Part I [Business](index=5&type=section&id=Item%201.%20Business) Lightwave Logic develops proprietary electro-optic polymer systems and PICs for telecommunications and data centers, targeting high-speed data communication markets - Lightwave Logic is a **development-stage company** focused on creating advanced organic electro-optic polymer systems and **Photonic Integrated Circuits (PICs)** for the telecommunication and data center markets[20](index=20&type=chunk) - The company's core technology is based on **proprietary organic polymers** designed to be more stable, cost-efficient, and higher-performing than legacy inorganic crystalline materials[21](index=21&type=chunk)[35](index=35&type=chunk) - Key product development milestones include achieving modulator performance suitable for **50Gbps data rates**, which enables **400Gbps systems** using PAM-4 encoding[41](index=41&type=chunk)[64](index=64&type=chunk) - The company's intellectual property portfolio consists of **45 granted patents** and was significantly enhanced by the **2018 acquisition** of polymer technology assets from BrPhotonics[54](index=54&type=chunk)[55](index=55&type=chunk) - In 2018, the company consolidated its operations into a new **13,420 sq. ft. facility** in **Englewood, Colorado**, which includes advanced cleanrooms and laboratories to streamline R&D[65](index=65&type=chunk)[128](index=128&type=chunk) - The business strategy includes generating revenue through **technology licensing, joint ventures, or direct sales** of its electro-optic device components[94](index=94&type=chunk) [Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including substantial operating losses, capital needs, market acceptance challenges, and reliance on key personnel - The company has a history of substantial operating losses, incurring a **net loss of $5.8 million in 2018**, and anticipates continued losses as it is still in the research and development phase[131](index=131&type=chunk) - There is a significant risk that the company may not be able to **secure additional capital** required to continue operations **beyond June 2019**, which could force it to limit its activities[137](index=137&type=chunk) - The company's products face a **lengthy and expensive customer qualification process**, which can take several months or more without any guarantee of future sales[149](index=149&type=chunk) - The telecommunications market, a key target, has **historically not accepted polymer modulators**, and the data communications market is **highly competitive** with established technologies like silicon photonics and Indium Phosphide[153](index=153&type=chunk)[154](index=154&type=chunk) - The company's success is **highly dependent on key personnel**, particularly CEO Dr. Michael Lebby and President/COO James S. Marcelli[172](index=172&type=chunk) - The complexity of the company's products may lead to **errors or defects**, which could require **costly redesigns** and damage the company's reputation with potential customers[175](index=175&type=chunk) [Unresolved Staff Comments](index=36&type=section&id=Item%201B.%20Unsolved%20Staff%20Comments) Not applicable [Properties](index=36&type=section&id=Item%202.%20Properties) The company's principal executive offices and R&D facility are located in a 13,420 square foot leased space in Englewood, Colorado - The company's main facility is a **13,420 square foot space** in **Englewood, Colorado**, which houses its executive offices, laboratories, and research and development operations[198](index=198&type=chunk) - The facility includes a **1,000 sq. ft. class 1,000 cleanroom**, a 500 sq. ft. class 10,000 cleanroom, and a 220 sq. ft. class 100 cleanroom[128](index=128&type=chunk) [Legal Proceedings](index=36&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings - The company is **not aware of any material litigation** or threatened litigation[199](index=199&type=chunk) [Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=37&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the OTCQB under "LWLG", with approximately 108 stockholders and no cash dividends paid to date - The company's common stock is traded on the **OTCQB** under the symbol "**LWLG**"[203](index=203&type=chunk) - As of March 15, 2019, there were approximately **108 holders** of the company's common stock[204](index=204&type=chunk) - **No cash dividends** have been declared or paid on common stock to date[205](index=205&type=chunk) Equity Compensation Plan Information as of December 31, 2018 | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 6,755,000 | $0.86 | 765,000 | | Equity compensation plans not approved by security holders | 1,677,500 | $0.80 | 0 | | **Total** | **8,432,500** | **$0.85** | **765,000** | [Selected Financial Data](index=38&type=section&id=Item%206.%20Selected%20Financial%20Data) Not applicable [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Lightwave Logic, a development-stage company, reported no revenue and a net loss of $5.77 million in 2018, with increased operating expenses and cash used in operations - The company is in the development stage and generated **no revenues** in 2018 or 2017[251](index=251&type=chunk) Comparison of Fiscal 2018 to Fiscal 2017 | Metric | 2018 | 2017 | | :--- | :--- | :--- | | **Net Loss** | **($5,772,958)** | **($5,749,382)** | | Operating Expenses | $5,601,016 | $5,523,538 | | Research and Development | $3,794,565 | $3,519,129 | | General and Administrative | $1,806,451 | $2,004,409 | - The increase in operating expenses was primarily due to **higher salaries** from increased technical personnel, **depreciation on new equipment**, and **rent for the new consolidated facility**, offset by a decrease in non-cash stock-based compensation[252](index=252&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk)[259](index=259&type=chunk)[262](index=262&type=chunk) Cash Flow Summary | Cash Flow Activity | 2018 | 2017 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($4,400,965) | ($4,409,696) | | Net Cash Used in Investing Activities | ($1,432,363) | ($265,532) | | Net Cash Provided by Financing Activities | $4,525,626 | $6,200,711 | - The company believes it has **sufficient funds to finance operations through June 2019**, relying on its cash position and a purchase agreement with Lincoln Park Capital for up to **$25 million** in common stock purchases over 36 months[284](index=284&type=chunk)[285](index=285&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Not applicable [Financial Statements and Supplementary Data](index=48&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section indicates the company's audited financial statements are attached as an appendix to the Form 10-K report - The company's Financial Statements are **attached as Appendix A** and are included as part of the Form 10-K Report[294](index=294&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=49&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) Not applicable [Controls and Procedures](index=49&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Management evaluated and concluded that the company's disclosure controls and procedures were **effective** as of the end of the period[296](index=296&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective as of December 31, 2018**, based on the COSO framework[297](index=297&type=chunk) - The independent registered public accounting firm, Morison Cogen LLP, issued an **unqualified opinion** on the company's internal control over financial reporting as of December 31, 2018[300](index=300&type=chunk) [Other Information](index=49&type=section&id=Item%209B.%20Other%20Information) Not applicable Part III [Directors, Executive Officers and Corporate Governance](index=50&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The company's leadership includes key executives and a seven-member Board of Directors with an Audit Committee and adopted Code of Ethics - The executive team is led by **Dr. Michael Lebby, CEO**, and **James S. Marcelli, President & COO**[305](index=305&type=chunk) - The Board of Directors consists of **seven members** and is divided into **three classes with staggered three-year terms**[316](index=316&type=chunk) - The company has an **Audit Committee** comprised of Ronald A. Bucchi and Siraj Nour El-Ahmadi, with **Ronald A. Bucchi** identified as the audit committee **financial expert**[322](index=322&type=chunk) - A **Code of Ethics and Business Conduct** has been adopted and is available on the company's website[318](index=318&type=chunk) [Executive Compensation](index=53&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation primarily consists of base salary and equity incentives, with specific compensation details for key executives and directors in 2018 - The primary elements of executive compensation are **annual base salary** and **long-term equity incentive compensation** in the form of stock options[325](index=325&type=chunk) Summary Compensation Table (2018) | Name and Principal Position | Salary ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Dr. Michael S. Lebby, CEO | 265,000 | 38,448 | 2,840 | 306,288 | | James S. Marcelli, President | 250,000 | — | 2,355 | 252,355 | - Employment agreements for CEO Dr. Lebby and President Mr. Marcelli specify **base salaries ($265,000 and $250,000 respectively)**, stock option grants, and severance provisions for termination without cause or non-renewal[348](index=348&type=chunk)[350](index=350&type=chunk) - Non-employee director compensation in 2018 consisted primarily of **stock option awards**, with Dr. Frederick Leonberger also receiving **$108,000 in cash** for serving on the Operations Committee[354](index=354&type=chunk)[357](index=357&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=59&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of March 15, 2018, Mary Goetz was the only beneficial owner of more than 5% of common stock, with directors and officers holding 7.97% Security Ownership of Management (as of March 15, 2018) | Name and Title | Amount of Beneficial Ownership | % Owned | | :--- | :--- | :--- | | Michael Lebby, CEO & Director | 712,643 | * | | James S. Marcelli, President & Director | 1,553,400 | 1.92% | | Thomas E. Zelibor, Chair of the Board | 1,401,824 | 1.73% | | Joseph A. Miller, Jr., Director | 506,800 | * | | Ronald A. Bucchi, Director | 827,400 | 1.02% | | Siraj Nour El-Ahmadi, Director | 480,000 | * | | Frederick Leonberger, Director | 955,000 | 1.18% | | **Directors and Officers as a Group (7 Persons)** | **6,437,067** | **7.97%** | - **Mary Goetz** is the only reported beneficial owner of more than 5% of the company's common stock, with an ownership of **5.59%**[359](index=359&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=60&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company discloses a related party transaction with a director and identifies independent directors according to NASDAQ listing rules - A **related party transaction** exists with director **Dr. Frederick J. Leonberger**, who has served as a senior advisor to the company through his consulting firm, EOvation Advisors LLC[368](index=368&type=chunk) - The Board has determined that directors **Joseph A. Miller, Jr., Ronald A. Bucchi, and Siraj Nour El-Ahmadi are independent**[370](index=370&type=chunk) [Principal Accounting Fees and Services](index=61&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) The company incurred total fees of $87,000 from its independent accounting firm, Morison Cogen, LLP, for audit and tax services in 2018 Accounting Fees (Morison Cogen, LLP) | Fee Type | 2018 | 2017 | | :--- | :--- | :--- | | Audit Fees | $81,000 | $56,675 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $6,000 | $6,000 | | All Other Fees | $0 | $0 | | **Total** | **$87,000** | **$62,675** | Part IV [Exhibits, Financial Statement Schedules](index=62&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the audited financial statements and all exhibits filed as part of the Form 10-K report - This section provides a list of the **audited financial statements** and **all exhibits** filed with the Form 10-K[379](index=379&type=chunk) [Form 10-K Summary](index=64&type=section&id=Item%2016.%20Form%2010-K%20Summary) None Financial Statements [Report of Independent Registered Public Accounting Firm](index=67&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Morison Cogen LLP issued an unqualified opinion on Lightwave Logic's financial statements and internal control over financial reporting for 2018 - The auditor, Morison Cogen LLP, expressed an **unqualified opinion** that the financial statements are **presented fairly** in all material respects[393](index=393&type=chunk) - The auditor also expressed an **unqualified opinion** that the Company maintained **effective internal control** over financial reporting as of December 31, 2018[393](index=393&type=chunk) [Financial Statements Tables](index=69&type=section&id=Financial%20Statements%20Tables) The financial statements for 2018 show the development-stage company with no revenue, a $5.8 million net loss, and decreased total assets Balance Sheet Data (in thousands) | | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $2,175 | $3,482 | | Total Current Assets | $2,512 | $4,067 | | Total Assets | $5,251 | $5,850 | | **Liabilities & Equity** | | | | Total Current Liabilities | $344 | $649 | | Total Liabilities | $344 | $833 | | Total Stockholders' Equity | $4,907 | $5,017 | Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2018 | Year Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net Sales | $0 | $0 | | Research and development | $3,795 | $3,519 | | General and administrative | $1,806 | $2,004 | | Loss from Operations | ($5,601) | ($5,524) | | **Net Loss** | **($5,773)** | **($5,749)** | | **Basic and Diluted Loss per Share** | **($0.08)** | **($0.08)** | Statement of Cash Flows Data (in thousands) | | Year Ended Dec 31, 2018 | Year Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,401) | ($4,362) | | Net cash used in investing activities | ($1,432) | ($266) | | Net cash provided by financing activities | $4,526 | $6,153 | [Notes to Financial Statements](index=74&type=section&id=Notes%20to%20Financial%20Statements) The notes detail accounting policies, development-stage status, reliance on equity financing, asset valuations, and significant net operating loss carryforwards - The company is a **development-stage technology company** with significant risks, including the **need for future funding** to operationalize its technology[412](index=412&type=chunk)[413](index=413&type=chunk) - Management believes it has **sufficient funds to finance operations through June 2019**, relying on its cash position and a purchase agreement with an institutional investor for up to **$25 million**[437](index=437&type=chunk) - As of December 31, 2018, the company had **net operating loss carryforwards of approximately $44 million** available to offset future taxable income, expiring through 2038[455](index=455&type=chunk) - Total stock-based compensation expense recognized in 2018 was **$466,078**, down from **$1,211,672** in 2017[470](index=470&type=chunk) - As of December 31, 2018, there were outstanding options and warrants to purchase an aggregate of **18,964,867 shares** of common stock[472](index=472&type=chunk)