TABLA DE LOS OPUESTOS

Thinfilm’s second family of wireless communication products uses a simple and time- efficient NFC (near field communications) protocol, known as ‘Tags talk first’, to interact with appropriately-configured NFC-ready smartphones. At the time of the Kovio acquisition, Kovio had already demonstrated prototype manufacturing at low volume and moderate yield of NFC Barcode (renamed SpeedTap™ in Q3 2015), a unique-ID high-frequency RFID die, and sample quantities had been converted to functioning labels. Post-acquisition, the manufacture of NFC components was continued, primarily to demonstrate the suitability of these components to create NFC-enabled temperature labels (achieved in May, 2014).

While the initial focus of the Company at the time was to take EAS to market and to develop temperature sensors, Apple’s announcement regarding Apple Pay in August 2014 renewed global-market interest in using NFC as a method to add an electronic labels to disposable objects. The Company then restarted work on completing the entire NFC label manufacturing process, including qualifying integration and assembly partners in East Asia, developing a ISO 9001 quality control system, and improving the process recipes for printed-dopant polysilicon (PDPS) manufacturing. While Apple’s use of NFC is currently limited to payment systems, a decision by Apple to include other applications could reasonably be expected to have a positive material effect on demand for NFC labels, the Company’s class of products. Thinfilm believed then, and continues to believe, that the unique combination of fast read- times (up to 40 times faster than conventional encrypted NFC labels), its use of durable metal foil and thin flexible antenna substrates, and unique ID encoding during manufacturing, create a highly differentiated NFC product offering. As the unique ID is encoded during manufacturing, the ID cannot be re-written, or spoofed, that is hacking of the ID stored on the

49 label is not possible by changing the ID itself. Further market research showed that detection of tamper evidence, and continued ability to read the ID of the tag after opening the package, would provide further value to consumers and brands. The Company then invented and developed, and applied for patents on, a new two-ID version of the NFC label, which the Company named NFC OpenSense™.

NFC OpenSense™ tags are thin, flexible tags that can detect whether a product has remained factory sealed or has been opened, and communicate, that information to an NFC-enabled smartphone or device. The tags contain unique identifiers that make it possible for companies to track products and consumer interactions to the individual-item level. The dual-state functionality is believed to be unique in the industry.

In February 2015, Thinfilm launched its NFC OpenSense™ product. Concurrent to the product launch, Thinfilm announced that, together with Diageo, the world’s largest spirits manufacturer, the companies had created a prototype “connected smart bottle” demonstrating NFC OpenSense™ on the Johnnie Walker Blue Label® brand of whiskey. The prototype bottle was unveiled and exhibited at Mobile World Congress in Barcelona, in March 2015. In June 2015, Thinfilm announced that it had signed a series of additional prototype development and demonstration-system delivery agreements with leading companies in the spirits, tobacco, and FMCG industries. Pilot orders for NFC OpenSense™ have now been received from Diageo, Ferngrove, Barbadillo, as well as label conversion and specialised packaging firms, Constantia Flexibles and Jones Packaging. Volume production of NFC OpenSense™ logic circuits began in Q3 2015, and complete qualified high-volume production of wet inlays is currently scheduled to commence in Q2 2016. Among Thinfilm’s customers, Barbadillo has already placed NFC OpenSense™ on its Versos 1891 sherry, which was commercially launched in February 2016.

Thinfilm also plans to use PDPS circuit technology in the Company’s smart label platform to deliver low-cost, ubiquitous sensing and communication for IoT applications. Thinfilm’s first products in its sensor-label family are temperature-monitoring labels for perishable goods, including pharmaceuticals and food/floral products. Orders are currently pending for small- scale field trials in Q3 2016. These products are described in Section 6.2.2 (“Product roadmap”).

Primary markets for NFC OpenSense™ and NFC SpeedTap™ are global in nature and focus on spirits, wine, tobacco, cosmetics, pharmaceuticals, specialty foods, health and beauty, and other key FMCG and consumer packaged goods (“CPG”) arenas. Key applications for NFC OpenSense™ and NFC SpeedTap™ include product authentication/security, anti- counterfeiting, grey-market monitoring, supply-chain tracking, consumer engagement, and mobile marketing. NFC OpenSense™ has additional features beyond NFC SpeedTap™ that make it particularly suitable for refill-fraud prevention and certain types of mobile marketing that focus on consumer experience from store-shelf (point-of-sale) to use-of-product in home (consumption).

The expected price point for NFC OpenSense™ is $.30-$.50 for wet inlays and converted white labels, while for SpeedTap™ is expected to sell for 20% less, as it has no sensor and the area of the label is significantly smaller.

50 Thinfilm’s NFC OpenSense™ and NFC SpeedTap™ products are marketed by the Company through its own direct sales, and through preferred converter partners like Jones Packaging and Constantia Flexibles that specialize in labeling and packaging. The Company currently has such a distribution agreement in place with CymMetrik, the largest label and packaging manufacturer for Greater China.

It is the intent of the Company to focus on NFC OpenSense™ and NFC SpeedTap™ as its main commercial products, to be sold by its direct sales force, over the next two to three years. It is also expected that EAS will remain an important revenue-generating product, but distribution will continue to occur exclusively through Nedap Retail.

Currently, as for EAS, Thinfilm is producing the NFC front-end printed integrated circuit (PIC) at its San Jose site. Sheets of the semi-finished product are then shipped to Thinfilm’s back-end partners in Asia for backend assembly – i.e., bumping, dicing and attachment of the PIC to the antenna, conductive trace (if applicable) and substrate. As soon as the PDPS roll- to-roll production line, further described in Section 6.7 (R&D), is operational, Thinfilm plans to migrate front-end production from the current S2S based line to Roll-to-Roll production to capture the expected significant scale and cost benefits.

Investments in capacity expansion (of the sheet-based front-end capacity) already in progress will allow for increased manufacturing scale during 2016. Given sufficient commercial sales, this may lead to an increase in Company revenues. While visibility remains limited, as most customers are still in sampling mode, the size of and diversity of customer prospects makes management of the Company optimistic that product sales will grow in 2016 and 2017. By 2018, given sufficient sales demand, it may already be possible to start production on a Roll- to-Roll manufacturing line, if a decision is taken in 2016 to proceed with such an investment.