Lightwave Logic, Inc. 10-Q

Item 1 Financial Statements LIGHTWAVE LOGIC, INC. FINANCIAL STATEMENTS MARCH 31, 2023 (UNAUDITED) Page Balance Sheets 2 Statements of Comprehensive Loss 3 Statement of Stockholders’ Equity 4 Statements of Cash Flow 6 Notes to Financial Statements 7 - 16 1 LIGHTWAVE LOGIC, INC. BALANCE SHEETS March 31, 2023 December 31, 2022 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 26,168,214 $ 24,102,151 Prepaid expenses and other current assets 703,198 611,345 Loan receivable — 642,120 TOTAL CURRENT ASSETS 26,871,412 25,355,616 PROPERTY AND EQUIPMENT - NET 2,509,395 2,519,267 OTHER ASSETS Intangible assets - net 1,117,459 1,030,335 Operating Lease - Right of Use - Building 311,873 358,254 TOTAL OTHER ASSETS 1,429,332 1,388,589 TOTAL ASSETS $ 30,810,139 $ 29,263,472 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 364,539 $ 791,671 Accrued bonuses and accrued expenses 132,129 380,280 Accounts payable and accrued expenses - related parties 98,802 100,169 Deferred lease liability 41,778 41,778 Operating lease liability 193,232 190,125 TOTAL CURRENT LIABILITIES 830,480 1,504,023 LONG TERM LIABILITIES Deferred lease liability 27,852 38,297 Operating lease liability 118,641 168,129 TOTAL LONG TERM LIABILITIES 146,493 206,426 TOTAL LIABILITIES 976,973 1,710,449 STOCKHOLDERS' EQUITY Preferred stock, $ 0.001 par value, 1,000,000 authorized, no shares issued or outstanding — — Common stock $ 0.001 par value, 250,000,000 authorized, 114,103,523 and 112,882,793 issued and outstanding at March 31, 2023 and December 31, 2022 114,104 112,883 Additional paid-in-capital 142,608,263 134,406,825 Deferred compensation ( 579,822 ) ( 133,324 ) Accumulated deficit ( 112,309,379 ) ( 106,833,361 ) TOTAL STOCKHOLDERS' EQUITY 29,833,166 27,553,023 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,810,139 $ 29,263,472 See accompanying notes to these financial statements. 2 LIGHTWAVE LOGIC, INC. STATEMENTS OF COMPREHENSIVE LOSS FOR THE THREE MONTHS ENDING MARCH 31, 2023 AND 2022 (UNAUDITED) For the Three For the Three Months Ending Months Ending March 31, 2023 March 31, 2022 NET SALES $ — $ — COST AND EXPENSE Research and development 3,799,707 2,625,138 General and administrative 1,360,170 885,430 TOTAL COST AND EXPENSE 5,159,877 3,510,568 LOSS FROM OPERATIONS ( 5,159,877 ) ( 3,510,568 ) OTHER INCOME (EXPENSE) Interest income 53,287 15,020 Commitment fee ( 361,694 ) ( 60,213 ) Other Expense ( 7,734 ) — NET LOSS $ ( 5,476,018 ) $ ( 3,555,761 ) LOSS PER SHARE Basic $ ( 0.05 ) $ ( 0.03 ) Diluted $ ( 0.05 ) $ ( 0.03 ) WEIGHTED AVERAGE NUMBER OF SHARES Basic 113,270,655 110,889,453 Diluted 113,270,655 110,889,453 See accompanying notes to these financial statements. 3 LIGHTWAVE LOGIC, INC. STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED) Additional Number of Common Paid-in Deferred Accumulated Shares Stock Capital Compensation Deficit Total BALANCE AT DECEMBER 31, 2022 112,882,793 $ 112,883 $ 134,406,825 $ ( 133,324 ) $ ( 106,833,361 ) $ 27,553,023 Common stock issued to institutional investor 1,020,455 1,020 5,498,357 — — 5,499,377 Common stock issued for commitment shares 65,659 66 361,628 — — 361,694 Exercise of options 10,000 10 6,990 — — 7,000 Exercise of warrants 25,000 25 18,725 — — 18,750 Options issued for services — — 1,795,842 — — 1,795,842 Restricted stock awards issued for future services 99,616 100 519,896 ( 519,996 ) — — Deferred compensation — — — 73,498 — 73,498 Net loss for the three months ending March 31, 2023 — — — — ( 5,476,018 ) ( 5,476,018 ) BALANCE AT MARCH 31, 2023 (UNAUDITED) 114,103,523 $ 114,104 $ 142,608,263 $ ( 579,822 ) $ ( 112,309,379 ) $ 29,833,166 Additional Number of Common Paid-in Deferred Accumulated Shares Stock Capital Compensation Deficit Total BALANCE AT DECEMBER 31, 2021 110,555,459 $ 110,556 $ 114,696,597 $ — $ ( 89,602,881 ) $ 25,204,272 Common stock issued to institutional investor 475,000 475 3,686,342 — — 3,686,817 Common stock issued for commitment shares 6,773 7 60,206 — — 60,213 Exercise of options 30,000 30 26,820 — — 26,850 Cashless exercise of 4,375 options 2,596 3 35,015 — — 35,018 Options issued for services — — 1,338,932 — — 1,338,932 Restricted stock awards issued for future services 28,500 28 274,996 ( 275,024 ) — — Deferred compensation — — — 22,930 — 22,930 Net loss for the three months ending March 31, 2022 — — — — ( 3,555,761 ) ( 3,555,761 ) BALANCE AT MARCH 31, 2022 (UNAUDITED) 111,098,328 $ 111,099 $ 120,118,908 $ ( 252,094 ) $ ( 93,158,642 ) $ 26,819,271 See accompanying notes to these financial statements. 4 LIGHTWAVE LOGIC, INC. STATEMENTS OF CASH FLOW (UNAUDITED) For the Three For the Three Months Ending Months Ending March 31, 2023 March 31, 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 5,476,018 ) $ ( 3,555,761 ) Adjustment to reconcile net loss to net cash used in operating activities Stock options issued for services 1,795,842 1,338,932 Amortization of deferred charges 73,498 22,930 Cashless option exercise — 76,115 Common stock issued for services and fees 361,694 60,213 Depreciation and amortization of patents 275,276 244,168 Amortization of right of use asset 46,381 43,471 (Increase) decrease in assets Prepaid expenses and other current assets ( 91,853 ) 18,090 Increase (decrease) in liabilities Accounts payable ( 427,132 ) 180,445 Accrued bonuses, accrued expenses and other liabilities ( 294,532 ) ( 1,091,392 ) Accounts payable and accrued expenses-related parties ( 1,367 ) 127,545 Deferred lease liability ( 10,445 ) ( 10,445 ) Net cash used in operating activities ( 3,748,656 ) ( 2,545,689 ) CASH FLOWS FROM INVESTING ACTIVITIES Cost of intangibles ( 106,475 ) ( 39,706 ) Purchase of property and equipment ( 246,053 ) ( 182,285 ) Loan repayment 642,120 — Net cash used in investing activities 289,592 ( 221,991 ) CASH FLOWS FROM FINANCING ACTIVITIES Exercise of options and warrants 25,750 26,850 Cashless option exercise tax payments — ( 41,097 ) Issuance of common stock, institutional investor 5,499,377 3,686,817 Net cash provided by financing activities 5,525,127 3,672,570 NET INCREASE IN CASH AND CASH EQUIVALENTS 2,066,063 904,890 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 24,102,151 23,432,612 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 26,168,214 $ 24,337,502 See accompanying notes to these financial statements. 5 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2023 AND 2022 NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Statements The accompanying unaudited financial statements have been prepared by Lightwave Logic, Inc. (the “Company”). These statements include all adjustments (consisting only of its normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting polices described in the Summary of Significant Accounting Policies included in the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on March 1, 2023 (the “2022 Annual Report”). Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company firmly believes that the accompanying disclosures are adequate to make the information presented not misleading. The financial statements should be read in conjunction with the financial statements and notes thereto included in the 2022 Annual Report. The interim operating results for the three months ending March 31, 2023 may not be indicative of operating results expected for the full year. Nature of Business Lightwave Logic, Inc. is a technology company focused on the development of next generation photonic devices and non-linear optical polymer materials systems for applications in high speed fiber-optic data communications and optical computing markets. Currently 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. The Company’s current development activities are subject to significant risks and uncertainties, including failing to secure additional funding to operationalize the Company’s technology now under development. Stock-based Payments The Company accounts for stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, "Compensation - Stock Compensation", which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The fair value of restricted stock awards is estimated by the market price of the Company’s common stock at the date of grant. Restricted stock awards are being amortized to expense over the vesting period. The Company estimates the fair value of option and warrant awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (the “2018 Update). The amendments in the 2018 Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Prior to the 2018 Update, Topic 718 applied only to share-based transactions to employees. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. The Company has elected to account for forfeiture of stock-based awards as they occur. 6 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2023 AND 2022 NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Loss Per Share The Company follows FASB ASC 260, “Earnings per Share”, resulting in the presentation of basic and diluted earnings per share. Because the Company reported a net loss in 2023 and 2022, common stock equivalents, including stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share were the same. Comprehensive Income The Company follows FASB ASC 220.10, “Reporting Comprehensive Income (Loss).” Comprehensive income (loss) is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income (loss). Since the Company has no items of other comprehensive income (loss), comprehensive income (loss) is equal to net income (loss). Recently Issued Accounting Pronouncements Not Yet Adopted As of March 31, 2023, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements. Recently Adopted Accounting Pronouncements As of March 31, 2023 and for the period then ended, there are no recently adopted accounting standards that have a material effect on the Company’s financial statements. Reclassifications Certain reclassifications have been made to the 2022 financial statement in order to conform to the 2023 financial statement presentation. 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 $ 1,675,000 of expenditures per month over the next 12 months. Our current cash position enables us to finance our operations through July 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 $ 1,347,933 in April and May 2023 and no remaining amounts are available to the Company per the agreement. On February 28, 2023, the Company entered into a purchase agreement with the institutional investor to sell up to $ 30,000,000 of common stock over a 36-month period (described in Note 9). Pursuant to the purchase agreement, the Company received $ 0 in April and May 2023 and a remaining available amount of $ 26,999,998 is available to the Company per the agreement. On December 9, 2022, the Company entered into a sales agreement with an investment banking company whereby the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 35,000,000 from time to time through or to the investment banking company, as sales agent or principal (described in Note 9). 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. 7 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2023 AND 2022 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 March 31, 2023 December 31, 2022 Deposit for Equipment $ 210,012 $ 59,850 License 131,011 94,195 Insurance 116,188 218,767 Investor relations 76,583 18,250 Other 75,446 45,675 Prototype Devices 40,473 40,473 Rent 36,525 36,525 Legal 16,960 83,941 Loan interest receivable — 13,669 Prepaid expenses and other current assets $ 703,198 $ 611,345 NOTE 4 – LOAN RECEIVABLE On September 7, 2022, the Company entered into a convertible loan agreement (the “Loan”) with an entity and issued a loan on September 12, 2022 in the amount of EUR 600,000 bearing interest at 7 % per annum with a maturity date of March 31, 2023 . The loan and interest were repaid in February and March 2023. The Company recorded $ 11,125 of interest income for the three months ended March 31, 2023 and used the average exchange rate for the conversion of the EUR denominated interest income for the period. NOTE 5 – PROPERTY AND EQUIPMENT Property and equipment consist of the following: Schedule of property and equipment March 31, 2023 December 31, 2022 Office equipment $ 131,814 $ 119,404 Lab equipment 6,468,420 6,234,777 Furniture 33,128 33,128 Leasehold improvements 184,843 184,843 6,818,205 6,572,152 Less: Accumulated depreciation 4,308,810 4,052,885 $ 2,509,395 $ 2,519,267 Depreciation expense for the three months ending March 31, 2023 and 2022 was $ 255,925 and $ 222,089 . During the three months ending March 31, 2023 and 2022, the Company did no t retire or sell any property and equipment. 8 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2023 AND 2022 NOTE 6 – 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 have yet to be granted. Patents consists of the following: Schedule of Patents March 31, 2023 December 31, 2022 Patents $ 1,712,539 $ 1,606,064 Less: Accumulated amortization 595,080 575,729 Intangible assets - net $ 1,117,459 $ 1,030,335 Amortization expense for the three months ending March 31, 2023 and 2022 was $ 19,351 and $ 22,079 . There were no patent costs written off for the three months ending March 31, 2023 and 2022. NOTE 7 – 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. 9 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2023 AND 2022 NOTE 7 – 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 nonlease 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. 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 Amended Lease is contingent upon the landlord entering into a written agreement with the existing tenant occupying the expanded premise (“the Existing Tenant Lease Termination”) to terminate its lease prior to the expiration date thereof, and to surrender the expansion premises to the landlord. The term of the Amended Lease is one hundred twenty ( 120 ) months, with an effective date estimated to be June 1, 2023 or earlier if the existing tenant terminates its lease prior to that date. Base rent through October 31, 2023 of the Amended Lease term is 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 the effective date, 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 Amended Lease also provides an allowance of up to $ 38,736 to be used solely for the cost of renovations to the additional lease premises. As of March 31, 2023, the landlord did not enter into the Existing Tenant Lease Termination. As a result, the Company did not capitalize the present value of the minimum lease payments under the Amended Lease. 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 2023 $ 160,604 2024 182,624 Total operating lease obligation 343,228 Less discounted interest ( 31,355 ) TOTAL $ 311,873 Rent expense totaling $ 36,142 and $ 12,047 is included in research and development and general and administrative expenses for the three months ended March 31, 2023. Rent expense totaling $ 34,599 and $ 11,533 is included in research and development and general and administrative expenses for the three months ended March 31, 2022. 10 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2023 AND 2022 NOTE 8 – INCOME TAXES There is no income tax benefit for the losses for the three months ended March 31, 2023 and 2022 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, 2023, 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 March 31, 2023. The Company did not recognize any interest or penalties during 2022 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, 2019 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 March 31, 2023, 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 month period ending March 31, 2023, the institutional investor did no t purchase any shares of common stock. All of the registered shares under the purchase agreement have been issued as of March 31, 2023. 11 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2023 AND 2022 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 March 31, 2023, the institutional investor purchased 3,327,511 shares of common stock for proceeds of $ 31,652,068 and the Company issued 58,144 shares of common stock as additional commitment fee, valued at $ 682,796 , fair value, leaving 2,479 in reserve for additional commitment fees. During the three month period ending March 31, 2023, pursuant to the purchase agreement, the institutional investor purchased 475,000 shares of common stock for proceeds of $ 2,499,375 and the Company issued 4,590 shares of common stock as additional commitment fee, valued at $ 26,424 , During April and May 2023, pursuant to the purchase agreement, the institutional investor purchased 304,945 shares of common stock for proceeds of $ 1,347,933 and the Company issued 2,479 shares of common stock as additional commitment fee, valued at $ 11,735 , fair value, leaving 0 in reserve for additional commitment fees. All of the registered shares under the purchase agreement have been issued as of May 9, 2023. 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 issued 50,891 shares of common stock to the institutional investor as an initial commitment fee valued at $ 279,391 , fair value, and 101,781 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 February 28, 2023 through March 31, 2023, the institutional investor purchased 545,455 shares of common stock for proceeds of $ 3,000,002 and the Company issued 10,178 shares of common stock as additional commitment fee, valued at $ 55,877 , fair value, leaving 91,603 in reserve for additional commitment fees. During April and May 2023, pursuant to the purchase agreement, the institutional investor purchased 0 shares of common stock for proceeds of $ 0 and the Company issued 0 shares of common stock as additional commitment fee, valued at $ 0 , fair value, leaving 91,603 in reserve for additional for additional commitment fees. 12 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2023 AND 2022 NOTE 9 – STOCKHOLDERS’ EQUITY (CONTINUED) Common Stock, Options and Warrants (Continued) On December 9, 2022, the Company entered into a sales agreement with an investment banking company. In accordance with the terms of this sales agreement, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 35,000,000 from time to time through or to the investment banking company, as sales agent or principal. Sales of shares of the Company’s common stock, if any, may be made by any method deemed to be an “at the market offering”. The sales agent will be entitled to compensation under the terms of the sales agreement at a commission rate equal to 3 % of the gross proceeds of the sales price of common stock that they sell. Restricted Stock Awards On March 16, 2023, the Compensation Committee of the Board of Directors approved grants totaling 99,616 Restricted Stock Awards to the Company’s four outside directors. Each RSA had a grant date fair value of $ 5.22 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 8,338 shares on March 16, 2023, with the remaining vesting in 33 equal monthly installments in total of 2,766 shares beginning April 1, 2023. 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 March 31, 2023, options to purchase 2,895,000 shares of common stock have been issued and are outstanding. 13 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2023 AND 2022 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 March 31, 2023, options to purchase 5,712,923 shares of common stock have been issued and are outstanding and 122,936 restricted shares of common stock are issued. As of March 31, 2023, 885,314 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 2023: no dividend yield in all years, expected volatility, based on the Company’s historical volatility, 73.7 % to 76.9 %, risk-free interest rate between 3.49 % to 3.94 % and expected option life of 10 years. Prior to May 2018, 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. Starting in May 2018, the expected life is based on the legal contractual life of options. As of March 31, 2023, there was $ 5,427,714 of unrecognized compensation expense related to non-vested market-based share awards that is expected to be recognized through December 1, 2025. Share-based compensation was recognized as follows: Schedule of Stock-based Compensation Plans For the Three For the Three Months Ending Months Ending March 31, 2023 March 31, 2022 2007 Employee Stock Option Plan $ — $ — 2016 Equity Incentive Plan option awards 1,795,842 1,338,932 2016 Equity Incentive Plan restricted stock awards 73,498 22,930 Warrants — — Total share-based compensation $ 1,869,340 $ 1,361,862 14 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2023 AND 2022 NOTE 10 – STOCK BASED COMPENSATION (CONTINUED) The following tables summarize all stock option and warrant activity of the Company during the three months ended March 31, 2023: 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, 2022 8,073,173 $ 0.51 - $ 16.81 $ 1.91 Granted 1,355,000 $ 4.53 - $ 6.25 $ 5.20 Forfeited ( 22,250 ) $ 6.25 - $ 7.50 $ 7.00 Exercised ( 35,000 ) $ 0.70 - $ 0.75 $ 0.74 Outstanding, March 31, 2023 9,370,923 $ 0.51 - $ 16.81 $ 2.38 Exercisable, March 31, 2023 8,075,171 $ 0.51 - $ 16.81 $ 1.84 The aggregate intrinsic value of options and warrants outstanding and exercisable as of March 31, 2023 was $ 30,696,511 . 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 $ 5.23 for the Company’s common stock on March 31, 2023. During the three month period ending March 31, 2023, 10,000 options were exercised for proceeds of $ 7,000 and 25,000 warrants were exercised for proceeds of $ 18,750 . Schedule of Non-Qualified Stock Options and Warrants Outstanding, by Exercise Price Range Non-Qualified Stock Options and Warrants Outstanding Weighted Average Range of Number Outstanding Currently Exercisable Weighted Average Remaining Exercise Price of Options and Warrants Currently Exercise Prices at March 31, 2023 Contractual Life Exercisable $ 0.51 - $ 16.81 8,075,171 5.31 $ 1.84 15 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2023 AND 2022 NOTE 10 – STOCK BASED COMPENSATION (CONTINUED) 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 three month period ending March 31, 2023 is as follows: Schedule of Nonvested Restricted Stock Units Activity Weighted Average Number of Grant Date Fair Shares Value per Share Non-vested, beginning of period 13,816 $ 9.65 Granted 99,616 5.22 Vested ( 8,338 ) 5.22 Cancelled and forfeited — — Non-vested, end of period 105,094 $ 5.80 Restricted stock awards are being amortized to expense over the vesting period. As of March 31, 2023, the unamortized value of the RSAs was $ 579,822 . NOTE 11 – RELATED PARTY At March 31, 2023 the Company had a legal accrual to related party of $ 44,600 , travel and office expense accruals of officers in the amount of $ 22,125 , director and operations committee fees in the amount of $ 19,750 and accruals for accounting and other service fees to related parties of $ 12,327 . At December 31, 2022 the Company had a legal accrual to a related party of $ 60,577 , fees and consulting expense accruals of advisory board members in the amount of $ 18,000 , fees to directors in the amount of $ 13,500 , travel and office expense accruals of officers in the amount of $ 4,859 and accounting service fee accrual and expense reimbursement to related parties of $ 3,233 . NOTE 12 – RETIREMENT PLAN The Company established a 401(k) retirement plan covering all eligible employees beginning November 15, 2013. For the three months ending March 31, 2023 and 2022, a contribution of $ 15,521 and $ 13,088 was charged to expense for all eligible non-executive participants. 16