Lightwave Logic, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures As of December 31, 2023, our Company evaluated the effectiveness and design and operation of its disclosure controls and procedures. Our Company’s disclosure controls and procedures are the controls and other procedures that we designed to ensure that our Company records, processes, summarizes, and reports in a timely manner the information that it must disclose in reports that our Company files with or submits to the Securities and Exchange Commission. Our principal executive officer and principal financial officer reviewed and participated in this evaluation. Based on this evaluation, our Company made the determination that its disclosure controls and procedures were effective. 61 Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2023. The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. In addition, the design of any system of controls is based in part on certain assumptions about the likelihood of future events, and controls may become inadequate if conditions change. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Audit Report on Internal Controls Over Financial Reporting of the Registered Public Accounting Firm Morison Cogen LLP, the Company’s independent registered public accounting firm has audited the financial statements included in this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. Changes in Internal Control Over Financial Reporting No change in our Company’s internal control over financial reporting occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information Trading Arrangements On December 6, 2023 , Ronald Bucchi , a member of our Company’s Board of Directors , adopted a non-Rule 10b5–1 trading arrangement as defined in Item 408(c) of Regulation S-K. The arrangement provided for the sale of 27,000 shares of the Company’s common stock and it terminated on December 6, 2023, after all of the shares were sold. The trading arrangement was adopted during an open trading window and satisfied the Company’s policies regarding insider transactions. On December 13, 2023 , Fred Leonberger , a member of our Company’s Board of Directors , adopted a non-Rule 10b5–1 trading arrangement as defined in Item 408(c) of Regulation S-K. The arrangement provided for the sale of 75,000 shares of the Company’s common stock and it terminated on December 13, 2023, after all of the shares were sold. The trading arrangement was adopted during an open trading window and satisfied the Company’s policies regarding insider transactions. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None. 62 PART III Item 10. Directors, Executive Officers and Corporate Governance. Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2023, our most recent fiscal year end, and is incorporated herein by reference. Item 11. Executive Compensation. Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2023, our most recent fiscal year end, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2023, our most recent fiscal year end, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2023, our most recent fiscal year end, and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services. Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2023, our most recent fiscal year end, and is incorporated herein by reference. 63 PART IV Item 15. Exhibits, Financial Statement Schedules (a) The following Audited Financial Statements are filed as part of this Form 10-K Report: Report of Independent Registered Public Accounting Firm Balance Sheets Statements of Comprehensive Loss Statement of Stockholders’ Equity Statements of Cash Flows Notes to Financial Statements (b) The following exhibits are filed as part of this report. Exhibit No. Description of Exhibit Location 3.1 Articles of Incorporation Incorporated by reference to Company’s Form 10-SB as filed with the SEC on April 13, 2007 3.2 Certificate of Amendment to Articles of Incorporation Incorporated by reference to Company’s Definitive Schedule 14C Information Statement as filed with the SEC on February 19, 2008 3.3 Certificate of Amendment to Articles of Incorporation Incorporated by reference to Company’s Form S-1 Registration Statement as filed with the SEC on August 3, 2015 3.4 Amended and Restated Bylaws Incorporated by reference to the Company’s Form 10-Q as filed with the SEC on November 9, 2023 4.1 Description of Registrant’s Securities Filed herewith 10.1 Employee Agreement – Michael Lebby Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on March 22, 2017 10.2 Employee Agreement Amendment - Michael Lebby Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on April 20, 2021 10.3 Employee Agreement Amendment - Michael Lebby Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on January 21, 2022 10.4 Employee Agreement Amendment – Michael Lebby Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on March 20, 2023 10.5 Employee Agreement Amendment – Michael Lebby Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on April 27, 2023 10.6 Employee Agreement - James Marcelli Incorporated by reference to Company’s Form 10-Q as filed with the SEC on August 12, 2015 10.7 Employee Agreement Amendment - James Marcelli Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on April 20, 2021 10.8 Employee Agreement Amendment - James Marcelli Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on January 21, 2022 10.9 Employee Agreement Amendment – James Marcelli Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on March 20, 2023 10.10 Employee Agreement Amendment – James Marcelli Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on April 27, 2023 10.11 Form of Executive Paid Time Off Waiver Agreement Incorporated by reference to the Company’s Form 10-K as filed with the SEC on March 16, 2018 10.12 Form of Director Agreement Incorporated by reference to the Company’s Form 10-K as filed with the SEC on March 16, 2018 10.13 Form of Director and Officer Indemnification Agreement Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on January 21, 2022 10.14 Form of Director’s Non-Disclosure Agreement Incorporated by reference to the Company’s Form 10-K as filed with the SEC on March 16, 2018 10.15 Operations Committee Charter Incorporated by reference to the Company’s Form 10-Q as filed with the SEC on August 15, 2016 10.16 Statement of Operations Committee Work - Frederick J. Leonberger Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on April 3, 2017 10.17 Statement of Operations Committee Work - Siraj Nour El-Ahmadi Incorporated by reference to the Company’s Form 10-K as filed with the SEC on March 31, 2021 64 10.18 2007 Employee Stock Plan Incorporated by reference to Company’s Definitive Schedule 14C Information Statement as filed with the SEC on February 19, 2008 10.19 2007 Employee Stock Plan Amendment Incorporated by reference to Company’s Definitive Schedule 14A Proxy Statement as filed with the SEC on July 22, 2014 10.20 2016 Equity Incentive Plan Incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A filed with the SEC on April 20, 2016 10.21 2016 Equity Incentive Plan Amendment Incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A filed with the SEC on April 12, 2019 10.22 2016 Equity Incentive Plan Amendment No. 2 Incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A filed with the SEC on April 14, 2023 10.23 Form of Non-qualified Stock Option Award Agreement - Employees Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on March 17, 2017 10.24 Form of Non-qualified Stock Option Award Agreement - Executive Officers Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on March 17, 2017 10.25 Form of Non-qualified Stock Option Award Agreement - Non Employee Directors Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on March 17, 2017 10.26 Form of Restricted Stock Award Agreement -Non Employee Directors Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on March 1, 2022 10.27 Lease Agreement dated October 26, 2017 Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on November 2, 2017 10.28 First Amendment to the October 26, 2017 Lease Agreement dated November 22, 2022 Incorporated by reference to Company’s Form 10-K as filed with the SEC on March 1, 2023 10.29 Purchase Agreement, dated October 4, 2021, by and between the Company and Lincoln Park Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on October 5, 2021 10.30 Registration Rights Agreement, dated October 4, 2021, by and between the Company and Lincoln Park Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on October 5, 2021 10.31 Purchase Agreement, dated February 28, 2023, by and between the Company and Lincoln Park Incorporated by reference to Company’s Form 10-K as filed with the SEC on March 1, 2023 10.32 Registration Rights Agreement, dated February 28, 2023, by and between the Company and Lincoln Park Incorporated by reference to Company’s Form 10-K as filed with the SEC on March 1, 2023 14.1 Code of Ethics and Business Conduct Incorporated by reference to the Company’s Form 10-K as filed with the SEC on March 16, 2018 19.1 Insider Trading Policy Filed herewith 21.1 Subsidiaries of the Registrant Filed herewith 23.1 Consent of Independent Registered Public Accounting Firm - Morison Cogen LLP Filed herewith 31.1 Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Executive Officer of the Company. Filed herewith 31.2 Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Financial Officer of the Company. Filed herewith 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Executive Officer of the Company. Filed herewith 32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Financial Officer of the Company. Filed herewith 97.1 Compensation Clawback Policy Filed herewith 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Item 16. Form 10-K Summary None 65 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LIGHTWAVE LOGIC, INC. Registrant By: /s/ Michael Lebby Michael Lebby, Chief Executive Officer (Principal Executive Officer) Date: February 29, 2024 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Michael Lebby Chief Executive Officer, Principal Executive Officer, Chair of the Board of Directors February 29, 2024 Michael Lebby /s/ James S. Marcelli President, Chief Operating Officer, Principal Financial/Accounting Officer, Secretary, Director February 29, 2024 James S. Marcelli /s/ Ronald A. Bucchi Director February 29, 2024 Ronald A. Bucchi /s/ Siraj Nour El-Ahmadi Director February 29, 2024 Siraj Nour El-Ahmadi /s/ Frederick J. Leonberger Director February 29, 2024 Frederick J. Leonberger /s/ Craig Ciesla Director February 29, 2024 Craig Ciesla /s/ Laila Partridge Director February 29, 2024 Laila Partridge 66 CONTENTS PAGE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID Number 00 536 ) F-2 - F-3 BALANCE SHEETS F-4 STATEMENTS OF COMPREHENSIVE LOSS F-5 STATEMENT OF STOCKHOLDERS' EQUITY F-6 STATEMENTS OF CASH FLOWS F-7 NOTES TO FINANCIAL STATEMENTS F-8 - F-22 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Lightwave Logic, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying balance sheets of Lightwave Logic, Inc. (the Company) as of December 31, 2023 and 2022, and the related statements of comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. Basis for Opinion The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. F- 2 To the Board of Directors and Stockholders of Lightwave Logic, Inc. (Continued) Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Morison Cogen LLP We have served as the Company’s auditor since 2005. Blue Bell, Pennsylvania February 29, 2024 F- 3 LIGHTWAVE LOGIC, INC. BALANCE SHEETS December 31, 2023 December 31, 2022 ASSETS CURRENT ASSETS Cash and cash equivalents $ 31,432,087 $ 24,102,151 Accounts Receivable 30,376 — Prepaid expenses and other current assets 1,237,621 611,345 Loan receivable — 642,120 TOTAL CURRENT ASSETS 32,700,084 25,355,616 PROPERTY AND EQUIPMENT - NET 4,990,790 2,519,267 OTHER ASSETS Intangible assets - net 1,254,501 1,030,335 Operating Lease - Right of Use - Building 2,838,210 358,254 TOTAL OTHER ASSETS 4,092,711 1,388,589 TOTAL ASSETS $ 41,783,585 $ 29,263,472 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 1,447,596 $ 791,671 Accrued bonuses and accrued expenses 599,430 380,280 Accounts payable and accrued expenses - related parties 313,483 100,169 Deferred revenue 39,875 — Deferred lease liability 38,297 41,778 Operating lease liability 144,120 190,125 TOTAL CURRENT LIABILITIES 2,582,801 1,504,023 LONG TERM LIABILITIES Deferred lease liability — 38,297 Operating lease liability 2,766,970 168,129 TOTAL LONG TERM LIABILITIES 2,766,970 206,426 TOTAL LIABILITIES 5,349,771 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, 118,137,309 and 112,882,793 issued and outstanding at December 31, 2023 and December 31, 2022 118,137 112,883 Additional paid-in-capital 164,619,363 134,406,825 Deferred compensation ( 432,293 ) ( 133,324 ) Accumulated deficit ( 127,871,393 ) ( 106,833,361 ) TOTAL STOCKHOLDERS' EQUITY 36,433,814 27,553,023 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,783,585 $ 29,263,472 The accompanying notes are an integral part of these financial statements. F- 4 LIGHTWAVE LOGIC, INC. STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDING DECEMBER 31, 2023, 2022 AND 2021 For the For the For the Year Ending Year Ending Year Ending December 31, 2023 December 31, 2022 December 31, 2021 NET SALES $ 40,502 $ — $ — COST AND EXPENSE Cost of sales 2,513 — — Research and development 15,903,689 12,805,374 12,476,040 General and administrative 5,359,565 4,334,290 4,520,403 TOTAL COST AND EXPENSE 21,265,767 17,139,664 16,996,443 LOSS FROM OPERATIONS ( 21,225,265 ) ( 17,139,664 ) ( 16,996,443 ) OTHER INCOME (EXPENSE) Paycheck Protection Program loan forgiveness — — 410,700 Interest income 657,546 91,659 13,826 Commitment fee ( 673,578 ) ( 209,709 ) ( 2,059,464 ) Gain on disposal of property and equipment 215,509 — — Other (expense) income ( 12,244 ) 27,234 — NET LOSS $ ( 21,038,032 ) $ ( 17,230,480 ) $ ( 18,631,381 ) LOSS PER SHARE Basic $ ( 0.18 ) $ ( 0.15 ) $ ( 0.18 ) Diluted $ ( 0.18 ) $ ( 0.15 ) $ ( 0.18 ) WEIGHTED AVERAGE NUMBER OF SHARES Basic 115,467,300 111,814,926 105,223,959 Diluted 115,467,300 111,814,926 105,223,959 The accompanying notes are an integral part of these financial statements F- 5 LIGHTWAVE LOGIC, INC. STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDING DECEMBER 31, 2023, 2022 AND 2021 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 3,650,400 3,650 19,989,709 — — 19,993,359 Common stock issued for commitment shares 112,739 113 673,465 — — 673,578 Common stock sales at the market by investment banking company 202,115 202 1,515,676 — — 1,515,878 Exercise of options 914,408 914 776,760 — — 777,674 Exercise of warrants 269,000 269 235,981 — — 236,250 Options issued for services — — 6,459,387 — — 6,459,387 Restricted stock awards issued for future services 105,854 106 561,560 ( 561,666 ) — — Deferred compensation — — — 262,697 — 262,697 Net loss for the year ending December 31, 2023 — — — — ( 21,038,032 ) ( 21,038,032 ) BALANCE AT DECEMBER 31, 2023 118,137,309 $ 118,137 $ 164,619,363 $ ( 432,293 ) $ ( 127,871,393 ) $ 36,433,814 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 1,625,000 1,625 12,773,643 — — 12,775,268 Common stock issued for commitment shares 23,468 22 209,687 — — 209,709 Exercise of options 302,950 303 257,592 — — 257,895 Cashless exercise of 4,375 options 2,596 3 35,015 — — 35,018 Exercise of warrants 350,000 350 395,650 — — 396,000 Options issued for services — — 5,813,628 — — 5,813,628 Restricted stock awards issued for future services 28,500 29 274,995 ( 275,024 ) — — Forfeiture restricted stock awards issued for future services ( 5,180 ) ( 5 ) ( 49,982 ) 49,987 — — Deferred compensation — — — 91,713 — 91,713 Net loss for the year ending December 31, 2022 — — — — ( 17,230,480 ) ( 17,230,480 ) BALANCE AT DECEMBER 31, 2022 112,882,793 $ 112,883 $ 134,406,825 $ ( 133,324 ) $ ( 106,833,361 ) $ 27,553,023 Additional Number of Common Paid-in Deferred Accumulated Shares Stock Capital Compensation Deficit Total BALANCE AT DECEMBER 31, 2020 97,775,789 $ 97,776 $ 76,649,170 $ — $ ( 70,971,500 ) $ 5,775,446 Common stock issued to institutional investor 9,290,011 9,291 30,341,383 — — 30,350,674 Common stock issued for commitment shares 514,536 514 2,058,950 — — 2,059,464 Exercise of options 2,046,250 2,046 1,948,829 — — 1,950,875 Cashless exercise of 445,252 options 251,873 252 2,236,606 — — 2,236,858 Exercise of warrants 677,000 677 427,673 — — 428,350 Options issued for services — — 1,022,985 — — 1,022,985 Warrants issued for services — — 11,001 — — 11,001 Net loss for the year ending December 31, 2021 — — — — ( 18,631,381 ) ( 18,631,381 ) BALANCE AT DECEMBER 31, 2021 110,555,459 $ 110,556 $ 114,696,597 $ — $ ( 89,602,881 ) $ 25,204,272 The accompanying notes are an integral part of these financial statements F- 6 LIGHTWAVE LOGIC, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDING DECEMBER 31, 2023, 2022 AND 2021 For the For the For the Year Ending Year Ending Year Ending December 31, 2023 December 31, 2022 December 31, 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 21,038,032 ) $ ( 17,230,480 ) $ ( 18,631,381 ) Adjustments to reconcile net loss to net cash used in operating activities Warrants issued for services — — 11,001 Stock options issued for services 6,459,387 5,813,628 1,022,985 Amortization of deferred compensation 262,697 91,713 — Cashless option exercise — 53,219 3,407,444 Common stock issued for services and fees 673,578 209,709 2,059,464 Depreciation and amortization of patents 1,119,141 1,045,208 878,520 Amortization of right of use asset 184,835 178,192 167,007 Gain on disposal of property and equipment ( 215,509 ) — — Paycheck Protection Program loan forgiveness — — ( 410,700 ) Decrease (increase) in assets Accounts receivable ( 30,376 ) — — Prepaid expenses and other current assets ( 587,540 ) ( 379,037 ) 334,877 Increase (decrease) in liabilities Accounts payable 655,925 575,937 46,487 Accrued bonuses and accrued expenses 219,150 ( 737,800 ) 1,036,684 Accounts payable and accrued expenses-related parties 213,314 67,980 ( 17,608 ) Deferred revenue 39,875 — — Deferred lease liability ( 41,778 ) ( 41,778 ) ( 41,778 ) Operating lease liability ( 150,691 ) ( 178,192 ) ( 167,007 ) Net cash used in operating activities ( 12,236,024 ) ( 10,531,701 ) ( 10,304,005 ) CASH FLOWS FROM INVESTING ACTIVITIES Cost of intangibles ( 307,687 ) ( 260,415 ) ( 18,649 ) Purchase of property and equipment ( 3,292,224 ) ( 1,307,187 ) ( 1,097,530 ) Repayment (issuance) of loan 642,120 ( 642,120 ) — Sale of property and equipment 590 — — Net cash used in investing activities ( 2,957,201 ) ( 2,209,722 ) ( 1,116,179 ) CASH FLOWS FROM FINANCING ACTIVITIES Exercise of options and warrants 1,013,924 653,895 2,379,225 Cashless option exercise tax payments — ( 18,201 ) ( 1,170,586 ) Issuance of common stock, institutional investor 19,993,359 12,775,268 30,350,674 At the market sale by investment banking company 1,515,878 — — Repayment of equipment purchase payable — — ( 13,107 ) Net cash provided by financing activities 22,523,161 13,410,962 31,546,206 NET INCREASE IN CASH AND CASH EQUIVALENTS 7,329,936 669,539 20,126,022 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 24,102,151 23,432,612 3,306,590 CASH AND CASH EQUIVALENTS - END OF YEAR $ 31,432,087 $ 24,102,151 $ 23,432,612 Supplemental Disclosure of Non-cash investing and financing activities : Amended Operating Lease - Right of Use - Building and Operating lease liability $ 2,703,527 $ — $ — The accompanying notes are an integral part of these financial statements F- 7 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES History and Nature of Business Lightwave Logic, Inc. (the “Company”) is a technology company focused on the development of next generation photonic devices and electro-optic polymer materials systems for applications in high speed fiber-optic data communications, telecommunications and optical computing markets. The Company's first revenue stream is from a technology material supply and licensing agreement that incorporates the Company's patented electro-optic polymer materials for use in manufacturing photonic devices. 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 additional revenue from material supply and licensing agreements, technology transfer agreements and the production and direct sale of its own photonic devices. 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. Lightwave Logic, Inc. was organized under the laws of the State of Nevada in 1997, and it commenced with its current business plan in 2004. Basis of Presentation The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results could differ from the estimates. Cash Equivalents For the purposes of the statement of cash flows, the Company considers all highly liquid instruments with maturities of three months or less at the time of purchase to be cash equivalents. Concentration of Credit Risk Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of cash. At December 31, 2023, the Company did have deposits with a financial institution that exceed the Federal Depository Insurance coverage. Property and Equipment Equipment is stated at cost. Depreciation is principally provided by use of straight-line methods for financial and tax reporting purposes over the estimated useful lives of the assets, generally 5 years. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operations. F- 8 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Intangible Assets Definite-lived intangible assets are stated at cost. Patents are amortized over their estimated useful lives, commencing from the date of grant for the remaining legal lives of the patents. The patents generally have a term of up to 20 years from the date of filing of the earliest related patent application. When certain patent applications are abandoned by the Company for claims that are covered by patents already granted to the Company, the cost of patent applications are removed from the accounts and the resulting expense is reflected in the statement of comprehensive loss. Fair Value of Financial Instruments The carrying value of the Company’s short-term financial instruments such as cash, accounts payable and accrued expenses approximate their fair values because of their short maturities. Revenue Recognition and Deferred Revenue The rights and benefits to the Company’s patented electro-optic polymer materials are conveyed to the customer through technology license and material supply agreements where the Company provides the licensee a supply of its proprietary polymers for use in the licensee’s manufacturing of photonic devices (the “Licensed Product”) as well as non-exclusive, royalty-bearing license to intellectual property rights in the Company’s patented polymer technology. The Company receives license and royalty payments under such commercial agreements, some of which are nonrefundable upfront payments for license fees. These advances are initially recorded as deferred revenue on the Company’s balance sheets. The Company believes that the licenses provided and materials transferred under such agreements are not distinct from each other for financial reporting purposes and as such, they are accounted for as a single performance obligation. Advance payments for license fees and minimum annual royalties are recognized on a pro-rata basis over the related contract term. Royalties from licensee’s sale of the Licensed Product that exceed the minimum annual royalty are recognized when cumulative royalties exceed the minimum royalty. Milestone license fees are recognized when the licensee reaches the milestone of selling a contractually specified number of units of the Licensed Product. Revenue associated with the sale of the Company’s patented electro-optic polymer materials for incorporation into the customers’ commercial photonic devices or for their device development and evaluation activities will be recognized at the time title passes, which is typically at the time of shipment or at the time of delivery, depending upon the contractual agreement between the parties. Cost of Sales Cost of sales consists of labor costs, material costs and manufacturing overhead costs associated with the production of materials transferred to the customer under the technology license and material supply agreement at the Company’s facility. Income Taxes The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. F- 9 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 non-employees. 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. 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, 2022 and 2021, 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. Recoverability of Long-Lived Assets The Company follows FASB ASC 360, “Property, Plant, and Equipment”. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the excess of the asset’s carrying amount. Comprehensive Income (Loss) 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 Adopted Accounting Pronouncements As of December 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. Recently Issued Accounting Pronouncements Not Yet Adopted As of December 31, 2023, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements. F- 10 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 $ 1,830,000 of expenditures per month over the next 12 months. Our current cash position enables us to finance our operations through July 2025. 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 11). Pursuant to the purchase agreement, the Company received $ 3,335,300 in January and February 2024 and a remaining available amount of $ 10,518,648 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 11). Pursuant to the sales agreement, the Company received $ 52,669 in January and February 2024 and the remaining available amount of $ 33,382,897 is available to the Company per the agreement. The Company's first commercial agreement occurred in May 2023 from a material supply and license agreement that incorporates the Company's patented electro-optic polymer materials for use in manufacturing photonic devices (described in Note 3 ). For the year ended December 31, 2023, we recognized $ 40,502 in revenue related to this 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. NOTE 3 – REVENUE The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (Topic 606). The standard establishes the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows from a contract with a customer. 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. Additional future revenue will be generated from royalties from the licensee’s sale of Licensed Product that exceed the minimum royalty payments and milestone license fees. The License Agreement is a non-exclusive material supply and license agreement. F- 11 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 3 – REVENUE (CONTINUED) 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 ending December 31, 2023. $ 39,875 of this amount is recorded in short term liability deferred revenue in the Company’s balance sheet as of December 31, 2023. For the year ended December 31, 2023, the Company recognized $ 40,502 in revenue related to this agreement. Contract balances are as follows: Schedule of contract balances December 31, 2023 Accounts receivable, net $ 30,376 Short-term contract assets $ — Long-term contract assets $ — Short-term liability deferred revenue $ 39,875 Long-term liability deferred revenue $ — A roll forward of contract balances is not disclosed since there were no contracts as of December 31, 2022. Assets Recognized for the Costs to Obtain a Contract There are no assets recognized for the costs to obtain the License Agreement. NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following: Schedule of prepaid expenses and other current assets December 31, 2023 December 31, 2022 Materials fabrication $ 475,936 $ — License 241,936 94,195 Insurance 237,791 218,767 Prototype devices 161,267 40,473 Other 53,373 45,675 Rent 36,525 36,525 Deposit for equipment 20,000 59,850 Investor relations 6,313 18,250 Lease incentive receivable 4,480 — Legal — 83,941 Loan interest receivable — 13,669 prepaid expenses and other current $ 1,237,621 $ 611,345 NOTE 5 – 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 Company recorded $ 13,375 of interest income for the year ended December 31, 2022. The exchange rates used for the conversion of the EUR denominated loan were the December 31, 2022 reporting period end date exchange rate for the loan principal resulting in a balance of $ 642,120 and interest receivable resulting in a balance of $ 13,669 and the average exchange rate for the period ending December 31, 2022 for interest income. The loan and interest were repaid in February and March 2023. The Company recorded $ 11,125 of interest income for the period ended December 31, 2023 and used the average exchange rate for the conversion of the EUR denominated interest income for the period. F- 12 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 6 – PROPERTY AND EQUIPMENT Property and equipment consist of the following: schedule of property and equipment December 31, 2023 December 31, 2022 Office equipment $ 146,196 $ 119,404 Lab equipment 8,937,847 6,234,777 Furniture 74,119 33,128 Leasehold improvements 396,111 184,843 Software 111,077 — 9,665,350 6,572,152 Less: Accumulated depreciation 4,674,560 4,052,885 $ 4,990,790 $ 2,519,267 Depreciation expense for the years ending December 31, 2023, 2022 and 2021 was $ 1,035,620 , $ 966,995 and $ 792,004 . During the year ending December 31, 2023, the Company disposed of equipment for proceeds of $ 590 , trade-in credit of $ 216,090 and a gain of $ 215,509 . During the year ending December 31, 2022, the Company retired $ 70,963 of leasehold improvements. During the year ended December 31, 2021, the Company did no t sell or retire property and equipment. NOTE 7 – 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. Intangible assets consist of the following: Schedule of intangible assets December 31, 2023 December 31, 2022 Patents $ 1,913,751 $ 1,606,064 Less: Accumulated amortization 659,250 575,729 Intangible assets - net $ 1,254,501 $ 1,030,335 Amortization expense for the years ending December 31, 2023, 2022 and 2021 was $ 83,521 , $ 78,213 and $ 86,516 . There were no patent costs written off for the years ended December 31, 2023, 2022 and 2021. F- 13 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 8 – COMMITMENTS 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 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. This extension did not require a lease modification as the additional option period was included in the original computation as of January 1, 2019. 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 $ 36,525 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. 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. 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 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 June 1, 2023, 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 $ 43,216 to be used solely for the cost of renovations to the additional lease premises. As of June 1, 2023, the operating lease right-of-use asset and operating lease liability amounted to $ 2,945,322 . 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. F- 14 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 8 – COMMITMENTS (CONTINUED) The Company is obligated under the Amended Lease for office, chemistry, clean room and research and development space. The aggregate minimum future lease payments under the Amended Lease, including the extended term are as follows: Schedule of future lease payments of operating leases YEARS ENDING DECEMBER 31, AMOUNT 2024 $ 376,364 2025 387,666 2026 399,199 2027 411,174 2028 423,612 Thereafter 2,357,570 4,355,585 Less discounted interest ( 1,444,495 ) TOTAL $ 2,911,090 Rent expense totaling $ 236,170 and $ 78,724 is included in research and development and general and administrative expenses for the year ended December 31, 2023. Rent expense totaling $ 138,394 and $ 46,132 is included in research and development and general and administrative expenses for the year ended December 31, 2022. Rent expense totaling $ 134,243 and $ 44,747 is included in research and development and general and administrative expenses for the year ended December 31, 2021. NOTE 9 – 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. NOTE 10 – INCOME TAXES As discussed in Note 1, the Company utilizes the asset and liability method of accounting for income taxes in accordance with FASB ASC 740. The income tax (benefit) provision consists of the following: Schedule of income tax benefit provision 2023 2022 2021 Current $ — $ — $ — Deferred ( 6,526,000 ) ( 5,071,000 ) ( 3,692,000 ) Change in valuation allowance 6,526,000 5,071,000 3,692,000 Total $ — $ — $ — F- 15 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 10 – INCOME TAXES (CONTINUED) The reconciliation of the statutory federal rate to the Company’s effective income tax rate is as follows: Schedule of reconciliation of statutory federal rate to effective income tax ate 2023 2022 2021 Amount % Amount % Amount % Income tax benefit at U.S. federal income tax rate $ ( 4,418,000 ) ( 21 ) $ ( 3,618,000 ) ( 21 ) $ ( 3,913,000 ) ( 21 ) State tax benefit, net of federal tax effect ( 957,000 ) ( 5 ) ( 784,000 ) ( 4 ) ( 838,000 ) ( 4 ) Federal deduction net of tax 44,000 — 35,000 — 38,000 — Tax exempt income — — — — ( 111,000 ) ( 1 ) Non-deductible share-based compensation 1,653,000 8 1,430,000 8 899,000 5 Exercised share based compensation ( 2,850,000 ) ( 13 ) ( 2,981,000 ) ( 17 ) — — Other 2,000 — 847,000 5 233,000 1 Change in valuation allowance 6,526,000 31 5,071,000 29 3,692,000 20 $ — — $ — — $ — — The components of deferred tax assets as of December 31, 2023, 2022 and 2021 are as follows: Schedule of components of deferred tax assets 2023 2022 2021 Deferred tax asset for NOL carryforwards $ 29,018,000 $ 23,930,000 $ 19,966,000 Share-based compensation 3,889,000 2,451,000 1,242,000 Other ( 102,000 ) ( 102,000 ) — Valuation allowance ( 32,805,000 ) ( 26,279,000 ) ( 21,208,000 ) Total $ — $ — $ — The valuation allowance for deferred tax assets as of December 31, 2023, 2022 and 2021 was $ 32,805,000 , $ 26,279,000 and $ 21,208,000 , respectively. The change in the total valuation for the year ended December 31, 2023 was an increase of $ 6,526,000 , for the year ended December 31, 2022 was an increase of $ 5,071,000 and for the year ended December 31, 2021 was an increase of $ 3,692,000 . In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considered projected future taxable income and tax planning strategies in making this assessment. The value of the deferred tax assets was offset by a valuation allowance, due to the current uncertainty of the future realization of the deferred tax assets. As of December 31, 2023, the Company had net operating loss carry forwards of approximately $ 117,985,000 and is comprised of net operating losses in the amount of approximately $ 38,275,000 recorded in tax years beginning prior to January 1, 2018 expiring through the year ending December 31, 2038 and net operating losses recorded in tax years beginning January 1, 2018 and after in the amount of approximately $ 79,710,000 which are allowed for an indefinite carryforward period but may be subject to limitations. This amount can be used to offset future taxable income of the Company. F- 16 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 10 – INCOME TAXES (CONTINUED) The timing and manner in which the Company can utilize operating loss carryforwards in any year may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations. Such limitation may have an impact on the ultimate realization of its carryforwards and future tax deductions. The Company follows FASB ASC 740-10, which provides guidance for the recognition and measurement of certain tax positions in an enterprise’s financial statements. Recognition involves a determination of whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information. The adoption of FASB ASC 740-10 did not require an adjustment to the Company’s financial statements. 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 and no charge during 2023, and accordingly, the Company did not recognize any interest or penalties during 2023 related to unrecognized tax benefits. There is no accrual for uncertain tax positions as of December 31, 2023. The Company files U.S. income tax returns and a state income tax return. With few exceptions, the U.S. and state income tax returns filed for the tax years ending on December 31, 2020 and thereafter are subject to examination by the relevant taxing authorities. NOTE 11 – 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 December 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 year ending December 31, 2023, the institutional investor did not purchase any shares of common stock. All the registered shares under the purchase agreement have been issued as of December 31, 2023. F- 17 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 11 – 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 December 31, 2023, the institutional investor purchased 3,632,456 shares of common stock for proceeds of $ 33,000,000 and the Company issued 60,623 shares of common stock as additional commitment fee, valued at $ 694,531 fair value. During the year ending December 31, 2023, pursuant to the purchase agreement, the institutional investor purchased 779,945 shares of common stock for proceeds of $ 3,847,307 and the Company issued 7,069 shares of common stock as additional commitment fee, valued at $ 38,161 fair value. All of the registered shares under the purchase agreement have been issued as of December 31, 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 December 31, 2023, the institutional investor purchased 2,870,455 shares of common stock for proceeds of $ 16,146,052 and the Company issued 54,779 shares of common stock as additional commitment fee, valued at $ 356,026 fair value. During January and February 2024, pursuant to the purchase agreement, the institutional investor purchased 800,000 shares of common stock for proceeds of $ 3,335,300 and the Company issued 11,319 shares of common stock as additional commitment fee, valued at $ 50,841 fair value, leaving 35,683 in reserve for additional commitment fees. 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 is 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. During the twelve months period ending December 31, 2023, pursuant to the sales agreement, the investment banking company sold 202,115 shares of the Company’s common stock for proceeds of $ 1,515,878 after a payment of the commission in the amount of $ 46,884 to the investment banking company. During January and February 2024, pursuant to the sales agreement, the investment banking company sold 12,150 shares of the Company’s common stock for proceeds of $ 52,669 after a payment of the commission in the amount of $ 1,629 to the investment banking company. F- 18 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 11 – STOCKHOLDERS’ EQUITY (CONTINUED) 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. On August 1, 2023, the Compensation Committee of the Board of Directors approved a grant totaling 6,238 Restricted Stock Awards to the Company’s outside director. The new RSA had a grant date fair value of $ 6.68 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 RSA was granted under the 2016 Plan. 218 shares from this grant vested on August 1, with the remaining vesting in 28 equal monthly installments in total of 215 shares beginning September 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 12 – 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 December 31, 2023, options to purchase 2,063,000 shares of common stock have been issued and are outstanding. 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. Effective May 25, 2023, the number of shares of the Company’s common stock available for issuance under the 2016 Plan was increased from 8,000,000 to 13,000,000 shares and awards of restricted stock units are authorized for issuance. As of December 31, 2023, options to purchase 6,227,807 shares of common stock have been issued and are outstanding and 129,174 restricted shares of common stock have been granted. As of December 31, 2023, 5,291,784 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. F- 19 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 12 – STOCK BASED COMPENSATION (CONTINUED) 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 77.2 %, risk-free interest rate between 3.37 % to 4.82 % 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. The Black-Scholes option pricing model assumptions for 2022 are as follows: no dividend yield in all years, expected volatility, based on the Company’s historical volatility, 74.7 % to 76.4 %, risk-free interest rate between 1.87 % to 3.84 % and expected option life of 10 years. The Black-Scholes option pricing model assumptions for 2021 are as follows: no dividend yield in all years, expected volatility, based on the Company’s historical volatility, 70.4 % to 77.1 %, risk-free interest rate between 1.15 % to 1.73 % and expected option life of 10 years. As of December 31, 2023, there was $ 3,295,335 of unrecognized compensation expense related to non-vested market-based share awards that is expected to be recognized through December 2026. Share-based compensation was recognized as follows: Schedule of share-based compensation 2023 2022 2021 2007 Employee Stock Option Plan $ — $ — $ — 2016 Equity Incentive Plan 6,459,387 5,813,628 1,022,985 2016 Equity Incentive Plan restricted stock awards 262,697 91,713 — Warrants — — 11,001 Total share-based compensation $ 6,722,084 $ 5,905,341 $ 1,033,986 F- 20 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 12 – STOCK BASED COMPENSATION (CONTINUED) The following tables summarize all stock option and warrant activity of the Company during the years ended December 31, 2023, 2022 and 2021: Schedule of stock option and warrant activity Non-Qualified Stock Options and Warrants Outstanding and Exercisable Number of Exercise Weighted Average Exercise Shares Price Price Outstanding, December 31, 2020 10,022,500 $ 0.51 - $ 1.69 $ 0.85 Granted 1,061,000 $ 1.27 - $ 16.81 $ 2.32 Forfeited ( 28,750 ) $ 0.64 - $ 0.86 $ 0.82 Exercised ( 3,168,502 ) $ 0.60 - $ 1.50 $ 0.88 Outstanding, December 31, 2021 7,886,248 $ 0.51 - $ 16.81 $ 1.02 Granted 884,500 $ 5.81 - $ 10.86 $ 9.18 Expired ( 25,000 ) $ 1.69 $ 1.69 Forfeited ( 15,250 ) $ 1.46 - $ 7.53 $ 5.71 Exercised ( 657,325 ) $ 0.64 - $ 5.81 $ 1.00 Outstanding, December 31, 2022 8,073,173 $ 0.51 - $ 16.81 $ 1.91 Granted 1,959,667 $ 4.28 - $ 7.67 $ 5.24 Forfeited ( 39,625 ) $ 6.25 - $ 8.93 $ 7.12 Exercised ( 1,183,408 ) $ 0.67 - $ 5.22 $ 0.86 Outstanding, December 31, 2023 8,809,807 $ 0.51 - $ 16.81 $ 2.76 Exercisable, December 31, 2023 7,967,605 $ 0.51 - $ 16.81 $ 2.49 The aggregate intrinsic value of options and warrants outstanding and exercisable as of December 31, 2023 was $ 24,308,723 and $ 24,214,724 , respectively. 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 $ 4.98 for the Company’s common stock on December 31, 2023. During the year ending December 31, 2023, 914,408 options with the aggregate intrinsic value of $ 4,698,996 were exercised for proceeds of $ 777,674 . During the year ending December 31, 2023, 269,000 warrants with the aggregate intrinsic value of $ 1,162,230 were exercised for proceeds of $ 236,250 . During the year ending December 31, 2022, 302,950 options with the aggregate intrinsic value of $ 2,920,861 were exercised for proceeds of $ 257,895 and 4,375 options with the aggregate intrinsic value of $ 53,219 were exercised via cashless method. During the year ending December 31, 2022, 350,000 warrants with the aggregate intrinsic value of $ 2,555,750 were exercised for proceeds of $ 396,000 . During the year ending December 31, 2021, 2,046,250 options with the aggregate intrinsic value of $ 22,351,788 were exercised for proceeds of $ 1,950,875 . During the year ending December 31, 2021, 677,000 warrants with the aggregate intrinsic value of $ 6,796,400 were exercised for proceeds of $ 428,350 and 445,252 options with the aggregate intrinsic value of $ 3,406,530 were exercised via cashless method. Schedule of non-qualified stock options and warrants outstanding Non-Qualified Stock Options and Warrants Outstanding Range of Exercise Prices Number Outstanding Currently Exercisable at December 31, 2023 Weighted Average Remaining Contractual Life Weighted Average Exercise Price of Options and Warrants Currently Exercisable $ 0.51 - $ 16.81 7,967,605 5.4 Years $ 2.49 F- 21 LIGHTWAVE LOGIC, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2023, 2022 AND 2021 NOTE 12 – 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 year ending December 31, 2023, 2022 and 2021 are as follows: Schedule of fair value of restricted stock awards Restricted Stock Awards Year ended December 31, 2023 December 31, 2022 December 31, 2021 Weighted Average Weighted Average Weighted Average Number of Shares Grant Date Fair Value per Share Number of Shares Grant Date Fair Value per Share Number of Shares Grant Date Fair Value per Share Non-vested, beginning of period 13,816 $ 9.65 — $ — — $ — Granted 105,854 5.31 28,500 9.65 — — Vested ( 41,218 ) 6.00 ( 9,504 ) 9.65 — — Cancelled and forfeited — — ( 5,180 ) 9.65 — — Non-vested, end of period 78,452 $ 5.71 13,816 $ 9.65 — $ — Restricted stock awards are being amortized to expense over the vesting period. As of December 31, 2023 and 2022, the unamortized value of the restricted stock awards was $ 432,292 and $ 133,324 , respectively. NOTE 13 – RELATED PARTY At December 31, 2023 the Company had a legal accrual to a related party of $ 115,160 , accounting service fee accrual and expense reimbursement to related parties of $ 102,351 , fees and travel expense accruals to directors in the amount of $ 53,776 , fees, consulting expense and travel expense accruals of advisory board members in the amount of $ 33,746 , and travel and office expense accruals of officers in the amount of $ 8,450 . 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 14 – RETIREMENT PLAN The Company established a 401(k) retirement plan covering all eligible employees beginning November 15, 2013. A contribution of $ 72,570 was charged to expense and accrued for the year ending December 31, 2023 to all eligible non-executive participants. A contribution of $ 57,126 was charged to expense and accrued for the year ending December 31, 2022 to all eligible non-executive participants. A contribution of $ 53,035 was charged to expense and accrued for the year ending December 31, 2021 to all eligible non-executive participants. F- 22