NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As used herein, “we,” “us,” “our,” and the “Company” refer to Lightwave Logic, Inc. 

Financial Statements

The accompanying unaudited financial statements have been prepared by Lightwave Logic, Inc. These statements include all adjustments (consisting only of its normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting polices described in the Summary of Significant Accounting Policies included in the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, as originally filed with the Securities and Exchange Commission on March 20, 2026 (the “2025 Annual Report”). Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company firmly believes that the accompanying disclosures are adequate to make the information presented not misleading. The financial statements should be read in conjunction with the financial statements and notes thereto included in the 2025 Annual Report. The interim operating results for the three months ended March 31, 2026 may not be indicative of operating results expected for the full year.

History and Nature of Business

Lightwave Logic, Inc. is a specialty materials and intellectual property company focused on the development and commercialization of proprietary electro-optic (“EO”) polymer materials designed to enable high-speed optical modulators for data communications and other photonic applications.

Our Perkinamine® family of EO polymer materials is engineered for integration into silicon photonics (“SiPh”) and other photonic integrated circuit (“PIC”) platforms. When incorporated into device architectures, these materials are designed to support high-speed, high-bandwidth optical modulation with lower drive voltage requirements relative to certain conventional silicon-based approaches and certain other traditional photonic material systems, including III-V–based technologies. The electro-optic properties of these materials can allow shorter interaction lengths in modulator designs, which can contribute to more compact device footprints and increased integration density. In addition, our materials are intended to be compatible with complementary metal-oxide-semiconductor (“CMOS”) fabrication processes, which may facilitate integration into established semiconductor foundry workflows. Reduced drive voltage operation may enable lower system-level power consumption and simplified driver electronics in specific implementations.

We do not manufacture optical transceivers, photonic devices, or complete optical modules. Instead, our strategy is to commercialize our technology through a combination of material sales, intellectual property licensing, process design kit (“PDK”) enablement, and royalty or other fee-based arrangements tied to customer production.

Our customers and prospective customers include semiconductor foundries, silicon photonics device designers, optical module manufacturers, and system integrators serving artificial intelligence (“AI”), cloud computing, data center, and telecommunications markets. We pursue customer adoption through a structured commercialization process designed to support evaluation, integration, qualification, and production readiness within established semiconductor manufacturing ecosystems.

Lightwave Logic, Inc. was organized under the laws of the State of Nevada in 1997, and it commenced with its current business plan in 2024.

Fair Value of Financial Instruments

The carrying values of the Company’s short-term financial instruments such as cash, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses approximate fair values due to the short-term nature of these instruments.

Revenue Recognition and Contract Liability

The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Under ASC 606, revenue is recognized when control of goods or services is transferred to a customer in an amount that reflects the consideration to which the Company expects to be entitled.

To achieve this, the Company applies the five-step model:

The Company’s primary revenue streams includes technology license and material supply agreements and non-recurring engineering revenue from joint development agreements.

Technology License and Material Supply Agreements

The Company enters into technology license and material supply agreements, under which it grants customers a non-exclusive, royalty-bearing license to use its patented electro-optic polymer technology (the “Licensed Product”). The Company also supplies proprietary polymers to licensees for use in their manufacturing of photonic devices.

The Company assesses whether the license and the supply of proprietary polymers represent distinct performance obligations. Based on this assessment, the Company has determined that the license and material supply are not distinct for financial reporting purposes because they are highly interdependent. Accordingly, the Company accounts for these as a single performance obligation.

Revenue under these agreements is recognized as follows:

Upfront License Fees – Nonrefundable upfront license fees are recorded as contract liability and recognized on a pro-rata basis over the contract term.

Minimum Annual Royalties – Fixed royalty payments required under the contract are also recognized on a pro-rata basis over the contract term.

Variable Royalties – Royalties exceeding the minimum annual amount are recognized when earned, typically when the licensee’s sales exceed the minimum threshold.

Milestone Payments – Recognized only when the contractual milestone is achieved, such as when the licensee sells a specified number of units of the Licensed Product.

Joint Development Agreement

The Company entered into a memorandum of agreement (“MOA”) with a customer to specify certain binding terms related to the joint development of electro-optical polymer-based modulators on silicon photonics for use in communication applications. The MOA was executed in January 2026; however, the Company commenced work under the arrangement during 2025. The development work consists of preparing reference documentation and support of a multi-project wafer chip produced at a mutually agreed upon foundry, the design and post processing of fabricated chips, and complete product verification and volume manufacturing preparation, with each party to the agreement having responsibility over various deliverables for each phase.

The Company evaluated the arrangement under ASC 808, Collaborative Arrangements, and concluded the arrangement meets the definition of a collaborative arrangement. The Company also concluded that certain promised services within the arrangement represent units of account with a customer and therefore are within the scope of ASC 606. Consideration received from the customer for such services is presented as net sales in the accompanying financial statements.

The arrangement includes development services to be performed in phases. The Company evaluated the promised goods and services within each phase and concluded they are not separately identifiable because they are highly interdependent and represent inputs to a combined output that is delivered and accepted at the phase level. Accordingly, each phase is accounted for as a single combined performance obligation. Phases 1 and 2 are within the scope of ASC 606.

Phase 1 consideration was $130,000, which the Company recognized in net sales upon completion and delivery to the customer of the Phase 1 products and services. Phase 2 consideration was $200,000, payable in installments subject to customer’s confirmation of completion and acceptance of the related deliverables. Deliverables and consideration for Phase 3 have not been determined.

The Company recognizes revenue at a point in time upon completion and customer acceptance of the phase deliverables, as applicable. Customer acceptance is considered the substantive indicator that control of the completed phase deliverables has transferred.

Contract Costs

The Company capitalizes incremental costs to obtain contracts if they are expected to be recoverable, in accordance with ASC 340-40, Other Assets and Deferred Costs – Contracts with Customers. These capitalized costs are amortized over the expected contract term in a manner consistent with the related revenue recognition. The Company evaluated costs to fulfill the joint development arrangement under ASC 340-40 and concluded such costs do not meet the capitalization criteria because the costs are not expected to be recovered through the consideration payable under the arrangement.

The Company expenses costs to fulfill the development arrangement as incurred, as the activities are not reimbursable and meet the definition of research and development under ASC 730. 

Contract Liability

Contract liability represents amounts received in advance for performance obligations not yet satisfied, including nonrefundable upfront license fees. The Company recognizes contract liability revenue as revenue when the related performance obligations are satisfied.

Cost of Sales

Cost of sales consists of labor costs, material costs and manufacturing overhead costs associated with the production of materials transferred to the customer under the technology license and material supply agreement at the Company’s facility.

Stock-based Payments

The Company accounts for stock-based compensation under the provisions of FASB ASC 718, "Compensation - Stock Compensation," which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The fair value of restricted stock awards and units is estimated by the market price of the Company’s common stock at the date of grant. Restricted stock awards and units are being amortized to expense over the shorter of the requisite service period or the actual vesting period. Performance stock units are subject to both performance-based and service vesting requirements. The grant-date fair value of performance stock units is based on the fair value of the Company’s stock on a grant date and is recognized over the service period based on an assessment of the likelihood that the applicable performance goals will be achieved, and compensation expense is periodically adjusted based on actual and expected performance. The Company estimates the fair value of option and warrant awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the requisite service period or the actual vesting period, using the straight-line method. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.

The Company has elected to account for forfeiture of stock-based awards as they occur.

Loss Per Share

The Company follows FASB ASC 260, “Earnings per Share,” resulting in the presentation of basic and diluted earnings per share. Because the Company reported a net loss in 2026 and 2025, common stock equivalents, including stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share were the same.

Comprehensive Loss

The Company follows FASB ASC 220.10, “Reporting Comprehensive Income (Loss).” Comprehensive loss is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net loss. Since the Company has no items of other comprehensive loss, comprehensive loss is equal to net loss.

Recently Issued Accounting Pronouncements Not Yet Adopted

ASU 2024-03 – Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40) requires disclosure, in the notes to financial statements, of specified information about certain costs and expenses, such as the amounts of purchases of inventory, employee compensation, depreciation, intangible asset amortization, included in each relevant expense caption; disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively; and disclosure of the total amounts of selling expenses. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2026 and interim reporting periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating the impact of this ASU on its financial statement disclosures.