Business Context and Reporting Period
Company: Lightwave Logic, Inc. (Nevada Corporation)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2011
Status: Development Stage Company
Business Overview: The Company develops Application Specific Electro-Optic Polymers (ASEOP) and Non-Linear All-Optical Polymers (NLAOP) for telecommunications, optical computing, and defense applications. Operations focus on research and development (R&D), with minimal commercial revenue to date.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Net Sales | $3,200 | $0 | $3,200 |
| Operating Expenses | $926,110 | $1,010,706 | ($84,596) |
| Net Loss | ($925,995) | ($1,010,652) | $84,657 |
| Cash and Equivalents (End of Period) | $548,627 | $79,466 | $469,161 |
| Total Assets | $1,085,885 | $1,471,633 (Dec 31, 2010) | ($385,748) |
| Total Liabilities | $147,169 | $116,012 (Dec 31, 2010) | $31,157 |
| Stockholders' Equity | $938,716 | $1,355,621 (Dec 31, 2010) | ($416,905) |
Cash Flow Summary (Q1 2011):
- Operating Activities: Used $386,946
- Investing Activities: Used $18,294
- Financing Activities: $0
Material Changes vs. Prior Period
- Revenue: The Company recorded $3,200 in net sales for Q1 2011, its first revenue since inception, compared to $0 in Q1 2010. This stems from engineering revenues.
- Operating Expenses: Total expenses decreased by $84,596 (8.4%) year-over-year.
- Research & Development: Increased by $100,432 to $466,864, driven by higher non-cash stock option amortization ($62,345 increase), wages, and lab supplies.
- General & Administrative: Decreased by $185,028 to $459,246, primarily due to reduced non-cash amortization of warrants related to a Chairman's employment agreement.
- Net Loss: Improved by $84,657 to $925,995, largely attributed to the reduction in non-cash warrant amortization expenses.
- Liquidity: Cash balances decreased from $953,867 at year-end 2010 to $548,627 at March 31, 2011, reflecting a burn rate of approximately $405,000 for the quarter.
Outlook, Risks, and Contingencies
- Going Concern: The filing includes a "Going Concern" warning. The Company has incurred significant losses and negative cash flows since inception. Continued operations depend on securing additional financing.
- Financing Agreement: In May 2011 (subsequent to period end), the Company signed an agreement with Lincoln Park Capital Fund, LLC to sell up to $20 million of common stock over 30 months. This is contingent on the effectiveness of an SEC registration statement. The Company issued 150,830 shares as an initial commitment fee.
- R&D Progress: The Company continues to develop electro-optic polymers. Recent milestones include patent grants (Feb/April 2011) and collaborations with the University of Alabama and City University of New York. Commercialization of modulators is targeted for the second half of 2011 but faces potential delays.
- Capital Needs: Management expects to incur over $1.5 million in expenditures over the next 12 months. Current cash is projected to sustain operations through August 2011 without additional funding.
- Stock-Based Compensation: A significant portion of expenses is non-cash stock-based compensation. As of March 31, 2011, $1.29 million of unrecognized compensation expense remains to be recognized through November 2013.
Investor Verification Checklist
- Capital Runway: Verify the timeline for the $20 million financing agreement with Lincoln Park Capital Fund, LLC and the status of the required SEC registration statement.
- Revenue Sustainability: Assess the nature of the $3,200 revenue recorded; determine if it is a one-time engineering fee or indicative of recurring sales.
- Non-Cash Expenses: Review the magnitude of stock-based compensation ($247,626 in Q1 2011) and its impact on reported net loss versus actual cash burn.
- Patent Portfolio: Confirm the commercial viability and licensing potential of the newly granted patents (US 7,894,695 and US 7,919,619).
- Related Party Transactions: Examine the $45,588 in accrued salaries to officers/beneficial owners and the history of stock issuances for services to related parties.