Semiconductor Technology:
PTI, through ODIS, is currently conducting research and development (R&D) for a wide array of devices for potential military, consumer, commercial, and industrial applications. ODIS continues to develop gallium arsenide-based chip design processes having several potential major market applications, including: (i) infrared sensor arrays for military as well as domestic monitoring and imaging applications, and (ii) the unique combination of optical lasers, and electronic control circuits on the same microchip for potential use in various military programs and potentially telecom applications. The use of gallium arsenide is a key material in ODIS’ POET process development for these products. Upon completion, the POET process is expected to allow the Company to fundamentally alter the landscape of computing for a broad range of applications by offering components with dramatically lowered cost together with increased speed, density, and reliability.
In the Fourth Quarter, 2012, the Company successfully produced an integrated laser device, thereby achieving a key milestone in its POET process. The Company noted that the milestone had been achieved while overcoming equipment issues related to power failures associated with Hurricane Sandy – which necessitated a temporary restructuring of the technology roadmap. Considered a key milestone – and one of the most significant achievements in the development of the POET platform – the new laser serves as the basis for chip-to-chip interconnection , and complements numerous other optoelectronic devices already demonstrated by ODIS – including heterostructure field effect transistors (HFETs), optical thyristors, pulsed lasers, and super-radiant light emitting devices – all able to be monolithically fabricated via the POET process. ODIS has been awarded more than a dozen U.S. Department of Defense projects since 2000. These have supported and continue to support the development of the POET process, infrared sensing technology, sensor/laser development and the combination of electronic circuits and lasers on the same microchip. The Company remains active in this area with projects underway with the U.S. Department of Defense and a major U.S. Defense Contractor. While the Company and BAE Systems continue on the path of producing a much sought after Infrared Detector (IR) Device contracted for by the U.S. Air Force Research Laboratory, (AFRL) , the work conducted with military applications will not limit the Company’s ability to monetize POET. The Company continues aggressively with its objective is to explore opportunities to monetize this breakthrough technology.
Industry Outlook
The semiconductor market is projected to grow to over $550 billion by 2015 and remains a rapidly growing segment of our economy. The convergence of internet-capable and mobile technologies will drive the strength of the semiconductor device market through 2017.
Primary drivers (IC Insights 2013, Gartner 2013) include
* Pad, Tablet and Cloud OS-type PC devices—Demand continues to surge for tablet-class and phablet-class devices, and the market for PCs built on cloud-based services, such as Chromebooks, is beginning to heat up. One example of device key to this market, DRAM, is projected at a $35.0 billion market in 2015; logic at $115 billion;
* Smartphones—Semiconductor content of this fast-growing segment represents approximately 31% of the average selling price, compared to 23% for ordinary cellphones. 3G/4G smartphones are set to impact on the future analog, DSP, logic, and NAND flash memory IC markets. The mobile phone semiconductor market alone is projected $64.1 billion for 2015.
* Smartphones—Semiconductor content of this fast-growing segment represents approximately 31% of the average selling price, compared to 23% for ordinary cellphones. 3G/4G smartphones are set to impact on the future analog, DSP, logic, and NAND flash memory IC markets. The mobile phone semiconductor market alone is projected $64.1 billion for 2015.
* Digital and Smart TVs—Streaming capability via the Internet will be the must-have technology in 2014; this points to increased revenues for LED drivers, power management ICs, and MCUs/MPUs. MPUs/CPUs are forecast at $92.6 billion for 2015.
* Smart Grids and Advanced Metering Infrastructure (AMI)— Residential appliances and related electrical systems are now being designed for interaction with power utilities via the Internet and local networks. Smart grid technology investment is forecast to grow 19% annually through 2016.
* "Internet of Things"— The identification, monitoring, and control of objects with an addressable Internet protocol has been gaining momentum for over a decade with no abatement. The sensor and actuator semiconductor market, one of the areas impacted by this sector, is projected at $14.1 billion.
PTI’s POET technology is applicable in a large portion of this semiconductor market as it represents, possibly, the most comprehensive solution to increasing semiconductor performance in an economical and functional manner. Business indicators suggest that POET may provide significant value to the ever growing market, where it addresses a need for power consumption, speed, size and cost efficiency.
As reported throughout 2012, PTI’s strategy is to continue, aggressive research and development efforts planned by ODIS as it relates to the completion of the POET platform. Upon completion, POET is expected to allow ODIS to fundamentally alter the landscape of computing for a broad range of applications by offering components with dramatically lowered cost together with increased speed, density, and reliability.
Since the beginning of its development, the recognition of the breakthrough potential provided by the POET technology within the military community remains strong. Even through a downturn in military spending during 2011, POET remained at the forefront of those projects earmarked for funding during 2012 and 2013. This military development work will not constrain the commercial application of the POET Technology.
Key Success Drivers (“KSD”)
ODIS continued to develop its enhancements to the POET platform during 2012 and into 2013. POET is a semiconductor fabrication process that enables the monolithic fabrication of integrated circuits containing both electronic and optical elements. In late 2012, PTI successfully demonstrated a continuous laser, fabricated using POET, which it regards as a significant development and underscores its viability and commercial applicability.
The POET platform, which is covered by numerous patents and patents pending, makes possible the economic production of fully-integrated optoelectronic semiconductor devices with higher speeds and reduced power consumption compared to conventional silicon-based devices. Utilizing POET, ODIS designs infrared sensor type products for military and industrial applications. ODIS develops gallium arsenide-based processes and semiconductor microchip products having several potential major market applications: infrared sensor arrays for Homeland Security monitoring and imaging along with the unique combination of optical lasers, and electronic control circuits on the same microchip for potential applications in various military programs, higher efficiency computing systems, and potentially telecom for Fiber to The Home. ODIS chip design capabilities allow for optical and electronic signals to be used on the same chip when necessary and allow for direct connection to optical fiber without conversion to electronic signals.
In June 2012, the Company announced a major re-structuring, formalized on the basis of the new strategic plan to exit the solar industry, and re-focus its efforts on its POET semiconductor platform. Operationally, this included the intent to pursue a $5,000,000 financing, in tranches, the departure of two members of the Board to allow the inclusion of Messrs. Mark Benadiba and Peter Copetti as Executive Chairman and Executive Director on the Board, respectively, and the return of Dr. Samuel Peralta to the Board as an independent Director. New management enacted stringent cost-cutting initiative with regard to solar-related facilities, staff, and equipment was executed, and all other funding was diverted to POET operations.
On October 29, 2012, the Company appointed Mr. Lee Shepherd as Vice President of Technology. With over 25 years of experience in business, technical, and military leadership roles, and a focus on the telecommunications and information technology industry serving in technical, management, product architecture, engineering program management, technical sales, merger and acquisition leadership, and entrepreneurial roles, Mr. Shepherd brought a broad range of experience to directive of assisting the Company’s POET commercialization efforts. The Company’s success in 2012 was driven by its ability to achieve significant milestones in cost control, liquidity and technical progress, which in turn led to a recovery in market value of its share price from 2011. In 2013, the Company continued to build on those success drivers to keep the Company operationally sustainable. The Company’s future success will also be driven by focusing on the same factors, as well as critical human capital.
Management’s decision in 2012 to relieve itself of underperforming assets and establishing a lean operational model has allowed the Company an opportunity to access the necessary resources to focus on its key strategy – developing and monetizing its state-of-the-art POET process.
In February 2012 the Company completed a new brokered private placement financing. For details of this, please refer to the section entitled “Significant Events and Milestones During 2013”.
Over 2012 and 2013, the Company recognized the need for and invested in new fabrication equipment to allow its technical staff to address technology and commercialization milestones. This new equipment has resulted in the ability to target milestones further down the roadmap than previously mapped. It has also enabled the Company to define and develop an important planar electronic technology (PET) subset of the POET platform, which has the potential to rapidly address specialized application niches in the semiconductor industry.
In February 2012 the Company completed a new brokered private placement financing. For details of this, please refer to the section entitled “Significant Events and Milestones During 2013”.
Over 2012 and 2013, the Company recognized the need for and invested in new fabrication equipment to allow its technical staff to address technology and commercialization milestones. This new equipment has resulted in the ability to target milestones further down the roadmap than previously mapped. It has also enabled the Company to define and develop an important planar electronic technology (PET) subset of the POET platform, which has the potential to rapidly address specialized application niches in the semiconductor industry.
Significant Events and Milestones During 2013
PTI continues to make progress in 2013. Following are some significant events in the growth and development of the Company which add to the foundation for the achievement of the Company’s future success:
1) On February 14, 2013, the Company completed a brokered private placement financing for gross proceeds aggregating to $7,189,200 ($7,200,000 CAD). The Company issued 14,400,000 units, at a price of $0.499 ($0.50 CAD) per unit. Each unit consists of one common share and one common share purchase warrant. Each whole warrant entitles the holder to purchase one additional common share of the Company at a price of $0.748 ($0.75 CAD) per share for a period of two years. The agents received cash commissions in the aggregate of $503,244 ($504,000 CAD) and 1,440,000 compensation warrants in connection with the private placement. Each compensation warrant entitles the holder to purchase one common share of the Company at $0.499 ($0.50 CAD) per share for a period of three years.
2) On February 25, 2013, the Company engaged Atomic Communications, LLC as its new public relations firm.
2) On February 25, 2013, the Company engaged Atomic Communications, LLC as its new public relations firm.
3) In February 2013, the Company ordered approximately $868,000 dollars of new equipment to upgrade its R&D facility capabilities. All necessary site infrastructure upgrades have been completed and some of the new equipment has been delivered and installed. The delivery of the remaining equipment has been delayed by the supplier and has now expected installed and calibrated by the end of December 2013.
5) On April 2, 2013, the Company announced the appointment of Dr. Adam Chowaniec and Dr. Geoff Taylor to the Board of Directors. Dr. Chowaniec was the CEO of a number of technology companies that were successfully acquired by companies such as Ericsson, Microsemi and Integrated Device Technology. Dr. Taylor is the Chief Scientist who has led the development of the Company’s POET platform. Dr Taylor is also a professor of Electrical Engineering and Photonics at the University of Connecticut. Dr. Taylor was also a member of the technical team at AT&T Bell Labs, Honeywell and Texas Instruments.
6) On April 11, 2013, the Company announced that it retained Grayling Communications Limited (“Grayling”), a leading international strategic communications advisory firm to be its North American investor relations counsel. Grayling has committed to assisting the Company in areas of investor relations, public relations and government relations. Grayling has over 1,000 staff in 70 offices in more than 40 countries across the United States, Western and Eastern Europe, Africa and Asia Pacific.
6) On April 11, 2013, the Company announced that it retained Grayling Communications Limited (“Grayling”), a leading international strategic communications advisory firm to be its North American investor relations counsel. Grayling has committed to assisting the Company in areas of investor relations, public relations and government relations. Grayling has over 1,000 staff in 70 offices in more than 40 countries across the United States, Western and Eastern Europe, Africa and Asia Pacific.
7) On April 5, 2013, the Company divested its remaining assets available for sale to a third party in consideration for the assumption of the related disposal group liability, thereby completing the Company’s discontinuance of its solar division.
8) On June 3, 2013, the Company completed the refitting of its Molecular Beam Epitaxy (“MBE”) System which is used in its gallium arsenide wafer production. In addition to refitting the MBE, the Company also completed a redesign of the lab to allow for the installation of new R&D equipment.
9) On June 10, 2013, the Company announced the establishment of a Special Strategic Committee (“SSC”). The SSC has been given the mandate to evaluate strategic alternatives in relation to the sale or licensing of the Company’s proprietary POET platform, to deliver recommendations to the Board and to carry out any selected transactions to completion as confirmed by the Board. Mr. Copetti was confirmed as chairman of the SSC.
13) On August 16, 2013, the Board of Directors approved a nd endorsed the SSC’s “Next Phase of Commercialization Plan” which includes; establishing a POET Development Alliance (“PDA”), reduction of Feature Size from the sub-micron to the 100-nm range scale and the adoption of a Shareholder Rights Plan (“SRP”) in order to protect the potential value of the Company for all shareholders.
10) On June 27, the Company announced that the chairman of the SSC had appointed Adam Chowaniec to the SSC. Also appointed were members to the advisory subcommittee to the SSC, Lee Shepherd, VP of Technology at ODIS, and two external members, Geoffrey Rogers and Dr. Martin Peisl. Mr. Rogers has held key roles with Tensilica (now Cadence Design Systems), Silicon Architects (now Synopsys), VLSI Technology (now Philips Semiconductor) and Applied Micro Circuits. Dr. Peisl has held senior positions in companies such as Siemens, Infineon, Qimonda, Ramaxel, and Netlist; he was directly responsible for product development of Dynamic Random Access Memory (DRAM) generations from 64Mbit to 1Gbit, has overseen product-line starts in Mobile Random Access Memory, Reduced Latency DRAM and DRAM based Application Specific Integrated Circuits (ASICS); on the Joint Electron Device Engineering Council (JEDEC) standardization committee, he has chaired development of the predecessor of the Double Data Rate 2 (DDR2) specification within the Advanced DRAM Technology (ADT) consortium together with technical members of Intel, Samsung, Hynix, Micron and Elpida.
11) On June 27, 2013, the company announced that it had achieved Milestone 6. The new Milestone is the integration of the complementary inverter. Specifically, PTI successfully demonstrated complementary heterostructure field effect transistor based inverter operation using the POET process. This milestone was accelerated at the direction of the SSC , and forms the basis for all on-chip logic.
12) On July 23, 2013, the Company changed its name to POET Technologies Inc. and trading on the TSX Venture Exchange under the new name and stock symbol (TSX-V
TK) commenced on July 25, 2013. The purpose of the name change is to better reflect the Company’s business and highlight the POET platform.
TK) commenced on July 25, 2013. The purpose of the name change is to better reflect the Company’s business and highlight the POET platform. 14) On October 7, 2013, the Company announced the appointment of Stephane Gagnon to the SSC advisory board. Mr. Gagnon has over 20 years of experience in the semiconductor, telecommunication and processor industry. Stephane’s most recent role was Senior Director of Product Management for Integrated device Technology (IDT) where he drove business strategy for the RapidIO® switching and IP product line. His primary responsibilities
included overall strategy and product marketing, in addition to business development and the management of international customers and partner relationships. Mr. Gagnon became involved with the RapidIO® Trade Association (RTA) Technical Working Group 13 years ago and has held the position of Chairman of the RTA Steering Committee for over 3 years.
Explanation of Quarterly Results
In Q3 2013, the Company continued to earn SBIR revenues relating to a $750,000 SBIR contract granted to the Company in 2012. This award was granted to the Company while the government was scaling back on SBIR contracts due to government cutbacks. $84,628 was earned in 2013, during the same period in 2012, $112,070 was earned from the award granted. The Company continues to earn on that award and expects it to be completed in early 2014 . The Company’s strategy, however, is to reduce its dependency on SBIR by developing POET to the stage of monetizing it outside of its current uses by the government.
http://www.poet-technologies.com/
The Company had increases in all major categories of corporate expenditure during Q3 2013 as compared to Q3 2012. Research and development costs increased by $111,992, increasing from $240,494 in Q3 2012 to $352,486 in Q3 2013. The increase is consistent with the message of reaching milestones which will in-turn drive monetization of POET. The
increased research and development costs and the re-prioritizing of the Company’s milestones contributed to the Company achieving milestone 6 . Milestone 6 is the integration of the complementary inverter, the basis of all on-chip logic. The Company successfully demonstrated complementary heterostructure field effect transistor (“HFET”) based inverter operation using the POET process. The Company is now focused on reaching milestones 5 (Switching Laser Demonstration at POET’s R&D Labs) and 7 (Optical Thyristor-Based Infrared Detector Array Fabrication and Validation), both of which are progressing without technical issues.
http://www.poet-technologies.com/
