors, on February 6, 2008 a
total of ten stockholders, including directors, owning 17,071,904 shares of
our outstanding common stock as of February 6, 2008, consented in writing to
the actions described below.
1. The Approval of an amendment to the Company's Articles of
Incorporation to change the name of the Company from Third-order
Nanotechnologies, Inc. to Lightwave Logic, Inc.;
2. The Approval of an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of our
common stock from 50,000,000 to 100,000,000; and
3. The adoption of the 2007 Employee Stock Plan.
Such approval and consent constituted the approval and consent of a
majority of the total combined voting power of our outstanding common stock
and was sufficient under the Nevada Revised Statutes and our Articles of
Incorporation and Bylaws to approve the action. Accordingly, the actions were
not submitted to other Company stockholders for a vote. On February 19, 2008,
an Information Statement was furnished to stockholders to provide them with
certain information concerning the actions in accordance with the
requirements of the Securities Exchange Act of 1934 and the regulations
promulgated thereunder, includingRegulation 14C.
Item 6 Exhibits
(2) Charter and Bylaws.
2.1 Certificate of Amendment to Articles of Incorporation*
(10) Material Contracts.
10.1 2007 Employee Stock Plan*
(31)
31.1 Certification of the President of Lightwave Logic, Inc. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Treasurer of Lightwave Logic, Inc. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)
32.1 Certification of the President of Lightwave Logic, Inc. pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Treasurer of Lightwave Logic, Inc. pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
* Incorporated by reference to the Company's Definitive Schedule 14C
Information Statement filed on February 19, 2008.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LIGHTWAVE LOGIC, INC.
Registrant
By: /s/ Fred Goetz, Jr.
---------------------------
Fred Goetz, Jr., President
Date: May 20, 2008
By: /s/ Fred Goetz, Jr.
---------------------------
Fred Goetz, Jr., President
Date: May 20, 2008
By: /s/ Andrew J. Ashton
---------------------------
Andrew J. Ashton, Treasurer
Date: May 20, 2008
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