Lightwave Logic(LWLG) - 2021 Q4 - Annual Report

Part I Business Lightwave Logic develops high-speed, low-power electro-optic photonic devices using proprietary polymer technology for data and telecommunications markets - The company is a development-stage entity commercializing electro-optic photonic devices using its proprietary PIC™ technology platform, including Polymer Stack™, Polymer Plus™, and Polymer Slot™[16] - The business model focuses on product development, patent licensing, and technology transfer to foundries[18] - Initial target markets include data communications and telecommunications, with explorations into automotive/LIDAR, sensing, and displays[18] Overview and Technology The company develops proprietary organic polymers for electro-optic devices, offering superior performance, stability, and cost-efficiency, integrated with semiconductor manufacturing processes - The company designs proprietary organic chromophores for electro-optic polymer systems, engineered for superior performance and stability at a molecular level[20] - The Polymer Plus™ platform enables integration of electro-optic polymers as thin film coatings with CMOS and Indium Phosphide (InP) material platforms[27] - Lightwave Logic collaborates with commercial foundries to implement electro-optic polymers into Process Development Kits (PDKs) for Polymer Plus™ and Polymer Slot™ modulators[28] Intellectual Property The company protects its technology with an extensive portfolio of 59 granted patents, including 47 in the US, significantly expanded by a 2018 acquisition - The company's patent portfolio comprises 59 granted patents, including 47 from the US, 5 from the EU, and others from Canada, Japan, and China[58] - In 2018, the company acquired BrPhotonics' Polymer Technology IP Assets, adding 15 patents and strengthening its position for the 400Gbps integrated photonics market[57] Recent Milestones and Events From 2020-2022, the company achieved significant technical and corporate milestones, including world-record polymer modulator performance and Nasdaq listing - The company's common stock began trading on the Nasdaq Capital Market on September 1, 2021[92] - Achieved world-record performance for a polymer modulator, demonstrating 220 Gbit/s OOK and 408 Gbit/s 8PAM transmission in collaboration with ETH Zurich and Polariton Technologies[94] - Announced breakthrough photostability results on electro-optic polymer modulators, crucial for high-volume silicon foundry compatibility[98] Market Overview and Target Markets The global photonics components market is projected to reach $80 billion by 2030, with PICs comprising 52%, targeting data center and telecommunications interconnects - The photonics market is forecasted to grow to $80 billion by 2030 with a 17% CAGR (2020-30)[103] - PIC-based technologies are forecasted to reach approximately $41 billion by 2030, representing about 52% of the photonics components market[106] - The company's modulators are suited for single-mode fiber optic links greater than 10km, targeting data center and telecommunication applications[117][136] Business Strategy and Products in Development The company's strategy is to develop a portfolio of 50 Gbaud and higher electro-optic modulators using its PIC platform, targeting multi-channel data rates up to 1.6 Tbps - The business strategy anticipates revenue from technology licensing, joint ventures, and direct sales of electro-optic device components[128] - The Ridge Waveguide Modulator (Polymer Stack™) is the first commercially viable device, targeting fiber optics communications for links over 10km[133][136] - The long-term goal is a flexible, multichannel PIC™ platform to address aggregated data-rate markets from 100 Gbps up to 1.6 Tbps[144] Competition The company competes in a highly competitive market against established InP and SiP technologies, leveraging its organic polymer advantages against major fiber-optic component manufacturers - The incumbent PIC technology, Indium Phosphide (InP), offers world-class performance but has limitations in large-format wafer manufacturing[151] - Silicon Photonics (SiP) leverages existing semiconductor infrastructure for cost reduction but requires hybrid solutions as it cannot natively generate light[153] - Key competitors include II-VI, Lumentum, Molex, Broadcom, Intel, and Ciena, heavily invested in crystalline-based modulator technologies[160] Human Capital The company has 19 full-time employees, with plans to add 5 more in 2022, relying on a skilled workforce and offering competitive compensation to attract talent - The company currently has 19 full-time employees and expects to add 5 additional full-time employees in 2022[163] - The company's total rewards package includes market-competitive pay, stock options, bonuses, and various benefits to attract and retain talent[167] Risk Factors The company faces significant risks including substantial operating losses, need for future capital, market acceptance challenges, intellectual property protection, and reliance on strategic partnerships - The company has a history of substantial operating losses, incurring a net loss of $18.6 million in 2021, and anticipates continued losses[173] - The company will require additional capital to fund operations beyond December 2023, which may not be obtainable on acceptable terms[179] - Targeted markets are intensely competitive, with competitors possessing substantially greater resources, potentially hindering the company's success[201] - Success depends on gaining market acceptance for products, involving a lengthy and expensive customer qualification process with no sales guarantee[188][190] - The COVID-19 pandemic continues to pose risks, potentially impacting research and development, financial results, and fundraising ability[198] Unresolved Staff Comments The company reports no unresolved staff comments - None[247] Properties The company's principal executive and R&D facility is a 13,420 sq. ft. leased space in Englewood, Colorado, including cleanrooms and laboratories - The company's main facility is a 13,420 sq. ft. leased space in Englewood, Colorado, including cleanrooms and laboratories[248] Legal Proceedings The company is not a party to any material litigation, nor is it aware of any threatened material litigation - The company is not a party to any litigation of a material nature[249] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[250] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock began trading on the Nasdaq Capital Market on September 1, 2021, with no cash dividends paid, and has significantly outperformed the NASDAQ Composite Index - The company's common stock has traded on the Nasdaq Capital Market under the symbol "LWLG" since September 1, 2021[253] - No cash dividends have been declared or paid on common stock to date[255] | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 6,748,248 | $1.05 | 3,210,250 | | Equity compensation plans not approved by security holders | 1,138,000 | $0.85 | 0 | | Total | 7,886,248 | $1.02 | 3,210,250 | Management's Discussion and Analysis of Financial Condition and Results of Operations The development-stage company reported no revenue in 2021 or 2020, with a net loss of $18.6 million in 2021 due to increased operating expenses, primarily funded by common stock sales Results of Operations (FY 2021 vs. FY 2020) In FY2021, the company reported no revenue, with operating expenses increasing 158% to $17.0 million, leading to a net loss of $18.6 million, up 177% from 2020 | | Year Ending Dec 31, 2021 | Year Ending Dec 31, 2020 | Change from Prior Year ($) | Change from Prior Year (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $12,476,040 | $4,590,545 | $7,885,495 | 172% | | General and administrative | $4,520,403 | $2,009,429 | $2,510,974 | 125% | | Total Operating Expenses | $16,996,443 | $6,599,974 | $10,396,469 | 158% | | | Year Ending Dec 31, 2021 | Year Ending Dec 31, 2020 | Change from Prior Year ($) | Change from Prior Year (%) | | :--- | :--- | :--- | :--- | :--- | | Net Loss | $18,631,381 | $6,715,564 | $11,915,817 | 177% | - The increase in R&D expenses was primarily due to $3.5 million in cashless option exercise expenses and a $3.3 million increase in salary expenses[276] - The increase in G&A expenses was primarily due to a $2.0 million increase in salary expenses and Nasdaq uplisting costs[279] Liquidity and Capital Resources The company's liquidity is primarily from common stock sales, ending 2021 with $23.4 million in cash, believed sufficient to fund operations through December 2023 - The company's primary cash source is common stock sales to Lincoln Park, with $13.4 million remaining under the current purchase agreement[284][285] - The company believes it has sufficient funds to finance operations through December 2023, with expected monthly expenditures of approximately $1.015 million over the next 12 months[288] | Cash Flow Item | For the Year Ended Dec 31, 2021 | For the Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,038,626) | $(4,873,863) | | Net cash used in investing activities | $(1,116,179) | $(217,984) | | Net cash provided by financing activities | $31,280,827 | $6,162,093 | | Cash and cash equivalents - End of Year | $23,432,612 | $3,306,590 | Quantitative and Qualitative Disclosures About Market Risk The company has minimal market risk exposure, holding $23.4 million in highly liquid cash and equivalents, and does not use market risk sensitive instruments for hedging - The company holds no market risk sensitive instruments for trading or speculative purposes and has concluded it does not have a material financial market risk exposure[299][301] Controls and Procedures As of December 31, 2021, management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[304] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[305] - No material changes in internal control over financial reporting occurred during the fourth fiscal quarter[309] Part III Information for Items 10-14, including Directors, Executive Compensation, and Security Ownership, is incorporated by reference from the definitive proxy statement to be filed within 120 days Directors, Executive Officers and Corporate Governance Information is incorporated by reference from the definitive proxy statement - Information required under this item will be contained in the definitive proxy statement to be filed within 120 days of December 31, 2021[313] Executive Compensation Information is incorporated by reference from the definitive proxy statement - Information required under this item will be contained in the definitive proxy statement to be filed within 120 days of December 31, 2021[314] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information is incorporated by reference from the definitive proxy statement - Information required under this item will be contained in the definitive proxy statement to be filed within 120 days of December 31, 2021[315] Certain Relationships and Related Transactions, and Director Independence Information is incorporated by reference from the definitive proxy statement - Information required under this item will be contained in the definitive proxy statement to be filed within 120 days of December 31, 2021[316] Principal Accountant Fees and Services Information is incorporated by reference from the definitive proxy statement - Information required under this item will be contained in the definitive proxy statement to be filed within 120 days of December 31, 2021[317] Part IV Exhibits, Financial Statement Schedules This section lists the audited financial statements and all exhibits filed as part of the Form 10-K report, including corporate governance documents and material contracts - This section lists the financial statements and exhibits filed with the Form 10-K[319]