Lightwave Logic, Inc.

** DECEMBER 31, 2024 AND 2023**

NOTE 1 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

History and Nature of Business

Lightwave Logic, Inc is a technology platform company leveraging its proprietary engineered electro-optic (EO) polymers, named Perkinamine® to transmit data at higher speeds with less power in a small form factor. The Company’s high activity and high stability organic polymers allow it to create next-generation photonic EO devices that convert data from electrical signals into light/optical signals for applications in telecommunications, and for data transmission potentially used to support generative AI.

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 materials development and evaluation with potential customers and strategic partners. The Company expects to continue to obtain a revenue stream from technology licensing agreements, and to obtain additional revenue streams from technology transfer agreements and direct sale of its electro-optic materials.

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

The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less 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, 2024, the Company did have deposits with a financial institution that exceed the Federal Depository Insurance coverage.

Accounts Receivable

Accounts receivable are carried at their contractual amounts, less an estimated allowance for credit losses. Management estimates the allowance for credit losses using a loss-rate approach based on historical loss information, adjusted for management’s expectations about current and future economic conditions, as the basis to determine expected credit losses. Management exercises significant judgment in determining expected credit losses. Key inputs include macroeconomic factors, industry trends, the creditworthiness of counterparties, historical experience, the financial conditions of the customers, and the amount and age of past due accounts. Management believes that the composition of receivables at year-end is consistent with historical conditions as credit terms and practices and the client base has not changed significantly. Receivables are considered past due if full payment is not received by the contractual due date, which is typically 30 days from the invoice date. Past due accounts are generally written off against the allowance for credit losses only after all collection attempts have been exhausted. The allowance for credit losses was zero as of December 31, 2024 and 2023.

There was one customer who represented 100% of total accounts receivable as of December 31, 2024.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

Property and Equipment

Property and equipment is stated at the Company’s original cost or fair value for acquired property and equipment net of accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the respective assets, which are generally as follows:3 years for office equipment,3 to 5 years for lab equipment,7 years for furniture and 3 years for software. Leasehold improvements are amortized over the lesser of remaining life of the lease or. Leasehold improvements are amortized over the lesser of remaining life of the lease or useful life of the asset, using the straight-line method. The cost of normal maintenance and repairs is charged to operating expenses as incurred. Material expenditures that increase the life of an asset are capitalized and depreciated over the estimated remaining useful life of the asset. The cost of assets sold, or otherwise disposed of, and the related accumulated depreciation is relieved from the property accounts, and any gains or losses are recognized in income from continued operations.

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 Contract Liability

The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Under ASC 606, revenue is recognized when control of goods or services is transferred to a customer in an amount that reflects the consideration to which the Company expects to be entitled.

To achieve this, the Company applies the five-step model:

The Company’s primary revenue stream includes technology license and material supply agreements.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

Revenue Recognition and Contract Liability (Continued)

Technology License and Material Supply Agreements

The Company enters into technology license and material supply agreements, under which it grants customers a non-exclusive, royalty-bearing license to use its patented electro-optic polymer technology (the “Licensed Product”). The Company also supplies proprietary polymers to licensees for use in their manufacturing of photonic devices.

The Company assesses whether the license and the supply of proprietary polymers represent distinct performance obligations. Based on this assessment, the Company has determined that the license and material supply are not distinct for financial reporting purposes because they are highly interdependent. Accordingly, the Company accounts for these as a single performance obligation.

Revenue under these agreements is recognized as follows:

Upfront License Fees – Nonrefundable upfront license fees are recorded as contract liability and recognized on a pro-rata basis over the contract term.

Minimum Annual Royalties – Fixed royalty payments required under the contract are also recognized on a pro-rata basis over the contract term.

Variable Royalties – Royalties exceeding the minimum annual amount are recognized when earned, typically when the licensee’s sales exceed the minimum threshold.

Milestone Payments – Recognized only when the contractual milestone is achieved, such as when the licensee sells a specified number of units of the Licensed Product.

Contract Costs

The Company capitalizes incremental costs to obtain contracts if they are expected to be recoverable, in accordance with ASC 340-40, Other Assets and Deferred Costs – Contracts with Customers. These capitalized costs are amortized over the expected contract term in a manner consistent with the related revenue recognition.

Contract Liability

Contract liability represents amounts received in advance for performance obligations not yet satisfied, including nonrefundable upfront license fees. The Company recognizes contract liability revenue as revenue when the related performance obligations are satisfied.

**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.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

Income Taxes

The Company follows FASB 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.

Stock-based Payments

The Company accounts for stock-based compensation underthe provisions of FASB 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 shorter of the requisite service period or the actual 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 shorter of the requisite service period or the actual vesting period, using the straight-line method. In June 2018, the FASB issued Accounting Standard Update (“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 2024 and 2023, 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.

Leases

The Company is a lessee in operating leases primarily incurred to facilitate manufacturing, research and development, and selling, general and administrative activities. At contract inception, the Company determines if an arrangement is or contains a lease, and if so, recognizes a right-of-use asset and lease liability at the lease commencement date. For operating leases, the lease liability is measured at the present value of the unpaid lease payments at the lease commencement date, whereas for finance leases, the lease liability is initially measured at the present value of the unpaid lease payments and subsequently measured at amortized cost using the interest method. Operating lease right-of-use assets are included in other assets on the Balance Sheets. The short-term portion of operating lease liabilities is included in other current liabilities on the Balance Sheets and the long-term portion is included in long term liabilities on the Balance Sheets. As of December 31, 2024, the Company had no leases that qualified as financing arrangements.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

Leases (Continued)

Key estimates and judgments include how the Company determines the discount rate used to discount the unpaid lease payments to present value and the lease term. The Company monitors for events or changes in circumstances that could potentially require recognizing an impairment loss.

The Company elected a short-term lease exemption practical expedient under ASU 2026-02, “Leases” (Topic 842), which allows the Company to not recognize leases with the total lease term of 12 months or less on the balance sheet.

Impairment of Long Lived and Finite-Lived Intangible Assets

Long lived assets, such as property, equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable, such as a significant decrease in market price of an asset group, a significant adverse change in legal factors or business climate that could affect the value of an asset group, or a continuous deterioration of the Company’s financial condition. Recoverability of asset groups to be held and used is measured by comparing the undiscounted future cash flows expected to be generated by the asset group to the carrying amount of the asset group. If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.

For the years ended December 31, 2024 and 2023, the Company didnot record an impairment of its long-lived and finite-lived intangible assets.

Comprehensive Loss

The Company follows FASB ASC 220.10, “Reporting Comprehensive Income (Loss).” Comprehensive 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 loss. Since the Company has no items of other comprehensive loss, comprehensive loss is equal to net loss.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose significant segment expenses and other segment items on an interim and annual basis and provide in interim periods all disclosures about a reportable segment's profit or loss and assets that are currently required annually. The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative threshold to determine its reportable segments. The new disclosure requirements are also applicable to entities that account and report as a single operating segment entity. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. The Company adopted the guidance for the annual reporting period ended December 31, 2024. There was no impact on the Company’s reportable segments identified and additional required disclosures have been included in Note 14 - Segment Reporting.** **

Recently Issued Accounting Pronouncements Not Yet Adopted

ASU 2023-09 – Income Taxes (Topic 740) requires disclosures related to the rate reconciliation and income taxes paid disclosures improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The other amendments in this Update improve the effectiveness and comparability of disclosures by (1) adding disclosures of pretax income (or loss) and income tax expense (or benefit) to be consistent with U.S. Securities and Exchange Commission (SEC) Regulation S-X 210.4-08(h), Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and (2) removing disclosures that no longer are considered cost beneficial or relevant. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2024. The Company does not expect this ASU to have material impact on its disclosures in the year of adoption.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

Recently Issued Accounting Pronouncements Not Yet Adopted (Continued)

ASU 2024-03 – Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40) requires disclosure, in the notes to financial statements, of specified information about certain costs and expenses, such as the amounts of purchases of inventory, employee compensation, depreciation, intangible asset amortization, included in each relevant expense caption; disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively; and disclosure of the total amounts of selling expenses. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2026 and interim reporting period within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating the impact of this ASU on its financial statement disclosures.

NOTE 2 –MANAGEMENT’S PLANS

The Company’s future expenditures and capital requirements will depend on numerous factors, including: the progress of our research and development efforts; the rate at which the Company can, directly or through arrangements with original equipment manufacturers, introduce and sell its polymer materials technology; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; market acceptance of the Company’s products and competing technological developments; and the Company’s ability to establish cooperative development, joint venture and licensing arrangements. The Company expects that it will incur approximately $1,727,000 of expenditures per month over the next 12 months. The Company’s current cash position enables it to finance its operations through April 2026. On March 17, 2025, 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. As of the date of this filing, $30,000,000 remains available to the Company per the agreement.** **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 (described in Note 10). Pursuant to the purchase agreement, the Company received $1,486,983 during the period from January 1 through March 18, 2025 and the remaining available amount of $0 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 10). Pursuant to the sales agreement, the Company received $116,435 during the period from January 1 through March 18, 2025 and the remaining available amount of $31,482,032 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, 2024, the Company recognized $81,855 in revenue related to this agreement. The Company’s cash requirements are expected to increase at a rate consistent with the Company’s path to revenue as it expands its activities and operations with the objective of increasing its revenue stream from commercialization of its electro-optic polymer technology. The Company currently has no debt to service.

NOTE 3 –REVENUE

The Company's first commercial agreement occurred in May 2023, in the form of a four-year material supply and license agreement (the “License Agreement”) that incorporates the Company's patented electro-optic polymer materials for use in manufacturing of photonic devices (the “Licensed Product”). The licensee shall pay the Company a running royalty with a minimum royalty paid on an annual basis over the term of the License Agreement the minimum royalty payments and milestone license fees. The License Agreement is a non-exclusive material supply and license agreement.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

NOTE 3 – REVENUE (CONTINUED)

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.

During 2024, the Company also performed device processing work for a customer.

Timing of Revenue Recognition and Contract Balances

Revenues related to the initial license fee and a minimum annual royalty are recognized over time commencing with the License Agreement in May 2023. An up-front license fee in the amount of $50,000 was paid during the period ended December 31, 2023. $23,208 and $39,875 of this amount is recorded as a contract liability in current liabilities on the Company’s balance sheets as of December 31, 2024 and December 31, 2023, respectively. For the years ended December 31, 2024 and December 31, 2023, the Company recognized $81,855 and $40,502 in revenue related to this agreement.

In March 2024, the Company completed device processing work on the devices supplied by a customer. Revenue for this contract was recognized at the time of shipment of the devices back to the customer and amounted to $13,750 for the year ended December 31, 2024.

Contract balances are as follows:

Significant changes in the contract balances for the years ended December 31, 2024 are as follows:

A rollforward of contract balances is not disclosed for the year ended December 31, 2023 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.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

NOTE 4 –PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

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 ended 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.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

NOTE 6 –PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Depreciation expense for the years ended December 31, 2024 and 2023 was $1,563,477 and $1,035,620, respectively. During the year ended December 31, 2024, the Company retired property and equipment with a cost of $203,480 and accumulated depreciation of $200,314 for a loss of $3,166. During the year ended December 31, 2023, the Company disposed of equipment for proceeds of $590, trade-in credit of $216,090 and a gain of $215,509.

NOTE 7 –INTANGIBLE ASSETS

Intangible assets represent 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:** **

Amortization expense for the years ended December 31, 2024 and 2023 was $119,283 and $83,521, respectively. During the year ended December 31, 2024, the Company retired certain expired patent applications and patents with a cost of $217,176 and accumulated amortization of $6,902 for a loss of $210,274 included in the statements of comprehensive loss in the (Loss) gain on disposal of property and equipment and intangible assets. There wereno patent costs written off for the year ended December 31, 2023.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

**NOTE 8 –LEASES **

On October 30, 2017, the Company entered into a lease agreement (the “Lease”) to lease approximately 13,420 square feet of office, chemistry, clean room and research and development space located in Colorado for the 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. In January 2022, the term was extended for an additional twenty-four (24) months.

On November 22, 2022, the Company entered into an amendment to the Lease (“the Amended Lease”) to lease an additional approximately 9,684 square feet of adjacent office and warehouse space. The term of the Amended Lease is one hundred twenty (128) months, with an effective date of June 1, 2023. Base rent through January 31, 2024 of the Amended Lease term 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 and $2,984,058, respectively. As of December 30, 2024, the operating lease right-of-use asset and operating lease liability amounted to $2,645,723 and $2,766,971, respectively.

For purposes of calculating operating lease liability, lease term includes the initial non-cancelable term plus any term under renewal options that are reasonably assured. Any rent escalations, along with rent abatements, are included in the computation of rent expense calculated on a straight-line basis over the lease term. The interest rate implicit in lease contracts is typically not readily determinable and as such the Company uses the appropriate incremental borrowing rate based on information available at the lease commencement date in determining the present value of the lease payments.

Undiscounted future minimum lease payments under the Amended Lease as of December 31, 2024, by year and in aggregate, including the extended term, are as follows:

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 following table presents weighted average assumptions used to compute the Company’s right-of-use assets and lease liabilities:

As of December 31, 2024, current operating leases had remaining terms between 13 months and 9 years, with some leases having options to extend the lease terms.

Current lease agreements do not contain any residual value guarantees or material restrictive covenants. As of December 31, 2024, the Company did not have any finance leases.

Operating and short-term lease costs totaling $513,428 and $102,077 are included in research and development and general and administrative expenses for the year ended December 31, 2024. Operating and short-term lease costs totaling $334,051 and $79,083 are included in research and development and general and administrative expenses for the year ended December 31, 2023.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

NOTE 9 –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:

The reconciliation of the statutory federal rate to the Company’s effective income tax rate is as follows:

The components of deferred tax assets as of December 31, 2024 and 2023 are as follows:

The valuation allowance for deferred tax assets as of December 31, 2024 and 2023 was $37,025,000 and $32,805,000, respectively. The change in the total valuation for the year ended December 31, 2024 was an increase of $4,220,000, and for the year ended December 31, 2023 was an increase of $6,526,000. 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.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

NOTE 9 – INCOME TAXES (CONTINUED)

As of December 31, 2024, the Company had net operating loss carry forwards of approximately $121,349,000, comprised of net operating losses in the amount of approximately $36,485,000 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 $84,864,000 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.

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 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 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, 2024, the Company hadno unrecognized tax benefits and no charge during 2024, and accordingly, the Company didnot recognize any interest or penalties during 2024 related to unrecognized tax benefits. There isno accrual for uncertain tax positions as of December 31, 2024.

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 ended on December 31, 2021 and thereafter are subject to examination by the relevant taxing authorities.

NOTE 10 –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

****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 and expired on July 8, 2024.

On July 26, 2024, the Company filed a new $100,000,000 universal shelf registration statement with the U.S. Securities and Exchange Commission which became effective on August 5, 2024.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED)

Common Stock (Continued)

****On October 4, 2021, the Company entered into a purchase agreement with an 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 ended 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, 2024, the institutional investor purchased 6,720,455 shares of common stock for proceeds of $28,513,017 and the Company issued 96,735 shares of common stock as additional commitment fee, valued at $510,236 fair value, leaving 5,046 in reserve for additional commitment fees. During the year ended December 31, 2024, pursuant to the purchase agreement, the institutional investor purchased 3,850,000 shares of common stock for proceeds of $12,366,965, and the Company issued 41,956 shares of common stock as additional commitment fee, valued $154,210 fair value. 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 the period from January 1, 2025 through March 18, 2025, pursuant to the purchase agreement, the institutional investor purchased 1,035,881 shares of common stock for proceeds of $1,486,983 and the Company issued 5,046 shares of common stock as additional commitment fee, valued at $8,029 fair value, leaving zeroin 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.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

NOTE 11 –STOCK BASED COMPENSATION

Common Stock (Continued)

During the year ended December 31, 2024, pursuant to the sales agreement, the investment banking company sold 551,501 shares of the Company’s common stock for proceeds of $1,779,976 after a payment of the commission in the amount of $55,054 to the investment banking company. During the year ended 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 the period from January 1, 2025 through March 18, 2025, pursuant to the sales agreement, the investment banking company sold 50,000 shares of the Company’s common stock for proceeds of $116,435 after a payment of the commission in the amount of $3,601 to the investment banking company.

Common Stock Options and Warrants

****During 2007, the Board of Directors of the Company adopted the 2007 Employee Stock Plan (“2007 Plan”) that was approved by the shareholders. Under the 2007 Plan, the Company is authorized to grant options to purchase up to 10,000,000 shares of common stock to directors, officers, employees and consultants who provide services to the Company. The 2007 Plan is intended to permit stock options granted to employees under the 2007 Plan to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All options granted under the 2007 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be non-qualified options (“Non-Statutory Stock Options”).

Effective June 24, 2016, the 2007 Plan was terminated. As of December 31, 2024, options to purchase 2,053,000 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, 2024, options to purchase 7,446,859 shares of common stock have been issued and are outstanding and 356,061 restricted shares of common stock have been granted. As of December 31, 2024,3,480,845 shares of common stock remain available for grants under the 2016 Plan.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

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 2024: no dividend yield, expected volatility, based on the Company’s historical volatility,76.3% to 78.5%, risk-free interest rate between 3.73% to 4.47% and expected option life of 10 years, which is based on the legal contractual life of the options.

The Black-Scholes option pricing model assumptions for 2023 are as follows: no dividend yield, 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.

As of December 31, 2024, there was $2,755,783 of unrecognized compensation expense related to non-vested market-based share awards that is expected to be recognized through December 2027. As of December 31, 2023, there was $3,295,335 of unrecognized compensation expense related to non-vested market-based share awards.

Share-based compensation was recognized as follows:

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

The following tables summarize all stock option and warrant activity of the Company during the years ended December 31, 2024 and 2023:

The aggregate intrinsic value of options and warrants outstanding and exercisable as of December 31, 2024 was $6,418,443 and $6,400,033, 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 $2.10 for the Company’s common stock on December 31, 2024. During the year ending December 31, 2024,375,000 options with the aggregate intrinsic value of $1,399,958 were exercised for proceeds of $246,100. During the year ending December 31, 2024,119,000 warrants with the aggregate intrinsic value of $171,550 were exercised for proceeds of $91,250. 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.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

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 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. Each 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 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.

On June 18, 2024, the Compensation Committee of the Board of Directors approved grants totaling 92,475 Restricted Stock Awards to the Company’s five outside directors. Each RSA had a grant date fair value of $3.33 which shall be amortized on a straight-line basis over the vesting period into director’s compensation expenses within the Statement of Comprehensive Loss. Such RSAs were granted under the 2016 Equity Incentive Plan (“2016 Plan”) and vested in total 15,455 shares on June 18, 2024, with the remaining vesting in 10 equal quarterly installments in total of 7,702 shares beginning July 1, 2024.

On August 1, 2024, the Compensation Committee of the Board of Directors approved a grant totaling 12,924 Restricted Stock Awards to the Company’s outside director. Each RSA had a grant date fair value of $3.16 which shall be amortized on a straight-line basis over the vesting period into director’s compensation expenses within the Statement of Comprehensive Loss. Such RSA was granted under the 2016 Equity Incentive Plan (“2016 Plan”) and vests in 9 equal quarterly installments of 1,436 shares beginning September 1, 2024.

On September 4, 2024, the Compensation Committee of the Board of Directors approved a grant totaling 11,488 Restricted Stock Awards to the Company’s outside director. Each RSA had a grant date fair value of $2.68 which shall be amortized on a straight-line basis over the vesting period into director’s compensation expenses within the Statement of Comprehensive Loss. Such RSA was granted under the 2016 Equity Incentive Plan (“2016 Plan”) and vests in 8 equal quarterly installments of 1,436 shares beginning October 1, 2024.

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

Restricted Stock Awards (Continued)

On December 10, 2024, the Compensation Committee of the Board of Directors approved a grant totaling 110,000 Restricted Stock Awards to the two Company’s executives and an outside director for consulting services. Each RSA had a grant date fair value of $2.65 which shall be amortized on a straight-line basis over the vesting period into stock-based compensation expenses within the Statement of Comprehensive Loss. The RSAs were granted under the 2016 Equity Incentive Plan (“2016 Plan”) and cliff vest on March 10, 2025 for an outside director and on June 10, 2025 for the executives.

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.

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, 2024 and 2023 are as follows:

Restricted stock awards are being amortized to expense over the vesting period. As of December 31, 2024 and 2023, the unamortized value of the restricted stock awards was $656,735 and $432,292, respectively.

NOTE 12 –RELATED PARTY

During the years ended December 31, 2024, and 2023, the Company engaged in transactions with related parties, including consultants, directors, and entities affiliated with members of the Board of Directors. These transactions primarily relate to legal services, consulting fees, director compensation, accounting services, and expense reimbursements.

Related Party Transactions for the Year Ended December 31, 2024

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

NOTE 12 – RELATED PARTY (CONTINUED)

****Related Party Transactions for the Year Ended December 31, 2023:

NOTE 13 – RETIREMENT PLAN

The Company established a 401(k) retirement plan covering all eligible employees beginning November 15, 2013. The plan offers two types of elected deferrals: pre-tax deferrals and Roth deferrals. The Company matches 100% of each participant contribution, up to 4% for all eligible employees. Matching contributions vest immediately. Participants are entitled to receive distributions of all vested amounts beginning at age 59 1/2. Matching contributions to all eligible non-executive participants charged to expense were $134,766 and $72,520 for the years ending December 31, 2024 and 2023, respectively. The plan is subject to the annual IRS elective deferral limit of $23,000 per employee for 2024 and$7,500 catch-up for 50 and over.

NOTE 14 –SEGMENT REPORTING

The Company operates as a single reportable segment, as the Chief Operating Decision Maker (“CODM”), the Chief Executive Officer (“CEO”), evaluates the business on a consolidated basis and does not receive discrete financial information for multiple business units.

Measure of Segment Profit or Loss

The CODM assesses the Company's financial performance based on operating loss, which aligns with the amount reported in the statements of comprehensive loss. The following table presents a reconciliation of segment operating loss to net loss:

LIGHTWAVE LOGIC, INC.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023

Significant Segment Expenses

The Company considers the following as significant expenses in evaluating its segment performance:

Since the Company has only one reportable segment, no additional segment disclosures are required beyond entity-wide disclosures presented below.

Entity-Wide Disclosures

Chief Operating Decision Maker (CODM)

The CODM of the Company is the Chief Executive Officer (CEO), who is responsible for evaluating financial results and making resource allocation decisions.

NOTE 15 –SUBSEQUENT EVENTS

On March 17, 2025, 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.