Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze whether shares of Series A Preferred Stock of Quillen Technologies, Inc. ("Quillen" or the "Company"), to be acquired by Pinnacle Venture Fund II LP ("Pinnacle" or the "Fund") in the proposed $22.5 million Series A financing, qualify as "qualified small business stock" ("QSBS") under Section 1202 of the Internal Revenue Code of 1986, as amended (the "C

II. Background — Transaction Overview A. The Company Quillen Technologies, Inc. is a Delaware C-corporation incorporated on July 12, 2023 (Delaware Secretary of State File Number 7384219; Employer Identification Number 93-4817265). The Company is headquartered at 88 Garrison Street, Floor 4, Boston, Massachusetts 02116. The Company's sole operating subsidiary, if any, has not been identified in the materials reviewed

III. Legal Framework — IRC § 1202 Requirements A. Overview of Section 1202

Section 1202 of the Code, enacted as part of the Revenue Reconciliation Act of 1993 and subsequently amended on multiple occasions, provides a powerful incentive for investment in qualified small businesses. Under Section 1202(a), a non-corporate taxpayer may exclude from gross income a percentage of the gain realized on the sale or exchange of QSBS that has been held for more than five years. For stock acquired afte

1. Qualified Small Business (C-Corporation) Requirement. The stock must be stock of a "qualified small business," which is defined under Section 1202(d)(1) as a domestic C-corporation. Certain types of entities — including S-corporations, regulated investment companies ("RICs"), real estate investment trusts ("REITs"), real estate mortgage investment conduits ("REMICs"), cooperatives, and foreign corporations — are e

2. Original Issuance Requirement. The stock must be acquired by the taxpayer at its "original issuance" (directly or through an underwriter) in exchange for money, property (other than stock), or as compensation for services rendered to the corporation. Section 1202(c)(1). Stock acquired in the secondary market from an existing shareholder does not qualify.

3. Gross Assets Test. The corporation must satisfy the "gross assets test" set forth in Section 1202(d)(1) — that is, the aggregate gross assets of the corporation must not have exceeded $50 million at all times after August 10, 1993, and both before and immediately after the issuance of the stock in question. Aggregate gross assets are measured on a tax-adjusted basis, not at fair market value.

4. Active Business Requirement. The corporation must satisfy the "active business requirement" of Section 1202(e) during substantially all of the taxpayer's holding period. This requirement has two components: (a) at least 80% (by value) of the corporation's assets must be used in the active conduct of one or more "qualified trades or businesses," and (b) the corporation's trade or business must not be one of the enu

5. Holding Period Requirement. The taxpayer must hold the QSBS for more than five years from the date of original issuance. Section 1202(a). If the stock is disposed of before the five-year mark, the exclusion is unavailable (though a tax-free rollover under Section 1045 may be available for stock held at least six months). Each of these requirements is analyzed in turn below with specific application to the facts of

IV. Analysis of Each QSBS Requirement A. Domestic C-Corporation Requirement (IRC § 1202(d)(1))

Section 1202(d)(1) defines a "qualified small business" as a domestic corporation that is a C-corporation. This definitional requirement excludes several categories of entities, including S-corporations, RICs, REITs, REMICs, cooperatives, and foreign corporations. Quillen Technologies, Inc. is organized as a corporation under the General Corporation Law of the State of Delaware. The Company was incorporated on July 1

Section 1202(c)(1) requires that QSBS be "acquired by the taxpayer at its original issuance (directly or through an underwriter) in exchange for money or other property (not including stock), or as compensation for services provided to such corporation (or any predecessor thereof)." This requirement ensures that the QSBS exclusion benefits only direct investors in small businesses, not secondary-market purchasers. Th

2. Application to Pinnacle's Shares Pinnacle will acquire 2,800,000 shares of Series A Preferred Stock directly from Quillen Technologies, Inc. in exchange for $14,000,000 in cash. The shares will be newly issued by the Company and will not have been previously issued to or held by any other shareholder. This transaction constitutes a classic original issuance for purposes of Section 1202(c)(1). The consideration to

3. Convertible Note Conversion Shares The 851,250 shares of Series A Preferred Stock to be issued upon conversion of the outstanding convertible promissory notes also constitute original issuance shares for purposes of Section 1202. The conversion of a debt instrument into equity of the issuing corporation represents an exchange of "property (not including stock)" — namely, the surrender of the note holder's rights u

4. Treatment of Preferred Stock

Section 1202 applies to "stock" of a qualified small business and does not, on its face, distinguish between common stock and preferred stock. However, if preferred stock constitutes "nonqualified preferred stock" as defined in Section 351(g)(2) of the Code, it may raise issues under Section 1202. Nonqualified preferred stock generally includes stock that (a) the holder has the right to require the issuer or a relate

1. Statutory Framework Under Section 1202(d)(1), a corporation is a "qualified small business" only if, at all times after August 10, 1993, and before and immediately after the issuance of the stock in question, the aggregate gross assets of the corporation did not exceed $50,000,000. This is commonly referred to as the "gross assets test" or the "$50 million test."

Section 1202(d)(2) defines "aggregate gross assets" as the amount of cash and the aggregate adjusted bases (as determined for purposes of computing taxable income) of other property held by the corporation. Special rules apply to assets contributed to the corporation: under Section 1202(d)(2)(B), contributed property is taken into account at the contributor's adjusted basis, which prevents taxpayers from inflating th

2. Pre-Closing Analysis As of March 31, 2026, based on the unaudited financial information provided by the Company, Quillen's asset base on a book-value basis consists principally of the following: • Cash and cash equivalents: Approximately $1.1 million. • Accounts receivable: Estimated at approximately $350,000 (reflecting the Company's SaaS subscription billing cycle). • Prepaid expenses and other current assets: E

3. Immediately-After-Issuance Analysis Upon the closing of the Series A financing, Quillen will receive $22,500,000 in new cash from the Series A investors. This cash will be reflected as an increase in the Company's aggregate gross assets. The conversion of the outstanding convertible notes into equity does not contribute additional cash to the Company — the conversion merely extinguishes a liability (the notes paya

4. Verification Recommendation Notwithstanding our preliminary conclusion that the gross assets test is likely satisfied, we strongly recommend that the Company's independent auditor (Pemberton & Associates CPAs LLP, engagement partner Diane Stratton) or the Company's tax preparer be requested to provide a schedule of aggregate gross assets on a tax-adjusted basis as of the most recent available period-end (ideally D

5. Future Financing Rounds An important caveat: if Quillen raises additional capital in subsequent financing rounds (e.g., a Series B), the aggregate gross assets must not exceed $50 million at the time of any subsequent original issuance for new stock issued in that round to qualify as QSBS. However, Pinnacle's existing QSBS status with respect to the Series A shares would not be retroactively affected if the Compan

1. General Rule The active business requirement under Section 1202(e) has two components. First, during "substantially all" of the taxpayer's holding period for the QSBS, at least 80% (by value) of the corporation's assets must be used in the "active conduct" of one or more "qualified trades or businesses." Section 1202(e)(1). The IRS has interpreted "substantially all" in this context to mean at least 80% of the rel

2. Application to Quillen's Business Quillen develops, markets, and licenses the Mosaic SaaS platform — an AI-driven portfolio analytics and risk-attribution tool — to institutional asset managers, pension consultants, and endowments. The Company's business model is that of a technology product company: it creates and maintains a software platform and licenses access to that platform on a recurring subscription basis

3. Conclusion on Active Business Requirement Quillen's SaaS technology business constitutes an "active trade or business" within the meaning of Section 1202(e)(1), and the Company's business is not one of the excluded service businesses enumerated in Section 1202(e)(3). The Company's revenue model (100% SaaS subscription), workforce composition (predominantly engineering), and asset utilization (substantially all ass

Section 1202(a) requires that the taxpayer hold the QSBS for more than five years in order to claim the gain exclusion. This is a prospective requirement that will be determined based on Pinnacle's actual holding period for the shares. Pinnacle's holding period for the 2,800,000 shares of Series A Preferred Stock would begin on the closing date of the Series A financing (target: June 15, 2026) and must extend beyond

V. Pass-Through Entity Considerations — Pinnacle Fund Structure A. Look-Through Rules for Partnerships (IRC § 1202(g)) Pinnacle Venture Fund II LP is a Delaware limited partnership that is treated as a partnership for federal income tax purposes. As a pass-through entity, Pinnacle is not itself a taxpayer for income tax purposes; rather, items of income, gain, deduction, and credit flow through to the Fund's partners

Section 1202(g)(1) addresses the treatment of QSBS held by pass-through entities. Under this provision, if QSBS is held by a pass-through entity (which includes a partnership, an S-corporation, a regulated investment company, or a common trust fund), the exclusion under Section 1202(a) is applied at the level of the individual partner, shareholder, or beneficiary — not at the entity level. This "look-through" treatme

1. LP Notification. Pinnacle should consider providing its LPs with a notice regarding the QSBS eligibility of the Quillen investment, including a summary of the requirements for maintaining eligibility at the LP level. In particular, LPs should be informed that the QSBS exclusion may be lost if they transfer their partnership interests before the Fund disposes of the Quillen stock.

2. LP-Level Pass-Through Analysis. If any LP of Pinnacle is itself a pass-through entity (e.g., a family limited partnership, LLC, or trust), further look-through analysis may be needed to determine whether the ultimate individual beneficial owners satisfy the requirements for QSBS treatment.

3. Recordkeeping. Pinnacle should maintain detailed records documenting the QSBS qualification of the Quillen investment, including the original issuance documentation, purchase price, date of acquisition, and ongoing compliance with Section 1202 requirements. These records will be essential for supporting the QSBS exclusion on each LP's individual tax return upon a future disposition.

VI. Key Risks and Limitations A. Gross Assets Test — Verification Pending As discussed in Section IV.C, the most significant open item in our QSBS analysis is confirmation that Quillen's aggregate gross assets on a tax-adjusted basis do not exceed $50 million at any time before and immediately after the Series A closing. While our preliminary estimate indicates that aggregate gross assets will be approximately $25–$3

Section 1202(c)(3) imposes two anti-abuse rules relating to stock redemptions by the issuing corporation, designed to prevent manipulation of the QSBS rules through repurchase-and-reissue transactions: (i) Two-Year Pre-Issuance Test. Under Section 1202(c)(3)(A), QSBS treatment is denied if, during the two-year period beginning one year before the date of issuance, the corporation purchased (directly or indirectly) an

Section 1202 applies exclusively for federal income tax purposes. State conformity with the QSBS exclusion varies significantly across jurisdictions, and the state tax implications of the Quillen investment should be evaluated in the context of Pinnacle's LP base. • California does not conform to the federal QSBS exclusion under Section 1202. Cal. Rev. & Tax. Code § 18152.5 (repealed, effective for tax years beginnin

VII. Structuring Recommendations to Preserve QSBS Eligibility Based on our analysis, we recommend the following actions to maximize the likelihood of preserving QSBS eligibility for Pinnacle's investment in Quillen: A. Transaction Document Provisions

1. Company QSBS Representation. The Series A Preferred Stock Purchase Agreement should include a representation by the Company that it qualifies as a "qualified small business" under Section 1202 of the Code, that its aggregate gross assets (as defined in Section 1202(d)(2)) have not exceeded $50,000,000 at any time since its incorporation, and that the Company is not engaged in any trade or business that would cause

2. QSBS Affirmative Covenant. The Stock Purchase Agreement (or the Investors' Rights Agreement, as appropriate) should include an affirmative covenant requiring the Company to use commercially reasonable efforts to maintain QSBS eligibility during the period in which the investors hold the QSBS. This covenant should specifically address: (a) compliance with the active business requirement, including the 80% active-as

3. Certificate of Incorporation Review. The Amended and Restated Certificate of Incorporation to be filed in connection with the Series A closing should be reviewed to ensure that it does not contain provisions that would cause the Series A Preferred Stock to be treated as "nonqualified preferred stock" under Section 351(g)(2). Specifically, the certificate should not contain mandatory redemption features, put rights

1. Tax-Basis Gross Asset Schedule. Request from Quillen, through its counsel at Fenwick, Torres & Keane LLP, a schedule of aggregate gross assets on a tax-adjusted basis (as defined in Section 1202(d)(2)) as of the most recent period-end (December 31, 2025, or March 31, 2026). This schedule should be prepared or certified by the Company's auditor (Pemberton & Associates CPAs LLP, engagement partner Diane Stratton) or

2. Stock Redemption Confirmation. Confirm through review of the Company's corporate minutes, stock transfer ledger, and board resolutions that no stock redemptions or repurchases have occurred since incorporation. Obtain a specific representation from the Company in the Stock Purchase Agreement.

3. Federal Income Tax Return Review. Request and review the Company's federal income tax returns (Forms 1120) for the taxable years ended December 31, 2023 and December 31, 2024 (if filed as of the date of closing). Review for any facts inconsistent with QSBS eligibility, including significant investment assets on the balance sheet, non-qualifying business activities, or any indication that the Company elected S-corp

4. S-Corporation Status Confirmation. Confirm that Quillen has not elected S-corporation status under Section 1362 of the Code at any time since incorporation. Request a copy of any IRS determination letter or other correspondence regarding the Company's tax status, if available. C. Fund-Level Actions

1. Record Maintenance. Pinnacle should maintain comprehensive records documenting the original issuance of the QSBS, including the Stock Purchase Agreement, closing certificates, proof of payment, the purchase price per share ($5.00), the aggregate purchase price ($14,000,000), the number of shares acquired (2,800,000), and the date of acquisition (expected June 15, 2026). These records will be essential for substant

2. LP Notification. As discussed in Section V.D, Pinnacle should provide its limited partners with a notification regarding the QSBS eligibility of the Quillen investment. The notification should address: (a) the potential tax benefits of QSBS treatment under Section 1202; (b) the five-year holding period requirement and its implications for exit timing; (c) the continuous partnership interest holding requirement und