POET Technologies Inc.

Apologies if it’s long but have highlighted in green positives, red negatives, and yellow neutrals as to what I feel is important info from extract of PII valuation:

Significant Differences From Prior Valuation

· P&A performed a valuation of the Company’s intellectual property portfolio in 2010. The format, content, and conclusions presented in this valuation report differ dramatically from the prior work product that P&A produced. P&A’s contemporary work product reflects the influences of new markets considered, new market dynamics, new developments in POET, a new management team, and a new focus on POET, among others. Significant changes include the following:

· Elimination of all grant-funded revenues. (previous estimates included grants however less important as we are now much more liquid)

· Lower running royalty rate (conservative?) compared to what P&A modeled originally.

· Longer validation and development process compared with what P&A modeled originally. (is validation process extended from 2010 forecast or from current timeline?)

· Narrower focus in the computer marketplace, focusing only on about the top 10%-20% of computers sold that may benefit from POET usage as opposed to most computers sold that employ processors sold by a particular licensee.

· Narrower customer base and a different revenue model, dependent more heavily initially on up-front, nonrecurring engineering fees as opposed to product royalties. (difficult to read if positive or negative)

· Different royalty structure with the University of Connecticut. (positive)

· Addition of several market applications not previously considered. (positive)

· Company representatives would not be able to license POET on a value basis to its licensees, whereby the Company captures a percentage of the total value of the product sales.

Naturally, all of these factors drive some of the key material differences in the value conclusion in P&A’s report compared with P&A’s prior work product. Given the dramatically different structure of the valuation model that P&A built for this report versus the prior report, P&A were not able to localize the variances specifically to the items that P&A highlighted.

Considerations of New Management Team

P&A’s prior valuation conclusion depended heavily on representations and warranties made by the Company’s prior management team. Significant representations and warranties that P&A depended on included the following:

· Company representatives would have the POET platform commercially ready to sell within the timeline described in the original report.

· Company representatives would be able to close customers in the key markets that we modeled in accordance with the conditions that we modeled.

· Company representatives would be able to license POET on a value basis to its licensees, whereby the Company captures a percentage of the total value of the end product sales.

· The Company would be able to generate grant revenues in accordance with the schedule that the Company representatives provided to P&A.

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· The Company would incur a cost structure in accordance with the budget that it provided to P&A.

Over the course of the nearly four years that transpired since P&A’s initial work with the Company team, P&A knew that the prior Company team was not able to actualize many of the previous significant conditions that P&A modeled in their valuation model. Critical review of P&A’s work product gives rise to the necessity to discuss the significant departure by the prior Company management team to the prior monetization plan and revenue forecast that P&A developed in concert with the prior Company management team. The prior underperformance may give rise to a higher degree of uncertainty associated with a contemporary revenue forecast developed in concert with the Company management team or a greater uncertainty associated with future forecasting activities. P&A probed the current Company management team in detail regarding what circumstances might be different for this engagement compared with P&A’s prior engagement.

P&A found the current Company team to be quite receptive to such a sensitive discussion. P&A found Company representatives to be realistic about the significant factors of differentiation for the current management team compared with the prior management team. They are as follows:

· New team in place: The Company in some respects starts with a clean slate. Except for Mr. Pierhal, every member of the board of directors and senior management is new to the company since 2012. Each member brings a fresh set of eyes to a company embroiled in a longer, dynamic history in the solar industry.

· New clarity on monetization pathway: In our discussions with Company representatives during this project, we found a remarkable clarity on the monetization pathway for the Company. In particular, the Company has recently staffed the Company with a seasoned professional in the semiconductor, telecommunications, and process industries. Company staff now has a deliberate and detailed plan of action that provides P&A with a greater degree of confidence in the forecast that P&A developed in concert with Company representatives.

· New strategic relationships: Per Company representatives, the Company is developing today a strategic relationship with a leading company in the electronic design automation industry which works with all major semiconductor designers and fabricators. Specifically, such company develops tools and provides services for digital system-on-chip designs. Per Company representatives, it will be much easier to market POET and to gain market acceptance, if and when, the Company can provide the associated structure models in a ready-to-use form, as is common with other technology providers. (WHO????)

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· More mature knowledge transfer process: In P&A’s prior engagement, the Company did not have such a maturity in knowledge transfer process as it does now, especially with the developing collaboration. In fact, Company representatives set a milestone to have a full technology development kit (TDK) documentation ready for delivery to prospective licensees by the end of Q1, 2014.

· Greater executive energy: Per discussions with Company representatives, the new executive team brings a great deal of new energy to the Company. Moreover, the Company today is a focused company that has only one objective — to bring POET to the marketplace. In 2010, the Company was a small component in a larger company focused in the solar industry. Today, the entire executive energy focuses on POET. There is no distraction from the solar company and the associated challenges that came with the solar operation.

· New marketing efforts: Per our discussions with Company representatives, the Company has been much more aggressive in marketing POET to market and PTI has already made inroads of varying degrees with several large technology companies based on marketing efforts in San Jose, CA and Austin, TX that started in mid-December, 2013. (WHO???) In addition, Company representatives are focusing on a higher degree of publication of technical milestones to enable greater market awareness and excitement for what POET has to offer.

· Greater technology certainty: Per discussions with PTI representatives, PTI today has less uncertainty with POET. PTI has had third party validation of a variety of the POET structures including the optical thyristor-based infrared detector array.

· Financial stability: Per discussions with Company representatives, as of the effective date of P&A’s report, the Company had sufficient cash in the bank that, with its current burn rate, absent any cash flows from nonrecurring licenses fees, the Company could continue to operate for at least 27 more months from the effective date without having to raise any new capital. Moreover, Company representatives have stated that there are also significant outstanding warrants that are in the money and are exercisable; thus, such non-dilutive financing could provide the Company with any necessary cash infusions that Company representatives believe could sustain the Company’s strategic plans. In short, unlike P&A’s prior engagement, Company representatives believe they have no further need to go back to the market for additional funds to fulfill the basic strategies captured in P&A’s report, however, they may seek further financing if warranted and appropriate.

Risk Associated With Subject Property Value

While certain sustainable competitive advantages exist relating to the Subject Property, there are also associated risks. The following are key risks P&A identified in their analysis:

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· Possible long path to profitability;

· Many potential failure points;

· Unproven business model;

· Timing of revenues:

· Requirement to invest capital by end-users (Semiconductor fabricators and application developers that employ POET);

· Possible working capital need:

· Investor fatigue with the Company investment;

· Undercapitalization;

· High switching costs for existing semiconductor fabricators to implement the POET manufacturing process;

· Institutional resistance to change;

· Remaining economic life of pioneering patents may be too limited;

· Freedom to operate may be limited by reason of potential patent infringement claims;

· Management must execute the modeled business plan;

· Reliance on key personnel;

· Potential patent validity challenges;

· GaAs limitations;

· Attempts to design around patents;

· Limited functional prototypes;

· Necessity to decrease process size to be competitive;

· Unknown yield relative to the purity levels of the GaAs wafer;

· GaAs semiconductor fabrication capacity is currently limited because of dominance of Si substrate in the semiconductor market;

· Higher initial cost of GaAs;

· Emerging competitive technologies;

· GaAs manufacturing conversion time from Si to GaAs fabrication capacity by chipmakers;

· Legacy component support — potential reluctance by many product designers to integrate many versions of products into a single chip;

· Product development timeline - it will take time to design components based on POET.

· Time-to-market risk;

· Limited number of licensees - the number of licensees that the Company can approach varies by market;

· Industry Standards - the semiconductor industry relies heavily on industry standard architectures in each market segment;

· Litigation costs - IP litigation is the sport of kings and it is costly;

· Potential loss of opportunity to collect damages for any patent infringement that occurs before it registers its works with the U.S. Copyright Office;

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· Functional realization of patents;

· Potential attempts to design around intellectual properties;

POET still carries developmental risk that P&A accounted for with its discount rate.