LWLG - Lightwave Logic Inc. (LWLG) CEO Hosts Annual Shareholder Meeting (Transcript)

2023-05-29 00:43:02 ET

Lightwave Logic, Inc. (LWLG)

Annual Shareholder Meeting

May 25, 2023, 12:00 PM ET

Company Participants

Michael Lebby - Chief Executive Officer

James Marcelli - President, Chief Operating Officer and Secretary

Wendy C. Shiba - Inspector of Election, Appointed representative of Broadridge Financial Solutions

Conference Call Participants

Presentation

(Transcript provided to Seeking Alpha by the company.)

Michael Lebby

This concludes the formal part of the annual meeting, and the formal portion of the annual meeting of Shareholders is adjourned.

I will now provide you with a brief Management presentation. The Management presentation will remain posted on our website for a period of time after the meeting.

Unidentified Company Representative

With that, appreciation here from the Shareholders following the [Indiscernible] specialty announcement this morning (ph).

Michael Lebby

Thank you very much.

Okay. Now is the fun part. We'll get to the Management presentation. It gives me great pleasure to give you a Management update. As most people are probably aware, we had a press release come out this morning, and I see a lot of smiling faces. Somebody said to me earlier this morning, are you smiling? Well, I'm smiling and this is a really good day for us. Let's get to the presentation.

Obviously, we're a Public Company, so we have a Safe Harbor slide. The outline of the presentation today is what we do, some market dynamics, the market opportunity, competition and partnering, commercial strategy and activity, Investor and public relations and then I'll summarize. After summary, we can open up for Q&A.

What do we do? This is a slide that is new from my presentation. We make Perkinamine electro-optic polymers. As you can see from this slide, the polymers get aligned through a voltage, but they start off on this slide here. These are the chromophores that we start with, with some chemical symbols. We turn those into devices and those devices have an impact and we've shown that the material has high levels of thermal and photo stability, long-term storage and operational durability.

We have devices that have fast performance and lower power than existing technologies. You can see from the takeaway at the bottom of the slide, fast, stable, reliable, low power consumption and very small in size. These are the metrics that folks are looking for with our technology.

Another very new slide for me, so what is a polymer modulator. It is a very simple slide. Now we can see a chip here and on the chip is a purple sort of circle here, an elliptical circle. This is representative of our Lightwave Logic Perkinamine chromophore that goes on to the chip. In this chip, you have an optical signal in, an electrical signal in with data. You mix the two together and you get a signal out that's optical that provides the information. It's a chip that actually provides optical information.

Where these chips go essentially is in racks that look like this, go into data centers. This gives you a sort of a very high-level view of the type of technology we're working on. One way to look at this is a high-performance engine for optical networking. You can see from the bullet points here, a modulator combines a photonic integrated circuit. That's a chip with lots of different photonic devices, with radio frequency RF electronics, so it works at very high speed. Obviously, it uses electro-optic polymers.

When you apply a voltage to the chip, we can change the intensity here and the intensity, as you can see, can be changed to develop the signal with the data. You can see that there's millions of these modulators used in a single data center. A lot of these chips are used to drive signals on the Internet. The electro-optic polymer slot modulators, they provide faster data rates, smaller sizes and lower power, which makes the technology very exciting for us as we go forward to take our technology into the optical network and Internet environment.

Now this slide here is a few bullet points, but one way to look at our technology is as we solve the problem, not just for this generation, but for a long time. I've put here for the next decade. That's a number of years. There's other technologies out there that are good for one or two generations. But the performance of our technology can go a long way because the materials we use, they modulate light really quickly. Now you can modulate light, a very simple way to look at this is liquid crystal displays. They modulate light also, but are very, very slow. We have a very fast, much faster technology and the right application for this technology is the fiber optic network or Internet.

They're polymer-based, our materials are polymer-based. I think we all know this. We all use polymers today with OLEDs. OLEDs stands for organic LEDs. The TVs we look at and the mobile phones and the PDAs, they were LCDs, but now they are polymer-based. Those polymers actually generate light. Ours modulate and switch light. It's a different chemical composition. But if you think about it for a second, I mean 10, 15 years ago, were we using OLEDs in our displays? We were not. We don't even think twice about using polymers today. We see the success of OLEDs as being something we can follow with our technology.

Our modulators are very small, which actually is a great benefit to put them inside boxes that go into these servers and routers in a data center, and these boxes are called pluggable transceivers.

Now this next bullet point is interesting because I've used the word transformational performance headroom. That means that the performance of the electro-optic polymer material is not just good for one generation. It's good for a number of generations. When you're talking to the end users, and they're asking about the implementation of a brand-new technology, they don't just want to put a technology in that's good for one generation. They want to put a technology in that's going to be around for a long time, and that's really important.

Then lastly here, we can integrate our devices with other devices onto silicon photonics. That's really important because these pluggable transceiver boxes are actually quite small. To shoehorn lots of different components in a small box means you have to integrate them. Now we did this, not ourselves, but the industry in electronics did this 60 years ago with ICs, integrated circuits. We put a lot of transistors on a chip because then it's a smaller size and lower power. The same sort of effect is happening in our industry in photonics.

The takeaway, polymer technology extends speeds, reduces power consumption and not just for this generation, for a long, long time. I think there's a few Investors in here that were before my time. Back in 2017, which is when I gave my first talk, we had unique chemistry. This is one of the things that attracted me to the Company. But at that time, few believed in polymers. Everybody thought a new polymer of modulators had some potential, when the industry really wasn't that interested. That was 2017. But if we fast forward to today, we do have unique chemistry and we improved the performance of our materials incredibly over the last five to six years.

Many now believe in polymers. In 2017, it was a case of, we have this great technology, are you interested. Now it's very different. Polymer modulators have huge potential for optical networking and the Internet in general. The last point, which makes me really excited is the industry is now very interested in our technology. We've come a long way in like the last five or six years. This is really exciting.

Let's have a look at the market dynamics and potential. This looks like a complicated slide. It's not really about pyramids. But it's about what are the big drivers for this type of technology. Well, at the top there, some of the - go back - there we go. At the top there, we can see a modulated chip.

Next generation components will require really high-speed modulators. Then the next line down, will necessitate next generation switches, racks and transceivers. That's at the very highest level. But what are the real drivers, the macro drivers that really go underneath that? Well, you can see here, switch density. This is a big issue in data centers. Artificial intelligence compute has become a topical subject over the last two or three months, and energy usage. If the takeaways from these are the need for space, the need for speed and the need for green, the need for lower power.

The end users need to seek an optical balance to make sure these drivers will drive the next-generation system and subassemblies for using these components. We see polymer modulator is a key component, a key enabler for the end users to achieve these types of macro criteria. This is really exciting because what we're seeing here is that these are problems, these large companies are having, and we have a technology to really address that.

This graph on the left, let's just focus on this one. I hope you can see some of the writings at the back. This graph says, the time it took to get to a million users. On the top one there is Netflix, and it took 3.5 years for Netflix to get to a million users. One at the bottom, which I've outlined, chatGPT, it took five days. It just got caught on like wildfire. We've all heard both positive and negative things about artificial intelligence. It's not my job to comment on that. But the observation from a Lightwave standpoint is, wow, when you see something like this taking off in less than a week, it has an impact on this graph here. This is computing power in artificial intelligence systems.

What this graph is showing is from 1960, 1970, '80, '90, 2000, they call this the first era, and then you've got a modern era. When you start getting to 2020, look at the slope of this curve. This vertical is computing power. Now it's measured in petaflops. I'm not sure we all understand what a petaflop is, but the way I look at this is if you think about the Internet as the U.S. highway system and you've got all these freeways with a number of lanes, the computing is basically the intersections.

What this is telling us is that the intersections need to have three, four, five, six lanes because if you're in LA or in New York, it is the intersections that clog up first, because they got to get the traffic to the right destination. The computing power is actually doubling every two to four months. It used to be every two to four years. This is providing an interesting situation. The traffic and computing power is driving power consumption in data centers.

The next slide I've showed before, but I put it up again because it's pertinent. This creates an incredible Achilles heel for the end users. What do I mean by Achilles heel? Well, look, the power consumed is going through the roof. It's on a trajectory that it doesn't make a lot of sense. You can't sustain that. The traffic, which is the data that gets sent down the Internet, used to be because we had dial-up modems and then 15 years ago, it's because we're using lots of video, and video was consuming a lot of traffic, and it still is, a lot, but in the last year, that video has been supplanted by artificial intelligence, computational power. Now we're seeing a trend of using even more.

This traffic and this power is a huge problem for folks who run data centers, as you can see here. This is a major challenge for those guys and the service providers. We see this as the Achilles heel, and we see we have a technology to address this Achilles heel. Where we enter the market is chips like this. We call them engines, polymer modulators. They go into these pluggable transceiver boxes, which are these guys.

Now there's lots of different designs. As you can see here, there's a number of different designs here and a number of different designs here. This is the latest one everybody is using, and it's called an OSFP, an Octal Small Form Factor Pluggable. It's not very big. It's about the size of my finger. It's about four inches long and less than an inch wide. Whereas these original guys just have one or two fibers going in the end. You can see, yes, these guys have eight fibers and some have 16. Again, really complex, which means you don't have a lot of room to have a lot of components inside this little box. Plus if you have a lot of components in this box, it can become really hot, consume a lot of power. That's a big problem.

The folks and the end users, the data centers are trying to figure out how to increase the speed and keep the power down, so these things don't become hot, because when they become hot, they use a lot of power. This is where we enter the market. If you take the market, just looking at two types of these transceivers is the 800G and the 1600G or some people call it a 1.6-terabit transceiver. These are the ones that the folks are looking at today to deal with a lot of the increases in artificial intelligence, because the data center guys need to have boxes, transceivers that deal with this extra traffic.

Now what are these? This is a complicated slide. The one at the top is the 800 and the one at the bottom is the 1600. Now these are graphs that came from Arista. This is not our data. We're just showing you what their data is. They suggested that where the 5-nanometer DSP working at 100G, that's the sort of power consumption they're looking at 15 picojoules per bit. They did some testing with one of the competitive modulated technologies, that's thin film lithium niobate, which is listed here, and got it down to 12 picojoules and they've been innovated to try and get rid of the DSP chip and they're suggesting that they could get it down to 8 picojoules or 6 picojoules. We know with our technology, we're on this red type of curve. That's exciting.

We know we can provide value to these guys in the 800G pluggable optics market as well as the 1600G. Our goal is not only to go fast, but to reduce the power. The 1600G, they're suggesting that the DSP is 3 nanometers and 200G. If they get rid of that, they might be able to get to 5 picojoules. We know we can beat these numbers. This is really exciting.

If you look at the words on the left-hand side, power efficiency is key. We expect to see a rapid adoption of this type of technology over the next 24, 36 months. We have to be mindful of any corresponding customer power requirements. Each customer has their own power requirements, of course. But in general, the takeaway from this slide is that polymers fit this profile really nicely.

This is another Arista slide, and I've sort of modified it a little bit. They plotted a roadmap of using these transceivers, so 400G, 800G. I just talked about 1.6 terabit or 1600G. They're even thinking about the next generation, which is 3.2. When we look at this and go, wow, this is where the competition is today, everybody is thinking about this type of box here. This is what everybody is trying to prototype right now. We have a technology that takes us all the way up to here. This is really exciting.

The way you work out these transceivers, this is 16 channels at 100 gigabits, so you can get 1600. This box here is 8 x 200, 16 x 200. I put question marks here because I don't know what the industry really wants. But what I do know is our technology is aligned and can fit that performance profile, and that's very exciting.

The market. I'm going to give you some market numbers. But before I do that, I just want to give some definitions. This is for our first application of our electro-optic polymers. In orange is the total addressable market. Folks in the industry call it a TAM. Then in this yellowy, olive yellow color we got the SAM which is the serviceable addressable market, how big is the market we can reach. The orange is the total size of the market. The yellow is what in the marketing world is called a serviceable obtainable market, what you can actually obtain with your available resources.

As you build your available resources and you become better at scaling, this yellow becomes the same size as this darker yellow. To begin with, you start with this size, but your obtainable market will increase once you get more mature in the marketplace. For the first applications, you just look at two transceivers, the 800 and the 1600, the ones I just showed you before, and you look out to 2035, and these are the units, the forecast and this is Lightcounting, which is probably one of the most reputable market research companies that do this work. They're predicting 40 million units of 1.6 terabit by 2035 and over 70 million units of the 800G.

A nice growing market, but just two transceivers. There's plenty of transceivers out there. It doesn't even include telecom. We haven't even included telecom. We haven't even included non-fiber optic markets. This is just two types of transceivers, all right?

The SAM, which is the graph on the upper right, you can see by 2030, this is even five years closer. Five years closer, if you total the 800G and the 1.6G market, this is about 10 million units. The assumptions we made when we put this together for the 800G, that's about 15% of the TAM. You've taken quite a bit of haircut, so is much smaller than the total available market. In the 1600, we've actually assumed 25% because our technology is more suitable for the higher speeds because we know our competition can't compete. We expect a slightly bigger share as you go to the faster speeds.

When you fold that down into your obtainable market, 20% of that SAM is about 1.6 million units for the 1.6 terabit and 1.4 million units for the 800g. You total it up, 2030, there's three million units. That is a huge opportunity just on two types of transceivers. I haven't even talked about other markets. When you put all this together in a table and you look at the market potential, you can start seeing here, you can see the TAM, which is the total available market. The numbers come down to about 3 million units as I just indicated. Even without the other markets that we've included in this calculation, this is a substantial business opportunity. This is a reflection of the combined effect of positive demand for higher traffic and lower power consumption drivers. This is really exciting.

Competition. Everybody knows we're not the only technology that makes high-speed modulators on the marketplace. I've updated this table and you can see it's quite a complex table. There's a lot of data here. I'm sure some of you will look at this afterwards and ask me questions. But I've really just highlighted a couple of things here. One is there are other technologies. There's barium titanate, some people call it BTO. There's thin film lithium niobate. Lithium niobate was the original incumbent that Fred here really innovated more than 25 years ago. There's indium phosphide and there's silicon. We've all heard of these different technologies.

But one of the things that's really exciting about our technology, not only has it got high performance, it's actually really small. Really small counts for a lot. When I go to the next, you can see here in this rating here, the relative size footprint. One is best. Whether you're putting polymers into plasmonic devices or you're putting polymers into the slots, it's a really tiny device, and that's what a lot of folks are looking for, for their integrated PIC chip or the photonic integrated circuit chip.

If I go to the next slide, I mean, there's some other really nice advantages here, but I'm not going to belabor this slide. You can see from the ticks on the right-hand side, we have a very nice position vis-à-vis competition. Tiny, this is just one word on this slide. This was a prototype 800G module that was made for Arista and it was a use of a thin-film lithium niobate modulated chip. I think I've shown this slide before. Some of you have seen this slide before.

The size of this chip, with just eight modulators is 9 millimeters by 15 millimeters. That's a huge space in a transceiver box. There's been other thin-film modulator chips, I've seen a lot bigger than this. But when you look at what we can do on this slide here, let's see if I get that in. This is eight of our modulators in one millimeters by nine millimeters. That means there's a lot of real estate left for other things for other electronics. You're not really taxing the designer of the transceiver with the space issue. It's over 10x more capacity than competition. This is just the one by nine, you can't really see a lot of detail there. But this is the first time we've shown a one by four PIC chip. This is four modulators on one chip.

You can see here, the signals come in here. Here's the four modulators, and this is the output. You can see a lot of the tracks and things. But the interesting thing is this is one millimeter by three millimeters. This is really tiny. We're showing you a PIC chip. This is a four channel polymer PIC layout. We've got Mach Zehnder Interferometers on this. We've got fiber arrays on east and west with Edge couplers. This is designed for very high frequency operation electronically as well. This gives everybody an idea. It's not just single modulated chips now. We're designing PIC chips photonic integrated circuit chips.

Partnering, this is a new slide I put together for this meeting. Competitive polymer positioning vis-à-vis on the vertical axis is silicon foundry compatibility. The horizontal axis is a figure of merit. The figure of merit is what the end users are really looking for is low voltage, low power consumption, high bandwidth, high speed and really small size. If you multiply all these things together, and I guess you have a figure of merit. Now the interesting thing is silicon foundry compatibility. Well, we know silicon modulators have really nice compatibility with foundries because they're silicon. That's easy.

We know silicon photonics and even the ring resonators have really high foundry compatibility. But when we start talking about lithium niobate and barium titanate, it's really difficult to have these technologies in the silicon foundry. There are folks working on it today, but this is not obvious. This is difficult to implement into big silicon foundries. Then you've got indium phosphide, which actually uses its own foundry, because they have the indium phosphide foundries. Some people are trying to get indium phosphide into silicon foundries, but it's difficult.

From our standpoint, it's mid-range, but in the low part of this. If you look where we are positioned electro-optic polymers, we have great silicon foundry compatibility. The figure of merit when you look at these metrics here allows us to perform really well, even though some of these technologies have great performances in certain areas. We've seen really high bandwidth in [Indiscernible] indium phosphide. But you've got to be able to couple that with very low voltage, low power consumption.

We've seen folks of barium titanate, that's a material that people say have really high RT3 (ph), okay? It's a [Indiscernible] effect. But that's not the only thing the end users are looking for. They're looking for all of these metrics, so that the modulators work really well in the system. When you multiply these together and you look at the figure of merit that positions our technology very nicely for scaling and ramping.

These are new pictures. You can see here different types of SCMs from foundries. I'm not going to get into a lot of details of the foundries. But I think the message here today is we're receiving devices back from foundries with great performance. These are new SCMs for a lot of you. I think I've got another one here that is really exciting from our standpoint. If you looked at our press releases late last year, we did an acquisition of a company called Chromosol. The core skills with a technology called atomic layer deposition really improved with that acquisition. We also got some IP and some patents.

What I'm showing here is an SCM of what ALD is. It's atomic layer deposition of a dielectric-based encapsulation. You can use this for chip scale packaging. What it does is it seals the polymer in. It's like it puts a container like a package over the material and protects the material from the elements of the atmosphere. A lot of people use ALD techniques. In fact, if you look at the OLED industry, the organic LEDs, they do exactly this to protect the polymers on the displays you look at every day. We've taken this technology. We worked it in terms of low-temperature performance.

This is an FIB analysis of what it looks like. You can see here there's 130-nanometer, is very clean. It's a lovely barrier, and we're doing some really nice work here. It's a clean, high-quality interface. This is some of the work we've done since we did the Chromosol acquisition, and this is really exciting.

Polymer stability, and this is not meant to be a technical [Indiscernible]. I don't expect everybody to be super technical PhDs in the audience. But one of the things the end users ask us is, what is the reliability and the stability of this material. We've hired [Indiscernible] here as Director of Reliability and he's putting together a first class reliability team to make sure we not only have two of these graphs, but a lot more of these graphs because this is what the end users want to see.

Now the top one just shows you thermal stability. There's 400 hours, but you can see here the change in V-Pi is minimal. This is at a stress at 85 degrees. This is a thermal stability test. You can see the results are looking really nice. Obviously, we're going to keep these in the oven and keep this going. In terms of photo stability, I just wanted to show there was a whole bunch of questions have you done more than 5,000 hours. This is running about 9,000 hours, with pretty good optical intensity of 1,550.

We're getting some really nice performance here over the long term. This is going to increase this year and it's going to increase next year, and everybody wants to see this type of data because this is exactly what happened in the OLED business about 10 years ago. They asked for data like this. Once they saw data like this and then everything ramped up. Reliability data set is being built for end-user valuation.

Let's talk about commercial strategy and activity. This is our business model. It hasn't changed since the last slide I gave you. It's this three pronged approach where you've got product sales, patent licensing and tech transfer. That hasn't changed. The technology that falls into this is the Chromophore and polymer matrix IP, Perkinamine series materials, devices and PIC architecture IP, fabrication and processing, high-speed package and assembly design IP. What that will bring is obviously the output, what everybody here wants to see, which is license and royalty fees, device and PIC, optical subassembly sales, technology transfer license, royalty fees and tech transfers, too. The goal here with this business model is to become a leader in the engineering and manufacturing of electro-optic partners.

With this, I think most folks have seen this slide before. These are the representative interactions for all levels of the value chain from optical component suppliers to high-speed optics manufacturers to optical networking equipment companies, to the Internet service providers, which really influence all these levels. There's many verticals here. But these companies are all sort of part of the optical network and they make the infrastructure for the Internet. These are the type of companies that will use our technology.

You can't do licensing without a strong patent portfolio. The patent portfolio is really based on materials. That's the Perkinamine series, the device, PIC fab and design, the optical subassembly package concept just like the atomic layer deposition that I showed you. Obviously, new patents that we want to acquire and file continuously. But what it really boils down to is we're developing a polymer-based technologies for licensing that really will engage with the Internet and optical networking and data centers. We're creating a strong moat and know how to carve leadership in the high-speed modulated game. We have a unique chemistry to create unique polymers that we can design and create and strengthen this patent portfolio.

But this portfolio enables this license and tech transfer for long-term revenue generation. You have to put this in place. It takes a long time to get patents and know-how. We have to be very aggressive in this. But it drives the licensing opportunities. Now a lot of folks have heard that we've been expanding. I think you've seen it in some of our documents. Before I go through the words, let's have a look at the pictures. Now the last picture I showed of our facility had the parking lot essentially empty. That's because when I took the photograph, I was in at 6 am in the morning, and nobody had arrived. I went at lunch time, and you can see the parking lot is full. I know there's some people go up to companies and they count the number of cars in the parking lot. Our parking lot is full.

This is the front of the facility. This corner here, if you go off in that direction, and that's the frontend and you see the side. You can see the front actually adjoins the back. The back is the place that we're actually moving into, expanding into. Actually adjoins, we're actually going to knock a hole in the wall and just walk through. It's all part of the end of one building and this is the back. If you go to the end there, and here and you look down, we go basically about halfway down here. You can see some of the pods here. The folks in there are actually moving out at the end of May. They're already getting ready to do that.

It's going to take us about a couple of months to refit it a little bit, but it's pretty much set up. Probably round about July, August, we'll be moving in. Some of the things that we're going to be doing, now remember, this is about 10,000 square feet and this is adjoining. We're going to be a single unit, which is really exciting. It's about a 72% increase in the current space. But this is what is going to be useful. Production device test and evaluation, production reliability, laser characterization, SCM analysis and a big area of expansion of our chemical synthesis production line. That's really super exciting. Obviously, there's going to be some offices and meeting space for the new staff.

But look what's happened in the last six, seven months, maybe it's eight months. We have had 11 recent hires. This is exciting times for us. We're really building the team to create a world-class team to service our technology to the end users. We see that we have the team and the production facilities to make this technology and I'll use this word like I did last year, ubiquitous. That's really one of the key reasons why we're really excited here.

Growth funnel. A lot of these companies that get into business usually show some type of funnel. This is our type of funnel, how we look at the marketplace. We have value proposition prospects. What's the value proposition, expand awareness and value proposition of our modulator technology. Well, I've been doing this since 2017. We have a lot of talks, both technical talks as well as the banking type talks.

Prospecting, talking to potential customers and technology. We've done a lot of this in the early days of the technical conferences. Then screening some of the friendlies, some of these technology partners and customers to form a lead list and then selecting your friendly ones, the ones you really want to work with to work with the technology, the customers who see our technology is enabling their business to be more competitive. Then lastly, that turns into full-blown customers with technology licensing and optimizing for scaling.

We are undertaking multilevel and cross-functional engagements with the goal of establishing revenue-generating clients. I mean this is what the funnel is all about. A lot of companies show this type of graphic. This for us is commercial planning.

Then this slide here, I sort of expanded the top to show you the type of representative actives that you need to talk to for the value proposition. Then you've got your prospects. There's a little bit of information here. I'm sure most people in the audience won't be happy until I go into more detail. But for right now, this is the guidance we're giving. But this just shows you this funnel is working. It's in action. This is part of our commercial activity that we see developing well in 2023.

One of the things that I didn't really call out. There's key pull drivers from the hyperscalers. These are the data center guys, artificial intelligence, quantum computing is now becoming quite topical too, but it's still in its early stages. Then there's the key push drivers, the folks who are doing the silicon photonics platform providers, the fabs and the foundries. This pull and push is something that we're really taking a very close look at as we build our commercial business.

This slide here is a slide we're proud about because this is really part of the press release this morning, a license agreement template for our first commercial license. We're excited to talk about this today. Thank you. I don't think I'll be able to answer all the questions you have on this, but I'll do my best. But what we have done is given what this is—what does this consist of, and why is this important to us? This is our first commercial market acceptance. That's really what it means.

I know you may have a lot of questions about what's the royalty and what's the revenue coming in. I'm sure we are going to get these questions. But really, what this means is the market has accepted our technology. For us, it's huge. It's really huge. We're supplying the material. There's a license initiation fee, there are royalties per unit. There's some minimums as you go up in years and there's some minimum sales volumes. I haven't gone into any of the details, but certainly, we've been talking to a number of folks and gone across the finish line, and that's what the PR was this morning.

In doing some of this activity, you've got to put a data sheet together. This is just one representative data sheet of the Perkinamine Series 2 material. There's other data sheets, but I just wanted to put one up for representation. Now I don't expect anybody to read the words at the back of the room or even at the front of the room. But the reason I put this up is that this is a commercial data sheet. This is what you send out to customers when you want to talk to them about the materials.

There's high activity, high stability chromophores now in what we call limited availability. Some of the specs are shown in this table. I'm not going to go through the details, but I'm sure you will a little bit later.

Going to the next one is, what's the commercial plan that's behind this data sheet. You can see here, Perkinamine is the 2 series, the 3 Series, the 5 series, and then our team is working on the 6 series and that's not ready yet. It's still in development. But in terms of licensing, these are the materials we expect to see licensing both this year and next year. For us, this is really exciting. We want to increase the commercial acceptance of our technology. When you think about what happened to the OLED business and the folks that did OLED displays, they also wanted commercial acceptance. When I worked on the technologies in the '90s, Blue and green and they last a couple of hours. I gave up on it and I went off into semiconductors. But the folks in that area worked really hard and they sorted all the problems out. Now we're using, we don't even think about it. That's our material roadmap.

Third-party verification is always really important when you go talk to the end users because they ask you as a Company what the performance is, but they also want to see if other people can use our materials and also get good performance. This is a bit of a word show. I don't expect anybody to read any of this stuff because it's super technical. But the point is, I mean, there's the references at the bottom if you want to go look up the papers. But these are a bunch of companies. There's SilOriX, there's Polariton, there's KIT. There's a couple of others here, the ETH Zurich, which is a university, but they've combined and used our material and produced world class results, had world record results. That's something we should be proud of.

Our EO polymer used in different device designs, in silicon slots, in plasmonic slots, in plasmonic ring resonators, all have produced world class results that have been shown at industry conferences, the OFC, the ECOC conference. This is pretty exciting. This is really good third party review. Some of the market reactions we hear at some of these conferences as well as talking into some of the end users, I don't know if I want to go through every one of these. But certainly we fill the industry gap. We reduce the power consumption. These folks here, we want to get on the list for a prototype. We want to run live traffic. Folks just come up to me and ask these things now.

This is not pushing our technology like I was trying to do in 2017. These are folks who are realizing we have something that's really exciting in what I got here. Our investment, look at this one here. At our foundry we are worried about the investment into thin-film lithium niobate. That's one of our competitors. It may only be for one generation, with polymers our investment will be worthwhile and better ROI. This is one foundry feedback. They see our technology growing further in terms of generations towards the end of the decade. That's really exciting for these types of folks. They like the fact that you can put on our polymers quite easily.

Hybrid PICs is a term that we've coined to show you can put polymers with silicon photonics to get the best performance. Using foundries make really good business sense. We hear that a lot. We do see the request for more reliability. We're not going to be secret about this. I call it a reliability data set, and that's what we're working on right now. Folks want to see more reliability results and we're doing that.

Then there's other opportunities like LiDAR and sensing too. But the feedback has been strong and constructive and that's exciting.

In terms of Investor relations, we work with the MZ Group. This is the data for the last 12 months. We can see that last 12 months, since I had the last year's Annual Shareholder Meeting. We've had 10 Investor conferences, both in person and virtual, 26 press releases. I don't think it includes the one this morning, plus 146% 30 day average volume. I know the volume today has been really nice. It's probably over 3 million now. Eighty-one buy-side and sell-side meetings. We've been engaged a lot with the financial community.

Look at this point, plus 154% increase in institutional ownership. That's really good. That's really exciting. That's just showing you we'll be coming on the radar, not just of the tech companies, but of the financial industry. I think most people know we've been added to the Russell 2000. There's been an extremely active cadence of meetings with institutional Investors, research analysts, et cetera. That's been pretty exciting.

Then in terms of public relations for the last 12 months, this is the data that MZ Group have put together, 60 unique media opportunities. They believe we've reached an audience of over 80 million. That can expand to a much higher number, depending on how you want to look at it. But that means we're reaching a lot of people. Then some of the things that we've done in terms of exposing ourselves, Bloomberg Radio, TradeTalks, Laser Focus World or some of you folks reminded me yesterday, that my children call me Dr. Doctor and I checked with my son yesterday and he said, yes, that's not going to change. That article came out last week, and it put the Company in really good light.

These things are happening on a regular basis. I think there's going to be a few more coming up soon after the announcement this morning. That's great for us. We're getting some really good presence both in the industry and the financial side of things for a small cap company.

To summarize. This slide shows you a bunch of boxes. But what do the boxes really represent. We have great material science. We have great technology. We're using that for designing state-of-the-art polymer photonic integrated circuit designs. We've got high speed design and packaging. We've got a powerful patent portfolio. We're entering some really exciting markets, selling components, licensing materials, partnering with foundries and other players like transceiver companies. We're now developing material and device data sheets.

We have a world class Board, Technical Advisory Board as well as a team we're working with very closely, the MZ Group that we feel has done a really nice job on the IR and the PR side of things. What are the takeaways from the presentation? Our technology is competitively superior and unique. We continue to increase our commercial progress, and I guess today is the first public viewing of that. With our partners, we are positioned to scale polymers for optical networking. We believe now we have the team, resources and plans in place to really make polymers ubiquitous.

I'll finish with one slide, and this is the one slide that's probably going to generate a lot of Q&A. It's the press release that came out this morning. Unfortunately, we didn't have time to get it ready for everybody to come in this morning. But I just want to focus on one thing. I mean, okay, the title is Lightwave Logic begins Commercialization of its EO Polymer Materials.

But this thing here, this comment I made here, this material supply license agreement for our Perkinamine chromophore recognizes market acceptance and competitive advantage of our technology and validates the first prong of our business model. It's that validation, the acceptance in the marketplace that really is making myself and the team, which I think has done an incredible job to bring us to this point. It's not all my work. The team has done a great job of bringing the technology to a commercial data point, and that's all summed up in this press release as of this morning.

I think that's it. Thank you.

Officially, do you want to–?

James Marcelli

Yes, we can now begin our question-and-answer session. I would ask everyone to limit their question to one per person, so we can make sure we get everyone. But yes, we're ready to get started. Any questions?

Michael Lebby

[Indiscernible] ask one.

Question-and-Answer Session

Q - Unidentified Company Representative

I'll go first. Dr. Doctor, the slide talking about serviceable obtainable market share, it said by 2030 and then 2035 is where mass commercialization would most likely be taking place? Is that the proper way to interpret that slide from a timing perspective?

Michael Lebby

No. That is a market slide that we did not produce. It's not a slide—that data is produced by Lightcounting. It's what Lightcounting sees as the market. Basically, what this slide says, this company, Lightcounting, they do the market analysis of this market. They talk to all the usual suspects, the data center companies, the transceiver companies. What they're forecasting is by 2030, the serviceable available market is going to be about 10 million units of these transceivers. What they're really saying is that when they count it all up, it's going to be about 110 million units. That's a huge number of transceivers.

Now this is 2035, right? That's a big one. I really didn't want to focus on 2035 because that's a long way out. When these market research companies look out 10 years there's probably a little bit of an error here. But the point is their forecast for 2030, which is about here, is probably much more reasonable and much more accurate. When I look at this graph, the 10 million units is probably a pretty good forecast of what the market needs in terms of the transceivers. This is the market we know we can get into with our polymers.

Unidentified Company Representative

Can you go one more slide over, more to my question, 2030?

Michael Lebby

Yes.

Unidentified Company Representative

That one we really forecast is going to be seven years before the numbers…?

Michael Lebby

Now that just shows you the size of the market in 2030. This is here to shows you how they see this market building. They see in 2025, there's going to be about, was it about 80,000. That's going to be about 80,000. Here it's going to be about 3 million. If we can get all of the 80,000, then we've attained our obtainable market. We may get more than 80,000 and then we'll be going into this market. That just gives you—this is our view of what we think is obtainable given our resources. That could change. As we scale up and we get more confident in volume scaling, it's going to move more towards this chart.

Yes, there's another question?

Unidentified Company Representative

In relation to the same data slide that you're talking to, in terms of 2025 with 80,000 units, if we got them all, that would be great. But are we talking Lightweight Logic devices inside of those units? How many modulators would be—you're saying you have 120 modulators in one transceiver potentially. Obviously, that's not for the first ones. You know what I'm saying so, can you give us some indication …

Michael Lebby

This will be the PIC chip. It will be a chip. The chip may have a number of modulators on it.

Unidentified Company Representative

Can we get some kind of estimation as to when, say, for example, in volume terms, we could reach a breakeven and not need outside financing?

Michael Lebby

We haven't given any guidance on breakeven at this point. But certainly, Jim and I are looking at internally. Yes, we haven't got to the point of being public about those types of metrics. I think the focus right now is to make sure we get market acceptance for our technology. But that's something we have a handle on internally.

Unidentified Company Representative

Thank you, and great job, Lightwave. Talking about that 80,000, and I know you’ve got to be careful with this one. How much revenue—if somebody had 80,000, what is the revenue on that? What is the value that Lightwave Logic could get out of that? I don't have a sense of, is this a $25,000 chip, 80,000 represents $25,000 and I know our margins are really fantastic. But can you give us a sense of that?

Michael Lebby

Yes. In terms of the model that we put together internally, transceivers are like any other technical product. When they first come out, they're really, really expensive and they have a learning curve in terms of price reduction each year as they increase in volume. Our model follows just the normal metrics on that. We certainly haven't put in what the transceivers, the average selling price, and we haven't put in what we think the chips are in terms of the bill of materials at this time. But we have internal numbers that we have on that, but we just have to make those public yet.

But in terms of trying to really address your question, we see this as being super attractive, and we're continually working with the end users to get better clarity on those numbers because these are brand-new markets. If you look backwards, you'll see some certain trends. We have a pretty good idea of what those learning curves would be, how the price reductions would be and what our profitability would be, but we haven't come public with that yet.

Another question, okay.

Unidentified Company Representative

I'm curious about analyst coverage. It doesn't seem to me that you're going to get any analyst coverage until you can discuss those types of numbers?

Michael Lebby

We've been talking to a number of analysts, research analysts. I think as of right now, I don't believe anybody's covered us. I'm not the type of person that goes and talks to analysts and demands coverage. They will cover us when they feel they have enough information. Even this morning, a number of analysts were sending emails to me for more information. We're being watched and we're being monitored very closely. I can't predict when it will happen. But it was just like in 2017, I stood up here and somebody said, so when are we going to go to the NASDAQ?

I said—if I remember correctly, I said, we want to go organically when we're ready. We don't want to do a reverse split or anything like that. It took us about 3.5, 4 years to do that. We will get research analyst coverage. I just can't tell you exactly when. But what I can say is that there's at least a half dozen people watching us really closely that I'm personally interacting with. It may happen. But the focus for us is commercial progress. As long as we're making good commercial progress, the coverage will happen. But I believe, as of today, I don't believe there's any.

Unidentified Company Representative

All right. Just two questions. Now there's been a growing volume of shorts against the Company. It's ranging between 20 million and 21 million shares that we know of. Is there any investigation into illegal naked (ph) short selling activities?

Michael Lebby

We are aware of that situation. Internally, we’ve certainly been reviewing that with counsel, but that’s really all we can say at this point.

Unidentified Company Representative

Can you tell us how many foundries you’re currently working with? At the end of last year, you said you were working with five. You had anticipated two more. If you dropped some, why have you dropped some? The scaling issue, can you address scaling, are you satisfied with the current scaling?

Michael Lebby

We haven’t given any guidance, at least right now, on the number of foundries we did last year. We have much tighter relationships. In terms of scaling, we are much more comfortable this year with scaling than we were last year. I'll be honest with you, working with foundries is, yes, they love using the technology, and it's not difficult for them to utilize our designs because we are compatible with silicon processing. But they're doing the fabrication and not us. It takes time to make sure that they're following the recipes correctly. But what I can say is that the chips we're getting back from the foundries are performing really well. We've been very happy with that progress.

I will also say that some foundries are better than others, and you would expect that anyway. Not all foundries are the same. Not all foundries have the same type of teams and take the same approach. There is some variability. But we've had a very successful year working with the foundries. But I'm not going to go into the number of foundries like last year, because I think it's much more important now as we're much closer to commercialization. We have to be a little bit more sensitive there. But if I can, I will give some public guidance when it's appropriate. Yes?

Unidentified Company Representative

Is there a pulling issue that you are still addressing, hurdles?

Michael Lebby

We don't believe there's a pulling issue. I know there's a lot of discussion about pulling by Investors and folks in the community, but we don't see it as an issue.

Unidentified Company Representative

Can you give us any idea as to when you might be able to reveal to us names of licensees?

Michael Lebby

No, I don't think I can answer that question. I would like to, but I don't think I can right now. Let's think about this. This is our first material supply license. The impact of this is commercial market acceptance. That's really the impact. We have to look at what's really important with the press release this morning. We made some commercial traction. The market accepts what we have. I think at some point, we may be able to give some guidance, but it won't be—it's not now.

Unidentified Company Representative

One of the things that the long-term Shareholders, we look at every word. Jim Marcelli, when he stood up there one time and said, when this thing starts rolling, it's really going to roll. I think we all have that inscripted somewhere in our… Now we have our first commercialization announcement. Is that rolling ball, do you anticipate that sometime in the near future that you're going to have even another one here pretty soon? Or is this a gap and you wait and then something else comes?

Michael Lebby

I can't really give you any details there. But what I can say is that this year I've been focusing on commercial activities. If you think about the business prong, license is one of those prongs, tech transfer is another one. The third one is products. We're looking at all three of those. But I can't give you any details of when all three are going to hit, whether it's going to be simultaneous or one is going to be more advanced than the other. What I can say is that we got first commercial material supply agreement and we published that today on the licensing side of things.

But what that has really done is that's shown—it's going to show a lot of people that at least there is really good market acceptance of our technology. It's not just an R&D electro-optic polymer material. This is something that somebody has taken very, very seriously. That will expand, but I can't give you any detailed predictions on that, other than the fact that my job is to really focus on expanding that business side of it.

Unidentified Company Representative

First, Dr. Lebby, thank you very much for all the work that you and the team have brought to us as Shareholders. Very much appreciate it. My question is pivot, it was very exciting for me. In the past, you made the connection a lot closer to video demand. Then when you started reflecting more on artificial intelligence, and the demand that is increasing, doubling every two to four months and make sure I heard that right. Do you see us being connected more in the future in that very hot sector with artificial intelligence?

My second one is following up, we didn't talk any about today, and I understand this, about the connections with supercomputing and Perkinamine 5. I just wonder if you'd reflect on our connections with some of those sectors going forward.

Michael Lebby

I think the way I've answered this question before in terms of artificial intelligence is we're not directly connected, we're indirectly connected. Our technology is not going to affect the processing computational power of micro processors or GPUs, because they're all electronics and are all transistors. What it is going to do is because those chips are going to be bigger and they're going to generate more computational processing actions, if you like, that's going to generate more traffic. The more traffic means that the data that goes through the fiber optics is going to fill up.

Instead of having six freeway lanes full, you're going to have 10 freeway lanes full. We see the effect of artificial intelligence indirectly really benefiting us because the traffic is going to increase. The traffic that’s going to go in and out of the data centers is going to increase because of artificial intelligence. Yes, our technology is not going to go into a microprocessor IC. But it's going to go in front of the laser that sends the light down the fiber optic. If there's more traffic needs to be driven, yes, we're going to get that benefit.

I also see that a little bit in supercomputing, but I think the big one is to watch how artificial intelligence really takes off. As we all know, there's positives and negatives about that and even the government is talking about it. But the interesting thing from our standpoint is people are going crazy. This is really exciting. Everybody is logging in and trying to generate paragraphs or letters, a quota the size by using keywords.

We haven't really explored that effect yet. It's only really started, but what we do know is that the Microsofts of this world and the Googles and the Amazons are investing billions of dollars to upgrade their data centers and their networks to support it. That's great for us.

Unidentified Company Representative

One other question on the presentation. You didn't really cover anything as far as the goals and—previous goals and forward goals for next year. One thing that comes to mind is the tech transfer agreement. Can you tell us what is left to finalize the PDK and get a tech transfer agreement? You had spoken about joint PRs at some point. Can you give us some indication as to where we stand and what might be needed still in order to get the finalization of a PDK and what goals we might have for next year?

Michael Lebby

Last year and the year before, I gave yearly goals. I think that's okay if you're pre-commercial. But what we gave here is we gave more of a licensing roadmap. That's more what you would expect from a commercial company. Doing yearly goals, I think, should step aside to real commercial goals. I think that's what we really should be looking forward to do. We've made really good progress with our PDKs. We haven't given too much in terms of detailed guidance, but we're very happy with our relationship with the foundries. That's progressing very well.

We will give more information as we feel comfortable with that, but that's progressing. Like I gave an earlier answer, I'm not going to get into too much detail. But you're right in that observation, and it's something we are aware of. Yes?

Unidentified Company Representative

Do you anticipate end user validation, public validation in "the near term?" You've announced the partnership here, but it seems to me that the market might be looking for one of the large end user clients to validate the technology.

Michael Lebby

That's a question on it depends. Some of the end users are looking to get ahead of their competition. It just depends on who you're working with. That may happen, and it may not happen. If the end user wants to do that, we'll be there giving guidance with the end user. We’re open to whatever situation is required. If you look at that competition slide with some other modulated technologies, there’s other solutions there.

Some folks looking at this are going, well, if we can develop this quietly and get ahead of our competition, that's huge for us. I can't give you a categorical yes or no answer, but it definitely depends.

Unidentified Company Representative

Number two here. I hate to show my ignorance here, but when a data center wants to do the forklift overhaul, it doesn't make sense for them to just change out 10% of the modulators or transceivers. You have to do the whole thing. Isn't that correct? It's like a weakest link in the chain. Your first order has to be millions, not hundreds.

Michael Lebby

That could very well be the case.

Unidentified Company Representative

Thank you.

James Marcelli

For any Shareholders who have already asked questions, Management will be around to take them afterwards. But if anyone who has not asked a question, who would like to.

Unidentified Company Representative

Did I see an aluminum electrode on that modulator?

Michael Lebby

You did. You spotted that very well.

Unidentified Company Representative

That's good. Gold was an issue, right?

Michael Lebby

We use both gold and aluminum, but as you're aware, when you work with different foundries, you have to become competent with not just one metal. But yes, well spotted.

Happy to take questions afterwards. Maybe we should have a quick break, so I can get a drink.

James Marcelli

There are no further questions at this time. This concludes question-and-answer session. Thank you for joining.

Michael Lebby

Thank you.

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Lightwave Logic, Inc. (LWLG) CEO Hosts Annual Shareholder Meeting (Transcript)