Lightwave Logic Inc (LWLG)

[Paullee]

Tom Zelibor Interviewed by The Wall Street Transcript

September 14, 2015


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L I G H T W A V E L O G I C , I N C .

THOMAS E. ZELIBOR, retired Rear Admiral, U.S. Navy, is Chairman of the board and Chief Executive Officer of Lightwave Logic, Inc. Mr. Zelibor has served as a director of Lightwave Logic since July 2008 and became Chairman in October 2011. He has over 20 years of strategic planning and senior leadership experience, and is currently the President and CEO of Zelibor & Associates, LLC, which offers professional consulting services to his clients. Previously, from July 2008 until April 2011, Mr. Zelibor served as the President and Chief Executive Officer of Flatirons Solutions Corp., a professional services firm that provides consulting, systems integration, systems and software engineering, and program management expertise to corporate and government clients. Previously, Mr. Zelibor served in a number of senior corporate and military positions, including Vice President for Strategic Operations-Strategies, Simulations and Training Business Unit at Science Applications International Corporation (NYSE:SAIC); Director of Global Operations, United States Strategic Command; Director, Space, Information Warfare, Command and Control on the Navy staff; Department of the Navy, Deputy Chief Information Officer, Navy; Commander, Carrier Group Three; and Commander, Naval Space Command. Mr. Zelibor received his bachelor’s degree from the United States Naval Academy in oceanography.

TWST: Give us a bit of a history of Lightwave Logic.

Mr. Zelibor: The company was founded in the late 1990s. During that time frame, we were continuing the research of our original Founder, Dr. Frederick Goetz, who was widely recognized as an expert in organic polymer chemistry. Since that time, the company has gone through several name changes and other changes, but we became a public entity known as Lightwave Logic in 2004. That’s really where the company transitioned and began moving forward with the technology we are now developing.

TWST: Was the original technology derived from research by Dr. Goetz?

Mr. Zelibor: I would say that Dr. Goetz started the original chemical structures, synthetic chemistry structures. We have moved a long way forward since the original research, but that is where it started.

TWST: What is Perkinamine, and why is it so important?

Mr. Zelibor: The original organic chemistry that Dr. Goetz was working on was our basic stepping stone to Lightwave’s current portfolio of organic polymers. I think it’s important to note that during this time, in the early 2000s, there were a lot of large Fortune 100- type companies that had very similar development efforts; however, they were starting from the scientific standpoint to make very electro-optically active molecules thermally stable. Dr. Goetz took a 180-degree approach. He took some molecules that he created that were very thermally stable and attempted to make them electro-optically active, a reverse approach from several of these Fortune 500 companies.

That represented a breakthrough in our technology, and it resulted in what was referred to by Dr. Goetz as the Perkinamine family of chromophores. Perkinamine is now really nothing more than a trademark name for all of our electro-optic materials, and it has roots in research by Sir William Henry Perkin from the early 1800s. Perkin performed experiments in a crude laboratory in his apartment on the top floor of his home in East London. There, he made an accidental discovery: that aniline could be partly transformed into a crude mixture, which when extracted with alcohol produced a substance with an intense purple color.

He attempted to commercialize that as a dye, which is appropriate and applicable to what Lightwave Logic is now doing. We have many different versions of materials that are applicable to different markets. So Perkinamine is, like I said, nothing more than the trademark name to group all of our electro-optic materials together.

TWST: So what are the basic products you are developing, and what are their applications?

Mr. Zelibor: We don’t have a product line yet. We are still making prototypes. But in the most basic terms, what we are doing is converting binary, electrical and digital information that is stored on computers into pulses of light that go over fiber-optic cables. The world is loaded with all kinds of information, and the most pressing transmission needs are really in the telecom and datacom markets. The thing that is important is that our materials are agnostic to any type of platform, so they can be a part of a chip, a modulator, wave guides, transceivers — it really doesn’t matter.

We view Lightwave’s material as the driver or the engine for those types of platforms. We are the active material. Currently, inorganic materials that are in the market — like indium phosphide, gallium arsenide, lithium niobate — that dominate most of the current device solutions are inorganic crystalline materials. They work well, but there are inherent limitations to those crystalline structures, and they are expensive. This means that when a company tries to design an inorganic-based device to operate at 100 gigabits per second, for example, they need to take multiple devices and gang them together.

Let’s say they have a 10-gigabit modulator, and they want to create a 100-gigabit-per-second device; they have to take 10 of those 10-gigabit modulators and get them to operate in unison. There are 25-gigabit modulators in the market, so you can also use four 25s, but that process is very expensive, and it uses a large amount of power. Lightwave’s devices have the potential to achieve 100 gigabits per second with only one device, so you have less devices, less power, and you can do that cheaper.

As far as applications, the average data center today requires probably in the neighborhood of about 50 megawatts of power, and that’s enough to run a small city, and that’s just one data center. Data centers are transitioning to mega data centers now too, which means even more data and power. Using polymers with our materials as the active component of devices have the potential to not only shrink the footprint of data centers but also to improve the data flow by orders of magnitude while using a fraction of the power. So you can see why there’s quite a bit of excitement about what we are trying to accomplish.

Another advantage of polymer materials is that they have the potential to be scalable, and I’m talking both in volume and cost. That’s needed for high-volume data center opportunities. Because our materials are applied as a thin film coating, it allows us to create much smaller photonic structures with faster operating speeds at a reduced cost.

The last point is that we have developed materials that are capable of all-optical solutions. What that means is, there would be no need for external electronic components. The materials can actually be excited or be electro-optically activated by use of other light waves, not electrical impulses. We refer to those applications as all-optical versus electro-optical that require an electronics package onboard.

This opens up entirely new markets, such as high-speed, all-optical computing as well as things like image-recognition applications. The keyword to remember is photonics integration, or PIC, which stands for photonic integrated circuit. What this does is use the polymer electro-optic technology to enable photonic integration, which is where the data center and telecom industries are heading.

TWST: So it sounds like the trends toward more data, wanting faster data and smaller footprint all seem to provide a market for your technology. Is that accurate?

Mr. Zelibor: Yes, absolutely. When you look at the potential markets, there are definite areas where we have an advantage. And we haven’t even covered other areas like bio-sensing and solar energy — photovoltaic. The polymers have a wide range of opportunities in the market.

Another advantage is that polymers can offer a continuous pathway to improvements because of the open structure of organic molecules. You can always make it better. By contrast, crystalline inorganic compounds cannot be altered. So organic polymers represent not only an immediate improvement but also a continuous pathway to our future improvements that can keep up with future industry demands. Our synthetic chemists are always looking at ways to improve these molecules to increase the electro-optic activity and ways to improve things like solubility that can make the difference between a good chemical structure and a great one.

Our ability to modify our molecules also means that it allows us to design molecules or materials for different applications. Not all applications have the same specifications. Some require absorption of light in one frequency band; others require absorption in another frequency band. You can see this gives us tremendous flexibility, and that’s what’s really exciting about it.

TWST: With so many market opportunities, where are you focusing your efforts?

Mr. Zelibor: I have been involved with the company since 2008, but I took over as CEO in 2012, and when I took over, that was one of the biggest problems. When you have so many opportunities like this, and you get a bunch of really smart scientists and engineers looking at it, the sky is the limit. You can throw a handful of darts at the wall and see which one sticks, but we didn’t want to do that. One of the things we did was to start eliminating all the third-party academic partnerships that the company had been relying on. The plan was to take everything back in-house.

The other thing we did was to try to fine-tune and focus our operations. Without question, I see the data center market as our biggest opportunity since it’s worth multibillions of dollars, and there is huge pent-up demand for improved solutions. Data centers are reaching what I’d call a physical wall, and you won’t hear anything different from many other CEOs trying to solve these problems.

Data centers are reaching their throughput limits and are going to be hard-pressed to provide the speed, the data throughput created by the surge in customer demand fueled by mobile devices, streaming video and other high-bandwidth demands. It is not really enough just to be able to do this. It is equally important to be able to do it at an affordable price. The company that solves these problems while achieving the price point of one dollar per gigabit versus tens or hundreds of dollars per gigabit is going to dominate that market, and that’s our goal.

TWST: What is the timetable for monetizing the technology?

Mr. Zelibor: We are very comfortable where we are with our electro-optical material candidates. We are looking toward completing a proof of principle on this group of material candidates over the next several months. After that, we expect to implement them in our first-generation electro-optic polymer prototypes, which we are targeting in the first half of 2016. Ultimately, we hope to start sampling customers in the second half of 2016.

The goal that we have set for ourselves is to demonstrate modulators that have the potential to reach speeds of greater than 100 gigabits per second. We are already looking at and designing

“Our ability to modify our molecules also means that it allows us to design molecules or materials for different applications. Not all applications have the same specifications. Some require absorption of light in one frequency band; others require absorption in another frequency band.”

C O M P A N Y I N T E R V I E W — L I G H T W A V E L O G I C , I N C .

for the 400-gigabit-per-second market segment. Looking broadly at the future of the market, we see the demand for all these solutions to start accelerating in 2017 and 2018. You can tell by that statement, even though, right now, there are currently 10-gigabit-per-second, 40-gigabit-per-second and 100-gigabit-per-second solutions in the market, we know that the 200- and 400-gigabit-per-second market is really coming on strong.

In addition, I think it’s important to note — and this is something we constantly tell our shareholders when they speak with us — is that we have been in a lot of initial discussions with some very large tier-1 optical electronics companies who are interested in exploring joint development agreements once we get our proof of principle devices characterized. If we can get these things characterized by the first half of 2016, I think we are going to start generating very large company interest, which could take various forms.

TWST: What is the process you have to go through to get characterized? What are the milestones along the way?

Mr. Zelibor: The first one is making sure the material development conforms to the device that we are trying to create. We have two kinds right now, where one is a telecom modulator. The other is a silicon photonics slot waveguide modulator for the data center market. We are very comfortable with our initial set of materials, so now the effort is to focus more on process and engineering efforts.

We regularly ask ourselves, “How do we process these materials in a way that is repeatable and scalable for a commercial market?” Over the next six months, that’s exactly what we are doing. We have a disciplined approach on how we are going to make a telecom modulator, design a mask set that has to be utilized and how to actually process the silicon wafers. I could go into gross detail, but the point is, it’s very process-oriented right now, before you start worrying about items like the end product packaging.

TWST: How are you funding the company at this point?

Mr. Zelibor: One of the things that I’m most proud of is the fact that we have an incredibly loyal shareholder base. The company has been funded since the late 1990s by these loyal shareholders. We have investors who have been with this company and have been supporting it financially for over 10 years. As management in the company, we have to make sure that we continue to make progress so that we don’t get investor weariness. We have funded this through private placement offerings for years and years.

In addition, several years ago, we got involved with a institutional firm called Lincoln Park Capital based in Chicago, where we have a $20 million equity line that is supported by them. We know that in order for us to move to the next level of development for the company, we will need institutional investment to avoid continuous capital-raising efforts. This, as you would expect, is a big distraction for management. The key to getting out to the institutional people and getting a significant injection of cash for us is to be able to successfully characterize our devices. The market opportunity is so enormous and the demand is so strong, we believe that once we have that, it’s going to be, I think, relatively easy to get institutions excited when they can actually see a working prototype.

That also brings me back to the strategic investors that want to do joint development. Once we characterize a device that’s repeatable, lowers operating costs and can start to achieve the price point they know that the market is demanding, it would be hard to imagine they would not want to jump in there and start supporting the company financially until the products are developed commercially and begin generating revenue.

TWST: Tell us about your background. How did you come to Lightwave?

Mr. Zelibor: First of all, I’m not a photonics guy; that’s not why they brought me here. I spent 30 years in the Navy as a naval aviator, but in the latter half of my career in the military, I knew I had to grow up and do something else for a living in the military when my flying days were numbered. I got involved with a lot of high-tech aspects of the military. I became in charge of the entire IT budget for the Navy.

In doing that, I was involved in looking at how you get larger amounts of data and information to the leading edge of the battlefield since, the last time I looked, fiber-optic cable wasn’t hanging off the fantail of a ship. I also became very active in the space segment and how you get large amounts of information to your end users via space. That resulted in me becoming the CIO of the Navy. I found it really interesting and exciting to be able to push the envelope and think outside the box on how to do things differently than the way they have been done before.

After I retired, I spent a short time at SAIC, which is a large government contractor, and then ended up being recruited to come to Colorado to take over a high-tech company that was in the aerospace system engineering as well as a content management business. At that point, Lightwave approached me about being on their board of directors because they were interested in potential military markets for Lightwave’s materials, plus some of my leadership traits they felt were important. I did that, and after four years on the board, the previous CEO, Jim Marcelli, was moved to President and COO because of his strengths on the technical and financial side of the company, and I was asked to become the CEO.

TWST: Is the military market, or the government market, another potential market for the products?

Mr. Zelibor: Absolutely. There are many applications that can be geared to the space segment. I mentioned high-speed image processing that the intel community would obviously be interested in. Space imaging, image recognition, high-speed computing, high-speed/high-demand communications, those are all applicable to the space segment and to our potential products. As you know, space is heavily dependent on the defense industry, but it is slowly becoming more commercialized through private industry projects too. For example, we are seeing more and more

“One of the things that I’m most proud of is the fact that we have an incredibly loyal shareholder base. The company has been funded since the late 1990s by these loyal shareholders. We have investors who have been with this company and have been supporting it financially for over 10 years.”

pressure being put on traditional large government contractors and others by smaller private commercial companies.

Our goal is to supply a technology with the right performance and specifications needed for space and other defense applications. That requires high reliability, high stability and long lifetimes. We are carrying out those tests today. The key thing in the space segment is that it requires materials that can withstand the rigors of the space environment. We just published our first 2,000-hour reliability-study results on our polymer materials, and we have achieved over 2,000 hours at 110 degrees centigrade with no change in their characteristics or electro-optic activity. We are pretty confident that we can address the space segment and other DOD requirements once our devices are characterized.

TWST: What are the most important takeaways about Lightwave for investors and potential investors?

Mr. Zelibor: First and foremost, we have to characterize our devices and get a prototype device in the hands of the potential customers. Our focus is on that for the next year. Second, Lightwave is using advanced polymers with our chemical structures, which we refer to as a material system, to enable high-performance electro-optic modulators. Third, we are using polymers to enable photonics integration, which is a hot button in the industry right now. Fourth, we intend to introduce polymers as the vehicle to enable the scalability the market is demanding, and that’s both in volume and cost, while achieving high-speed performance, and the reliability, quality-assurance metrics that are needed for datacom and telecom markets. The last thing would be that Lightwave is positioning itself to be critical to the success of major data center companies in the field of photonics, photonic components, photonics integration and photonic-integrated circuits over the next 10 years or so.

From an investment perspective, what we’ve shown over the last year is that we have been hitting all our development milestones; therefore, the risk premium is really declining rapidly. Even though we’re still a development-stage company, the odds of our products proving out have gone up dramatically. I don’t think the market is rewarding us for that right now. The highways are littered with people that have tried this before and have not done well. We have an enormous lead because while others abandoned the effort, we have kept at it for over 10 years. And we continue to make progress.

It may seem to some like this has taken a long time, but I think if you go back and look at how long development takes in technologies that are extremely difficult and rewarding at the same time, it takes more than just a few years to be successful. We are tracking along, and I look for the next year to be pretty exciting for us because we are finally to the point where we can put our materials into prototypes and get samples out to industry. This is going to be a major milestone for the company.

TWST: Thank you. (LMR)


An electronic copy of this interview is posted on the company's website at the following URL:

http://lightwavelogic.com/company-updates/