NOTE 2 – MANAGEMENT’S PLANS
Our future expenditures and capital requirements
will depend on numerous factors, including: the progress of our research and development efforts; the rate at which we can, directly
or through arrangements with original equipment manufacturers, introduce and sell products incorporating our polymer materials
technology; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
market acceptance of our products and competing technological developments; and our ability to establish cooperative development,
joint venture and licensing arrangements. We expect that we will incur approximately $1,300,000
of expenditures per month over the next 12 months. Our current cash position enables us to finance our operations through February
2024. On July 2, 2021, the Company filed a $100,000,000 universal shelf registration statement with the U.S. Securities and Exchange
Commission which became effective on July 9, 2021. On October 4, 2021, the Company entered into a purchase agreement with the
institutional investor to sell up to $33,000,000
of common stock over a 36-month period (described in Note 9). Pursuant to the purchase agreement, the Company received $1,612,350
in July and August 2022 and a remaining available amount of $8,304,532
is available to the Company per the agreement. Our cash requirements are expected to increase at a rate consistent with the
Company’s path to revenue as we expand our activities and operations with the objective of commercializing our electro-optic
polymer technology. We currently have no debt to service.
LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 AND 2021
|
NOTE 3 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
Schedule of prepaid expenses and other current assets | |
| | | |
| | |
| |
June
30,
2022 | | |
December
31,
2021 | |
| |
| | |
| |
Insurance | |
$ | 430,633 | | |
$ | 123,877 | |
Equipment deposit | |
| 138,474 | | |
| — | |
Licence | |
| 88,093 | | |
| 38,865 | |
Investor expenses | |
| 40,500 | | |
| — | |
Rent | |
| 36,525 | | |
| 36,525 | |
Other | |
| 49,071 | | |
| 33,041 | |
| |
| | | |
| | |
Prepaid expenses and other current assets | |
$ | 783,296 | | |
$ | 232,308 | |
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Schedule of property and equipment | |
| | | |
| | |
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Office equipment | |
$ | 109,274 | | |
$ | 95,516 | |
Lab equipment | |
| 5,311,836 | | |
| 4,952,933 | |
Furniture | |
| 33,128 | | |
| 33,128 | |
Leasehold improvements | |
| 183,387 | | |
| 254,350 | |
| |
| 5,637,625 | | |
| 5,335,927 | |
Less: Accumulated depreciation | |
| 3,538,806 | | |
| 3,156,852 | |
| |
| | | |
| | |
| |
$ | 2,098,819 | | |
$ | 2,179,075 | |
Depreciation expense for the six months ending June
30, 2022 and 2021 was $452,916 and $373,527. Depreciation expense for the three months ending June 30, 2022 and 2021 was $230,827 and
$199,522. During the three and six months ending June 30, 2022 and 2021, the Company did not retire or sell property and equipment.
LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 AND 2021
|
NOTE 5 – INTANGIBLE ASSETS
This represents legal fees and patent fees associated
with the prosecution of patent applications. The Company has recorded amortization expense on patents granted, which are amortized over
the remaining legal life. Maintenance patent fees are paid to a government patent authority to maintain a granted patent in
force. Some countries require the payment of maintenance fees for pending patent
applications. Maintenance fees paid after a patent is granted are expensed, as these are considered ongoing costs to “maintain
a patent”. Maintenance fees paid prior to a patent grant date are capitalized to patent costs, as these are considered “patent
application costs”. No amortization expense has been recorded on the remaining patent applications since patents on these applications have yet to be
granted.
Patents consist of the following:
Schedule of Patents | |
| | | |
| | |
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Patents | |
$ | 1,387,554 | | |
$ | 1,345,649 | |
Less: Accumulated amortization | |
| 541,149 | | |
| 497,516 | |
| |
| | | |
| | |
Intangible assets - net | |
$ | 846,405 | | |
$ | 848,133 | |
Amortization expense for the six months ending June
30, 2022 and 2021 was $43,633 and $43,887. Amortization expense for the three months ending
June 30, 2022 and 2021 was $21,554 and $21,314. There were no patent costs written off for the three and six months ending June 30, 2022 and
2021.
NOTE 6 – COMMITMENTS
On October 30, 2017, the Company entered into
a lease agreement to lease approximately 13,420 square feet of office, laboratory and research and development space located in Colorado
for the Company’s principal executive offices and research and development facility. The term of the lease is sixty- one (61) months,
beginning on November 1, 2017 and ending on November 30, 2022. During January 2022, the term was extended for an additional twenty-four
(24) months. Base rent for the first year of the lease term is approximately $168,824, with an increase in annual base rent of approximately
3% in each subsequent year of the lease term. As specified in the lease, the Company paid the landlord (i) all base rent for the period
November 1, 2017 and ending on October 31, 2019, in the sum of $347,045; and (ii) the estimated amount of tenant’s proportionate
share of operating expenses for the same period in the sum of $186,293. Commencing on November 1, 2019, monthly installments of base rent
and one-twelfth of landlord’s estimate of tenant’s proportionate share of annual operating expenses shall be due on the first
day of each calendar month. The lease also provides that (i) on November 1, 2019 landlord shall pay the Company for the cost of the cosmetic
improvements in the amount of $3.00 per rentable square foot of the premises, and (ii) on or prior to November 1, 2019, the Company shall
deposit with Landlord the sum of $36,524 as a security deposit which shall be held by landlord to secure the Company’s obligations
under the lease. On October 30, 2017, the Company entered into an agreement with the tenant leasing the premise from the landlord (“Original
Lessee”) whereby the Original Lessee agreed to pay the Company the sum of $260,000 in consideration of the Company entering into
the lease and landlord agreeing to the early termination of the Original Lessee’s lease agreement with landlord. The consideration
of $260,000 was received on November 1, 2017.
LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 AND 2021
|
NOTE 6 – COMMITMENTS (CONTINUED)
Due to the adoption of the new lease standard,
the Company has capitalized the present value of the minimum lease payments commencing November 1, 2019, including the additional option
period using an estimated incremental borrowing rate of 6.5%. The minimum lease payments do not include common area annual expenses which
are considered to be non-lease components.
As of January 1, 2019 the operating lease right-of-use
asset and operating lease liability amounted to $885,094 with no cumulative-effect adjustment to the opening balance of retained earnings/accumulated
deficit. The Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases.
There are no other material operating leases.
The Company is obligated under the operating lease
for office and laboratory space. The aggregate minimum future lease payments under the operating leases, including the extended term are
as follows:
Schedule of Future Lease Payments of Operating Leases | | |
| | |
YEARS ENDING | | |
| |
DECEMBER 31, | | |
AMOUNT | |
| | |
| |
2022 | | |
$ | 104,296 | |
2023 | | |
| 213,781 | |
2024 | | |
| 182,624 | |
Total operating lease obligation | | |
| 500,701 | |
Less discounted interest | | |
| (51,906 | ) |
| | |
| | |
TOTAL | | |
$ | 448,795 | |
Rent expense amounting to $69,197 and $23,066 is included
in research and development and general and administrative expenses for the six months ended June 30, 2022. Rent expense amounting to
$66,933 and $22,311 is included in research and development and general and administrative expenses for the six months ended June 30,
2021. Rent expense amounting to $34,599 and $11,533 is included
in research and development and general and administrative expenses for the three months ended June 30, 2022. Rent expense amounting to
$33,466 and $11,155 is included in research and development and general and administrative expenses for the three months ended June 30, 2021.
NOTE 7 – PAYCHECK PROTECTION PROGRAM
ADVANCE
On April 24, 2020, the Company received $410,700
in loan funding from the Paycheck Protection Program, established pursuant to the Coronavirus Aid, Relief, and Economic Security Act enacted
on March 27, 2020 and administered by the U.S. Small Business Administration. The unsecured loan is evidenced by a promissory note of
the Company dated April 23, 2020 in the principal amount of $410,700, to Community Banks of Colorado, a division of NBH Bank, the lender.
The loan proceeds have been used to cover payroll costs, rent and utility costs. The loan was eligible for forgiveness as part of the
CARES Act if certain requirements were met. The loan was forgiven by the Small Business Administration in its entirety on January 22,
2021.
LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 AND 2021
|
NOTE 8 – INCOME TAXES
There is no income tax benefit for the losses for
the six months ended June 30, 2022 and 2021 since management has determined that the realization of the net deferred tax asset is not
assured and has created a valuation allowance for the entire amount of such benefits.
The Company’s policy is to record interest and
penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of January 1, 2022,
the Company had no unrecognized tax benefits, or any tax related interest or penalties. There were no changes in the Company’s unrecognized
tax benefits during the period ended June 30, 2022. The Company did not recognize any interest or penalties during 2021 related to unrecognized
tax benefits. With few exceptions, the U.S. and state income tax returns filed for the tax years ending on December 31, 2018 and thereafter
are subject to examination by the relevant taxing authorities.
NOTE 9 – STOCKHOLDERS’ EQUITY
Preferred Stock
Pursuant to the Company’s Articles of Incorporation,
the Company’s board of directors is empowered, without stockholder approval, to issue series of preferred stock with any designations,
rights and preferences as they may from time to time determine. The rights and preferences of this preferred stock may be superior to
the rights and preferences of the Company’s common stock; consequently, preferred stock, if issued could have dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting power or other rights of the common stock. Additionally, preferred
stock, if issued, could be utilized, under special circumstances, as a method of discouraging, delaying or preventing a change in control
of the Company’s business or a takeover from a third party.
Common Stock, Options and Warrants
In January 2019, the Company signed a purchase
agreement with the institutional investor to sell up to $25,000,000 of common stock. The Company registered 9,500,000 shares pursuant
to a registration statement filed on January 30, 2019 which became effective February 13, 2019. The Company issued 350,000 shares of common
stock to the institutional investor as an initial commitment fee valued at $258,125, fair value, and 812,500 shares of common stock are
reserved for additional commitment fees to the institutional investor in accordance with the terms of the purchase agreement. The Company
registered an additional 6,000,000 shares pursuant to a registration statement filed on January 24, 2020 which became effective February
4, 2020. The Company registered an additional 8,000,000 shares pursuant to a registration statement filed on November 20, 2020 which became
effective November 20, 2020. During the period January 2019 through June 30, 2022 the institutional investor purchased 22,337,500 shares
of common stock for proceeds of $23,773,924 and the Company issued 772,666 shares of common stock as additional commitment fee, valued
at $1,575,509, fair value, leaving 39,834 in reserve for additional commitment fees. During the three and six month periods ending June 30, 2022,
the institutional investor did not purchase any shares of common stock. All the registered shares under the purchase agreement have
been issued as of June 30, 2022.
LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 AND 2021
|
NOTE 9 – STOCKHOLDERS’ EQUITY (CONTINUED)
Common
Stock, Options and Warrants (Continued)
On July 2, 2021, the Company filed a $100,000,000
universal shelf registration statement with the U.S. Securities and Exchange Commission which became effective on July 9, 2021. On October
4, 2021, the Company entered into a purchase agreement with the institutional investor to sell up to $33,000,000 of common stock over
a 36-month period. Concurrently with entering into the purchase agreement, the Company also entered into a registration rights agreement
which provides the institutional investor with certain registration rights related to the shares issued under the purchase agreement.
Pursuant to the purchase agreement, the Company issued 30,312 shares of common stock to the institutional investor as an initial commitment
fee valued at $279,174, fair value, and 60,623 shares of common stock are reserved for additional commitment fees to the institutional
investor in accordance with the terms of the purchase agreement. During the period October 4, 2021 through June 30, 2022, the institutional
investor purchased 2,102,511 shares of common stock for proceeds of $23,083,117 and the Company issued 42,405 shares of common stock
as additional commitment fee, valued at $554,520, fair value, leaving 18,218 in reserve for additional commitment fees. During the six
month period ending June 30, 2022, pursuant to the purchase agreement, the institutional investor purchased 875,000
shares of common stock for proceeds of $6,705,693 and the Company issued 12,319
shares of common stock as additional commitment fee, valued at $107,857, fair value. During the
three month period ending June 30, 2022, pursuant to the purchase agreement, the institutional investor purchased 400,000
shares of common stock for proceeds of $3,018,876 and the Company issued 5,546
shares of common stock as additional commitment fee, valued at $47,644, fair value. During July and August 2022, pursuant to the purchase agreement, the institutional investor
purchased 175,000 shares of common stock for proceeds of $1,612,350 and the Company issued 2,960 shares of
common stock as additional commitment fee, valued at $30,393, fair value, leaving 15,258 in reserve for additional commitment fees.
Restricted Stock Awards
On January 18, 2022, the Compensation Committee
of the Board of Directors approved grants totaling 28,500 Restricted Stock Awards to the Company’s five outside directors. Each
RSA had a grant date fair value of $9.65 which shall be amortized on a straight-line basis over the vesting period into director’s
compensation expenses within the Consolidated Statement of Comprehensive Loss. Such RSAs were granted under the 2016 Equity Incentive
Plan (“2016 Plan”) and vest in total 9,504 shares on December 31, 2022, 9,498 shares on December 31, 2023 and 9,498 shares
on December 31, 2024. Upon the occurrence of a Change in Control, 100% of the unvested Restricted Stock shall vest as of the date of the
Change in Control. Upon vesting, the restrictions on the shares lapse.
NOTE 10 – STOCK BASED COMPENSATION
During 2007, the Board of Directors of the Company
adopted the 2007 Employee Stock Plan (“2007 Plan”) that was approved by the shareholders. Under the 2007 Plan, the Company
is authorized to grant options to purchase up to 10,000,000 shares of common stock to directors, officers, employees and consultants who
provide services to the Company. The 2007 Plan is intended to permit stock options granted to employees under the 2007 Plan to qualify
as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”).
All options granted under the 2007 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be non-qualified options
(“Non-Statutory Stock Options”). Effective June 24, 2016, the 2007 Plan was terminated. As of June 30, 2022, options to purchase
2,895,000 shares of common stock have been issued and are outstanding.
LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 AND 2021
|
NOTE 10 – STOCK BASED COMPENSATION (CONTINUED)
During 2016, the Board of Directors of the Company
adopted the 2016 Plan that was approved by the shareholders at the 2016 annual meeting of shareholders on May 20, 2016. Under the 2016
Plan, the Company is authorized to grant awards of incentive and non-qualified stock options and restricted stock to purchase up to 3,000,000
shares of common stock to employees, directors and consultants. Effective May 16, 2019, the number of shares of the Company’s common
stock available for issuance under the 2016 Plan was increased from 3,000,000 to 8,000,000 shares. As of June 30, 2022, options to purchase
4,332,123 shares of common stock have been issued and are outstanding and 28,500 restricted shares of common stock have been granted.
As of June 30, 2022, 2,435,250 shares of common stock remain available for grants under the 2016 Plan.
Both plans are administered by the Company’s
Board of Directors or its compensation committee which determines the persons to whom awards will be granted, the number of awards to
be granted, and the specific terms of each grant. Subject to the provisions regarding Ten Percent Shareholders, (as defined in the 2016
Plan), the exercise price per share of each option cannot be less than 100% of the fair market value of a share of common stock
on the date of grant. Options granted under the 2016 Plan are generally exercisable for a period of 10 years from the date of grant
and may vest on the grant date, another specified date or over a period of time.
The Company uses the Black-Scholes option pricing
model to calculate the grant-date fair value of an award, with the following assumptions for 2022: no dividend yield in all years, expected
volatility, based on the Company’s historical volatility, 74.7% to 75.3%, risk-free interest rate between 1.87% to 3.46% and expected
option life of 10 years. The expected life is based on the estimated average of the life of options using the “simplified”
method, as prescribed in FASB ASC 718, due to insufficient historical exercise activity during recent years.
As of June 30, 2022, there was $3,808,205 of
unrecognized compensation expense related to non-vested market-based share awards that is expected to be recognized through April
2024.
Share-based compensation was recognized as follows:
Schedule of Stock-based Compensation Plans | |
| | | |
| | |
| |
For The Six | | |
For the Six | |
| |
Months Ending | | |
Months Ending | |
| |
June 30, 2022 | | |
June 30, 2021 | |
| |
| | |
| |
2007 Employee stock option Plan | |
$ | — | | |
$ | — | |
2016 Equity Incentive Plan | |
| 2,798,550 | | |
| 528,249 | |
2016 Equity Incentive Plan restricted stock awards | |
| — | | |
| 10,242 | |
Warrants | |
| — | | |
| — | |
| |
| | | |
| | |
Total share-based compensation | |
$ | 2,798,550 | | |
$ | 538,491 | |
LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 AND 2021
|
NOTE 10 – STOCK BASED COMPENSATION (CONTINUED)
The following tables summarize all stock option and
warrant activity of the Company during the six months ended June 30, 2022:
Schedule of Non-Qualified Stock Options and Warrants Outstanding and Exercisable | | |
| | | |
| | | |
| | |
| | |
Non-Qualified
Stock Options and Warrants Outstanding and Exercisable | |
| | |
| | |
| | |
| |
| | |
Number of | | |
Exercise | | |
Weighted Average | |
| | |
Shares | | |
Price | | |
Exercise
Price | |
| | |
| | |
| | |
| |
Outstanding,
December 31, 2021 | | |
| 7,886,248 | | |
| $0.51
- $16.81 | | |
$ | 1.02 | |
| | |
| | | |
| | | |
| | |
Granted | | |
| 746,500 | | |
| $5.81
- $9.65 | | |
$ | 9.38 | |
Expired | | |
| (25,000 | ) | |
| $1.69 | | |
$ | 1.69 | |
Exercised | | |
| (417,625 | ) | |
| $0.64
- $1.48 | | |
$ | 1.02 | |
| | |
| | | |
| | | |
| | |
Outstanding,
June 30, 2022 | | |
| 8,190,123 | | |
| $0.51
- $16.81 | | |
$ | 1.78 | |
| | |
| | | |
| | | |
| | |
Exercisable,
June 30, 2022 | | |
| 7,463,530 | | |
| $0.51
- $16.81 | | |
$ | 1.28 | |
The aggregate intrinsic value of options and warrants
outstanding and exercisable as of June 30, 2022 was $40,374,965. The aggregate intrinsic value is calculated as the difference between
the exercise price of the underlying options and warrants and the closing stock price of $6.54 for the Company’s common stock on
June 30, 2022. During the six month period ending June 30, 2022, 238,250 options were exercised for proceeds
of $182,175 and 4,375 options were exercised via cashless method. during the six month period ending June
30, 2022, 175,000 warrants were
exercised for proceeds of $240,750.
Schedule of Non-Qualified Stock Options and Warrants Outstanding, by Exercise Price Range |
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
June 30, 2022 |
|
Contractual
Life |
|
Warrants
Currently Exercisable |
|
|
|
|
|
|
|
$0.51 - $16.81 |
|
7,463,530 |
|
5.12 Years |
|
$1.28 |
The fair value of restricted stock awards is estimated
by the market price of the Company’s common stock at the date of grant. Restricted stock activity during the six and three month
period ending June 30, 2022 and 2021 are as follows:
Schedule of Nonvested Restricted Stock Units Activity | |
| | | |
| | | |
| | | |
| | |
| |
Restricted Stock Awards | |
| |
Six month period ended | |
| |
June
30, 2022 | | |
June
30, 2021 | |
| |
| | |
| | |
| | |
| |
| |
| | |
Weighted Average | | |
| | |
Weighted Average | |
| |
Number of | | |
Grant Date Fair | | |
Number of | | |
Grant Date Fair | |
| |
Shares | | |
Value
per Share | | |
Shares | | |
Value
per Share | |
| |
| | |
| | |
| | |
| |
Non-vested, beginning of period | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Granted | |
| 28,500 | | |
| 9.65 | | |
| — | | |
| — | |
Vested | |
| — | | |
| — | | |
| — | | |
| — | |
Cancelled and forfeited | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Non-vested, end of period | |
| 28,500 | | |
$ | 9.65 | | |
| — | | |
$ | — | |
Restricted stock awards are being amortized to expense over the vesting
period. As of June 30, 2022 and 2021, the unamortized value of the RSAs was $231,803 and $0, respectively.
LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 AND 2021
|
NOTE 11 – RELATED PARTY
At June 30, 2022 the Company had a legal accrual
to a related party of $81,950, travel and office expense accruals of officers in the amount of $28,519 and accounting service fee accrual and expense reimbursement to a related party of $2,065 offset by prepaid director operations committee fees
in the amount of $24,000. At December 31, 2021 the Company had office expense accruals of officers in the amount of $24,000, a
legal accrual to related party of $6,130 and accounting service fee accrual and expense reimbursements to related parties of $2,059.
NOTE 12 – RETIREMENT PLAN
The Company established a 401(k) retirement plan
covering all eligible employees beginning November 15, 2013. For the six months ending June 30, 2022 and 2021, a contribution of $27,087 and $28,431
was charged to expense for all eligible non-executive participants. For the three months ending June 30, 2022 and 2021, a contribution of $13,999
and $15,127 was charged to expense for all eligible non-executive participants.
| Item 2 | Management's Discussion and
Analysis of Financial Condition and Results of Operations |
The
following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should
not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached
herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment
of our management. This information should also be read in conjunction with our audited historical financial statements which are included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on March
1, 2022.
Overview
Lightwave
Logic, Inc. is a development stage company moving toward commercialization of next generation electro-optic photonic devices made on its
P2IC™ technology platform which we have detailed as: 1) Polymer Stack™, 2) Polymer Plus™, and Polymer
Slot™. Our unique polymer technology platform uses in-house proprietary high-activity and high-stability organic polymers. Electro-optical
devices called modulators convert data from electric signals into optical signals for multiple applications.
Our
differentiation at the modulator device level is in higher speed, lower power consumption, simplicity of manufacturing, small footprint
(size), and reliability. We have demonstrated higher speed and lower power consumption in packaged devices, and during 2022, we continue
to make advances in techniques to translate material properties to efficient, reliable modulator devices. We are currently focused on
testing and demonstrating the simplicity of manufacturability and reliability of our devices, including in conjunction with the silicon
photonics manufacturing ecosystem. In 2022 we discussed the addition of a number of silicon-based foundry partners to help scale in volume
our polymer modulator devices. Silicon-based foundries are large semiconductor fabrication plants developed for the electronics IC business,
that are now engaging with silicon photonics to increase their wafer throughput. Partnering with silicon-based foundries not only demonstrates
that our polymer technology can be transferred into standard production lines using standard equipment, and also allows us to efficiently
utilize our capital.
Our
extremely strong and broad patent portfolio allows us to optimize our business model in three areas: 1) Traditional focus on product development,
2) Patent licensing, 3) Technology transfer to foundries.
We
are initially targeting applications in data communications and telecommunications markets and are exploring other applications that include
automotive/LIDAR, sensing, displays etc., for our polymer technology platform. Our goal is to have our unique polymer technology platform
become ubiquitous.
Materials Development
Our
Company designs and synthesizes organic chromophores for use in its own proprietary electro-optic polymer systems and
photonic device designs. A polymer system is not solely a material, but also encompasses various technical enhancements necessary for
its implementation. These include host polymers, poling methodologies, and molecular spacer systems that are customized to achieve specific
optical properties. Our organic electro-optic polymer systems compounds are mixed into solution form that allows for thin film application.
Our proprietary electro-optic polymers are designed at the molecular level for potentially superior performance, stability, and cost-efficiency.
We believe our proprietary and unique polymers have the potential to replace more expensive, higher power consuming, slower-performance
materials such as semiconductor modulator devices that are used in fiber-optic communication networks today.
Our
patented and patent pending molecular architectures are based on a well-understood chemical and quantum mechanical occurrence known as aromaticity.
Aromaticity provides a high degree of molecular stability that enables our core molecular structures to maintain stability under a broad
range of operating conditions.
We
expect our patented and patent-pending optical materials along with trade secrets and licensed materials, to be the core of and the enabling
technology for future generations of optical devices, modules, sub-systems, and systems that we will develop or potentially out-license
to electro-optic device manufacturers, contract manufacturers, original equipment manufacturers, etc. Our Company contemplates future
applications that may address the needs of semiconductor companies, optical network companies, Web 2.0/3.0 media companies, high performance
computing companies, telecommunications companies, aerospace companies, automotive companies, as well as for example, government agencies.
Device Design and Development
Electro-optic Modulators
Our
Company designs its own proprietary electro-optical modulation devices. Electro-optical modulators convert data from electric signals
into optical signals that can then be transmitted over high-speed fiber-optic cables. Our modulators are electro-optic, meaning they work
because the optical properties of the polymers are affected by electric fields applied by means of electrodes. Modulators are key components
that are used in fiber optic telecommunications, data communications, and data centers networks etc., to convey the high data flows that
have been driven by applications such as pictures, video streaming, movies etc., that are being transmitted through the Internet. Electro-optical
modulators are expected to continue to be an essential element as the appetite and hunger for data increases every year as well as the
drive towards lower power consumption, and smaller footprint (size).
Polymer
Photonic Integrated Circuits
Our
Company also designs its own proprietary polymer photonic integrated circuits (otherwise termed a polymer PIC). A polymer PIC is a photonic
device that integrates several photonic functions on a single chip. We believe that our technology can enable the ultra-miniaturization
needed to increase the number of photonic functions residing on a semiconductor chip to create a progression like what was seen in the
computer integrated circuits, commonly referred to as Moore’s Law. One type of integration is to combine several instances of the
same photonic functions such as a plurality of modulators to create a multi-channel polymer PIC. The number of channels can be varied
depending on application. For example, the number of photonic components could increase by a factor of 8 or 16. Another type of integration
is to combine different types of devices including from different technology bases such as the combination of a semiconductor laser with
a polymer modulator. Our P2IC™ platform encompasses both these types of architecture.
Current
semiconductor photonic technology today is struggling to reach faster device speeds. Our modulator devices, enabled by our electro-optic
polymer material systems, work at extremely high frequencies (wide bandwidths) and possess inherent advantages over current crystalline
electro-optic material contained in most modulator devices such as bulk lithium niobate (LiNbO3), indium phosphide (InP), silicon (Si),
and gallium arsenide GaAs). Our advanced electro-optic polymer platform is creating a new class of modulators such as the Polymer Stack
™ , Polymer Plus™, Polymer Slot™, and associated PIC platforms that can address higher data rates in a lower cost, lower
power consuming manner, smaller footprint (size) with much simpler data encoding techniques.
Our electro-optic
polymers can be integrated with other materials platforms because they can be applied as a thin film coating in a fabrication clean room
such as may be found in semiconductor foundries using standard clean room tooling. This approach we call Polymer Plus™. Our polymers
are unique in that they are stable enough to seamlessly integrate into existing CMOS, Indium Phosphide (InP), Gallium Arsenide (GaAs),
and other semiconductor manufacturing lines. Of particular relevance are the integrated silicon photonics platforms that combine optical
and electronic functions. These include a miniaturized modulator for ultra-small footprint applications in which we term the Polymer Slot™.
This design is based on a slot modulator fabricated into semiconductor wafers that include both silicon and indium phosphide.
Our Company
has a fabrication facility in Colorado to apply standard fabrication processes to our electro-optic polymers which create modulator devices.
While our internal fabrication facility is capable of manufacturing modulator devices, we have partnered with commercial silicon-based
fabrication companies that are called foundries who can scale our technology with volume quickly and efficiently. The process recipe for
fabrication plants or foundries is called a ‘process development kit’ or PDK. We are currently working with commercial foundries
to implement our electro-optic polymers into accepted PDKs by the foundries. Our work with the foundries is being focused with the Polymer
Plus™ and the Polymer Slot™ polymer modulators.
Business Strategy
Our
business strategy anticipates that our revenue stream will be derived from one or some combination of the following: (i) technology licensing
for specific product application; (ii) joint venture relationships with significant industry leaders; and (iii) the production and direct
sale of our own electro-optic device components. Our objective is to be a leading provider of proprietary technology and know-how in the
electro-optic device market. In order to meet this objective, we intend to:
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· |
Further the development of proprietary organic electro-optic polymer material systems |
|
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Develop photonic devices based on our P2ICTM technology |
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Continue to develop proprietary intellectual property |
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Grow our commercial device development capabilities |
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Partner with silicon-based foundries who can scale volume quickly |
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Grow our product reliability and quality assurance capabilities |
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Grow our optoelectronic packaging and testing capabilities |
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Grow our commercial material manufacturing capabilities |
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Maintain/develop strategic relationships with major telecommunications and data communications companies to further the awareness and commercialization of our technology platform |
|
· |
Continue to add high-level personnel with industrial
and manufacturing experience in key areas of our materials
and device development programs. |
Create Organic Polymer-Enabled
Electro-Optic Modulators
We intend
to utilize our proprietary optical polymer technology to create an initial portfolio of commercial electro-optic polymer product devices
with applications for various markets, including telecommunications, data communications and data centers. These product devices will
be part of our proprietary photonics integrated circuit (PIC) technology platform.
We expect
our initial modulator products will operate at data rates at least 50 Gbaud (capable of 50 Gbps with standard data encoding of NRZ and
100 Gbps with more complex PAM-4 encoding). Our devices are highly linear, enabling the performance required to take advantage of the
more advance complex encoding schemes. We are currently developing our polymer technology to operate at the next industry node of 100Gbaud
using a single channel.
Our Proprietary Products in Development
As
part of a two-pronged marketing strategy, our Company is developing several optical devices, which are in various stages of development
and that utilize our polymer optical materials. They include:
Ridge Waveguide Modulator,
Polymer Stack ™
Our ridge
electro-optic waveguide modulator was designed and fabricated in our in-house laboratory. The fabrication of our first in-house device
is significant to our entire device program and is an important starting point for modulators that are being developed for target markets.
We have multiple generations of new materials that we will soon be optimizing for this specific design. In September 2017 we announced
that our initial alpha prototype ridge waveguide modulator, enabled by our P2IC™ polymer system, demonstrated bandwidth
performance levels that will enable 50 Gbaud modulation in fiber-optic communications. This device demonstrated true amplitude (intensity)
modulation in a Mach-Zehnder modulator structure incorporating our polymer waveguides. This important achievement will allow users to
utilize arrays of 4 x 50 Gbaud (4x 100 Gbps) polymer modulators using PAM-4 encoding to access 400 Gbps data rate systems. These ridge
waveguide modulators are currently being packaged with our partner into prototype packages.
These prototype
packages will enable potential customers to evaluate the performance at 50 Gbaud. Once a potential customer generates technical feedback
on our prototype, we expect to be asked to optimize the performance to their specifications. Assuming this is successful, we expect to
enter a qualification phase where our prototypes will be evaluated more fully.
In parallel,
we are developing modulators for scalability to higher data rates above 50 Gbaud. In September 2018, we showed in conference presentations
the potential of our polymer modulator platform to operate at over 100 GHz bandwidth. This preliminary result corresponds to 100 Gbaud
data rates using a simple NRZ data encoding scheme or 200 Gbps with PAM-4 encoding. With 4 channel arrays in our P2IC™
platform, the Company thus has the potential to address both 400 Gbps and 800 Gbps markets. While customers may start the engagement at
50 Gbaud, we believe potential customers recognize that scalability to higher speeds is an important differentiator of the polymer technology.
We believe
the ridge waveguide modulator Polymer Stack™ represents our first commercially viable device and targets the fiber optics communications
market. We have completed internal market analysis and are initially targeting interconnect reach distances of greater than 10km. In these
markets, the system network companies are looking to implement modulator-based transceivers that can handle aggregated data rates 100
Gbps and above. The market opportunity for greater than 10km is worth over $1B over the next decade
Ridge
Waveguide Modulator, Polymer Plus™
Using the
ridge waveguide design, we are developing a more compact modulator to be implemented directly with existing integrated photonics platforms
such as silicon photonics and Indium Phosphide. As our electro-optic polymers are applied in liquid form, they can be deposited as a thin
film coating in a fabrication clean room such as may be found in semiconductor foundries. This approach we call Polymer Plus™. The
advantage of this approach is that it allows existing semiconductor integrated photonics platforms such as silicon photonics and indium
phosphide to be upgraded with higher speed modulation functionality with the use of polymers in a straight-forward and simple approach.
Further, our polymers are unique in that they are stable enough to seamlessly integrate into existing CMOS, Indium Phosphide (InP), Gallium
Arsenide (GaAs), and other semiconductor manufacturing lines.
A large
majority of commercial silicon photonics platforms utilize large silicon photonics foundries such as those that manufacture IC products
for a number of applications such as communications, computing, consumer, etc. In order to seamlessly integrate our polymer materials
to upgrade for example, silicon photonics designs, partnering with a silicon foundry is necessary.
Advanced Modulator Structures
As
part of supporting further improvement and scalability of our platform, we continue to explore more advanced device structures. Our functional
polymer photonics slot waveguide modulator utilizes an existing modulator structure with one of our proprietary electro-optic polymer
material systems as the enabling material layer and is functional as an operating prototype device.
Preliminary
testing and initial data on our polymer photonics slot waveguide modulators demonstrated several promising characteristics. The tested
polymer photonic chip had a 1-millimeter square footprint, enabling the possibility of sophisticated integrated optical circuits on a
single silicon substrate. In addition, the waveguide structure was approximately 1/20 the length of a typical inorganic-based silicon
photonics modulator waveguide.
With the
combination of our proprietary electro-optic polymer material and the extremely high optical field concentration in the slot waveguide
modulator which is called Polymer Slot™, the test modulators demonstrated less than 2.2 volts to operate. Initial speeds exceeded
30-35 GHz in the telecom, 1550 nanometer frequency band. This is equivalent to 4 x 10Gbps, inorganic, lithium niobate modulators that
would require approximately 12-16 volts to move the same amount of information.
We are
continuing our collaborative development of our polymer photonic slot waveguide modulators (Polymer Slot™) with a partner that has
advanced device design capabilities. We are now designing Polymer Slot™ modulators to operate at data rates greater than 50 Gbaud
Our
Long-Term Device Development Goal - Multichannel Polymer Photonic Integrated Circuit (P2IC™)
Our P2IC™
platform is positioned to address markets with aggregated data rates of 100 Gbaud, 400 Gbaud, 800 Gbaud and beyond. Our P2IC™
platform will contain a number of photonic devices that may include, over and above polymer-based modulators, photonic devices such as
lasers, multiplexers, demultiplexers, detectors, fiber couplers.
While our
polymer-based ridge waveguide and slot modulators are currently under development to be commercially viable products, our long-term device
development goal is to produce a platform for the 400 Gbps, 800 Gbps, and beyond fiber optic transceiver market. This has been stated
in our photonics product roadmap that is publicly available on our website. The roadmap shows a progression in speed from 50 Gbaud based
ridge waveguide modulators to 100 Gbaud based ridge waveguide modulators. The roadmap shows a progression in integration in which the
modulators are arrayed to create a flexible, multichannel P2IC™ platform that spans 100 Gbps, 400 Gbps, 800 Gbps, and
a scaling philosophy that will grow to 1.6 Tbps aggregated data-rate markets.
We
showed bandwidths of polymer-based modulator devices at a major international conference (ECOC – European Conference on Optical
Communications 2018) with bandwidths that exceeded 100GHz. We noted that to achieve 100Gbaud, the polymer-based modulator only needs to
achieve 80GHz bandwidth. During ECOC 2019, we showed environmental stability. We continue to develop our polymer materials and device
designs to optimize additional metrics. We are now optimizing the device parameters for very low voltage operation.
Our
Target Markets
Cloud computing and data
centers
Big
data is a general term used to describe the voluminous amount of unstructured and semi-structured data a Company creates –
data that would take too much time and cost too much money to load into a relational database for analysis. Companies are looking to cloud
computing in their data centers to access all the data. Inherent speed and bandwidth limits of traditional solutions and the potential
of organic polymer devices offer an opportunity to increase the bandwidth, reduce costs, improve speed of access, and to reduce power
consumption both at the device as well as the system level.
Datacenters
have grown to enormous sizes with hundreds of thousands and even millions of servers in a single datacenter. The number of so-called “hyperscale”
datacenters are expected to continue to increase in number. Due to their size, a single “datacenter” may consist of multiple
large warehouse-size buildings on a campus or even several locations distributed around a metropolitan area. Data centers are confronted
with the problem of moving vast amounts of data not only around a single data center building, but also between buildings in distributed
data center architecture. Links within a single datacenter building may be shorter than 500 meters, though some will require optics capable
of 2 km. Between datacenter buildings, there is an increasing need for high performance interconnects over 10km in reach.
Our modulators
are suitable for single-mode fiber optic links. We believe that our single mode modulator solutions will be competitive at 500m to 10km
link distances, but it will be ideally suited at greater than 10km link distances.
Telecommunications/Data
Communications
The telecommunications
industry has evolved from transporting traditional analogue voice data over copper wire into the movement of digital voice and data. Telecommunication
companies are faced with the enormous increasing challenges to keep up with the resulting tremendous explosion in demand for bandwidth.
The metropolitan network is especially under stress now and into the near future. Telecommunications companies provide services to some
data center customers for the inter-data center connections discussed above. 5G mobile upgrade, autonomous driving and IoT are expected
to increase the need for data stored and processed close to the end user in edge data centers. This application similarly requires optics
capable of very high speeds and greater than 10 km reach.
Industry issues of scaling
The key
issues facing the fiber-optic communications industry are the economic progress and scalability of any PIC based technological platform.
Our polymer platform is unique in that it is truly scalable. Scalable means being able to scale up for high-speed data rates, while simultaneously
being able to scale down in cost, and lower power consumption. This allows a competitive cost per data rate or cost per Gbps metric to
be achieved.
Fiber optic
datacenter and high-performance computing customers want to achieve the metric of $1/Gbps @ 400Gbps (this essentially means a single
mode fiber optic link that has a total cost of $400 and operates with a data rate of 400Gbps ➔ which
also means that each transceiver at each end of the fiber optic link must be able to be priced at $200), but as industry tries to match
this target, it is already falling behind as can be seen in the Figure below which plots generic typical PIC based technology:
In the above figures that forecast
$/Gbps to 2025 (where the left-hand graph is a linear vertical scale, and the right-hand graph is a log scale), it can be seen that the
orange curve plots the customer expectation, while the other color curves show $/Gbps improvement over time for various high-speed data
rate transceivers using PIC based technologies. A gap is appearing between what customer expect and what the technologists can produce.
Polymers
play an important role in PICs over the next decade as they can reduce or close the gap between customer expectations and technical performance
through effective scaling increase of high performance with low cost. This is shown below how polymers have the potential to scale to
the needs of the customers over the next 5years.
Some of
the things needed to achieve the scaling performance of polymers in integrated photonics platforms is within sight today:
|
1. |
Increased r33 (which leads to very low Vpi in modulator devices) and we are currently optimizing our polymers for this. |
|
2. |
Increase temperature stability so that the polymers can operate at broader temperature ranges effective, where we have made significant progress over the past few years. |
|
3. |
Low optical loss in waveguides and active/passive devices for improved optical budget metrics which is currently an ongoing development program at our Company. |
|
4. |
Higher levels of hermeticity for lower cost packaging of optical sub-assemblies within a transceiver module, where our advanced designs are being implemented into polymer-based packages. |
Scalability
in terms of cost reduction and high-volume manufacturing can be enhanced by:
|
1. |
Leverage of commercial silicon photonics manufacturing capacity through the use of silicon-based foundries. Our Polymer Plus™ platform seeks to be additive to standard silicon photonics circuits. |
|
2. |
Reduction of optical packaging costs by integration at the chip level of multiple modulators and also with other optical devices. Our P2IC™ platform seeks to address device integration. |
Recent Significant Events and Milestones Achieved
During
February and March 2018, we moved our Newark, Delaware synthetic laboratory and our Longmont, Colorado optical testing laboratory and
corporate headquarters to office, laboratory and research and development space located at 369 Inverness Parkway, Suite 350, Englewood,
Colorado. The 13,420 square feet Englewood facility includes fully functional 1,000 square feet of class 1,000 cleanroom, 500 square feet
of class 10,000 cleanroom, chemistry laboratories, and analytic laboratories. The Englewood facility streamlines all of our Company’s
research and development workflow for greater operational efficiencies.
During
March 2018, our Company, together with our packaging partner, successfully demonstrated packaged polymer modulators designed for 50Gbps,
which we believe will allow us to scale our P2IC™ platform with our Mach-Zehnder ridge waveguide modulator design as
well as other photonics devices competitively in the 100Gbps and 400Gbps datacom and telecommunications applications market. We are currently
fine-tuning the performance parameters of these prototypes in preparation for customer evaluations.
During
June 2018, our Company Acquired the Polymer Technology Intellectual Property Assets of BrPhotonics Productos Optoelectrónicos S.A.,
a Brazilian corporation, which significantly advanced our patent portfolio of electro-optic polymer technology with 15 polymer chemistry
materials, devices, packaging and subsystems patent and further strengthened our design capabilities to solidify our market position as
we prepare to enter the 400Gbps integrated photonics marketplace with a highly competitive, scalable alternative to installed legacy systems.
Also, during
June 2018, our Company promoted polymer PICs and Solidified Polymer PICs as Part of the Photonics Roadmap at the World Technology Mapping
Forum in Enschede, Netherlands, which includes our Company’s technology of polymers and polymer PICs that have the potential to
drive not only 400Gbps aggregate data rate solutions, but also 800Gbps and beyond.
In August
2018 we announced the completion (ahead of schedule) of our fully equipped on-site fabrication facility, where we are expanding our high-speed
test and design capabilities. We also announced the continuation of the building of our internal expertise with the hiring of world-class
technical personnel with 100Gbps experience.
In February
2019 we announced a major breakthrough in our development of clean technology polymer materials that target the insatiable demand for
fast and efficient data communications in the multi-billion-dollar telecom and data markets supporting Internet, 5G and IoT (Internet
of Things) webscale services. The improved thermally stable polymer has more than double the electro-optic response of our previous materials,
enabling optical device performance of well over 100 GHz with extremely low power requirements. This addition to the family of Perkinamine® polymers
will hold back run-away consumption of resources and energy needed to support ever-growing data consumption demands. We continue to conduct
testing of the material and assessment of associated manufacturing processes and device structures prior to release to full development.
In March 2019 we created an Advisory
Board comprised of three world-class leaders in the photonics industry: Dr. Craig Ciesla, Dr. Christoph S. Harder, and Mr. Andreas Umbach.
The Advisory Board is working closely with our Company leadership to enhance our Company’s product positioning and promote our polymer
modulator made on our proprietary Faster by Design™ polymer P2IC™ platform. The mission of the Advisory
Board is initially to increase our Company’s outreach into the datacenter interconnect market and later to support expansion into
other billion-dollar markets. The Advisory Board members have each been chosen for their combination of deep technical expertise, breadth
of experience and industry relationships in the fields of fiber optics communications, polymer and semiconductor materials. Each of the
Advisory Board members has experience at both innovators like Lightwave Logic and large industry leaders of the type most likely to adopt
game-changing polymer-based products. In addition, they possess operational experience with semiconductor and polymer businesses.
Also, in
March 2019, our Company received the “Best Achievement in PIC Platform” award for our 100 GHz polymer platform from the PIC
International Conference. The award recognizes innovative advances in the development and application of key materials systems driving
today’s photonic integrated circuits (PICs) and providing a steppingstone to future devices.
During
the second quarter of 2019, our Company promoted its polymers at CoInnovate in May and the World Technology Mapping Forum in June. CoInnovate
is a meeting of semiconductor industry experts. The World Technology Mapping Forum is a group authoring a photonics roadmap out to 2030.
In September
2019 at the prestigious European Conference on Communications (ECOC) in Dublin, Ireland, we showed measured material response over frequency
and the resulting optical data bits stream on our clean technology polymer materials, the newest addition to our family of Perkinamine®
polymers, that meet and exceed of our near-term target speed of 80 GHz. We also released data demonstrating stability under elevated temperatures
in the activated (poled to create data carrying capability) state.
In October
2019, we reported that energy-saving polymer technology is highlighted in the recently published Integrated Photonics Systems Roadmap
- International (IPSR-I). The roadmap validates the need for low-voltage, high-speed technologies such as ours.
In May
2020, we announced that our latest electro-optic polymer material has exceeded target performance metrics at 1310 nanometers (nm), a wavelength
commonly used in high-volume datacenter fiber optics. This material demonstrates an attractive combination at 1310 nm of high electro-optic
coefficient, low optical loss and good thermal stability at 850 Celsius. The material is expected to enable modulators
with 80 GHz bandwidth and low drive power, and has an electro-optic coefficient of 200 pm/V, an industry measure of how responsive a material
is to an applied electrical signal. This metric, otherwise known as r33, is very important in lowering power consumption when the material
is used in modulator devices. This technology is applicable to shorter reach datacenter operators, for whom decreasing power consumption
is imperative to the bottom line of a facility. We considered this a truly historic moment—not only in our Company’s history,
but in our industry–as we have demonstrated a polymer material that provides the basis for a world-class solution at the 1310 nm
wavelength, something which other companies have spent decades attempting to achieve.
In July
2020, we announced the official launch of our new corporate website www.lightwavelogic.com, reflecting ongoing efforts to provide up-to-date
information for investors and potential strategic partners. The revamped website offers a clean, modern design integrated with helpful
tools and investor relations resources, including a new corporate explainer video, to illustrate the target markets and advantages of
Lightwave Logic’s proprietary electro-optic polymers.
In August
2020, we announced the addition of Dr. Franky So, a leading authority in the OLED industry, to our Advisory Board. Dr. So is the Walter
and Ida Freeman Distinguished Professor in the Department of Materials Science and Engineering at North Carolina State University. Previously,
he was the Head of Materials and Device research for OLEDs at OSRAM Opto Semiconductors, as well as Motorola’s corporate research
lab in the 1990s. Dr. So was an early researcher in electro-optic (EO) polymer modulators at Hoechst Celanese. As a member of the Company’s
advisory board, Dr. So will work closely with management to enhance Lightwave’s product positioning for, as well as the promotion
of, its polymer modulators made on its proprietary platform. In addition, he will provide technical support and advisory services to the
Lightwave materials and device teams.
On October
7, 2020 we announced the receipt of U.S. Patent number 10,754,093 that improves both the performance and reliability of our high-speed,
low-power electro-optic polymer modulators intended for datacenter and telecommunications applications. The patent allows multi-layered
electro-optic polymer modulators to perform more efficiently through the design of custom interfaces. These interfaces are designed into
the cladding layers that allow optical transmission, electrical conductivity, material integrity, as well as a prevention of solvents
affecting adjacent polymer materials. The net impact of all of this allows for our Company’s modulators to improve performance across
the board, enabling higher reliability in the fiber optic communications environment.
On October
15, 2020, we announced that our proprietary polymer technologies are compatible with currently available integrated photonics platforms.
Our proprietary electro-optic materials are currently in the prototyping phase and are fabricated onto standard silicon wafers, and this
Polymer Plus™ advancement, driven by the feedback our Company received from potential customers to-date, has allowed our materials
to be suitable for additive integration to integrated photonics platforms such as silicon photonics, as well as indium phosphide and other
standard platforms – therefore enabling simpler integration by customers. We believe this breakthrough allows a polymer modulator
to enhance the performance of existing integrated photonics solutions in the marketplace, enabling higher speed and lower power consumption
on foundry-fabricated photonics designs. Since our technology is additive to existing platforms such as silicon photonics, our electro-optic
polymers are not actually competing with integrated photonic platforms, but rather enabling them to be more competitive in the marketplace,
and it further validates our EO polymer platform as ideally suited to enable optical networking more efficiently than ever.
On October
21, 2020, we announced that we have optimized a robust, photo-stable organic polymer material for use in our next-generation modulators
intended to be trialed with potential customers under NDA. Our materials show high tolerance to high-intensity infrared light, common
in a fiber optic communications environment and increasingly important as higher density of devices access the network, directly resulting
in higher intensity infrared light levels. Our preliminary results suggest that our recently developed electro-optic polymer material,
designed based on potential customer input, displays unrivaled light tolerance (also known as photostability) compared to any organic
commercial solution in use today. Our results meet both our current internal criteria and address potential customer feedback.
On November
2, 2020, we disclosed results on our polymer material stability testing including further results for electro-optic efficiency for our
Company’s materials that operate both at 1550nm as well as 1310nm. We demonstrated test materials results for electro-optic efficiency
to 4000hrs, improvement in sensitivity to oxygen as part of a broadband exposure test, and stability for polymers exposed to 1310nm light
at 100mW.
On November
20, 2020 we announced the receipt of U.S. Patent number 10,591,755 that details an important invention that allows users of electro-optic
polymer modulators to not only operate the devices with high speed and low power directly from CMOS IC chips, but gives them the opportunity
to avoid the expense, physical footprint and power consumption of high-speed modulator driver ICs. Furthermore, this patent strengthens
our freedom of manufacturing, and directly enables our modulators to become more competitive in the marketplace.
On December
16, 2020 we announced the development of a new sealant for our future Chip-on-Board (COB) packaged polymer platform. The sealant, which
blocks oxygen and other atmospheric gases, is a key step in our Company’s development towards a polymer modulator without a package,
an important enabling technology for the industry. We plan to develop the sealant for commercial implementation in our future modulators.
Recent results suggest that our electro-optic polymer sealant material displays encouraging barrier properties and is expected to translate
to significant improvement in bare chip robustness against atmospheric gases, as compared to existing EO polymer commercial solutions
in use today. While the initial measurements are highly promising, our Company plans to continue development work to further optimize
the sealant material and barrier performance towards the chip-on-board goal.
On January
13, 2021, we announced the receipt of U.S. Patent number 10,886,694 that details an invention that allows electro-optic polymer modulators
to be packaged in a hermetic environment using well-known, high-volume and low-cost fabrication processes that are available in a typical
semiconductor fabrication foundry – improving suitability for mass production. Further, the design of this capsule package can improve
both the reliability and the coupling interface between fiber optic cables and their laser sources for arrayed photonic integrated circuit
solutions. The package can also interpose signals from an underlying circuit board to the polymer modulators, lasers, and other components
for data transfer. The hermetic capsule is built from a semiconductor base that contains electrical and optical circuits and components.
A hermetic capsule chamber is created by the design of a semiconductor lid that is sealed to the semiconductor base platform by a metallization
process. Using standardized fabrication techniques we can now create a package that achieves the performance, reliability, cost, and volume
requirements that has been a challenge for the photonics industry for years.
On May
11, 2021, we announced the receipt of U.S. Patent number 10,989,871 that details an invention that allows for improved
protective polymer layers in modulators when designed into advanced integrated photonic platforms, better positioning them for high-volume
manufacturing processes. The protective layers will enhance electro-optic polymer devices' performance through higher reliability, better
optical performance and enable the use of standardized manufacturing processes best suited for mass-production.
On June
7, 2021, we announced that our company’s common stock was added to the Solactive
EPIC Core Photonics EUR Index NTR as part of the index's semi-annual additions. The index includes global public companies with a
common theme of optoelectronics, photonics, and optical technologies in general that range from components, modules, manufacturers, and
optical network system companies. This inclusion broadens our exposure to the capital markets community, as well as credibility with potential
partners and customers.
On
June 16, 2021, we announced test results from new modulators fabricated in 2021, which exceeded bandwidth
design targets and achieved triple the data rate as compared to competing devices in use today. The breakthrough new devices demonstrated
3dB electro-optical with electrical bandwidths that exceed 100GHz – with measurements coming close to our Company’s state-of-the-art
110GHz test equipment capability. We expect this advancement to have a profound impact on the traffic flow on the internet.
On
June 24, 2021, we announced the receipt of U.S. patent number 11,042,051 that details a
breakthrough new device design that enables mass-volume manufacturing when designed into advanced integrated photonic platforms. The
device design enhances reliability, improves optical mode control and most important, lowers by consumption through the use of direct-drive,
low-voltage operation. The patent is entitled, "Direct drive region-less polymer modulator methods of fabricating and materials therefor"
and is expected to open the opportunity for low power consumption electro-optic polymers to be developed into large foundry PDKs (process
development kits) and be ready for mass volume commercialization. The patent emphasizes our
technology platform using fabrication techniques that would naturally fit into foundry PDKs.
On
August 4, 2021, we announced that we developed improved thermal design properties for electro-optic polymers used in our Polymer
Plus™ and Polymer Slot™ modulators, enabling the speed, flexibility and stability needed for high-volume silicon foundry processes.
We successfully created a 2x improvement in r33, while allowing higher stability during poling and post-poling. This provides better thermal
performance and enables greater design flexibility in high-volume silicon foundry PDK (process development kit) processes.
On
August 9, 2021, we announced the receipt of U.S. patent number 11,067,748 entitled "Guide Transition Device and Method" that
covers a new invention that enables enhanced optical routing architectures for polymer-based integrated photonics that can be scaled with
partner foundries. This new invention will enable innovative, highly scalable optical routing architectures for integrated photonic platforms.
The patent provides novel optical waveguide transition designs using two planes of optical waveguides that are expected to be critical
for optical signal routing and optical switching, opening the opportunity for high speed, energy efficient electro-optic polymers to be
implemented into foundry PDKs (process development kits) to improve the performance of integrated photonic circuits. This breakthrough
technology opens the door for advanced integrated photonics architectural design. We believe the
simplicity of the design is ideal for production in foundries and will best position our Company to enable increased data traffic on the
internet while using less power.
On September
1, 2021, our Company's common shares began trading on the Nasdaq Capital Market ("Nasdaq"). The Company’s Nasdaq listing
will help to expand our potential shareholder base, improve liquidity, elevate our public profile within the industry and should ultimately
enhance shareholder value.
On September
15, 2021, we announced the receipt of the 2021 Industry Award for Optical Integration from the European Conference on Optical Communications
(ECOC), a premier industry exhibition that was held in Bordeaux from September 13-15, 2021. ECOC created the fiber communication industry
awards in six categories to put the spotlight on innovation happening within the industry. The awards recognize and highlight key industry
achievements in advancing optical components, photonic integration, optical transport and data center innovation. The awards are selected
from top industry players, representing significant innovation in photonics integration at our prestigious exhibition.
On September
16, 2021, we announced the achievement of world-record performance for a polymer modulator, as demonstrated in an optical transmission
experiment by ETH Zurich, using our Company's proprietary, advanced Perkinamine® chromophores and Polariton Technologies Ltd.'s newest
plasmonic EO modulator, a silicon-photonics-based plasmonic racetrack modulator offering energy-efficient, low-loss, and high-speed modulation
in a compact footprint. The groundbreaking results were presented as a post-deadline paper at the prestigious European Conference on Optical
Communications (ECOC) industry exhibition and conference in Bordeaux on September 16, 2021. Polariton's plasmonic modulator
transmitted 220 Gbit/s OOK and 408 Gbit/s 8PAM. Transmission of an optical signal was conducted over 100 m using a low-voltage electrical
drive of 0.6Vp, an on-chip loss of 1 dB, and an optical 3 dB bandwidth of beyond 110 GHz.
On
January 3, 2022, we announced the publication of our patent application 20210405504A1 by the United States Patent and Trademark Office
(USPTO) – entitled 'Nonlinear Optical Chromophores Having a Diamondoid Group Attached Thereto, Methods of Preparing the
Same, and Uses Thereof' – which significantly improves the overall stability and performance of our electro-optic polymers. The
Company's electro-optic chromophores are designed to have one or more diamondiod molecular groups attached to the chromophore. When such
chromophores are dispersed in a host polymer matrix, the electro-optic materials result in improved macroscopic electro-optic properties,
increased poling efficiency, increased loading as well as increased stability of these materials after poling. The impact of this technology
is that it will accelerate the path for very high-speed, low-power electro-optic polymers to be implemented into large foundry process
development kits (“PDKs”) to boost performance of integrated photonic circuits.
On
January 3, 2022, we announced that we enhanced our Company’s Foundry Process Development Kit Offering with the addition of
Optical Grating Couplers. This expanded design tool kit will enable silicon foundries to implement
PDKs and fabricate modulators and optical gratings in a single fab run, further enhancing modulator efficacy. We are continuing to work
on additional design tool kit components to enable an expedited commercialization process through a more simplified manufacturing process
for our foundry partners.
On
January 3, 2022, we announced that we appointed respected industry leader Dr. Craig Ciesla to our Board of Directors and that
retired director Dr. Joseph A. Miller transitioned to our Company's Advisory Board. Dr. Ciesla is
currently the Vice President, Head of the Advanced Platforms and Devices Group at Illumina, a leading provider of DNA sequencing and array
technologies. There he leads a team driving innovation in sequencing platforms, microfluidics, electronics, and nanofabrication. Prior
to Illumina, he was Vice President of Engineering at Kaiam, where he was responsible for the development and production of 100G transceivers
for the data-center market. He was also the founding CEO of Tactus Technology, an innovator in the user interface industry, where he was
the co-inventor of Tactus' polymer morphing screen technology. Before Tactus he had a variety of roles at Intel, JDSU (now Lumentum),
Bookham (now Oclaro) and Ignis Optics developing a wide range of products in the fiber-optics market. He started his career at Toshiba
Research Europe, where he performed early terahertz images of skin cancer. Dr. Ciesla holds a BSc (Hons.) in Applied Physics and Ph.D.
in Physics from Heriot-Watt University in Edinburgh.
On
February 10, 2022, we announced breakthrough photostability results on our electro-optic polymer modulators that are compatible with high-volume
silicon foundry processes. The improved photostability of our polymers are expected to minimize any optical losses and provide
a more robust platform for silicon foundries. This breakthrough photostability performance is incredibly important as we optimize our
polymers for high-volume silicon foundry processes.
On March
7, 2022, we announced the receipt of U.S. patent number 11,262,605 entitled, "Active region-less
polymer modulator integrated on a common PIC platform and method." This invention will simplify modulator integration for high-volume
foundry manufacturing operations while enhancing polymer reliability to enable a more effective photonic engine. The essence of the invention
is a complete optical engine that fits into fiber optic transceivers (either pluggable or co-packaged) that are used in routers, servers
and elsewhere in optical networks. The engine is designed for high-volume manufacturing operations using silicon foundry infrastructure.
The patent illustrates the use of our polymer modulators as a high speed, low power engine not only for data communication and telecommunication
applications, but other new market opportunities as well.
On
March 22, 2022 we announced the achievement of world-class results for a polymer modulator, as demonstrated in an enhanced stability and
high-speed measurement by Polariton Technologies and ETH Zurich. The results were generated using the Company's proprietary, advanced
Perkinamine® chromophores in Polariton's silicon-photonics-based plasmonic racetrack modulator that offers energy-efficient, low-loss,
and high-speed modulation in a compact footprint that is ideal for pluggable and/or co-packaging transceiver modules. The plasmonic
modulator performance was compared to that of silicon photonic microring modulators. The plasmonic device, using Lightwave Logic's electro-optic
polymer material, was shown to be 250-3000x more stable than the silicon devices relative to operating condition changes. In addition,
the plasmonic modulator was tested for 70+ minutes at 100 Gbps NRZ at 80C with no decrease in performance. The world-class results were
presented as a contributed peer-reviewed paper at the prestigious 2022 Optical Fiber Conference (OFC2022), the optical communication industry's
leading international technical conference and trade show, in San Diego on March 10, 2022.
On
April 19, 2022, we announced the publication of our patent application 2022/0113566 A1 entitled "TFP
(thin film polymer) optical transition device and method" that illustrates the design of a simpler to fabricate, lower cost hybrid
integrated photonics chip using electro-optic polymers which are more advantageous for high-volume production. The invention will simplify
polymer modulator fabrication when integrated with silicon photonics for high-volume foundry manufacturing applications. The simplified
fabrication approach enables us to simplify the production of very high speed, low power proprietary polymer modulators that will enable
significantly faster data rates in the internet environment. The essence of the invention is a hybrid polymer-silicon photonics engine
that fits into fiber optic transceivers (either pluggable or co-packaged) that are used in the routers, servers and network equipment
that are proliferating with the growth of data centers, cloud computing and optical communications capacity. The hybrid polymer-silicon
photonics engine is designed to use high-volume silicon foundry infrastructure.
On
May 25, 2022, we announced enhanced photostability results on our Company's proprietary electro-optic polymer modulators –
demonstrating the reliability necessary for commercial deployments – all based on a technology which can be ported into high-volume
silicon foundries and integrated onto a silicon photonics platform with other optical devices. Photostability is a critical performance
metric required both in high volume manufacturing processes (such as photolithography) and in offering the high reliability and network
availability required for commercial deployments. In the tests conducted, subjecting the Company's latest polymers to high intensity optical
power for over 3000 hours produced no change in device performance. The ability of our proprietary polymers to pass this accelerated photostability
aging test provides assurance that they will both tolerate the optical exposures which occur in high-volume manufacturing and support
the reliability over the required operating life of optical transceivers and network elements.
On
June 21, 2022, we announced the publication of our patent application 2022/0187637A1 entitled "Hybrid electro-optic polymer
modulator with silicon photonics" that details a novel fabrication process that allows our Company’s proprietary polymers
to be fabricated by silicon foundries in a high-volume manufacturing environment. The published patent application also details a more
efficient process that allows for high yielding, high stability poling of polymers in a high-volume foundry manufacturing environment. The
development of the PDK for this new optical hybrid optical modulator design is now in progress with our Company’s foundry partners.
June
23, 2022, we announced the publication of our patent application 2022/0187638A1 entitled " Hybrid electro-optic polymer modulator
with atomic layer deposition (ALD) sealant layer" that allows our Company’s proprietary polymers to be sealed to moisture
and other atmospheric gases in a very low temperature and quasi-hermetic environment through the use of a chip-scale packaging approach
that can be applied in parallel at wafer level (i.e. in volume) and that eliminates the need for a separate hermetic enclosure or "gold
box." Chip-scale packaging is a technique that has been gathering momentum in the silicon electronics industry for the past decade
to reduce device chip packaging costs and increase device performance – enabling high-volume front and back-end manufacturing as
well as extremely small sizes in miniaturization. Specifically, our electro-optic polymer modulators are sealed with a low-temperature
conformal atomic layer deposition dielectic layers that are supported on a silicon substrate with passive silicon photonics waveguides.
On
June 27, 2022 our Company's common stock was added to the Russell 3000® Index. We expect that the awareness
of being included in one of the most widely followed benchmarks will not only benefit our existing shareholders but will lead to a broader
base of institutional investors." The annual Russell index reconstitution captures the 4,000 largest US stocks as of May 6,
ranking them by total market capitalization. Our membership in the US all-cap Russell 3000® Index, which remains in place for one
year, means automatic inclusion in the small-cap Russell 2000® Index as well as the appropriate growth and value style indexes.
As we move
forward to diligently meet our goals, we continue to work closely with our packaging and foundry partners for the 50Gbaud and 100 Gbaud
prototypes, and we are advancing our reliability and characterization efforts to support our prototyping. We partnered with silicon-based
foundries in 2021 so that we can scale commercial volumes of electro-optic polymer modulator devices using large silicon wafers, and we
are currently working to have our fabrication processes accepted into foundry PDKs (process development kits). These are the recipes that
foundries use to manufacture devices in their fabrication plants.
We are
actively engaged with test equipment manufacturers of the most advanced test equipment to test our state-of-the-art polymer devices. We
continue to engage with multiple industry bodies to promote our roadmap. We continue to fine tune our business model with target markets,
customers, and technical specifications. Our business model includes the licensing of our strong IP and Patent portfolio, as well as technology
transfer to entities such as foundries. Discussions with prospective customers are validating that our modulators are ideally suited for
the datacenter and telecommunications markets that are over 10km in length. Details and feedback of what these prospective customers are
seeking from a prototype are delivered to our technical team.
Capital Requirements
As a development
stage company, we do not generate revenues. 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.
Results of Operations
Comparison of three months ended
June 30, 2022 to three months ended June 30, 2021
Revenues
As a development stage company,
we had no revenues during the three months ended June 30, 2022 and June 30, 2021. The Company is in various stages of photonic device
and materials development and evaluation with potential customers and strategic partners. The Company expects to obtain a revenue stream
from technology licensing agreements, technology transfer agreements and the production and direct sale of its own electro-optic device
components.
Operating Expenses
| |
| | |
| | |
Change from | | |
Percent | |
| |
For the Three | | |
For the Three | | |
Prior Three | | |
Change from | |
| |
Months Ending | | |
Months Ending | | |
Month | | |
Prior Three | |
| |
June 30, 2022 | | |
June 30, 2021 | | |
Period | | |
Month Period | |
| |
| | |
| | |
| | |
| |
Research and development | |
$ | 2,781,215 | | |
$ | 2,797,505 | | |
$ | (16,290 | ) | |
| -1 | % |
General and administrative | |
| 987,137 | | |
| 658,738 | | |
| 328,399 | | |
| 50 | % |
| |
$ | 3,768,352 | | |
$ | 3,456,243 | | |
$ | 312,109 | | |
| 9 | % |
Research and development expenses
decreased for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due to a decrease in
expense for cashless option exercises offset by increases in non-cash stock option amortization, prototype device development expenses,
laboratory and wafer fabrication materials and supplies, consulting expenses, travel expenses and depreciation. The expense for research
and development cashless option exercises decreased by $1,275,342 in the three months ended June 30, 2022, compared to the same period
in 2021. Research and development non-cash stock option amortization expenses increased by $933,805 in the three months ended June 30,
2022, compared to the same period in 2021. Prototype device development expenses increased by $179,376 in the three months ended June
30, 2022, compared to the same period in 2021. Laboratory and wafer fabrication materials and supplies increased
by $50,624 in the three months ended June 30, 2022, compared to the same period in 2021. Research and development consulting expenses
increased by $48,710 in the three months ended June 30, 2022, compared to the same period in 2021. Research and development travel expenses
increased by $38,205 in the three months ended June 30, 2022, compared to the same period in 2021. Depreciation expenses increased by
$30,292 in the three months ended June 30, 2022, compared to the same period in 2021.
We expect to continue to incur
substantial research and development expense developing and commercializing our photonic devices, and electro-optic materials platform.
These expenses will increase as a result of accelerated development effort to support commercialization of our electro-optic polymer materials
technology; to build photonic device prototypes; hiring additional technical and support personnel; engaging senior technical advisors;
pursuing other potential business opportunities and collaborations; customer testing and evaluation; and incurring related operating expenses.
General and administrative expenses
increased for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due to increases in
non-cash stock option amortization, director fees, investor expenses and auditing fees offset by decrease in salary expenses. General
and administrative non-cash stock option amortization expenses increased by $256,827 in the three months ended June 30, 2022, compared
to the same period in 2021. Director fees increased by $41,250 in the three months ended June 30, 2022, compared to the same period in
2021. Investor expenses increased by $32,830 in the three months ended June 30, 2022, compared to the same period in 2021 primarily
for the uplist of the Company to the Nasdaq Capital Market in the fall of 2021. Auditing expenses increased by $29,570 in the three months
ended June 30, 2022, compared to the same period in 2021. General and administrative salary expenses decreased by $118,332 in the three
months ended June 30, 2022, compared to the same period in 2021 primarily for bonus payments in 2021.
Other Income (Expense)
|
|
For the |
|
|
For the |
|
|
|
|
|
Percent |
|
|
|
Three Months |
|
|
Three Months |
|
|
Change from |
|
|
Change from |
|
|
|
Ending |
|
|
Ending |
|
|
Prior Three |
|
|
Prior Three |
|
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
|
Month
Period |
|
|
Month
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income/(Expense) |
|
$ |
(34,246 |
) |
|
$ |
(1,083,242 |
) |
|
$ |
1,048,996 |
|
|
-97% |
|
Other income (expenses) decreased
for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily
due to a decrease in commitment fee associated with the purchase of shares by an institutional investor for sale under a stock purchase
agreement.
Net Loss
|
|
For the |
|
|
For the |
|
|
|
|
|
Percent |
|
|
|
Three Months |
|
|
Three Months |
|
|
Change from |
|
|
Change from |
|
|
|
Ending |
|
|
Ending |
|
|
Prior Three |
|
|
Prior Three |
|
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
|
Month
Period |
|
|
Month
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
3,802,598 |
|
|
$ |
4,539,485 |
|
|
$ |
(736,887 |
) |
|
-16% |
|
Net loss was $3,802,598 and $4,539,485
for the three months ended June 30, 2022 and 2021, respectively, for a decrease of $736,887, due primarily to decreases in cashless option
exercise expenses, commitment fee associated with the purchase of shares by an institutional investor for sale under a stock purchase
agreement and general and administrative salary expenses offset by increases in non-cash stock option amortization, prototype device development
expenses, laboratory and wafer fabrication materials and supplies, research and development consulting expenses, research and development
travel expenses, director fees, investor expenses, depreciation and auditing fees.
Comparison of six months ended
June 30, 2022 to six months ended June 30, 2021
Revenues
As a development stage company,
we had no revenues during the six months ended June 30, 2022 and June 30, 2021. The Company is in various stages of photonic device and
materials development and evaluation with potential customers and strategic partners. The Company expects to obtain a revenue stream from
technology licensing agreements, technology transfer agreements and the production and direct sale of its own electro-optic device components.
Operating Expenses
| |
| | |
| | |
Change from | | |
Percent | |
| |
For the Six | | |
For the Six | | |
Prior Six | | |
Change from | |
| |
Months Ending | | |
Months Ending | | |
Month | | |
Prior Six | |
| |
June 30, 2022 | | |
June 30, 2021 | | |
Period | | |
Month Period | |
| |
| | |
| | |
| | |
| |
Research and development | |
$ | 5,406,355 | | |
$ | 4,160,308 | | |
$ | 1,246,047 | | |
| 30 | % |
General and administrative | |
| 1,872,566 | | |
| 1,191,706 | | |
| 680,860 | | |
| 57 | % |
| |
$ | 7,278,921 | | |
$ | 5,352,014 | | |
$ | 1,926,907 | | |
| 36 | % |
Research and development expenses
increased for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to increases in research
and development non-cash stock option amortization, prototype device development expenses, research and development salary expenses, laboratory
and wafer fabrication materials and supplies, depreciation, research and development consulting expenses and research and development
travel expenses offset by a decrease in expense for cashless option exercises. Research and development non-cash stock option amortization
expenses increased by $1,790,338 in the six months ended June 30, 2022, compared to the same period in 2021. Prototype device development
expenses increased by $211,334 in the six months ended June 30, 2022, compared to the same period in 2021. Research and development salary
expenses increased by $120,020 in the six months ended June 30, 2022, compared to the same period in 2021 primarily for additional salary
expenses. Laboratory and wafer fabrication materials and supplies increased by $106,290 in the six months ended June 30, 2022, compared
to the same period in 2021. Depreciation expenses increased by $77,595 in the six months ended June 30, 2022, compared to the same period
in 2021. Research and development consulting expenses increased by $70,510 in the six months ended June 30, 2022, compared to the same
period in 2021. Research and development travel expenses increased by $69,661 in the six months ended June 30, 2022, compared to the same
period in 2021. The expense for research and development cashless option exercises decreased by $1,209,843 in the six months ended June
30, 2022, compared to the same period in 2021.
We expect to continue to incur
substantial research and development expense developing and commercializing our photonic devices, and electro-optic materials platform.
These expenses will increase as a result of accelerated development effort to support commercialization of our electro-optic polymer materials
technology; to build photonic device prototypes; working with semiconductor foundries; hiring additional technical and support personnel;
engaging senior technical advisors; pursuing other potential business opportunities and collaborations; customer testing and evaluation;
and incurring related operating expenses.
General and administrative expenses
increased for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to increases in general
and administrative non-cash stock option amortization, director fees, investor expenses, general and administrative travel expenses, auditing
expenses, shareholder meeting expenses, insurance and legal expenses offset by a decrease in general and administrative salary expenses.
General and administrative non-cash stock option amortization increased by $512,942 in the six months ended June 30, 2022, compared to
the same period in 2021. Director fees increased by $79,000 in the six months ended June 30, 2022, compared to the same period in 2021.
Investor expenses increased by $44,403 in the six months ended June 30, 2022, compared to the same period in 2021 primarily
for the uplist of the Company to the Nasdaq Capital Market in the fall of 2021. General and administrative travel expenses increased by
$40,879 in the six months ended June 30, 2022, compared to the same period in 2021. Auditing expenses increased by $29,570 in the six
months ended June 30, 2022, compared to the same period in 2021. Shareholder meeting expenses increased by $28,998 in the six months ended
June 30, 2022, compared to the same period in 2021. Insurance expenses increased by $28,417 in the six months ended June 30, 2022, compared
to the same period in 2021. Legal expenses increased by $24,958 in the six months ended June 30, 2022, compared to the same period in
2021. General and administrative salary expenses decreased by $150,234 in the six months ended June 30, 2022, compared to the same period
in 2021 primarily for bonus payments in 2021.
Other Income (Expense)
|
|
For the |
|
|
For the |
|
|
|
|
|
Percent |
|
|
|
Six Months |
|
|
Six Months |
|
|
Change from |
|
|
Change from |
|
|
|
Ending |
|
|
Ending |
|
|
Prior Six |
|
|
Prior six |
|
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
|
Month
Period |
|
|
Month
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income/(Expense) |
|
$ |
(79,438 |
) |
|
$ |
(922,515 |
) |
|
$ |
842,077 |
|
|
-91% |
|
Other income (expenses) decreased
for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to a decrease in commitment fee
associated with the purchase of shares by an institutional investor for sale under a stock purchase agreement.
Net Loss
|
|
For the |
|
|
For the |
|
|
|
|
|
Percent |
|
|
|
Six Months |
|
|
Six Months |
|
|
Change from |
|
|
Change from |
|
|
|
Ending |
|
|
Ending |
|
|
Prior Six |
|
|
Prior Six |
|
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
|
Month
Period |
|
|
Month
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
7,358,359 |
|
|
$ |
6,274,529 |
|
|
$ |
1,083,830 |
|
|
-17% |
|
Net loss was $7,358,359 and $6,274,044
for the six months ended June 30, 2022 and 2021, respectively, for an increase of $1,083,830 due primarily to increases in non-cash stock
option amortization, prototype device development expenses, research and development salary expenses, travel expenses, laboratory and
wafer fabrication materials and supplies, director fees, depreciation, research and development consulting fees, investor expenses, auditing
expenses, shareholder meeting expenses, insurance and legal expenses offset by decreases in commitment fee associated with the purchase
of shares by an institutional investor for sale under a stock purchase agreement, research and development expense for cashless option
exercises and general and administrative salary expenses.
Significant Accounting Policies
We believe
our significant accounting policies affect our more significant estimates and judgments used in the preparation of our financial statements.
Our Annual Report on Form 10-K for the year ended December 31, 2021 contains a discussion of these significant accounting policies.
Liquidity and Capital Resources
Sources and
Uses of Cash
Our primary
source of operating cash inflows was proceeds from the sale of common stock to an institutional investor pursuant to purchase agreements
with an institutional investor as described in Note 9 to the Financial Statements and proceeds received pursuant to the exercise of options.
All of the registered shares under
the January 21, 2019 purchase agreement with the institutional investor have been issued as of June 30, 2021. On July 2, 2021, the
Company filed a $100 million universal shelf registration statement which became effective on July 9, 2021. On October 4, 2021, the Company
entered into a new purchase agreement with the institutional investor to sell up to $33 million of common stock over a 36-month period,
with $8,304,532 remaining on the purchase agreement as of the date of this filing.
During
the six months ended June 30, 2022, the Company received $6,705,693 in proceeds pursuant to the purchase agreements with the institutional
investor and $422,925 in proceeds pursuant to the exercise of options and warrants. During the year ended December 31, 2021, the Company
received $30,350,674 in proceeds pursuant to the purchase agreements with the institutional investor and $2,379,225 in proceeds pursuant
to the exercise of options and warrants.
During
the six months ended June 30, 2022, our primary sources of cash outflows from operations included payroll, rent, utilities, payments to
vendors including prototypes development and foundries expenses and third-party service providers and payroll taxes related to cashless
option exercise. During the year ended December 31, 2021, our primary sources of cash outflows from operations included payroll, payroll
taxes related to cashless option exercise, rent, utilities, payments to vendors including prototypes development and foundries expenses
and third-party service providers.
Our future
expenditures and capital requirements will depend on numerous factors, including: the progress of our research and development efforts;
the rate at which we can, directly or through arrangements with original equipment manufacturers, introduce and sell products incorporating
our polymer materials technology; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property
rights; market acceptance of our products and competing technological developments; and our ability to establish cooperative development,
joint venture and licensing arrangements. We expect that we will incur approximately $1,300,000 of expenditures per month over the next
12 months.
We expect
our October 4, 2021 purchase agreement with the institutional investor to provide us with
sufficient funds to maintain our operations for the next 12 months if required. However, any additional funds provided by the
institutional investor may not be available on terms that are acceptable to us, or at all. Market volatility resulting from recessionary
factors or other factors could adversely impact our ability to access capital as and when needed. If adequate funds are not available
to us on a timely basis, we may be required to delay or limit our operations, including research and development efforts relating to the
commercializing our electro-optic polymer technology. Our current cash position enables us to finance our operations through February
2024 before we will be required to replenish our cash reserves pursuant to our October 4, 2021 purchase
agreement or otherwise. Our cash requirements are expected to increase at a rate consistent with the Company’s path to revenue
growth as we expand our activities and operations with the objective of commercializing our electro-optic polymer technology. We currently
have no debt to service.
We expect
that our cash used in operations will continue to increase through 2022 and beyond 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; |
|
· |
Partnering with commercial foundries to implement our electro-optic polymers into accepted PDKs by the foundries; |
|
· |
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. |
Analysis of Cash Flows
For the six months ended June 30, 2022
Net cash used in operating activities
was $5,245,275 for the six months ended June 30, 2022, primarily attributable to the net loss of $7,358,359 adjusted by $2,798,550 in
options issued for services, $43,221 amortization of deferred compensation, $107,857 in common stock issued for services, $496,549 in
depreciation expenses and patent amortization expenses, ($550,988) in prepaid expenses, ($888,764) in accounts payable, accrued bonuses
and accrued expenses and $106,659 in cashless option exercise expense. Net cash used in operating activities consisted of payments for
research and development, legal, professional and consulting expenses, rent and other expenditures necessary to develop our business infrastructure.
Net cash used by investing activities
was $414,565 for the six months ended June 30, 2022, consisting of $41,905 in cost for intangibles and $372,660 in asset additions for
the Colorado headquarter facility and labs.
Net cash provided by financing activities
was $7,056,977 for the six months ended June 30, 2022 and consisted of $422,925 in proceeds from exercise of options and warrants, $6,705,693
in proceeds from resale of common stock to an institutional investor offset by $71,641 in cashless option exercise tax payments.
On June
30, 2022, our cash and cash equivalents totaled $24,829,749, our assets totaled $29,007,064, our liabilities totaled $1,047,887 and we
had stockholders’ equity of $27,959,177.
For the six months ended
June 30, 2021
Net cash
used in operating activities was $2,991,879 for the six months ended June 30, 2021, primarily attributable to the net loss of $6,274,529
adjusted by $10,242 in warrants issued for services, $528,249 in options issued for services, $1,333,628 in common stock issued for services,
$417,414 in depreciation expenses and patent amortization expenses, ($410,700) in Paycheck Protection Program loan forgiveness $134,668
in prepaid expenses, ($48,074) in accounts payable and accrued expenses and $1,317,223 in cashless option exercise expense. Net cash used
in operating activities consisted of payments for research and development, legal, professional and consulting expenses, rent and other
expenditures necessary to develop our business infrastructure.
Net cash
used by investing activities was $654,699 for the six months ended June 30, 2021, consisting of $18,221 in cost for intangibles and $636,478
in asset additions primarily for the Colorado headquarter facility and labs.
Net cash
provided by financing activities was $14,253,507 for the six months ended June 30, 2021 and consisted of $746,750 in proceeds from exercise
of options and warrants, $13,973,249 in proceeds from resale of common stock to an institutional investor offset by $453,385 in cashless
option exercise tax payments and $13,107 repayment of equipment purchased.
Contractual Commitments
See "Note
6–Commitments" to the notes to the financial statements contained within this Quarterly Report on Form 10-Q for a discussion
of our contractual commitments.
Off-Balance Sheet Arrangements
As of June
30, 2022, we do not have an interest in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have or
are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures, or capital resources that is material to investors.