LWLG

Business Context and Reporting Period

Company: Lightwave Logic, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2010
Status: Development Stage Company
Business Overview: The Company develops Application Specific Electro-Optic Polymers (ASEOP) for use in telecommunications, optical computing, and defense applications. Operations focus on research and development (R&D) of proprietary electro-optic plastics intended to replace existing materials in fiber-optic and wireless networks.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue: The Company recorded its first revenue of $3,200 for the six months ended June 30, 2010, compared to $0 in the prior year period.
• Net Loss: Net loss increased by $455,477 (31.7%) to $1,891,077. This was driven primarily by increased stock-based compensation (amortization of warrants) and higher investor relations and R&D testing expenses.
• Operating Expenses: Total operating expenses increased by $459,569 to $1,894,174.
  • Research & Development: Decreased by $123,428 to $599,208, primarily due to a reduction in stock compensation amortization, partially offset by a $100,960 increase in laboratory prototype and testing costs.
  • General & Administrative: Increased by $582,997 to $1,294,966. This increase was largely due to $430,447 in warrant amortization related to a new non-executive chair of the board and increased investor relations spending.
• Liquidity: Cash and cash equivalents decreased from $459,989 at December 31, 2009, to $166,425 at June 30, 2010.

Guidance, Outlook, Risks, and Contingencies

• Going Concern: The filing includes a "Going Concern" warning. The Company has incurred significant losses and negative cash flows. Management expects sufficient funds to maintain operations only through the middle of October 2010 without additional financing.
• Capital Needs: The Company recently commenced a $1,500,000 private offering. If fully subscribed, along with warrant exercises, management believes this will fund operations through October 2011. There is no assurance that financing will be secured.
• Product Development: The Company is developing 40Gb/s and 100Gb/s modulators. Completion of these designs has been delayed to late 2010 or early 2011 to focus on quicker revenue-generating applications. Testing with a large system supplier commenced in July 2010.
• SEC Investigation: The Company is subject to an ongoing SEC investigation regarding a $1,000,000 private offering in 2005 and subsequent resales. The SEC has not indicated if it intends to take enforcement action. There have been no communications with the SEC since December 2007.
• Stock-Based Compensation: A significant portion of expenses is non-cash stock-based compensation. As of June 30, 2010, there was $1,981,129 of unrecognized compensation expense expected to be recognized through January 2013.

Investor Verification Checklist

• Cash Runway: Verify the status of the $1,500,000 private offering and whether the Company has secured sufficient capital to extend operations beyond October 2010.
• SEC Investigation Status: Confirm if there have been any recent developments or resolutions regarding the 2005 offering investigation.
• Revenue Realization: Assess the likelihood and timeline of converting the $3,200 in initial research revenue into sustainable commercial sales from the modulator prototypes.
• Stock Dilution: Review the impact of the $1.98 million in unrecognized stock-based compensation and the large number of outstanding warrants (6,133,200) on future share count and dilution.
• Related Party Transactions: Examine the terms and necessity of management contracts and stock issuances to related parties, which constitute a significant portion of historical expenses.