Okay, let’s do a little analysis and look at the options POET has to improve its financial situation – and what we can conclude from POET not informing about it. In my view, on a high level the options are as follows:

• Doing nothing
• Raising equity via the capital market (ATM, bought deal, whatever)
• Raising dept capiatal (bank load, interim financing)
• Some form of short-term cash inflow (sales, China+1, selling a stake in SPX, anything else). Requires some form of contract with a partner and could be connected with an NDA or not.

Depending on the measures taken by the company, this results in advantages or disadvantages, which I illustrate by positive or negative numbers in the table below.

The company could in principle communicate about all of these measures before they are finalized or only after they are concluded. However, the consequences of premature/early communication can be varying, especially if a counterparty insists on confidentiality.

Action                      No premature communication   Premature communication
None                                                           -9                                               -9
Equity                                                        +1                                              +2
Dept capital                                             +1                                              +2
Other short-term cash (NDA)          +3                                               -2
Other short-term cash (no NDA)     +3                                               +4

(Sorry for the formatting! Agoracom is severely broken here!)

If the company does nothing, the consequences would be disastrous, independed of whether the company communicates about this early or not. So the payout of this “action” would be -9 in both cases. Not really an option!

A more constructive option would be to raise equity or debt. This would give the company the advantage of being able to operate for longer until notable revenue comes in. I give that option a payout of +1. If the company informs early about such a measure, this would increase investor confidence, so it would bring an additional advantage. That’s why I set a total of +2 for this. BTW, I am not making any distinction here between raising equity or debt. Please tell me if you see this fundamentally different, but please note that this is intended to be a high-level analysis that should not slide down into tiny details.

Then there is the possibility of some “other” kind of short-term cash inflow. This could be sales, a “China plus one” deal that involves an inflow of capital for some reason, the sale of an SPX stake, or something else.

All of these “other” options require a counterparty. That counterparty might either insist on an NDA or not. Whether an NDA is in place or not, such a deal would bring a larger benefit to the company than an increase in equity or debt. That is why I set the payoff here at +3.

If no NDA is attached to the deal and the company informs early about what is coming, the advantage by gaining trust is even higher (+4). However, if there is an NDA in place and the company nevertheless informs about the deal ahead of time, the consequences would be very negative. The deal could even fall through. That’s why the payoff here is -3.

Now imagine you are POET. Look at the table above and consider how you would act in the different scenarios! Compare that with how POET actually acts or which conclusions we can draw from the fact that POET does not communicate about financial measures! Always assuming that my assessments are valid and that POET is acting rationally.

Not doing anything is no real option, so we can disregard this one.

The company would carry out a capital increase or loan at an early stage and provide information about it as early as possible. This is what the ATM was intended for. And it is still available as a means. Raising equity or debt capital would still be better than insolvency and total loss, even under poor conditions.

The fact that the is currently not used and that the bought deal seems to be only a rumor, leads me to assume that there must be some “other” kind of short-term cash inflow that will happen in time. If the company could talk about it, it would do so to collect the high +4 payout. Since this is not the case, however, I assume there is an NDA. That limits the benefit to +3, but that would be the highest benefit POET could cash in under the given circumstances.

Do you agree with my estimates? If not, how would the model need to be changed to better reflect reality? What would be the results?