UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
□ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
181 ANNUAL REPORT PURSUANT TO SECTION 13 OR IS(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fi scal yenr ended December 31, 2018
□ TRANSITION REPORT PURSUANT TO SECTION 13 OR IS(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
□ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR IS(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
OR
Date of event requiring this shell company report
Commission file number: 000-55135
POET TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
Ontario, Canada
(Jurisdiction of incorporation or organization)
1107 - 120 Eglinton Avenue East
Toronto, Ontario, M4P I E2. Canada
(Address of principal executive offices)
Surcsh Vcnkatesan, CEO
780 Montague Expressway
Ste 107
San Jose, California 95 I 3 I
Email: svv@poet-technologies.com
(Name. Telephone. Email and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act: None.
Securities registered or 10 be registered pursunnl to Section I 2(g) or the Act: Common Stock, no par va lue.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: Not Required.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Ruic 405 of the Securities Act.
□ Yes
181 No
Ir this report is on annual or transition report, indi cate by check mark irthe registrant is not required to file reports pursuant to Section 13 or 15(d) or the Securities Exchange Act or 1934.
Yes D No 181
Note - Checking the box above will not relieve any registrunl required to file reports pursuant to Section 13 or 15(d) or the Securities Exchange Ac l or 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant ( I) has filed all reports required to be filed by Section 13 or l 5(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports). and (2) has been subject to such filing requirements for the past 90 days.
181Yes O No
Indicate by check mark whether the registrant hus submitted electronically e,·ery Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit such files) .. t8I
Indicate by check mark whether the regi strant is n large accelerated filer, nn accelerated filer, a non-acce lerated filer, or nn emerging growth company. See de finition of " large accelerated filer,"
"accelerated filer,'' and ·'emerging growth company" in the Exchange Act.
Large accelerated filer D
Accelerated filer 181
Emerging Growth Company !XI
Non-accelerated filer □
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP. indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting Slnndnrds provided pursuant to Section 13(a} of lhe Exchange Act. □
Indicate by check mark which basis of accounting the registrant has used to prepare the financial state ments included in this filing:
U.SGAAP □
International Financial Reporting Standards as issued
by the Internati onal Accounting Standards Board IZl
Other □
lf "Ot her" has been checked in response lo the previous question. indicate by check mark which finan c ial stulement item the registrant has elected to follow.
□ Item 17 D Item 18
ff this is an unnuul report, indicate by check mark whether the registrant is a shell company (as defined in Rule 126-2 of the Exchange Act}. □ Yes No 181
POET TECl·INOLOGIES INC.
FORM 20-F ANNUAL REPORT
TABLE OF CONTENTS
!11t rnduc1ion
ITEM I.
ITEM 2.
ITEM 3.
ITEM4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM9.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
ITEM I6A.
ITEM 168.
ITEM I6C .
ITEM 16D.
ITEM I6E.
ITEM I 6F.
ITEM 160.
ITEM I6H.
ITEM 17.
ITEM I S.
ITEM 19.
ldcntitv of Directors. Sen io r Mana!!cmcm and Adv isors
Offer S1atistics and Ex pected Timetable
Kev lnfomrnt ion
ln fonnat ion 0 11 the Com pan v
Unresolved Staff Comments
Opera1in2 ond fin anc ial Review und Prospecls
Dircc1ors. Sen ior Management. and Emp lovccs
Major Shareholders and Rcla1cd Partv Transactions
Financial ln fom1al ion
The O ffer und Lisli m!
Additional lnfom1ation
Quamitativc and Qualitrnivc Disclosures Abo111 Market Ri sk
Description of Sccuri1ics O ther Than Equi rv Securiti es
l'.All.I.l
PART JI
Dcfo u ll s. Div ide nd A rrca ra "CS and Delinquenc ies
M:11e riol Modilica ti ons to the Ri ght s o f Security Ho lders ri nd Use o f Proceeds
Controls nnd Procedures
Reserved
Audit Commi tt ee Financial Expcn
Code O f Et hics
Principal Accountinu Fees nnd Service:.
Exe mpt ions fro m the Listing Sta nda rds for A udit Commillccs
PLLTchascs of Equity Secu rities bv the Issuer and Affiliated Purc hase rs
Chnnl!es in Registran t's Certifvin" Accoun111n1s
Comorntc Governance
Mine Snfetv Disclosure
PART 111
Fimmcial S1n1ements
Fimmcin l Slal l.':mcnt s
Exhibit s
l
:I.
±
±
12
ll
ll
~
if
ll
n
11
fil
21
ill!
2§.
fil
INTRODUCTION
POET Tcch.nologics Inc. is organized under the Business Corporations Act (Ontario). 1n thi s Annual Report, the "Company'', ··we", "our", " POET' and "us•· refer to POET Technologies lac. and its
subsidiaries (unless the context otherwise requires). We refer you to the documents attached as exhibits hereto for more complete infonnation than may be contained in this Annua l Rcpon. Our principal
Canad ian corporat e offices are loc ated at Suite 1107, 120 Eglinlon Avenue East. Toronto, Onlario M4P IE2, Canada. Our U.S office is located in the U.S. at Suite 107, 780 Montague Expre ssway, San
Jose. CA, 95131. Our telephone number in Toronto is (416) 368•9411.
We file reports and othe r infonnution with the Securities and Exchange Commiss ion ("SEC") located ut 100 F Street NE . Wushinglon, D.C. 20549. You may obtuin copies of our filings with th e SEC by
accessin g their website located at www.sec.gov. We al so file reports under Canadian regu latory requirements on SEDAR; you may access our reports filed on SEDAR by accessing the website
\Vww.sedar.com.
This Annual Report ( including !he consolidated audited financial statements for lhe years ended Dece mber 3 1. 2018. 2017 and 20 16 attached thereto. logether wit h the auditors' report thereon). and the
exhibits thereto shall be deemed to be incorporated by reference as exhibits to the Regi stra ti on Statement o f the Company on Form F- 10. as amended (File No. 333-227873), and to be a part thereo f from
the date on which this report was fil ed, to the exlent not superseded by documents or reports subsequently filed or furnished.
Business of POET Technologies Inc .
POET Technologies is a developer and manufacturer of oplica l light source products for the sensing and data communications markets . Integration of optics and electronics is fundamental to increasing
functional scaling and lowering the cost of current pbotonic solutions. POET believes that its approach to hybrid integration of devices, utilizing a novel dielectric platform and proven advanced wafer
level packaging techniques enables substantial improvements in device cost, efficiency and pcrfommnce. Optical engines based on this intet,•-ruted approach have applications ranging from data centers lo
telecommunication networks to consumer products.
During the year ended December 31. 2018, the Company generated revenues of $3.888. 185 nnd gross profit of S2A 12 ,216. The Company currently operates at a loss.
The loss fo r 20 I 8 was SI 6,322,779. I 00% of the Company's revenue in 20 18 was generated from the sale of sensing products and non-recurring engineering ('·NRE")
revenue through the Company's subsidiary DcnseLight Semiconductor Pie. Ltd. ("'DcnseLight").
During 2018, the Company spent SB,692,804 on research and development activities directly related lo the development and commercial ization of the POET Optical Interposer Platfonn ("POIP'') and the
development ofphotonic sensing products, $ 11.689,204 was spent on selling, marketing and administration expenses which included non-cash operating costs of$6.584.741. of which $2.562,624 related
to depreciation and amortization, nnd $4.022, 11 7 related to the foir value stock-based compensation. The 20 18 loss included other income of$1 ,505,790 of which $1.48 1.260 related to the recovery of
certain qualifying expe nses from the Econom ic Development Board ("EDB") in Singapore. The recovery includes both collected recoveries and an amount to be received in 2019. EDS recoverable fo r
the year ended December 3 1,20 18 was $1,905,593. The Company also had deferred income tax recovery of S297,940 for the year ended December 31, 2018.
On February I, 2019, the Company signed a non-binding Letter of Intent (LOT) for the sale of all the outstanding shares of Den:;eLighl. Key tenns of the LOI include proposed cash consideration in the
range of $26 - $30 million, including a S4 million cam-out provision, no-shop and confident iali ty clauses, and an undertaking to enter into key operating agreemenls, including a preferred supply
agreement and a long-term strategic cooperation agreement among the parties. The parties expect to complete the signing of 1hc definitive transaction agreements on or before September 15, 2019. The
broad tem1s of the LOI and the consummation of any transaction are subjec t to further due diligence, !be negotiation of definit ive agreements and obraining required approvals by all parties, incl uding bur
not limited to the TSX Venture Exchange and a majority of the Company's shareholders.
Oa February 1, 20 19, management committed to a plan to sell its subsid iary, Densclight. The dec ision was taken in line with a strategy to focus on the Company's opportunities related to its Optical
Interposer. The divestiture of DcnscLight will immediately reduce the Company's operating losses and cash bum, while allowing the Company to pursue a "fob-light" strategy with a less capital-intensive
business model that is focused on growing lhe Optica l Interposer business through lurgeted investments in the design, development and sa le of vertical market solutions
The Company's balance sheet as of December 31, 2018 reflects assets with a book value of $25 , 137,903 compared lo $25 ,205 ,772 as of December 31, 20 17. Twenty-seven percent (27%) of the book
value as of December 3 1, 20 18, or $6,888,264, was in current asse1s consisting primari ly of cash and other current assets, compared lo thirty-two percent (32%), or S7,950,712 as of December 31,2017.
The Company's working capital of S3,847 ,842 is not sufficient to support its operating and investing activiti es over the next 12 months. The Company has severa l sources of financing that it is
considering in order to continue as a going concern. These sources of financing include internal cash generation from operations, financing via public offering, assumption of debt or a combinat ion of all
three sources.
In order to provide internal financing, the Company negotia1ed multiple NRE contracts in excess of USS3 million with large suppl iers of networking and datacom equipment. These NRE contracts extend
into 2019 and will generate immediate high margin cash flow.
During 20 18, the Company purchased US$3.7 million of new equipment. The payment tenns for the new equipment were negotiated both prior to placing purchase orders and re-negotiated subsequenr to
raking possession of the equipment. While the Company took possession of the new equ ipment, ii was pennincd to defer a portion of purchase cost without penalty or interesr cost to 20 19.
On March 21, 2018, the Company strengthened its working capital position relative to December 3 1, 20 17 by comp leting a "bought deal" public offering of 25,090,700 units at a price of S0.425
(CADS0.55) per unit for gross proceeds of $10,663 ,548 (CADS 13,799,885). Each unit consists of one common shore and one-half common share purchase warrant. Each whole warrant entitles the holder
to purchase one common share of the Company at a price of $0.58 (CADS0. 75) per share until March 2 1, 2020. The broker was paid a cash commission of $639,813 (6%) of the gross proceeds and
received 1.505,442 compensation options. Euch compen:;ation option is exerc isable into one compensation unit of the Company al a price or S0.425 (CADS0.55) per compensation unit until March 2 1,
2020 wilh each compensation unit comprising one common share and one-half compensation share purchase warrant. Each whole compensation share purchase warrant entitles the broker to purchase one
common share of the Company at a price of S0.425 (CAD$0.55) per share until Marcb 21 , 2020. The Company paid an additional $492,177 in other costs related to this financing. The Company received
$9,53 I ,558 nel of share issue costs. Additionally, the Company raised S I, 11 6,445 from the exercise of warrants and stock options.
On November 28. 20 18. the Company filed a preliminary short form base shelf prospectus where it advised shareholders of its intent to rnise a maximum USS50 million through a public offering of either
equity securities, debt securities or a combination of both. The Company has met with multiple investment bankers in both Canada and the United States who have expressed an interest in assisting the
Company with a capital raise.
As at December 31. 2018. the Company has accumulated losses ofS{ 133.195,932) and working capital of $3,847,842. During the year ended December 3 I. 2018, the Company had negative cash nows
from operations ofS9,288,588. The Company has prepared a cash flow forecast which indicates that it docs not have sufficient cash to meet its minimum expenditu re commitments and therefore needs to
raise additional funds to continue as a going concern for the next hvclve months from the issuance of this Annua l Report on Form 20-F. As a result, there is suhslantial dollbl about the Company's ability
10 cont inue as a going concern for the nexl twelve months from the issuance of this Annual Report on Form 20-F.
To address the future funding requirements, management has undertaken the fo llowing initiati ves:
Initi ated u strict working cupilul monitoring program.
l. Entered into discussions lo secure debt financing .
2.
3. Continued its focus on maintaining an appropriate level ofcorpornte overheads in line with the Company's available cash resources.
4. Filed a preliminary short-form prospectus to raise a maximum $50 million through a public offering of either equity securi ties, debt securities or a combination of both.
5.
Initiated a plan for raising cupita l in Canada viu the private placement of convertible debt.
In line with its needs for additional financing, on April 3, 2019, the Company closed the first tranche ofa private placement of convertible debentures that rai sed gross proceeds ofCAD$J,929,000 (the
"Debentures"). The Debcntun:s arc unsecured, bear interest at 12% per annum, compounded annually with I% payable al the beginning of each month and mature on April 3, 202 1. Insiders of the
Company subscribed for over 47% of tl.ie first tranche of Convertible Debentu res, including the Company's board or directors. senior nmnagemen1 team and financial advisors. IBK Capital. Successive
tranche closings in the coming months ore each subject to approval by the TSX Venture Exchange.
Additionally, the Company arranged for a credit faci lity (the "Bridge Loan") lo be provided by Espresso Capital Ltd which will grant the Company access to a maximum USSS,000,000. The Company
signed the loon documents on Apri l 18, 2019 and was advanced USS2,000,000 on April 23. 2019. In partia l consideration of the US$5,000,000 gross credit facility available to the Company, and in
connection with the initial advance of US2,000.000. the Company issued to Espresso Capita l warrants for the purchase of 3.289,500 common shares at n price of CS0.35 per share. The Warrants expire
on April 18, 2020.
In Lhis Annual Report. unless otherwise specified, all dollar amounts arc expressed in United States Doll ars ("USS'', "USO" or "S").
Cautionary Statements Regarding Forward~Looking Statements
Financial and Other Infonnation
This Annual Report on Form 20-F and olher publicly available documents, including the documents incorporated herein and therein by reference contain forward - looking statements and information
within the meaning of U.S. and Canadian securities laws. Forward-looking statements and information can generally be identified by the use of forward- looking tem1inology or words, such as,
"con1inues", "wi th a view to" , " is designed to", "pending", "predict", "potential", "plans", "expects", "anticipates", "believes", "intends", "eslimates", "proj ects'', and simi lar express ions or variations
thereon, or statements that events. conditions or results ''can'', "might", ''will", "sha ll", "may", ''must", "would", "could", or "should" occur or be achieved and similar expressions in connection with any
discussion, expectation, or projection of future operating or financial performance, events or trends . Forward- looking statements and infonnation are bused on management's current expectations and
assumptions, which arc inherently subject to uncertainties , risks and changes in circumstances that are difficult to predict.
Our actual result s, perfom,ancc and achievements may differ material from those expressed in, or implied by, the forward- looking statemen ts and information in thi s Annual Report as a result of various
risks, uncertainties and other factors , many of which arc difficult to predict and generally beyond the control of the Company, including without limitation:
our need for additional financing. which may not be avai lable on acceptable terms or al oil;
the possibility that we will not be able to compete in the highly competitive semiconductor market;
tin: ri sk that our objectives will not be met within the timelines we expect or at all ;
resea rch and development risks ;
the risks associated with successfu lly protecting patents and trademarks and other intellectual property;
the need to control costs and the possibility of unanticipated expenses;
o we have u limited operating history ;
o
o
o
o
o
o
o manufacturing and development risks;
o
o
o
the risk that the price of our common stock will be \'Olatile;
1he risk that shareholders' interests wil l be diluted through fu ture stock offerings. oplion and wnrranl exe rcises; and
other risks and uncertainties described in ITEM 3. D. "Risk Factors".
For all of the reasons set forth above, investors should not place undue reli ance on forward- looking statements. Other than any obligation to disclose material infonnation under applicable securit ies laws
or 01herwise as maybe required by lnw, we undenake no obligation lo revise or update any fo rward- looking sta lemen ls a0er the date hereor.
Data relevant to estimated market sizes for our lechnologies under de\"elopmenl are presented in this Annual Report These data have been obtained from a variety of published resources including
published scientific literature, websi tes and infonnation generally avai lable through publicized means. The Company attempts to source reference data from multiple sources whenever possible for
confinnatory purposes. However, the Company has nol independently verified the accuracy and completeness of this data.
ITEM I. IDENTITY OF DIRECTORS. SEN IOR MANAGEMENT AND ADVISORS
A. Not Required.
ITEM 2. OFFER STA TIS TICS AND EXPECTED TIMETABLE
PART!
Not Required.
ITEM 3. KEY INFORMATION
A.Selected Financial Data
The selected financial data of the Company fo r rhe years ended December 31. 20 18, 20 17 and 2016 was derived from the audited annual consolida1ed financial statements oflhe Company, which have
been audited by Marcum LLP, independent registered public accoun ting firm. Selected financial data of the Company for the yea rs ended December 3 1, 20 15 and 2014 was derived from the consolidated
financial stalements of the Company, which arc not included in this Annual Report.
The infonnati on con tained in the se lected financial data for the 20 18, 2017 and 2016 years is qualified in its entirety by reference to the Company's audited consolidated financial statements and related
notes included under lhe heading "ITEM I 7''. Financial Statements•· and should be read in conjunction with such financial statements and related notes and wilh the information appearing under the
heading "ITEM 5".
Operating and Financial Review and Prospects." Except where otherwise indicated, all amounts arc presented in accordance with International Financial Reporting Standards ("IFRS") as issued by the
Intemaliona l Accounting Standards Board (''IASB").
Since its fonnation, the Company has financed its operations from public and private sales of equity securiti es, proceeds received upon the exercise of warrants and stock options, research and
development contracts from U.S. government agencies, sales of the Company 's photonic products and, prior to 2012, by sa les of so lar energy eq uipment products. The Company has never been
profitable, so its ability to finance operations has been dependent on equity financings. While the Company has been generating cash flow from the sa le of its photonic sensing products and NRE, wc
believe that it wi ll also need to rely on lhe sa le of our equity securities, debt securities or a combination of both lo provide funds for its activities. See ITEM 3.0. "Risk Factors."
The Company has not declared any dividends since incorporation and does not anticipate that it will do so in the foreseeab le future.
Revenue
Cost of revenue
Gross profit
Opcrnting expenses
Selling. marketing and administnition
Research and development
Impairment loss
Loss on di sposal of property and equipment
Other income_. including interest
Operating expenses
Net loss from operations
Change in fair value contingent consideration
Nel loss before income tax recovery
Income tax recovery
Net loss for lhe year
Deficit, beginning of year
Deficit, end of year
Basic and diluted loss per share:
s
Consolidated Statements of Operations Under
International Financial Reporting Standards
( US$)
2018
2017
3,888, 185
1,475,969
2,4 12,216
11.689, 204
8,692,804
156,717
(1,505 ,790)
19,032,935
2,794,044
1,342,691
1,45 1,353
10,870, 741
5,442,873
(1 ,766,524)
14,547,090
(16,620,719)
(13, 095,737)
(16,620,7 19)
(297,940)
( 16,322,779)
( 11 6,873,153)
( 133, 195,932)
(0.06)
(13 ,095,737)
(297,940)
( 12,797,797)
(104,075,356)
( 116,873 , 153)
(0.05)
2016
1,861 ,747
946 ,001
915 ,746
11 ,42 1,604
3, 165,825
63 ,522
46,738
(66,872)
14,630,817
(13,7 15,07 1)
(283,130)
(13,43 1,94 1)
(207,25 7)
(13 ,224,684)
(90,850,672)
( I 04,075 ,356)
(0.06)
20 15
2014
8,6 14, 109
3,532,492
9,677, 705
2,277.927
(76,431 )
12,070,170
( 169,832)
11,785,800
(12,070. 170)
(1 1,785,800)
(12,070,170)
( 11 ,785,800)
( 12,070, 170)
(78,780,502)
(90, 850,672)
(0.07)
(11 , 785.800)
(66,994,702)
(78,780,502)
(0.08)
Certa in prior period figures ha ve been reclassi.li ed lo confom1 with the current period's presentation
Assets
Cash nnd cnsh equivalents
Short-tenn investments
Accounts rece ivable
Prepaids and other current assets
Inventory
Property and equipment
Patents and licenses
Intangible assets
Goodwill
Total Assets
Liabilities
Current Liabi lities
Accounts payable and accrued liabilities
Deferred lax liabili ty
Deferred rent
Total Liabilities
Shareholders' Equity
Share capital
Warrants
Contributed surp lus
Accumulated other comprehensive loss
Deficit
Total Equity
Total Liabilities and Equity
Consolidated Stateme nts of Financi al Position
Under International Financia l Reporting Standards
(US$)
2018
2.567,868
946,944
2,936,6 19
436, 833
9,299,5 13
466,7 14
802,409
7,68 1,003
25,137,903
3,040,422
1,000,427
1,814
4,042,663
11 2,028,194
8,303, 738
36,042,754
(2,083,514)
(133 , 195 ,932)
21 ,095,240
25, 137,903
20 17
4,974,478
493 ,925
1,957,727
.524.582
8,21s: 110
456,250
839,63 7
7,68 1,003
25 ,205,772
810,593
1,298 ,367
24,03 1
2,132,99 1
I 03 ,616,221
t 985, 378
32, 102,967
( 1,758,632)
( I 16,873, 153)
23 ,072, 781
25,205,772
$
$
s
December 3 1,
2016
14,376,282
589.275
292 ,849
758,9 17
1, 11 6,880
9,364,210
449,676
876,865
7,68 1,003
35,505,957
1,624,344
1,596,307
42,665
3,263 ,3 16
103,357,862
5,985, 378
29,062,874
(2,088, 11 7)
( 104,075,356)
32 ,242,641
35,505,957
s
s
2015
14,409,996
2014
11 ,287,864
150,923
947,1 07
426,813
243 ,50 1
1,05 8,860
260,72 1
15,934,839
12,850,946
5 15,42 1
451 ,724
5 15,42 1
45 1,724
8 1,027, 17 1
2,01 3,747
25 ,61 8, 159
(2 ,388,987)
(90,850,672)
15,419,418
15,934,839
s
6 1,688 ,953
6.4 58,659
23,6 16,664
(584,552)
(78 ,780,502)
12,399,222
12,850,946
B. Capita lization and Indebtedness
Not Required.
C. Reasons for rite Offer and Use or Proceeds
Not Required.
D.Risk Factors
We are subject to various risks, including those described below, wh ich cou ld materially adversely aITect our business. financial cond il ion and resuhs of operations and, in tum. the value of our securities.
ln addition, other ri sks nol present ly known to us or that we currently believe to be immaterial may also adversely affect our business, financial condition and resu lls of opera tions, perhaps materially.
The risks discussed below also include for.vard- looking statements and information with in the meaning of U.S. and Canadian securities laws that involve risks and uncenainties. The Company's actua l
results may differ materially from the results discussed in the forwa rd- looking statements and infonnation Factors that might cause such differences include those discussed. Before making an investment
decision with respect to any of our secu rities, you shou ld carefu lly consider the follow ing risks and uncertainties described below and elsewhere in this Annual Report. See also "Cautionary Statement
Regarding Forward-Looking Statements.•·
Risks Related to Our Business
We 1,aw! agreed in principle tu dh•esl mtr m aj or operating flS.'i el, lwve adopter/ a new ''fab-ligltt'' strategy, anti plt,11 to focu.-. 011 the Upticul Interp(l.'ier as our mui11 bmi11eu, UllY vr all of wl,ich may
!,a,•e a muteriul (l{l\terse effect 011 lhe results of our operatiom, jimmciul position mu/ cu.,;h flows, aml pose furth er risks to the mcce.-.sful operatio11 of our busiues.-. over the slw rl mu/ /011g-term, 11s
well t1s to the i11terpretatio11 of our fi11a11 cifll results by sl1t1reh oltler.\· uml our .-.lwre prh-e.
There are substantial risks associated wi th our proposed sale of our Dense light business located in Singapore and adoplion or a "fab-light" slrategy. including the immediate loss or all or a substantial part
of our revcm1e, the loss of contro l over an internal development asset. and the loss of key tec hnica l know ledge avai lab le from personnel who wi ll no longer be emp loyed by the Company. whom we may
have to rep lace.
Al the presenl time we have executed u non-b inding Lener orintent (LOI) for the DenseLight sale and are in the process of negotiating definiti ve agreements. We cannot guanrntee that we will reach a fina l
agreement and any material renegotiation o f the terms represented in the LOI may result in significant write-offs, including those related lo goodwi ll and other intangible assets, which may have a material
adverse effect on our results of operations and financial position. The negotiation process itself is a diversion of management's attention from other business concerns, which also may have a material
adverse effect on the business. If we do not reach agreement with the current potential buyer, we have committed to seek other buyers as part of our .. fob -light" strategy, which would be a time- consuming
process that may con linue to divert management's altention from other business concerns and which we cannot guarantee would be successful. Ir we ore not successfu l in selling Denselight or ir there is
material delay in the sa le or a subs tantial reduction in the price at which it can be so ld , then ou r financial position and cash flows wi ll be adversely affected, we may hove to repay any borrowings on the
secured credit faci li ty (sec next risk factor) or absorb a substantia l increase in interest cost, and may not be able to sustain operations at their current levels or at all .
We have some previous experience wit h managing development without an internal deve lopme nt reso urce under a similar "fob-light" stralegy which was not successful, and there is no guarantee that our
new approach to operati ng a company with our chosen strategy will be successfu l. Further. our strategy wi ll be sole ly dependent on the ful\lre market acceptance and sale of Optica l Interpose r-based
solutions, which arc not yet fully developed and which no customer bas yet adopted in a production product.
We cannot guarantee that the meusures we ha ve taken to protect POET's intellectual property in the Optical Interposer whi le perfom1ing development activities at ou r DenseLight faci lity have been
effective or that some or all of the proprietary information and know-how on which the Optical Interposer is based has not been learned by the engineers working on Optical Interposer related projects.
Fo llowing divestment, we wi ll have little or no control over any leakage of such proprietary information or know-how either within or outside the Dense Light operation. In addition, we anticipate engaging
with Dcnselighl to complete certain development projects, which wi ll furt her expose our intellectua l property lo parties that we cannot contro l. Further, we cannot guarantee that Dcnsclight or any othe r
third-puny that we rely on to perfonn development, manufacturing . packaging or testing services will perform as expected and produce the devices we will need to grow our Optica l Interposer bu siness.
As "discontinued operations" our reported financia l slatements wi ll immediate ly reflect the fact that all of ouri-sales have been produced from ou r DenseLight operating unit. We may elect not to allocate
any revenue 10 POET based on our current interprclalion of 1hc LOI and shareholders and analysts may form a poor opinion about the future prospects of the Company based on having little no revenue. If
our developme nt projects and discussions with customers for the adoption of all or portions of our Optical Interposer solutions are not successful , we may report little or no revenue for some period of time
follow ing the divestment of DcnscLight. These and other factors may have a materia l adverse effect on the results of our operations and our share price.
There can be no ossurancc that we wil l be successful in addressing these or any other significant risks we may encounter in the divestment or DcnseLight, the adoption of a "fob- light" strategy or the focus
of our business sole ly on the Optica l Interposer.
We m ay 1101 be able to ge11erate s11Jfide11t ens!, '" sen-ice our reccut~\' ttcqttired tlebl oblig1tlio11s.
We recently sold unsecured conve niblc debentures and secu red financing with a bridge lender in the form oFa sec ured cred it faci li ty . Our ab ility to make payments on our debt wi ll depend on ou r financia l
and operating performance, which may fluctuate significantly from quarter to quarter, and is subject to prevai ling economic condition s and fina ncial, business and other facto rs, many of which arc beyond
our contro l. In addi tion. we have certain covenants in the secured credit facility that irnol met would result in an significant increase in our in1eres1 cost and there are conditions which ifnol met wou ld
prevent us from accessing any additional fund s from this faci lity. We cunnol assure you tha t we will be able to generate sum cient cash now or 1ha1 we will be able to borrow funds from another source in
amounts sufficient to enable us to service our debt or to meet our working capital requirements. lfwe arc not able to generate sufficient cash fl ow From operations or to borrow sufficient funds to service
our debt, we may be required to se ll equity or assets, reduce expe nditures, refinance all or a portion of our ex isting debt or obtain additiona l fi nanci ng. We cannot assure you that we will be able to
refinance our debt, se ll assets or equity or borrow more fund s on ten11s acceprable to us, ifat all.
Tlte procen ,if developi11g n ew, tedmologicully culvauceti product.-. i11 semicomlw:lor mauufitcluriug aml plwlouics product.-. is high~v complex mul m1cerlui11, and we camwl guarantee a positive
result.
The development of new, techno logically advanced products is a complex and uncertain process requiring frequent innovation, highly-skilled engineering and development personne l and significant
capital, ns well as the accurate anticipation of technological and market trends. We cannot assure you that we will be ab le to identi fy, develop, manufacture, marke t or support new or enhanced products
successfu lly or on a timely basis. Funher. we cannot assure you that our new producls will guin market acceptunce or that we wi ll be able to respond efTectively lo product inlroduct ions by competitors,
technological changes or emerging industry standards. We also may not be able to deve lop the underlying core technologies necessary to create new products and enhancements. licen se these
technologies from third parties, or remain competi tive in our markets.
Customer tlema,u/ is tlifficu/1 lo foreL·asl accurale/y at1d, as a re.m/1, we may be mwble to mate/, prmltu:tio11 with customer tlemmuf.
We make planning and spending decisions , including dcLcnnining the levels or business that we will seek and accept, production schedu les, componen t procuremenl commi tment~, personnel needs and
other resource requirements, based on our estimates or product demand and customer requirements. Our products arc typically sold pursuant to individual purchase orders. While our customers may
provide us with their demand forecasts, they are typically not contractually com milled to buy any quantity or products beyond fim1 purchase orders. Furthcnnorc, many of our customers may increase,
decrease, cancel or delay purchase orders already in place without significant penalty. The short-term nature of commitments by our customers and the possibility of unexpected changes in demund for
their products reduce our ability to accurately estimate future customer requirements. If any of our customers decrease, stop or delay purchasing our products for any reason, we will likely have excess
manufacturing capacity or inventory and our business and results of operations would be harmed.
If our cwilm11ers do t1ot qualify our products for use 011 a timely basis, our results of oper11tious may suffer.
Prior to the sale of new products, our customers typicall y require us to "qual ify" our products for use in their applications. At the successfu l comp letion of this qualification process, we refer to the
resulting sales opportunity as a "design win." Additionally, new customers often audit our manufacturing facilities and perform other evaluations during this qualification process. The qualification
process involves product sampling and reliability testing and collaboration with our product management and engineering reams in the design and manufacturing stages. If we are unable to accurately
predict the amount of lime required to quulify ou r products wilh customers, or are unable to qualify our products with certain cus tomers at all, then our ab ility to generute revenue could be delayed or our
reven ue would be lower than expected and we may not be ab le to recover the costs associated with the qualification process or with our product development efforts, which wou ld have an adverse effect
on our results of operat ions.
The markets i11 which we operate t1re J,igh~v competitive, w/,ic/, coulil result iu lo.ft :rn/eJ am/ /tJwer revenues.
The market for optica l components and modules is highly compctiti\'c and this competition cou ld result in our existing customers moving their orders to our competitors. We arc aware of a number of
companies that huvc developed or arc developing optical component products, including LEDs, lasers, pluggable components, modules and subsystems, among others, that compete (or may in the future
compete) directly with our current and proposed product offerings.
Some of our current competitors, as well as some of our potential competitors, have longe r operating histories, greater name recognition, broader customer relationships and industry alliances and
substantia lly greater financial , technical and marketing resources than we do. We may not be able to compete successfully with our compet itors and aggressive competition in the market may result in
lower prices for our products and/or decreased gross margins. Any such development cou ld have a material adverse effect on our business, financial condition and resulrs or operations.
Our prodttcls, im:lttdiug t/wJe sold by pretlece.uor compa11y1 OPEL Solar, L'o11/d couluiu tlefecl.'i tl,a/ may cause tl.'i lo illL'1tr sig11ijh-a11t rnsls or result i11 11 loss of cmltmrers or .rnbjeL'I us tu cl<1ilmftJr
which we may 1101 be fully insured.
Our predecessor company, Opel Solar, sold solar systems and products between 2007 and 20 12, and some of those products may still be under warranty. We have not undertaken 10 quantify the size of
that warranty obligation and it is not recorded on our balance sheet because it is not detenninable. Although we carry product liability insurance. thi s insurance may not adequate ly cover our costs arising
from defects or warranty claims related lo those producls.
Our current products sold by DcnseLight arc complex and undergo quality testing as well as fonnal qualification by our customers. Our customers' testing procedures arc limited to evaluating our
products under likely and foreseeable failu re scenurios and over varying amounts of time. For various reusons, such as the occurrence of perfonnance problems thaL are unforeseeable in testing or that are
detected only when products age or arc operated under peak stress cond iLions, our products may fail Lo perfom1 as expected long after customer acceptance. Failures could result from faulty components
or design, problems in manufacturing or other unforeseen reasons. As a result, we cou ld incur significant costs to repair or replace defective products under warranty, particu larly when such failures
occur in installed systems. Our products arc typically embedded in, or deployed in conjunction with, our customers' products, which incorporate a vuriety of components, modules and subsystems and
may be expecled to interoperate with modules produced by third parties. As a result, nol all defects are immediutely detectuble and when problems occur, it may be difficult to identify the source of the
problem. We will continue to face this risk going forward because our products arc widely deployed in many demanding environmen ts and applications worldwide. In addition, we may in certain
ci rcumstances honor warranty claims after the warranty has expired or for problems not covered by warranty to maintain customer relationships. Any significant product fai lure cou ld result in liti gation,
damages, repair costs and lost future sa les of the affected product und other products, divcn the attention of our engineering personnel from our product development efforts and cause significant
customer relalions problems, all of which would ham1 our business. Although we carry product liability insurunce, this insurance may not adequately cover our costs arising from defects in our products
or otherwise.
The bmi11ess that we acquired tlitl 11nt l,m•e a history of prnfitt1ble opertttirms. Our ability to successful(v ma11age our mmmfi1L'lttri1tg operalious is essential la our m •ernll success, mu/ if wefuil ta till
so, our fiuaucial results will suffer.
At the time of the acquisition of Dense Light Semiconductors, Ptc. Ltd. in May of 2016, the company had been operating at a loss for several years and was at a minimum staffing level. Since the
acquisition we have committed substantial capital and management attention to improving the operation, increasing sales and driving to profitability. Even though substantia l changes in lhe management
and personnel huve been made, the results to date have been less than anticipated and more improvement will be required in order to make the DcnseLight operation profitable. We cannot guarantee that
our efforts to improve the DenseLight opera tion wi ll be successful. und if they are not, the operation will continue to need capital and al1ention from the senior management of the Company und our
fimmcial resu lts may suffer as a result.
If we eucmmler ma111ifacl11ri11g problem.\' or if mauufacturiug t1I our Singapore tJpemtitm i.'i tliscu11li1111etl for any reason, illchuli11g t111 imlttslrit1l ur workplm:e uccitle11t, we may lose sales mu/
damage our ctl.'iltJmer relllliot1ships, or be mbjecl lo claitmfor wl,icl, we may ,wt befulfr it1.rnretl.
We may experience delays, disruptions or quality control problems in our manufacturing operations. These and other foctors may cause less than acceplable yields al our wafer fabrication facility.
Munufocturing yie lds depend on a number of factors, including the quality of available raw materials, the degradation or change in equipmenl ca libration and the rate and timing of the introduction of
new products. Changes in manufacturing processes required as a result of changes in product specifications, changing customer needs and the introduction of new products may significantly reduce our
manufacturing yields, resulting in low or negative margins on those products. In addition, because of our wafer size, we use equipment that is not readily available on the open market and for which spare
parts and quulificd service people muy not be available. If any of our key equipment were to he damaged or destroyed for any reason, our manufacturing process would be severely disrupted. Any such
manufacturing prob lems wou ld likely delay producl shipments to our customers, which wou ld negatively aITect our sa les, compeLitive position und reputation.
Our operations in Singapore are subject to government regulations that protect lhe workplace safety or employees. We ·s,rive to maintain on occidenl•free workplace, bur we cannot guarantee that
industria l accidents w ill nol take place, or that we will not be subject lo linbi lily for these ond other workplace related claims. We have obtained insurance policies to protect the Company againsl claims
for workplace related claims, but we cannot guarantee thal these and other insurance policies carried by the Company wi ll be sufficient to cover the full costs of such claims , which could have a material
adverse effect on the Company.
We l,al'e limited operating history in the tlutacom market, uud our husi,,e,fs could be /wrm ed if this market do es ,wt 1/evelop us we expect.
The initial target market fo r our O ptica l Interposer-based optical engine is I.he datacom market and we have no experi ence ia selling products in th is market. We may aot be successful in deve loping a
product for this market and even if we do, it may never gain widespread acceptance by large data center operators. If our expectations fo r the growth o r the datacom market arc not realized , our fi nancial
condition or results of operations may be adversely affected.
We tlepeutl ,m II limiter/ number of :mppliers mu/ key c,mtract u1111uifac/11rer:f who could disrupt our business nm/ tec:/11wlo[:Y tle,1elopm eut flctivities if t!,ey stopped, decreased, rleh~vetl or ll'ere
tmable lo meet <>llr dem,mdf<>r .fhipmet1l.f of their products or 11111111~fucturiug of our protl11ct.f.
We depend on a limited number of suppliers of epi taxial wafers and contract manufacturers for our Indium Phosphide ("InP" ) development and production activities. Some of these suppliers arc sole
source suppliers. We typically have not entered into long-term agreemenls wilh our suppliers. As a result. these suppliers generally may stop supplying us materia ls and 01her components al any lime.
Our re liance on a sole supplier or limited number of suppliers could rcsull in deli very problems, reduced control over technology development, product development, pricing and quality, and an inability
to identiry and qualify another supplier in a timely manner. Some of our supp liers lhat muy be small or under~capita lized may experience financial dimcuhies !bat could prevent them from supp lying us
materia ls and other components. In addition, our suppliers, including our so le source suppli ers, may experience manufacturing delays or shut downs due to circumslanccs beyond their con trol such as
cartbquakcs, fl oods, fire s, labor unres1, polit ica l unrest or other natural disasters. A Change in supp lier could require technology transfe r that could require multiple iterations of test wafers. Thi s could
result in significant delays in resumption of production.
Any supply deficiencies relating to tbc quality or quantiti es of materia ls or equipment we use to manufactwe our products could maleri ally and adversely affect our ab ili ty to fu lfill customer orders and
our results of operations. Lead rimes fo r the purchase of certai n materials and equ ipment from suppliers have increased, and in some cases have lim ited our ability to rap idly respond to increased demand
and may conti nue lo do so in the future. To the exten t we introduce additional contrac t manufacturing partners, in troduce new producls wi lh new partners and/or move existing in ternal or ex ternal
production lines to new partners, we could experience supply dismpt ions during th e transition process. In add ition, due to our customers' requirements relating to the qua lificat ion of our suppli ers and
contract manufacturing faci lities and operation s, we cannot quickly enter into alternative supp lier relationships, which prcvenls us from being able to respond immediatel y to adverse events affecting our
suppliers.
Our i11/er1wtio11nl h11si11e.f.f um/ opert1thms expose 11.f lo addilio,,nl risk.f.
Products shipped to customers located outside Ca nada and the United States account fo r a majority of our revenues. In addition, we have significant tangible assets located outside Canada and the Uni ted
Stales. Our manufacturing facili ties are localed in Singapore. Conducting bus iness outside Canada and the United Stu tes subj ects us to a number of additional risks and challenges, including:
period ic changes in a speci fi c country's or region's econom ic conditions. such as recession;
licenses and olher trade barriers;
the provision of services may require export licenses;
enviro nmenta l regulations;
cen ifi cation requirements;
fluctuations in forei gn currency exchange rates;
inadequate protection orintellectmil property rights in some countries;
preferences of ccn ain customers fo r locally produced products;
poten tial polit ical, legal and economic instability, fore ign con nicts, and the impact of regional and globa l in fec tious illnesses in the countries in which we and our customers. supp liers and contract
manufacturers are located;
Canadian and U.S. and fo reign anticom.1ption laws ;
seasonal reductions in business act ivities in certain countries or regions ; and
fluctuations in fre ight rates and transportation disruptions.
These factors, individually or in combination, could impair our abi lity to effec ti vely operate one or more or our fo reign fac ilities or deliver ou r products, result in unexpected and material expenses, or
cause an unexpec ted decline in the demand for our products in ccnuin countries or regions. Our fa ilure to manage the risks and challenges associated with our international business and operat ions cou ld
have a material adverse effect on our business.
Jf wefl1il tt, tlltrad ,mrl retain key p er:wu11e/1 our busiuess could stiffer.
Ou r future success depends, in part, on our ability to attract and rc1ain key personnel, including executi ve management. Competit ion for highly skill ed technical personnel is extreme ly intense and we
may face difficulty id en tifyin g and hiring qual ified engineers in many areas of our business. We may not be able to hire ond retain such personnel at compensa1ion levels consis1ent with our existing
compensation and sa lary stmcture. Our future success also depends on the continued contributions o r our executive mana gement learn and other key management and technical personnel. each of whom
woul d be difficult to replace. The loss or services of these or other executive officers or key personnel or the inability to continue to attract qualifi ed personne l cou ld have a material adverse effect on our
business.
Our prior {IC(JUisilfons created II large am o1111/ of gootlwill, whi1.•I, may he impaired in /1, e fi,ture a11d as a result m ay atfrersefy affect our fi11m1cial rernlls. In 111ltlilio11, past aud any fi,ture
r,cquisititms inmfre mm1ero11s risks wul may ,ufrersely affect our fi11a11cinl comlitim, 11111I results of operations.
As parl of our business slrategy, we huve in 1he past and may in the futu re pursue acquisitions of companies lhat we be lieve could enhance or complement our current producl portfolio, augment our
technology roadmap or diversify our revenue base. Acquisitions invo lve numerous ri sks, any of which could hann ou r business, including:
diniculties integrating the acquired business;
un anti cipated costs, capital expenditures, liabiliti es or changes to product development efforts;
difticulties integrat ing the business relationships with supp liers and customers o f the acquired business with our existing operat ions;
acts or omissions by the acquired company prior to the acquisil ion that may subject us to unknown risks or liab il ities;
risks assoc iated wi th enlcring markets in which we have little or no prior experience;
poten tial loss of key employees, panicularly those of lhe acq ui red organizat ions: and
diversion of financia l and management resources from our existing business;
Our prior acquisit ions have resulted, and future acquisitions may result in the recording of goodwill and other intangible assets subject to potentia l impairment in the future, adversely affecting our
operat ing resuhs. We may not achieve the anticipated benefits ofan acqu isition ifwc foil to evaluate it properly, and we may incur costs in excess of what we anticipate. A failure to evaluate and exccule
an acquisilion appro priately or otherwise udequalely address these risks may adversely affect our fimrnciul condi tion and results o f operat ions.
Our pretle,·es.wr 1.·ompnuy recefretl n,ul our currenl c:ompn11ics recefre mu/ expect to receive i11 I/re future subsidies nml other types of fim diug fr om gm·emmerrt agencies in tire locations;,, 11"/rit:!1 we
op erate. Thefwuli11g t1greeme11ts stipulate that if we do uni comp~v witlr rnriims ctwe11a11ts, incl,u/i,,g eligibility requirements, 111ulltJr tin n ot achieve certain pre-defi11etl ohjectfres, those gol'emme11t
agen cies m ay reclaim all or a portion oftlre fimtling provitled. lftl,is were to occur, we would either uot he in 11 p osition to repay tire claimetl am ormts or woultl ha1ie lo ho"ou, large sums iu ortler lo
do so or refi1111111.·e wit/, tlilutive jinnm:iug, which coultl udverse(11 affect our fimm ci11I comlitiurr.
Our predecessor company, Opel Solar and its wholly-owned subs idiary ODIS, received research and development gran1s from the United States Air Force and from NASA; our recently acquired
subsidiary company, DenseLight Semiconductor, Pte, Ltd. is expected to receive fundin g for new product development activi ties conducted in Singapore from the Economi c Development Board; and we
expect that ou r recently acquired subs idiary company BB Photonics U.K .• may also app ly for certnin grants to defer the cost of development in th e U .K. The ni les for eli gibility vary widely across
government agencies, arc comp lex and may be subject to different interpretations. Furthermore, some of the grants set pre-defined development or spending objecti ves, which we may not achieve. We
cannot guarantee that one or more agencies will not seek repayment of all or a portion of the funds provided, and if this were to occur, we could have to borrow large sums or refinance with diluti ve
financing in order to make the repayments, which would adversely affect our financial condition.
U11cer1u;111ies ;,, tire ;11terpret11tiu11 nm/ 11pplict1titm oft!,e ZOJ 71'tL\. Cuts mul J obs Act coultl m uterial(v affect our lax obligutio11s aud effective t11x rule.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017, or the "20 I 7 Tax Act,'" was signed into Jaw and includes severa l key tax provisions that affected us. inc luding a reduction of the statutory
corporate lax ro te from 35% to 2 1% effecti ve fo r tax years beginning a0er December 3 1, 20 17, elimination of certu in ded uctions, and changes to how the Un ited States imposes income tax on multinational
corporat ions, among others. T he 2017 Tax Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgmen ts to be made in interpretation of the
provisions of the 20 17 Tax Act, significant estimates in calculations, and the preparation and ana lysis of infonnation not previously relevant or regularly produced. The U.S. Treasury Depanmcnt , the IRS ,
and other standard-sen ing bodies wi ll continue to interpret or issue guidance on how provi sions of the U.S. Tax Act will be applied or otherwise admin istered. As future gu idance is issued, we may make
adjusunents to amoun ts that we have previously recorded thul muy mate rially impact ou r fin anc ial statements in the period in which the adj uslmenls are made
A sig11ifit.-a11t disruption i11, or bre11ch iu set.:urity of, our i11formutio11 teclm ology systenu or ,,iol11tio11s of tlatu protection laws t.:ould m 11terinl(v utfversely uff el.'I uur husiueu a,ul reputation.
ln the ordinary course of business, we collect and store confidential infomrntion , includi ng proprietary business in formation belonging to us, our customers, suppliers, business partners and other third
parties und persona lly idenliliabl e informulion of our employees. We rely on information technology systems to protect this infonnation and to keep financial records, process orders, manage inventory,
coord inate shipme nts to cuslomers. and operate other cri tical functions. Our in fonna ti on tec hnology sys tems may be susceptible to damage. di sruptions or shutdow ns due lo power outages, hardware
failure s, telecommunication fai lures and user errors. Jfwe experience a disruption in our information tcclmology systems, it cou ld result in the loss of sa les and custome rs and significant incrementa l costs,
which could materia lly adversely affect our business. We may also be subject to security breaches caused by computer viruses , illega l break-ins or hacking, sabotage, or acts of vandali sm by disgruntled
employees or 1hird parties. T he risk of a security breach or disruption, particularly through cyberaltack or cyber intrusion, including by computer hackers, fore ign govcmmcnts and cyber lerrorists. has
increased ns the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our information techno logy nel work and systems have been and, we
believe, continue to be under constant auack. Accordingly, despite our security measures or those of our third-party service providers, a security breach may occu r, including breaches that we may not be
able to detect. Security breaches of our information technology systems could result in the misappropriation or unauthorized disclosure of confidential.
IO
We /,a ve a history of /urge operating /ones. JVe may ,wt be able to ocl,ieve or smtai11 profitability iu the future mu/ as a result we may ,wt be t1ble lo moi11lai11 sufficienl le"eb• of liquidity.
The Company's balance sheet as of December 31, 20 18 reficcts assets with a book value of$25, 137,903 compared to $25,205,772 as of December 3 1, 20 17. Twenty-seven percent (27%) of the book
value as of December 3 I, 20 18, or $6 ,888,264 , was in current assets consisting primarily of cash and other current assets, compared to thirty-two percent (32%), or $7,950 ,712 us of December 31, 20 17.
The Co mpany's working cap ital of $3,847,842 is nol sufficient lo support its operating and investing activities over the next 12 months. The Company hus several sources of financing that it is
considering in order to continue as a going concern for the next twel ve months from the issuance of this Annual Report on Form 20-F. These sources of financing include internal cash generation from
operations, financing via public offering, assumption of debt or a combination of all three sources.
In orde r to prov ide internal financing . the Company negotiated multiple non-recurring eng inee ring (NRE) contracts in excess ofUSS3 million with large suppliers of networking and datacom equipment.
These NRE contracts extend into 2019 and will generate immed iate high margin cash fi ow.
During 20 18, the Company purchased US$3.7 million of new equipment. l11e paymenl tenns for the new equipment were ncgotia1cd botb prior to placing purchase orders and re-negotiated subsequent to
taking possession of the equipment. While the Company took possess ion of the new equipmen t, it was permitted to defer a portion of purchase cost wi thout penalty or interest cos t to 2019.
On March 21 , 201 8, the Company strengthened its working capital position relative to December 3 1, 2017 by completing a "'bought deal" public offering of 25,090,700 units at a price ofS0.425
(CADS0. 55) per unit for gross proceeds of$ I 0,663,548 (CADS 13,799,885). Each unit consists of one common share and one-half common share purchase warrant. Each whole warrant entitl es the holder
to purchase one common share of the Company at a price of $0.58 (CADS0. 75) per share until March 2 1, 2020. The broker was paid a cash commission of $639,8 I 3 (6%) of the gross proceeds and
received 1,505,442 compensation options. Each compensation option is exercisable into one compensation unit of the Company at a price of S0.425 (CADS0.55) per compensation unit until March 2 1,
2020 with each compensation unit comprising one common share and one-half compensation share purchase warrant. Each whole compensation share purchase warrant entitles the broker to purchase one
common share of the Company at a price of S0.425 (CADS0.55) per share until March 21 , 2020. The Company paid an additi onal $492, 177 in other costs related to this finan cing. 111e Com pany received
$9.531 ,558 nel of share issue costs. Additionally, the Company ra ised S I, 11 6,445 from the exercise of warranLs and stock options.
On November 28, 201 8, the Company filed a preliminary short fonn base shelf prospectus where it advised shareholders of its intent to raise a maximum US$50 milli on through a public offering of either
equity securities, debl securities or a combination of both. The Company has met with multiple investment bankers in both Canada and the United States who have expressed an interest in assisti ng the
Company with a capital raise .
As at December 31. 20 18. the Compuny has accumulated losses o r S( \3 3, 195,932) and working ca pital of $3,847.842. During the year ended Dece mber 3 I, 20 18, the Company had nega1ive cash fl ows
from operations ofS9,288,588. The Comp,my has prepared a cash fl ow forecast which indicates lhat it docs nol have sufficient cash to meet its minimum expenditure commi tments and therefore needs to
raise additional funds to continue as a going concern for the next tweh'c months from the issuance of this Annual Report on Fann 20-F. As a resuh, there is substantial doubt about the Company's ability lo
continue as a going concern fo r the next 1,vclve months from the issuance of this Annua l Report on Fann 20-F.
To address the future funding requi rements, management has undertaken the fo ll owing initiatives:
Initi ated a strict working capita l monit oring program.
I. Entered into discussions to secure debt financing.
2.
3. Continued its foc us on maintaining an appropriate level of corporate overheads in line wi th the Co mpany's avai lab le cash resources .
4. Filed a preliminary short-form prospectus to raise a maximum $50 million through a public offering of either equity securities, debt securities or a combination of both.
5.
Initialed a plan for raising capital in Canada via the private placement of convertible debt.
II
In line with its needs for add iliona l finuncing . on Apri l J. 2019, the Company closed the first tronche or a privale plncement o r convertible debentures that raised gross proceeds o r CADSl.929.000 (the
"Debentures"). The Debentures are unsecured, bear interest al 12% per annum , compounded annually with I% payable at the begin ning of each month and mature on April J, 202 1. Insiders of the
Company subscribed for over 47% of the first tranche of Convertible Debentures, including lhe Company's board of directors , senior management learn and financia l advisors, IBK Capital. Successive
tranche closings in the coming months are each subject to approval by the TSX Venture Exchange.
Additiona ll y, the Company arranged fo r a cred it facility (the "Bridge Loan .. ) to be provided by Espresso Capita l Ltd which will grant the Company access to a maxi mum USSS,000,000. The Company
signed the loan documents on Apri l 18, 20 19 and was advanced USS2,000,000 on April 23 , 20 19. In pa rtia l consideration of the US$5 ,000 ,000 gross credit facility avai lable to the Company, and in
connection with the initial advance of US2.000,000. the Company issued to Espresso Cap ital wa rrants for the purchase of 3,289,500 common sha res at a price of C$0.35 per share. The Warrants expire
on April 18, 2020.
The opt ica l commun ications industry is subjec t lo significant operat iona l fluctuat ions. In order to remain competi ti ve, we incur substantial costs assoc iated with research and development, qual ification,
production capacity and sales and marketing activities in connection with products that may be purchased , if at all , long after we have incurred such costs. ln addition, the ra pidly changing industry in
which we opern te, the length of time belween developing and introducing u product to market, freque nt changing customer spec ifications for products, customer cuncella1ions o r products and general
down cycles in the ind ustry, among other things, make our prospects difficult to evaluate. As a result of these factors, it is possible tha t we may not (i) generate sufficie nt positive cash now from
operations; (ii) raise funds through the issuance of equi ty, equity-linked or convertible debt securit ies; or (iii) otherwise have suffic ient capita l resources to meet our fun1rc capital or liquidity needs. There
arc no guarantees we wi ll be abl e to ge nerate add itiona l finan cial resources beyond our ex ist ing balances.
We may u ot be able to obtaiu athlitioiwl ct1pital when desired, tm favorable /emu or at all.
We operate in a market that makes our prospects difficult to eva lu ate and, to remain competitive, we will be required to make continued investments in capital equipment , fac ilities and technolo1,,ry. We
expect that subs1antial capita l wi ll be required to contin ue 1echno logy and product development, to expand our manufacturing capacity if we need to do so and to fund working capital for anticipated
growth . Ir we do no1 genernte sufficient cash now from operations or otherwise bave the capilal resources to meet our future capi tal needs, we may need addi tional financing to implemen t our business
strategy.
If we raise additional fund s through the issuance of our common stock or convertib le sec urities, the ownership interests of our stoc kholders cou ld be significantly diluted. These newly issued securit ies
may have rights , preferences or privileges se nior to those of existing stockboldcrs. Additional financing may not, however, be avai lable on terms favora ble to us, or at all , if and when needed, and our
abi lity to fund our operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure or respond to competitive pressures could be significantly limited. lf we cannot raise
required capital when needed. including under our Short Form Prospectus filed with the Canadian Securit ies Exchange and the SEC in October 2016 and refiled in November 2018, we may be unuble to
conlinuc technology nnd product deve lopment, meet the demands or ex isting and prospective customers. adversely aITccting our sales and market opportuni ties and consequently our business, financial
condition and results of operations.
We m ay be subject to disruptious or failures in iuformatior, teclnwlagy systenis and 11eh11t1rk fofrustrm.:lures that coultl lwve a m aterial adverse effect 0 11 our business 011dfi11a11ciul comlitim,.
We re ly on the effic ient and unintem1pted operation of complex information technolo1,,ry systems and network in frastmctures to operate our business. A disruption, infiltrati on or fa ilure of our in fonnut ion
technology systems as u result or so flwure or hardware malfunctions, syste m implemen tations or upgrades, computer vim ses, third-party securit y breaches. employee error, the n or misuse, mulfeusnnce,
power disrnptions. natural disasters or acc idents could cause a breach of data security, loss of inre llectual property and cri tical data and the release and misappropriation of sensitive competiti ve
infonrnition and partner, custome r. and emp loyee personal data . Any of these events could hann our competit ive posit ion. resu lt in a loss or customer confidence, cause us to incur significant costs to
remedy any damages and ulti mate ly materially adverse ly affect our business and fin anci al condition.
If we fail Ill pr11tect, or iucur sig11ijica11I costs iu defe111/i11g, our i11tel/ectuul property am/ other proprietary rights, our busiue.'is am/ results of operntimrs coultl be muterifl/~)1 harmetl
Our success depends on our ability to protect our inte llectua l property and 01her proprietary rights. We rely on a combination or patent, trademark, copyright, trnde secret and unfair competiti on laws, as
well as license agreements and other contracnial provisions, to establish and protect our intellectua l property and other proprietary rights. We have applied for patent registrations in Canada, th e U.S. and
other countries, some of which have bee n issued. We cannot guarantee that our pending applications will be approved by the appli cab le govcmmcntal authoriti es. Moreover, our existing and future
patents and trademarks may not be sufficiently broad to protect our proprietary rights or may be held invulid or unenforceab le in cou11. A fui lure lo obtain parents or trademark registrat ions or a
successfol challenge lo our registrations in Canada, the U.S. or other countries may limit our ability to protecl the intell ectual property rights that these appl ications and registrations intended to cover.
12
Policing unauthorized use or our technology is difficult and we cannot be certain thut the steps we have taken will prevent the misappropriation, unauthori zed use or other infringement or our in1ellectual
property rights. Further, we may not be able to effec tively protect our intellectual property rights from misappropriation or other infringement in fo reign countries where we have not applied for patent
protections, and where effective patent, trademark, trade secret and other intellectual property laws may be unavailable, or may not protect our proprietary rights as fully as Canadian or U.S. law. We may
seek to secure comparable intellectual property protections in other countries. However, the level of protection afforded by potent and other laws in other counuies may nol be comparable to that afforded
in Canada and the U.S.
We also attempt to protect our intellectual property, including our trade secrets and know-how. through the use of trude secret and other intellechrnl property la ws, and contractual provisions. We enter
into confidentiali ty and invention assignment agreements with our emp loyees and independent consu ltants. We also use non- disclosure agrcemenls with other thi rd parties who may have access to our
proprietary technologies and information. Such measures, however, provide only limited protection, and there can be no assurance that our confidentiality and non-disc losure agreements will not be
breached, especially after our employees end their employment, and that our trade secrets will not otherwise become known by competitors or that we will have adequate remedies in the event of
unaulhorized use or disclosure of proprielary information. Unaut horized third parties moy try to copy or reverse engineer our prod ucts or portions or our products. otherwise obtain and use our
intellectual property, or may independently deve lop similar or equivalent trade sccrels or know•how. If we fa il to protect our intellectual property and other proprietary rights, or if such intellectual
property and proprietary rights arc infringed or misappropriated, our business, results of operations or financial condi tion could be materially banned.
In the future, we may need to take legal actions to prevent third parties from infringing upon or misappropriating our intellectual property or from otherwise gaining access to our tec hnology. Protecting
and enforcing our intellectual property rights and detcnnining their va lidity and scope cou ld result in significant litigation costs and require sign ificant time and attention from our technical and
management personnel, which could significantly hann our business. We may not prevail in such proceedings, and an adverse outcome muy adversely in1pact our competitive advantage or otherwise
hann our financial condit ion and our business.
We may he involved i11 i11tel/ec1tml property disputes i11 tltefuture, wlticl, could dfrert m111,ageme11t's attentim,, cause us to incur sig11ific"11t costs and prel'e11t us /ram selling or usiug the c/1alle11getl
tec/11,0/ug:y.
Participants in the markets in which we sell our products have experienced frcquenl litigation regarding patent and other intellectual property rights. There can be no assurance that third parties w ill not
assert infringement claims against us and we cannot be certain that our products would not be found infringing on the intellectuul property rights of others. Regardless of their merit, responding to such
claims can be time consuming, divert munagement's allention and resources and may cause us 10 incur significant expenses. Intellectual property claims against us could result in a requirement to license
technology from others, di scontinue manufacturing or se lling the infringing products , or pay substantial monetary dam.:igcs, each of could result in a substantial reduction in our revenue and could result
in losses over an extended period or time .
If we fail to obtain th e right to use the iutel/ectual property rig /,ts uf other.v t/wt t1re ,reL·enur.v tu operate our husiues.v, 111111 to protect th eir i11tellect11ul property, our b11si11eH amt results of aper(ltifms
will be adver.ve(v 1,Jfected.
From time to time we may choose to or be required to license technology or intellectual property from third parties in conn ection with the development of our products. We ca1mot assure you that third
party licenses will be available to us on commercially reusonuble tem1s, if al all. Generally, a license, if granted, would include payments of up-front fees, ongoing royalties or both . These payments or
other terms could have a sign ificant udverse impact on our results or opera tion s. Our inability lo obtain a necessary third-pnrty license required for our product offerings or 10 develop new products and
product enhnnccmcnts could require us to substitute tec hnology of lower quality or pcrfom1ancc standards, or of greater cost, either of which cou ld adversely affect our business. If we arc not able to
obta in licenses from third parties, if necessary, then we may also be subject to liti gation to defend against infringement claims from these third parties. Our competitors may be able to obtain licenses or
cross-license their technology on better terms than we can, which could put us at a competirive di sadvuntuge.
lf wefitil to maiutaiu effedfre i11ter111rl L'tmtrol over ji11am:i11/ reporting i11 thefillure, t!,e m:wrttL'.V tmd timing of 011r fi11n11c:it,/ reporting may be mlver.rn(v affected
Preparing our consolidated financial statements involves a number of complex manual and automated processes, which arc dependent upon individual data input or review and require significant
management judgment. One or more of these elements may result in errors that nmy not be delected and could result inn material misstatement of our consolidated financial sta tements. The Sarbanes
Oxley Act in the U.S. requires, among other things, that as a publicly traded company we disclose whether our internal control over financial reporting and disclosure controls and procedures are
effective. As long as we qualify as an "emerging growt h company" under the JO BS Act, we wi ll not have to provide an auditor's attestation report on our internal controls. During the course of nny
evaluation, documentation or a\lestntion, we or our independent registered public accounting firm may identify weaknesses and deficiencies that we may not otherwise identify in a timely manner or at all
as a result of the deferred implementation of this additional leve l of review.
13
Our internal contro ls cannot guarantee that no accounting errors ex ist or that all accounting errors, no matter how immaterial, wi ll be detected because a control system , no matter how wel l designed and
operated, can prO\·ide only reasonable. bu l not absolute assurance thut the conlrol system's objeclives wi ll be met. Irwe ore unable to implement and maintain effec tive internal control over financia l
reporting, our abi lity to accurate ly and timely report our fi nancial re sults could be adversely impacted. This cou ld resu lt in late filin gs of our annual and quarterl y reports under the Canadian Securities
Act and the Securities Exchange Act of 1934, or the Exchange Act , rcslalemcnls of our consolidated financia l stal'emcnts, a decline in our stock price , suspension or deli sting of our common stock by the
TSX Venture Exchange, or other material adverse effects on our business, reputation, resu lts of operations or financial condi tion.
Our uhility It> use our 11el operutiug losseJ am/ artai11 oJ/wr /tu,: lllfrih11tes mll_v he limited.
As or December 31. 2018, we had accumulated net operating losses (NOLs). or approx imate ly S I 33 mrn ion. Varying jurisdic tional tax codes have restrictions on the use or NO Ls. if a corporn1ion
undergoes an "ownership change," the corporation 's ability to use its pre-change NOLs, R&D credits and other pre-change tax attributes to offset its post-change income may be limi ted. An ownership
change is genera lly defined as a greater than 50% change in eq uity ownership. Based upon an analysis of our eq uity ownersh ip, we do not believe that we have experienced such ownership changes and
therefore the ann ual utilization of our NOLs may not be subject to such limitation at this time. However. should we experience additional ownership changes, our NOL carry fo rwards may be limited.
We trre subjed to gmierume,i/fll export am/ import co11trols tlwl could :mbjt!cl us to linbility or impair our ability to compete iu internatimw l m arkets.
We arc subject to export and import contro l laws, trade regu lati ons and other trade requirements that limit which raw materials and tec hnology we can import or export and whi ch products we sell and
where and to whom we se ll our products. Spec ifica lly, the Bureau ofln dustry and Security or the U.S . Deportment or Commerce is respons ible fo r regulating the export or most comme rci al items that ure
so ca lled dual-use goods that may have bOlh commercial and mi litary app lications. A limited number or our products arc exported by license under certain classifications. Export Control Classification
requi rements arc dependent upon an item's techn ical characteristics, the destination, the end-use, and the end-user, and other activities of the end•uscr. Should the regulations applicable to our products
change, or the restrictions appl icable to countries to which we ship our products change, then the export of our products to such countries could be restricted. As a result, our ability to export or sell our
produc ls to certain countries could be restricted, wh ich could adversely affect our business, financial condition and results of operations. Changes in our producls or any chnnge in export or import
regulations or related legislation, shifi in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by such regu lations. could result in
delayed or decreased sales of our products to existing or potential customers. In such event, our business and results of operations could be adversely affected.
Our m nmifac.:turi,,g opemtious nre .rnhject to e11 viromue11Jal regulntitm J/,a/ could limiJ our grow//, or impou .''itlbJlt111tinl co.'il.'i, adversely 1iffec.:ti11g our jiumu:inl comlitim, t111d results af oper11Jhms.
Ou r properties, operations and products arc subject to the environmental laws and regulations of 1hc jurisdictions in wh ich we operate and sell products. These laws and regulations govern, among other
things, air emissions. wastewater discharges, the management ond disposa l of hazardous materials. the contamination or so il and groundwater. employee health and surety und the content, performance.
packaging and disposa l of products. Our failure to comply wilh current and future environmental laws and regu lations, or the identification or contaminat ion for whic h we are liable, could subject us to
substantial costs, including fines , clean-up costs, third•party propeny damages or personal injury claims, and make significant investments to upgrade our facilities or curtail our operations. Identification
of presently unidentifi ed environmental condi tions, more vigorous enforcement by a governmental authority, cnachuent of more stringent legal requi rements or other unant icipated events could give rise
to adverse publici ty, restrict our operations, affect the des ign or marketabil ity of our products or otherwise cause us to incur materi al env ironmenlal costs. adversely aITecling our financial condi tion and
results of operati ons.
We arc exposed to risks nm/ i11cr et1setl eJ.:p enses anti business risk as a rentlt of RestricJitm 011 Hazartlom Suhstn11ces, or RoHS tlirt!clivcs.
Follow ing the leud or the European Union ("EU"), various governmenta l agencies have either already put into pluce or ure planni ng to introduce regulat ions that regulate the permissible levels or
haza rdous substances in produc ts so ld in various regions of the world. For example, the RoHS dircclivc for EU took effect on July I, 2006. The labeling provisions of similar legislation in China went
into effect on March I, 2007. Consequently, many suppliers of products sold into the EU have required their suppliers to be compl iant with the new directive. We anticipate that our customers may adopt
th is approach and will require our fu ll compliance, which will require a sign ificant amount of resources and effort in planning and execut ing our RoHS program, ii is poss ible that some of our products
might be incompa tible with such regulat ions. In such events, we cou ld experience the following consequences: loss or revenue, damages reputa tion, diversion of resources, monetary pena!lies, and lega l
action.
14
Failure to comply with the U.S. Foreign Corrupt Practices At'I could subject us to pe,wllies aml oth er at/verse co11seque11ces.
We arc subjccl lo the U.S. Foreign Com1pt Practices Act, which generally prohibits companies operating in the U.S. from engaging in bribery or olhcr prohibited payments LO fo reign officials for the
purpose of obtaining or retaining business. In addition, we arc required to maintain records that accurately and fairly represent our transactions and have an adequate system of internal accounting
controls. Non•U.S. companies, including so me that may compete wit h us, may not be subject to these proh ibi tions, and therefor!! may have a competitive advantage over us. If we arc not successful in
implementing und muintaining adequate preventative measures, we may be responsible for acts of our employees or other agents engaging in such cond uct. We could suffe r se\'ere penalties and other
consequences that may have a material adverse effect on our financia l condit ion and resu hs of operntions.
Nulurnl ,Us,,sters or other cnlttstrophic el'euts coultl lwrm m,r operotimts.
Our operations in the U.S. , Canada and Singapore could be subject to significant risk of natural disasters, including earthquakes , hurricanes, typhoons, nooding und tornadoes. as well as 01her
catastrophic events, such as epidemics, terrorist attacks or wars. For example, our wafer fabrication facility in Singapore is in an area that is suscept ible to hurricanes. Any disrnption in our manufacturing
facilities arising from these and other natural disasters or other catastrophic events could cause signi ficant delays in the production or shipment of our products until we arc able to arrange for third parti es
to manufacture our producls. We may not be able to obtain alternate capacity on favorable tenns or at all. Our property insurance coverage with respect to nan1ral disaster is limited and is subj ect to
deductible and coverage limits. Such coverage may not be adequate or continue to be available al commercially reasonable rates and lenm. The occ urrence of any of these circumstances may adversely
affect our financia l condition and resu lts of operation.
Gootlll'ill lmp,1irme11I Risk
POET' s Board and management are required to analyze on nn annual basis whether any inlangibles should be impaired. based on a calculation of the likely future cash nows from those assets. The
annua l impaim1cnt test was done by management in the fisca l fourth quarter. Both Densclight and BB Photonics arc regarded by POET's Board and management as a single unit contributing to the
Corporation·s development of an Oplical Interposer platform. At the time of their acqui sition in mid•20 16, the combined purchase price exceeded their combined asset values, resulting in the creation of
Goodwill. va lued as of December 31 , 2018 at $7,68 1,003. At the time of the initial va luation, no value was attributed to DenseLight 's Intellectua l Property, which POET's Board and management now
expect to be a major contributor to the Corporation's anticipated future cash 0ows. POET's Board and management annually ussesses the ant icipated foture cash nows of the Corporat ion related to this
Goodwill and determi nes ifan impairment is necessary. No provision for impairment was required as of the most recent ly completed financial year.
Risks Related lo Our Common Stock
Our stock price lws been am/ may crmtimte lo he volatile.
The trading price for our common stock on the TSX Venture Exchange ('TS.XV") has been and is likely to continue to be highly volatile. Although we have registered our stock with the SEC, the U.S.
market for our shares has been slow to develop, and if and as such a market develops, prices on thal market are al so likely to be highly volati le. The market prices for securities of early stage tec hnology
companies have historically been highly vo latile.
Factors that could adverse ly affect our stock price include:
• nuctuations in our operating results and our financial condition;
• announcements of new producls, part nerships or [echnologicn l collaborations and announcements of the results or further actions in respec t of any products, partnerships or collabora tions,
including termination of same;
• innovations by us or our compclitors;
• governmental regulation;
• developments in patent or other proprietary rights;
• the results of technology and product development testing by us, our partners or our competitors ;
• litigation;
• general stock market and economic conditions;
• number of shares available for trading (noat); and
• inc lusion in or dropping from stock indexes.
As of Apri l 22, 20 19, our 52•weck high and low closing market prices for our common stock on the TS XV were CAS0.56 and CAS0.23.
15
We l,m·e hiflorh:ally ublai11ed1 am/ expect to co11ti1111e lo ohlaiu, 01f1/i1io11afjiua11d11g primarily by way ofsules of equity, whid, may resull i11 sig11ijicu11t tfitutio11 lo e.x.istiug shareholtlers.
We I.Jave not earned profits , so the Company's ability to finance operations is chicny dependent on equity financings. Si nce 2012 we raised approximately USS60.5 million (net of share issue costs) in
equity finuncing lhrough private plucements or the exercise of stock opt ions and warran ls in support o f the Company's business, which hus resulted in significant dilution to ex ist ing shareholders. Further
equity financings will also resu lt in dilution to ex isting shareholders, and such dilution could be signi ficant.
Future sales 11/ comnum stack or w11rra11ts, or the prospect af future sttles, may depress our stock price.
Sales of a substantial number of shares of common stock or warrants, or the perception that sales could occur, could adversely affect the market price of our common stock. Additionally, as of April 22,
2019, there were outstanding options to purchase up to 26,969,384 shares of our common stock that arc currently exercisable and additiona l outstanding options to purchase up 10 17,834,345 shares of
common stock that are exercisable over the next several years. As of April 22. 2019, there were outstanding warrants to purchase 48,034.350 shares or our stock and broker compensation unils to
purchase 1,505,442 unils. Each compensation unit is convertible into one common share and one-hair common share purchase warrant. The holders or these options. warrants and compensation units
have an opponunily to profit from a rise in I.he markel pri ce or our common stock with a resulting dilution in the interests of the other shareholders. The exislence of these options, warrants and
compensation units may adversely affect the terms on wh ich we may be able to obtain ridditional financing. The weighted average exercise price of issued and outstanding options is CADS0.70, the
weighted average exercise price of warrants is CADS0.56 and the weighted average exercise price of the compensation units is CADS0.55, which compares to the CAD$0.32 market price at closing on
April 22, 20 19.
Dilutitm t/mmglt exercise ofs/,are "Pti,m.\· coultl mfi,ersely «J/ecl the Compauy'.'i sharelwltler.'i.
Because the success of the Company is highly dependent upon ils employees, the Company has grnnled to some or all of its key employees, directors and consultants options to purchase common shares
as non-cash incentives. To the extent that significant numbers of such options may be granted and exercised, the interests of the other s10ckholders of the Company may be diluted. As of April 22, 20 19,
there were 44 ,803 ,729 share purchase options outstanding with a weighted average exercise price of CAD$0.70, 48 ,034 ,350 share purchase warrants outstanding with a weighted average exercise price of
CADS0.56 and 1,505,442 compensation units outstanding with a weighted average price of CADS0.55. If all of these securities were exercised, an additional 94, 143 ,52 1 common shares would become
issued and outstanding. This represents an increase of 32. 7% in the number of shares issued and outstanding and wou ld result in significant dilution to current shareholders.
The d~kf ussudutetl ll'itl, pe1111y .flock cl"ssijicutitm crmltl 11/Ject the m"rketability of the Compt111y's co11u11011 shure.,· mrtl shurelwltlers c,mltljiml it tlifjic11/t to sell their .'ilwres.
The Company's common shares are subject to "'penny stock'" rules as defined in Exchange Act Ruic 3a5 I-I. The SEC adopted rules that regulate broker-dealer practices in connection with transactions in
penny stocks. Transaction costs associated with purchases and sales of penny stocks arc likely to be higher than those for other securities. Penny stocks generally arc equity securities with a price of less
than SS.00 (other than securities listed on certain U.S. national securities exchanges, provided that current price and volume information with respect to transactions in such securities is provided by the
exchange).
The penny stock rules require a broke r-<.lealer. prior to a transaction in u penny stock not otherwi se exempt from the rnles, to deliver a standardized risk disclosure document that provides infonnation
about penny stocks and the natme and leve l or risk s in the penny stock market. The broker-denier also must provide the customer with curre nt bid and offer quotations for t.he penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and monthly account st:l.lemcnts showing the market value of each penny stoc k held in the customer' s account. The bid and offer
quotation s, and the broker-dealer and salesperson compensation infom1ation, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer' s confim1ation.
In addition, the penny stock rules require that prior to a transaction in a penny stock nol otherwise exempt from suc h rules, the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and recei ve lhe purchaser's written agreement 10 the lnmsaction. These di sc losure requiremenls may ha,·e the effect of reducing the level of trading oclivily
in the secondary market for the Company's common shares in the United States and shareholders may find it more difficult to se ll their shares .
16
Tlte rigltts of our shareltolders may differ from the rig/tis typically affortletl lo slwrelwltler.f of a U.S. corporation.
We arc incorporated under the Business Corporations Act (On1ario) (the "OBCA "}. The rights of holders of our common sha res are governed by the laws of the Province of Ontario, including 1he OBCA,
by 1he applicable laws of Canada, nnd by our Articles of Contimmnce and all amendments 1here10 (collectively. the "Articles"). and our by-laws (the "By-laws"). These right s difTer in certain respects
from the rights of shareholders in typica l U.S. corporations. The principa l differences include without limitation the following:
Under the OBCA. we have a lien on any common share registered in the name of a shareholder or the shareholder's legal representative for any debt owed by the shareholder to us . Under U.S. state law,
corporations generally arc not entitled to any such statutory liens in respect of debts owed by shareholders.
With regard to certain matters, we must obtain approval of our shareholders by way of at least 66 2/3% of the votes cast at a meeti ng of sha reho lders du ly ca lled for suc h purpose being cast in favor of the
proposed mailer. Such matters include without limitation: (a) the sale, lease or exchange of all or substantia lly all of our assets out of the ordinary course of our business: and (b) any amendments to our
Articles including, but not limited to, amendments affecting our capiia l stmcture suc h as the creation of new classes of shares, changing any rights, privileges, restrictions or conditions in respect of our
shares, or changing the number of issued or authorized shares, us well as amendments cha nging the minimum or maximum number of directors set forth in the Articles. Under U.S. state law, the sale,
lease, exchange or other disposition of all or substantially all of lhe assets of a corporation generally requires approval by a majority of the outstanding shares. although in some cases approval by a higher
percentage of lhe outstanding shares mny be required. In addition, under U.S. state law the vote of a majority of lite shares is general ly sufficient to amend a compuny's certilicate of incorporation,
including amendments affecting capital strncturc or the number of directors.
Pursuant to our By•laws, two persons present in person or represented by proxy and each entitled lo vote thereat shall constitute a quornm for lhc transaction of business at any meeting of shareho lders.
Under U.S. state law, a quorum generally requires the presence in person or by proxy of a specified percentage of the shares entitled to vote at a meeting, and such percentage is generally aol less than
one-third of the number of shares entitled to vote.
Under rules of the Ontario Securities Commiss ion, a meeting of shareholders must be ca lled for consideration and approval of certain transaclions between a corporation and any "related party" (as
defined in such mies). A "related party" is defined to include, among other parties, directors and senior officers of a corporation. holders of more than I 0% of the voting securities of a corporation.
persons owning u block of securities that is otherwise sufficient to uffect muteriully the control of the corporation, and other persons thnt manage or direct, to a substantial degree, the affa irs or operations
of the corporation. At such shareholders' meeting, votes cast by any related party who holds common shares and ha s an interest in the transaction may not be counted for the purposes of detennining
whether the minimum number of required votes have been cast in favor of the transaction. Under U.S. state law, a transaction between a corporation and one or more of its officers or directors can
generally be approved either by the shareholders or a by majority of the directors who do not have an interest in the transaction.
Neither Canadian law nor our Articles or By-laws limil the right of a non•resident to hold or vote common shares of the Company, other than as provided in the lnvcstmcnl Canada Act (the ·· investment
Act"), as amended by lhe World Trade Organization Agreement Implementation Act (the .. WTOA Act"). The In vestment Act generally prohibi ts implemenlation of a direct reviewable investment by an
individua l, government or agency thereof. corporation, partnership, trust or joint venture that is not a "Canadian,'' as defined in the Investment Act (a "non-Canadian"), unless. nfier review. the mini ster
responsible for the Investment Act is satisfied that the investment is likely to be of net benefit to Canada. An investme nt in the common shares of the Company by a non-Canadian (other than a ''WTO
Investor," as defined below) would be rcviewablc under the In vestment Act ifit were an investment to acquire direct control of the Company, and the va lue of the assets of the Company were CASS.0
million or more (provided that immediately prior to the implementation of the investment the Company was not controlled by WTO Investors}. An investment in common shares of the Company by a
WTO Investor (or by a non- Canadian other than a WTO Investor if, immediately prior to the implementation of the investment the Company was controlled by WTO In vestors) wou ld be rcviewablc
under the Investment Act if it were an investment to acquire direcl con trol of the Company and the value of the assets of lite Company equaled or exceeded certain threshold amounts determined on an
annual basis. The threshold for a pre•closing net benefit review depends on whether the purchaser is: (a) controlled by n person or entity from a member of the WTO; (b) a state- owned enterprise \SOE):
or (c) from a country considered a "Trade Agreement Investor" under the Investment Act. A different threshold also applies if the Canadian business carries on a cultural business. The 2019 threshold for
WTO investors that arc SOEs will be S4\6 million based on the book value of the Canad ian business' assets, up from $398 milli on in 20 18. The 2019 thresholds for review for direct acquisitions of
conlrol of Canadian businesses by private sector inwstor WTO investors (S I billion) and private sector trade- agreement investors (S 1.5 billion} remain the same and are bolh based on the "enterprise
value" of the Cam1dian business being acquired.
17
A non-Canadian , whether a WTO Investor or otherwise, would be deemed to acquire control of the Company for purposes of the lnveshnent Act if hc or she acquired a majority of the common shares of
the Company. The acquisition of less than a majority, but at least one-third of the shares, would be presumed to be an acquisition of control of the Company, unle ss it could be establ ished that the
Company is not controlled in fact by the acquirer through the ownership of the shares. In general, an individual is a WTO Investor if he or she is a "national" of a country (other than Canada) that is a
member or the WTO ("WTO Member") or has a right or pennanent residence iu a WTO Member. A corporation or other ent ity will be a "WTO Investor·· if it is a "WTO Investor-controlled entity,''
pursuant to detailed rules set out in the Investment Act. The U.S. is a WTO Member. Certain transactions invo lving our common shares would be exempt from the In vestment Act, including:
• an acquisition of our common shares if the acquisition were macle in connection with the person 's business as a truder or dealer in securit ies;
• an acquisition of control of the Company in connection with the reali zation of a security interest granted for a loan or other fimrncial assistance and not for any purpose related to the
provisions or Lhe lnvesLment Act; and
• an acquisition of control of the Company by reason of an amalgamation, merger, conso lidation or corporate reorganization , following which the ultimate direct or indirect control of the
Company, through the ownership of voling interests. remains unchanged. Under U.S. law, except in limited circumstances, restrict ions generally are not imposed on the ability of non
rcsidenls to hold a controlling interest in a U.S. corporation.
A.f a "ffJreigu private i.f.mer 11
dm11eJtic U.S. is.mer.
, the CfJmptmy i.f exempt /mm certaiu ... ectio11.'f of the £xc:lw11ge Act wlticl, result.'i i11 slwrelwlders l,miing /e,'iS complete um/ timely tlutt1 t/um if tl,e Comp1111y were a
As a "foreign private issuer," as defined under the U.S. securi ties laws, we arc exempt from certain sections of the Exchange Act. In particular, we are exempt from Section 14 proxy rules that arc
applicable to domest ic U.S. issuers. The submission of proxy und annual meeting of shareholde r infonuation (prepared to Canadian standards) on Fonn 6-K has typicu \ly been more li mited than the
submissions required of U.S. issuers and resu lts in shareholders having less complete and timely data, including. among others, with respect to di sc losure of: (i) persona l and corporate relationsh ips and
age of directors and officers; (ii) material legal proceedings involving the Company, affiliates of the Company, and direc tors, officers promoters and control persons; (iii) the identity of principa l
shareho lders and certain significant employees; (iv) related party transac tions; (v) audit fees and change of auditors; (vi) rnting policies and procedures; (vii) executive compensation; and
(viii) composition oflhe Compensation Committee. In addition, due to the Company's s1utus as a foreign private issuer. the officers. directors and princ ipal shareholders of the Company are exempt from
lite short-swing insider disclosure and profit recovery provisions of Sec lion 16 of the Exchange Ac t. The foregoing exemption results in shareholders having less data in this regard than is available with
respect to U.S. issuers.
lf th e Company i.,. clwrt1cterizetl as a passive foreign im1eshmmt cnmpmiy, m,r U.S. slwrehnhlers may suffer adverse tux cmuequences.
As more fully described below in ITEM 10.E. "Taxation" - United States Federal Income Ta x Considerations -
Pass ive Foreign lnvestmcnl Company Status"', if for any taxable year our passive
income, or the va lue of our assets that produce (or arc held for the production oO passive income , exceed specified levels, we may be characterized as a passive foreign investment company ("PF lC") for
U.S. federal income tax purposes. This characterization could result in adverse U.S. tax conscqueaccs to our U.S. shareholders, inc luding gain on the disposition of our common shares being 1rea1ed as
ordinary income and any resulting U.S. federul income tux being increased by an interest churge. Rules similar to those applicable 10 dispositions generall y will app ly to certain "excess distributions" in
respect of our common shares.
The actual u/Jocatitm of proceetls from 1myft111rm:ing mulert11ken ""'J' differ from the Compnny's initial or current illte11ti1ms.
The Company !ms discretion in lhe use o r the net proceeds from any offering of equity securities. The Company may elect to allocate proceeds differently from its initial or current intentions. The failure
by the Company's management to app ly these funds effectively could have a material adverse effect on its business.
18
Warrants included with fi11u11ci11gs
Warrants offered with finan c ings are not lis1ed on any exchange. Investors may be unable to sell 1he warrants al the prices desired or at a ll. There is no existing trading market for the warranls and the re
can be no assurance that a liquid market will deve lop or be maintained for the warrants, or that an investor will be able to sell any of the warrants at a purticular time (ifat all). The liquidity of the trading
market in the warrants, and the market price quoted for the warrants, may be adverse ly affected by, among other things:
changes in the overall market for the wo rrnnts;
changes in the Corporation's financial perfonnance or prospects;
c hanges or percei ved changes in the Corporati on's creditworthiness;
the prospects for companies in the industry generally;
the number of holders of the warrants;
1he interest of securit ies dea lers in making a market for the warmnts: and
prevailing interest rates.
ITEM 4. INFORMATION ON Tl-IE COMPANY
A. Hi story and Develo pment of the Company
The legal and commercial name of the Company is POET Technologies lnc. The Company was originally incorporated under the British Columbia Compa ny Act on February 9, 1972 as Tandem
Resources Ltd. On November 14, 1985, Tandem Resources Ltd. amalgamated with Stanmar Resources Ltd . and Kcczic Resources Ltd., to continue as one company under the name Tandem Resources
Ltd. under the British Columbia Company Act. By Articles of Continuance dated Junuury 3, 1997, Tandem Resources Lid. was continued under the OBCA. By Articles of Amendment dated September
26. 2006, Tandem Resources Ltd. changed its name to OPEL International 1.nc. By Certificate of Continuance dated January 30, 2007 , OPEL lntenmtional Inc. was continued under the New Bnmswick
Business Corporations Act. By Articles of Cont inuance dated November 30, 2010, OPEL International Inc. was continued under the OBCA and changed its name to OPEL Solar International Inc. By
Articles of Amendment dated August 25 ,201 I, OPEL So lar Inte rnational Inc. changed its name to OPEL Techno logies Inc. By Articles of Amendment dated July 23, 2013, OPEL Technologies lnc .
changed it s name to POET Technologies Inc .
On May 11 , 2016, in an all-stock transaction. lhc Company acqui red all the issued and outstanding shares of Dense Li ght Semiconductor Ptc . Ltd . (Dense Light) , a privately held Singapore company that
provides opticul solutions. Denselight des igns. manufac tures and sells opt ical light source products. Dense Light was acquired for SI 0,500,000 of the Company's slack. The Company issued 13 .61 I, 150
common shares to the fonncr shareholders of Dcnsclight.
On June 22. 20 16. in an all -stock transact ion, the Company acquired all the issued and o uls landing shares of BB Photonics Inc .. a privately held US Company with a wholly owned subsidiary, BB
Photonics UK Ltd. Both companies design integrntcd photonics solutions for the data communications market. BB Photonics and its subsidiary were acquired for consideration of $1,550,000. The
acquisition was sen led with the issuance of 1,996,090 common shares of the Company to the former shareholders of BB Photonics.
The following is a graphic description of the Company and its subs idiaries:
O 90 days
Expected credit losses (1)
2018
2017
20 16
s
892,343
34,331
60,885
(40,615)
946,944
330, 731
56,094
107.100
493,925
125,610
16,346
75,816
75.077
292,849
(1) The Company applies lFRS 9 simpli fied approach to measuring expected credit losses using a lifetime expected credit loss allowance for trade receivables.
The allowance is included in selling, genera l and administrative expenses in the consolidated statements of operations and deficit. Amounts charged to the loss allowance account arc generally written off
when there is no reasonable expec tati on ofreeovcry.
In prior years. the impaim1ent of trade receirnbles was assessed based on the incurred loss model and detem1ined by management in accordance wilh il s assessment of recoverabi lity. Receivables for which
an impainnent provision was reco1:,rnized were written off against the provision when there was no expectation of recovering additional cash.
Exchange Rate Risk
The functional currency of each of the entiti es included in (he accompanying consolidated financial statements is the loca l currency where the entity is domiciled. Functional currenc ies include the US,
Singapore and Canud ian dollar. Most tnmsactions within the entities are conducted in functional currencies. As such, none of the entities included in the consolidat ed financial statements engage in hedging
activities. The Company is exposed to a foreign currency risk with the Canadian and Singapore dollar. A 10% change in the Canadian and Singapore dollar WOllld increase or decrease other comprehensive
loss by S386,39 I.
Liquidity Risk
The Company current ly docs not maintain credit faci lities. The Company's existing cash and cash resources arc not considered sufficient lo fund operating and investing act iviti es beyond one year from the
issuance of these consolidated financial statements. The Company wi ll need to seek additiona l financing to continue as a going concern.
Year Ended December 31, 2017 compared to Year Ended December 31. 20 16
Net loss before taxes for the twelve-monlh period ended December 31, 2017 was $13.095.737 compared lo nel loss before laxes of S 13,431 ,94 1 for the twelve months ended December 31, 2016. T he
loss of the year ended December 3 1, 20 17 includes the operations of Dense Light and BB Photonics for the entire year, while the loss for the prior-year renected the operat ions of the Company with those
subsidiaries for less than the full twelve months (i.e., from May 11, 2016 for DenseLight and June 22, 20 I 6 for BB Photonics).
Revenue
During the twelve-month period ended December 31, 2017, the Company reported revenue of $2,794 ,044 through its Dense Light subsidiary compared to revenue of
$1 ,861 ,747 for the period reported in 2016. Revenue for the period ended December 31, 2017 was for twelve months, while 1he revenue in 2016 was on ly from May 11 , 20 16.
R&D
Total R&D increased by $2,277,048 from S3, I 65,825 in 2016 to $5,442,873 in 20 17. For the purposes of the following R&D analysis, non-cash stock-based co mpensation of S369,007(20 16 - $373, I 96)
has been excluded and is included with the analysis of non-cash stock-based compensation below.
R&D increased by 82% or S2,281,237 to SS,073,866 in 2017 from $2,792,629 in 2016. R&D cos1s in 2016 included the activities of POET for the fu ll twelve-mon th period and R&D of Dense Light and
BB Photonics only from May 11 , 2016 and June 22 , 2016, respectively. The first twelve months of2017 include R&D costs for the GaAs platform and the programs in InP integrated dielectrics and
wafe r-level packaging all associated with the Company's efforts to expand its product portfolio in datacom and se ns ing. In addition to 2016 costs only being costs ofa partial year, increased HR and
related costs also contributed to the increase over the prior year.
General expenses
General expenses and rent increased by 14% or $285,653 to $2,360,168 in 2017 from S2,074,515 in 20 16. This increase was also a result of shortened activity during the prior-year related to the dates of
acquisition o r Dense Light and BB Photonics (i.e .. May 11. 2016 and June 22, 2016, respectively).
35
Stock-based compensation
Non-cash stock-based compensation decreased by 22% or $895 ,340 to $3 ,174,924 in 20 17 from $4,070,264 in 2016. Departing employees and consu ltants who had unvested stock options contributed to
the substantial reduction in 2017, as their unvested options were returned to the Company. The valuation o!'stock options is driven by a number of factors including the number of options granted, the
strike pri ce and the volatility of the Company's stock. The stock option expense is dependent on the timing of the stock option grant and the amortization of the options as they vest. The stock opti ons
vest in accordance w ith the policies detennined by the Board of Directors at the time of the grant consistent with the provisions of the Stock Option Plan , as amended (the ''Plan").
Management and consu lting fees
Manageme nt and consu lting fees decreased by 62% or S382,284 from 20 I 6. The expense in 201 7 was $229,577 as compared to $611 ,86 1 in 20 I 6. The resignation of Mr. Manocha from the position of
Executive Chainnan of the Board in February 2017 contributed to the decrease. T his reduction in management and consulting fees was partially offset by an increase in wages and benefits for the
compensation paid to Mr. Lazovsky who repl aced Mr. Manocha as the Executive Chainnan of !he Board. Mr. Lozovsky is paid S200,000 annually in his capacity as Executive Chainnan as compared lo
$500.000 that pre\'iousl y paid lo Mr. Manoclm.
Wages and benefits
Wages and benefits decreased by 8% or $225,900 to $2,57-1-.978 in 2017 compared to $2,800. 878 in lhe prior-year. Three principal factors contributed lo the decrease:
(I) 2016 wages included an accrued bonus of $550,000 to the CEO and fonner COO, which was deferred and eventually paid in 2017 ; (2) 2016 wages also included wages paid to the former Executi ve
Co-Chainnan of the Board of $136,655: and (3) 2016 wages included twelve months of wages fo r the fonner COO, Dr. Deshmukh who resigned in QI 2017 . TI1ese decreases were offset by: (1) the
inclusion of the compensat ion or the new Exec uti ve Chainnan or the Board: and (2) wages or Densel ight and BB Photon ics for the en lire 20 17 as compared to on ly the period from May 11 , 20 I 6 and
June 22, 2016 respectively.
Depreciation and amortizution
Depreciation and amortization increased by 50% or $753,594 to $2,275. 160 in 20 17 from $1.52 1.566 in the prior-year. The increase was a result of depreciation und amortization related to the property
and eq uipment, patents and licenses, and intangible assets acqu ired during and after !he acquisi ti on of Densc Lighl and BB Photonics in 20 16. Th e Co mpany acquired S 11 , 11 8,460 of property and
equipment, patents and li censes and intangibl e assets s ince May 20 16.
Other Income
Other income in 20 17 was S 1,766,524 as compared lo $66,872 in 20 16. The Company is entitled to a recovery of certain qualifying expenses from the Economic Development Board (EDB) in Singapore.
The increase is a result or both collected recoveries and an amount accrued to be received in 2018 .
Exchange Rate Risk
The Company is exposed to foreign c urrency risk with the Canad ian doll ar and Singapore dollar due to cash reserves and other current assets and liabi lities that arc maintained in those currencies, all or
which arc exposed to currency fluctu ations. Most or the Compuny's operations are transacted in US doll ars and Singapore Dollars. A 10% change in the Canadian dollar and Singapore dollar would
increase or decrease other comprehensive loss by $260,175.
Interest Rate Risk
Cash equivalents bear interest at fi xed rates, and as such, arc subj ect fo interest rate risk resulting from changes in fair va lue from market flucn1a1ions in interest rates. The Company does no! depend on
interest from its investments to fund its operutions.
36
Credit Risk
The Company is exposed to crcdi1 risk associa1ed with its accoun1s recei vable. 111c Company has accounts receivable from bolh governmental and non-governmental agencies. Credit risk is minimized
substantially by ensuring the credit worthiness of lhe enlilies with which it carries on business. Credit tenns are provided on a case- by-case basis. The Company has not experienced any significant
instances of non-payment from its customers.
The Company's accounts receivab le agei.ng at December 31 wu.s us fulluw.s:
Current
31-60days
61 -90 days
> 90 days
B.Licmidity and Capital Resources
s
s
2017
2016
330,731
56,094
107,100
493,925
125,6 10
16,346
75J 8 16
75,077
292.849
The Company had working capital of $3,847.842 on December 31. 2018 as compared to $7,140.119 on December 31, 20 17.
The Company's balance sheet as of December 31, 2018 reflects assets with a book value of S25, 137,903 compared to S25,205,772 as of December 31, 2017. Twenty-seven percent (27%) of the book value
as of December 31, 2018, or S6,888,264, was in current assets consisting primarily of cash and other cmTcnt usscts, compared to thirty-two percent (32%), or $7,950,712 us of December 31, 20 I 7.
The Company's working capital of S3,847 ,842 is not sufficient to support its operating and investing activities O\'Cr the next 12 months. The Company hos severa l sources of iinancing that it is considering
in order to continue as a going concern. These sources of financing include internal cash generation from operations, financing via public offering, assumption of debt or a combination of all three sources.
In order to provide intemul financing, the Company negotiated multiple non-recurring engineering (NRE) contracts in excess of USS3 million with large supp liers of networking and datacom equipment.
These NRE contracts extend into 2019 and will generate immediate high margin cash now.
During 20 18, the Company purchased US$3. 7 million of new equipment. The payment tcm1s for the new equipment were negotiated both prior to placing purchase orders and re-negotiuted subscquenl to
taking possess ion of the equipment. While lhe Company look possess ion of the new equipment, it was permiued to defer a portion of purchase cos! withoul penalty or inleresl cost to 2019.
On March 21, 2018, the Company strengthe ned its working capital position relative to December 31, 2017 by completing a "bought deal'' public offering of 25,090,700 units at a price of $0.425
(CADS0.55) per unit for gross proceeds of S I 0,663 ,548 (CADS 13,799,885). Each unit consists of one common share and one-half common share purchase warrant. Each whole warrant entitles the holder
lo purchase one common share of the Company a1 a price of $0.58 (CADS0. 75) per share unti l March 21, 2020. The broker wus paid a cash commission of $639,813 (6%) of the gross proceeds and
rece ived 1.505,442 compensation options. Ench compensation option is exercisable into one compensation unit of the Company al a price of S0.425 (CADS0.55) per compensalion unil until March 21,
2020 with each compensation unit comprising one common share and one-half compensation share purchase warrant. Each whole compensation shurc purch:-isc warrant entitles the broker to purchase one
common share of the Company at a price of S0.425 (CADS0.55) per share until March 21, 2020. The Company paid an additional S492, 177 in other costs related to thi s finuncing. The Compuny received
$9,531,558 net of share issue costs. Additionully. for the year ended December 31, 2018, the Company raised S \ , 116,445 from 1he exercise of warranls and slack op1ions.
On November 28, 20 I 8. the Company filed u preliminary short fom1 base shelf prospecn1s where it udvised shart:holders of its intent to raise a maximum US$50 million through a public offering of either
equity securilies. debt securities or a combination of both. The Company has met with multiple investment bankers in both Canada and the United Stales who have expressed an interest in assisling the
Company with a capital raise.
As at n ecember 31, 2018 , the Company has accumulated losses of S(l33,195,932) and working capital of $3.847,842. During the year ended December 3 1, 2018, the Company had negative cash n ows
from operations of $(9.288.588). The Company has prepared a cash flow forecast which indicates thal it docs nol have sufficient cash to meet its minimum expenditure commitments and therefore needs to
raise additional fonds to continue as a going concern.
To add ress the future funding requirements, management has undertaken the following initiatives:
I.
2.
3.
Entered imo discussions to secure deb1 finan cing.
Initiated a strict working capital monitoring program.
Continued its focus on maintaining an appropriate level of corporate overheads in line with the
Company's available cash resources.
Fi led a preliminary short-form prospeclus to raise a maximum $50 million through a public offering o f ei lher equity securities, debt securities or a combination of both.
Initi ated a plan for raising capital in Canada via the private placement of convertible debt.
4.
5.
In line with its needs for additional financing , on April 3, 20 19, the Company closed the first tranche ofa private placement of convertible debentures that raised gross proceeds ofCADSl,929,000 (the
"Debentures"). The Debentures are unsecured , bear interest at 12% per annum, compounded annually with 1% payab le at the beginning of each month and mature on April 3, 2021 .
Additionally, the Company urranged for a credi1 facility (the " Bridge Loan") to be provided by Espresso Capital Ltd which will grunt the Company access to a maximum USS5,000,000. The Company
signed the Joun documents on April 18. 2019 and was advanced USS2,000,000 on April 23. 2019. In puniul consideration of the US$5 .000,000 gross credit facility uvuiluble to the Compuny, und in
connection with the initial advance of US2,000,000. the Company issued to Espresso Capital warrants for the purchase of 3,289,500 common shares at a price of C$0.35 per share. The Warrants exp ire
on April 18, 1010.
The following is u summary of Company's cash fl ows and working capital:
Net cash used in operating activities
Net cash used in investing activities
Net cash from finuncing activities
Effect of exchange rate changes on cash
Change in casb
Opening cash
Ending cash
2018
$
(9,288,588)
(3,535,600}
10,648,003
(230,425)
(2,406,610)
4,974,478
2,567,868
20 17
s
(9,163,689)
(441 ,065)
123,528
79,422
(9,40 1,804)
14,376,282
4,974.478
2016
s
(9,961,419)
(2,323,332)
11, 783, 144
467.893
(33,7 14)
14,409,996
14,376,282
37
Operating Aclivities
During 2018, the Company had losses from operations of $16,322,779(20 17 - S 12,797,797, 20 16 - S 13,224,684). Net loss from operations included non-cash depreciation and amortization of $2 ,562,624
(2017 - $2,275, 160, 20 16 - SJ,52 I ,566) and non-cash stock-based compensation ofS4,022, I 17 (2017 - $3,174,924, 2016 - $4,070,264).
During 20 18, other operating items not affect ing cash flows included impainnent loss $ 156,717 (20 17 - nil, 2016 - $63,522), deferred income tax recovery of S297,940 (20 17 - $297,940, 2016 -
$207 ,257), deferred rent of S2 1,992 (20 17 - nil, 2016 - $42,665) and expected credit losses of $40,6 15 (2017 - nil, 20 16 - nil).
As a consequence of increased revenue year over year. accounts receivable has also increased. The increase in accounts receivable bas resulted in a nel cash out now of S508,094 (2017 - $171,257 , 2016
-$77,415).
Prepaid and other current assets have also increased year over year, primarily due to the large recoverable amount due from the Economic Development Board of Singapore. This increase is renccl'cd as a
act cash out flow of $1,025,256 (2017 - $ 1, I I 6,758, 2016 - S443,590).
Due to cash munagement strategies initiated during 2018, the Company negotiated with certain vendors to extend its payment 1enns, the extension resulled in cash in-nows ofS2,026,667. In 2017 and
2016. the Company settled large commi tments, primarily lo employees w hich res ulted in net cash out nows of S894,0 13 and S628,292 respectively.ly
Investing Activities
During 2018, the Company either spent cash or accrued $3,718,152 on cenain critica l equipment, primarily consisting of ; die pick tool, Omega etch, APM PECVD and C2L Transport. Certain tools
were required to either enhance the Company's capabil ities or meet the growing demand for its products. The Company spent cash of $969,797 and $1,208,352 on capability enhancement tool s in 2017
and 2016 respecti vely .
Add itiona lly, in 20 17, the $589,275 of an investment that was made in 20 16 matured. These funds were used to fund operations or equipment purchases.
In addition to the purchase of the short-t erm investment in 20 16. the Company also incurred a capital cost ofS500,000 as part of the cost of acquiring its subsidiary DenseLight.
Financing Activities
On November 2. 2016 the Company completed a Short Fann Base She lf and Supplemental Prospectu s offering of34,800,000 units at a price of$0.269 (CADS0.36) per unit for gross proceeds of
$9.349,254 (CADSl2.528.000). Each unit consisls of one common share and one common share purchase warrant. Each whole warrant enlitles the holder to purchase one additional common share of the
Company at a price of$0.388 (CADS0.52) per share for a period of five ycrirs. The agents received cash commissions in the aggregate of$654,447 (CAD$876,960). Additional issue costs approximated
$510,570 (CADS666,6 I 8).
On March 2 1, 20 18, the Company compl eted a brokered "bought deal" public offering or 25,090,700 units al a price of $0.425 (CADS0.55) per unit for gross proceeds of SI 0,663,548
(CADS 13,799,885). Each unit consists of one common sha re and one-ha lf common share purchase warrant. Each whole warran t entitles the holder to purchase one common share of the Company at a
price of S0.58 (CAD$0.75) per share until March 21. 2020. The broker was paid a cash commission of S639,8 I 3 (6%) of the gross proceeds and received 1,505,442 compensation options. Each
compensation option is exercisable into one compensation unit of the Company al a price of$0.425 (CADS0.55) per compensation unit until March 21 , 2020 with each compensation unit comprising one
common share and one-half compe nsation share purchase warrant. Each whole compensation share purchase warrant ent itles the broker lo purchase one common share of the Company at a price of
$0.425 (CADS0.55) per share until March 21. 2020. The Company paid an additional S492, l 77 in other costs related to this financing.
Certain management participated in the "bought-deal'" public offering, by acquiring 281,000 units at a price of $0.425 (CAD$0.55) per unit for gross proceeds of S 119,425 (CADS 154,550).
On November 28, 20 18. the Company filed a preliminary short fom1 base shelf prospectus where it advised shareholders of its intent to raise a maximum US$50 million through a public offering of either
equity securities. debt securities or a combination of both. 1l1e Company has mel with multiple in vestment banke rs in both Canada and the United States who have expressed an interest in assisting the
Company with a capital misc .
In line with its needs for additional financing, on April 3, 20 19. !he Company closed the first tranche of a private placement of convertible debenntres that raised gross proceeds of CADS 1,929,000 (the
"Debentures"). The Debentures are unsecured, bear interest al 12% per annum, compounded annually with 1 % payable at the beginning of each month and mature on April 3, 202 1.
Additionall y, !he Company arranged for a credit facility (the "Bridge Loan") to be provided by Espresso Capital Ltd which will grant the Company access to a maximum USS5,000,000. The Company
signed the loan documents on April 18, 20 19 and was advanced USS2,000,000 on April 23, 2019. In partial conside ration of the US$5 ,000 ,000 gross credit facility available to the Company, and in
connection with the initial advance of US2.000,000, the Company issued to Espresso Cupitul wa rrants for the purchase of 3,289.500 common shares al a price or C$0.35 per share. The Warrants expire
on April 18, 2020.
Capital Expenditures
The Company has an approved capita l budget of S2,629,000 for the 20 19 fiscal year related lo research and development equipment, manufacturing equipment and patent registration . In 20 18,
$3 ,785 ,760 (2017 - Sl,030,340, 2016. $ 1,28 1,170) was either spent in cash or accrued for acquiring development and manufacturing equipment and new patents.
38
C.Rcsearch and Deve lopment
Virtually all of PO ET's R&D expenditu res in recent years arc in some way connected to the Optical Lnterposer. We expect to continue to spend Lhe large majority of our R&D resources for the foreseeab le
future on Optical Interposer-based products across a wide variety of potential applicntions. The only other R&D expenditures that we ha ve or may incur relate to conventional non-interpose r-based
products that we develop and manufacture for our legacy sensing product lines that repre sent the majority of our current sales. However, we intend to develop and transition these products to the Optica l
Interposer, because or the resulting cost und perfommnce advunluges lhat it provides.
POET" s Optica l Interposer development program consists of over 20 development projects in three areas: I) Active Component Deve lopment, which includes a variety of application-specific Indium
Phosphide (lnP)-based lasers, detectors and modulators ; 2) Passive Component Development, which includes app lication-specific filters, mux-demux devices, waveguides and spot size converters. all
designed and fabricated using POET's proprietary dielectric materials and processes; and 3) Core Integration Process Development, which includes processes such as assemb ly, hermet ic scal ing, flip-chip
techniques, reflect ion management, and wafer-level test. In order to optimize our development resources, we have taken a "building block" approach, beginning with the mosl fundamental functions
needed for 1he Oplical Interposer in each of these three areas. The Optical Interposer is unique in the industry, incorporating several " first time ever" implcmenlations of advanced optics and
semiconductor packag ing 1echniques and complelely new, novel designs for components. To minimize risk and maximize lhe probability o r success ful outcomes, we nm parallel development programs.
both internal and external. Our external programs engage development partners or subcontractors to provide devices, process expertise or equipment that we do not have internall y.
Internally generated research costs, including the costs or developing intellectual properly and maintaining patents arc expensed as incurred . lnl emal development cos ts arc expensed as incurred unless
suc h costs meet the criteria for deferral and amortization under IFRS, which to date has not occurred.
We incurred $8,692,804, $5,442,873 and $3, 165,825 of research and development expenses in 20 18, 2017 and 20 I 6, respectively, which includes non-cash stock-based compensation of S536,32 I
S369,007 and S373, 196 respectively. Other expenses related to research and de\·clopmcnt cxpcndirures in the scmiconduc1or business include costs associated with salaries, material costs, license fees ,
consu lting serv ices and th ird-party contract manufacturing. The expenses in all years presented can be analyzed as follows :
Wages ond benefits
Subcontrac1 fees
Stock-based compensation
Suppl ies
D. Trend lnfonnation
20 18
4,641,238
1,288,566
536,321
2 226.679
8,692,804
s
2017
2,839.088
1,044 ,936
369,007
1.1 89.842
5,442,873
s
s
20 16
1.572,567
1,013 ,539
373, 196
206.523
3, 165,825
s
Other than as may be disclosed el sewhere in thi s annual report and specifically in ITEM 4.B. " Business Overview," we arc not aware of any trends, uncertainties. demands, commitments or events that
arc reasonably likely to have a material effect on our net revenues, income from operations, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not
necc:ssurily indicative of future operating results or financial condition.
E.Off-Baluncc Sheet Arrangements
The Company has no material off-ba lance sheet arrangements in place at this time.
F.Tabular Disclosures of Contractual Obligations
The following table sets forth our contractua l ob ligations and commercial co mmitment s as or December 31, 2018:
Contraclual Obligations
Operating Lease Obligations
G.Safe Harbor
See ·'Forward Looking Statements" on page I of this Annual Report.
Total
< I yea r
Payments due by peri od (USS)
1-3 yea rs
3-5 years
>5 years
1.225. 102
S
4 16,348
808,754
39
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.Direclors and Senior Managcmcnl
The following table sets forth infonnation regarding our Dircclors and Officers for the most recent financial year.
Name
Jcan•Louis Malingc (3)
Peter Charbonneau (\)(3)
Dr. Surcsh Vcnkatcsan
Kevin Barnes
Thomas R. Mika
Don Listwin (2)
John F. O'Donnell (2)(3)(4)
Chris Tsiofas ( 1)(2)(3)
Todd A. DcBonis (2)(4)
David E. Luzovsky (2)
Mohandas Warrior ( 1)
Rajan Rajgopa l
Richard Zoccolillo
( I) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Corporate Governance and Nominating Committee
(4) Resigned in 2018
Positions
Director
Corporate Go\'emnnce and Nominating Committee Chair and Di rector
Chief Exccuth'e Officer and Director
Corporate Controller and Treasurer
Chief Financial Officer
Director
Fonner Corporate Governance and Nominating Committee Chair and Directo r
Audit and Compensation Committee Chair and Director
Fonner Director
Chainnan and Direclor
Director
President - Denselight Semiconductor Ptc. Ltd .
Senior Vice President - Strategic Marketing and Product Management
Aec
65
65
52
47
67
60
72
5 1
54
47
58
55
57
nnte First Elected or
Appointed a Director or
Officer
September 5, 20 17
March 28. 2018
June 11, 2015
December\, 2012
November 2, 2016
January 22. 2018
February 14, 2012
August 21, 2012
April 8, 2015
Apri l 8, 2015
June 15, 2015
January 23, 2017
September 20, 20 18
Dr. Suresh Veukatcsan as CEO. Dr. Vcnkalesan was most recently Senior Vice President, Technology Deve lopment at Global Foundries and was responsible for the Company's Technology Research
and Development. Dr. Venkatesan joined Global Foundries in 2009, where he led the development and ramp up of the 28nm node and was instrumental in the technology lransfer and qualificalion of
14nm. In oddilion, he was respons ible for the qualilication und ramp up of mul tiple mainstream value-added technology nodes.
Mr. l11omas Miku as EVP & CFO. Prior to joining POET. Mika served fo r one year us the Executive Chairman of Renno vu Hea lt h. Inc .. fo llowing ils merger in 2016 with Coll ubRx, Inc .. the successo r
company to Tegal Corporation, a semicond uctor capital equipment company (NASDAQ: TOAL) . Following its spin-out from Motorola, Mika served on the Board of Directors ofTega l from 1992 to
2002 and became Tegal's CFO in 2002 . From 2005-2012 , he was Tegal's Chairman, President and CEO, and continued in those positions following the acquisition ofCollabRx , which he later merged
into Rennova Health. In 1980, Mika co-founded IMTEC , a boutique M&A, inveslment and consulting finn, serving clients in the U.S. , Europe and Japan over a period of 20 years, taking on the role of
CEO in several ventures. Earlier in his career, Mika was a managing consultant with Crcsap , McCorn1ick & Pagel and a policy analyst for the National Science Foundation. He holds a Bachelor of
Science in M icrobio logy from the Uni versi ty of Ill inois at Urbana-Champaign and a Master of Business Administration from the Harvard Graduate School of Business.
Mr. Kevin Barnes has been serv ing as Corporate Controller and Treasurer since 2008 and briefly as Chief Financial Officer (2016 - 2016). Mr. Barnes holds a Master of Business Administration and is a
member of the Institute of the Certified Management Accountants of Australia and an Acc redited Chartered Secretary. Mr. Burnes served as u Corporate Controll er and Business Perfon nance Manager
for EC Engli sh, one of the world's largest language training institutes between 2006 and 20 14. Mr. Barnes also serves ns Chief Financial Officer of VVC Exp lorat ion Corporation, a minerals explorntion
company since 2006. From 2000 to 2006, he was a reporting manager with Duguay and Ringler Corporate Services, which specia lizes in financia l reporting for publ icly trnded companies.
40
Mr. John F. O'Donnell has a BA ( Economi cs) and an LLB , has practi ced law in the City of Toronto si nce 1973 and has been on the Board of Directors of the Company since February of 2012 . He is
currenlly counsel to Stike man Keeley Spiegel LLP . His practice is primarily in the field of corporate and securities law and, as such, he is and bas been counsel to several publicly traded companies. Mr.
O ' Donnell is current ly al so Chairman of the Board o f Peloton Mining Corporation. (PM: CSE). Mr. O'Donnell resigned from the board of directors on December 3 1, 20 18.
Mr. Chris Tsiofas, CA, CPA, earned a Bachelor's of Commerce Degree from the University of Toronto and is a member of the Chartered Professional Accountants of Canada and the Canadian Tax.
Foundut ion. He has been on the Board of Directors since August of 201 2. He is a partner wit h the Toronto Chartered Professional Accou ntancy !inn of Myers Tsiofas Norheim LLP.
Todd A. DeBonis is a veteran semiconduct or executive with ove r 27 years of expertise in sa les, marketing and corporate deve lopment. For the last decade Mr. DeBon is was the Vice President of Global
Sales and Strategic Development at TriQuint Se miconductor. Mr. DeBonis played an integra l part in the recent merger of Tri Quint with RFMD and subsequent creation of Qorrn, Inc. Mr. DeBonis
previous ly held the posi tion of Vice President, Worldwide Sa les and Marketing at Centillium Communicat ions. Mr. DeBonis also served as the Vice Presi dent, Worldwide Sales for lshoni Networks and
Vice President, Sales & Marketing for the Comm unications Division of Infineon Technologies North America . Mr. DeBonis bas a B.S. degree in Electrical Engineering from the University of Nevada.
Mr. OeBonis resigned from the board of directors on January 22 , 2018.
David E. Lazovsky is lhe founder of lntcnnolccular and served as that company ' s President and Chief Executive Officer and as a member of the board of directors from September 2004 to October 201 4.
Mr. lazovsky has an in-depth knowledge of the semiconduc tor industry, technology and markets. Prior to founding Intermolecular, Mr. Lazovsky held several senior manugeme nt positions at Applied
Material s (NASDAQ: AMAT). From 1996 through Augu st 2004, Mr. Lazovsky held management pos itions in the Metal Deposition and Thin Fi lms Product Bus iness Group where he was responsib le for
managing more than $1 billion in Applied Materia ls' semiconductor manufacturing equipment business. Mr. Lazovsky holds a B.S. in mechanica l engineering from Ohio University and, as of March 3 1,
201 4, held 41 pending or issued U.S. patents. Mr. Lazovsky was appointed as the Chairman of the Board on February I , 2017.
Mr. Mohan Warrior was president and chief executive officer (CEO) of Alfalight Inc . {"Alfalight") from February 2004 to Sep 2016. Alfalight is a GaAs based hi gh power diode laser manufacturing
company with headquarters in Madison, Wisconsin. Alfa.light serves military, telecom and industrial cuslomers. Mr. Warrior established Alfalighl as a lead ing provider of high-powered laser di ode
so lutions in both commercial and defense segments. A lfali ght was sold to Gooch and Housego in 20 16. Prior to joining Alfalight. Mr. Warrior's career included 15 years at Motoro la Semiconductors
(now Freesca le) where he led the tesl and assemb ly operations, a group of3500 employees, in the US. Sco1land and Korea. Mr Warrior earned his Bachelor's degree in Chemical Engineering from Indian
In stitute of Technology. Delhi, a Master's degree in C hemical Engineering from Syracuse University. New York and an MBA from the Kellogg School o f Management at Northwestern University.
Mr. Jea n-Louis Malinge serves as partner with ARCH Venture Partners, an early-stuge venture capital fim, with nearly S2 billion under management. Additiona lly, he also serves as a managin g director
for YA DAI S, a leading consulting finn in the photon ics and telecommunications industries, and is a board member of EGIDE SA and CAllabs. EG IDE SA designs, manufactures and sells hermetic
packages for the protection and interconnect ion of severn.l types of electronic and photonic chips and CAllubs is a venture-backed French innovati ve start-up founded in 2013 which has developed a
unique spalial multiplexing platfonn. From 2004 to 201 3 Jean- Louis was President and CEO of Kotura, a Sili con Photonics pioneer which was acquired in 2013 by Mellanox Technologies. Prior to
Kotum Mr. Malinge was an executive wi1h Coming Inc fo r 15 years. Jean-Louis hold an Exec uti ve M.B.A. from MIT Sloan School in Boston, Massachusetts. He ulso holds an engineering degree from
the lnstitut Nationa l des Sciences AppliquCcs in Rennes, France.
Mr. Don Listwin has over 30 years of technology investing and management experience, hi ghl ighted by a decade at Cisco Systems, where he served as executive vice president. During his te nure at
Cisco, he built several multi-billion-dollar lines of business, including the company's Service Provider line of business that underpins much of today's global Internet infrastructure. More recently,
Listw in served as chief executive officer of both Sana Security and Openwavc Systems. In addition, Listwi n fou nded and holds the role of chief executi ve officer of the Canary Foundation, a non-profit
research organization focused on the early de1ection of cancer. He also serves as a director on the boards of AwareX. Ca lix, D-wave, iSchemaView, Robin Systems and Teradici. Previously, he al so
served on the boards or was an advisor to JDS Uniphnse, PLUMgrid. Redback Networks, E-TEK Dynamics. the Cellul ar Telecommunications & lnternel Association (CTIA) and the Business
Deve lopment Bank of Canada (BO C).
Mr. Rajan Rajgopal is a seasoned semiconductor executive with senior previous ro les al top multi-nntional leaders such as Micron, Global Foundries and Texas lnstrnmcnts. He holds an MSEE degree
from the University of Maine and a BS EE degree from the University of Texas at Austin .
Mr. Churboonenu was a general partner al Skypoint Cap ital Corporation for almost 15 years, where he was jointly responsible for the placeme nt o f $ 100 million of capital in early-stage
telecommunications and data communi cation companies. Charbonneau currently serves on the board of directors of Teradici Corporation. a co ll aboration solutions Company and the creator of PColP
protocol technology and Cloud Access Software. He recently served on the Board of Mi tel Networks Corporation, a leading global provider of cloud and on-site business communications until November
201 8 when it was sold to a pri va te equity finn . He served as Lead Director. Chair of the Nominating and Governance Committee and Chair of the Audit Committee. He previously served as Chairman of
the Board of Trustees for the CBC Pension Board and a director on the board of the Canadian Broadcasting Co rporation as well as many technology and networking companies , including March
Networks Corporation , TELUS Corporation, Brcconridge Corporation and Dragonwave Incorporated.
Mr. Zoccoli llo joined the Company with extensive experience in the photonics industry, including sen ior management roles at lnfinera, Opncxt and Lucent Technology ' s optical networking bus iness. He
has held senior management roles in Operations as well as General Management roles executing on growt h-oriented business strategies. Mr. Zoccoli llo has served on the Advisory Board for Kaiam
Corporation and the Sc hool of Science and Technology o f Monmouth Un iversity.
The Directors. unless otherwise noted above. have served in their respecl ive capacities since their electi on and/or appointment. and wi ll serve unt il the next Company's annual general meeting or until u
successor is dul y elected, unl ess the office is vacated in accordance with the Articles o f Continuance.
41
The Board has adopted a written Code of Business Conduct and Ethics to promote a culture of ethical bu siness conduct and relics upon the selection of persons as directors, senior management and
employees who they consider to meet the highest ethical standards. The Company's Code o f Bu siness Ethi cs con be found on the Company's web sit e at : www.poet-technologies.com.
There ore no family relation ships between any of our Directors or senior management. There are no urrangement s or underslandings with major shareholders, customers. suppliers or others, pursuanl to
which any persoa referred to above was selected as n Director or member of senior management
B. Compensation
Fixed Stock Option Plan
On September 21, 2007, the Directors approved a fixed 20% vesting Stock Option Plan (the "Plan'') to replace the Rolling Stock Option Plan that had been in effect s ince May 4, 2005 . The Plan was
approved by the disinterested shareholders of the Company at the Shareholders' Meeting of June 19, 2008 and accepted for filing by the TSXV. Under the Plan, the maximum number of shares (the
"Maximum Number") which may be issued pursuant to options granted under lhe Plan or otherw ise granted cannot exceed 20% of the issued and oul stunding shores. The shareholders fixed the
Maximum Number at 11 ,930.000. Therea0cr. the Pinn has bee n amended by the Directors. and such amendmenls have been approved by the shareho lders in 2009. 201 I. 2013 . 2014, 2015. 20 16 and
2018. The Maximum Number is c urrently 57,6 11 ,360 shares.
The purpose of the Plan is to ass ist the Company in allracting, retaining and moti vating direc tors, employees and consu ltants of the Company and any of its subsidiaries and to closely align the personal
interests of such directors, employees and consuhants with those of the shareholders by providing them with the opportunity, through options, to acquire common shares in the capita l of the Company.
The Pinn provides that the number of common shares issuable pursuant lo options granled under the Plan nnd pursuant to other previously granted options is limited to the Maximum Number, currently
fixed at 57 ,6 1 I ,360. Any subsequent increase in the Maximum Number must be approved by shareholders of 1hc Company and cannot exceed 20% o f lhe issued and outstanding shares of the Company al
the ti me of the shareholders' approval. There is no other limit to the number of options grunted to any individual , except for:
(i) 2% on a yearly basis to any one consuhant and (ii) 2% on a yearly basis to any employee providing "In vestor Relations Activities."
The following paragraphs summarize some of the tem1s of the Plan:
Eligibility. Options may be granted under the Plan to directors, employees , consultants and consultant companies of the Company and any of its subsidiaries. Options may also be granted to individuals
referred to as "Management Company Employees" which are employed by a company providing management services to the Company. except for st:rvices involving ''Investor Relations Activities."
Plan Administration. The Board of Directors is the plan administrator, subject to the advi ce and recommendations of our Compensation Committee. The plan administrator wi ll detennine the provisions
und lenns and conditions of each gra nt.
Exercise Price. The exercise price subject lo an option shall be detennined by 1he Board and set forth in the option agreemenl. but shall be either (i) nor less than 1he Inst closing price of the Company 's
common shares as traded on the TSXV. unless discounted by the Board or (ii) such other price agreed by the Board and accepted by the TSXV. Except in certa in circumstance, lhe Company can amend
lhe other tenns of a stock option only where prior TSXV acceptance is obtained and where the foll owing requirements arc met :
(i} if the amendment is in respect of an option held by an insider of the Company, but excluding amendments to extend the length of the stoc k option tenn, the Company obtains disinterested
shareholder approval ;
(ii)ifthe option exercise pri ce is amended, al least six months have elapsed since the later of the date of commencement of the tenn, the date the Company's shares commenced trading, or
the date the opt ion exercise price was lasl amended;
liii)if lhe option price is amended to the di scounted market price, the exchange hold period is app li ed from the date of the amendment (and for more certainly where the option price is
amended to the market price, the exchange hold period will not apply); ancl
(iv)if the length of the stock option tcnn is amended, an y extension of the length of the tenn of the stock option is treated as a grant of a new option, and therefore the amended option must
comply with the pricing and other requirements of the policy as ifit were a newly grunted option. The term ofun option cannot be exte nded so 1hu1 lhe effecl ive term of the option exceeds
IO years in total. An option must be outstanding for at least one year before the Compu ny can extend its tcnn .
The TSXV must accept a proposed amendment be fo re the option may he exercised as amended. If the Company cancels a stock option and within one year gra nts new options lo the same individual , the
new options will be subject to the requirements in secti ons (i) to (iv) above.
42
Option Agreement. Options granted under the plan arc evidenced by an option agreement that sets forth the terms, conditions and limitations for each grant.
Tenn of the Awards. At the meeting of the Board of Directors bcld on February 25, 2016, based on the report ofCompcnsia, it was delennined that stock options should generJIJy have a term of 10 years .
Vesting Schedule. In general, options granted under the Plan vest 25% immediate ly and 25% every six months from the date of issue, until fully vested. The directors may, at their discretion, specify a
different vesting period, provided Iha! options granted to consultants performing "Investor Re lat ions Activities" must vest in stages over 12 months with no more thnn 25% of the options \'esting in nny
three. month period. Al the meeting of the Board of Directors held on February 25. 20 16, based on the report ofCompensia. it was determined that stock options should vest 25% at the end of one year
from the date of issue with the remaining 75% vesting equally on a quarterly basis over the remaining 3 years for a total vesting period of 4 years. At a meeting of the Board of Directors held on March
30, 20 I 7, the board approved a revised one•year vesting schedule for options granted for service on the board to confom1 to the tenn for which a director is elected. Such options will vest 25% at the end
of each quarter served in office.
Transfer Restrictions. Options granted under 1he Plan may nol be lransfcrred in any manner by the option holder other than by will or the laws of succession and may be exercised during the lifetime of
the option holder only by the option holder. Securities tbal arc subject to restrictions may not be transferred during the period of restriction.
Change of Contro l and Alteration of Capital. The Plan provides that if a Change of Control, as defined herein, occurs, the shares subject to option shall immediately become vested and may thereupon be
exercised in whole or in part by the option holder. The Plan also provides for automatic adjustments in the number of optioned shares and/or the exercised price, in the event of an alteration in the share
capital of the Company.
Termination of Options. In the event that the award recipient ceases employment \\·ith us or ceases ro provide services 10 us, the options will terminate after a period of time following the tem1ination of
employment. Our Board of Directors has the authority to amend or tenninate the plan subj ect to shareholder approval with respect to certain amendments. However, no such action may adversely affect
in any material way any awards previously granted unless agreed upon by the recipient.
Officer Compensation
Total cash compensation accrued and/or paid (directly and/or indirectly) to all of our Officers during fiscal yenr 20 18 was $1,333,9 19 {refer to ITEM 7. "Major Shareho lders and Related Party
Transaction s" for infonnation regard ing indirect payments)
In order to assist the Board of Directors in fulfilling its oversight responsibilities with respect to human resources matters, the Board eslab lished a Compensation Committee. The Compensation
Committee reviews and makes determinations with respect to senior officer compensation on a rei,,'1..llar basis with any discretionary compensation used only for extraordinary projects or significant
mil estone results that advance the Company's growth potential. When dctennining Executive Officers' compensation, the Compensation Committee receives input and guidance from the Executive
Chairman of 1he Board and the Chief Executive Officer of the Company. In the past, 1he Compensation Commillee has engaged an outside consultanl to conduct a peer group review lo provide guidance
to the Compensation Committee with respect to appropriate comparal ive terms for executive compensation and stock option grants. The Company also utilizes peer group comparisons from subsidiary
loc ations to assist in its salary review of various positions in those loca tions. The Compensation Committee utilizes such comparative reviews to assist it in making appropriate recommendations to the
Board.
In addition to his or her fixed base salary, each officer may be eligible to receive variable pay compensation or bonus meant to motivate him or her to achieve short• tenn goa ls. Currently, the Company
does not have in place established procedures for delermining variable pay compensation. Stock options are an importa nt element of the variable pay compensation and do not require cash disbursement
from the Company. Stock options are also generally awarded to officers, qualifying emp loyees and consuhanls at the lime of hire and ore used as a recruitment tool to attract highly qualified and
experienced executives, employees and consultants to the Company. Stock options arc also granted at other times during the year. As the Company is continuing to develop its Optical Interposer
technology, it must conserve its limited financial resources and control costs to ensure that funds are available when needed to complete its schedul ed developments. As a result, the Compensation
Committi:e generally considers not only the financial situation of the Company al the time of the detennination of the compensation, but also the estimated financial situation in the mid• and long•tem1.
The use of stock options encourages ond rewards performance by aligning an increase in each officer's compensation with increases in the Company 's perfonnance nnd in shareholder value.
43
The fo llowing table sets forth all annual and long-tcnn compensation fo r services in all capac it ies to the Company for fiscal yea r 2018 of the Company.
Options-Based Awards( I)
(2)
Non-Equity Incenti ve Plan
Compensati on
Name and Principal Position
David Lazovsky, Executive Chairman
Dr. Surcsh Vcnkatcsan Chief Executive Officer
Richard Zocco lillo, SVP Strategic Ma rketing
Kevin Barnes Treasurer and Controller
Thomas Mika Chief Financial Officer
Rajan Rajgopal President of Dense light
Fisca l
Year
2018
20 18
2018
20 18
20 18
20 18
Salary (2)
(USS)
200,000
440,000
72,917
11 7,669
283,333
220,000
Share-
Based
Awards(!)
(2)
(USS)
No. of
Options
950,000
3,900,000
1,750,000
150.000
950,000
250,000
(US$)(1)
(2)
347,856
1,845,488
477,796
54,925
347,856
9 1,541
Annual
Incenti ve
Plans
Long-term
Incentive
Plans
Pe nsion
Value
(USS)
All
Other
Comp.
(USS)
Total
Comp .
(US S)
547,856
2,285,488
550.713
172.594
631,189
311 ,54 1
(I) The Company used the Black-Scholes model as the methodology to calculate the grant date fair value. The fa ir value will be recorded as an operating expense as the options vest based on the slock
options vest ing schedule from the date of grant.
(2) The exchange rate used in these calculations to convert CAD to USO is based on the exchange rate applicab le ot the dale of grant.
44
The fo llowing table sets forth infonnation concerning all awards outstanding under a stock option plan to each of the current officers, as of December 31 , 2018:
Oeti on-Based Awards
Share-Based Awards
Name
David lazovsky
Richard Zocco lillo Manocha
Kevin Barnes
Thomas Miko
Dr. Suresh Venkntesan
Rajan Rajgopa l
No. of Shares
Underlying Uncxcrcised Option Exercise Price
Oetions (#)
(CASlshare)
25,000
250,000
150,000
3,000,000
950,000
I 750,000
25,000
25,000
50,000
50,000
50,000
25,000
100,000
250,000
150,000
1,000.000
500,000
1,000,000
950.000
6,357,000
300,000
3,000,000
3,900.000
500,000
250,000
500,000
1.54
1.99
0.86
0.39
0.52
0.39
0.23
0.51
0.76
1.24
1.54
1.08
0.86
0.28
0.52
0.62
0.385
0.28
0.52
1.40
0.86
0.28
0.52
0.36
0.52
0.28
Value ofUnexercised
In-The Money Options
(!)(USS)
733
Option Expiration
Date
Jun 12. 2020
April 08, 2020
July 07, 2026
Feb I, 2027
Mar 28, 2028
Sc 24, 2028
Feb. 16, 2022
Sep. 28, 202 1
Feb. 28, 202 1
Aug. 12, 20 19
June 12, 2020
Aug. 13, 2020
July 7, 2026
July 31, 2027
Mar 28_, 2028
Nov 2. 2026
Jan 16,2027
July 13, 2027
Mar 28. 2028
Ju ne 15, 2020
July 7,2026
J uly 13, 2027
Mor 28, 2028
Jan 23,2027
Mar 28,2028
Jul 13, 2027
Number of Shares
or Units of Shares That
Have Not Vested(#)
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
Market or Payou t
Va lue of Share-
Based Awards That
Have Not Vcslcd
(US$)
NIA
NIA
NIA
NIA
NIA
NIA
NIA!
NIPI
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
( I) This amount is calculated based on the difference between the markel value of the shares underly ing the options as of December 3 1, 2018, being CAD S0.27 (US$0.20). und the exercise or base price
of the option. The exchange rate used in these calculations to convert CAD to USO was 0. 7333, being the clos ing exchange rate at December 31, 20 18.
The value vested or earned during l'iscal year 20 18 or incentive plan awards granted to NEOs arc as follows:
NEO Name
Richard Zoceolillo
Kevin Barnes
Suresh Venkutesnn
Thomas Mika
Rajan Rajgopal
David Lazovsky
Option-Based Awards - Va lue
Share-Based Awards - Va lue Vested
Non-Equity Incentive Plan
Compensati on - Value Earned
Vested During the Ycar( I) (USS)
During the Year {USS)
During the Year {USS)
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
N/A
NIA
NIA
NIA
(I) This amount is the doll ar va lue that wou ld have been rea lized and is com puted by obtaining the difference belween the market price of the underlying securities on the vesting date and the exercise or
base price of the options under the option-based award. For Lhe named executive officers to realize this value, lhey would have bad lo exerc ise thei r options and sell the shores on the day or vesting.
The exchange rates used in these calculations to convert CAD to USO were the rates applicab le on the vesting dates.
45
Director Compensation
The fo llowing table details compensation paid/accrued for fi scal year 20 18 for each director who is not also an officer.
Options-Based
Awards( l )(2)
Non-Equity
Incentive Plan
Compensation
All
Name and Principal Position
John F. o·oonncll (3)(4)
Todd. A. DeBonis (4)
Don Li stwin
ChrisTsiofos
Mohan Warrior
Peter Charbonneau
Jean-Louie Mnlingc
Fiscal
Year
Salary (cash)
(2)
(USS)
20 18
20 18
201 8
20 18
201 8
20 18
2018
40,000
2,500
27,500
50,000
30,000
22.500
30.000
Shnrc-
Based
Awards
( I )
(USS) No. of Shares
433 ,333
(USS)
100,968
867,750
487 ,666
399,000
553,730
399,000
165,696
111 ,064
90,87 1
90,87 1
90,87 1
Annual
Incentive
Long-tcnn
Pension
Other
Total
140,968
2,500
193 , 196
16 1,064
120 ,871
11 3.371
120,871
( I } The Company used the Black-Scholes model as the methodology to calc ulate the grant date fair va lue. The fair value will be recorded as an operating c:-.pcnse as the stock opt ions vest from the date
of granr.
(2) The exchange mte used in these calcu lati ons to convert CAD to USO was the rate o r exchange app licable on the date or grant.
(3) The firm ofStikcman Keeley Spiegel LL P, of which Mr. O'Donne ll is counse l, bi ll ed the sum of$ 11 5,740 for lega l fees and disburseme nts incurred in 20 18.
(4) Resigned from the boa rd in 20 18
The fo llowing table sets forth in fonnation concerning a ll awards outstanding under the stock option plans to each of the current Directors who arc not a lso named executi ve officers as of December 3 1,
20 18:
46
Name
John F. O ' Donnell
Chris Tsiofas
Peter Charbonneau DcBonis
Don Listwin
Jean-Louis Malinge
Mohan Warrior
Oetion-Based Awards
Share-Based Awards
No. of Shares
Underlying
Unexercised
Options{#)
Option Exercise
Price
(CAS/sharc)
150,000
12,500
625,000
300,000
443,333
100,000
_liQ,000
687,500
300,000
300,000
150,000
487,666
399,000
154,730
562,500
399,000
468,750
525 ,000
399:000
562,500
250 ,000
399,000
I 50,000
0.23
0.345
0.28
1.24
0.33
1.54
_ 0.86
0.28
1.24
1.54
0.86
0.33
0.33
0.52
0.28
0.33
0.22
0.30
0.33
0.28
1.54
0.33
0.86
Value of
Unexerciscd In-
The Money
Options (I)
(USS)
4,400
17,187
Option Expiration Date
16-Feb-22
19-Aug-20
13-Jul-27
12-Aug-19
21-Jun-28
12-Jun-20
07-1~6
13-Jul-27
12-Aug- 19
12-Jun-20
07-Jul-26
21-Jun-28
21-Jun-28
28-Mar-28
13-Jul-27
21-Jun-28
22-Jan-28
05-Sep-27
21-Jun-28
13-Jul-27
12-Jun-20
21-Jun-28
07-Ju l-26
Market or Payoul
Value
of Share- Based
Awards That
Number of Shares or Units of
Shares That Have Not Vested Have Not Vested
(#)
(US$)
NI A
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NI A
NIA
NI A
NI A
NIA
NIA
NI A
NIA
NIA
NIA
NIPI
NIP/
NIP/
NIA:
NIP/
NIA:
NIP/
NI A
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
N IA
NIA
NI A
NIA
NIA
NIA
(I) This amount is calculated based on the difference between the market value of the shares underlying the options as of December 3 1, 20 I 8, being CAD S0.27 (US$0 .20), and the exercise or base price
of the option. The exchange rate used in these calculations to convert CAD to USO was 0. 7333, being the closing price at December 31, 2018.
The value vested or earned during fiscal year 2018 of incentive phm awards granted to Directors who arc not also named executive officers arc as follows:
Director Name
Peter Charbonneau
John F. O'Donnell
Jean-Louis Malinge
Chris Tsiofas
Don Listwin
Mohan Warrior
Option-Based Awards - Value
Vested During the Year ( I ) (US$)
Share-Based Awards - Value Vested
During the Year (US$}
Non-Equity Incentive Plan
Compensation - Value Earned
During the Year (USS)
NI A
NI A
NI A
NI A
NI A
NI A
NIA
NIA
NIA
NIA
NI A
NIA
(I) This amount is the dollar value that would have been realized and is computed by obtaining the difference between the market price of the underlying securities on the vesting date and the exercise or
base price of the options under the option- based award.
Termination and Change of Control Benefits
Other than disclosed below in "Written Management Agreements," the Company has no plans or arrangements in respect of remuneration received or that may be received by the Orficcrs the Company
to compensate such Officers, in the event of tcm1ination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.
47
Pension Plan Benefits
The Company docs not provide a defined be nefit plan to the Officers or any of its employees.
The Company offers a defined contribution plan that is a 40 I k Pl.in but docs not contribute toward such plan. The Company does not have any deferred compensation plans other than that described
above.
Written Ma nage ment Agreements
The Company and/or its subsidiaries have employment contrac ts with the following current and fonner Officers as follows:
Dr. Vcnkotcsan entered into an Executive Employment Agreement with an effect ive date of June 10, 20 15 wherein (i) he will be paid US$550,000 per year under at-will ten11s of employment; (ii) he
will be eligible for annua l and special bonuses as determined by the Board of Directors; (iii ) he was granted 6,357,000 slack options vesting over 4 years: (iv) he became e li gibl e for a signing bonus or
US S450,000 poyable on the first anni versary of the eITcctivc date: lv) he will rece ive a severnnce of twel ve months on termination of employment by the Company, other than for cause. Mr. Ve nk atesan
agreed to a pennanent reduction of hi s cash compensation by 20% effective Octobe r 20 16, reducing his compensation fro m US$550,000 to US$440,000 per year.
Mr. Mika entered into an Ex:ecutive Employment Agreement wi th an effec tive date of Novem ber 2, 20 16 wherein (i) he wil l be paid US$250 ,000 per year under at- wi ll tenns of employment (ii) he will
be eligib le for annual and spec ia l bonuses as dctcnnined by the Board of Directors; (iii) he was granted 1,000,000 stock options vesting over 4 years; (iv) he will rece ive an additional 500,000 stock
options vesting over 4 years in Q I 20 17 (v) he will be entitled to compensation of three months' salary on term inati on of employme nt by the Company, if termination is other than for cause. M r. Mika 's
compensation was adjusted to USS300,000 on May I. 20 18.
On July I, 20 16, Mr. Lazovsky entered in to a Consulting Agreement with the Company to provide strategic, technological , integration a nd othe r ge neral consulting services. For his serv ices, Mr.
Lazovsky was paid S150,000 for the lenn from July I. 20 16 to December 3 I. 2016.
Mr. Luzovsky entered into an Executive Employment Agreement to provide services us the Executive Chaimmn or the Bourd, with an effective date of Febrnary I, 20 17. He will (i) be paid USS200,000
per year under at-will tenn s of employment (ii ) be eligible for annual and specia l bonllses as dctennincd by the Board of Directors; (iii ) granted 3,000,000 stock opt ions vesting over 4 years; (iv) be
entitled to compe nsation of six months' sa lary on termina ti on prior to 2 years of employment by the Company, if termination is other than fo r cause.
Mr. Barnes has an arrangement with the Company to provide consulting services starting January I, 201 3 for a peri od o r one year with an automalic one-year renewa l at a month ly rate or CA$13.750.
The Company may tenninatc the arrangement without cause on six months ' notice or equivalenl compensation.
Effective December 30, 20 16, Mr. Rajan Rajgopal entered into an employment agreement with DenseLight to prov ide services as the President and General Manager of DenseLi ght. As per the
agree ment, Mr. Rajgopal will (i) be puid be pnid US$220,000 per year (ii) be eligib le for annuul und special bonuses as delennined by the Board of Directors; (iii) be grunted 500,000 stock options
vesling over 4 years; (iv) be grunted an additional 500,000 stock options no later than June 30, 2017 (v) be entitl ed to compensalion of one month sa lary on termination of e mploymenl by the Company,
if tennination is other than for cause.
EITective September 10, 201 8. M r. Zocco lillo entered into an e mployment agreement to provide services as the Senior Vice Pres idenl Stnitegic Marketing and Product Management. As pe r the
ngreemenl, Mr. Zoccolillo wi ll (i) be paid be paid US$250,000 pe r year (ii) be e li gibl e fo r annua l and spec ial bonuses as de1e nn ined by the Boa rd o r Directors; and (iii) be granted 1,750,000 stock options
vesting over 4 years.
48
C. Board Practices
Our Board of Directors currently consists of seve n (7) dirccrors, including five (5) independent directors. Each director holds office until the next annual general meeting of the Company or until his
successo r is elected or appointed, unless his office is earlier vacuted in uccordance with the Articles or Amulgamution und all amendments !hereto (the "A rticles"), or with lhe provisions or the OBCA.
The Company's Officers are appointed to serve at the discretion of the Board, subject to lhc tcm,s of the employment agreements described above.
The Ooard and committees of the Board sc hedule regular 1111::i:tings ovi:r lhe 1.:uurse of the year.
During fiscal 2018, the Board held 12 regu larly sc heduled meetings, including committee meetings. If for various reasons, Board members may not be able to attend n Board meeting. all Board members
arc provided information related to each of the agenda items before each meeting, and, therefore, can provide counsel ourside the confines of regularl y schedu led meetings.
The Board has adopted standards for detcnnining whether a director is indepe ndent from management The Board reviews. consistent with the Company's corporate governance guidelines, whether a
director has any material relationship with the Company that would impair the director's independent judgment. The Board has affinnatively determined , based on its s1andards, that Messrs. Tsiofas,
Malingc, Charbonneau, Listwin and Warrior arc independent.
Directors' Service Contracts
Mcssrs.Vcnkatcsan and Lazovsky cnlcrcd into cmploymcnl contracts as explained above in "Written Management Agreements."
Aud it and Compensation Committees or 1he Board of Directors
We currently have three board commillees; (1) an Audit Committee; (2) a Compensation Committee, and (J) a Corporate Governance and Nominating Comminee. Committee charters con be found on
the Compnny· s website (poet-technologies.com). The names of the members and n summary or the terms or the charter for each the Audit Commillcc and the Compensa tion Commillcc is provided
below.
Audit Committee
The Audit Committee is currently comprised of three members: Chris Tsiofas lChair). Peter Charbonneau nnd Mohandas Warrior. All three members nre independent directors of the Company. Mr.
Tsiofas was appointed chair of the Audit Committee on August 21, 2012. The Board has dctennined that Mr. Tsiofas satisfies the criteria of "audit committee financial expert" within the meaning of Item
40 l(h) of Regulation S-K and is independent in accordance with Ruic 4200 of the NAS DAQ Marketplace Rules. All members of the audit committee arc financially literate, meaning they have the ability
to read and understand a set of financial stal emen ls that present a breadth and level of complexity of accounting issues that are generally comparable to the breudlh and complexity of the issues that can
reasonably be expected lo be raised by the Company 's financial slntcments.
The Audit Committee is responsible for reviewing the Company's financial reporting procedures. interna l controls and the performance of the Company's exlemul auditors. The Audit Committee is also
responsible for reviewing the annual and quarterly financial statements and accompanying Management' s Discussion and Analysis prior to their approval by the full Board. The Audit Committee also
reviews the Company's financial controls with the auditors oftbc Company on an annual basis.
The Company's independent auditor is accountable to the Board and to the Audit Committee. The Board, through the Audit Committee, has the ullimatc responsibility to evaluate the perfonnance of the
imlcpcndcnt auditor, and through the shareholders, to appoint, replace and compensate the independent auditor. Any non-audit services must be pre- approved by the Audi1 Committee.
Compensa tion Committee
The Compensation Committee is currently comprised of three members: Chris Tsiofas (Chair), David Lazovsky and Don Listwin. Mr. Tsiofas was appointed chair of the Compensation Committee on
November 14, 2014. Both Mr. Tsiofas and Mr. Listwin arc independent directors. David Lazovsky currently serves as the Executive Chairman of the Board and is not independent. However, the Board of
Directors detennined that Mr.Lazovsky's extensive knowledge of local employment conditions. practices and salary le vel made him a valuable addition to the Committee. The Board has detem1ined that
all members of the Compensation Committee arc qualified as members based on the tOllowing :
Mr. Chris Tsiofas, CA, CPA, Chainnan of the Compensation Committee, earned a Bachelor's of Commerce Degree from the University of Toronto in 1991 and has been a member of the Institute of
Chart ered Accountants of Ontario since 1993. He has been on the Board of Directors of the Company since August of 20 12. Mr. Tsiofas is a partner with the Toronto Chartered Professional Accountancy
finn of Myers Tsiofas Norheim LLP , a position he has held since I 994. Mr. Tsiofas has served as Chairn,an of the Company's Compensation Committee since 2014 and has directed past engagements
with the Company's outside executive compcns:uion consultants. Mr. Tsiofas is also the Chairman of the Audit Committee of the Board of Directors. He brings to the Compensation Committee
specialized knowledge regarding the tax impact of certain compensation policies and practices on indi viduals and on the Company.
Mr. Don Listw in has over 30 years of technology investing and management experience, highlighled by a decade at Cisco Systems, where he served as ils Executive Vice President. Mr. Listwin currenrly
serves as ch ief execulive officer or iSchema View and in the recent past served as ch ief executive officer orbolh Sana Securily and Openwave Systems . Mr. List win also currendy serves as a director on
the boards of AwarcX, Calix, 0-wavc. Robin Systems and Tcradici. Previously, he also served on the boards or was an advisor to JDS Uniphase, PLUM1:,rrid, Redback Networks, E-TEK Dynamics, the
Cellular Telecommunications& Internet Association (CTIA) and the Business Development Bank of Canada (BOC). ln these capacities, Mr. Lishvin had extensive direct experience with executive
compensat ion matters as both a chief executive and board member of an assortment of companies, large and sma ll, includin g companies within industri es directly releva nt to the Company.
49
Mr. David E. Lazovsky is the founder of lnternmlecu lar and served as that company's Presidenl and Chier Executive Officer and as a member of the board of direcmrs from September 2004 to October
2014. Mr. Lazovsky has an in-depth knowledge of the semiconductor industry, technology and markets. Prior to founding lntennolecular, Mr. Lazovsky held several senior management pos itions at
Applied Ma1cria ls (NASDAQ: AMAT). From 1996 through Augusl 2004, Mr. Lazovsky held management positions in 1he Metal Depos ition and Thin Films Product Business Group where he was
responsib le fo r managing more than $ 1 billion in Appl ied Materials ' semiconductor manufocniring equipment business. Mr. Lazovsky holds a 8.S. in mechanical engineering from Ohio University and,
as or March 31, 2014. held 41 pending or issued U.S. patents. Mr. Luzovsky was appointed us the Chainnan or the Board on Febniary I, 2017 and was recent ly ap pointed to !he Compensation
Committee.
The Compensation Committee has extensive direct n:lcvant e:<.pcricncc in tleLermining executive compensation policies and practices on behalf of the Company. In addition to being supported by outside
compensution consultants on u periodic basis for peer group review, the members of the Committee are profess ional executives familiar with best pract ices associated wit h executive compensation, are
knowledgeab le about the tax impli cations to the Company and its executive officers or changes in the tax laws pertaining to executive compensation and have di rect releva nt experience with the
incentives used throughout the Company's industry to align the interests of executi ve management with company and shareho lder inlercsts. Thi s gives these individuals strong insight as to the incentive
structures and programs appropri ate for companies ofa compa rabl e size. The seniority, experience and level of achievement of the three current members of the Compensation Committee speak to the
independent judgement exerci sed in making decisions about the suitab il ity of the Company ' s compensation policies and practices.
The Compensation Commjttec discusses and makes recommendations to the Board for approva l of compensation issues that pertain to the senior executives of the Company, and on issues involving
emp loyment company-wide compensation policies and practi ces. In general, the compensa tion programs of the Company arc dcsit,rned to reward perfonnancc and to be competitive with the
compensat ion agreements of other co mparable semiconductor companies. The Compensatio n Comm ittee is responsible for evaluating the compensutio n of the senior munagement or the Company und
assuring that they arc compensated effec tive ly in a manner consistent with the Company's business, stage of deve lopment, financial condition and prospects, and the competitive en vi ronment .
Spec ifically, the Compensation Committee is responsible fo r: (i) reviewing the compensation practices and policies o f the Company to ensure that they arc competitive and that they provide appropriate
motivation fo r corporate perfonmmce and increased shareholder va lue; (ii) overseeing the administration of the Company's compensation programs, and reviewing and approving the employees who
receive compensu tion and the nature of the compensat ion provided under such programs, and ensuring that all management compensation programs are linked to meaningful nnd measurnble performance
targc1s: (iii) making recommendations to the Board regarding the adoption , amendment or tennination of compensation programs and the approval of the adoption, amendment and tcnnination of
compensation programs of the Company, including for greater certainty, ensuring that if any equity- based compensation plan is subject to shareholder approval, and that such approval is sought; {iv)
periodicall y surveying the executive compensation practices of other comparable companies; (v) establishing and ensuring the satisfaction of perfonnance goals for perfonnancc-based compensation; (vi)
annuu \ly reviewing und approving lhe annual base salary and bonus targets for th e se nior executives of the Company. other thun the Chief Executi ve Officer (the "CEO"); (vii) reviewing and approving
annual corporate goals and objectives for the CEO and evaluating the CEO 's perfonnance against such goa ls and objectives; (v iii) annuall y reviewing and approving, based on the Compensation
Committee's eva luation or the CEO. the CEO 's annuul base salary, the CEO's bonus. and any stock option grunts unr.l other awards to the CEO under th e Company's compensation programs (in
detennining the CEO's compensation, the Compensation Comminec will consider the Company's performance and relative shareholder return, the compensation of CEOs at olhcr companies, and the
CEO 's compensution in past years); and (ix) reviewing the annual repon on executive compensation required to be prepared under applicable corporate and securities legislation and regulation includ ing
the di sclosure concerning members of the Compensation Committee and settling the reports requ ired to be made by the Compensation Committee in any document required to be filed with a regulutory
authori ty and/or di stributed to shareholde rs.
In 20 I 6, the Compensation Comm ittee contracted with Compensia to perfonn an executi ve compensation review (the " Review'') of certain sen ior pos itions within the then-current executive management
team . Base salaries and annual and long-lenn incentives were benchmarked ugainst a group of public companies in the communications equipment, semiconductor, and electronic component industri es.
The data provided was one of lhe elements considered by the Compensation Conunitt ee, with adjustments made fo r the di!TerenCes in stage or development, revenues, profitability and other
characteristics that distinguished the Company from the benchmarks.
The benchmurks comprised the fo llowing companies: Alliance Fiber Optic Product, Amtech Systems, Applied Optoelectronics, Clearfield, CybcrOptics, Dynasil , EMCOR£, Exnr, GigPeak, GSI
Technology, lntennolecu lar, LightPath Technologies, Micropac Industries, Nanometrics, PDF Solutions, Quick.Logic and Uhratech. The da la came from each company's publ ic filin gs available as of
April 2016. The positions benchmarked were CEO. COO, CTO, VP-Product Development and VP-Design Enab lement. Due 10 cost and relevance, the Company e lected not to repeat the Rev iew with
Compcnsia for its consideration of exec uti ve compensation fo r fiscal years subsequent to December 3 1, 20 16.
Code of Ethics
The Board has adopted a wri tten code of business conduct and ethi cs. All transgressions of the code of business conduct and ethics arc required to be promptly reported to the Chair of the Board or of any
committee, who in tum, reports them to the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee is charged with investigating alleged violations of
the code of business conduct and ethics. Any findings of the Corporntc Governance and Nom inating Committee arc then reported to the full Doard, which will take such ac tion as it er 31,
Current assets
Property and equipmen t
Patents and licenses
Goodwill a nd intangible assets
Total Assets
Year Ended Decemb er 31 1
Revenue
Cost of revenue
Selling, marketing and administration
Research and development
Impairment loss
Other income in cluding interest income
As of December 31,
Current assets
Property and equipmenl
Patents and licenses
Goodwill and intangible assets
Total Assets
Year Ended December 31,
Revenue
Cosl of revenue
Selling, marketing and administration
Research and deve lopment
Other income includin~ interest income
Net loss from operations before income tax recovery
2018
s
Singapore
4,283,008
9,136,694
18,464
6,718,953
s
us
302 ,4 05
162,8 19
448,250
1,764 ,459
20, 157,119
2,677,933
Singa(?ore
us
Canada
2,302 ,851
Consolidated
6,888,264
9,299,513
466,714
8,483 ,4 12
2,302,851
s
25, 137,903
Can ad a
Consolidated
3,888,185
1,475,969
8,252,278
3,533,994
156,717
(1,49 1,556)
2,337,342
4,706,8 17
1,099,584
451 ,993
(14,234)
3,888,185
1,475,969
11 ,689,204
8,692,804
156,717
p,sos,1901
20 17
s
Sinsaeore
3,190,298
8,018,900
18,816
6,756, 18 1
17,984, 195
s
us
4,621 ,318
259,270
437,434
1,764.459
7,082.48 1
s
Canada
Consolida lcd
139,096
7,950,712
8,278, 170
456,250
8,520,640
139,096
25,205,772
s
$
s
Singaeore
us
Canada
Consolida1ed
2,794,044
1,342,69 1
4,955,497
3,237,7 13
(1,748,244)
4,993,6 13
4,872,902
1,877,966
1,042,342
327, 194
(1 8,280)
2,794,044
1,342,69 1
10,870,74 1
5,442,873
(1,766,524)
6,750.868
s
1,3 51,256
13,095,737
Page 22
POET TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Ex rcsscd in US Dollars}
17.
SEGMENT INFO!l!"\1ATION (Continued)
As or December 3 1.
Current assets
Property and equipmenl
Patents and licenses
Goodwill and intangib le asscls
Total Assets
Year Ended December 3 1,
Revenue
Cost or revenue
Selling, marketing and administration
Research and dcvclopmcnl
lmpainncnt loss
Loss on disposal of properly and equipment
Other income including interest income
Changes in fair value of contingent consideration
20 16
Singapore
2,118,56 1
9.039.069
6.793,409
us
10.058,018
322.633
449,676
1,764 ,459
Canada
4,957,624
2,508
Conso lidated
17,134,203
9,364,2 10
449,676
8,557,868
17.95 1.039
12.594.786
4.960.132
35.505.957
Singapore
1,861,747
946.001
3,242,703
1,042,842
( 14,027)
(283,130)
us
7,027,03 3
2, 122,983
63 ,522
29.807
Canada
Consolidated
1,151,868
16,93 I
(52,845)
1,861,747
946,00 1
11,421 ,604
3,165,825
63,522
46.738
(66,872)
(283, 130)
13,431 ,94 I
Net loss from operations before income tax recovery
3.072.642
9.243.345
I.I 15.954
18.
FINANCIAL JNSTRU~ IENTS AND RISK MANAGEMENT
The Company's financial instruments consist of cash and cash equiva lents, non-current assels he ld fo r sale, accoun1s receivable, and accounts puyable and accrued liabilities. Unless otherwise
noted, it is management's opinion that the Company is not exposed to significant interest risk arising from these financia l instruments. The Company estimates that the fa ir value or these
instruments approximates fair value due to their short tenn nature.
The Company has classified financial assets and (liabilities) as follows al December 31:
Fair value through profit or loss, measured at amortized cost:
Cash
Short-tenn investments
Accounts receivable. measured at amortized cost:
Accounts receivable
Other liabilities, measured at amortized cost:
Accoun1s pavoble and accrued liubililies
2018
20 17
2016
2,567,868
4,974.478
14,376,282
589,275
946,944
493 ,925
292,849
(3,040,422)
(810.593)
0.624.344)
Page 23
POET TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
18.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT {Continued)
Credit Risk
The Company is exposed to credit risk associated wilh i1s accounts receivable. The Company has uccounts receivable from both governmenta l and non-governmenta l agencies. Credit risk is
minimized substantially by ensuring the credit worthiness of the entities with wbich it curries on business. Credit terms are provided on a case by case basis. The Company has not experienced
any s ignificant instances of non-payment from its customers .
The Company's accounts receivab le ageing at December 31 was as follows:
Current
3I-60days
6 1 - 90 days
> 90 days
Expected credit losses Cl)
2018
20 17
20 16
s
892,343
34,331
60,885
(40,615)
946 944
330,731
56,094
107, 100
125,6 10
16,346
75,816
75,077
493,925
292,849
( !) The Company applies IFRS 9 si mplified approach to measuring expected credit losses usi ng a lifetime expected credit loss allowance for trade recei vables .
The allowance is included in se lling , gencrnl and administrative expenses in the consolidated sta temen ts of operations and deficit. Amounts charged to the loss allowance account are genera lly
written ofTwhen there is no reusonubl e expectation of recovery.
In prior years, the impairment of trade receivables was assessed based on the incurred loss model and determined by management in accordance wi th its assessment of recoverability.
Receivables for which an impuinncnt provision was recognized were wrinen off against the provision when there was no expectation of recovering additional cash.
Exchange Rate Risk
The functional currency of each of the entities included in the accompanying consolidated financial statements is the loca l currency wbcre the entity is domiciled . Functional currencies include
the US, Singapore and Canadian dollar. Most transactions within the entities arc conducted in functional currencies. As such, none of the ent ities included in the consolidated financial
stutements engage in hedging activities. The Company is exposed to a foreign currency risk with the Ca nad ian and Singapore dollar. A 10¾ change in the Canud ian and Singapore dollar
would increase or decrease other comprehensive loss by S386,391 .
Liq uidity Risk
The Company currently does not maintain credil facilities. The Company's existing cash und cush resources ure not considered sufficient 10 fund operating and investing activilies beyond one
year from lhc issuance oflhesc conso lidated financial statements. The Company will need to seek additiona l financing to continue as a going concern.
Page 24
POET TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Ex rcsscd in US Dollars}
19.
CAPITAL MANAGEMENT
l11 the management of capital, the Company includes shareholders' equity (excluding accumulated other comprehensive loss and deficit) and cash. The components of capita l on Dcccmher 31 ,
2018 were:
Cash
Shareholders' equity
2,567,868
156,374,686
The Company's object ive in managing capital is to ensure that financial nexibility is present to increase shareholder value lhrough growth and responding to changes in economic anOration, as that term is defined in the U.S Securities Act of 1933, (or if he is. he is an affi lia1e orthe Corporation only by virtue of being an officer or director of the
Corporation),
he has not offered, and has not instructed any person to offer, 1he Optioned Shares to a person in the Un ited States;
the sale of his Optioned Shares should only be exec uted in, on or through the facilities of The TSX Venture Exchange and neither he nor any person acting on hi s behalf know that a sale has been
prearranged with a buyer in the United States,
neither he nor any affiliate of his nor any person ac ting on his behalf has engaged or will engage in any directed selling efforts in the United Stales in connection with the offer and sale of such
Optioned Shares,
the sa le will be bona fide and not for the purpose of"wushing off' any resale restrictions imposed,
he does not intend lo repluce the shores so ld with fungible unrestricted securities; and
his sa le or contemp lated sale is not a transaction, or part of a series of transactions which is part of a plan or scheme to evade the registration provis ions of the I 933 Act.
Executed by the Corporation as of • ·
Acceptance
OPTION EE (Employee Number)
Dated:
POET TECHNOLOGIES INC.
Per:
Authorized Signatory
SCHEDULE "8"
TSX venture
Exchange
FORM4F
CERTIFICATION AND UNDERTAKING REQUIRED FROM A
COMPANY GRANTED AN INCENTIVE STOCK OPTION
Re: _ ___ ___ _______ ___________ _ ___ _ ___ _ __ __ __ __ __ __ _ _ (.the "Issuer")
Trading Symbo l:
the Option J-lo\dcr arc owned by __________ _ , a Person eligible to be grunted an incentive stock option, and undenakes, for the duration of the time that the Option Holder is the holder
ofun incenlive stock option in the securities of1he Issuer, thul it will not:
(1hc "Opt ion Holder'") certifies that all sec urities of
I .
2.
effect or permit any transfer of ownership or op tion of securities of the Option Holder; or
allot and issue further securities of~my class of shares of the Option Holder to any other individual or entity.
Acknowledgement - Personal Information
"Personal ln fom1at ion'" means any infonnalion about an identifiable individual, and includes the in fonnation contained in the first paragraph of this Form.
The undersigned hereby acknowledges and agrees that it has obtained the express written consent or each individual to:
the disclosure of Personal Information by the undersigned to the Exchange (as defined in Appendix 6A) pursuant to this Form; and
the collection, use and disclosure or Personal ln forn101io n by the Exchange for the purposes described in Appe ndix 6A or as otherwise identified by the Exchange, from time lo lime.
(a)
(b)
Dated
[Name of Option Holder]
Authorized signatory
Exhibit 4.26
300 - 8 King Street East
Toronto, Ontario MSC 185
WW\\·.csprcssocupi tal .com
+ I (877) 604-7733
~ espresso
April 18, 2019
PROPRIETARY AND CONFIDENTI AL
CREDIT FAC ILITY AGREEMENT
POET Technologies Inc .. and each entity lis1cd in the Schedule of Borrowers attached to this Credi t Fac ility Agreement
1107 - 120 Eg linton Avenue East
Toronto, Ontario, M4P I E2
tm@poct-tcchnologies.com
(416! 368-94 11
Ancntion: Thomas Mi ka, CFO
RE: Credit Facility
Espresso Capital Ltd . ("Espresso" ) is pleased to present this Credit Fac ility Agreement (this "A greement") to POET Technolog ies Inc., and each entity listed in the Schedule of Borrowers attached to this
Cred it Facility Agreement (each, a " Borrower" and collectively, " Borrowers"). The Schedules to this Agreement fonn part of and are integral lo this Agreement.
The Deposit of CDNS20,000 previous ly paid wi ll be applied against the Fees (as set out in Schedule A).
If Borrowers agree with the terms and conditions of thi s Agreement , then Borrowers shall return a sibrncd copy to Espresso no late r than 5:00 pm ET on Apri l 11 , 20 19. Upon rece ipt by Espresso, thi s
Agreement shall be the binding and govern ing agreement between Espresso and Borrowers about the Credit Facility (as delined in Schedule A) with effect the date first written above.
Yours truly,
Espresso Capital Ltd.
Acknowledged and Agreed:
Poet Tcchnolo •ics Inc.
(siguctlj Eufo la=:cr
(.\·igncclj T/,011ws 1\1/ika
Per: Enio La.-2er, COO
Per: Thomas M iku, CFO
~ espresso
300 - 8 King Street East
Toronto, Ontario MSC I B5
www.csprcssocapita l.com
+ I (877) 604-7733
Acknowledged and Agreed:
BB Photonics Inc.
Acknow ledged and Agreed:
OD IS Inc.
(signed) 7110111as Mika
(signed) 7110111as Alika
Per: Thomas Mika, CFO
Acknowledged and Agreed:
OPEL Inc.
(signed) 1710mas Miktt
Per: Thomas Mika, CFO
Per: Thomas Mika, CFO
~ espresso
Schedule A: Credit Terms at the date first written 11bovc
300 - 8 King Street East
Toronto, Ontario M5C I B5
www .csprcssocapi1a l.com
+ I (877) 604-7733
Establishment of Credit Facility
Espresso hereby establishes in favour ofBon-owers u revolving credit facility (the "Credit Facility") to finance the Credit Items identified in the
Authorized Credit Table below, with advunces made, from time to time (each, an "Advance") in uccordunce with this Schedule A, and thereafter as
may be mun1ally agreed, provided no Advance will be made after an Event of Default or in excess of the Credit Limit. In this Agreement the
" Principal" means the then current aggregate of a ll unrepaid Advances. and lhe " Indebtedness" means the Principal. accrued and unpaid Interest,
incurred and unpaid Fees and all other amounts payable by Borrower under this Agreement.
Credit Limit
The lesser ofS5,000,000 and the Aggregate Authorized Cred it. from time lo time. Any amount ou tstnnding in excess of1hc then current Credit Limit
shall be repayable on demand.
Aggregate Authorized Credit
As set out in the Authorized Credit Table and adjusted, from time to time by Espresso, as a result ofa change in the Va lue of any C redit Item.
Interest Rate and Payment
Advance Fee
Leg:11 Fees
Initial Advance
Interest of I 5% per annum, calculated dai ly (the "Cash R.1te,.) shall be paid on the outstanding balance of each Advance, by pre-authorized debit, on
the last day of each month, until such Advance is repaid in full. Additional interest of 2.25% per annum, calculated daily (the '· Deferred Rale'') shall
acc111e and be payable on the earlier of (a) the Maturity Date (defined below), or (b) the Sale of DenscLight (defined below), and the Cash Rate and
the Deferred Rale shall together comprise an annual interest rate of 17 .25%. calculated daily (the "Interest Rate"). If Borrower bas not completed the
sa le of its subsid iary DenseLight Semiconductors Ptc Ltd. (" Dense Light,.) to n buyer disclosed to Espresso ("Buyer") by October 15, 2019, interest of
19.25% per annum, calcul::ited daily shall be retroactively payable from the date of each Advance until paid in full.
2.0% of each Advance. Each extension of the Maturity Date shall be deemed an Advance of the Principal Olllstanding and subject to the Advance Fee
on the duy Espresso confinns its agreement to such extension. The Advance Fee shall be paid on any Advunce requested by a Borrower and approved
by Espresso even if Borrower docs not draw down such Advance.
Borrowers shall reimburse Espresso for n.11 rensonnb le cos ts and expenses incurred by it in connection wilh the prepnratioa of Lhis Agreement and
anc ill ary documents, the perfection of its rights, and recovery of amounts not paid when due under thi s Agreement, in an amount not to exceed
S25,000 (lhc " Legal Fees"). Espresso shall provide Borrowers with a copy of the account issued to Espresso by its legal counsel.
S2,000,000 is hereby requested by Borrowers for April 12, 2019 and hereby approved by Espresso subject to the condit ions in this Agreement
applicable lo Advances.
Advances Subsequent to the Initial Advance
Borrowers, subject to the Credit Lim it and conditions in this Agreement applicable to Advances, may request Advances, from time to time after
rece ipt of the Initial Advance no less than 30 days prior to the date upon which Borrowers wish lo rece ive such Advance.
~ espresso
Fin:rncial Covenants
300 • 8 King Street East
Toronto, Ontario MSC 185
www .csprcssocapital.com
+ I (877) 604-7733
Poet Technologies Inc. ("Poet") shall, while Indebt edness remains outstanding, maintain Net Working Cap ital ofno less than $2 ,500,000. "Net
Working Cap ilal'' means current assets (including available and undrawn Aggregate Authorized Cred it) minus current liabilities (not including any
Advance), deten11ined in accordance with generally accepted accounting principals.
Borrower shall notify Espresso immediately upon the occurrence of each and every event which may reasonably be expected to result in (i) a mat eria l
change to the tenus of the transaction (including any adjustment to the sale cons ideration) outlined in the Lener of Intent bet\veen Poet and Buyer
dated February 3, 20 19 in respect of the sale or DenseLight to Buyer (the "Sale of DcnscLight"); (ii) a delay in the execution of aoy agreement
relating to the Sa le of Dense Light past September 15, 2019; or (iii) the termination of discussions between Poet and Buyer in respect of the Sale of
Den se Light.
Debt In Priority to Espresso
Not to exceed S 180,000.
Warrant Terms
Minimum Interest Period
3,289,500 common shares of Poet on terms provided by Poet and agreed to by Espresso at a strike price equal lo CON S0.35 per share.
The Initial Advance may be prepaid, in whole or part, prior to the Maturity Date, provided a minimum of9 months' Interest has been, or is paid on
such Advance at the Interest Rate from the date of such Advance. Subsequent Advances shall not be subject to the Minimum Interest Period .
l\laturity Date
12/3 1/2019
Borrowers' 8.tnk Accounts
Reporting
Borrowers ' accounts from which amounts due under this Agreement shall without duplication. be drawn ond to which Advances wi ll be deposited .
Borrowers shall deliver void cheques for the Borrowers, Bank Accoun ts prior to the Initial Adva nce.
Borrowers••· shall report. through Espresso 's portal , consolidated financial and operational infommtion including (i) a balance sheet, income
stateme nt and cash flow, no later than 30 dnys nfier month end, (ii) financial stateme nts for each financial year consisting of an audited balance sheet,
income statemen t and cash flow within 120 days of such financial year end, and (iii) within 5 days of request such additional infonnation as Espresso
shal l reasonably request.
Other Conditions
(i) A U of Poet's ob ligat ions under this Agreement arc subject to TSX Exchange approval.
(ii) Initial Advance is conditional upon Poet completing a minimum equity misc (or equivalent funding) equal to S l ,400,000 (the " First
Closing''). Each subsequent Advance sha ll be subject to Poet meeting the conditions set out in the Forecast Advance Table .
(i ii) Poet shall use commercia lly reasonable efforts to raise an additional $3,600,000 in equi ty (or equiva lent funding) by May 3 1, 2019. If Poe t is
unable to raise at least S5,000,000 (the " Minimum Raise") by May 3 1, 2019 (inclusive of the amount raised during the First C losing), the interest on
the Principal shall be paid at the Dcfauh Interest Rate until at least $5,000,000 in equity (or equi valent) is rai sed, at which point interest payable sha ll
re vert back to the Interest Rate. The failure to sati sfy th is condition shall not constitute an Event of De fault .
~ espresso
300 - 8 King Street East
Toronto, Ontario MSC I B5
www.csprcssocapital.com
+ I (877) 604-7733
(iv) If: (a) Poet and Buyer fail to reach definitive ogreement s in respect oflhe Sale of DenseLight on or prior to July 15, 20 19, (b) Poet foil s lo send u
circ ular to shareholders of Denselight requesting approval o f the Sale of DenseLight by July 15, 20 19, (c) Poet has not received shareholder approval
fo r the Sale of DcnscLight by September I, 2019, or (cl) Poet or Buyer tcm,inatc di scussions in respect to the Sale of DcnscLight at any time th en, all
receipts by Dcnsclight that come from an incentive program or scheme establi shed by the Singapore Economic Development Board ("EDB ") or in
any way re late to EDB shall be deposited and held in o restricted cash account with HSBC (the Compnny's bank) fo r the sole benefit of Espresso, such
receipts to be immediately applied to the repayment of the Cred it Faci lity.
(v) The Indebtedness shall be immediat ely due and payable upon Poet completing the Sale o fDen seLi gh t. If Poet or Buyer tenninate discussions
relating to the Sale of Denselight. the Indebtedness shall be due and payab le no la ter than 60 days fo llowi ng the tenninal ion of such discussions.
(vi) Espresso shall have the rig!U. in it s sole discretion. to request repayment of all . or a por1ion of the lndebledness, upon Poet completing any
subsequent capital raises in excess of the Min im um Raise (including proceeds received by Poet upon exercise of warrants). No repayment so
requested by Espresso shall be subject to 1hc Minimum Interest Period.
(vi i) Borrowers shall del iver to Espresso, the executed Guarantee and Guarantor's Security Agreement, no later than 20 days fo llowing the Initi al
Advance.
~ espresso
300 - 8 King Street East
Toronto, Ontario MSC I 85
www.csprcssocapita l.com
+ I (877) 604-7733
"'Authorized Credit Table at the date first written above. Poet Technologies lnc. 's Fiscal Year End 12-31.
Cred it Item
Period
Lu.in tu V:ilue
Authorized Credit*
Bridge to Asset Sale
20 19-09-30
$26,000,000
20.0%
$5,200,000
• Authori zed Credi I amounts rounded up to nearest $5.000
Aggregate Authorized Credit
$5,200,000
Advanced to Date
Above
Due Date
Earlier of: (i) 20 19- 12-3 1. and
(ii) the Sale or Dcnsc Light
Creditor Tal,lc
Creditor
HSBC Bank of Canada
Royal Bank of Canada
Foree.1st Advance Table
Date
2019-04- 12
20 19-05-15
2019-07-01
Amount
$2,000,000
$500,000
$ 1,000,000
Requirement
Borrowers to ensure that indebtedness to thi s Creditor docs not exceed S 180,000 .
Not less than two days following Initial Advance, Borrowers to di scharge PPSA registrat ion .
Notes
Conditiona l upon Pocl completing u minimum equity raise (or cquivn lcn l funding) of S 1,400,000.
Conditionu l upon Poet completing an additional minimum equity raise (or equivalent funding) oF$500.000.
Conditional upon (i) definitive agreements being reached in respect of the Sale of Dense Light , for minimum cash proceeds
of $26,000,000 payable on closin£ , and such sale being scheduled to be completed no lalcr than Scplcmbc r 30, 20 19; (ii)
Poet having distributed a c ircular in respec t of the Sale of DcnscLight to shareholde rs for approval; and (iii) Poet having
raised $5,000,000 in the aggregale (inc lusive of the $ 1,900,000 outlined in the Forecast Advance Table above) of equity or
equi valent fundin g.
20 19-08-15
S 1,500,000
Conditiona l upon Poet and Buyer each rece iving all required approva ls in respect of the Su lc of DcnseLight.
~ espresso
Schedule B: Business Terms
Due Date and Maturity Date
The Indebtedness shall be due and paid no late r limn 1he Maturity Date.
Security Requirements
300 - 8 King Street East
Toronto, Ontario M5C I B5
ww,.,,.csprcssocapi1a l.com
+ I (877) 604-7733
To secure due payment of the Indebtedness. each Borrower shall grnnt u security interest to Espresso in all its undertakin g and assets, in Espresso's slandurd fom1 (the "Sec urity Agreement"), subject only
to such encumbrances and on tcnns set out in the Creditor Table. In additional OPEL Inc . (USA) Inc . and ODIS Inc. (USA) Inc. shall each grant a security interest specifica lly in it s intellectual property, in
Espresso's standard form (the " IP Security Agreements"), each subjec t only to such encumbrances and on tcm1s set out in the Cred itor Table.
Unlimited Guarantee:
As additional security DcnscLight Semiconductors Ptc Ltd . ( .. Guarantor") shall deliver Espresso's standard form of guarantee of Borrowers' due performance of this Agreement, and Guarantor shall grant a
first security interest to Espresso in Guarantor' s undertaking and asse ts in Espresso's standard fom1 ("Guara ntor's Security Agreement" ).
Promissory Note
Borrowers shall deliver Espresso 's standard promissory nolc in the fonn of Schedule D (the "Note") to evidence, eac h Advance and its repayment.
Conditions of Advance
Espresso shall have no obligalion to make any Advance unless,
(a) Espresso is satisfied, acting reasonably, there has been no material adverse change to the results of its due diligence ofa Borrower,
(b) Espresso has received the exec uted Note,
(c) Espresso has received the executed Security A£reements,
(d) Espresso has received the execu ted IP Security Agrecmcnls.
(c) Espresso has rece ived for eac h Advance, its fo nn of requ isition and direction executed by an offic er of Borrowers,
(f) Espresso has en lered inlo the inter-cred itor agreements identi(i ed in the Creditor Table, on tcnns sa tisfactory to Espresso.
(g) Espresso has received the executed Canada Revenue Agency ("CRA.") Level I Authorization ,
(h) Espresso has received the void cheq ues for Borrowers' Bank Accounts,
(i) Borrowers have directed Espresso to pay from the Advance, all arrears, if any. due CRA or any other govcmmcnl agency, and
(j) Espresso has received all other deli ve rabl es reasonably requested by Espresso.
~ espresso
300 - 8 King Street East
Toronto, Ontario MSC 185
www.csprcssocapita l.com
+ I (877) 604-7733
The conditions are for Espresso' sole benefit and may be w::iived by it in whole or purt at any rime or times prior to any Advance.
Public Notice
Espresso may disclose this financing on its webs ite ond in its promotional material; provided that Espresso may not disc lose any confidenti al infom1ation related lo Borrowers that is not in Borrowers'
sec urities filings.
Entire Agreement
This Agreement, and other documents to be de livered pursuant to this Agreement , constitute the entire agreemen t between Borrowers and Espresso about the Credit Facility and supersedes all prior
agreements, unders tandings, negotiations and discussions, whether oral or written, of Borrowers and Espresso.
Jurisd iction
This Agreement shall be governed by the laws of the Province of Ontario, and the laws of Canada applicable in On1ario.
Com munic ations
To Espresso:
Address 11s above,
To Each Borrower:
As above
~ espresso
Schedule C: Standard Terms
Evidence of Indebtedness
300 - 8 King Street East
Toronto, Ontario MSC 185
www.csprcssoca pi1al.com
+ I (877) 604-7733
Espresso shall maintain and reconcile records of Advances, accruals and receipts of lntcrcsl, repayments of Advances and all other amounts due under this Agreement. Espresso's records shall constltutc
prima fadc evidence of the Indebtedness. absent manifest error.
Default Interest Rate
Interest of 22.0% per annum , calculated daily and compounded monrhly, both before and atler demand and judgment {the "Default Rate") shall be paid on overdue Interest until paid in full , and !merest at
the Defauh Rate shall be paid on lhe Principal from the day following Borrowers ' foilure to pay or remit any amount when req uired to be paid or remitted under this Agreement, until cured.
Fees
Borrowers hereby authorize Espresso lo, deduct the Advance Fee and the Legal Fees (coll ect ively, the "Fees") as they become due from the Ad vance nex t payable, or draw them, wi thout duplicalion. from
Borrowers' Bank Accounts. Interest sha ll accme on unpaid Fees from the date such Fees were incurred at the Default Rate .
Interest Nol to Be Excessive
If the aggregate of Interest and charges, paid or payable in respect of the Advances under this Agreement (the "Chnrgcs") would exceed tbe annual effective rate pennitted by applicable law, then the
Charges slmll be reduced by the minimum amount necessary so they do not exceed the permined rnte, and uny amount paid in excess will be repaid forth w ith to Borrowers. lf u dispute over the Charges
arises, a Fellow of the Canadian Institute of Actuaries appointed by Espresso shall determine the effective rate, the reduction and the repayment, which determination sha ll be conclusive and binding 011
Espresso and Borrower, absent manifest error.
Represe ntations and Warranties
Each Borrowe r hereby represents and warrants as fo llows:
(a)
(b)
(c)
(d)
It is u corporation duly cons tituted and validly subsist in g.
It has taken all necessary action, corpora te or ot herwise, to authorize the execut ion. deli very and perfonnance oflhis Agreement , the Security Agreement and all other documents deli,·ered by it.
The execution, delivery and performance or this Agreement, the Security Agreemen t and all other documents delivered by it to Espresso do not connict with, nor wi ll result in a violation of its
constating documents or by-laws, or any law or regulation applicable , in any way, to it, its business or its property.
It is not in violation of any, and has filed , reported, deducted and remitted as required under all, laws, rules and regulations relating in any way to it, its business and its property, except for any
such violation or any such fai lure whic h would not result in an adverse effect on it, its business or property.
(e) All written information (other than financial projections) provided to Espresso by it was, at the time provided lo Espresso, complete and acc ura te in all material respects and it is not awa re of any
fu el it had nol di sclosed that would have been necessary in orde r to make the slat ements conlained in such informati on not misleading. A ll financial project ions provided by it to Espresso were
prepared in good faith on assumptions it believed, acting in good faith , to have been reasonable at the time.
~ espresso
300 - 8 King Street East
Toronto , Ontario MSC 1B5
www.csprcssocapital.com
+ I (877) 604-7733
({)
There are no actions. suits. inquiries, clnims or proceedings pending. or to it s knowledge threatened, which would be reasom:ibly expected to have a material adverse effec t on its business,
operations, property or prospects, or ad verse ly affect, in any material respec t, its ability lo observe and pcrfom1 its obligations under thi s Agreement , the Security Agreement or other docu ments it
has delivered to Espresso.
Covenants
Each Borrower agrees to. and shall during the c urrency of thi s Agreement:
(a)
(b)
(c)
(d)
(c)
pay, wi thout duplication, all amounts. ns and when due under lhi s Agreement , and remit laxes and all other deductions and payments requi red to be paid to CRA or Provincial authorities as
1hey become due,
notify Espresso immed iately upon becoming aware ofan Event of Defau lt,
strictly comply wi1h all Financial Covenants,
strictly comply with all laws, rules and rebrulations relating in any way to it , its business or its property, except where fa ilure to do so would not have a materi al effect,
maintain a policy or po licies of insurance on its assets and undertaking for !heir fu ll replacement va lue, and upon Espresso ·s request, assign such insurance to Espresso, provided if a Borrower
fail s to maintain such insura nce, Espresso may. but shall not be obliged 10. maintain or effecl such in surance and add the cost to the Principul ,
(()
not , without Espresso' s prior writte n consent ,
(i)
(ii)
(ii i)
merge or amalgamate with any person.
redeem, repurchase. or pny divide nds on. any of its shares or sernrities,
incur indebtedness to anyone ot her than Espresso, its primary lender under a line of credit (existing at the date first written above) or it s trade credi tors, in the normal course of its
business and consistent with past practice,
(iv)
except for salaries, bonuses, commissions and benefits payable to employees and consultants in the normal course and cons istent with past practice,
a)
b)
c)
d)
e)
make any distribution , loan, advance,
provide any finan cia l assistance to,
guara ntee the obligat ions of,
make any investment in , or
grant any securi ty in favo ur of,
any of its affi liales, shareho lders, directors, office rs, employees. consu ltants or uny non-arm's length person,
(v)
enter into any arrangement, by which it may pay a share of its profit or revenue to any person,
(vi)
sell any of its receivables,
10
~ espresso
300 - 8 King Street East
Toronto, Ontario MSC I B5
www .csprcssocapita l.com
+ I (877) 604-7733
(vii)
dispose of or transfer any of its assets. other than in the nonnal course of it s business and consistent with past practice,
(vi i)
none of the abo\"e, however, shall prohibit it from (a) entering into capita l leases secured on ly by the equ ipment or assels subject of such leuses, (b) issuing share capita l or debt,
convertib le into share capital from its treasury, provided a change of Contro l (as defined be low) wi ll not be effected. and such dcht by its terms, shall not pri or to the Ma turity Date (x)
be repayable, except for interest at a reasonable commerc ial rate, nor (y) permit acceleration of the payment of the principal amount for any reason, or (c) issuing convertible
debentures pursuant lo the convertible debenture indenture to be dated on or about April 12, 2019, and
nol, without Espresso's prior written consent change, in any material respect, the ro le or respons ibilities within Borrower's business, or Dr. Surcsh Vcnkatcsan (CEO) and Thomas Mika
(CFO), and
pennit Espresso's continued viewing access to Poet's accounts with the relevant taxing authorities, and
Borrowers shall deliver, prior to Initial Advance, a binder con finning Espresso as first loss payee to Borrowers' in surance policies.
(g)
(b)
(i)
Events of Default
Upon the occurrence of any of the fo llowing (each an ''Event of Default" ) the Indebtedness sha ll , at Espresso's the option , become immediate ly due and payable:
(a)
(b)
(c)
(d)
{e)
(()
A Borrower fails lo pay any amounl owing by it to Espresso when due and such failure has not been cured wi thin three business days of delivery of notice of such failure.
A Borrower fails to comp ly with or pcrfonn any provision of: (i) this Agrecmcnl, other than a failure 10 pny an amount when due, {ii) any other agreement between a Borrower and Espresso, or
(iii) any undertaking by a Borrower to Espresso, and such failure has not been cured within ten days of delivery of notice specifying such fai lure and the required cure.
A Borrower is in continuing default of any material loan agreement or arrangement with any person other than Espresso {inc luding an agreement with a Creditor identified in the Creditor
Table above) and such default has resulted or may result in an acceleration or demand for immediate repayment of the debt associated with such loan agrcemenl or arrangement.
Espresso reasonably detcnnincs any representation or warranty ofa Borrower in this Agreement, or any information {other lhan financia l projections) in a cert ificate, financial statement,
report. notice or inslrnmenl furnished by a Borrower 10 Espresso is or was false, or misleading in some material respect.
In Espresso ' s opinion. acting reasonably, there has been a material adverse change in the financia l condition or operation o fa Borrower or Guarantor.
A receiver, receiver and manager, or trustee is appointed over any property of a Borrower or Guarantor, or a Borrower or Guarantor foils to pay or admits its inability to pay its debts as they
become due, or ceases or threatens to cease to carry on its business, or is adjudged or declared bankrupt or insolvent, or makes an assignment for the benefit of its creditors, petitions, or applies
for the appointment of a receiver, receiver and manage r, or trustee for it or any of its property, or makes a proposal or simi lar application under the Ba11k111plcy <111d !11sofrem.J' Ac! (Canada),
the Companies Creditor.~· Anw1gemen1 Ac! (Canada) or simi lar legislation. or commences proceedings re lating to it under any reorgan ization. arrangement. readjustmen t of debt, disso luti on or
liquidation law, or by any act indicates its consent 10, approva l of, or acquiescence in, any such proceeding, or any of iL'> property becomes subject lo distress, execution or seizure.
II
~~ ~ espresso
300 - 8 King Street East
Toronto, Ontario MSC I B5
www .csprcssocapital.com
+ I (877) 604-7733
Control of o. Borrower changes after the date of rhis Agreement. "Control" means (i) the right to exercise at least 51% of oulSlanding voting securities of a Borrower or Guarantor, or (ii) the
direct or indirect right to direct the management and policies ora Borrower or whether through ownership of voling securities, by agreement, or otherwise.
The Guarnntor, revokes. or attempts to revoke. repudiates or disputes its liability under the Guarantee.
Any asset material to a Borrower's business is sequestered, attached or seized by a creditor of a Borrower.
(g)
(h)
(i)
Costs
In connection with any Event of Defau lt , Espresso may, in addition lo lhc Legal Fees and all costs which it is entitled under the Security A!:,rreemcnt, churgc Borrower $150 per hour for each of its or its
affiliates own personnel employed or engaged lo monilor a Borrower's affairs, negotiate with CR.A, or otherwise ass ist to collecl amounts due to Espresso. all o f which ure payable on demand
Materiality
In 1his Agreement ' material' means of such nature as Espresso would reasonably consider significant.
Authorization to Debit Borrower's Bank Account
Borrowers hereby authorize Espresso to debil und initiate a wire, without duplicalion, from Borrowers' Bank Accounts to Espresso, from time to time, of all amounts as und when due Espresso under thi s
Agreement, and this authorization shall continue until Espresso has been paid, in foll. all amounts due under this Agreement, but no more than such amounts. Revocation. cancellation or lennination of this
authorization shall not tenninate this Agreement nor Borrower's obligations under this Agreement. Borrowers agree the infonnation in this Agreement necessary to comp lete such debit and wire may be
disclosed to Borrowers' banks as required to complete such debit or wire.
Borrowers Derive Mutual Benefit from and Arc Joint and Several Obligors under This Agreement
All obligations, representations, warranties, covenants, waivers and indemnities in this Agreement shall be joint and several. Espresso shall have the right lo deal wi th any officer of any Borrower about all
matters concern ing the rights and obligations of Espresso and Borrowers under this Agreement, and pursua nt lo app licable law, about the transactions contemplated by this Agreement. E::ich Borrower hereby
appoints each olher Borrower as its true and lawfu l attomey-in-fnct, wi th full right and power. for purposes of exercising all rights of such Borrower under this Agreement and under applicable law ::iboul the
trans::ic1ions con templated by this Agreement. The represe ntations ::ind undertakings by each Borrower in this paragraph ::ire a material inducement to Espresso to enter into this Agreement and to complete
the transactions contemplated by this Agreement. Each Borrower represents, for purposes of this agreement, it is operated as part of one conso lidated business entity and is directly dependent upon each other
Borrower fo r and in connection with their respeclive business activities and combined financial resources. Each Borrower hereby agrees it will receive a direct and malerial economic and financial benefil
from the Advances made under this Agreement and, accordingly. the related incurrence of obligations under this Agreement is in the best interesls of each Borrower.
12
~ espresso
Notice of Principal Repayment
300 ~ 8 King Street East
Toronto, Ontario M5C I BS
www.csprcssocapita l.com
+ I (877) 604-7733
Notwithstandi ng any other provision of this Agreement, Borrower may not repay any amount of Principal prior to the Maturity Date, or a Due Date, if any, except by giving Espresso sixty days prior notice
of the amount and date of such repayment or paying Espresso a fee equal to sixty days Interest on the amount to be repaid. in li eu of such notice ,
Notices
Any communication which is required or pcnnittcd between a Borrower and Espresso re lating to !his Agreement or the Security Agreement shall be in writing and shall be delivered either personally or
electronically. Auy such communication shall be sent lo the intended recipient at the municipal address or email address contained in this Agreement , or such other municipal address or email address as a
Borrower or Espresso may from time to time notify 1he other.
Amendment and Waiver
Excepl as may otherwi se be provided in this Agreement , no supplement, modification or wai ver of this Agreeme nt sha ll be binding unless executed in wri ting by !he person to be so bound. No waiver of any
of the prov isions of this A!,,'Teemenl, nor the acceptance of any payment under this Agreement shall constitute a waiver of any other provis ion nor shall such waiver constitute a continuing waiver unless
01hcrwise expressly provided in such waiver.
Currency
The word "dollar" and si&'ll "S" refer to currency of United States of America, unless otherwi se provided.
Scvcrability
Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall not inva lidate the remaining provi sions and such in valid or unenforceable provision shall be deemed seve red in
such jurisdiction.
Ass ignment a nd Enurcment
Neither thi s Agreement nor any right or obligation under it may be assigned by a Borrowe r without Espresso's prior written consent.
Further Assurances
Borrowers shall with reasonable diligence, do all things and provide all reasonable assurances as may be required to complete and gi,·e effect to the transactions contemplated by this Agreement
Person
In this Agreement " person " is to be broadl y inte rpreted and includes any individual. pur1nership, limited partnership.joint ve nture, syndicate. so le proprielorship or corporation with or without share capital,
unincorporated associa tion, trust, executor or other legal personal representative, regulatory body or agency, government or governmental agency, authority or entity however des ignated or constituted .
13
~ espresso
Counterp a rts
300 - 8 King Street East
Toronto, Ontario MSC I B5
www.csprcssoc apital.com
+ I (877) 604-7733
This Agreement may be execu ted in counterparts and de livered e lectroni cally, each of which when so executed and de li vered shall be an original, and such counterparts shall together constih1tc one and the
same ins tru111t:111.
Confidentiali ty
Unless previously disclosed by Espresso, or disclosure is required by a governmental authority (including securilies regu lators and public exchanges) Borrowers shall ma inta in the 1enns and condi tions or
this Agreement as confidentia l usin g procedures no less stri ngent than 1hosc used for its own confidential in fonnation, and di sclose such tcnns and conditions only to such of its personnel and consultants
who have a need to know.
14
~ espresso
Schedule D: Form of Promissory Grid Note ("Note")
PROMISSORY GRID NOTE
[sample[
300 - 8 King Strccl East
Toronto, Ontario MSC 185
www .csprcssocapita l.com
+ I (877) 604-7733
FOR VALUE RECEIVED. the undersigned ("Bo rrowers"): (i) agree each capitalized word and tenn in thi s Promis sory Grid Note {this "Note") not otherwise defined in this Note shall have the meaning
ascribed to it in the Credit Facil ity Agreement between Borrower and ESPRESSO CAPITAL LTD. ("Espresso") dated [sample] as amended, modified, restated or replaced from time to time (the "Credit
Facility Agreement" ), and (ii) jointly and severally promise to pay to or to the order of Espresso at 300-8 King Street East, Toronto, Ontario, MSC I 85 (or at such other address as Espresso shall no1ify
Borrower), the amount outstanding (the " Principal Amount") set forth on the grid attached lo this Note (as amended, supplemented, restated or otherwise modified from time to time in accordance with the
te nns hereor, the "G rid") together wilh Interest on the Principal Amount no later than the Malurity Dute. provided each Advance and Interest on such Advance shull be paid in accordance with the tenns and
conditions of the Credit Facility Agreement.
Interest at the Interest Rate shall be paid on each Advance from tbc dale of each such Advance, by pre-authorized payment, on the last day of each month . Interest on overdue Interest shall accrue and be
calcula1ed dai ly, both before and after demand and judgment al the Default Interest Rate.
All Advances and any partial prepayments will be recorded on the Grid by Espresso. Each Advance may be prepaid, in whole or part, prior to the Maturity Date and subject 10 minimum Interest payment in
accordance with the Credit Facility Agreement. A ll amounts due under this Note shall immediately become due and payable upon the oecmTcnce of an Event of Default.
Borrowers wa ive presentment for payment, notice of non-payment, notice of dishonour and notice of protest of thi s Note and waives any defences based upon indulgences which may be granted by Espresso
to Borrowers.
This Note shall be governed by the laws of the Province of Ontario, and the laws ofCc1oada c1pplicab\c in Ontario. This Note shall enure to the benefit of Espresso, its successors and assigns, and be binding
upon Borrowers, their successors and assigns.
This Note has been execulcd al the date first wrillen above and may be deli vered by facsimile or other means or electronic communication and when so delivered shall be deemed an original.
Schedule D-1: Grid
Date
Samp le
Advanced
Samp le
Repaid
Samp le
Outstanding
Sample
Notat ion
Sample
15
300 • 8 King Street East
Toronto, Ontario MSC 185
www .csprcssocapi1al.com
+ I (877) 604-7733
~ espresso
Schedule of Borrowers
Borrower
BB Photonics Inc.
OPEL Inc.
ODIS Inc.
Address
780 Monlague Express Way # 107. Sa n Jose, CA, 95 13 1
780 Montague Express Way # 107, San Jose, CA, 95131
780 Montague Express Way 11 107, San Jose, CA, 95131
16
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES
OXLEY ACT OF 2002
Exhibit 12.1
I, Surcsh Vcnkatcsan, certify that;
I.
I have reviewed this annual report on Form 20-F of POET Technologies Inc. ; and
2.
Based on my knowledge, this report does not contain any untrnc statement of a material fact or omit to stale a material fact necessary to make the statements made. in li ght of t.hc circumstances
under which such statements were made , not misleading with respect to the period covered by this report.
Dal e: April 29. 2019
By:
Isl Surcsh Vcnkatcsan
Surcsh V cnkatcsan
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES
OXLEY ACT OF 2002
Exhibit 12.2
I, Thomas Mika. ccrtiry that:
l .
I have reviewed this annual reporl on Forrn 20-F or POET Technologies Inc.; and
2.
Rnserl on my knowl edge, I his report does not con tain any untrue statement of n material fact or om it to state n material fact necessary to make the sta tements mndc. in light or lhc circumslnnccs
under which such statements were made, not mi sleadi ng with respect to the period covered by this report .
Dale: April 29. 2019
By:
/s/ Thomas Mika
Thomas Mika
Chief Financial Officer
Certification of Principal Executive Officer and Principa l Financial Office r Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxlcy Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbancs-Oxlcy Act of 2002, I, Suresh
Vcnkatcsan, the Chief Executive Officer of POET Technologies Inc. (the "Company"), hereby certify, that, to my knowledge:
I. The Annunl Report on Fom1 20-F for the year ended 20 18 tlhe "Report"} of the Company fully complies with lhe requirements of Section IJ(a) or 15(d) of the Securities Exc hange Act of 1934; nnd
2. The infonnation contained in the Report fa irly presents, in all material respects, the financiul condition and results of operations of the Company.
The fo regoing certification is provided solely for purposes of complying wit h the provisions of Section 906 of the Sarbanes-
Oxlcy Act of2002 and is not intended to be used or reli ed upon for any other purpose.
Exhibit 13.1
Date: Apri l 29, 20 19
/s/ Su resh Venkatesan
Name: Suresh Yenkatesan
Title: Chief Executive Officer
Ce rtification of Principal Executive Officer and Principal Financia l Officer Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursu ant lo Section 906 of the Sarbancs-Oxlcy Act of 2002
Pursurmt to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbancs-Ox lcy Act of 2002, l, Thomas Mika, the
Chief Financial Officer of POET Technologi es Inc. (the "Company"), hereby certify, that, to my knowledge:
I. T he Annunl Report on Fom, 20-F for the yenr ended 2018 (the "Report" ) or the Company foll y complies with the requirements of Section 13(a) or IS(d) of the Securities Exchange Act of 1934; and
2. The infonnat ion contained in the Report fairly presents, in all material respects, the finan cial condition and results of operations or the Company.
The fo regoing certifi cati on is provided solely for pllrposes or complying ,vit h lhe provisions o r Section 906 o Cthe Sa rbnnes-
Ox lcy Act of 2002 and is not intended to be used or re li ed upon fo r any other purpose.
Exhibit 13 .2
Date: April 29. 2019
Isl Thomas Mika
Name: Thomas Mika
Title: Chief Fi nancia l Officer
MARCUM
A CC O U N T A. N T S • A DV I S OR S
Exhibit 23.1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING F[RM'S CONSENT
We consenl to the incorporation by reforence in the Registra1ion Statement of POET Technologies Inc. on Fom1 FMI0 (File No. 333 M21 3422) of ou r report dated April 29, 2019, with respect to our audits of
the consolidated financial statements of POET Technologies Inc . as of December 3 1, 20 18, December 31, 20 17 and December JI. 20 I 6 and for the years ended December 3 1, 2018, December JI, 20 17 and
December 3 1, 20 16, wh ich report is included in this Annua l Report on Fann 20MF of POET Technologies Inc. for the year ended December 3 1, 20 18.
New Haven, CT
April 29, 2019