EX-99.1 2 ex99-1.htm

 

Exhibit 99.1

 

NOTICE TO SHAREHOLDERS

For the Three and Six Months Ended June 30, 2022

(Unaudited and Expressed in US Dollars)

 

POET TECHNOLOGIES INC.

 

 
 

 

POET TECHNOLOGIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in US Dollars)

 

 

   Audited 
   June 30,   December 31, 
   2022   2021 
         
Assets          
Current          
Cash and cash equivalents (Note 2)  $11,398,499   $14,941,775 
Short-term investments (Note 2)   2,366,153    6,366,828 
Prepaids and other current assets (Note 3)   381,723    480,523 
           
    14,146,375    21,789,126 
Investment in joint venture (Note 4)   236,946    1,445,251 
Property and equipment (Note 5)   3,362,494    3,064,234 
Patents and licenses (Note 6)   496,760    528,476 
Right of use assets (Note 7)   315,200    326,890 
           
   $18,557,775   $27,153,977 
           
Liabilities          
           
Current          
Accounts payable and accrued liabilities (Note 8)  $1,177,113   $1,791,222 
Contract liabilities (Note 20)   341,975    - 
Lease liability (Note 7)   193,269    101,074 
Covid-19 government support loans (Note 9)   31,068    31,660 
           
    1,743,425    1,923,956 
           
Non-current lease liability (Note 7)   155,733    258,274 
           
    1,899,158    2,182,230 
           
Shareholders’ Equity          
           
Share capital (Note 10(b))   148,814,381    147,729,846 
Warrants and compensation options (Note 11)   5,273,723    5,328,455 
Contributed surplus (Note 12)   48,547,306    46,954,333 
Accumulated other comprehensive loss   (2,274,382)   (2,053,917)
Deficit   (183,702,411)   (172,986,970)
           
    16,658,617    24,971,747 
           
   $18,557,775   $27,153,977 

 

Commitments and contingencies (Note 14)

 

On behalf of the Board of Directors

 

Suresh Venkatesan   Chris Tsiofas

Director

  

Director

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

Page 1
 

 

POET TECHNOLOGIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

(Expressed in US Dollars)

 

 

   Three Months Ended
June 30,		  

Six Months Ended

June 30,

 
   2022   2021   2022   2021 
Revenue (Note 20)  $120,261   $209,100   $120,261   $209,100 
Operating expenses                    
Selling, marketing and administration (Note 19)   2,383,973    2,282,280    4,829,917    4,610,712 
Research and development (Note 19)   2,300,642    2,259,987    4,865,381    3,802,705 
Operating expenses   4,684,615    4,542,267    9,695,298    8,413,417 
Operating loss before the following   (4,564,354)   (4,333,167)   (9,575,037)   (8,204,317)
Interest expense (Note 7)   (12,627)   (94,799)   (26,421)   (329,378)
Other income, including interest   40,300    19,772    62,299    27,081 
Share of loss in joint venture (Note 4)   (745,961)   -    (1,176,282)   - 
Net loss   (5,282,642)   (4,408,194)   (10,715,441)   (8,506,614)
                     
Deficit, beginning of period   (178,419,769)   (161,416,297)   (172,986,970)   (157,317,877)
                     
Net loss   (5,282,642)   (4,408,194)   (10,715,441)   (8,506,614)
Deficit, end of period  $(183,702,411)  $(165,824,491)  $(183,702,411)  $(165,824,491)
Basic and diluted loss per share (Note 13)  $(0.14)  $(0.13)  $(0.29)  $(0.26)

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Expressed in US Dollars)

 

 

   Three Months Ended   Six Months Ended 
   June 30,  June 30, 
   2022   2021   2022   2021 
                 
Net loss  $(5,282,642)  $(4,408,194)  $(10,715,441)  $(8,506,614)
Other comprehensive income - net of income taxes                    
Exchange differences on translating foreign operations   (299,674)   119,264    (220,465)   132,912 
Comprehensive loss  $(5,582,316)  $(4,288,930)  $(10,935,906)  $(8,373,702)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

Page 2
 

 

POET TECHNOLOGIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Expressed in US Dollars)

 

 

For the Six Months Ended June 30,  2022   2021 
Share Capital        
Beginning balance  $147,729,846   $114,586,260 
Funds from the exercise of warrants   196,800    7,455,332 
Fair value assigned to warrants exercised   54,732    3,064,303 
Conversion of convertible debentures   -    3,377,887 
Fair value of warrants issued upon the conversion of convertible debentures   -    (1,164,316)
Funds from the exercise of stock options   418,845    2,611,206 
Fair value assigned to stock options exercised   374,129    2,237,419 
Funds from common shares issued on private placement   -    11,815,595 
Fair value of warrants issued on private placement   -    (3,766,007)
Share issue costs   -    (1,143,034)
Fair value of broker warrants issued as share issue costs   -    (288,197)
Common shares issued to settle accounts payable   40,029    13,814 
June 30,   148,814,381    138,800,262 
Equity Component of Convertible Debentures          
Beginning balance   -    565,121 
Fair value of equity component related to conversion of convertible debentures   -   (546,374)
June 30,   -    18,747 
Warrants          
Beginning balance   5,328,455    5,557,002 
Fair value of warrants issued upon the conversion of convertible debentures   -    1,164,316 
Fair value assigned to warrants and compensation warrants exercised   (54,732)   (3,064,303)
Fair value of broker warrants issued as share issue costs   -    288,197 
Fair value of warrants issued on private placement   -    3,766,007 
June 30,   5,273,723    7,711,219 
Contributed Surplus          
Beginning balance   46,954,333    44,407,679 
Stock-based compensation   1,967,102    2,057,131 
Fair value of stock options exercised   (374,129)   (2,237,419)
Fair value effect of conversion of convertible debentures   -    532,108 
June 30,   48,547,306    44,759,499 
Accumulated Other Comprehensive Loss          
Beginning balance   (2,053,917)   (1,983,212)
Other comprehensive (loss) income - translation adjustment   (220,465)   132,912 
June 30,   (2,274,382)   (1,850,300)
Deficit          
Beginning balance   (172,986,970)   (157,317,877)
Net loss   (10,715,441)   (8,506,614)
June 30,   (183,702,411)   (165,824,491)
Total shareholders’ equity  $16,658,617   $23,614,936 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

Page 3
 

 

POET TECHNOLOGIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in US Dollars)

 

 

For the Six Months Ended June 30,  2022   2021 
CASH (USED IN) PROVIDED BY:          
           
OPERATING ACTIVITIES          
           
Net loss  $(10,715,441)  $(8,506,614)
Adjustments for:          
Depreciation of property and equipment (Note 5)   487,268    393,374 
Amortization of right of use asset (Note 7)   87,610    95,557 
Amortization of patents and licenses (Note 6)   40,816    33,989 
Other operating costs (Note 10)   -    13,814 
Accretion of debt discount on convertible debentures and non-cash interest (Note 7)   26,421    176,997 
Stock-based compensation (Note 12)   1,967,102    2,057,131 
Share of loss in joint venture (Note 4)   1,176,282    - 
    (6,929,942)   (5,735,752)
Net change in non-cash working capital accounts:          
Accounts receivable   -    (209,100)
Prepaid and other current assets   98,622    333,205 
Accounts payable and accrued liabilities   (554,454)   432,321 
Contract liabilities (Note 20)   341,975    - 
Cash flows from operating activities   (7,043,799)   (5,179,326)
INVESTING ACTIVITIES          
Sale of short-term investments   4,000,675    - 
Purchase of property and equipment (Note 5)   (873,172)   (632,022)
Purchase of patents and licenses (Note 6)   (9,100)   - 
Cash flows from investing activities   3,118,403    (632,022)
FINANCING ACTIVITIES          
Issue of common shares, net of share issue costs (Note 10)   615,645    20,739,099 
Payment of lease liability (Note 7)   (112,853)   (118,784)
Cash flows from financing activities   502,792    20,620,315 
           
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (120,672)   260,012 
           
NET CHANGE IN CASH AND CASH EQUIVALENTS   (3,543,276)   15,068,979 
CASH AND CASH EQUIVALENTS, beginning of period   14,941,775    6,872,894 
CASH AND CASH EQUIVALENTS, end of period  $11,398,499   $21,941,873 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

Page 4
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

1. DESCRIPTION OF BUSINESS

 

POET Technologies Inc. is incorporated in the Province of Ontario. POET Technologies Inc. and its subsidiaries (the “Company”) design and develop the POET Optical Interposer and Photonic Integrated Circuits for the data centre and tele-communications markets. The Company’s head office is located at 120 Eglinton Avenue East, Suite 1107, Toronto, Ontario, Canada M4P 1E2. These condensed unaudited consolidated financial statements of the Company were approved by the Board of Directors of the Company on August 8, 2022.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

These condensed unaudited consolidated financial statements of the Company and its subsidiaries were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

 

These condensed unaudited consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated audited financial statements for the year ended December 31, 2021.

 

These condensed unaudited consolidated consolidated financial statements have been prepared on a going concern bases. As at June 30, 2022, the Company had accumulated losses of $(183,702,411) and working capital of $12,402,950. During the six months ended June 30, 2022, the Company had negative cash flows from operations of $7,043,799. The Company has prepared a cash flow forecast which indicates that it does not have sufficient cash to meet its minimum expenditure commitments and therefore needs to raise additional funds to continue as a going concern. As a result, there is substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date of these condensed unaudited consolidated financial statements.

 

The Company has put in place a program of strict expense management while being focussed on generating sufficient revenue to fund operations over the next twelve months. The Company has a reasonable expectation that it will be able to manage its finances in order to continue its operations.

 

The preparation of financial statements in accordance with International Accounting Standards (“IAS”) 34 Interim Financial Reporting, requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed below:

 

Basis of presentation

 

These consolidated financial statements include the accounts of POET Technologies Inc. and its subsidiaries; ODIS Inc. (“ODIS”), Opel Solar Inc. (“OPEL”), BB Photonics Inc.,(“BB Photonics”), POET Technologies Pte Ltd. (“PTS”) and POET Optoelectronics Shenzhen Co. Ltd. (“POET Shenzhen”). All intercompany balances and transactions have been eliminated on consolidation.

 

Foreign currency translation

 

These condensed unaudited consolidated financial statements are presented in U.S. dollars (“USD”), which is the Company’s presentation currency.

 

Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in the statement of operations and deficit.

 

Page 5
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Assets and liabilities of entities with functional currencies other than U.S. dollars are translated into the presentation currency at the year end rates of exchange, and the results of their operations are translated at average rates of exchange for the year. The resulting translation adjustments are included in accumulated other comprehensive loss in shareholders’ equity. Additionally, foreign exchange gains and losses related to certain intercompany loans that are permanent in nature are included in accumulated other comprehensive loss. Elements of equity are translated at historical rates.

 

Financial Instruments

 

IFRS 9 introduced new classification and measurement models for financial assets. The investment classifications held-to-maturity and available-for-sale are no longer used and financial assets at fair value through other comprehensive income (“FVTOCI”) were introduced. Financial assets held with an objective to hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest are measured at amortised cost using the effective interest method. Debt investments held with an objective to hold both assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of fair value are measured at FVTOCI. All other financial assets are classified and measured at fair value through profit or loss (“FVTPL”). Financial liabilities are classified as either FVTPL or other financial liabilities, and the portion of the change in fair value that relates to the Company’s credit risk is presented in other comprehensive loss. Instruments classified as FVTPL are measured at fair value with unrealized gains and losses recognized in net loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method.

 

Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities, other than financial assets and financial liabilities classified as FVTPL, are added to or deducted from the fair value on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities classified as FVTPL are recognized immediately in consolidated net loss.

 

Financial assets

 

The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability.

 

Financial liabilities

 

A financial liability is derecognized from the balance sheet when it is extinguished, that is, when the obligation specified in the contract is either discharged, cancelled or expires. Where there has been an exchange between an existing borrower and lender of debt instruments with substantially different terms, or there has been a substantial modification of the terms of an existing financial liability, this transaction is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. A gain or loss from extinguishment of the original financial liability is recognized in profit or loss.

 

The Company’s financial instruments include cash and cash equivalents, short-term investments, accounts payable and accrued liabilities, contract liabilities and covid-19 government support loans.

 

Page 6
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

The following table outlines the classification of financial instruments under IFRS 9:

 

Financial Assets 
Cash and cash equivalents Amortized cost
Short-term investments Amortized cost

 

Financial Liabilities  
Accounts payable and accrued liabilities Amortized cost
Contract liabilities Amortized cost
Covid-19 government support loans Amortized cost

 

Convertible debentures are accounted for as a compound financial instrument with a debt component and a separate equity component. The debt component of these compound financial instruments is measured at fair value on initial recognition by discounting the stream of future interest and principal payments at the rate of interest prevailing at the date of issue for instruments of similar term and risk. The debt component is subsequently deducted from the total carrying value of the compound instrument to derive the equity component. The debt component is subsequently measured at amortized cost using the effective interest rate method. Interest expense based on the coupon rate of the debenture and the accretion of the liability component to the amount that will be payable on redemption are recognized through profit or loss as a finance cost.

 

Cash and cash equivalents

 

Cash and cash equivalents consist of cash in current accounts of $761,681 (2021 - $4,216,911) and funds invested in US and Canadian Term Deposits of $10,636,818 (2021 - $10,724,864) earning interest at rates ranging from 0.20% - 0.25% and maturing in less than 90 days.

 

Short-term investments

 

The short-term investments of $2,366,153 (2021 - $6,366,828) consist of guaranteed investment certificates (GICs) held with one Canadian chartered bank and earn interest at rates ranging from 1.3% to 2.3%. The GICs have maturity dates between July 2022 and September 2022. Investments are carried at amortized cost.

 

Property and equipment

 

Property and equipment are recorded at cost. Depreciation is calculated based on the estimated useful life of the asset using the following method and useful lives:

 

Machinery and equipment Straight Line, 5 years
Leasehold improvements Straight Line, 5 years or life of the lease, whichever is less
Office equipment Straight Line, 3 - 5 years

 

Patents and licenses

 

Patents and licenses are recorded at cost and amortized on a straight line basis over 12 years. Ongoing maintenance costs are expensed as incurred.

 

Revenue recognition

 

Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Company recognizes revenue when it transfers control over a product or service to a customer.

 

Sale of goods

 

Revenue from the sale of goods is recognized, net of discounts and customer rebates, at the point in time the transfer of control of the related products has taken place as specified in the sales contract and collectability is reasonably assured.

 

Page 7
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Service revenue

 

The Company provides contract services, primarily in the form of non-recurring revenue (“NRE”) where control is passed to the customer over time. The contracts generally provide agreed upon milestones for customer payment which include but are not limited to the delivery of sample products, design reports and test reports. The customer makes payment when it has approved the delivery of the milestone. The Company must determine if the contract is made up of a series of independent performance obligations or a single performance obligation. Where NRE contracts contain multiple performance obligations for which a standalone transaction price can be assessed, revenue is recognized as each performance obligation is satisfied. Where NRE contracts contain a single performance obligation to be settled over time, revenue is recognized progressively based on the output method.

 

Other income

 

Interest income

 

Interest income on cash and cash equivalents and short-term investments is recognized as earned using the effective interest method.

 

Wage subsidies

 

Wages subsidies received from the Singaporean government are netted against payroll costs on the consolidated statements of operations and deficit.

 

Government Grants

 

Loans received exclusively from governmental agencies to support the Company throughout the COVID-19 pandemic qualify to be forgiven if certain conditions are met. Forgiveness of COVID-19 related loans will be recognized as other income on the consolidated statements of operations and deficit.

 

Stock-based compensation

 

Stock options and warrants awarded to non employees are measured using the fair value of the goods or services received unless that fair value cannot be estimated reliably, in which case measurement is based on the fair value of the stock options. Stock options and warrants awarded to employees are accounted for using the fair value method. The fair value of such stock options and warrants granted is recognized as an expense on a proportionate basis consistent with the vesting features of each tranche of the grant. The fair value is calculated using the Black-Scholes option pricing model with assumptions applicable at the date of grant.

 

Loss per share

 

Basic loss per share, net of taxes is calculated by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period after giving effect to potentially dilutive financial instruments. The dilutive effect of stock options and warrants is determined using the treasury stock method.

 

Joint Venture

 

A joint arrangement is an arrangement among two or more parties where the parties are bound by a contractual arrangement and the contractual arrangement gives the parties joint control of the arrangement. A joint venture is a form of joint arrangement where an entity is independently formed and the parties jointly have rights to the net assets of the arrangement and therefore account for their interests under the equity method.

 

Page 8
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

3. PREPAIDS AND OTHER CURRENT ASSETS

 

The following table reflects the details of prepaids and other current assets:

 

   June 30,   December 31, 
   2022   2021 
Sales tax recoverable and other current assets  $87,006   $141,568 
Prepaid expenses   206,217    50,668 
Equipment deposit   88,500    288,287 
   $381,723   $480,523 

 

4. JOINT VENTURE

 

The Company’s contribution of intellectual property to Super Photonics Xiamen Co., Ltd (“SPX”) was independently valued at $22,500,000 at the time of its contribution. During 2021, the Company recognized a gain of $2,587,500 related to its contribution of intellectual property to SPX in accordance with IAS 28. The Company only recognized a gain on the contribution of the intellectual property equivalent to the Sanan IC’s interest in SPX, the unrecognized gain of $19,912,500 will be applied against the investment and periodically realized as the Company’s ownership interest in SPX is reduced. At June 30, 2022, Sanan IC’s and the Company’s ownership interests were approximately 11.5% and 88.5% respectively.

 

SPX was determined to be a joint venture as both Sanan IC and POET exercise joint control over SPX. All relevant activity of SPX require unanimous consent.

 

The Company’s investment in joint venture can be summarized as follows:

 

Balance, January 1, 2021  $- 
Contribution of intellectual property   22,500,000 
Unrecognized gain on contribution of intellectual property   (19,912,500)
Share of loss in joint venture for the year ended December 31, 2021   (1,142,249)
      
Investment balance, December 31, 2021   1,445,251 
Share of loss in joint venture for the six months ended June 30, 2022   (1,176,282)
Effect of changes in foreign exchange rates   (32,023)
Investment balance, June 30, 2022  $236,946 

 

Summarized financial information of the joint venture is as follows:

 

   December 31, 2021   June 30, 2022 
Current assets  $2,287,252   $765,642 
Intangible assets  $22,500,000   $21,407,239 
Liabilities  $(44,683)  $(360,187)
Owners Equity  $(24,742,569)  $(21,812,694)
           
Net loss for the six months ended June 30, 2021 and 2022  $-   $1,329,525 

 

The Company recognizes its share of SPX’s profits or losses using the equity method. On a weighted average basis, the Company recognized approximately 88.5% or $(1,176,282) of the net operating loss of SPX for the six months ended June 30, 2022 and nil for the six months ended June 30, 2021. The Company’s current share of the operating loss is a result of the high value of the Company’s initial contribution. The Company’s share of the loss will reduce as Sanan IC periodically contributes cash and other assets to SPX.

 

Page 9
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

5. PROPERTY AND EQUIPMENT

 

   Equipment not   Leasehold   Machinery and   Office     
   in service   improvements   equipment   equipment   Total 
Cost                    
Balance, January 1, 2021  $227,147   $71,928   $3,994,657   $128,185   $4,421,917 
Additions, net of returns (1)   (128,575)   -    842,877    57,221    771,523 
Reclassification   (96,334)   47,393    48,941    -    - 
Effect of changes in foreign exchange rates   (2,238)   (2,206)   (56,455)   (2,137)   (63,036)
Balance, December 31, 2021   -    117,115    4,830,020    183,269    5,130,404 
Additions   142,992    -    709,767    20,413    873,172 
Effect of changes in foreign exchange rates   (2,422)   (5,828)   (154,291)   (2,870)   (165,411)
Balance, June 30, 2022   140,570    111,287    5,385,496    200,812    5,838,165 
                          
Accumulated Depreciation                         
Balance, January 1, 2021   -    10,777    1,146,014    79,372    1,236,163 
Depreciation   -    18,891    794,834    26,641    840,366 
Effect on changes in foreign exchange rates   -    (142)   (10,122)   (95)   (10,359)
Balance, December 31, 2021   -    29,526    1,930,726    105,918    2,066,170 
Depreciation for the period   -    13,122    466,203    7,943    487,268 
Effect of changes in foreign exchange rates   -    (1,652)   (75,109)   (1,006)   (77,767)
Balance, June 30, 2022   -    40,996    2,321,820    112,855    2,475,671 
                          
Carrying Amounts                         
At December 31, 2021  $-   $87,589   $2,899,294   $77,351   $3,064,234 
At June 30, 2022  $140,570   $70,291   $3,063,676   $87,957   $3,362,494 

 

(1) During the year, the Company returned $196,490 in equipment to a vendor. The equipment was returned without penalty to the Company.

 

6. PATENTS AND LICENSES

 

Cost    
Balance, January 1, 2021  $837,102 
Additions   159,359 
Balance, December 31, 2021   996,461 
Additions   9,100 
Balance, June 30, 2022   1,005,561 
      
Accumulated Depreciation     
Balance, January 1, 2021   398,425 
Amortization   69,560 
Balance, December 31, 2021   467,985 
Amortization during the period   40,816 
Balance, June 30, 2022   508,801 
      
Carrying Amounts     
At December 31, 2021  $528,476 
At June 30, 2022  $496,760 

 

Page 10
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

7. RIGHT OF USE ASSET AND LEASE LIABILITY

 

The Company recognizes a lease liability and right of use asset relating to its commercial leases. The lease liability is measured at the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rate of 12%.

 

Right of use asset  Building 
Cost    
Balance, January 1, 2021  $653,232 
Effect of changes in foreign exchange rates   (4,122)
Balance, December 31, 2021   649,110 
Lease modification(1)   81,542 
Effect of changes in foreign exchange rates   - 
Balance, June 30, 2022  $730,652 
      
Accumulated Amortization     
Balance, January 1, 2021   132,546 
Amortization   190,596 
Effect of changes in foreign exchange rates   (922)
Balance, December 31, 2021   322,220 
Amortization during the period   87,610 
Effect of changes in foreign exchange rates   5,622 
Balance, June 30, 2022   415,452 
      
Carrying Amounts     
At December 31, 2021  $326,890 
At June 30, 2022  $315,200 
      
Lease liability     
Balance, January 1, 2021  $531,997 
Interest expense   67,675 
Lease payments   (237,634)
Effect of changes in foreign exchange rates   (2,690)
Balance, December 31, 2021   359,348 
Lease modification (1)   81,542 
Interest expense   26,421 
Lease payments   (112,853)
Effect of changes in foreign exchange rates   (5,456)
Balance, June 30, 2022  $349,002 

 

(1) During the period ended June 30, 2022, the Company acquired additional space for its Allentown facility. The acquisition of the additional space resulted in a lease modification.

 

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

   June 30,   December 31, 
   2022   2021 
Trade payable  $712,158$   987,498 
Payroll related liabilities   459,405    521,692 
Accrued liabilities   5,550    282,032 
   $1,177,113   $1,791,222 

 

Page 11
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

9. COVID-19 GOVERNMENT SUPPORT LOANS

 

On April 9, 2020, the Canadian government launched the Canada Emergency Business Account (“CEBA”) which is intended to support businesses during COVID-19 by providing interest free financing of up to $31,068 (CA$40,000) until December 31, 2023. If 75% of the loan is repaid by December 31, 2023, the loan recipient will be eligible for a loan forgiveness of the remaining 25% of the amount loaned. On April 15, 2020, the Company received a loan in the amount of $31,068 (2021 - $31,660) through the CEBA. If the loan has not been repaid by December 31, 2023, the outstanding amount will be automatically extended for an additional two years at 5% interest per annum payable monthly and maturing on December 31, 2025. The Company expects to repay 75% of the amount borrowed prior to December 31, 2023.

 

10. SHARE CAPITAL

 

  (a) AUTHORIZED
    Unlimited number of common shares
    One special voting share

 

  (b) COMMON SHARES ISSUED

 

   Number of     
   Shares   Amount 
Balance, January 1, 2021   29,461,811   $114,586,260 
Issued on the conversion of convertible debentures   1,119,750    3,571,342 
Fair value of warrants issued on conversion of convertible debentures   -    (1,229,305)
Share issue costs   -    (1,143,034)
Shares issued to settle accounts payable   1,678    13,814 
Funds from common shares issued on private placement   1,764,720    11,815,595 
Fair value of warrants issued on private placement   -    (3,766,007)
Fair value of broker warrants issued as share issue costs   -    (288,197)
Funds from the exercise of stock options   1,001,519    3,124,392 
Fair value of stock options exercised   -    2,699,042 
Funds from the exercise of warrants and compensation warrants   3,144,750    12,994,358 
Fair value of warrants and compensation warrants exercised   -    5,351,586 
Balance, December 31, 2021   36,494,228    147,729,846 
Funds from the exercise of stock options   143,437    418,845 
Fair value of stock options exercised   -    374,129 
Funds from the exercise of warrants   50,000    196,800 
Fair value of warrants exercised   -    54,732 
Shares issued to settle accounts payable   5,422    40,029 
Adjustment for 10 for 1 share consolidation   (272)   - 
Balance, June 30, 2022   36,692,815   $148,814,381 

 

In 2020, the Company engaged with a firm to assist with its shareholder communications strategy. The terms of the agreement require the Company to issue common shares at certain pre-determined dates in statisfaction of past services rendered. During the six months ended June 30, 2022, the Company settled $40,029 (2021 - $13,814) in accounts payable related to services rendered in 2021 under this agreement by issuing 5,422 (2021 - 1,678) common shares at a price of $7.38 (CAD$9.38) (2021 - $8.20 (CAD$10.10) per share to the firm.

 

Share Consolidation

 

On February 24, 2022, the Company filed Articles of Amendment to consolidate its common shares on a ten-for-one basis. For further clarity, for every ten (10) pre-consolidated common shares, shareholders received one (1) post-consolidated common share. On February 28, 2022, the Company’s common shares began trading on the TSX Venture Exchange on a post consolidation basis. The Company’s name and trading symbol remained unchanged. All references to share and per share amounts in these consolidated financial statements and accompanying notes to the consolidated financial statements have been retroactively restated to reflect the ten-for-one share consolidation.

 

Page 12
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

11.WARRANTS AND COMPENSATION OPTIONS

 

The following table reflects the continuity of warrants and compensation options:

 

   Historical   Number of     
   Average   Warrants/    
  

Exercise

Price

   Compensation options  

Historical

Fair value

 
Balance, January 1, 2021  $3.90    3,269,050   $5,557,002 
Fair value of warrant issued on private placement   9.00    1,764,720    3,766,007 
Fair value of broker warrants issued on private placement   6.70    105,883    288,197 
Fair value of warrants issued on conversion of               
convertible debentures (Notes 9)   3.80    1,119,750    1,229,305 
Historical fair value assigned to warrants exercised   3.90    (3,144,750)   (5,351,586)
Fair value of expired warrants   3.90    (93,300)   (160,470)
                
Balance, December 31, 2021   7.10    3,021,353    5,328,455 
Historical fair value assigned to warrants exercised   3.90    (50,000)   (54,732)
                
Balance, June 30, 2022  $7.10    2,971,353   $5,273,723 

 

12. STOCK OPTIONS AND CONTRIBUTED SURPLUS

 

Stock Options

 

On October 7, 2021, shareholders of the Company approved amendments to the Company’s fixed 20% stock option plan (as amended, previously referred to as the “2020 plan”, now referred to as the “2021 Plan”). Under the 2021 Plan, the board of directors may grant options to acquire common shares of the Company to qualified directors, officers, employees and consultants. The 2021 Plan provides that the number of common shares issuable pursuant to options granted under the 2021 Plan and pursuant to other previously granted options is limited to 7,090,518 (the “Number Reserved”). Any subsequent increase in the Number Reserved must be approved by shareholders of the Company and cannot, at the time of the increase, exceed 20% of the number of issued and outstanding shares. The stock options vest in accordance with the policies determined by the Board of Directors from time to time consistent with the provisions of the 2021 Plan which grants discretion to the Board of Directors.

 

Stock option transactions and the number of stock options outstanding were as follows:

 

       Historical 
       Weighted average 
   Number of   Exercise 
   Options   Price 
Balance, January 1, 2021   5,114,449   $3.30 
Expired/cancelled   (166,438)   3.40 
Exercised   (1,001,519)   3.00 
Granted  1,013,125    8.50 
Balance, December 31, 2021   4,959,617    4.40 
Expired/cancelled   (75,938)   8.75 
Exercised   (143,437)   2.92 
Granted   242,939    6.49 
Balance, June 30, 2022   4,983,181   $4.48 

 

Page 13
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

12. STOCK OPTIONS AND CONTRIBUTED SURPLUS (Continued)

 

During the six months ended June 30, 2022, the Company granted 242,939 (six months ended June 30, 2021 - 693,125) stock options to employees and consultants of the Company to purchase common shares at an average price of $6.49 (six months ended June 30, 2021 - $8.80) per share.

 

During the six months ended June 30, 2022, the Company recorded stock-based compensation of $1,967,102 (six months ended June 30, 2021 - $2,057,131) relating to stock options that vested during the period.

 

The stock options granted were valued using the Black-Scholes option pricing model using the following assumptions:

 

Six Months Ended June 30,  2022   2021 
Weighted average exercise price  $6.49   $4.10 
Weighted average risk-free interest rate   1.8% - 3.5%   0.80% - 1.48%
Weighted average dividend yield   0%   0%
Weighted average volatility   84.74%   90.68%
Weighted average estimated life   10 years     10 years 
Weighted average share price  $6.49   $8.80 
Share price on the various grant dates:   $5.18 - 6.86    $6.40 - $9.40 
Weighted average fair value  $5.47   $7.60 

 

The underlying expected volatility was determined by reference to the Company’s historical share price movements, its dividend policy and dividend yield and past experience relating to the expected life of granted stock options.

 

The weighted average remaining contractual life and weighted average exercise price of options outstanding and of options exercisable as at June 30, 2022 are as follows:

 

 

 Options Outstanding    Options Exercisable 
           Historical    Weighted         Historical 
           Weighted    Average         Weighted 
           Average    Remaining         Average 
 Exercise    Number    Exercise    Contractual    Number    Exercise 
 Range    Outstanding    Price    Life (years)    Exercisable    Price 
$0.88 - $2.08        7,000   $2.04    6.09    7,000   $2.04 
$2.09 - $2.96        1,520,929   $2.43    6.30    1,220,495   $2.40 
$2.97 - $9.52        3,455,252   $5.26    7.47    2,053,972   $4.44 
      4,983,181   $4.39    7.11    3,281,467   $3.68 

 

Page 14
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

13. LOSS PER SHARE

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
Numerator                
Net loss  $(5,282,642)  $(4,408,194)  $(10,715,441)  $(8,506,614)
Denominator                    
Weighted average number of common shares outstanding - basic and diluted   36,672,390    34,525,021    36,589,778    33,293,790 
Basic and diluted loss per share  $(0.14)  $(0.13)  $(0.29)  $(0.26)

 

The effect of common share purchase options, warrants and broker warrants on the net loss is not reflected as they are anti-dilutive.

 

14. COMMITMENTS AND CONTINGENCIES

 

The Company has operating leases on four facilities; head office located in Toronto, Canada, design and testing operations located in Allentown, Pennsylvania (formerly in San Jose, California) and operating facilities located in Singapore and China. The Company’s design and testing operations terminated a lease on January 31, 2021. A new lease was initiated on April 1, 2021 and expires on June 30, 2025. The lease on the Company’s operating facilities in Singapore was initiated on November 1, 2019 with an original expiry of April 30, 2022. The lease on the Singapore facilty was renewed on May 1, 2022 and expires on May 31, 2023. The lease on the Company’s operating facilities in China was initiated in November 19, 2021 and expires on November 18, 2023. As at June 30, 2022, the Company’s head office was on a month to month lease term.

 

Remaining minimum annual rental payments to the lease expiration dates are as follows:

 

July 1, 2022 to December 31, 2022  $138,257 
2023 and beyond   368,597 
   $506,854 

 

15. RELATED PARTY TRANSACTIONS

 

Compensation to key management personnel were as follows:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
                 
Salaries  $524,098   $388,881   $968,197   $972,382 
Share-based payments (1)   405,007    611,671    871,401    1,052,080 
Total  $929,105   $1,000,552   $1,839,598   $2,024,462 

 

(1) Share-based payments are the fair value of options granted to key management personnel and expensed during the various periods as calculated using the Black-Scholes model.

 

All transactions with related parties have occurred in the normal course of operations and are measured at the exchange amounts, which are the amounts of consideration established and agreed to by the related parties.

 

Page 15
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

16. SEGMENT INFORMATION

 

The Company and its subsidiaries operate in a single segment; the design, manufacture and sale of semi-conductor products and services for commercial applications. The Company’s operating and reporting segment reflects the management reporting structure of the organization and the manner in which the chief operating decision maker regularly assesses information for decision making purposes, including the allocation of resources. A summary of the Company’s operations is below:

 

OPEL, ODIS, POET Shenzhen and PTS

 

OPEL, ODIS, POET Shenzhen and PTS are the developers of the POET platform semiconductor process IP for monolithic fabrication of integrated circuit devices containing both electronic and optical elements on a single die.

 

BB Photonics

 

BB Photonics developed photonic integrated components for the datacom and telecom markets utilizing embedded dielectric technology that enables the low-cost integration of active and passive devices into photonic integrated circuits. BB Photonics’ operation is currently dormant.

 

On a consolidated basis, the Company operates geographically in China and Singapore (collectively “Asia”), the United States and Canada. Geographical information is as follows:

 

   2022 
As of June 30,  Asia   US   Canada   Consolidated 
Current assets  $520,907   $254,186   $13,371,282   $14,146,375 
Investment in joint venture   236,946    -    -    236,946 
Property and equipment   2,715,328    647,166    -    3,362,494 
Patents and licenses   -    496,760    -    496,760 
Right of use assets   88,756    226,444    -    315,200 
Total Assets  $3,561,937   $1,624,556   $13,371,282   $18,557,775 

 

For the Six Months Ended June 30,  Asia   US   Canada   Consolidated 
Revenue  $120,261   $-   $-   $120,261 
Selling, marketing and                    
administration  $(1,046,671)  $(2,998,510)  $(784,736)  $(4,829,917)
Research and development   (2,674,508)   (2,078,915)   (111,958)   (4,865,381)
Interest expense   (11,024)   (15,362)   (35)   (26,421)
Share of loss in joint venture   (1,176,282)   -    -    (1,176,282)
Other income, including                    
Interest and loan forgiveness   -    -    62,299    62,299 
Net loss  $(4,788,224)  $(5,092,787)  $(834,430)  $(10,715,441)

 

   2021 
As of December 31,  Asia   US   Canada   Consolidated 
Current assets  $537,647   $291,772   $20,959,707   $21,789,126 
Investment in joint venture   1,445,251    -    -    1,445,251 
Property and equipment   2,787,273    276,961    -    3,064,234 
Patents and licenses   -    528,476    -    528,476 
Right of use assets   150,134    176,756    -    326,890 
Total Assets  $4,920,305   $1,273,965   $20,959,707   $27,153,977 

 

Page 16
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

16. SEGMENT INFORMATION (continued)

 

For the Six Months Ended June 30,  Asia   US   Canada   Consolidated 
Revenue  $209,100   $-   $-   $209,100 
Selling, marketing and administration  $(719,250)  $(2,949,242)  $(942,220)  $(4,610,712)
Research and development   (2,266,515)   (1,016,024)   (520,166)   (3,802,705)
Interest   (18,769)   (16,316)   (294,293)   (329,378)
Other income, including interest   -    -    27,081    27,081 
Net loss  $(2,795,434)  $(3,981,582)  $(1,729,598)  $(8,506,614)

 

17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

The Company’s financial instruments consist of cash and cash equivalents, short-term investments, covid-19 government support loans, contract liabilities and accounts payable and accrued liabilities. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest risk arising from these financial instruments. The Company estimates that carrying value of these instruments approximates fair value due to their short term nature.

 

The Company has classified financial assets and (liabilities) as follows:

 

   June 30,   December 31, 
   2022   2021 
         
Cash and cash equivalents, measured at amortized cost:          
Cash and cash equivalents  $11,398,499   $14,941,775 
Short-term investments  $2,366,153   $6,366,828 
Other liabilities, measured at amortized cost:          
Accounts payable and accrued liabilities  $(1,177,113)  $(1,791,222)
Contract liabilities  $(341,975)  $- 
Covid-19 government support loans  $(31,068)  $(31,660)

 

Exchange Rate Risk

 

The functional currency of each of the entities included in the accompanying consolidated financial statements is the local currency where the entity is domiciled. Functional currencies include the Chinese Yuan, US, Singapore and Canadian dollar. Most transactions within the entities are conducted in functional currencies. As such, none of the entities included in the consolidated financial statements engage in hedging activities. The Company is exposed to a foreign currency risk when its subsidiaries hold current assets or current liabilities in currencies other than its functional currency. A 10% change in foreign currencies held would increase or decrease other comprehensive loss by $479,000.

 

Liquidity Risk

 

The Company currently does not maintain credit facilities. The Company’s existing cash and cash resources are not considered sufficient to fund operating and investing activities beyond one year from the issuance of these unaudited condensed consolidated financial statements.

 

Page 17
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

18. CAPITAL MANAGEMENT

 

In the management of capital, the Company includes shareholders’ equity (excluding accumulated other comprehensive loss and deficit) and cash and cash equivalents and short-term investments. The components of capital on June 30, 2022 were:

 

Cash and cash equivalents and short-term investments  $13,764,652 
Shareholders’ equity  $202,635,410 

 

The Company’s objective in managing capital is to ensure that financial flexibility is present to increase shareholder value through growth and responding to changes in economic and/or market conditions; to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business and to safeguard the Company’s ability to obtain financing should the need arise.

 

In maintaining its capital, the Company has a strict investment policy which includes investing its surplus capital only in highly liquid, highly rated financial instruments. The Company reviews its capital management approach on an ongoing basis.

 

19. EXPENSES

 

Research and development costs can be analysed as follows:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
                 
Wages and benefits  $909,588   $687,153   $1,947,877   $1,269,625 
Subcontract fees   603,262    686,073    1,320,012    1,194,148 
Stock-based compensation   471,273    447,063    803,478    649,997 
Supplies   316,519    439,698    794,014    688,935 
   $2,300,642   $2,259,987   $4,865,381   $3,802,705 

 

Selling, marketing and administration costs can be analysed as follows:

 

Stock-based compensation  $498,388   $789,530   $1,163,624   $1,407,134 
Wages and benefits   728,313    593,280    1,336,831    1,409,292 
General expenses   519,359    353,786    1,122,820    698,133 
Professional fees   291,185    247,742    539,297    531,847 
Depreciation and amortization   313,677    270,189    615,695    522,920 
Rent and facility costs   33,051    27,753    51,650    41,386 
   $2,383,973   $2,282,280   $4,829,917   $4,610,712 

 

Page 18
 

 

POET TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars)

 

 

20. REVENUE

 

Disaggregated Revenues

 

The Company disaggregates revenue by timing of revenue recognition, that is, at a point in time and revenue over time. During the period, the Company recognized $120,261 (2021 - $209,100) from non-recurring engineering services. The revenue is recognized over time.

 

Revenue Contract Balances

 

   Contract 
   Receivables   Liabilities 
         
Opening balance, January 1, 2022  $-   $- 
Revenues recognized   120,261    (470,261)
Changes due to payment, fulfillment of performance obligations or other   (120,261)     120,261 
Effect of changes in foreign exchange rates   -    8,025 
Balance, June 30, 2022  $-   $(341,975)

 

Page 19