Lightwave Logic Inc (LWLG)

[tedpeele]

The outrageous $2.6m in cash bonuses to each of the top two in management for 2021

Mr. Marcelli, President and COO, and Dr Michael Lebby, CEO both were awarded a $2.6m bonuses. The reason given was as follows:

However, during 2021 the Compensation Committee considered certain financial, strategic and operational goals that were achieved by our Company during 2021, in addition to benchmark results against historical stock performance and the stock performance of peers to determine cash bonus compensation. Although the Compensation Committee does not utilize these factors as a component for executive compensation, the creation of sustainable shareholder value is important to the long-term interests of the shareholders and it was a one-time consideration for the determination of cash bonuses for our overall executive compensation program during 2021.

https://www.sec.gov/Archives/edgar/data/1325964/000155335022000365/lwlg_14a.htm So, it appears the increase in stock price - and the attainment of going to Nasdaq was the reason they were awarded the bonuses.
It is rare for a company to organically uplist to Nasdaq from the OTC. It requires a stock price of $4 and a solid financial position. Thanks to funding by LPC (which really is by faithful retail investors) the financial position was solid, but the stock had waffled between .50 and $2 for years and going into the 2021 ASM was at around $1.50.

At the ASM something happened that changed everything: Dr Lebby announced that the company was in foundries - ie semi-conductor fab companies. He said they were working on Process Development KIts (PDK) that would enable large semi-conductors to offer the devices with Lightwave Technology to data centers and that he expected their devices to become 'ubiquitous'. The stock went nuts, rocketing to over $12 in 6 weeks time. The continued excitement - fueled by a fully 5X increase in postings on the IHUB board and lots of social media buzz, enabled the company to ring the Nasdaq bell on September 1. WOW - a 3 months rally and they suddenly organically uplist to Nasdaq!

The red flag issues are these

1. The amounts paid are very high.$5.2m in bonuses for a company that has yet to prove they have a viable product is questionable. And shareholders - many who were very supportive of the company and still are, were not happy to see it:

KCC: Bonuses totaled about $400k a month for 2021. That’s half the burn rate.
Couldn’t wait till after a DEAL?!!!!!
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=168718166&txt2find=bonus

LOVELWLG: I have been giving themselves raises and bonuses for years now. It would be nice if they would complete a deal or generate revenue before getting a bonus. I'm ok with raises but what is the bonus for????
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=168720800&txt2find=bonus

Egidio77: I'm reading this as another indication that massive deals are already done and they are paying Lebby a CEO compensation comprabale to the value of Lightwave taking off this year and next.
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=168721224&txt2find=bonus

2. Tying bonuses to the stock price is not considered a good idea by many experts:

https://www.cooley.com/news/insight/2013/should-executive-comp-really-be-tied-to-stock-price The price increase was a direct response to positive messaging about working with foundries, and Dr Lebby's expectation of becoming ubiquitous - neither of which were actual ACHIEVEMENTS. To work with a foundry, you pay them. Price increases, contrary to a popular view, do not always reflect actual achievements, and in 2020-2021 penny stock trading volume soared by 20x as more individuals took up stock trading as a hobby--which meant a 'perfect' storm existed for exciting story or 'meme' situtations to push the stock price up, whether it was deserved or not. https://markets.businessinsider.com/news/stocks/penny-stock-trading-volume-soars-2000-amid-retail-trading-boom-2021-3-1030224239

3. The previous policy was to not award any bonuses while the company was still pre-revenue, and there was no guarantee whatsoever that working with a foundry would lead to any revenues in the future:

Cash bonuses are typically not included as part of our executive compensation program given that our Company is in the development stage.

https://www.sec.gov/Archives/edgar/data/1325964/000155335022000365/lwlg_14a.htm

The company had as one of it's goals a commercial deal by May 2022. None was announced.

EVEN IF the deal announced without any meaningful detail in May of 2023 is of some value, I don't see any justification for taking such large bonuses when they did. It looks greedy, and is therefore why it listed here as a red flag.