Financial Analysis

NOTE 11 STOCK BASED COMPENSATION Common Stock Options and Warrants 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, 2025, options to purchase 453,000 shares of common stock have been issued and are outstanding under the 2007 Plan. During 2016, the Board of Directors of the Company adopted the 2016 Equity Incentive Plan (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 Companys common stock available for is …

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NOTE 9 INCOME TAXES There is no income tax benefit for the losses for the three and six months ended June 30, 2025 and 2024 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 Companys 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, 2025, the Company had no unrecognized tax benefits, or any tax related interest or penalties, and it does not expect significant changes in the amount of unrecognized tax benefits to occur within the next twelve months. There were no changes in the Companys unrecognized tax benefits during the three- and six-month period ended June 30, 2025. The Company did no t recognize any interest or penalties during 2025 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, 2021 and thereafter are subject to examination by the relevant taxing authorities. Net operating loss (NOL) carryforwards are subject to examination in the year they are utilized regardless of whether the tax year in which they are generated has been closed by the statute. The amount subject to disallowance is limited to the NOL utilized. Accordingly, the company may be subject to examination for prior NOLs generated as such NOLs are utilized. …

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NOTE 8 LEASES On October 30, 2017, the Company entered into a lease agreement (the Lease) to lease approximately 13,420 square feet of office, chemistry, clean room and research and development space located in Colorado for the Companys principal executive offices and research and development facility. The term of the lease was sixty-one ( 61 ) months, beginning on November 1, 2017 and ending on November 30, 2022 . In January 2022, the term was extended for an additional twenty-four ( 24 ) months. On November 22, 2022, the Company entered into an amendment to the Lease (the Amended Lease) to lease an additional approximately 9,684 square feet of adjacent office and warehouse space. The term of the Amended Lease is one hundred twenty ( 128 ) months, with an effective date of June 1, 2023 . Base rent through January 31, 2024 of the Amended Lease term was approximately $ 30,517 per month. The base rent for the next full year of the Amended Lease term is approximately $ 377,288 , with an increase in annual base rent of approximately 3% in each subsequent year of the lease term. Commencing on June 1, 2023, monthly installments of base rent and one-twelfth of landlords estimate of tenants proportionate share of annual operating expenses shall be due on the first day of each calendar month. The Amended Lease also provides an allowance of up to $ 43,216 to be used solely for the cost of renovations to the additional lease premises. For purposes of calculating operating lease liabilit …

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NOTE 13 RETIREMENT PLAN The Company established a 401(k) retirement plan covering all eligible employees beginning November 15, 2013, which was amended effective February 15, 2025. The plan offers two types of elected deferrals: pre-tax deferrals and Roth deferrals. The Company matches 100% of each participant contribution, up to 4% for all eligible employees. Matching contributions vest immediately. Participants are entitled to receive distributions of all vested amounts beginning at age 59 1/2. Matching contributions to all eligible participants charged to expense were $ 45,890 and $ 34,324 for the three months ended June 30, 2025 and 2024, respectively. Matching contributions to all eligible participants charged to expense were $ 85,477 and $ 59,092 for the six months ended June 30, 2025 and 2024, respectively. The plan is subject to the annual IRS elective deferral limit of $ 23,500 per employee for 2025, $ 7,500 catch-up for those aged 50 and over, and $11,250 or 150% of the regular catch-up limit for those aged 60-63. …

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NOTE 12 RELATED PARTY During the three and six months period ended June 30, 2025, and 2024, the Company engaged in transactions with related parties, including consultants, directors, and entities affiliated with members of the Board of Directors. These transactions primarily relate to legal services, consulting fees, director compensation, accounting services, and expense reimbursements. Related Party Transactions for the Three and Six Months Ended June 30, 2025 The Company incurred $ 2,100 and $ 69,643 in legal fees and expense reimbursements with a related party law firm for the three and six months ended June 30, 2025, respectively. Related accrual was $ 68,750 as of June 30, 2025. The Company incurred $ 16,980 and $ 39,740 in accounting and IT service fees and expense reimbursements to related parties for the three and six months ended June 30, 2025, respectively. Related accrual was $ 4,920 as of June 30, 2025. The Company incurred $ 53,841 and $ 108,636 in fees and travel expenses to directors for the three and six months ended June 30, 2025, respectively. Related accrual was $ 51,250 as of June 30, 2025. The Company incurred $ 82,500 and $ 165,000 in consulting fees to advisory board member for the three and six months ended June 30, 2025, respectively. Related accrual was $ 22,500 as of June 30, 2025. Related Party Transactions for the Three and Six Months Ended June 30, 2024 The Company incurred $ 38,759 and $ 62,759 in legal fees with a related party law firm for t …

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NOTE 4 REVENUE The Company's first commercial agreement occurred in May 2023, in the form of a four-year material supply and license agreement (the License Agreement) that incorporates the Company's patented electro-optic polymer materials for use in manufacturing of photonic devices (the Licensed Product). The licensee shall pay the Company a running royalty with a minimum royalty paid on an annual basis over the term of the License Agreement and milestone license fees. The License Agreement is a non-exclusive material supply and license agreement. Additional future revenue will be generated from royalties from the licensees sale of Licensed Product that exceed the minimum royalty payments and milestone license fees. During 2024, the Company performed device processing work for a customer. Timing of Revenue Recognition and Contract Balances Revenues related to the initial license fee and a minimum annual royalty are recognized over time commencing with the License Agreement in May 2023. An up-front license fee in the amount of $ 50,000 was paid during the period ended December 31, 2023. $ 14,875 and $ 23,208 of this amount is recorded as a contract liability in current liabilities on the Companys balance sheets as of June 30, 2025 and December 31, 2024, respectively. For the three months ended June 30, 2025 and 2024, the Company recognized $ 25,605 and $ 19,355 in revenue related to this agreement, respectively. For the six months ended June 30, 2025 and 2024, the Company re …

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NOTE 14 SEGMENT REPORTING The Company operates as a single reportable segment, as the Chief Operating Decision Maker (CODM), the Chief Executive Officer (CEO), evaluates the business as a whole and does not receive discrete financial information for separate business units. The CODM is responsible for evaluating financial results and making resource allocation decisions. Measure of Segment Profit or Loss The CODM assesses the Company's financial performance based on operating loss, which aligns with the amount reported in the statements of comprehensive loss. The following table presents a reconciliation of segment operating loss to net loss for the three- and six-months period ended June 30, 2025 and 2024: Schedule of reconciliation of segment operating loss Three Months Ended June 30, 2025 (Restated) Three Months Ended June 30, 2024 Six Months Ended June 30, 2025 ( Restated) Six Months Ended June 30, 2024 NET SALES $ 25,605 $ 19,355 $ 48,522 $ 49,772 COST OF SALES 3,463 5,491 5,175 OPERATING EXPENSES Research and development 2,621,441 4,362,258 5,710,659 8,982,920 General and administrative 2,300,884 1,896,672 4,137,936 3,152,122 4,925,788 6,258,930 9,854,086 12,135,042 SEGMENT OPERATING LOSS (4,900,183 ) (6,239,575 ) (9,805,564 ) (12,090,445 ) OTHER INCOME (EXPENSE) Interest income 168,253 251,730 356,101 505,066 Commitment fee (235,801 ) (28,982 ) (243,830 ) (105,959 ) Gain (loss) on disposal of property and equipment 28,800 (3,166 ) Other income (expense) 1,098 (2,857 ) …

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NOTE 10 STOCKHOLDERS EQUITY Preferred Stock Pursuant to the Companys Articles of Incorporation, the Companys 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 Companys 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 Companys business or a takeover from a third party. Common Stock On July 26, 2024, the Company filed a new $100,000,000 universal shelf registration statement with the U.S. Securities and Exchange Commission which became effective on August 5, 2024. On February 28, 2023, the Company entered into a purchase agreement with an institutional investor to sell up to $ 30,000,000 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 is …

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NOTE 15 SUBSEQUENT EVENTS On July 4, 2025, the U.S. enacted H.R. 1 A bill to provide for reconciliation pursuant to Title II of H. Con. Res. 14. The bill contains a broad range of tax reform provisions affecting businesses. The Company is currently evaluating the full effects of the legislation on the Company's estimated annual effective tax rate and deductibility of certain R&D expenses. As the legislation was signed into law after June 30, 2025, the impacts are not reflected in the Company's operating results for the three and six months ended June 30, 2025. On August 6, 2025, the Compensation Committee of the Board of Directors approved a grant of 51,250 options with the total value of $ 87,907 to the members of the Technical Advisory Board. The options had an exercise price of $ 2.04 per share, which shall be amortized on a straight-line basis over the vesting period into stock-based compensation expenses within the Statement of Comprehensive Loss. The options were granted under the 2025 Plan and vest in five monthly installments starting on August 6, 2025, with some options having a cliff vesting provision. …

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