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Technology Stocks : Lightwave Logic, Inc.

LWLG 4.720

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Oct 31 9:30 AM EDT

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From: Paul Lee

7/22/2014 7:16:19 AM

1 Recommendation

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Zoro99

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Open Letter to Shareholders Summarizing Business and Scientific Developments During First Half of 2014

July 21, 2014

Dear Shareholders,

I would like to take this opportunity to update you on the progress we have made with Lightwave Logic’s business efforts and scientific advancements. The recent successes we have achieved in polymer material science along with several photonic devices under development have fostered a tremendously contagious spirit of optimism that pervades the Company.

Since I took over the operational helm as CEO, we carefully analyzed the business, surveyed the market landscape, and made key investments in the tools needed to achieve the goals that will enhance shareholder value. We have succeeded in rationalizing external collaborations, relocated the corporate headquarters and optical test facility to Colorado, added two highly talented synthetic chemists and yet another world-class independent director, George Lauro. With these actions and additions, we have enhanced our material and prototype device development, partnership opportunities, re-focused on potential acquisition targets and dramatically advanced down the road to commercialization of our polymers. Although we accomplished some, but not all our goals for the first half of 2014, we continue to make steady progress enabled by our previous groundwork and have mitigated some of the technical and commercial risk in this very difficult technical space.

Also, we have just completed a successful private securities offering where we obtained the necessary operating capital and R&D funds that should keep us in good financial condition through the end of 2015 while further positioning the Company for success.

We envision ourselves as a Company developing the next generation of organic polymer photonic devices to not only outperform currently installed legacy devices based on inorganic crystals like lithium niobate, but also to dramatically improve cost performance benefits for the end user. Organics offer a continuous pathway to performance improvements through highly innovative scientific practices and technical know-how. We want to become the “Intel®” of photonic chips and devices!

There is tremendous pent-up industry demand for Lightwave Logic’s technologies to satisfy market requirements that demand smaller, faster and less expensive photonic devices. Our development roadmap is precisely geared to satisfy those needs in several different verticals.

Ultimately, the problem we are trying to solve is speeding up the interface between end user demand that continues to strain the massive data centers that service the “cloud” for representative companies like Google, Facebook, Microsoft, Intel, IBM, Netflix and many more. Our target customers are the suppliers of photonic devices for these companies and their data centers.

In the near term, we are leveraging our material platform to create integrated photonic transceivers, photonic switches, modulators and related devices for high-speed fiber-optic telecom and data communications. Combined, this is an $8 billion addressable market opportunity for our Company.

In the long term, we are extending our materials platform into large commercial sectors that include biosensors, high-speed optical computing, optical switches and routers, optical filters, quantum computing and photovoltaic cells. Collectively, these commercial sectors add many billions of dollars to the markets Lightwave can address.

Business Overview

Many years ago, several large Fortune 500-sized companies made the business decision to abandon their R&D efforts in the organic polymer field because the market wasn’t ready for polymer technologies and they couldn’t see a short term return on their investment — fast-forward to today. The unprecedented explosion in demand for bandwidth has created an enormous opportunity for a replacement technology. Interestingly, while attending the Optical Fiber Conference in San Francisco this past February, several device companies stated both publicly and to me personally that they were now starting to look seriously at the viability of organic polymers to break through today’s current cost/performance barriers that are preventing the proliferation of leading edge disruptive technologies. Our ability to stay the course and make progress over the years has not gone unnoticed and it fortuitously has positioned us perfectly for what these industry leaders now recognize as the inevitable move to polymers. Imagine what would happen if the data communications/telecommunications businesses could no longer profitably meet the technical challenges needed to keep up with the seemingly endless growth in demand for storage and bandwidth? Your continuing support as shareholders has contributed enormously to our successes and enables the development to prosper.

Lightwave Logic remains in the forefront of electro-optical and all-optical polymer research with over 10 years of development behind us. That has energized our team to aggressively seek several industry partners for joint development activities. Our newest independent director, George Lauro, has formulated an industry engagement plan that has already been put into action. George’s expertise in taking products from R&D to commercialization along with his vast photonics industry connections is bearing fruit. We have already received interest from several potential partners that could significantly help us move multiple projects forward in parallel rather than in sequence, as well as provide a seamless pathway to a ready customer for the finished product.

In addition, we have continued to identify several potential acquisition targets with which we will be engaging. We remain convinced that an acquisition would be the fastest way to revenue with an established customer base and at the same time being able to leverage personnel synergies.

Most of our discussions with potential customers have centered on their desire for innovative polymer waveguides, optical modules, transceivers and lower cost packaging solutions. They are impressed by the potential for enormous built-in cost and performance advantages, and when demonstrated, will help ensure ultimate implementation. The first prototype Silicon Organic Hybrid (SOH) device from this effort could function as the heart for movement of vast amounts of information around the data center and for the other photonic applications. Initial demand for 100 Gb/s configured devices could be in the millions of units per year for what would be considered a first generation device. We see a product development cycle starting with version 1.0 with subsequent versions evolving along with market demands.

Throughout the last year and half we have successfully transitioned Lightwave Logic from a company solely focused on chemical synthesis to a device company with major photonic device programs in key targeted high-value markets.

Material Advancements

To make these devices competitive, it is vital that our materials exceed current inorganic material capabilities. Initial results from the first two materials of our newly devised and announced multi-chromophore methodology have so far been very encouraging. We previously reported that the first material offspring, Perkinamine MalachiteTM, has been operating in one of our thin film devices for over six months in our new lab in Longmont, Colorado with virtually no relaxation of the molecular arrangement and at approximately twice the electro-optic effect of legacy, inorganic-based modulator devices. We are now working to perfect the production process to get the desired replication required for commercialization. There currently are several versions of MalachiteTM in production and more importantly, our multi-chromophore methodology holds the potential for almost endless generations of performance improvement.

Also during the first quarter, we entered into a sole worldwide license with Corning Inc., to obtain the rights to use their portfolio of patented chromophores within a “Licensed Field” which means communications, computing, power, and power storage applications that employ the nonlinear optical properties of the licensed materials. This, along with the work Lightwave research scientists have accomplished significantly advances our electro-optic polymer material platform and we continue to synthesize other unique materials with even more promising characteristics. We firmly believe this will ensure the ultimate success and the sustainability of the device program currently underway.

In conversation with industry experts and our own subject matter experts, we have determined that in order to compete in the photonics market, our materials must have the following device characteristics when compared to legacy devices:

Lightwave Logic has been engineering and developing nonlinear polymers to optimize these optical, thermal and other performance characteristics listed above. This growing family of proprietary materials (PerkinaminesTM) are demonstrating significant advantages over the currently imbedded materials and devices and could make possible the world’s first terabit/sec transceivers manufactured via high volume, low cost, high yield processes that can be coated on a large variety of chips making integrated photonic systems on chips (SoC’s) a reality. These will ultimately become compact on-chip solutions integrated with thin film polymer coatings on silicon.

Device Program

We have carefully chosen an ordered progression of component and device development that actually began with the creation of our new multi-chromophore chemical synthesis process. There is a strong interrelationship between the devices and components that we are currently testing and intend to test. The completion of each successful step in the progression substantially eliminates technical risk of the end goal — producing an integrated photonic system.

Our development plan has us on a path to demonstrate a Multi-Integrated Nano-Photonic Transceiver (MINT) that will essentially incorporate all of the devices and components preceding it such as waveguide modulators and high-speed hybrid modulators. This device is intended to represent a technological quantum leap forward with the potential to revolutionize datacom and telecom systems. This is not only due to inherently lower power requirements and ultra-fast data rates, but also because it would also eliminate the need for an entire layer of network architecture that currently connects millions of servers-to-servers in cloud computing and telecom data centers worldwide. While we have already begun this revolutionary design, we need to walk before we can run. The journey began last fall when we demonstrated that we could successfully modulate light in a slot waveguide modulator.

We hope to have additional quantifiable results once we receive our wafers (chips) from IMEC in Belgium and OpSIS at the University of Delaware. After receipt of the chips, we will begin the production of commercial “bread-board” prototypes to present to potential partners and collaborators. Both providers have informed us of delays in the production of our chips to late summer or early fall. While this obviously pushes out our slot waveguide modulator development timeline, the good news is that we have found an alternative opportunity to test our newer materials in an existing slot waveguide modulator design owned by a third party. We are also working on a bleached waveguide modulator and an all-optical switch with the University of Colorado and Boulder Nonlinear Systems to demonstrate our device’s performance parameters. We hope to have results from these efforts later this summer.

The following list of components and devices captures the key elements of our product development efforts:

30-100 Gb/sec Telecom Bleached Waveguide Modulator

This photonic device concept is being developed in close partnership with our University of Colorado collaborators and is the least infrastructure intensive of the waveguide technologies currently available for creating telecom specific modulator products. It allows us to create photonic devices independent of the traditional photonic foundry process timelines and is a perfect vehicle for developing our most advanced PerkinamineTM material systems. We are currently starting our build out of a class 100 clean room at our Longmont facility to specifically target this and the hybrid slot waveguide device architecture. We intend to drive the maturity of these product offerings from in-house manufacturing of research and development devices to telecom devices.

30-100 Gb/sec Slot Waveguide DataComm & Telecom Modulator

Hybrid polymer/silicon slot waveguide technology is designed to integrate with other optical silicon photonic devices to create an entire datacom information system to service the tremendous growth in cloud computing and other data intensive systems such as high-end super computer applications. The integration of electro-optic polymers and silicon waveguide technologies significantly lowers the power per bit of information and can potentially lead to modulation devices, which remove a significant portion of the electronics cost and power requirements. We have already successfully demonstrated this basic building block of photonic devices and are now getting ready to repeat this with new materials and expect a series of results throughout the year.

Optical Routers

Routers are devices that switch the datacom and telecom traffic around the world. We are collaborating with the University of Colorado sponsored research team to define and implement a Third Order (light-switching-light) nonlinear polymer technology to address this sizable market opportunity. The significant advantage our polymers enable is the switching of optical data without leaving the optical domain and replacing the current Microelectromechanical systems (MEMS) solution.

Spatial Light Modulator, Optical Switch and Optical Correlator

One of the advantages we gained with our relocation to Longmont is the opportunity to work more closely with our partner Boulder Nonlinear Systems (BNS). Together we have a three-pronged cache of opportunities to penetrate DoD and commercial markets.

Each may have significant potential for our Company. They are:

A Terry Turpin design for a spatial light modulator. A spatial light modulator is the input device for an optical computer that can be used for supercomputing, cryptology and imagery processing (including facial recognition). Content carriers such as Comcast, Cox and Century Link need innovative ways to push more data through existing fiber networks. We are working an all-optical switch (along with the University of Colorado) that can be used to replace electric to optical switches that are currently used for this purpose. Legacy devices can’t meet the demands from the end user…people. We expect initial results for this application in the late summer, early fall. Finally we are working on an optical correlator. An optical correlator is a device that compares two-dimensional data at very high rates of speed utilizing time and frequency properties of a laser. The main objective use is for target tracking and identification. This is a follow-on to the earlier USAF LADAR (LAser Detection And Ranging) project we announced. LADAR devices use lasers to illuminate a target and measure the time it takes the light to return to determine distance. LADAR has advantages over RADAR since it produces three-dimensional imagery (range, azimuth, elevation). Summary

Our enthusiasm about the future is permeating our entire Company as well as our potential partners. We are all excited about our transition to a next-generation photonic systems provider at the leading edge of electro-optical and all-optical polymer development. Our technical team is currently putting together individual product timelines along with market sizes and detailed competitive comparisons that we intend to share with you when completed. This is an extremely exciting time to be a Lightwave Logic shareholder and we will endeavor to keep you informed of our progress along the way. We hope to see you at the annual shareholder meeting in Boulder, Colorado on August 21.

Regards,

Tom Zelibor

Chairman and CEO

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