General Key Valuation Assumptions
The following are key assumptions that are common to all of our valuation models:
• It will take between 6 and 18 months for POET to pass through technical readiness level
(“TRL”), making POET then desirable for licensing transactions.
• All revenue models rely on technology licensing fees; thus, there is no cost of goods sold
• ODIS will incur cumulative nominal monthly expenses that current grant revenues
satisfy.
• The nominal discount rate for future cash flows is 32.04%
• The base target rate of return used for the discount rate determination is 23.98%.
• The success rate used for the discount rate determination is 25%.
• The holding period used for the discount rate determination would reflect an investment
of 22 years (i.e., ODIS is a strategic acquisition, not a financial acquisition).
• The nominal remaining economic life for the technology is 22 years.
• ODIS will incur a 40% nominal income tax rate.
• ODIS will incur a 5% royalty payment to UCONN for the technology licensing.
• ODIS will enjoy an average of 20 remaining years for statutory protection for POET
patent portfolio.
• A per-unit royalty would constitute 8.17% of the total value basis for the product.
• Once deployed, it will take 48 months for penetration of the market to the nominal ending
market share.
• Product adoption will occur along a Fisher-Pry market adoption curve with a market
shape of 0.2000
Defense Market Key Valuation Assumptions
The following are key assumptions that we integrated into the valuation model for the defense
market:
• ODIS will continue to receive annual revenues from Small Business Innovation Research
(SBIR) grants and other awards, in accordance with a projected schedule provided by
ODIS representatives
• ODIS will likely license POET to one or all of the top ten defense contractors.
SCHEDULE “A”
• Each defense contractor’s licensing decision is an equally probable binary outcome (i.e.,
they will either license it or not, each occurrence having equal probability).
• Each defense contractor’s licensing decision is independent of other defense contractors
(i.e., we modeled no conditional licensing probabilities).
• A time gap that ranges between 2 and 18 months exists that captures when each defense
contractor considers executing a license.
• The defense contractors would pay an initial, nonexclusive license fee that may range
between $20 million and $50 million
• Defense contractors would make monthly royalty payments thereafter of $250,000 to
account for any product-specific royalties.
Commercial Market Key Valuation Assumptions
The following are key assumptions that we integrated into the valuation model for the
commercial market:
• The first market application for POET in the commercial market would be for generalpurpose
microprocessors for server computers.
• The second market application for POET in the commercial market would be for generalpurpose
microprocessors for desktop computers.
• The third market application for POET in the commercial market would be for generalpurpose
microprocessors for laptop computers.
• ODIS will likely license POET to one or all of the top general computer microprocessor
manufacturers on an exclusive basis.
• In each target market, POET platform would nominally allow a manufacturer to capture
its current nominal market share deploying it.
• The server processor market would start at 6,939,877 annual units, growing at 0% per
year.
• Server processors would enter the market 48 months from the effective date of the
valuation.
• Server processors average $828.89 per unit, which would serve as a basis for a negotiated
royalty payment.
• Each server would require two processors.
• The desktop processor market would start at 128,200,000 annual units, growing at 1.13%
per year.
• Desktop processors would enter the market 48 months from the effective date of the
valuation.
• Desktop processors average $93.22 per unit, which would serve as a basis for a
negotiated royalty payment.
• Each desktop would require one processor.
• The laptop processor market would start at 231,900,000 annual units, growing at 12.43%
per year.
• Laptop processors would enter the market 48 months from the effective date of the
valuation.
• Laptop processors average $93.22 per unit, which would serve as a basis for a negotiated
royalty payment.
• Each laptop would require one processor.
Smartphone Market Key Valuation Assumptions
The following are key assumptions that we integrated into the valuation model for the
smartphone market:
• The POET platform would nominally allow a smartphone microprocessor manufacturer
to capture its current nominal market share deploying it.
• ODIS will likely license POET to one or all of the top smartphone microprocessor
manufacturers on an exclusive basis.
• The desktop processor market would start at 188,100,000 annual units, growing at
10.00% in Year 1, 18.18% in Year 2, 15.38% in Year 3, 13.33% in Year 4, 11.28% in
Year 5, 9.23% in Year 6, 7.18% in Year 7, 5.13% in Year 8, 3.08% in Year 9, and 1.03%
in Year 10.
• Smartphone processors would enter the market 48 months from the effective date of the
valuation.
• Smartphone value creation averages $78.96 per unit, which would serve as a basis for a
negotiated royalty payment.
• Each smartphone would require one processor.
