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
| | - | ----------------------------------------------------------------------------------------------



OR



☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017



OR



| | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



OR



| | ☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | -------------------------------------------------------------------------------------------



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 1E2, Canada






(Address of principal executive offices)



Suresh Venkatesan, CEO 
780 Montague
Expressway

Ste 107



San Jose, California 95131



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 to be registered pursuant to Section 12(g) of the
Act: Common Stock, no par value.





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 Rule 405 of the Securities Act.

☐ Yes ☒ No










Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(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.

☒ Yes ☐ No



Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and
post such files). Not Applicable.



Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,”
“accelerated filer,” and “emerging growth company” in the Exchange Act.



Large accelerated filer ☐      Accelerated filer ☒       Emerging Growth
Company ☒      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
standards provided pursuant to Section 13(a) of the Exchange Act. ☐



Indicate by check mark which basis of accounting the registrant has used to
prepare the financial statements included in this filing:





|U.S GAAP ☐ | International Financial Reporting Standards as issued 
by the International Accounting Standards Board ☒ | Other ☐
|---------- | -------------------------------------------------------------------------------------------------------- | -------









If “Other” has been checked in response to the previous question,
indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17  ☐ Item 18





















POET TECHNOLOGIES INC. 
FORM 20-F ANNUAL REPORT 
TABLE OF CONTENTS





|             |                                                                              | Page
|------------ | ---------------------------------------------------------------------------- | ----
|             |                                                                              |     
|Introduction |                                                                              | 1   
|            
|PART I      
|            
|ITEM 1.      | Identity of Directors, Senior Management and Advisors                        | 3   
|ITEM 2.      | Offer Statistics and Expected Timetable                                      | 3   
|ITEM 3.      | Key Information                                                              | 3   
|ITEM 4.      | Information on the Company                                                   | 17  
|ITEM 4A.     | Unresolved Staff Comments                                                    | 24  
|ITEM 5.      | Operating and Financial Review and Prospects                                 | 24  
|ITEM 6.      | Directors, Senior Management, and Employees                                  | 38  
|ITEM 7.      | Major Shareholders and Related Party Transactions                            | 50  
|ITEM 8.      | Financial Information                                                        | 50  
|ITEM 9.      | The Offer and Listing                                                        | 51  
|ITEM 10.     | Additional Information                                                       | 52  
|ITEM 11.     | Quantitative and Qualitative Disclosures About Market Risk                   | 61  
|ITEM 12.     | Description of Securities Other Than Equity Securities                       | 62  
|            
|PART II     
|            
|ITEM 13.     | Defaults, Dividend Arrearages and Delinquencies                              | 62  
|ITEM 14.     | Material Modifications to the Rights of Security Holders and Use of Proceeds | 62  
|ITEM 15.     | Controls and Procedures                                                      | 62  
|ITEM 16.     | Reserved                                                                     | 63  
|ITEM 16A.    | Audit Committee Financial Expert                                             | 63  
|ITEM 16B.    | Code Of Ethics                                                               | 63  
|ITEM 16C.    | Principal Accounting Fees and Services                                       | 63  
|ITEM 16D.    | Exemptions from the Listing Standards for Audit Committees                   | 64  
|ITEM 16E.    | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       | 64  
|ITEM 16F.    | Changes in Registrant’s Certifying Accountants                               | 64  
|ITEM 16G.    | Corporate Governance                                                         | 64  
|ITEM 16H.    | Mine Safety Disclosure                                                       | 64  
|            
|PART III    
|            
|ITEM 17.     | Financial Statements                                                         | 64  
|ITEM 18.     | Financial Statements                                                         | 64  
|ITEM 19.     | Exhibits                                                                     | 65  
















INTRODUCTION



POET Technologies Inc. is organized under the Business
Corporations Act (Ontario). In this Annual Report, the “Company”, “we”, “our”, “POET”
and “us” refer to POET Technologies Inc. and its subsidiaries (unless the context otherwise requires). We refer you
to the documents attached as exhibits hereto for more complete information than may be contained in this Annual Report. Our principal
Canadian corporate offices are located at Suite 1107, 120 Eglinton Avenue East, Toronto, Ontario M4P 1E2, Canada. Our U.S office
is located in the U.S. at Suite 107, 780 Montague Expressway, San Jose, CA, 95131. Our telephone number in Toronto is (416) 368-9411.



We file reports and other information with the Securities
and Exchange Commission (“SEC”) located at 100 F Street NE, Washington, D.C. 20549. You may obtain copies of our filings
with the SEC by accessing their website located at www.sec.gov. We also file reports under Canadian regulatory requirements on
SEDAR; you may access our reports filed on SEDAR by accessing the website www.sedar.com.



This Annual Report (including the consolidated audited financial statements
for the years ended December 31, 2017, 2016 and 2015 attached thereto, together with the auditors’ report thereon), and the
exhibits thereto shall be deemed to be incorporated by reference as exhibits to the Registration Statement of the Company on Form
F-10, as amended (File No. 333-213422), and to be a part thereof from the date on which this report was filed, to the extent not
superseded by documents or reports subsequently filed or furnished.





































1





Business of POET Technologies
Inc.



POET Technologies is a developer and manufacturer of
optical 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 photonic solutions. POET believes that its approach to both hybrid
and monolithic integration of devices, utilizing a novel dielectric platform and proven advanced wafer-level packaging techniques
enables substantial improvements in device cost, efficiency and performance. Optical engines based on this integrated approach
have applications ranging from data centers to consumer products.



During the year ended December 31, 2017, the Company
generated revenues of $2,794,044 and gross profit of $1,451,353. The Company currently operates at a loss. The loss for 2017 was
$12,797,797. 100% of the Company’s revenue in 2017 was generated from the sale of sensing products through the Company’s
subsidiary DenseLight Semiconductor Pte. Ltd. (“DenseLight”).



During 2017, the Company spent $5,442,873 on research
and development activities directly related to the development and commercialization of the POET Optical Interposer Platform (POIP)
and the development of photonic sensing products. $10,870,741 was spent on selling, marketing and administration expenses which
included non-cash operating costs of $5,081,077, of which $2,275,160 related to depreciation and amortization, and $2,805,917 related
to the fair value stock-based compensation. The 2017 loss included other income of $1,766,524 of which $1,695,383 related to the
recovery of certain qualifying expenses from the Economic Development Board (EDB) in Singapore. The recovery includes both collected
recoveries and an amount to be received in 2018. The Company also had deferred income tax recovery of $297,940.



As of December 31, 2017, we had over $7.9 million
in current assets and approximately $800,000 of accounts payable and accrued liabilities. The Company is in a position to cover
its liabilities as they come due, however, due to the continuation of losses, the Company will need to seek debt or equity financing
to fund its operations. Consistent with its need for additional financing, on March 21, 2018, the Company completed a public offering
of 25,090,700 units at a price of $0.425 (CAD$0.55) per unit for gross proceeds of $10,663,548 (CAD$13,799,885). Additionally,
subsequent to December 31, 2017 through April 23, 2018 the Company raised $1,131,921 from the exercise of warrants and stock options.
Refer to Subsequent Events for further details. The Company is well capitalized to support its activities beyond 2018 as we work
toward the goal of monetizing the POIP and increasing the sales of the Company’s photonic products.



Financial and Other Information



In this Annual Report, unless otherwise specified, all
dollar amounts are expressed in United States Dollars (“US$”, “USD” or “$”).



Cautionary Statements Regarding
Forward-Looking Statements



This Annual Report on Form 20-F and other 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 terminology or words, such as, “continues”, “with a view to”,
“is designed to”, “pending”, “predict”, “potential”, “plans”, “expects”,
“anticipates”, “believes”, “intends”, “estimates”, “projects”, and
similar expressions or variations thereon, or statements that events, conditions or results “can”, “might”,
“will”, “shall”, “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 information are based on management’s current
expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult
to predict.



The forward-looking statements and information
in this Annual Report are subject to various risks and uncertainties, including those described in ITEM 3.D. “Risk Factors”,
many of which are difficult to predict and generally beyond the control of the Company, including without limitation:



ö we have
a limited operating history;

ö our
need for additional financing, which may not be available on acceptable terms or at all;

ö the
possibility that we will not be able to compete in the highly competitive semiconductor market;

ö the
risk that our objectives will not be met within the time lines we expect or at all;

ö research
and development risks;

ö the
risks associated with successfully protecting patents and trademarks and other intellectual property;

ö the
need to control costs and the possibility of unanticipated expenses;

ö manufacturing
and development risks;

ö the
risk that the price of our common stock will be volatile; and

ö the
risk that shareholders’ interests will be diluted through future stock offerings, option and warrant exercises.





2





For all of the reasons set forth above, investors
should not place undue reliance on forward-looking statements. Other than any obligation to disclose material information under
applicable securities laws or otherwise as maybe required by law, we undertake no obligation to revise or update any forward-looking
statements after the date hereof.



Data relevant to estimated market sizes for our
technologies under development are presented in this Annual Report. These data have been obtained from a variety of published resources
including published scientific literature, websites and information generally available through publicized means. The Company attempts
to source reference data from multiple sources whenever possible for confirmatory purposes. However, the Company has not independently
verified the accuracy and completeness of this data.



PART I



ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS



A. Not Required.



ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE



Not Required.



ITEM 3. KEY INFORMATION



A. Selected Financial Data



The selected financial data of the Company for
the years ended December 31, 2017, 2016 and 2015 was derived from the audited annual consolidated financial statements of the Company,
which have been audited by Marcum LLP, independent registered public accounting firm. Selected financial data of the Company for
the years ended December 31, 2014 and 2013 was derived from the consolidated financial statements of the Company, which are not
included in this Annual Report.



The information contained in the selected financial
data for the 2017, 2016 and 2015 years is qualified in its entirety by reference to the Company’s audited consolidated financial
statements and related notes included under the heading “ITEM 17”. Financial Statements” and should be read in conjunction
with such financial statements and related notes and with the information appearing under the heading “ITEM 5”.



Operating and Financial Review and Prospects.”
Except where otherwise indicated, all amounts are presented in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”).



Since its formation, the Company has financed its
operations from public and private sales of equity securities, 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 sales of solar energy equipment 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 revenue from the sale of its photonic sensing products,
we believe that it will also need to rely on the sale of our equity securities to provide funds for its activities. We believe
the Company is well capitalized, nevertheless the Company may effect a future financing if an appropriate opportunity presents
itself. See ITEM 3.D. “Risk Factors.”



The Company has not declared any dividends since incorporation
and does not anticipate that it will do so in the foreseeable future.





3





The following consolidated financial information is separated between continuing
and discontinued operations.



Consolidated Statements
of Operations 
Under International Financial Reporting Standards

(US$)







|                                              |  | 2017 |              | 2016 |  | 2015 |              | 2014 |  | 2013
|--------------------------------------------- |  | ---- | ------------ | ---- |  | ---- | ------------ | ---- |  | ----
|Revenue                                       |  | $    | 2,794,044    |      |  | $    | 1,861,747    |      |  | $   
|Cost of sales                                 |  |      | 1,342,691    |      |  |      | 946,001      |      |  |     
|Gross margin                                  |  |      | 1,451,353    |      |  |      | 915,746      |      |  |     
|Operating Expenses                            |  |      |              |      |  |      |              |      |  |     
|Selling, marketing and administration         |  |      | 10,870,741   |      |  |      | 11,421,604   |      |  |     
|Research and development                      |  |      | 5,442,873    |      |  |      | 3,165,825    |      |  |     
|Impairment loss                               |  |      | -            |      |  |      | 63,522       |      |  |     
|Loss on disposal of property and equipment    |  |      | -            |      |  |      | 46,738       |      |  |     
|Other income, including interest              |  |      | (1,766,524   | )    |  |      | (66,872      | )    |  |     
|Operating expenses                            |  |      | 14,547,090   |      |  |      | 14,630,817   |      |  |     
|                                              |  |      |              |      |  |      |              |      |  |     
|Net loss from operations                      |  |      | (13,095,737  | )    |  |      | (13,715,071  | )    |  |     
|Change in fair value contingent consideration |  |      | -            |      |  |      | (283,130     | )    |  |     
|Net loss before income tax recovery           |  |      | (13,095,737  | )    |  |      | (13,431,941  | )    |  |     
|Income tax recovery                           |  |      | (297,940     | )    |  |      | (207,257     | )    |  |     
|Net loss for the year                         |  |      | (12,797,797  | )    |  |      | (13,224,684  | )    |  |     
|Deficit, beginning of year                    |  |      | (104,075,356 | )    |  |      | (90,850,672  | )    |  |     
|Deficit, end of year                          |  | $    | (116,873,153 | )    |  | $    | (104,075,356 | )    |  | $   
|Basic and diluted loss per share:             |  | $    | (0.05        | )    |  | $    | (0.06        | )    |  | $   







Certain prior period figures have been reclassified
to conform with the current period’s presentation





4





Consolidated Statements of
Financial Position 
Under International Financial Reporting Standards (US$)









|                                           |  | December 31,
|------------------------------------------ |  | ------------
|Assets                                     |  |             
|Cash                                       |  | $           
|Short-term investments                     |  |             
|Accounts and other receivable              |  |             
|Prepaids and other current assets          |  |             
|Inventory                                  |  |             
|Marketable securities                      |  |             
|Property and equipment                     |  |             
|Patents and licenses                       |  |             
|Intangible assets                          |  |             
|Goodwill                                   |  |             
|Total Assets                               |  | $           
|Liabilities                                |  |             
|Accounts payable and accrued liabilities   |  | $           
|Product warranty                           |  |             
|Disposal group liabilities                 |  |             
|Deferred tax liability                     |  |             
|Deferred rent                              |  |             
|Total Liabilities                          |  |             
|Shareholders’ Equity                       |  |             
|Share capital                              |  |             
|Special voting share                       |  |             
|Warrants                                   |  |             
|Contributed surplus                        |  |             
|Accumulated other comprehensive loss       |  |             
|Deficit                                    |  |             
|Total Shareholders’ Equity                 |  |             
|Total Liabilities and Shareholders’ Equity |  | $           





5





B.Capitalization
and Indebtedness



Not Required.



C.   Reasons for the Offer and Use of Proceeds



Not Required.





D. Risk Factors



We are subject to various risks,
including those described below, which could materially adversely affect our business, financial condition and results of
operations and, in turn, the value of our securities. In addition, other risks not presently known to us or that we currently
believe to be immaterial may also adversely affect our business, financial condition and results of operations, perhaps
materially. The risks discussed below also include forward-looking statements and information within the meaning of U.S. and
Canadian securities laws that involve risks and uncertainties. The Company’s actual results may differ materially from
the results discussed in the forward-looking statements and information Factors that might cause such differences include
those discussed. Before making an investment decision with respect to any of our securities, you should carefully consider
the following risks and uncertainties described below and elsewhere in this Annual Report. See also “Cautionary
Statement Regarding Forward-Looking Statements.”



Risks Related to Our Business



The process of developing new,
technologically advanced products in semiconductor manufacturing and photonics products is highly complex and uncertain, and we
cannot guarantee a positive result.



The development of
new, technologically advanced products is a complex and uncertain process requiring frequent innovation, highly-skilled engineering
and development personnel and significant capital, as well as the accurate anticipation of technological and market trends. We
cannot assure you that we will be able to identify, develop, manufacture, market or support new or enhanced products successfully
or on a timely basis. Further, we cannot assure you that our new products will gain market acceptance or that we will be able to
respond effectively to product introductions by competitors, technological changes or emerging industry standards. We also may
not be able to develop the underlying core technologies necessary to create new products and enhancements, license these technologies
from third parties, or remain competitive in our markets.



Customer demand is difficult to
forecast accurately and, as a result, we may be unable to match production with customer demand.



We make planning and
spending decisions, including determining the levels of business that we will seek and accept, production schedules, component
procurement commitments, personnel needs and other resource requirements, based on our estimates of product demand and customer
requirements. Our products are typically sold pursuant to individual purchase orders. While our customers may provide us with their
demand forecasts, they are typically not contractually committed to buy any quantity of products beyond firm purchase orders. Furthermore,
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 demand 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 customers do not qualify
our products for use on a timely basis, our results of operations may suffer.



Prior to the sale of
new products, our customers typically require us to “qualify” our products for use in their applications. At the successful
completion 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 teams in
the design and manufacturing stages. If we are unable to accurately predict the amount of time required to qualify our products
with customers, or are unable to qualify our products with certain customers at all, then our ability to generate revenue could
be delayed or our revenue would be lower than expected and we may not be able to recover the costs associated with the qualification
process or with our product development efforts, which would have an adverse effect on our results of operations.



The markets in which we operate
are highly competitive, which could result in lost sales and lower revenues.



The market for optical
components and modules is highly competitive and this competition could result in our existing customers moving their orders to
our competitors. We are aware of a number of companies that have developed or are developing optical component products, including
LEDs, lasers, pluggable components, modules and subsystems, among others, that compete directly with our current and proposed product
offerings.





6





Some of our current
competitors, as well as some of our potential competitors, have longer operating histories, greater name recognition, broader customer
relationships and industry alliances and substantially greater financial, technical and marketing resources than we do. We may
not be able to compete successfully with our competitors and aggressive competition in the market may result in lower prices for
our products and/or decreased gross margins. Any such development could have a material adverse effect on our business, financial
condition and results of operations.



Our products, including those sold
by predecessor company, OPEL Solar, could contain defects that may cause us to incur significant costs or result in a loss of customers
or subject us to claims for which we may not be fully insured.



Our predecessor company,
Opel Solar, sold solar systems and products between 2007 and 2012, and some of those products may still be under warranty. We have
not undertaken to quantify the size of that warranty obligation and it is not recorded on our balance sheet because it is not determinable.
Although we carry product liability insurance, this insurance may not adequately cover our costs arising from defects or warranty
claims related to those products.



Our current products
sold by DenseLight are complex and undergo quality testing as well as formal qualification by our customers. Our customers’
testing procedures are limited to evaluating our products under likely and foreseeable failure scenarios and over varying amounts
of time. For various reasons, such as the occurrence of performance problems that are unforeseeable in testing or that are detected
only when products age or are operated under peak stress conditions, our products may fail to perform 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 could incur significant costs to repair or replace defective products under warranty, particularly when such failures
occur in installed systems. Our products are typically embedded in, or deployed in conjunction with, our customers’ products,
which incorporate a variety of components, modules and subsystems and may be expected to interoperate with modules produced by
third parties. As a result, not all defects are immediately detectable 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 are widely deployed in many demanding
environments and applications worldwide. In addition, we may in certain circumstances honor warranty claims after the warranty
has expired or for problems not covered by warranty to maintain customer relationships. Any significant product failure could result
in litigation, damages, repair costs and lost future sales of the affected product and other products, divert the attention of
our engineering personnel from our product development efforts and cause significant customer relations problems, all of which
would harm our business. Although we carry product liability insurance, this insurance may not adequately cover our costs arising
from defects in our products or otherwise.



The business that we acquired did
not have a history of profitable operations. Our ability to successfully manage our manufacturing operations is essential to our
overall success, and if we fail to do so, our financial results will suffer.



At the time of the
acquisition of DenseLight Semiconductors, Pte. 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 substantial changes in the management and personnel have
been made, the results to date have been less than anticipated and more improvement will be required in order to make the DenseLight
operation profitable. We cannot guarantee that our efforts to improve the DenseLight operation will be successful, and if they
are not, the operation will continue to need capital and attention from the senior management of the Company and our financial
results may suffer as a result.



If we encounter manufacturing problems
or if manufacturing at our Singapore operation is discontinued for any reason, including an industrial or workplace accident, we
may lose sales and damage our customer relationships, or be subject to claims for which we may not be fully insured.



We may experience delays,
disruptions or quality control problems in our manufacturing operations. These and other factors may cause less than acceptable
yields at our wafer fabrication facility. Manufacturing yields depend on a number of factors, including the quality of available
raw materials, the degradation or change in equipment calibration 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 qualified
service people may not be available. If any of our key equipment were to be damaged or destroyed for any reason, our manufacturing
process would be severely disrupted. Any such manufacturing problems would likely delay product shipments to our customers, which
would negatively affect our sales, competitive position and reputation.





Our operations in Singapore
are subject to government regulations that protect the workplace safety of employees. We strive to maintain an accident-free workplace,
but we cannot guarantee that industrial accidents will not take place, or that we will not be subject to liability for these and
other workplace related claims. We have obtained insurance policies to protect the Company against claims for workplace related
claims, but we cannot guarantee that these and other insurance policies carried by the Company will be sufficient to cover the
full costs of such claims, which could have a material adverse effect on the Company.





7





We have limited operating history
in the datacom market, and our business could be harmed if this market does not develop as we expect.



The initial target
market for our Optical Interposer-based optical engine is the datacom market and we have no experience in selling products in this
market. We may not be successful in developing a product for this market and even if we do, it may never gain widespread acceptance
by large data center operators. If our expectations for the growth of the datacom market are not realized, our financial condition
or results of operations may be adversely affected.



We depend on a limited number of
suppliers and key contract manufacturers who could disrupt our business and technology development activities if they stopped,
decreased, delayed or were unable to meet our demand for shipments of their products or manufacturing of our products.



We depend on a limited
number of suppliers of epitaxial wafers and contract manufacturers for both our Indium Phosphide (“InP”) and Gallium
Arsenide (“GaAs”) development and production activities. Some of these suppliers are sole source suppliers. We typically
have not entered into long-term agreements with our suppliers. As a result, these suppliers generally may stop supplying us materials
and other components at any time. Our reliance on a sole supplier or limited number of suppliers could result in delivery problems,
reduced control over technology development, product development, pricing and quality, and an inability to identify and qualify
another supplier in a timely manner. Some of our suppliers that may be small or under-capitalized may experience financial difficulties
that could prevent them from supplying us materials and other components. In addition, our suppliers, including our sole source
suppliers, may experience manufacturing delays or shut downs due to circumstances beyond their control such as earthquakes, floods,
fires, labor unrest, political unrest or other natural disasters. A Change in supplier could require technology transfer that could
require multiple iterations of test wafers. This could result in significant delays in resumption of production.



Any supply deficiencies
relating to the quality or quantities of materials or equipment we use to manufacture our products could materially and adversely
affect our ability to fulfill customer orders and our results of operations. Lead times for the purchase of certain materials and
equipment from suppliers have increased and in some cases have limited our ability to rapidly respond to increased demand, and
may continue to do so in the future. To the extent we introduce additional contract manufacturing partners, introduce new products
with new partners and/or move existing internal or external production lines to new partners, we could experience supply disruptions
during the transition process. In addition, due to our customers’ requirements relating to the qualification of our suppliers
and contract manufacturing facilities and operations, we cannot quickly enter into alternative supplier relationships, which prevents
us from being able to respond immediately to adverse events affecting our suppliers.



Our international business and
operations expose us to additional risks.



Products shipped to
customers located outside Canada and the United States account for a majority of our revenues. In addition, we have significant
tangible assets located outside the United States. Our manufacturing facilities are located in Singapore. Conducting business outside
Canada and the United States subjects us to a number of additional risks and challenges, including:



| | • | periodic changes in a specific country's or region's economic
conditions, such as recession;
| | - | --------------------------------------------------------------------------------------------

| | • | licenses and other trade barriers;
| | - | ----------------------------------

| | • | the provision of services may require export licenses;
| | - | ------------------------------------------------------

| | • | environmental regulations;
| | - | --------------------------

| | • | certification requirements;
| | - | ---------------------------

| | • | fluctuations in foreign currency exchange rates;
| | - | ------------------------------------------------

| | • | inadequate protection of intellectual property rights in some
countries;
| | - | ------------------------------------------------------------------------

| | • | preferences of certain customers for locally produced products;
| | - | ---------------------------------------------------------------

| | • | potential political, legal and economic instability, foreign
conflicts, and the impact of regional and global infectious illnesses in the countries in which we and our customers, suppliers
and contract manufacturers are located;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Canadian and U. S. and foreign anticorruption laws;
| | - | ---------------------------------------------------

| | • | seasonal reductions in business activities in certain countries
or regions; and
| | - | -------------------------------------------------------------------------------

| | • | fluctuations in freight rates and transportation disruptions.
| | - | -------------------------------------------------------------



These factors, individually
or in combination, could impair our ability to effectively operate one or more of our foreign facilities or deliver our products,
result in unexpected and material expenses, or cause an unexpected decline in the demand for our products in certain countries
or regions. Our failure to manage the risks and challenges associated with our international business and operations could have
a material adverse effect on our business.



If we fail to attract and retain
key personnel, our business could suffer.



Our future success
depends, in part, on our ability to attract and retain key personnel, including executive management. Competition for highly skilled
technical personnel is extremely intense and we may face difficulty identifying and hiring qualified engineers in many areas of
our business. We may not be able to hire and retain such personnel at compensation levels consistent with our existing compensation
and salary structure. Our future success also depends on the continued contributions of our executive management team and other
key management and technical personnel, each of whom would be difficult to replace. The loss of services of these or other executive
officers or key personnel or the inability to continue to attract qualified personnel could have a material adverse effect on our
business.





8





Our prior acquisitions created
a large amount of goodwill, which may be impaired in the future and as a result may adversely affect our financial results. In
addition, past and any future acquisitions may adversely affect our financial condition and results of operations.



As part of our business
strategy, we have in the past and may in the future pursue acquisitions of companies that we believe could enhance or complement
our current product portfolio, augment our technology roadmap or diversify our revenue base. Acquisitions involve numerous risks,
any of which could harm our business, including:



| | • | difficulties integrating the acquired business;
| | - | -----------------------------------------------

| | • | unanticipated costs, capital expenditures, liabilities or changes
to product development efforts;
| | - | -------------------------------------------------------------------------------------------------

| | • | difficulties integrating the business relationships with suppliers
and customers of the acquired business with our existing operations;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| | • | acts or omissions by the acquired company prior to the acquisition
that may subject us to unknown risks or liabilities;
| | - | -----------------------------------------------------------------------------------------------------------------------

| | • | risks associated with entering markets in which we have little
or no prior experience;
| | - | --------------------------------------------------------------------------------------

| | • | potential loss of key employees, particularly those of the acquired
organizations; and
| | - | --------------------------------------------------------------------------------------

| | • | diversion of financial and management resources from our existing
business;
| | - | ---------------------------------------------------------------------------



Our prior acquisitions
have resulted, and future acquisitions may result in the recording of goodwill and other intangible assets subject to potential
impairment in the future, adversely affecting our operating results. We may not achieve the anticipated benefits of an acquisition
if we fail to evaluate it properly, and we may incur costs in excess of what we anticipate. A failure to evaluate and execute an
acquisition appropriately or otherwise adequately address these risks may adversely affect our financial condition and results
of operations.



Our predecessor company received
and our current companies receive and expect to receive in the future subsidies and other types of funding from government agencies
in the locations in which we operate. The funding agreements stipulate that if we do not comply with various covenants, including
eligibility requirements, and/or do not achieve certain pre-defined objectives, those government agencies may reclaim all or a
portion of the funding provided. If this were to occur, we would either not be in a position to repay the claimed amounts or would
have to borrow large sums in order to do so or refinance with dilutive financing, which could adversely affect our financial condition.



Our predecessor company,
Opel Solar and its wholly-owned subsidiary ODIS, received research and development grants from the United States Air Force and
from NASA; our recently acquired subsidiary company, DenseLight Semiconductor, Pte, Ltd. is expected to receive funding for new
product development activities conducted in Singapore from the Economic Development Board; and we expect that our recently acquired
subsidiary company BB Photonics U.K., may also apply for certain grants to defer the cost of development in the U.K. The rules
for eligibility vary widely across government agencies, are complex and may be subject to different interpretations. Furthermore,
some of the grants set pre-defined development or spending objectives, 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 dilutive financing in order to make the repayments, which would adversely affect our financial condition.



We may be subject to disruptions
or failures in information technology systems and network infrastructures that could have a material adverse effect on our business
and financial condition.



We rely on the efficient
and uninterrupted operation of complex information technology systems and network infrastructures to operate our business. A disruption,
infiltration or failure of our information technology systems as a result of software or hardware malfunctions, system implementations
or upgrades, computer viruses, third-party security breaches, employee error, theft or misuse, malfeasance, power disruptions,
natural disasters or accidents could cause a breach of data security, loss of intellectual property and critical data and the release
and misappropriation of sensitive competitive information and partner, customer, and employee personal data. Any of these events
could harm our competitive position, result in a loss of customer confidence, cause us to incur significant costs to remedy any
damages and ultimately materially adversely affect our business and financial condition.





We have a history of large operating
losses. We may not be able to achieve profitability in the future and as a result we may not be able to maintain sufficient levels
of liquidity.



We have historically
incurred losses and negative cash flows from operations since our inception. As of December 31, 2017, we had an accumulated deficit
of $116,873,153. For the years ended December 31, 2017 and December 31, 2016, we incurred net losses before income taxes of $13,095,737
and $13,431,941 respectively. We expect to continue to incur losses and operating cash outflows for the foreseeable future, and
these losses and outflows could increase as we continue to work to develop our business. It is possible that we may never become
profitable, and even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.]
Should our losses continue, we may need to seek debt or equity financing to fund our operations.





9





As of December 31,
2017, we held $4,974,478 in cash, and we had working capital of $7,140,119.



The Company is currently
in a position to cover its liabilities as they come due. However, we have sustained considerable operating losses in the past.
Should such losses continue, the Company may need to seek debt or equity financing to fund its operations. Although the Company
has been successful in obtaining such financings in the past, there is no assurance that it will be able do so in the future. If
the Company is unable to obtain such financing, it may have an adverse effect on the Company’s ability to continue operations.
Consistent with its needs for additional financing, on March 21, 2018, the Company completed a public offering of 25,090,700 units
at a price of $0.425 (CAD$0.55) per unit for gross proceeds of $10,663,548 (CAD$13,799,885). Additionally, subsequent to December
31, 2017 the Company raised $1,131,921 from the exercise of warrants and stock options.



The optical communications
industry is subject to significant operational fluctuations. In order to remain competitive we incur substantial costs associated
with research and development, qualification, 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. In addition, the rapidly changing industry in which we
operate, the length of time between developing and introducing a product to market, frequent changing customer specifications for
products, customer cancellations of products and general down cycles in the industry, among other things, make our prospects difficult
to evaluate. As a result of these factors, it is possible that we may not (i) generate sufficient positive cash flow from
operations; (ii) raise funds through the issuance of equity, equity-linked or convertible debt securities; or (iii) 
otherwise have sufficient capital resources to meet our future capital or liquidity needs. There are no guarantees we will be able
to generate additional financial resources beyond our existing balances.



We may not be able to obtain additional
capital when desired, on favorable terms or at all.



We operate in a market
that makes our prospects difficult to evaluate and, to remain competitive, we will be required to make continued investments in
capital equipment, facilities and technology. We expect that substantial capital will be required to continue technology and product
development, to expand our manufacturing capacity if we need to do so and to fund working capital for anticipated growth. If we
do not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs,
we may need additional financing to implement our business strategy.



If we raise additional
funds through the issuance of our common stock or convertible securities, the ownership interests of our stockholders could be
significantly diluted. These newly issued securities may have rights, preferences or privileges senior to those of existing stockholders.
Additional financing may not, however, be available on terms favorable to us, or at all, if and when needed, and our ability to
fund our operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure or respond to competitive
pressures could be significantly limited. If we cannot raise required capital when needed, including under our Short Form Prospectus
filed with the Canadian Securities Exchange and the SEC in October 2016, we may be unable to continue technology and product development,
meet the demands of existing and prospective customers, adversely affecting our sales and market opportunities and consequently
our business, financial condition and results of operations.



Our business could be negatively
impacted as a result of shareholder activism.



In recent years, shareholder
activists have become involved in numerous public companies. Shareholder activists frequently propose to involve themselves in
the governance, strategic direction, and operations of the company. We may in the future become subject to such shareholder activity
and demands. Such demands may disrupt our business and divert the attention of our management and employees, and any perceived
uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities,
be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and
retain qualified personnel and business partners, all of which could adversely affect our business. In addition, actions of activist
shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other
factors that do not necessarily reflect the underlying fundamentals and prospects of our business.



If we fail to protect, or incur
significant costs in defending, our intellectual property and other proprietary rights, our business and results of operations
could be materially harmed.



Our success depends
on our ability to protect our intellectual property and other proprietary rights. We rely on a combination of patent, trademark,
copyright, trade secret and unfair competition laws, as well as license agreements and other contractual provisions, to establish
and protect our intellectual property and other proprietary rights. We have applied for patent registrations in the U.S. and other
foreign countries, some of which have been issued. We cannot guarantee that our pending applications will be approved by the applicable
governmental authorities. Moreover, our existing and future patents and trademarks may not be sufficiently broad to protect our
proprietary rights or may be held invalid or unenforceable in court. A failure to obtain patents or trademark registrations or
a successful challenge to our registrations in the U.S. or foreign countries may limit our ability to protect the intellectual
property rights that these applications and registrations intended to cover.





10





Policing unauthorized
use of our technology is difficult and we cannot be certain that the steps we have taken will prevent the misappropriation, unauthorized
use or other infringement of our intellectual property rights. Further, we may not be able to effectively protect our intellectual
property rights from misappropriation or other infringement in foreign 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 patent and other laws in other countries may not 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 trade secret and other intellectual
property laws, and contractual provisions. We enter into confidentiality and invention assignment agreements with our employees
and independent consultants. We also use non-disclosure agreements with other third 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-disclosure 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 unauthorized use or disclosure
of proprietary information. Unauthorized third parties may try to copy or reverse engineer our products or portions of our products,
otherwise obtain and use our intellectual property, or may independently develop similar or equivalent trade secrets or know-how.
If we fail to protect our intellectual property and other proprietary rights, or if such intellectual property and proprietary
rights are infringed or misappropriated, our business, results of operations or financial condition could be materially harmed.



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 technology. Protecting and enforcing our intellectual property rights and determining their validity
and scope could result in significant litigation costs and require significant time and attention from our technical and management
personnel, which could significantly harm our business. We may not prevail in such proceedings, and an adverse outcome may adversely
impact our competitive advantage or otherwise harm our financial condition and our business.



We may be involved in intellectual
property disputes in the future, which could divert management’s attention, cause us to incur significant costs and prevent
us from selling or using the challenged technology.



Participants in the
markets in which we sell our products have experienced frequent litigation regarding patent and other intellectual property rights.
There can be no assurance that third parties will not assert infringement claims against us and we cannot be certain that our products
would not be found infringing on the intellectual property rights of others. Regardless of their merit, responding to such claims
can be time consuming, divert management’s attention and resources and may cause us to incur significant expenses. Intellectual
property claims against us could result in a requirement to license technology from others, discontinue manufacturing or selling
the infringing products, or pay substantial monetary damages, each of could result in a substantial reduction in our revenue and
could result in losses over an extended period of time.



If we fail to obtain the right
to use the intellectual property rights of others that are necessary to operate our business, and to protect their intellectual
property, our business and results of operations will be adversely affected.



From time to time we
may choose to or be required to license technology or intellectual property from third parties in connection with the development
of our products. We cannot assure you that third party licenses will be available to us on commercially reasonable terms, if at
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 significant adverse impact on our results of operations. Our inability to obtain a necessary third party license
required for our product offerings or to develop new products and product enhancements could require us to substitute technology
of lower quality or performance standards, or of greater cost, either of which could adversely affect our business. If we are not
able to obtain licenses from third parties, if necessary, then we may also be subject to litigation 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 competitive disadvantage.



If we fail to maintain effective
internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.



Preparing our consolidated
financial statements involves a number of complex manual and automated processes, which are dependent upon individual data input
or review and require significant management judgment. One or more of these elements may result in errors that may not be detected
and could result in a material misstatement of our consolidated financial statements. 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 growth company” under the JOBS Act, which
may be up to five years following the filing of our Form 20F Registration Statement, we will not have to provide an auditor’s
attestation report on our internal controls. During the course of any evaluation, documentation or attestation, 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 level of review.





11





We have implemented
internal controls that we believe provide reasonable assurance that we will be able to avoid accounting errors or material weaknesses
in future periods. However, our internal controls cannot guarantee that no accounting errors exist or that all accounting errors,
no matter how immaterial, will be detected because a control system, no matter how well designed and operated, can provide only
reasonable, but not absolute assurance that the control system’s objectives will be met. If we are unable to implement and
maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results
could be adversely impacted. This could result in late filings of our annual and quarterly reports under the Canadian Securities
Act and the Securities Exchange Act of 1934, or the Exchange Act, restatements of our consolidated financial statements, a decline
in our stock price, suspension or delisting of our common stock by the TSX Venture Exchange, or other material adverse effects
on our business, reputation, results of operations or financial condition.



Our ability to use our net operating
losses and certain other tax attributes may be limited.



As of December 31,
2017, we had accumulated net operating losses (NOLs), of approximately $124 million. Varying jurisdictional tax codes have restrictions
on the use of NOLs, if a corporation 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 limited. An ownership change
is generally defined as a greater than 50% change in equity ownership. Based upon an analysis of our equity ownership, we do not
believe that we have experienced such ownership changes and therefore our annual utilization of our NOLs is not limited. However,
should we experience additional ownership changes, our NOL carry forwards may be limited.



We are subject to governmental
export and import controls that could subject us to liability or impair our ability to compete in international markets.



We are subject to export
and import control laws, trade regulations and other trade requirements that limit which raw materials and technology we can import
or export and which products we sell and where and to whom we sell our products. Specifically, the Bureau of Industry and Security
of the U.S. Department of Commerce is responsible for regulating the export of most commercial items that are so called dual-use
goods that may have both commercial and military applications. A limited number of our products are exported by license under certain
classifications. Export Control Classification requirements are dependent upon an item’s technical characteristics, the destination,
the end-use, and the end-user, and other activities of the end-user. Should the regulations applicable to our products change,
or the restrictions applicable 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 products to certain countries could be restricted, which could
adversely affect our business, financial condition and results of operations. Changes in our products or any change in export or
import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in
the countries, persons or technologies targeted by such regulations, 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 manufacturing operations are
subject to environmental regulation that could limit our growth or impose substantial costs, adversely affecting our financial
condition and results of operations.



Our properties, operations
and products are subject to the environmental laws and regulations of the jurisdictions in which we operate and sell products.
These laws and regulations govern, among other things, air emissions, wastewater discharges, the management and disposal of hazardous
materials, the contamination of soil and groundwater, employee health and safety and the content, performance, packaging and disposal
of products. Our failure to comply with current and future environmental laws and regulations, or the identification of contamination
for which we are liable, could subject us to substantial costs, including fines, clean-up costs, third-party property damages or
personal injury claims, and make significant investments to upgrade our facilities or curtail our operations. Identification of
presently unidentified environmental conditions, more vigorous enforcement by a governmental authority, enactment of more stringent
legal requirements or other unanticipated events could give rise to adverse publicity, restrict our operations, affect the design
or marketability of our products or otherwise cause us to incur material environmental costs, adversely affecting our financial
condition and results of operations.



We are exposed to risks and increased
expenses and business risk as a result of Restriction on Hazardous Substances, or RoHS directives.



Following the lead
of the European Union, or EU, various governmental agencies have either already put into place or are planning to introduce regulations
that regulate the permissible levels of hazardous substances in products sold in various regions of the world. For example, the
RoHS directive for EU took effect on July 1, 2006. The labeling provisions of similar legislation in China went into effect on
March 1, 2007. Consequently, many suppliers of products sold into the EU have required their suppliers to be compliant with the
new directive. We anticipate that our customers may adopt this approach and will require our full compliance, which will require
a significant amount of resources and effort in planning and executing our RoHS program, it is possible that some of our products
might be incompatible with such regulations. In such events, we could experience the following consequences: loss of revenue, damages
reputation, diversion of resources, monetary penalties, and legal action.





12





Failure to comply with the U.S.
Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.



We are subject to the
U.S. Foreign Corrupt Practices Act, which generally prohibits companies operating in the U.S. from engaging in bribery or other
prohibited payments to foreign officials for the purpose of obtaining or retaining business. In addition, we are 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 some that may compete with us, may not be subject to these prohibitions, and therefore may have a competitive
advantage over us. If we are not successful in implementing and maintaining adequate preventative measures, we may be responsible
for acts of our employees or other agents engaging in such conduct. We could suffer severe penalties and other consequences that
may have a material adverse effect on our financial condition and results of operations.



Natural disasters or other catastrophic
events could harm our operations.



Our operations in the
U.S., Canada and Singapore could be subject to significant risk of natural disasters, including earthquakes, hurricanes, typhoons,
flooding and tornadoes, as well as other catastrophic events, such as epidemics, terrorist attacks or wars. For example, our wafer
fabrication facility in Singapore is in an area that is susceptible to hurricanes. Any disruption in our manufacturing facilities
arising from these and other natural disasters or other catastrophic events could cause significant delays in the production or
shipment of our products until we are able to arrange for third parties to manufacture our products. We may not be able to obtain
alternate capacity on favorable terms or at all. Our property insurance coverage with respect to natural disaster is limited and
is subject to deductible and coverage limits. Such coverage may not be adequate or continue to be available at commercially reasonable
rates and terms. The occurrence of any of these circumstances may adversely affect our financial condition and results of operation.



Goodwill Impairment Risk



POET’s Board
and management is required to analyze on an annual basis whether any intangibles should be impaired, based on a calculation of
the likely future cash flows from those assets. The annual impairment test was done by management in the fiscal fourth quarter.
Both DenseLight and BB Photonics are regarded by POET’s Board and management as a single unit contributing to the Corporation’s
development of an optical interposer platform. At the time of their acquisition in mid-2016, the combined purchase price exceeded
their combined asset values, resulting in the creation of Goodwill, valued as of September 30, 2017 at $7,681,003.  At the
time of the initial valuation, no value was attributed to DenseLight’s Intellectual Property, which POET’s Board and
management now expect to be a major contributor to the Corporation’s anticipated future cash flows. POET’s Board and
management annually assesses the anticipated future cash flows of the Corporation related to this Goodwill and determines if an
impairment is necessary.



Risks Related to Our Common Stock



Our stock price
has been and may continue to be volatile.



The trading price for our common stock on the TSX
Venture Exchange (“TSXV”) 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 that
market are also likely to be highly volatile. The market prices for securities of early stage technology companies have historically
been highly volatile.



Factors that could adversely affect our stock price include:



ö fluctuations
in our operating results;

öannouncements of new products, partnerships or technological collaborations and announcements of the results or further
actions in respect of any products, partnerships or collaborations, including termination of same;

ö innovations
by us or our competitors;

ö governmental
regulation;

ö developments
in patent or other proprietary rights;

ö the
results of technology and product development testing by us, our partners or our competitors;

ö litigation;

ö general
stock market and economic conditions;

ö number
of shares available for trading (float); and

ö inclusion
in or dropping from stock indexes.



As of April 23, 2018, our 52-week high and low
closing market prices for our common stock on the TSXV were CA$0.79 and CA$0.18 , respectively, based on the closing exchange rates
on the respective dates.





13





We have
historically obtained, and expect to continue to obtain, additional financing primarily by way of sales of equity, which may result
in significant dilution to existing shareholders.



We have not earned profits, so the Company’s
ability to finance operations is chiefly dependent on equity financings. Since 2012 we raised approximately US$50 million (net
of share issue costs) in equity financing through private placements or the exercise of stock options and warrants in support of
the POET initiative, which has resulted in significant dilution to existing shareholders. Further equity financings will also result
in dilution to existing shareholders, and such dilution could be significant.



Future sales of
common stock or warrants, or the prospect of future sales, 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
23, 2018, there were outstanding options to purchase up to 16,276,497 shares of our common stock that are currently exercisable
and additional outstanding options to purchase up to 24,230,024 shares of common stock that are exercisable over the next several
years. As of April 23, 2018, there were outstanding warrants to purchase 43,109,000 shares of our stock and broker compensation
units to purchase 1,309,080 units. Each compensation unit is convertible into one common share and one half common share purchase
warrant.. The holders of these options, warrants and compensation units have an opportunity to profit from a rise in the market
price of our common stock with a resulting dilution in the interests of the other shareholders. The existence of these options,
warrants and compensation units may adversely affect the terms on which we may be able to obtain additional financing. The weighted
average exercise price of issued and outstanding options is CAD$0.77, the weighted average exercise price of warrants is CAD$0.58
and the weighted average exercise price of the compensation units is CAD$0.55, which compares to the CAD$0.42 market price at closing
on April 23, 2018.



Dilution through
exercise of share options could adversely affect the Company’s shareholders.



Because the success of the Company is highly dependent
upon its employees, the Company has granted 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 stockholders of the Company may be diluted. As of April 23, 2018, there were 40,506,521 share purchase options
outstanding with a weighted average exercise price of CAD$0.77, 43,109,000 share purchase warrants outstanding with a weighted
average exercise price of CAD$0.58 and 1,309,000 compensation units outstanding with a weighted average price of CAD$0.55. If all
of these securities were exercised, an additional 85,579,141 common shares would become issued and outstanding. This represents
an increase of 29.7% in the number of shares issued and outstanding and would result in significant dilution to current shareholders.



The risks associated
with penny stock classification could affect the marketability of the Company’s common shares and shareholders could find
it difficult to sell their shares.



The Company’s common shares are subject to
“penny stock” rules as defined in 1934 Securities and Exchange Act Rule 3a51-1. 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 are likely to be higher than those for other securities. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities listed on certain 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 broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document
that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and
its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, 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
confirmation.



In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from such rules, the broker- dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the Company’s
common shares in the United States and shareholders may find it more difficult to sell their shares.





14





The rights of
our shareholders may differ from the rights typically afforded to shareholders of a U.S. corporation.



We are incorporated under the Business Corporations
Act (Ontario) (the “OBCA”). The rights of holders of our common shares are governed by the laws of the Province of
Ontario, including the OBCA, by the applicable laws of Canada, and by our Articles of Continuance and all amendments thereto (collectively,
the “Articles”), and our by-laws (the “By-laws”). These rights differ in certain respects from the rights
of shareholders in typical U.S. corporations. The principal 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 are 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 meeting of shareholders duly called for such purpose
being cast in favor of the proposed matter. Such matters include without limitation: (a) the sale, lease or exchange of all or
substantially 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 capital structure such 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, as well
as amendments changing 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 the assets of a corporation generally requires approval by a majority
of the outstanding shares, although in some cases approval by a higher percentage of the outstanding shares may be required. In
addition, under U.S. state law the vote of a majority of the shares is generally sufficient to amend a company’s certificate
of incorporation, including amendments affecting capital structure or the number of directors.



Pursuant to our By-laws, two persons present in
person or represented by proxy and each entitled to vote thereat shall constitute a quorum for the transaction of business at any
meeting of shareholders. 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 not less than one-third of the number of shares entitled
to vote.



Under rules of the Ontario Securities Commission,
a meeting of shareholders must be called for consideration and approval of certain transactions between a corporation and any
“related party” (as defined in such rules). A “related party” is defined to include, among other parties,
directors and senior officers of a corporation, holders of more than 10% of the voting securities of a corporation, persons owning
a block of securities that is otherwise sufficient to affect materially the control of the corporation, and other persons that
manage or direct, to a substantial degree, the affairs or operations of the corporation. At such shareholders’ meeting,
votes cast by any related party who holds common shares and has an interest in the transaction may not be counted for the purposes
of determining 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 limit the right of a non-resident
to hold or vote common shares of the Company, other than as provided in the Investment Canada Act (the “Investment Act”),
as amended by the World Trade Organization Agreement Implementation Act (the “WTOA Act”). The Investment Act generally
prohibits implementation of a direct reviewable investment by an individual, 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, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be of net
benefit to Canada. An investment in the common shares of the Company by a non-Canadian (other than a “WTO Investor,”
as defined below) would be reviewable under the Investment Act if it were an investment to acquire direct control of the Company,
and the value of the assets of the Company were CA$5.0 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 Investors) would be reviewable under the Investment Act if it were an investment to acquire direct control of
the Company and the value of the assets of the 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 a 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 2018 threshold for WTO investors that are SOEs will be $398 million based
on the book value of the Canadian business' assets, up from $379 million in 2017.



The 2018 thresholds for review for direct acquisitions of control of Canadian
businesses by private sector investor WTO investors ($1 billion) and private sector trade-agreement investors ($1.5 billion) remain
the same and are both based on the "enterprise value" of the Canadian business being acquired.





15





A non-Canadian, whether a WTO Investor or otherwise,
would be deemed to acquire control of the Company for purposes of the Investment Act if he 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, unless it could be established 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 of the WTO (“WTO Member”) or has a right of permanent residence in a WTO
Member. A corporation or other entity 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 involving our common shares
would be exempt from the Investment Act, including:



ö an acquisition
of our common shares if the acquisition were made in connection with the person’s business as a trader or dealer in securities;

ö an acquisition of control of the Company in connection with the realization of a security interest granted for a loan or
other financial assistance and not for any purpose related to the provisions of the Investment Act; and

ö an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization,
following which the ultimate direct or indirect control of the Company, through the ownership of voting interests, remains unchanged.
Under U.S. law, except in limited circumstances, restrictions generally are not imposed on the ability of non- residents to hold
a controlling interest in a U.S. corporation.



As a “foreign
private issuer”, the Company is exempt from certain sections of the Exchange Act which results in shareholders having less
complete and timely data than if the Company were a domestic U.S. issuer.



As a “foreign private issuer,” as defined
under the U.S. securities laws, we are exempt from certain sections of the Exchange Act. In particular, we are exempt from Section
14 proxy rules that are applicable to domestic U.S. issuers. The submission of proxy and annual meeting of shareholder information
(prepared to Canadian standards) on Form 6-K has typically been more limited than the submissions required of U.S. issuers and
results in shareholders having less complete and timely data, including, among others, with respect to disclosure of: (i) personal
and corporate relationships and age of directors and officers; (ii) material legal proceedings involving the Company, affiliates
of the Company, and directors, officers promoters and control persons; (iii) the identity of principal shareholders and certain
significant employees; (iv) related party transactions; (v) audit fees and change of auditors; (vi) voting policies and procedures;
(vii) executive compensation; and (viii) composition of the compensation committee. In addition, due to the Company’s status
as a foreign private issuer, the officers, directors and principal shareholders of the Company are exempt from the short-swing
insider disclosure and profit recovery provisions of Section 16 of the Exchange Act. Therefore, these officers, directors and principal
shareholders are exempt from short-swing profits that apply to insiders of U.S. issuers. The foregoing exemption results in shareholders
having less data in this regard than is available with respect to U.S. issuers.



If the Company
is characterized as a passive foreign investment company, our U.S. shareholders may suffer adverse tax consequences.



As more fully described below in ITEM 10.E. “Taxation”
— United States Federal Income Tax Considerations — Passive Foreign Investment Company Status”, if for any taxable
year our passive income, or the value of our assets that produce (or are held for the production of) passive income, exceed specified
levels, we may be characterized as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes.
This characterization could result in adverse U.S. tax consequences to our U.S. shareholders, including gain on the disposition
of our common shares being treated as ordinary income and any resulting U.S. federal income tax being increased by an interest
charge. Rules similar to those applicable to dispositions generally will apply to certain “excess distributions” in
respect of our common shares.



The actual allocation of proceeds from any financing undertaken
may differ from the Company’s initial or current intentions.



POET has discretion in the use of 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 apply these funds effectively could have a material adverse effect on its business.





16





Warrants included with financings



Warrants offered with financings are not listed
on any exchange. Investors may be unable to sell the warrants at the prices desired or at all. There is no existing trading market
for the warrants and there can be no assurance that a liquid market will develop or be maintained for the warrants, or that an
investor will be able to sell any of the warrants at a particular time (if at all). The liquidity of the trading market in the
warrants, and the market price quoted for the warrants, may be adversely affected by, among other things:



| | • | changes in the overall market for the warrants;
| | - | -----------------------------------------------

| | • | changes in the Corporation's financial performance or prospects;
| | - | ----------------------------------------------------------------

| | • | changes or perceived changes in the Corporation's creditworthiness;
| | - | -------------------------------------------------------------------

| | • | the prospects for companies in the industry generally;
| | - | ------------------------------------------------------

| | • | the number of holders of the warrants;
| | - | --------------------------------------

| | • | the interest of securities dealers in making a market for the warrants;
and
| | - | ---------------------------------------------------------------------------

| | • | prevailing interest rates.
| | - | --------------------------



ITEM 4. INFORMATION ON THE COMPANY



A. History and Development of the Company



The legal and commercial name of the Company is
POET Technologies Inc. The Company was originally incorporated under the British Columbia Company Act on February 9, 1972 as Tandem
Resources Ltd. On November 14, 1985, Tandem Resources Ltd. amalgamated with Stanmar Resources Ltd. and Keezic Resources Ltd., to
continue as one company under the name Tandem Resources Ltd. under the British Columbia Company Act. By Articles of Continuance
dated January 3, 1997, Tandem Resources Ltd. was continued under the OBCA. By Articles of Amendment dated September 26, 2006, Tandem
Resources Ltd. changed its name to OPEL International Inc. By Certificate of Continuance dated January 30, 2007, OPEL International
Inc. was continued under the New Brunswick Business Corporations Act. By Articles of Continuance 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, 2011, OPEL Solar International Inc. changed its name to OPEL Technologies Inc. By Articles of Amendment dated
July 23, 2013, OPEL Technologies Inc. changed its name to POET Technologies Inc.



On May 11, 2016, in an all-stock transaction, the
Company acquired all the issued and outstanding shares of DenseLight Semiconductor Pte. Ltd. (DenseLight), a privately held Singapore
company that provides optical solutions. DenseLight designs, manufactures and sells optical light source products. DenseLight was
acquired for $10,500,000 of the Company’s stock. The Company issued 13,611,150 common shares to the former shareholders of
DenseLight.



On June 22, 2016, in an all-stock transaction,
the Company acquired all the issued and outstanding shares of BB Photonics Inc., a privately held US Company with a wholly owned
subsidiary, BB Photonics UK Ltd. Both companies design integrated photonics solutions for the data communications market. BB Photonics
and its subsidiary were acquired for consideration of $1,550,000. The acquisition was settled 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 subsidiaries:











17





Opel Solar Inc. and Odis Inc.



Odis is the developer 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 Inc. and BB Photonics UK Ltd.



Through our subsidiary BB Photonics, we develop
photonic integrated components for the datacenter market utilizing embedded dielectric technology that is intended to enable on-chip
athermal wavelength control and lower the total solution cost of datacenter photonic integrated circuits.



DenseLight Semiconductor Pte. Ltd.



Through our subsidiary DenseLight, we design, manufacture,
and deliver photonic optical light source products and solutions to the communications, medical, instrumentations, industrial,
defense, and security industries. DenseLight processes compound semiconductor-based optoelectronic devices and photonic integrated
circuits through its in-house wafer fabrication and assembly & test facilities.





Capital Expenditures



Our capital expenditures for the last three years, which principally consist
of purchases of research and development equipment and instrumentation and patents are as follows:



|Period          |  | Capital  Expenditure |            | Purpose
|--------------- |  | -------------------- | ---------- | -------
|Fiscal 2017     |  | $                    | 1,030,340  |        
|Fiscal 2016 (1) |  | $                    | 10,985,852 |        
|Fiscal 2015     |  | $                    | 374,200    |        



|(1) |  | As
                                         part of the acquisition of DenseLight and BB Photonics, the Company acquired 8,706,029
                                         of leasehold improvements, machinery and office equipment, and 900,131 of intangible
                                         assets. The Company spent and additional $1,379,692 in cash ($1,281,170 spent in 2016
                                         and $98,522 spent in 2015) in acquiring equipment and patents.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company’s registered office is located
at Suite 1107, 120 Eglinton Avenue East, Toronto, Ontario, Canada M4P 1E2 and its phone number is (416) 368-9411. The Company has
operations at Suite 107, 780 Montague Expressway, San Jose, CA, 95131 and 6 Changi North Street 2, Singapore, 498831.



B. Business Overview



Corporate Overview



We are an advanced semiconductor development and
manufacturing company dedicated to enabling the integration of photonics and electronics through novel approaches to device design
and packaging. We have developed, or are in the process of developing, solutions that provide dramatic reductions in the cost of
key components of photonic devices. Through integration and the adaptation of silicon processing methods to photonic device fabrication,
we believe that the Company can capture a meaningful portion of the market for photonics devices that address the need for increased
bandwidth, speed, sensitivity and cost across a range of high growth data communications and photonic sensing applications. We
believe that the integration of discrete functions onto fewer devices is the optimal way to lower cost, reduce size, limit power
consumption and increase the performance, scalability and value of photonics devices, making opto-electronics a more viable economic
proposition.



The cost of building silicon-based devices today
contrasts sharply with the cost of building photonics-based devices. While the majority of the cost of building silicon-based devices
is in fabricating the device on the wafer, the majority of the cost of building photonics devices today is in the packaging and
testing process. It is inevitable that these costs will be reduced through integration. In addition, integration opens up entirely
new markets for photonics, including on-board and on-chip data transfer (“inside the box”).



Until early to mid-2017, our Company had been focused
on “monolithic” integration, based on a proprietary design fabricated into a single Gallium Arsenide (GaAs) chip that
has all of the elements needed to communicate data at the speed of light, yet with the lower cost profile of copper. POET’s
GaAs design integrates at least three essential discrete devices onto a single GaAs chip: a vertical-cavity surface-emitting laser
(VCSEL), a photodetector and an electronic circuit based on either a thyristor or a heterostructure field-effect transistor (HFET).



In 2017 we began to develop solutions based on a
novel “hybrid” integration approach, which combines Indium Phosphide (InP)-based photonics chips and dielectric-based
waveguide devices into a single package. This approach enables the replacement of high-cost optical components, such as mirrors
and lenses, with embedded dielectric passive devices, dramatically lowering the cost of data communications transceiver solutions
for data center operators and telecom companies. Our ability to address hybrid integration is a direct result of our acquisitions,
in 2016, of DenseLight Semiconductor Pte. Ltd. (“DenseLight”) based in Singapore, and BB Photonics, Inc. based in New
Jersey.





18





By mid-2017 it became apparent that the majority
of transceiver applications in the data center market was biased strongly in favor of InP-based solutions. This, and the fact that
our GaAs development efforts faced a number of challenges that could only be solved by working closely with a well-resourced strategic
partner, we decided to focus our own resources on hybrid integration, utilizing the unique capabilities that we acquired with DenseLight
and BB Photonics. By late-2017, we demonstrated that we could dramatically reduce the cost of conventional transceivers through
the integration of discrete devices employing a novel approach that we call an “Optical Interposer”.



POET’s Optical Interposer facilitates the co-packaging
of electronics and optics in a single Multi-Chip Module (MCM), paving the way for “Photonics-in-a-package”. Based on
our dielectric waveguide technology, the Optical Interposer provides the ability to run electrical and optical interconnections
side-by-side on the same interposer chip at a micrometer scale. Hybrid Integrated Photonics Packaging (HiPP) enabled by the Optical
Interposer plays a critical role in improving electrical and thermal performance, power consumption and form factor of photonics
sub-assemblies. The Optical Interposer currently forms an integral part of POET’s hybrid integrated optical engines and leverages
the manufacturing processes and unique capabilities of its dielectric waveguides.



Industry Background



In the ten years since the introduction of the smartphone,
people have fundamentally changed the way they communicate, socialize, and interact with themselves and the data around them. Today,
smartphones and other such devices allow us to capture, create and communicate enormous amounts of content. The explosion in data,
storage and information distribution is driving extraordinary growth in internet traffic and cloud services.



The expected growth in the networking and data communication
market is the result of many factors, among them being, the growth of wireless and mobile traffic (which is expected to account
for two-thirds of total IP traffic by 20211), social media activity, the progression
of video transmission, the ramp of imaging such as virtual/augmented/mixed reality and 3D video, the continued migration to cloud
storage, the propagation of sensors feeding the Internet of Everything, and the evolution of big data analytics and machine learning/artificial
intelligence. These factors will continue to drive a long term increased demand for capacity and higher speeds.



Photonics has traditionally been employed to transmit
data over long distances because light can carry considerably more content and data at faster speeds. Optical transmission becomes
more energy efficient as compared to electronic alternatives when the transmission length and speed increase. As a natural consequence,
optics are systematically replacing copper in much of the data center communication links.



Data center operators are increasing the size and
scale of their facilities, while simultaneously looking to component suppliers for solutions capable of providing higher data transmission
rates. Within data centers, data communications over distances of up to 2 km have already been transitioned from inherently lower
speed copper cable to optical fibers. Furthermore, short reach communications, either rack-to-rack or within the rack as well as
those requiring speeds of up to 100G, are now increasingly being converted from copper to optical cables.



Outside the Data Centers, future 5G build-out of
mobile communications will drive speed and capacity requirements closer to the user with significant reduction in latency. Compared
to 4G, 5G technology standard offers much faster download and upload speed, minimum delay in data communication and processing,
as well as much higher density in device connections. 5G will enable advances in virtual reality, augmented reality, autonomous
driving, high-definition video, and the Internet of Things, among others. 5G networks requires substantial capacity expansion for
base stations, which is driven by three factors: more spectrum, higher density of base stations in each region, and higher spectral
efficiency.





Photonics Markets



The two target markets in which we currently sell or
plan to sell products near-term are Photonic Sensing and Data Communications. The global photonics market is forecasted to grow
at a compound average growth rate (CAGR) of 8% to 12% through 2021, reaching an estimated $54 billion.2 This market
includes Photonic Sensing (which consists of devices for test and measurement, navigation, LIDAR systems) and Data Communications
(both telecom applications and optical data communications).



The overall Data Communications market is forecasted
to grow at a 27% CAGR over the period 2015 to 2020 and is being driven largely by cloud data centers, which have a forecasted CAGR
of 29.6% over the same period. This compares to traditional data centers at only a 9% CAGR3. The expected growth in
the networking and data communication market is the result of many factors, including smartphone use, over-the-top video consumption,
social networking and the “Internet of Things”. Increased consumer demand for data requires both data storage and data
communications at higher speeds. As a result, data center operators are increasing the size and scale of their facilities, while
simultaneously looking to component suppliers for solutions capable of providing higher data transmission rates. Within data centers,
data communications over distances of up to 2km have already been transitioned from inherently lower speed copper cable to optical
fibers.





19





Photonic transceivers will represent a $25 billion market
opportunity in 2025, according to Oculi, llc. The primary segments for photonic transceivers are Ethernet, wide area network
(WAN) and dense wavelength division multiplexing (DWDM), all of which are predominantly addressed by InP-based optical technologies.
Ethernet transceivers are forecasted to grow to $7.4 billion by 2025 with 100G driving a majority of the growth. Within Ethernet,
singlemode transceivers based on InP devices are forecasted to outgrow multimode transceivers based on GaAs devices by a factor
of 6:1. Segmented by distance, the majority of growth is expected in the <10km segment ($4.3 billion by 2025).4



Integrated photonic transceivers, incorporating approaches
comparable to what POET has, are expected to overtake those using discrete components by 2021, growing from a current $3.2 billion
to $20 billion in 20255. Within this market, POET is focused on the highest growth segments, including Wavelength
Division Multiplexing (WDM) for medium-reach (500m – 2km) Ethernet datacom connections and Wide Area Network protocols for
long-reach or metro applications (2km – 10km). The majority of today’s discrete transceiver suppliers are shipping
100G transceivers in a 4x25G format, having developed assembly methods for placing multiple laser chips on one substrate and coupling
the output into one fiber using micro-optic filters and other elements. POET’s approach is to use the Optical Interposer
to combine multiple active and passive devices into a single package, or “optical engine”, which when combined with
control electronics and an outer housing, constitutes a pluggable optical transceiver. We plan to sell our optical engines to manufacturers
and assemblers of optical transceiver modules. We believe our optical engine solution will be cost competitive with conventional
modules as well as silicon photonics in the <2km data center market, and it should be scalable to 10km, and support 200G and
400G datacom speeds.



In addition to building optical engines for transceivers,
we believe the Company has the opportunity to sell individual components to other suppliers of optical transceivers, including
single-chip local area network (LAN) wavelength division multiplexing (WDM) lasers, receiver optical sub-assemblies (ROSA) and
transmit optical sub-assemblies (TOSA) in advance of selling optical engines for transmit and receive assemblies (TXRX).



The Photonics Sensing market6 represents
a Total Available Market (“TAM”) of approximately $23 billion of system sales and comprises the following segments:
1) Test & Measurement (TAM: $10 billion), which includes monitoring equipment for communication, components and material testing,
as well as sensing equipment such as distributed temperature and strain measurement; 2) Structural Health Monitoring (TAM: $6 billion),
which includes devices to monitor the power grid, and fiber optic-based sensors in rail lines, nuclear facilities, etc.; 3) Guidance
and Navigation (TAM: $4.5 billion), which includes navigational guidance systems, gyrocompasses, and optical-based systems for
navigating self-driving automobiles; and 4) Medical and Health Care (TAM: $2.5 billion), which includes devices for non-invasive
blood glucose monitoring, pulse-oximeter devices, and ophthalmic examination. Component sales to systems providers typically represent
approximately 10% of system market TAM’s. We plan to address these high growth markets with component sales in a combination
of current and expected new products from our DenseLight subsidiary.



Until early- to mid-2017, our Company had been focused
on “monolithic” integration, based on a proprietary design fabricated into a single Gallium Arsenide (GaAs) chip that
has all of the elements needed to communicate data at the speed of light, yet with the lower cost profile of copper. POET’s
GaAs design integrates at least three essential discrete devices onto a single GaAs chip: a vertical-cavity surface-emitting laser
(VCSEL), a photodetector and an electronic circuit based on either a thyristor or a heterostructure field-effect transistor (HFET).



______________________

|1 |  | Cisco
                                         Visual Networking Index: Forecast and Methodology, 2016-2021, June 6, 2017
|- |  | -------------------------------------------------------------------------------------------------------------------------

|2 |  | MarketsandMarkets
                                         Photonics Market by Application – Global Forecasts to 2021, September 2016
|- |  | -------------------------------------------------------------------------------------------------------------------------------------

|3 |  | Cisco
                                         Global Cloud Index, 2015-2020, November 2016
|- |  | -------------------------------------------------------------------------------------------

|4 |  | Oculi,
                                         llc, Estimates for 2025 commissioned by POET Technologies, Inc., March 2017
|- |  | ---------------------------------------------------------------------------------------------------------------------------

|5 |  | Ibid
|- |  | ----

|6 |  | Global
                                         Market Insights Optical Sensors Market Size By Product, By Application, Industry Analysis
                                         Report, Regional Outlook, Application Potential, Price Trends, Competitive Market Share
                                         & Forecast, 2016 – 2024, August 2016
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





20





In 2017 we began to develop solutions based on a novel
“hybrid” integration approach, which combines Indium Phosphide (InP)-based photonics chips and dielectric-based waveguide
devices into a single package. This approach enables the replacement of high-cost optical components, such as mirrors and lenses,
with embedded dielectric passive devices, dramatically lowering the cost of data communications transceiver solutions for data
center operators and telecom companies. Our ability to address hybrid integration is a direct result of our acquisitions, in 2016,
of DenseLight Semiconductor Pte. Ltd. (“DenseLight”) based in Singapore, and BB Photonics, Inc. based in New Jersey.



By mid-2017 it became apparent that the majority
of transceiver applications in the data center market was biased strongly in favor of InP-based solutions. This, and the fact that
our GaAs development efforts faced a number of challenges that could only be solved by working closely with a well-resourced strategic
partner, we decided to focus our own resources on hybrid integration, utilizing the unique capabilities that we acquired with DenseLight
and BB Photonics. By late-2017, we demonstrated that we could dramatically reduce the cost of conventional transceivers through
the integration of discrete devices employing a novel approach that we call an “Optical Interposer”.



POET’s Optical Interposer Platform



The Optical Interposer extends the functionality
of traditional electrical interposers – by adding a parallel lane of optical interconnections to an electrical interposer.
Optical Interposers enable the concept of “photonics-in-a-package” by eliminating traditionally used micro-optics such
as lenses, filters and prisms from the optical assembly and by further simplifying fiber alignment and coupling.



POET’s Optical Interposer utilizes our proprietary
dielectric waveguide technology. The unique manufacturing process and capabilities of this technology enables us to fabricate an
optical communication fabric within the context of a traditional CMOS process. Consequently, it enables a novel and differentiated
extension to the more traditional electrical interposers.



The waveguides incorporated in POET’s Optical
Interposers perform more than just waveguide transmission functions. They act as gratings, splitters, couplers and allow for manipulation
of the light with built in functionality suited to the application. For example, POET’s 100G family of Optical Interposer
would include gratings that both function to enable narrow line width operation of its light sources and to perform critical Wavelength
Division Multiplexing (WDM) operations.



A Typical Electrical Interposer









Shown above is a typical cross-section of an electrical interposer that
enables a closer placement of electronic chips and minimizes communication lengths.



POET’s Optical Interposer









In much the same way as the electrical interposer
incorporates electrical passive functionality, the POET Optical Interposer incorporates passive optical functionality. Furthermore,
the Optical Interposer enables the conversion of electrical signals to optical signals and the manipulation and transmission of
these optical signals outside the package.





21





POET’s Optical Interposer provides the following
advantages compared to conventional optical modules:



| | ü | Wafer-level integration into silicon
| | - | ------------------------------------

| | ü | Waveguides formed and integrated with embedded passive optical components
(SSC, mux-demux, filters, waveguides) at chip level
| | - | -----------------------------------------------------------------------------------------------------------------------------

| | ü | Ultra-low loss waveguide dielectric with high coupling efficiency
| | - | -----------------------------------------------------------------

| | ü | Pick and place assembly and passive alignment of components
| | - | -----------------------------------------------------------

| | ü | Elimination of lenses and active alignment
| | - | ------------------------------------------

| | ü | Athermal waveguide dielectric allows multi-channel scalability
| | - | --------------------------------------------------------------

| | ü | Wafer-level hermetic sealing, testing and burn-in of active components to
produce known good die
| | - | ------------------------------------------------------------------------------------------------

| | ü | Small form factor and platform architecture readily scalable
| | - | ------------------------------------------------------------

| | ü | High frequency metal traces managed in the dielectric platform
| | - | --------------------------------------------------------------

| | ü | Fully compatible with conventional CMOS processing allowing integration with
complex electronics at chip or module level
| | - | ------------------------------------------------------------------------------------------------------------------------



Compared to semiconductors, where packaging accounts
for 10% of the final die cost, packaging and assembly is generally 80-90% for a photonic die. POET’s Optical Interposer represents
a new and potentially disruptive approach to photonics packaging and assembly that could allow more functionality to be integrated
into a single package, similar to the system-in-package (SiP) trends observable in the industry today.



Our Products

|• |  | We are currently engaged in the development of 100GGbs ROSA (Receiver Optical
Sub-Assemblies) and TOSA (Transmitter Optical Sub-Assemblies) for 100G Transceiver assemblies.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We expect our InP-based solutions from our DenseLight
subsidiary will add to the Company’s current and future product portfolio, including:

|• |  | Broadband Super-Luminescent LEDs (Light Emitting Diodes)
|- |  | --------------------------------------------------------

|• |  | Narrow Linewidth Lasers
|- |  | -----------------------

|• |  | DFB (Distributed Feedback) Lasers for Data Communications
|- |  | ---------------------------------------------------------

|• |  | High Power ELEDs (Edge Emitting Light Emitting Diodes)
|- |  | ------------------------------------------------------

|• |  | Integrated CWDM (Coarse Wavelength Division Multiplexing) Solutions
|- |  | -------------------------------------------------------------------



Competition



The photonics market is intensely competitive.
Because of the unique nature of our product offerings, we do not believe that we face a single major competitor across our various
markets. We do, however, experience intense competition in each product area from a number of manufacturers with similar or alternative
technologies and we anticipate that competition in the photonics markets will increase. Many of our competitors are larger than
we are and have significantly greater financial, marketing and other resources.



In addition, several of our competitors, especially
in the datacom markets, have large market capitalizations or cash reserves and are much better positioned to acquire other companies
to gain new technologies or products that may displace our products. Data center equipment providers, who we expect to become our
customers, and data center service providers, who are supplied by our customers, may decide to manufacture the optical subsystems
that we plan to provide. We may also encounter potential customers that, because of existing relationships, are committed to the
products offered by these competitors.



We believe the principal competitive factors in
our target markets include the following:



| | · | use of internally manufactured components;
| | - | ------------------------------------------



| | · | product breadth and functionality;
| | - | ----------------------------------



| | · | timing and pace of new product development;
| | - | -------------------------------------------



| | · | breadth of customer base;
| | - | -------------------------



| | · | technological expertise;
| | - | ------------------------



| | · | reliability of products;
| | - | ------------------------



| | · | product pricing; and
| | - | --------------------



| | · | manufacturing efficiency.
| | - | -------------------------





22





We believe that we can compete favorably with respect
to the above factors based on our GaAs and InP processes, the projected performance and anticipated inherent reliability of our
products, and our technical expertise in photonic engine design and manufacture.



Our Strategy

Our vision is to become a global leader in photonics by deploying
an Optical Interposer-based approach to the integration of photonics devices into a wide variety of vertical market applications.
Our strategy includes the following key elements:



Introduce the Optical Interposer concept to suppliers of transceivers
and data center operators and form commercial partnerships for product development.Because of the magnitude of the cost savings
that may be derived from the use of POET’s optical engines for transceiver applications, we expect to generate significant
interest among both the suppliers of transceiver modules and their ultimate customers, the data center operators. In addition,
the POET Optical Interposer provides a straightforward and cost-effective path to higher speed transceivers, including up to 400G
and higher, thus providing a single platform that can span several device generations. We anticipate that several companies will
be interested in pursuing commercial partnerships with POET in order to qualify and design-in our optical engines.



· Promote the POET Optical Interposer as a true platform
technology across several photonic applications and markets.The POET Optical Interposer is designed to be a flexible platform
for the combination or integration of various photonic and electronic components. The anticipated low cost makes it suitable for
applications like automotive LIDAR. The compatibility of the Optical Interposer manufacturing process with standard silicon CMOS
processing opens up a wide variety of other applications where high-speed data communications is needed, such as integration with
ASICs, graphics generators and high-speed switches.



· Pursue multiple potential sources of non-product revenue
and strategic partnerships. In addition to product sales, we have been pursuing Non-Recurring Engineering (“NRE”)
revenues from end-use customers and/or from strategic partners. In particular, we believe our 100/200/400G transceiver components
represent a uniquely attractive opportunity for collaborative development with a strategic partner(s). We also believe that the
continued development of our GaAs platform is dependent on securing a strategic partner.



· Continue to invest in our capabilities and infrastructure.
We intend to continue to invest in new products, new technology and our production infrastructure and facilities to maintain and
strengthen our competitive position. Our R&D programs in Singapore are partially reimbursed by the Singapore Economic Development
Board, whose support will help to defer the costs associated with bringing innovative new products to market.



· Selectively pursue other opportunities that leverage
our existing expertise. Our expertise in designing and manufacturing photonics devices, both discrete and integrated, positions
us well to pursue applications in high growth markets and our Singapore operation is ideally located to support customers in Asia,
where much of the growth in photonics is occurring.



· Pursue complementary strategic alliance or acquisition
opportunities. We intend to evaluate and selectively pursue strategic alliances or acquisition opportunities that we believe
will accelerate our penetration of specific applications or vertical markets with our technology or products.





Geographic Distribution of Revenue





The Company had no sales in 2015. Sales and geographic
markets for 2017 and 2016 were as follows:





|Region                | 2017       | 2016      
|--------------------- | ---------- | ----------
|Asia – Pacific        | $1,592,605 | $1,066,429
|Europe                | $866,154   | $657,105  
|North & South America | $335,285   | $138,213  
|                      | $2,794,044 | $1,861,747







23





C. Organizational Structure





The following graphically displays the organizational
structure of the Company:









______________________

|(1) |  | There
                                         are 28,374,000 Class A Common Shares of OPEL Solar, Inc. issued and outstanding, all
                                         of which are held by the Company. There are no other outstanding securities of OPEL Solar,
                                         Inc. other than the Class A Common Shares.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | There
                                         are 5 Common Shares of ODIS Inc. issued and outstanding, held by OPEL Solar, Inc.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

|(3) |  | There
                                         are 135,042 Ordinary Shares of DenseLight issued and outstanding, all of which are held
                                         by the Company. There are no other outstanding securities of DenseLight.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | There
                                         is 1 Ordinary Share of BB Photonics UK Ltd. issued and outstanding, held by BB Photonics
                                         Inc.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | There
                                         are 1,000,000 Preferred Shares and 1,050,100 Common shares of BB Photonics Inc. issued
                                         and outstanding, all of which are held by the Company. There are no other outstanding
                                         securities of BB Photonics Inc.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



D. Property, Plants and Equipment



The Company’s head Canadian office is located
in a 400 sq. ft. leased office space in Toronto, Ontario, Canada. The US based operations are in a leased 2,730 sq. ft. space in
San Jose, California . In Singapore, we provide one-stop design and manufacturing solutions, from photonics design and simulation,
epitaxial growth, wafer fabrication, chip production, in-line optical coating, sub-mounting, photonic measurements, product tests
and screening. The 50,000 sq. ft. purpose-built facility in Singapore houses its R&D, product design and manufacturing operations
under one roof. Its 15,000 sq. ft. clean room is fully equipped for enabling vertically integrated volume manufacturing, from wafer
fabrication to test and packaging. We are ISO9001 certified in Singapore processing Indium Phosphide (InP) and Gallium Arsenide
(GaAs) based optoelectronic devices and photonic integrated circuits through our in-house wafer fabrication and assembly &
test facilities



The Company believes that its existing facilities are
adequate to meet its needs for the foreseeable future.



ITEM 4A. UNRESOLVED STAFF COMMENTS



Not Required.



ITEM 5. OPERATING AND FINANCIAL REVIEW
AND PROSPECTS



The following discussion should be read in conjunction
with the audited consolidated financial statements of the Company and the related notes for the years ended December 31, 2017,
2016 and 2015 and the accompanying notes thereto included elsewhere in this Annual Report. This discussion contains forward-looking
statements that involve risks and uncertainties. Actual results could differ materially from those anticipated by forward-looking
information due to factors discussed under “ITEM 3.D. Risk Factors” and “ITEM 4.B. Business Overview.”





24





A. Operating Results



Factors Affecting
Our Results of Operations



During the year ended December 31, 2017, the Company
generated gross revenues of $2,794,044 and gross profit of $1,451,353 or 52%. All of the Company’s revenue in 2017 was generated
from the sale of sensing products through the Company’s subsidiary DenseLight Semiconductor Pte. Ltd. (“DenseLight”).
The Company currently operates at a loss. The loss for 2017 before income taxes was $13,095,737.



During 2017, the Company spent $5,442,873 on research
and development activities directly related to the development and commercialization of the POET Optical Interposer Platform (POIP)
and the development of photonic sensing products. $10,870,741 was spent on selling, marketing and administration expenses which
included non-cash operating costs of $5,081,077, of which $2,275,160 related to depreciation and amortization, and $2,805,917 related
to the fair value stock-based compensation. The 2017 loss included other income of $1,766,524 of which $1,695,383 related to the
recovery of certain qualifying expenses from the Economic Development Board (EDB) in Singapore. The recovery includes both collected
recoveries and an amount to be received in 2018. The Company also had deferred income tax recovery of $297,940.



While the Company is generating limited revenues,
it is still primarily a research and development company focused on developing a technological process that demands significant
investments of cash and other resources. The Company has not earned a profit since its inception. Due to the current stage of the
process development, the Company’s most significant expenses are subcontract fees and human resources related, either directly
as wages and benefits or through the non-cash valuation of stock options granted to employees as part of their compensation.



Due to technical challenges related to the manufacturability
of the monolithic GaAs platform, have delayed POET’s development of a Gallium Arsenide (GaAs)-based optical engine. The additional
development time and cost associated with the GaAs platform will require the Company to secure a strategic partner in order to
develop and commercialize this platform. The Company’s therefore redistributed resources dedicated to GaAs development to
the development of POIP. To that end, the Company achieved certain milestones on its product development road map which includes
demonstrating a Narrow Line Width Laser with industry leading performance with tunability for high resolution sensing applications
such as gas & chemical sensing, coherent communication, meteorological sensing and atmospheric LIDAR. Additionally, in September
of 2017, the Company began sampling Avalanche Photodiodes (APD) and PIN Photodiodes (PIN) for the 10G Datacom and Telecom markets.
The Company also sampled its Monitor Photodiode (MPD) arrays for applications in 100G Datacom applications.



Taxation



See ITEM 10.E. “Taxation.”



Critical Accounting
Policies and Estimates



The Company prepares its audited consolidated financial
statements in accordance with IFRS as issued by the IASB., which differs from U.S. GAAP. The preparation of financial statements
in accordance with IFRS requires the use of certain critical accounting assumptions and estimates. These assumptions are limited
by the availability of reliable comparable data and the uncertainty of predictions concerning future events. It also requires management
to exercise judgment in applying the Company’s accounting policies. The Company believes that the estimates and assumptions
upon which it relies are reasonable based upon information available at the time that these estimates and assumptions are made.
Actual results could differ from these estimates. 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. All intercompany balances and transactions have been eliminated on
consolidation.





Financial Instruments





Financial instruments are required to be classified as
one of the following: held to maturity; loans and receivables, fair value through profit or loss; available for sale or other financial
liabilities.



The Company's financial instruments include cash, short-term
investments, accounts receivable, accounts payable and accrued liabilities. The Company designated its cash and short-term investments
as fair value through profit or loss and its accounts payable and accrued liabilities as other financial liabilities.





25





Fair value through profit or loss financial assets are
measured at fair value with gains and losses recognized in operations. Financial assets, except for cash and short-term investments,
consisting of loans and receivables and other financial liabilities are measured at amortized cost. Available for sale financial
assets are measured at fair value with unrealized gains and losses recognized in other comprehensive loss.



Fair value of a financial instrument is the amount of
consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under
no compulsion to act. The fair value of a financial instrument on initial recognition is the transaction price, which is the fair
value of the consideration given or received. Subsequent to initial recognition, the fair value of a financial instrument that
is quoted in active markets is based on the bid price for a financial asset held and the offer price for a financial liability.
When an independent price is not available, fair value is determined by using a valuation methodology that refers to observable
market data. Such a valuation technique includes comparisons with a similar financial instrument where an observable market price
exists, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.
If no reliable estimate can be made, the Company measures the financial instrument at cost less impairment as a last resort.



Accounts receivable





Accounts receivable are amounts due from customers from
the sale of products or services in the ordinary course of business. Accounts receivables are classified as current (on the consolidated
statements of financial position) if payment is due within one year of the reporting period date, and are initially recognized
at fair value and subsequently measured at amortized cost.



The provision policy for doubtful accounts of the Company
is based on the ageing analysis and management's ongoing evaluation of the recoverability of the outstanding receivables. A considerable
amount of judgment is required in assessing the ultimate realization of these receivables, including the assessment of the creditworthiness
and the past collection history of each customer. If the financial conditions of these customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances may be required. As at the balance sheet date, no provision
was required for accounts receivable.



Inventory



Inventory consists of raw material inventory, work in
process, and finished goods and are recorded at the lower of cost and net realizable value. Cost is determined on a first in first
out basis and includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventory to its present
condition.



An assessment is made of the net realizable value of
inventory at each reporting period. Net realizable value is the estimated selling price less the estimated cost of completion and
the estimated costs necessary to make the sale. When circumstances that previously caused inventory to be written down no longer
exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount
of any write down previously recorded is reversed so that the new carrying amount is the lower of the cost and the revised net
realizable value. Raw materials are not written down unless the goods in which they are incorporated are expected to be sold for
less than cost, in which case, they are written down by reference to replacement cost of the raw materials, as this is the best
indicator of net realizable value.



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, 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.



Impairment of long-lived assets



The Company’s tangible and intangible assets are
reviewed for indications of impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets
may not be recoverable. An assessment is made at each reporting date whether there is any indication that an asset may be impaired.





26





An impairment loss is recognized when the carrying amount
of an asset exceeds its recoverable amount. Impairment losses are recognized in profit and loss for the year. The recoverable amount
is the greater of the asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows,
the recoverable amount is determined for the cash-generating unit ("CGU") to which the asset belongs.



An impairment loss is reversed if there is an indication
that there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to
the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortization, if no impairment loss had been recognized.



During the year management determined that certain equipment
would not be used to generate future cash flows and committed to a plan to dispose of certain equipment. The Company reported nil
in impairment loss for the year ended December 31, 2017 (2016 - $63,522, 2015 – nil).



Goodwill



Goodwill represents the excess of the cost of an acquired
business over the fair value of the identifiable assets acquired net of liabilities assumed. Goodwill is measured at cost less
accumulated impairment losses and is not amortized. Goodwill is tested for impairment on an annual basis or whenever facts or circumstances
indicate that the carrying amount may exceed its recoverable amount.







Contingent consideration





The Company may pay future consideration related
to acquisitions based upon performance measures contractually agreed at the time of purchase. Management estimates the future consideration
payable based on underlying contract terms, and best estimates of the future performance of the acquiree. Depending on the future
performance of the acquiree, management estimates of the amounts payable for future consideration related to acquisitions may materially
differ from the consideration ultimately paid.



Income taxes



The Company follows the liability method of accounting
for income taxes. Under this method, deferred income taxes are provided on differences between the financial reporting and income
tax bases of assets and liabilities and on income tax losses available to be carried forward to future years for tax purposes.
Deferred income taxes are measured using the substantively enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse. Valuation allowances are provided to reduce deferred income tax assets to the amount expected
to be realized.



Recently Enacted U.S. Federal Tax Legislation





Introduced initially as the Tax Cuts and Jobs Act,
the Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018
(the “Act”) was enacted on December 22, 2017. The Act applies to corporations generally beginning with taxable years
starting after December 31, 2017, and reduces the corporate tax rate from a graduated set of rates with a maximum 35% tax rate
to a flat 21% tax rate. Additionally, the Act introduces other changes that impact corporations, including a net operating loss
(“NOL”) deduction annual limitation, an interest expense deduction annual limitation, elimination of the alternative
minimum tax, and immediate expensing of the full cost of qualified property. The Act also introduces an international tax reform
that moves the U.S. toward a territorial system, in which income earned in other countries will generally not be subject to U.S.
taxation. However, the accumulated foreign earnings of certain foreign corporations will be subject to a one time transition tax,
which can be elected to be paid over an eight year tax transition period, using specified percentages, or in one lump sum. NOL
and foreign tax credit (“FTC”) carry-forwards can be used to offset the transition tax liability. The Company does
not expect that this change will have an impact on the Company as it has not earned taxable income in the past and it has significant
NOL carry-forwards.



Revenue recognition



Sale of goods



Revenue from the sale of goods is recognized when
significant risks and rewards of ownership are transferred to the buyer, there is persuasive evidence of an arrangement, collection
is probable and fees are fixed and determinable.



Service revenue



Revenue from services that are one year or less
is recognized when the services are completed. Revenue from services of a long-term nature is recognized by reference to the stage
of completion of the transaction at the end of the reporting period determined by services performed to date as a percentage of
total services and the amount of revenue, stage of completion, and the costs incurred for the transaction and the costs to complete
the transaction can be measured reliably.





27





Interest income



Interest income on cash and cash equivalents classified
as fair value through profit or loss is recognized as earned using the effective interest method.



Other income



Government Grants



Grants received exclusively from governmental agencies
such as the Department of Defense of the United States of America, NASA and Productivity and Innovation Credit Scheme Singapore
("PIC Grant"), relating to research and development or expenditure on technology, are recognized as other income.



Government grants from the United States are based
on the agreed upon milestones of the projects. PIC Grants are offered as a percentage of qualifying expenditures. PIC Grants are
paid out in cash. Other income earned on government grants in 2017 was nil (2016 $14,027 and 2015 nil).



Research and Development Credits



The Company is eligible to receive cash credits
for certain qualifying research and development expenses based on anticipated spending over a three-year period, with an expectation
that the credits will not exceed a certain dollar value over the three year period. The Company has accrued or collected $1,695,383
relating to these research and development credits in 2017 (2016 - nil, 2015 - nil).



Intangible assets



Research and development costs



Research costs are expensed in the year incurred.
Development costs are also expensed in the year incurred unless the Company believes a development project meets IFRS criteria
as set out in IAS 38, Intangible Assets, for deferral and amortization. IAS 38 requires all research costs be charged to
expense while development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have
been established. This means that the entity must intend and be able to complete the intangible asset and either use it or sell
it and be able to demonstrate how the asset will generate future economic benefits. Development costs are tested for impairment
whenever events or changes indicate that its carrying amount may not be recoverable



In-Process Research and Development



Under IFRS, in-process research and development
("IPR&D") acquired in a business combination that meets the definition of an intangible asset is capitalized with
amortization commencing when the asset is ready for use (i.e., when development is complete). The Company acquired $714,000 of
IPR&D when it acquired BB Photonics Inc.



Customer relationships



Intangible assets include customer relationships
acquired with the acquisition of DenseLight. Customer relationships are an externally acquired intangible asset and are measured
at cost less accumulated amortization and any accumulated impairment losses. Customer relationships are amortized on a straight-line
basis over their estimated useful lives and is tested for impairment whenever events or changes indicate that their carrying amount
may not be recoverable. The useful life of customer relationships was determined to be 5 years.



Stock-based compensation



Stock options and warrants awarded to non employees
are accounted for using the fair value of the instrument awarded or service provided whichever is considered more reliable. 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 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 year after giving effect to potentially dilutive
financial instruments. The dilutive effect of stock options and warrants is determined using the treasury stock method.





28





Short-term investments



The short term investments of nil at December 31,
2017 and $589,275 at December 31, 2016 and nil at December 31, 2015 consisted of guaranteed investment certificates ("GICs")
held with one Canadian chartered bank and earn interest at a rate of 0.50%.



Recent accounting pronouncements



The following is a summary of recent accounting
pronouncements that may affect the Company:












IFRS 15, Revenue from Contracts with Customers ("IFRS
15"). The IASB issued IFRS 15, which is effective for annual periods beginning on or after January 1, 2018. The standard contains
a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time and over
time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is
recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue
recognized. The Company is in the process of assessing the impact of this standard on its consolidated financial statements. Based
on current assessment, the Company does not expect that this new standard will impact how the Company currently recognizes revenue.



IFRS 16, Leases (“IFRS 16”) sets out
the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, the customer
(lessee) and the supplier (lessor). This will replace IAS 17, Leases (“IAS 17”) and related Interpretations. IFRS 16
provides revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16 introduces
a single accounting model for all lessees and requires a lessee to recognize right-of-use assets and lease liabilities for leases
with terms of more than 12 months, unless the underlying asset is of low value, and depreciation of lease assets is reported separately
from interest on lease liabilities in the income statement. Under IFRS 16, lessor accounting for operating and finance leases will
remain substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier application
permitted for entities that apply IFRS 15, Revenue from Contracts with Customers. The Company is in the process of assessing the
impact of this standard on its consolidated financial statements.

























29





Selected Annual
Data



The selected financial data of the Company for
the years ended December 31, 2017, 2016 and 2015 was derived from the audited annual consolidated financial statements of the Company,
which have been audited by Marcum LLP, independent registered public accounting firm, as described in their report which is included
in this Annual Report.



The information contained in the selected financial
data for the 2017, 2016 and 2015 years is qualified in its entirety by reference to the Company’s consolidated financial
statements and related notes included under the heading ITEM 17. “Financial Statements” and should be read in conjunction
with such financial statements and with the information appearing under the heading ITEM 5 “Operating and Financial Review
and Prospects”. Except where otherwise indicated, all amounts are presented in accordance with IFRS as issued by IASB.



The following table relates to the operating results of the Company.





Consolidated Statements of Operations
Under International Financial Reporting Standards

(US$)





|                                                 |  | Years Ended December 31, |              |  
|------------------------------------------------ |  | ------------------------ | ------------ | -
|                                                 |  |                          |              |  
|                                                 |  |                          | 2017         |  
|                                                 |  |                          |              |  
|Revenue                                          |  | $                        | 2,794,044    |  
|                                                 |  |                          |              |  
|Cost of sales (1)                                |  |                          | 1,342,691    |  
|                                                 |  |                          |              |  
|Gross margin                                     |  |                          | 1,451,353    |  
|                                                 |  |                          |              |  
|Operating expenses                               |  |                          |              |  
|Selling, marketing and administration(1)         |  |                          | 10,870,741   |  
|Research and development(1)                      |  |                          | 5,442,873    |  
|Impairment loss                                  |  |                          | -            |  
|Loss on disposal of property and equipment       |  |                          | -            |  
|Other income, including interest                 |  |                          | (1,766,524   | )
|                                                 |  |                          |              |  
|Operating expenses                               |  |                          | 14,547,090   |  
|                                                 |  |                          |              |  
|Net loss from operations                         |  |                          | (13,095,737  | )
|Change in fair value of contingent consideration |  |                          | -            |  
|                                                 |  |                          |              |  
|Net loss before income tax recovery              |  |                          | (13,095,737  | )
|Income tax recovery                              |  |                          | (297,940     | )
|                                                 |  |                          |              |  
|Net loss                                         |  |                          | (12,797,797  | )
|                                                 |  |                          |              |  
|Deficit, beginning of year                       |  |                          | (104,075,356 | )
|Net loss                                         |  |                          | (12,797,797  | )
|                                                 |  |                          |              |  
|Deficit, end of year                             |  | $                        | (116,873,153 | )
|                                                 |  |                          |              |  
|Basic and diluted net loss per share             |  | $                        | (0.05        | )



(1) Certain prior period figures have been reclassified to conform with the current period's presentation.





30





The selected annual information for 2017, 2016 and 2015 can be further analyzed
as follows:



Research and development costs can be analysed as follows:







|                                                                        |  |   | 2017       |  |  |   | 2016       |  |  |   | 2015      | 
|----------------------------------------------------------------------- |  | - | ---------- |  |  | - | ---------- |  |  | - | --------- | 
|                                                                        |  |   |            |  |  |  
|Wages and benefits(1)                                                   |  | $ | 2,839,088  |  |  | $ | 1,572,567  |  |  | $ | 1,241,054 | 
|Subcontract fees                                                        |  |   | 1,044,936  |  |  |   | 1,013,539  |  |  |   | 1,560,819 | 
|Stock-based compensation                                                |  |   | 369,007    |  |  |   | 373,196    |  |  |   | 552,416   | 
|Supplies                                                                |  |   | 1,189,842  |  |  |   | 206,523    |  |  |   | 178,203   | 
|                                                                        |  |   |            |  |  |   |            |  |  |   |           | 
|                                                                        |  | $ | 5,442,873  |  |  | $ | 3,165,825  |  |  | $ | 3,532,492 | 
|                                                                        |  |   |            |  |  |   |            |  |  |   |           | 
|Selling, marketing and administration costs can be analysed as follows: |  |   |            |  |  |   |            |  |  |   |           | 
|                                                                        |  |   |            |  |  |   |            |  |  |   |           | 
|Stock-based compensation                                                |  | $ | 2,805,917  |  |  | $ | 3,697,068  |  |  | $ | 4,265,704 | 
|Wages and benefits(1)                                                   |  |   | 2,574,978  |  |  |   | 2,800,878  |  |  |   | 1,306,051 | 
|Depreciation and amortization                                           |  |   | 2,275,160  |  |  |   | 1,521,566  |  |  |   | 319,863   | 
|General expenses(1)                                                     |  |   | 1,038,857  |  |  |   | 1,292,341  |  |  |   | 1,012,340 | 
|Professional fees                                                       |  |   | 624,941    |  |  |   | 715,716    |  |  |   | 812,115   | 
|Management and consulting fees                                          |  |   | 229,577    |  |  |   | 611,861    |  |  |   | 665,771   | 
|Rent and facility costs(1)                                              |  |   | 1,321,311  |  |  |   | 782,174    |  |  |   | 232,265   | 
|                                                                        |  |   |            |  |  |   |            |  |  |   |           | 
|                                                                        |  | $ | 10,870,741 |  |  | $ | 11,421,604 |  |  | $ | 8,614,109 | 











(1) Certain prior period figures have been reclassified
to conform with the current period's presentation.





Year Ended December
31, 2017 compared to Year Ended December 31, 2016



Net
loss before taxes for the twelve-month period ended December 31, 2017 was $13,095,737 compared to net loss before taxes of $13,431,941
for the twelve months ended December 31, 2016. The loss of the year ended December 31, 2017 includes the operations of DenseLight
and BB Photonics for the entire year, while the loss for the prior-year reflected the operations of the Company with those subsidiaries
for less than the full twelve months (i.e., from May 11, 2016 for DenseLight and June 22, 2016 for BB Photonics).



Sales



During
the twelve-month period ended December 31, 2017, the Company reported revenue of $2,794,044 through its DenseLight 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 the revenue in 2016 was only from May 11, 2016.



R&D



Total R&D increased
by $2,277,048 from $3,165,825 in 2016 to $5,442,873 in 2017. For the purposes of the following R&D analysis, non-cash
stock-based compensation of $369,007 (2016 - $373,196) has been excluded and is included with the analysis of non-cash
stock-based compensation below.



R&D
increased by 82% or $2,281,237 to $5,073,866 in 2017 from $2,792,629 in 2016. R&D costs in 2016 included the activities of
POET for the full twelve-month period and R&D of DenseLight and BB Photonics only from May 11, 2016 and June 22, 2016, respectively.
The first twelve months of 2017 include R&D costs for the GaAs platform and the programs in InP integrated dielectrics and
wafer-level packaging all associated with the Company’s efforts to expand its product portfolio in datacom and sensing. In
addition to 2016 costs only being costs of a 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 $2,074,515 in 2016. This increase was also a result of
shortened activity during the prior-year related to the dates of acquisition of DenseLight and BB Photonics (i.e., May 11, 2016
and June 22, 2016, respectively).





31





Stock-based
compensation



Non-cash
stock-based compensation decreased by 22% or $895,340 to $3,174,924 in 2017 from $4,070,264 in 2016. Departing employees and consultants
who had unvested stock options contributed to the substantial reduction in 2017, as their unvested options were returned to the
Company. The valuation of stock options is driven by a number of factors including the number of options granted, the strike price
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 options vest in accordance with the policies determined 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 consulting fees



Management
and consulting fees decreased by 62% or $382,284 from 2016. The expense in 2017 was $229,577 as compared to $611,861 in 2016. The
resignation of Mr. Manocha from the position of Executive Chairman of the Board in February 2017 contributed to the decrease. This
reduction in management and consulting fees was partially offset by an increase in wages and benefits for the compensation paid
to Mr. Lazovsky who replaced Mr. Manocha as the Executive Chairman of the Board. Mr. Lazovsky is paid $200,000 annually in his
capacity as Executive Chairman as compared to $500,000 that previously paid to Mr. Manocha



Wages
and benefits



Wages
and benefits decreased by 8% or $225,900 to $2,574,978 in 2017 compared to $2,800,878 in the prior-year. Three principal factors
contributed to the decrease: (1) 2016 wages included an accrued bonus of $550,000 to the CEO and former COO, which was deferred
and eventually paid in 2017; (2) 2016 wages also included wages paid to the former Executive Co-Chairman of the Board of $136,655;
and (3) 2016 wages included twelve months of wages for the former COO, Dr. Deshmukh who resigned in Q1 2017. These decreases were
offset by: (1) the inclusion of the compensation of the new Executive Chairman of the Board; and (2) wages of DenseLight and BB
Photonics for the entire 2017 as compared to only the period from May 11, 2016 and June 22, 2016 respectively.



Depreciation
and amortization



Depreciation
and amortization increased by 50% or $753,594 to $2,275,160 in 2017 from $1,521,566 in the prior-year. The increase was a result
of depreciation and amortization related to the property and equipment, patents and licenses, and intangible assets acquired during
and after the acquisition of DenseLight and BB Photonics in 2016. The Company acquired $11,118,460 of property and equipment, patents
and licenses and intangible assets since May 2016.





Other
Income



Other
income in 2017 was $1,766,524 as compared to $66,872 in 2016. The Company is entitled to a recovery of certain qualifying expenses
from the Economic Development Board (EDB) in Singapore. The increase is a result of both collected recoveries and an amount accrued
to be received in 2018.



Exchange Rate Risk



The Company is exposed to foreign currency risk with
the Canadian dollar and Singapore dollar due to cash reserves and other current assets and liabilities that are maintained in those
currencies, all of which are exposed to currency fluctuations. Most of the Company’s operations are transacted in US dollars
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 fixed rates, and as
such, are subject to interest rate risk resulting from changes in fair value from market fluctuations in interest rates. The Company
does not depend on interest from its investments to fund its operations.







32





Credit Risk



The Company is exposed to credit risk associated with
its accounts receivable. The Company has accounts receivable from both governmental and non-governmental agencies. Credit risk
is minimized substantially by ensuring the credit worthiness of the entities with which it carries on business. Credit terms 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 receivable ageing at December
31 was as follows:





|             |  | 2017 |         | 2016
|------------ |  | ---- | ------- | ----
|             |  |      |         |     
|Current      |  | $    | 330,731 |     
|31 - 60 days |  |      | 56,094  |     
|61 - 90 days |  |      | -       |     
|> 90 days    |  |      | 107,100 |     
|             |  | $    | 493,925 |     









Year Ended December
31, 2016 compared to Year Ended December 31, 2015



The loss before taxes increased from $12,070,170
for the year ended December 31, 2015 to $13,431,941 for the year ended December 31, 2016, an increase of $1,361,771. The 2016 loss
includes $3,182,562 loss from DenseLight and $181,782 loss from BB Photonics. Significant changes period over period were as follows:



Sales



The Company reported sales of $1,861,747 during
2016, wholly attributable to the newly acquired DenseLight subsidiary. No sales were reported in the 2015. Gross margin during
the period was 49%. Due to the accounting rules relating to acquisitions, gross margin is lower than what would have been reported
without related adjustments required under the rules. Finished goods inventory is carried at fair value on the date of acquisition,
finished goods inventory was written up by $84,654, this resulted in increased cost of sales and lower gross margin on inventory
sold from the acquisition date to the period end. Adjusted gross margin for the period was 54%. Adjusted gross margin normalizes
gross margin by reversing the impact of the fair value inventory adjustment.



Research and Development



Total R&D decreased by $366,667 from $3,532,492
in 2015 to $3,165,825 in 2016. For the purposes of the following R&D analysis, non-cash stock-based compensation of $373,196
(2015 - $552,416) has been excluded and is included with the analysis of non-cash stock-based compensation below.



R&D expense during 2016 decreased by $187,447
or 6% from 2015. R&D expense was $2,980,076 in 2015 and $2,792,629 in 2016. While the Company added $951,815 in R&D from
both DenseLight and BB Photonics, cost reductions from synergies achieved through the integration of R&D programs of the entire
Company along with outsourcing resulted in the cumulative R&D savings in 2016.



Wages and Benefits



Wages and benefits had the most significant increase
from the 2015 to 2016. The expense increased by $1,494,827 or 114% from $1,306,051 in 2015 to $2,800,878 in 2016. The drivers behind
this increase were; inclusion of wages and benefits of DenseLight from May 12, 2016 to December 31, 2016 of $800,921 with no comparable
DenseLight salaries expensed in 2015, and accrued but unpaid retention bonus to CEO included in the original employment agreement
due and payable in mid-June 2016, the one year anniversary of the commencement of respective employment. The total bonus payable
of $450,000 was voluntarily deferred by the CEO until 2017. In order to manage cash flow, head office based management agreed to
a temporary, non-recoverable 10-20% reduction in compensation that took effect on October 1, 2016.



General Expenses and Rent



General expenses and rent increased by $829,910
or 67% from $1,244,605 in 2015 to $2,074,515 in 2016. During 2016, the Company acquired DenseLight and BB Photonics. The Company
incurred acquisition costs related to the acquisition that included extra travel, freight to ship equipment to Singapore and regulatory
transaction costs. Additionally, the 2016 expense includes $1,129,529 of general expenses of DenseLight from May 12, 2016 to December
31, 2016. These increases in 2016 were offset by higher than normal 2015 expenses related to investor relations and promotion.





33





Stock-based Compensation



Non-cash stock-based compensation decreased by
$747,856 or 16% from $4,818,120 in 2015 to $4,070,264 in 2016. The valuation of stock options is driven by a number of factors
including the number of options granted, the strike price 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 options vest in
accordance with the policies determined by the Board of Directors from time to time consistent with the provisions of the 2016
Plan which grants discretion to the Board of Directors.



Depreciation and Amortization



Depreciation and amortization expense in 2015 was
$319,863 as compared to $1,521,566 in 2016. The increase of $1,201,703 included $1,093,037 of depreciation and amortization relating
to the new property and equipment and customer relationship acquired in the acquisition of DenseLight and BB Photonics, which amounted
to $8,892,160.



Change in fair values



The purchase and sale agreement relating to the
purchase of DenseLight provided for an additional $1,000,000 worth of shares to be issued to the sellers should gross revenue from
DenseLight exceed certain targets for 2016. The fair value of this contingent consideration was determined to be $283,130. DenseLight
did not exceed the established revenue targets for 2016; the Company has therefore adjusted the fair value of contingent consideration
to nil through earnings.



Impairment and loss on disposal of equipment



In 2016, the Company recorded an impairment loss
of $63,522 and a loss on disposal of equipment of $46,738. Management determined that certain equipment would not be used to generate
future cash flows and committed to a plan of disposal. A market approach was used to determine the equipment's fair value less
cost of sell. Key assumptions included the cost of similar assets, the impact of customization and unique use. The fair value less
cost to sell was determined to be $35,000, which is greater than its value in use. The Company recorded an impairment loss of $63,522
on the equipment and reclassified $35,000 from property and equipment to non-current assets held for sale. The equipment was sold
in July 2016.



The Company reduced its operations in Toronto and
disposed of $27,806 of property and equipment for proceeds of $2,195 while recording a loss of $16,931 on the sale. The Company
also disposed of an additional $64,747 of property at a loss of $29,807.



Exchange Rate Risk



The Company is exposed to foreign currency risk
with the Canadian dollar and Singapore dollar. The Company maintains bank accounts and cash reserves in three currencies with the
majority of reserves currently in Canadian dollars, which has exposure to currency fluctuations. Most of the Company’s operations
are transacted in US dollars and Singapore Dollars. A 10% change in the Canadian dollar and Singapore dollar would increase or
decrease other comprehensive loss by $620,560.



Credit Risk



The Company is exposed to credit risk associated
with its accounts receivable. The Company has accounts receivable from both governmental and non-governmental agencies. Credit
risk is minimized substantially by ensuring the credit worthiness of the entities with which it carries on business. Credit terms
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 receivable ageing at December 31 was as follows:





|             |  | 2016 |         | 2015
|------------ |  | ---- | ------- | ----
|             |  |      |         |     
|Current      |  | $    | 125,610 |     
|31 - 60 days |  |      | 16,346  |     
|61 - 90 days |  |      | 75,816  |     
|> 90 days    |  |      | 75,077  |     
|             |  |      |         |     
|Current      |  | $    | 292,849 |     









34





B. Liquidity and Capital Resources





The Company had working capital of $7,140,119 on
December 31, 2017 as compared to $15,509,859 on December 31, 2016.



The Company’s balance sheet as of December 31,
2017 reflects assets with a book value of $25,205,772, compared to $35,505,597 as of December 31, 2016. Thirty-two (32%) of the
book value, or $7,950,712, was in current assets consisting primarily of cash and short-term investments, compared to 48%, or $17,134,203
as of December 31, 2016.





The Company is in a position to cover its liabilities
as they come due, however, due to the continuation of losses, the Company will need to seek debt or equity financing to fund its
operations. Consistent with its need for additional financing, on March 21, 2018, the Company completed a public offering of 25,090,700
units at a price of $0.425 (CAD$0.55) per unit for gross proceeds of $10,663,548 (CAD$13,799,885). Additionally, subsequent to
December 31, 2017 through April 23, 2018, the Company raised $1,131,921 from the exercise of warrants and stock options. Refer
to Subsequent Events for further details.





Operating Activities



Due to the high cost and relatively long development
cycles related to GaAs platform, the Company determined that it should not proceed with the GaAs development program without a
strategic partner and the funding such a partner would provide. Instead, the Company focused on the nearer-term, higher return
on investment opportunities by addressing the larger, high-growth markets afforded to it with the InP-based hybrid technology,
while at the same time seeking a partner for the continued development and commercialization of our unique GaAs platform.



Consistent with the new focus on InP-based hybrid technology,
the Company committed to introducing at least two new products for 2017. In line with this commitment, on July 17, 2017 the Company
announced that its Narrow Linewidth Laser products have demonstrated industry-leading performance with "super-wide" tunability
for high resolution sensing applications, such as gas & chemical sensing, coherent communication, meteorological sensing and
atmospheric LIDAR; additional developments, including the incorporation of dielectric waveguides and wafer-level packaging is expected
to accelerate growth in the sensing product line in 2018 and beyond. The Corporation also announced that technical challenges related
to the manufacturability of the monolithic GaAs platform, have delayed POET’s development of a Gallium Arsenide (GaAs)-based
optical engine.



On September 6, 2017, the Company began sampling Avalanche
Photodiodes (APD) and PIN Photodiodes (PIN) for the 10G Datacom and Telecom markets. Additionally, it began sampling its Monitor
Photodiode (MPD) arrays for applications in 100G Datacom applications.



In September, the Company also introduced a suite of
specialized external cavity narrow linewidth (NLW) laser products. The NLW lasers are assembled in integrated laser modules (ILM)
and provide feature rich extensions to the existing BF series ILMs. The new family will feature laser sources with lower Relative
Intensity Noise (RIN) relative to current offerings and at the low-end include a standard CW capable light source (BF9C). A higher-end
module added power tuning capability, lower RIN and improved temperature range (BF15); the flagship product offers highly integrated
BF18 with even lower RIN and "super wide" tunability. These new product introductions primarily target a wide range of
communication and sensing applications, including coherent communication, laser interferometry, LIDAR wind detection, long distance
fiber, fiber array sensing and acoustic sensing.



The Company’s board of directors approved the 2018
budget which continues to see commitments made to expanding and developing the product portfolio of DenseLight and growing its
revenues. The Company’s R&D efforts in 2017 resulted in the introduction of the Company’s Optical Interposer
Platform, which facilitates the co-packaging of electronics and optics in a single Multi-Chip Module (MCM). Based on the Company’s
Dielectric Waveguide technology, the Optical Interposer provides the ability to run electrical and optical interconnections side-by-side
on the same interposer chip at a micrometer scale. The Optical Interposer represents an integral part of the Company’s hybrid
integrated optical engines and leverages the manufacturing processes and unique capabilities of the dielectric waveguides.



For 2018 the Company expects to address the short-term
and long-term growth plans of the Company including, but not limited to the following:





• Introduce the Optical Interposer concept to suppliers of transceivers and data center operators and form commercial
partnerships for product development.Because of the magnitude of the cost savings that may be derived from the use of
POET’s optical engines for transceiver applications, we expect to generate significant interest among both the
suppliers of transceiver modules and their ultimate customers, the data center operators. In addition, the POET Optical
Interposer provides a straightforward and cost-effective path to higher speed transceivers, including up to 400G and higher,
thus providing a single platform that can span several device generations. We anticipate that several companies will be
interested in pursuing commercial partnerships with POET in order to qualify and design-in our optical engines.





35





•  Promote the POET Optical
Interposer as a true platform technology across several photonic applications and markets.The POET Optical Interposer is designed
to be a flexible platform for the combination or integration of various photonic and electronic components. The anticipated low
cost makes it suitable for applications like automotive LIDAR. The compatibility of the Optical Interposer manufacturing process
with standard silicon CMOS processing opens up a wide variety of other applications where high-speed data communications is needed,
such as integration with ASICs, graphics generators and high-speed switches.



•    Pursue multiple
potential sources of non-product revenue. In addition to product sales, we will pursue Non-Recurring Engineering (“NRE”)
revenues from end-use customers and/or from foundry operations. Over time, we expect to transfer our technology, under foundry
licensing arrangements, to strategic partners, in particular vertical markets and to enable second source product licensing for
high volume applications and eventually chipset royalties.



•    Continue to invest
in our capabilities and infrastructure. We intend to continue to invest in new products, new technology and our production
infrastructure and facilities to maintain and strengthen our competitive position. Our R&D programs in Singapore are supported
by the Singapore Economic Development Board, whose support will help to defer the costs associated with bringing innovative new
products to market.



•   Selectively pursue
other opportunities that leverage our existing expertise. Our expertise in designing and manufacturing photonics devices, both
discrete and integrated, positions us well to pursue applications in high growth markets and our Singapore operation is ideally
located to support customers in Asia, where much of the growth is occurring.









Investing Activities



The Company’s investing activities include
investing surplus cash in low risk guaranteed investment certificates, the purchase of property and equipment and the registration
of new patents for use in the development of the Company’s technology. When investing, the Company has a strict investment
policy that includes investing any surplus capital only in highly liquid, highly rated financial instruments. The Company has no
immediate plans for additional acquisitions, however, the Company will continue to evaluate and selectively pursue strategic alliances
or acquisition opportunities that we believe will accelerate our penetration of specific applications or vertical markets with
our technology or products.



Financing Activities



On March 21, 2018, the Company completed a brokered
“bought deal” public offering of 25,090,700 units at a price of $0.425 (CAD$0.55) per unit for gross proceeds of $10,663,548
(CAD$13,799,885). Each unit consists of one common share 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 (CAD$0.75) per share until March 21, 2020. The broker
was paid a cash commission of $639,813 (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 $0.425 (CAD$0.55) per compensation option until March
21, 2020 with each compensation unit comprising one common share and one-half compensation share purchase warrant. Each compensation
share purchase warrant entitles the broker to purchase one common share of the Company at a price of $0.425 (CAD$0.55) per share
until March 21, 2020.



Subsequent to December 31, 2017 through April 23,
2018, the Company also raised $1,131,921 from the exercise of warrants and stock options.



Since the financing in March 2018, the Company
has not initiated additional equity or debt financing, however, as the need arises, the Company’s preference is to seek additional
funding, primarily by way of equity offerings, to carry out its business plan and to minimize risks of its operations. The market
for equity financing for companies such as us is challenging and there can be no assurance that additional funding by way of equity
financing will be available, or if available, on terms acceptable to the Company. The failure of the Company to obtain additional
funding on a timely basis may result in the Company reducing or delaying one or more of its planned research, development and marketing
programs and reducing related personnel, any of which could impair the current and future value of the business. Any additional
equity financing, if secured, may result in dilution to the existing shareholders at the time of such financing. The Company may
also seek additional funding from other sources, such, technology licensing, and strategic alliances, which, if obtained, may reduce
the Company’s interest in its projects or products. There can be no assurance, however, that any alternative sources of funding
will be available.



Capital Expenditures



The Company has an approved capital budget of $4,206,000
for the 2018 fiscal year related to research and development equipment, manufacturing equipment and patent registration. In 2017,
$1,030,340 was spent in cash on acquiring development and manufacturing equipment and new patents. $1,281,170 and $374,200 were
spent on similar capital expenditures in 2016 and 2015, respectively.







36





C. Research and Development



The Company is pursuing the development of an InP-based
100G optical engine using a hybrid approach to integration. At the core of this development are the active laser components supplied
by DenseLight and the novel passive components based on BB Photonics technology. BB Photonics has designed a multi-layer, athermal
waveguide and a spot size converter that are incorporated directly into the InP epitaxial stack. Our objective is to place several
integrated and discrete components on a silicon optical bench that does not require active optical alignment, which would substantially
reduce the cost of the device by eliminating the need for lenses and mirrors. We intend to offer both components to transceiver
makers, as well as to develop our own 100G, scalable transceiver optical engine. Utilizing this approach, the Company has launched
the POET Optical Interposer Platform (POIP) which facilitates the co-packaging of electronic and optics in a single multi-chip
module. POIP will provide the ability to run electrical and optical interconnections side-by-side on the same interposer chip at
a micrometer scale.



Internally generated research costs, including
the costs of developing intellectual property and maintaining patents are expensed as incurred. Internal development costs are
expensed as incurred unless such costs meet the criteria for deferral and amortization under IFRS, which to date has not occurred.



We incurred $5,442,873, $3,165,825 and $3,532,492
of research and development expenses in 2017, 2016 and 2015 respectively which includes non-cash stock-based compensation of $369,007,
$373,196 and $552,416 respectively. Other expenses related to research and development expenditures in the semiconductor business
include costs associated with salaries, material costs, license fees, consulting services and third-party contract manufacturing.
The expenses in all years presented can be analyzed as follows:





|                         |  |   | 2017      |  |  |   | 2016      |  |  |   | 2015      | 
|------------------------ |  | - | --------- |  |  | - | --------- |  |  | - | --------- | 
|                         |  |   |           |  |  |  
|Wages and benefits(1)    |  | $ | 2,839,088 |  |  | $ | 1,572,567 |  |  | $ | 1,241,054 | 
|Subcontract fees         |  |   | 1,044,936 |  |  |   | 1,013,539 |  |  |   | 1,560,819 | 
|Stock-based compensation |  |   | 369,007   |  |  |   | 373,196   |  |  |   | 552,416   | 
|Supplies                 |  |   | 1,189,842 |  |  |   | 206,523   |  |  |   | 178,203   | 
|                         |  |   |           |  |  |   |           |  |  |   |           | 
|                         |  | $ | 5,442,873 |  |  | $ | 3,165,825 |  |  | $ | 3,532,492 | 







D. Trend Information



Other than as may be disclosed elsewhere in this
annual report and specifically in ITEM 4.B. “Business Overview,” we are not aware of any trends, uncertainties, demands,
commitments or events that are 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 necessarily indicative of future
operating results or financial condition.



E. Off-Balance Sheet Arrangements



The Company has no material off-balance sheet arrangements
in place at this time.







F. Tabular Disclosures of Contractual Obligations



The following table sets forth our contractual obligations
and commercial commitments as of December 31, 2017:





|                            |  | Payments due by period (US$)
|--------------------------- |  | ----------------------------
|Contractual Obligations     |  | Total                       
|Operating Lease Obligations |  | $                           











G. Safe Harbor



See “Forward Looking Statements” on page 1 of this Annual Report.





37





ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES







A. Directors and Senior Management



The following table sets forth information regarding our Directors and Officers
for the most recent financial year.

















|Name                    |  | Positions                                                        |  | Age |    | Date First Elected or Appointed a Director or Officer
|----------------------- |  | ---------------------------------------------------------------- |  | --- | -- | -----------------------------------------------------
|Jean-Louis Malinge      |  | Director                                                         |  |     | 64 |                                                      
|Ajit Manocha (3)(4)     |  | Former Chairman and Director                                     |  |     | 66 |                                                      
|Dr. Suresh Venkatesan   |  | Chief Executive Officer and Director                             |  |     | 51 |                                                      
|Dr. Subhash Deshmukh(4) |  | Chief Operating Officer                                          |  |     | 56 |                                                      
|Kevin Barnes            |  | Corporate controller and treasurer                               |  |     | 46 |                                                      
|Thomas R. Mika          |  | Chief Financial Officer                                          |  |     | 66 |                                                      
|Don Listwin             |  | Director                                                         |  |     | 59 |                                                      
|John F. O’Donnell(2)(3) |  | Corporate Governance and Nominating Committee Chair and Director |  |     | 71 |                                                      
|Chris Tsiofas (1)(2)(3) |  | Audit and Compensation Committee Chair and Director              |  |     | 50 |                                                      
|Todd A. DeBonis (2)     |  | Director                                                         |  |     | 53 |                                                      
|David E. Lazovsky       |  | Chairman and Director                                            |  |     | 46 |                                                      
|Mohandas Warrior (1)    |  | Director                                                         |  |     | 57 |                                                      
|Rajan Rajgopal          |  | President – DenseLight Semiconductor Pte. Ltd.                   |  |     | 54 |                                                      

________________________



|(1) |  | Member of Audit Committee
|--- |  | -------------------------

|(2) |  | Member of Compensation Committee
|--- |  | --------------------------------

|(3) |  | Member of Corporate Governance and Nominating Committee
|--- |  | -------------------------------------------------------

|(4) |  | Resigned in 2017
|--- |  | ----------------





Mr. Ajit Manocha has over 35 years of experience
in the semiconductor industry with deep knowledge of semiconductor technology and operations. Mr. Manocha resigned as the Chairman
of the Board on February 1, 2017 and resigned as a director of the Company on September 5, 2017. He continues to serve as a consultant
to the Company.



Dr. Deshmukh was VP Emerging Technologies
and Products at Applied Materials Inc. He was also VP and General Manager of the Plasma products Business Unit as well as VP Business
Development for Varian Semiconductor Equipment Associates Inc. Dr. Deshmukh holds a PhD in Chemical Sciences and has authored or
co-authored over 55 technical articles. Dr. Deshmukh has been granted over 27 patents and has several patents pending. Mr. Deshmukh
resigned from the Company on January 13, 2017.



Dr. Suresh Venkatesan as CEO. Dr. Venkatesan
was most recently Senior Vice President, Technology Development 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 transfer and qualification of 14nm. In addition, he was responsible for the qualification
and ramp up of multiple mainstream value added technology nodes.



Mr. Thomas Mika as EVP &CFO. Prior
to joining POET, Mika served for one year as the Executive Chairman of Rennova Health, Inc., following its merger in 2016 with
CollabRx, Inc., the successor company to Tegal Corporation, a semiconductor capital equipment company (NASDAQ: TGAL). Following
its spin-out from Motorola, Mika served on the Board of Directors of Tegal 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 of
CollabRx, which he later merged into Rennova Health. In 1980, Mika co-founded IMTEC, a boutique M&A, investment and consulting
firm, 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 Cresap, McCormick & Paget and a policy analyst for the National Science
Foundation. He holds a Bachelor of Science in Microbiology from the University of Illinois at Urbana-Champaign and a Master of
Business Administration from the Harvard Graduate School of Business.



Mr. Kevin Barnes has been serving as Chief
Financial Officer since December of 2012 and previously served as Controller beginning in 2008. Mr. Barnes holds a Master of Business
Administration and is a member of the Institute of the Certified Management Accountants of Australia and an Accredited Chartered
Secretary. Mr. Barnes served as a Corporate Controller and Business Performance Manager for EC English, one of the world’s
largest language training institutes between 2006 and 2014. Mr. Barnes also serves as Chief Financial Officer of VVC Exploration
Corporation, a minerals exploration company since 2006. From 2000 to 2006, he was a reporting manager with Duguay and Ringler Corporate
Services, which specializes in financial reporting for publicly traded companies.





38





Mr. John F. O’Donnell has a BA (Economics)
and an LLB, has practiced law in the City of Toronto since 1973 and has been on the Board of Directors of the Company since February
of 2012. He is currently counsel to Stikeman Keeley Spiegel LLP. His practice is primarily in the field of corporate and securities
law and, as such, he is and has been counsel to several publicly traded companies. Mr. O’Donnell is currently also Chairman
of the Board of Peloton Mining Corporation. (PM: CSE).



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 Foundation. He has been on the Board of Directors since August of 2012. He is a partner with the
Toronto Chartered Professional Accountancy firm of Myers Tsiofas Norheim  LLP.



Todd A. DeBonis is a veteran
semiconductor executive with over 27 years of expertise in sales, marketing and corporate development. For the last decade
Mr. DeBonis was the Vice President of Global Sales and Strategic Development at TriQuint Semiconductor. Mr. DeBonis played an
integral part in the recent merger of TriQuint with RFMD and subsequent creation of Qorvo, Inc. Mr. DeBonis previously held
the position of Vice President, Worldwide Sales and Marketing at Centillium Communications. Mr. DeBonis also served as the
Vice President, Worldwide Sales for Ishoni Networks and Vice President, Sales & Marketing for the Communications Division
of Infineon Technologies North America. Mr. DeBonis has a B.S. degree in Electrical Engineering from the University of
Nevada. Mr. DeBonis resigned from the board of director on January 22, 2018.



David E. Lazovsky is the founder of Intermolecular
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 2014. Mr. Lazovsky has an in-depth knowledge of the semiconductor industry, technology and markets. Prior to founding
Intermolecular, Mr. Lazovsky held several senior management positions at Applied Materials (NASDAQ: AMAT). From 1996 through August
2004, Mr. Lazovsky held management positions in the Metal Deposition and Thin Films Product Business Group where he was responsible
for managing more than $1 billion in Applied Materials’ semiconductor manufacturing equipment business.. Mr. Lazovsky holds
a B.S. in mechanical engineering from Ohio University and, as of March 31, 2014, held 41 pending or issued U.S. patents. Mr. Lazovsky
was appointed as the Chairman of the Board on February 1, 2017.



Mr. Mohan Warriorwas president and chief executive officer (CEO) of
Alfalight Inc. (“Alfalight”) from February 2004 to Sep 2016. Alfalight is a GaAs based high power diode laser manufacturing
company with headquarters in Madison, Wisconsin. Alfalight serves military, telecom and industrial customers. Mr. Warrior established
Alfalight as a leading provider of high-powered laser diode solutions in both commercial and defense segments. Alfalight was sold
to Gooch and Housego in 2016. Prior to joining Alfalight, Mr. Warrior's career included 15 years at Motorola Semiconductors (now
Freescale) where he led the test and assembly operations, a group of 3500 employees, in the US, Scotland and Korea. Mr Warrior
earned his Bachelor’s degree in Chemical Engineering from Indian Institute of Technology, Delhi, a Master’s degree
in Chemical Engineering from Syracuse University, New York and an MBA from the Kellogg School of Management at Northwestern University.



Mr. Jean-Louis Malinge serves as partner with ARCH Venture Partners,
an early-stage venture capital firm with nearly $2 billion under management. Additionally, he also serves as a managing director
for YADAIS, a leading consulting firm in the photonics and telecommunications industries, and is a board member of EGIDE SA and
CAILabs. EGIDE SA designs, manufactures and sells hermetic packages for the protection and interconnection of several types of
electronic and photonic chips and CAIlabs is a venture-backed French innovative start-up founded in 2013 which has developed a
unique spatial multiplexing platform. From 2004 to 2013 Jean-Louis was President and CEO of Kotura, a Silicon Photonics pioneer
which was acquired in 2013 by Mellanox Technologies. Prior to Kotura Mr. Malinge was an executive with Corning Inc for 15 years.
Jean-Louis hold an Executive M.B.A. from MIT Sloan School in Boston, Massachusetts.  He also holds an engineering degree from
the Institut National des Sciences Appliquées in Rennes, France.



Mr. Don Listwin has over 30 years of technology
investing and management experience, highlighted by a decade at Cisco Systems, where he served as executive vice president. During
his tenure 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, Listwin served as chief executive officer
of both Sana Security and Openwave Systems. In addition, Listwin founded and holds the role of chief executive officer of the Canary
Foundation, a non-profit research organization focused on the early detection of cancer. He also serves as a director on the boards
of AwareX, Calix, D-wave, iSchemaView, Robin Systems and Teradici. Previously, he also served on the boards or was an advisor to
JDS Uniphase, PLUMgrid, Redback Networks, E-TEK Dynamics, the Cellular Telecommunications & Internet Association (CTIA) and
the Business Development Bank of Canada (BDC).



Mr. Rajan Rajgopal is a seasoned semiconductor
executive with senior previous roles at top multi-national leaders such as Micron, GLOBALFOUNDRIES and Texas Instruments. He holds
an MSEE degree from the University of Maine and a BSEE degree from the University of Texas at Austin.



The Directors, unless otherwise noted above have served
in their respective capacities since their election and/or appointment, and will serve until the next Company’s annual general
meeting or until a successor is duly elected, unless the office is vacated in accordance with the Articles of Continuance.





39





The Board has adopted a written Code of Business
Conduct and Ethics to promote a culture of ethical business conduct and relies upon the selection of persons as directors, senior
management and employees who they consider to meet the highest ethical standards. The Company’s Code of Business Ethics can
be found on the Company’s web site at: www.poet-technologies.com.



There are no family relationships between any of
our Directors or senior management. There are no arrangements or understandings with major shareholders, customers, suppliers or
others, pursuant to which any person referred to above was selected as a 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 since
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 the Plan or otherwise granted cannot exceed 20% of the issued and outstanding shares.
The shareholders fixed the Maximum Number at 11,930,000. Thereafter, the Plan has been amended by the Directors, and such amendments
have been approved by the shareholders in 2009, 2011, 2013, 2014, 2015 and 2016. The Maximum Number is currently 44,352,885 shares.



The purpose of the Plan is to assist the Company
in attracting, retaining and motivating directors, employees and consultants of the Company and any of its subsidiaries and to
closely align the personal interests of such directors, employees and consultants with those of the shareholders by providing them
with the opportunity, through options, to acquire common shares in the capital of the Company.



The Plan provides that the number of common shares
issuable pursuant to options granted under the Plan and pursuant to other previously granted options is limited to the Maximum
Number, currently fixed at 44,352,885. Any subsequent increase in the Maximum Number must be approved by shareholders of the Company
and cannot exceed 20% of the issued and outstanding shares of the Company at the time of the shareholders’ approval. There
is no other limit to the number of options granted to any individual, except for:

(i)2% on a yearly basis to any one consultant and (ii) 2% on a yearly basis to any employee providing “Investor Relations
Activities.”



The following paragraphs summarize some of the terms 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 services involving “Investor Relations Activities.”



Plan Administration. The Board of Directors
is the plan administrator, subject to the advice and recommendations of our Compensation Committee. The plan administrator will
determine the provisions and terms and conditions of each grant.



Exercise Price. The exercise price subject
to an option shall be determined by the Board and set forth in the option agreement, but shall be either (i) not less than the
last 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 certain circumstance, the Company can amend the other terms of a
stock option only where prior TSXV acceptance is obtained and where the following requirements are 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 stock option term, the Company obtains disinterested shareholder approval;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | if the option exercise price is amended, at least six months have elapsed
since the later of the date of commencement of the term, the date the Company’s shares commenced trading, or the date the
option exercise price was last amended;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | if the option price is amended to the discounted market price, the exchange
hold period is applied from the date of the amendment (and for more certainty where the option price is amended to the market price,
the exchange hold period will not apply); and
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iv) | if the length of the stock option term is amended, any extension of the
length of the term 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 if it were a newly granted option. The term of an option cannot be extended
so that the effective term of the option exceeds 10 years in total. An option must be outstanding for at least one year before
the Company can extend its term.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The TSXV must accept a proposed amendment before
the option may be exercised as amended. If the Company cancels a stock option and within one year grants new options to the same
individual, the new options will be subject to the requirements in sections (i) to (iv) above.





40





Option Agreement. Options granted under the plan
are evidenced by an option agreement that sets forth the terms, conditions and limitations for each grant.



Term of the Awards. The term of each option
grant shall be stated in the option agreement, provided that the term shall not exceed 10 years from the date of the grant. Prior
to May 21, 2009, the term was limited to 5 years. At the meeting of the Board of Directors held on February 25, 2016, based on
the report of Compensia, it was determined that in the future, stock options should generally have a term of 10 years



Vesting Schedule. In general, options granted
under the Plan vest 25% immediately 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 that options granted to consultants performing “Investor Relations
Activities” must vest in stages over 12 months with no more than 25% of the options vesting in any three month period. Prior
to May 21, 2009, vesting was mandatory for all option grants. At the meeting of the Board of Directors held on February 25, 2016,
based on the report of Compensia, it was determined that in the future, 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, 2017, the board approved a revised one-year vesting schedule
for options granted for service on the board to conform to the term 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
the Plan may not be transferred 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 that are subject to restrictions may not be transferred
during the period of restriction.



Change of Control 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 with us or ceases to provide services to us, the options will terminate after a period of time
following the termination of employment. Our Board of Directors has the authority to amend or terminate the plan subject 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) (refer to ITEM 7. “Major Shareholders and Related Party Transactions” for information regarding
indirect payments) to all of our Officers during fiscal year 2017 was $1,302,643.



In order to assist the Board of Directors in fulfilling
its oversight responsibilities with respect to human resources matters, the Board established a Compensation Committee. The Compensation
Committee reviews and makes determinations with respect to senior officer compensation on a regular basis with any discretionary
compensation used only for extraordinary projects or significant milestone results that advance the Company’s growth potential.
When determining Executive Officers’ compensation, the Compensation Committee receives input and guidance from the Executive
Chairman of the Board and the Chief Executive Officer of the Company. In the past, the Compensation Committee has engaged an outside
consultant to conduct a peer group review to provide guidance to the Compensation Committee with respect to appropriate comparative
terms for executive compensation and stock option grants. The Company also utilizes peer group comparisons from subsidiary locations
to assist in its salary review of various positions in those locations. 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-term goals.
Currently, the Company does not have in place established procedures for determining variable pay compensation. Stock options are
a very important element of the variable pay compensation and do not require cash disbursement from the Company. Stock options
are also generally awarded to officers and consultants at the time of hire and are used as a recruitment tool to attract highly
qualified and experienced executives and consultants to the Company. Stock options are also granted at other times during the year.
As the Company is still continuing to develop its POET technology, it must conserve its limited financial resources and control
costs to ensure that funds are available when needed to complete its scheduled developments. As a result, the Compensation Committee
generally considers not only the financial situation of the Company at the time of the determination of the compensation, but also
the estimated financial situation in the mid- and long-term. Also the granting of stock options aligns officers’ rewards
with an increase in shareholder value over the long term. The use of stock options encourages and rewards performance by aligning
an increase in each officer’s compensation with increases in the Company’s performance and in the value of the shareholders’
investments.





41





The following table sets forth all annual and long-term
compensation for services in all capacities to the Company for fiscal year 2017 of the Company.





|                                              |  |             |      |                  |  |                                  |         | Options-Based  |  | Non-Equity Incentive Plan |   |                        |  |                          |           |                   
|--------------------------------------------- |  | ----------- | ---- | ---------------- |  | -------------------------------- | ------- | -------------- |  | ------------------------- | - | ---------------------- |  | ------------------------ | --------- | ------------------
|                                              |  |             |      |                  |  |                                  |         | Awards(1)(2)   |  | Compensation              |   |                        |  |                          |           |                   
|Name and Principal Position                   |  | Fiscal Year |      | Salary (2) (US$) |  | Share- Based Awards (1)(2) (US$) |         | No. of Options |  | (US$)(1)(2)               |   | Annual Incentive Plans |  | Long-termIncentive Plans |           | PensionValue (US$)
|David Lazovsky Executive Chairman             |  |             | 2017 |                  |  |                                  | 183,333 |                |  |                           | — |                        |  |                          | 3,000,000 |                   
|Ajit Manocha Executive Chairman               |  |             | 2017 |                  |  |                                  | 35,417  |                |  |                           | — |                        |  |                          | 562,500   |                   
|Dr. Suresh Venkatesan Chief Executive Officer |  |             | 2017 |                  |  |                                  | 440,000 |                |  |                           | — |                        |  |                          | 3,000,000 |                   
|Dr. Subhash Deshmukh Chief Operating Officer  |  |             | 2017 |                  |  |                                  | 27,384  |                |  |                           | — |                        |  |                          | —         |                   
|Kevin Barnes Treasurer and Controller         |  |             | 2017 |                  |  |                                  | 146,509 |                |  |                           | — |                        |  |                          | 250,000   |                   
|Thomas Mika Chief Financial Officer           |  |             | 2017 |                  |  |                                  | 250,000 |                |  |                           | — |                        |  |                          | 1,500,000 |                   
|Rajan Rajgopal President of DenseLight        |  |             | 2017 |                  |  |                                  | 220,000 |                |  |                           | — |                        |  |                          | 1,000,000 |                   





______________________





|(1) |  | The Company used the Black-Scholes model as the methodology to calculate the grant
date fair value. The fair value will be recorded as an operating expense as the options vest based on the stock options vesting
schedule from the date of grant.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The exchange rate used in these calculations to convert CAD to USD is based on the
exchange rate applicable at the date of grant.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------





42





The following table sets forth information concerning all awards outstanding
under a stock option plan to each of the current officers, as of December 31, 2017:





|                      | Option-Based Awards |                                                   |           |                                    | Share-Based Awards
|--------------------- | ------------------- | ------------------------------------------------- | --------- | ---------------------------------- | ------------------
|Name                  |                     | No. of Shares Underlying 
Unexercised Options (#) |           | Option Exercise 
Price (CA$/share) |                   
|David Lazovsky        |                     |                                                   | 25,000    |                                    |                   
|                      |                     |                                                   | 250,000   |                                    |                   
|                      |                     |                                                   | 150,000   |                                    |                   
|                      |                     |                                                   | 3,000,000 |                                    |                   
|Ajit Manocha          |                     |                                                   | 2,000,000 |                                    |                   
|                      |                     |                                                   | 100,000   |                                    |                   
|                      |                     |                                                   | 200,000   |                                    |                   
|                      |                     |                                                   | 200,000   |                                    |                   
|                      |                     |                                                   | 562,500   |                                    |                   
|Kevin Barnes          |                     |                                                   | 25,000    |                                    |                   
|                      |                     |                                                   | 100,000   |                                    |                   
|                      |                     |                                                   | 100,000   |                                    |                   
|                      |                     |                                                   | 25,000    |                                    |                   
|                      |                     |                                                   | 50,000    |                                    |                   
|                      |                     |                                                   | 50,000    |                                    |                   
|                      |                     |                                                   | 50,000    |                                    |                   
|                      |                     |                                                   | 25,000    |                                    |                   
|                      |                     |                                                   | 100,000   |                                    |                   
|                      |                     |                                                   | 250,000   |                                    |                   
|Thomas Mika           |                     |                                                   | 1,000,000 |                                    |                   
|                      |                     |                                                   | 500,000   |                                    |                   
|                      |                     |                                                   | 1,000,000 |                                    |                   
|Dr. Suresh Venkatesan |                     |                                                   | 6,357,000 |                                    |                   
|                      |                     |                                                   | 300,000   |                                    |                   
|                      |                     |                                                   | 3,000,000 |                                    |                   
|Dr. Subhash Deshmukh  |                     |                                                   | 666,666   |                                    |                   
|                      |                     |                                                   | 78,125    |                                    |                   
|Rajan Rajgopal        |                     |                                                   | 500,000   |                                    |                   
|                      |                     |                                                   | 500,000   |                                    |                   

______________________

|(1) |  | This amount is calculated based on the difference between the market value of the
shares underlying the options as of December 31, 2017, being CAD $0.21 (US$0.17), and the exercise or base price of the option.
The exchange rate used in these calculations to convert CAD to USD was 0.7953, being the closing price at December 31, 2017.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The value vested or earned during fiscal year 2017 of incentive plan awards
granted to NEOs are as follows:





|NEO Name          |  |  | Option-Based Awards –
                                         Value Vested During the Year (1) (US$) |  |  | Share-Based Awards – Value Vested During the Year (US$) |  | Non-Equity Incentive Plan Compensation
    – Value Earned During the Year (US$)
|----------------- |  |  | ----------------------------------------------------------------------------------------------------- |  |  | ------------------------------------------------------- |  | -------------------------------------------------------------------------------
|                  |  |  |                                                                                                       |  |  |                                                         |  |                                                                                
|Ajit Manocha      |  |  | -                                                                                                     |  |  | N/A                                                     |  | N/A                                                                            
|Kevin Barnes      |  |  | -                                                                                                     |  |  | N/A                                                     |  | N/A                                                                            
|Suresh Venkatesan |  |  | -                                                                                                     |  |  | N/A                                                     |  | N/A                                                                            
|Subhash Deshmukh  |  |  | -                                                                                                     |  |  | N/A                                                     |  | N/A                                                                            
|Rajan Rajgopal    |  |  | -                                                                                                     |  |  | N/A                                                     |  | N/A                                                                            
|David Lazovsky    |  |  | -                                                                                                     |  |  | N/A                                                     |  | N/A                                                                            



______________________

|(1) |  | 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. For the named executive officers’ to realize this value, they would have had to exercise
their options and sell the shares on the day of vesting. The exchange rates used in these calculations to convert CAD to USD were
the rates applicable on the vesting dates.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





43





Director Compensation



The following table details compensation paid/accrued for fiscal year 2017
for each director who is not also an officer.





|                              |  |                 |  |                 |  |                     |  | Options-Based |  | Non-EquityIncentive Plan |  |                      |  |                          
|----------------------------- |  | --------------- |  | --------------- |  | ------------------- |  | ------------- |  | ------------------------ |  | -------------------- |  | -------------------------
|                              |  |                 |  |                 |  | Share-              |  | Awards(1)(2)  |  | Compensation             |  | All                  |  |                          
|Name
    andPrincipalPosition |  | Fiscal 
Year(6) |  | Salary (2)(US$) |  | BasedAwards(1)(US$) |  | No. ofShares  |  | (US$)                    |  | AnnualIncentivePlans |  | Long-term 
IncentivePlans
|John F. O’Donnell(3)          |  | 2017            |  | 46,435          |  | —                   |  | 625,000       |  | 124,336                  |  | —                    |  | —                        
|Todd. A. DeBonis              |  | 2017            |  | 35,750          |  | —                   |  | 562,500       |  | 111,902                  |  | —                    |  | —                        
|David
        E. Lazovsky(4)  |  | 2017            |  | 5,667           |  | —                   |  | —             |  | —                        |  | —                    |  | —                        
|Chris Tsiofas                 |  | 2017            |  | 56,570          |  | —                   |  | 687,500       |  | 136,770                  |  | —                    |  | —                        
|Mohan Warrior                 |  | 2017            |  | 35,750          |  | —                   |  | 562,500       |  | 111,902                  |  | —                    |  | —                        
|Ajit Manocha (4)              |  | 2017            |  | 20,083          |  | —                   |  | —             |  | —                        |  | —                    |  | —                        
|Jean-Louie Malinge            |  | 2017            |  | 10,000          |  | —                   |  | 525,500       |  | 115,099                  |  | —                    |  | —                        









From January 1, 2017 to March 31, 2017, the outside, or non-management,
directors were paid an annual fee of $32,000 for acting as a director, plus $1,500 per board meeting attended and $750 per committee
meeting - paid quarterly. Committee Chairs were entitled to receive an additional $8,000 annually. Mr. O’Donnell serves as
Chair of the Corporate Governance and Nominating Committee and Mr. Tsiofas serve as Chair of the Audit and Compensation Committees.



Effective April 1, 2017, non-executive directors are paid $120,000
annually, consisting of a cash retainer of $30,000, plus stock options equal to $90,000 (based on a Black-Scholes valuation). No
additional fees are paid for attending board or committee meetings. An additional $10,000 in cash and $10,000 in value of options
are granted to each standing committee chair. The options vest quarterly over the one-year term of service as directors. The 2017
director compensation reflects the compensation arrangement from January to March 2017 and the new arrangement that became effective
April 1, 2017.

______________________

|(1) |  | The Company used the Black-Scholes model as the methodology to calculate the grant
date fair value. The fair value will be recorded as an operating expense as the stock options vest from the date of grant.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The exchange rate used in these calculations to convert CAD to USD was the rate of
exchange applicable on the date of grant.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------

|(3) |  | The firm of Stikeman Keeley Spiegel LLP, of which Mr. O’Donnell is counsel,
billed the sum of $115,660 for legal fees and disbursements incurred in 2017.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Option based awards and the related value are included in the officer compensation
section
|--- |  | ------------------------------------------------------------------------------------------



The following table sets forth information concerning all awards outstanding
under the stock option plans to each of the current Directors who are not also named executive officers as of December 31, 2017:













44









|                   |  | Option-Based Awards                              | Share-Based Awards
|------------------ |  | ------------------------------------------------ | ------------------
|Name               |  | No. of Shares Underlying Unexercised Options (#) |                   
|John F. O’Donnell  |  |                                                  | 150,000           
|                   |  |                                                  | 12,500            
|                   |  |                                                  | 625,000           
|                   |  |                                                  | 300,000           
|                   |  |                                                  | 300,000           
|                   |  |                                                  | 100,000           
|                   |  |                                                  | 150,000           
|Chris Tsiofas      |  |                                                  | 687,500           
|                   |  |                                                  | 300,000           
|                   |  |                                                  | 300,000           
|                   |  |                                                  | 300,000           
|                   |  |                                                  | 150,000           
|Todd A. DeBonis    |  |                                                  | 275,000           
|                   |  |                                                  | 250,000           
|                   |  |                                                  | 150,000           
|                   |  |                                                  | 562,500           
|Jean-Louis Malinge |  |                                                  | 525,000           
|Mohan Warrior      |  |                                                  | 562,500           
|                   |  |                                                  | 250,000           
|                   |  |                                                  | 150,000           

______________________

|(1) |  | This amount is calculated based on the difference between the market value of the
shares underlying the options as of December 31, 2017, being CAD $0.21 (US$0.17), and the exercise or base price of the option.
The exchange rate used in these calculations to convert CAD to USD was 0.7953, being the closing price at December 31, 2017.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





The value vested or earned during fiscal year 2017 of incentive plan awards
granted to Directors who are not also named executive officers are as follows:





|Director Name      |  |  | Option-Based Awards – Value Vested During the Year (1) (US$) |  |  | Share-Based Awards – Value Vested During the Year (US$) |  | Non-Equity Incentive Plan Compensation – Value Earned During the Year (US$)
|------------------ |  |  | ------------------------------------------------------------ |  |  | ------------------------------------------------------- |  | ---------------------------------------------------------------------------
|                   |  |  |                                                              |  |  |                                                         |  |                                                                            
|Todd A. DeBonis    |  |  | -                                                            |  |  | N/A                                                     |  | N/A                                                                        
|John F. O’Donnell  |  |  | -                                                            |  |  | N/A                                                     |  | N/A                                                                        
|Jean-Louis Malinge |  |  | -                                                            |  |  | N/A                                                     |  | N/A                                                                        
|Chris Tsiofas      |  |  | -                                                            |  |  | N/A                                                     |  | N/A                                                                        
|Mohan Warrior      |  |  | -                                                            |  |  | N/A                                                     |  | N/A                                                                        



______________________





|(1) |  | 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
Officers the Company to compensate such Officers, in the event of termination of employment (as a result of resignation, retirement,
change of control) or a change of responsibilities following a change of control.





45





Pension Plan Benefits



The Company does not provide a defined benefit plan to
the Officers or any of its employees.



The Company offers a defined contribution plan
that is a 401k Plan but does not contribute toward such plan. The Company does not have any deferred compensation plans other than
that described above.



Written Management Agreements



The Company and/or its subsidiaries have employment contracts
with the following current and former Officers as follows:



Mr. Barnes has an arrangement with the Company
to provide consulting services starting January 1, 2013 for a period of one year with an automatic one year renewal at a monthly
rate of CA$11,667. The Company may terminate the arrangement without cause on six months’ notice or equivalent compensation.



Dr. Deshmukh entered into an Executive Employment
Agreement with an effective date of June 8, 2015 wherein (i) he will be paid US$250,000 (subsequently amended to US$300,000 effective
January 1, 2016) per year under at-will terms of employment (ii) he will be eligible for annual and special bonuses as determined
by the Board of Directors up to a maximum of US$250,000; (iii) he was granted 1,500,000 stock options vesting over 4 years; (iv)
he was to receive a severance of six months’ salary, if terminated during the first year of employment, plus two months’
salary additional per each full year of employment thereafter, up to a maximum of twelve months on termination of employment by
the Company, other than for cause. Mr. Deshmukh agreed to reduce his compensation by 20%, effective October 2016. On January 13,
2017, Dr. Deshmukh resigned as COO of the Company. No termination payments were paid to Dr. Deshmukh.



Dr. Venkatesan entered into an Executive Employment
Agreement with an effective date of June 10, 2015 wherein (i) he will be paid US$550,000 per year under at-will terms of employment;
(ii) he will be eligible for annual and special bonuses as determined by the Board of Directors; (iii) he was granted 6,357,000
stock options vesting over 4 years; (iv) he is eligible for a signing bonus of US $450,000 payable on the first anniversary of
the effective date provided that the Executive Employment Agreement has not been terminated prior to that date; (v) he will receive
a severance of twelve months on termination of employment by the Company, other than for cause. Mr. Venkatesan agreed to reduce
his compensation by 20% effective October 2016.



Mr. Mika entered into an Executive Employment Agreement
with an effective date of November 2, 2016 wherein (i) he will be paid US$250,000 per year under at-will terms of employment (ii)
he will be eligible for annual and special bonuses as determined by the Board of Directors; (iii) he was granted 1,000,000 stock
options vesting over 4 years; (iv) he will receive an additional 500,000 stock options vesting over 4 years in Q1 2017 (v) he will
be entitled to compensation of three months’ salary on termination of employment by the Company, if termination is other
than for cause.



On July 1, 2016, Mr. Lazovsky entered into a Consulting
Agreement with the Company to provide strategic, technological, integration and other general consulting services. For his services,
Mr. Lazovsky was paid $150,000 for the term from July 1, 2016 to December 31, 2016.



Mr. Lazovsky entered into an Executive Employment Agreement
to provide services as the Executive Chairman of the Board, with an effective date of February 1, 2017. He will (i) be paid
US$200,000 per year under at-will terms of employment (ii) be eligible for annual and special bonuses as determined by the
Board of Directors; (iii) granted 3,000,000 stock options vesting over 4 years; (iv) be entitled to compensation of six
months’ salary on termination prior to 2 years of employment by the Company, if termination is other than for
cause.



Effective December 30, 2016, Mr. Rajan Rajgopal
entered into an employment agreement with DenseLight to provide services as the President and General Manager of DenseLight. As
per the agreement, Mr. Rajgopal will (i) be paid be paid US$220,000 per year (ii) be eligible for annual and special bonuses as
determined by the Board of Directors; (iii) be granted 500,000 stock options vesting over 4 years; (iv) be granted an additional
500,000 stock options no later than June 30, 2017 (v) be entitled to compensation of one months salary on termination of employment
by the Company, if termination is other than for cause.





46





C. Board Practices



Our Board of Directors currently consists of eight directors, including
four independent directors. Each director holds office until the next annual general meeting of the Company or until his successor
is elected or appointed, unless his office is earlier vacated in accordance with the Articles of Amalgamation and all amendments
thereto (the “Articles”), or with the provisions of the OBCA. The Company’s Officers are appointed to serve
at the discretion of the Board, subject to the terms of the employment agreements described above.



The Board and committees of
the Board schedule regular meetings over the course of the year.



During fiscal 2017, the Board held seven regularly
scheduled meetings. For various reasons, Board members may not be able to attend a Board meeting. All Board members are provided
information related to each of the agenda items before each meeting, and, therefore, can provide counsel outside the confines of
regularly scheduled meetings.



The Board has adopted standards for determining whether a
director is independent 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 affirmatively determined, based on its standards, that Messrs. Tsiofas,
Malinge, DeBonis and Warrior were independent.



Directors’
Service Contracts



Messrs.Venkatesan and Lazovsky entered into employment
contracts as explained above in “Written Management Agreements.”



Audit and Compensation
Committees of the Board of Directors



We currently have four board committees; (1) an
Audit Committee; (2) a Compensation Committee; (3) a Corporate Governance and Nominating Committee, and (4) a Disclosure Committee.
Committee charters, if any, can be found at www.poet-technologies.com. The names of the members and a summary of the terms of the
charter for each the Audit Committee and the Compensation Committee is provided below.



Audit Committee



The Audit Committee is currently comprised of four
members: Chris Tsiofas (Chair), Don Listwin, Peter Charbonneau and Mohandas Warrior. All four members are independent directors
of the Company. Mr. Tsiofas was appointed chair of the Audit Committee on August 21, 2012. The Board has determined that Mr. Tsiofas
satisfies the criteria of “audit committee financial expert” within the meaning of Item 401(h) of Regulation S-K and
is independent in accordance with Rule 4200 of the NASDAQ Marketplace Rules. All members of the audit committee are financially
literate, meaning they have the ability to read and understand a set of financial statements that present a breadth and level of
complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be
expected to be raised by the Company’s financial statements.



The Audit Committee is responsible for reviewing
the Company’s financial reporting procedures, internal controls and the performance of the Company’s external 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 of the 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 ultimate responsibility to evaluate the
performance of the independent auditor, and through the shareholders, to appoint, replace and compensate the independent auditor.
Any non-audit services must be pre- approved by the Audit Committee.



Compensation Committee



The Compensation Committee is currently comprised
of three members: Chris Tsiofas (Chair), John O’Donnell and Don Listwin. Mr. Tsiofas was appointed chair of the Compensation
Committee on November 14, 2014. Chris Tsiofas and Todd DeBonis are independent. Mr. O’Donnell is retained by the Company
as company counsel.





47





The Compensation Committee discusses and makes
recommendations to the Board for approval or disapproval of all compensation issues that pertain to the Company. The compensation
programs of the Company are designed to reward performance and to be competitive with the compensation agreements of other comparable
semiconductor companies. The Compensation Committee is responsible for evaluating the compensation of the senior management of
the Company and assuring that they are compensated effectively in a manner consistent with the Company’s business, stage
of development, financial condition and prospects, and the competitive environment. Specifically, the Compensation Committee is
responsible for: (i) reviewing the compensation practices and policies of the Company to ensure that they are competitive and that
they provide appropriate motivation for corporate performance and increased shareholder value; (ii) overseeing the administration
of the Company’s compensation programs, and reviewing and approving the employees who receive compensation and the nature
of the compensation provided under such programs, and ensuring that all management compensation programs are linked to meaningful
and measurable performance targets; (iii) making recommendations to the Board regarding the adoption, amendment or termination
of compensation programs and the approval of the adoption, amendment and termination 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) periodically surveying the executive compensation practices of other comparable companies; (v) establishing and
ensuring the satisfaction of performance goals for performance-based compensation; (vi) annually reviewing and approving the annual
base salary and bonus targets for the senior executives of the Company, other than the Chief Executive Officer (the “CEO”);
(vii) reviewing and approving annual corporate goals and objectives for the CEO and evaluating the CEO’s performance against
such goals and objectives; (viii) annually reviewing and approving, based on the Compensation Committee’s evaluation of the
CEO, the CEO’s annual base salary, the CEO’s bonus, and any stock option grants and other awards to the CEO under the
Company’s compensation programs (in determining the CEO’s compensation, the Compensation Committee will consider the
Company’s performance and relative shareholder return, the compensation of CEOs at other companies, and the CEO’s compensation
in past years); and (ix) review the annual report on executive compensation required to be prepared under applicable corporate
and securities legislation and regulation including the disclosure concerning members of the Compensation Committee and settling
the reports required to be made by the Compensation Committee in any document required to be filed with a regulatory authority
and/or distributed to shareholders.



Code of Ethics



The Board has adopted a written code of business
conduct and ethics. All transgressions of the code of business conduct and ethics are required to be promptly reported to the Chair
of the Board or of any committee, who in turn, 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 Corporate Governance and Nominating Committee are then reported to the full Board, which will take such action
as it deems proper. The Company’s Code of Ethics may be inspected on the Company’s website at www.poet- technologies.com
and is filed as an Exhibit to this Annual Report.



D. Employees



As of December 31, 2017, the Company had 68 full-time
employees and 5 consultants, including senior management. 5 employees and 1 consultant work at our lab facility either as support
staff or are engaged in research and development initiatives; 1 employee and 3 consultants are employed at the Canadian office;
63 employees are employed at our fabrication facility in Singapore. None of the Company’s employees are covered by collective
bargaining agreements.



As of December 31, 2016, the Company had 71 full-time
employees and 2 consultants, including senior management. 8 employees and 1 consultant work at our lab facility either as support
staff or are engaged in research and development initiatives; 1 employee and 1 consultant are employed at the Canadian office;
62 employees are employed at our fabrication facility in Singapore. None of the Company’s employees are covered by collective
bargaining agreements.



At December 31, 2015, the Company had 10 full-time
employees and 5 consultants, including senior management; 9 employees and 3 consultants work at our lab facilities either as support
staff or are engaged in research and development initiatives; 1 employee and 2 consultants are employed at the Canadian office.
None of the Company’s employees are covered by collective bargaining agreements.



E. Share Ownership



The following table sets forth certain information
regarding the beneficial ownership of our outstanding common shares for: (i) each of our Directors and Officers individually; (ii)
all of our Directors and Officers as a group; and (iii) each other person known to us to own beneficially more than 5% of our common
shares as of April 23, 2018. Beneficial ownership of shares is determined under rules of the SEC and generally includes any shares
over which a person exercises sole or shared voting or investment power. The table also includes the number of shares underlying
options that are exercisable within sixty (60) days of April 23, 2018. Ordinary shares subject to these options are deemed to be
outstanding for the purpose of computing the ownership percentage of the person holding these options, but are not deemed to be
outstanding for the purpose of computing the ownership percentage of any other person.





48





The shareholders listed below do not have any different
voting rights from our other shareholders.



|                                |  | Number of Shares Beneficially Owned (1) |            | Percent of Class
|------------------------------- |  | --------------------------------------- | ---------- | ----------------
|Directors and Officers:         |  |                                         |            |                 
|Jean-Louie Malinge              |  |                                         | 525,000    | (2)             
|Ajit Manocha                    |  |                                         | 3,062,500  | (3)             
|Chris Tsiofas                   |  |                                         | 1,762,500  | (4)             
|John F. O’Donnell               |  |                                         | 1,667,500  | (5)             
|Thomas Mika                     |  |                                         | 2,500,000  | (6)             
|Kevin Barnes                    |  |                                         | 792,463    | (7)             
|Todd DeBonis                    |  |                                         | 1,237,500  | (8)             
|David Lazovsky                  |  |                                         | 3,425,000  | (9)             
|Mohandas Warrior                |  |                                         | 962,500    | (10)            
|Suresh Venkatesan               |  |                                         | 9,697,000  | (11)            
|Subhash Deshmukh                |  |                                         | 744,791    | (12)            
|Rajan Rajgopal                  |  |                                         | 1,000,000  | (13)            
|Directors and Officers Subtotal |  |                                         | 27,376,754 |                 
|Major Shareholders:             |  |                                         |            |                 
|None that we are aware of.      |  |                                         |            |                 

______________________

|(1) |  | The number of shares set forth for each Director, Officer and Major Shareholder is
determined in accordance with Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes: (i) zero common shares issued and outstanding and (ii) 525,000 common shares
that can be obtained upon the exercise of options or warrants within sixty (60) days.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes: (i) zero common shares issued and outstanding and (ii) 3,062,500 common
shares that can be obtained upon the exercise of options or warrants within sixty (60) days.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes: (i) 25,000 common shares issued and outstanding and (ii) 1,737,500 common
shares that can be obtained upon the exercise of options or warrants within sixty (60) days.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Includes: (i) 30,000 common shares issued and outstanding and (ii) 1,637,500 common
shares that can be obtained upon the exercise of options or warrants within sixty (60) days.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Includes: (i) zero common shares issued and outstanding and (ii) 2,500,000 common
shares that can be obtained upon the exercise of options or warrants within sixty (60) days.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Includes: (i) 17,463 common shares issued and outstanding and (ii) 775,000 common
shares that can be obtained upon the exercise of options or warrants within sixty (60) days.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Includes: (i) zero common shares issued and outstanding and (ii) 1,237,000 common
shares that can be obtained upon the exercise of options or warrants within sixty (60) days.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Includes: (i) zero common shares issued and outstanding and (ii) 3,425,000 common
shares that can be obtained upon the exercise of options or warrants within sixty (60) days.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Includes: (i) zero common shares issued and outstanding and (ii) 962,500 common shares
that can be obtained upon the exercise of options or warrants within sixty (60) days.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Includes: (i) 40,000 common shares issued and outstanding and (ii) 9,657,000 common
shares that can be obtained upon the exercise of options or warrants within sixty (60) days.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Includes: (i) zero common shares issued and outstanding and (iii) 744,791 common shares
that can be obtained upon the exercise of option or warrants within sixty days.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Includes: (i) zero common shares issued and outstanding and (iii) 1,000,000 common
shares that can be obtained upon the exercise of option or warrants within sixty days
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See “ITEM 6.B. Compensation” for the exercise prices of options.







49





ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



A. Major Shareholders





Holdings by Major Shareholders





Please refer to ITEM 6.E. “Share Ownership” for details regarding
securities held by Directors, Officers and Major Shareholders.



The Company’s major shareholders do not have any
different or special voting rights.



U.S. Share Ownership



As of April 23, 2018, there were a total of 448 holders
of record of our common shares with addresses in the U.S. We believe that the number of U.S beneficial owners is substantially
greater than the number of U.S record holders, because a large portion of our common shares are held in broker “street names.”
As of April 23, 2018, U.S. holders of record held approximately 1.25% of our outstanding common shares.



Control of Company



The Company is a publicly owned Ontario corporation,
the shares of which are owned by Canadian residents, U.S. residents and other foreign residents. The Company is not controlled
by any foreign government or other person(s) except as described in ITEM 4.A. “History and Progress of the Company”
and ITEM 6.E. “Share Ownership.”



Change of Control of Company Arrangements



None



B. Major Shareholders



The firm of Stikeman Keeley Spiegel
LLP, of which Mr. O’Donnell is counsel, billed the sum of $115,660 for legal fees and disbursements incurred in 2017
(2016 - $113,250).



C. Interests of Experts and Counsel



Not applicable.



ITEM 8. FINANCIAL INFORMATION



A. Consolidated Statements and Other Financial Information



The Company’s financial statements are stated in
U.S. dollars and are prepared in accordance with IFRS as issued by the IASB.



The financial statements as required under “ITEM
17. Financial Statements” are attached hereto and found immediately following the text of this Annual Report. The audit report
of Marcum LLP, independent registered public accounting firm, is included herein immediately preceding the consolidated financial
statements.



Legal Proceedings



The directors and the senior management of the
Company do not know of any material, either active or pending, legal proceedings against them, nor is the Company involved as a
plaintiff in any material proceeding or pending litigation.



The directors and the senior management of the Company
know of no active or pending proceedings against anyone that might materially adversely affect an interest in the Company.



Dividend Policy



The Company has not paid, and has no current plans
to pay, dividends on its common shares. We currently intend to retain future earnings, if any, to finance the development of our
business. Any future dividend policy will be determined by the Board, and will depend upon, among other factors, our earnings,
if any, financial condition, capital requirements, any contractual restrictions with respect to the payment of dividends, the impact
of the distribution of dividends on our financial condition, tax liabilities, and such economic and other conditions as the Board
may deem relevant.







50





B. Significant Changes



On March 21, 2018, the Company completed a brokered "bought
deal" public offering of 25,090,700 units at a price of $0.425 (CAD$0.55) per unit for gross proceeds of $10,663,548 (CAD$13,799,885).
Each unit consists of one common share 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 (CAD$0.75) per share until March 21, 2020. The broker was paid a cash commission
of $639,813 (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 $0.425 (CAD$0.55) per compensation option until March 21, 2020 with each compensation
unit comprising one common share and one-half compensation share purchase warrant. Each compensation share purchase warrant entitles
the broker to purchase one common share of the Company at a price of $0.425 (CAD$0.55) per share until March 21, 2020.



Subsequent to December 31, 2017 through April
23, 2018, the Company also raised $1,131,921 from the exercise of warrants and stock options.



ITEM 9. THE OFFER AND LISTING





A. Offer and Listing Details



The Company’s common shares began trading
on the TSXV in Toronto, Ontario, Canada, on June 25, 2007. The current Stock symbol is “PTK”. The CUSIP/ISN numbers
are 73044W104 / 73044W1041.



The following table lists the high and low sales price
on the TSXV for the Company’s common shares for: the last six months; the last ten fiscal quarters; and the last five fiscal
years.



|Period Ended       |  | High (CA$) |      | Low (CA$)
|------------------ |  | ---------- | ---- | ---------
|Monthly            |  |            |      |          
|March 31, 2018     |  | $          | 0.79 |          
|February 28, 2018  |  | $          | 0.64 |          
|January 31, 2018   |  | $          | 0.40 |          
|December 31, 2017  |  | $          | 0.27 |          
|November 30, 2017  |  | $          | 0.29 |          
|October 31, 2017   |  | $          | 0.36 |          
|Quarterly          |  |            |      |          
|December 31, 2017  |  | $          | 0.36 |          
|September 30, 2017 |  | $          | 0.42 |          
|June 30, 2017      |  | $          | 0.43 |          
|March 31, 2017     |  | $          | 0.51 |          
|December 31, 2016  |  | $          | 0.81 |          
|September 30, 2016 |  | $          | 0.95 |          
|June 30, 2016      |  | $          | 1.44 |          
|March 31, 2016     |  | $          | 1.10 |          
|December 31, 2015  |  | $          | 1.20 |          
|September 30, 2015 |  | $          | 1.68 |          
|Yearly             |  |            |      |          
|December 31, 2017  |  | $          | 0.51 |          
|December 31, 2016  |  | $          | 1.44 |          
|December 31, 2015  |  | $          | 2.00 |          
|December 31, 2014  |  | $          | 2.87 |          
|December 31, 2013  |  | $          | 0.74 |          





B. Plan of Distribution



Not Required.



C. Markets



The Company’s common shares trade on the TSXV in Canada under the
symbol “PTK”. The Company’s common shares also trade on the OTCQX International Marketplace under the symbol
“POETF”.



D. Selling Shareholders



Not Required.





51





E. Selling Shareholders



Not Required.



F. Expenses of the Issue



Not Required.



ITEM 10. ADDITIONAL INFORMATION



A. Share Capital



Not Required.



B. Articles of the Corporation



The Company was originally formed under the British
Columbia Company Act on February 9, 1972 as Tandem Resources Ltd. (“Tandem”). The Company took its current form after
Tandem amalgamated with Stanmar Resources Ltd. and Keezic Resources Ltd. pursuant to Articles of Amalgamation on November 14,
1985. Tandem moved to Ontario by Articles of Continuance on January 3, 1997. Tandem changed its name to OPEL International Inc.
by Articles of Amendment on September 26, 2006. OPEL International Inc. was continued under the New Brunswick Business Corporations
Act on January 30, 2007, then back to Ontario by Articles of Continuance on November 30, 2010, changing its name to OPEL Solar
International Inc. By Articles of Amendment on August 25, 2011, OPEL Solar International Inc. changed its name to OPEL Technologies,
Inc. By Articles of Amendment on July 23, 2013, OPEL Technologies Inc. changed its name to POET Technologies Inc. Today, the Company
is an Ontario corporation governed by the OBCA. The following are summaries of material provisions of our Articles of Continuance,
as amended from time to time (the “Articles”), in effect as of the date of this Annual Report insofar as they relate
to the material terms of our ordinary shares.



Register, Entry Number and Purposes



Our Articles of Continuance became effective
on November 30, 2010. Our corporation number in Ontario is 641402. The Articles of Continuance do not contain a statement of the
Company’s objects and purposes, however the Articles of Continuance provide that there are no restrictions on business that
the Company may carry on or the powers the Company may exercise as permitted under the OBCA.



Board of Directors



Pursuant to our By-laws and the OBCA, a
director or officer who is a party to, or who is a director or officer of, or has a material interest in, any person who is a
party to, a material contract or proposed material contract with the Company, shall disclose the nature and extent of his
interest at the time and in the manner provided by the OBCA. Any such contract or proposed contract shall be referred to the
Board or shareholders for approval even if such contract is one that in the ordinary course of the Company’s business
would not require approval by the Board or shareholders, and a director interested in a contract so referred to the Board
shall not vote on any resolution to approve the same unless the contract or transaction: (i) relates primarily to his or her
remuneration as a director of the Company or an affiliate; (ii) is for indemnity or insurance of or for the director or
officer as permitted by the OBCA; or (iii) is with an affiliate.



Directors shall be paid such remuneration for their services as
the Board may determine by resolution from time to time, and will be entitled to reimbursement for traveling and other expenses
properly incurred by them in attending meetings of the Board or any committee thereof. Neither the Company’s Articles nor
By-laws require an independent quorum for voting on director compensation. Directors are not precluded from serving the Company
in any other capacity and receiving remuneration therefor. A director is not required to hold shares of the Company. There is
no age limit requirement respecting the retirement or non-retirement of directors.



The directors may sign the name and on behalf of the Company,
or appoint any officer or officers or any other person or persons on behalf of the Corporation either to sign on behalf of the
Company, all instruments in writing and any instruments in writing so signed shall be binding upon the Company without further
authorization or formality. The term “instruments in writing” includes contracts, documents, powers of attorney, deeds,
mortgages, hypothecs, charges, conveyances, transfers and assignments of property (real or personal, immovable or movable), agreements,
tenders, releases, receipts and discharges for the payment of money or other obligations, conveyances, transfers and assignments
of shares, stocks, bonds, debentures or other securities, instruments of proxy and all paper writing.



Nothing in the Company’s By-laws limits or restricts
the borrowing of money by the Company on bills of exchange or promissory notes made, drawn, accepted or endorsed by or on behalf
of the Company.





52





Rights, Preferences and Restrictions Attaching to Common
Shares



The holders of common shares are entitled to
vote at all meetings of the shareholders, except meetings at which only holders of a specified class of shares are entitled to
vote. Each common share carries with it the right to one vote. Subject to the rights, privileges, restrictions and conditions
attaching to any other class or series of shares of the Company, the holders of the common shares are entitled to receive any
dividends declared and payable by the Company on the common shares. Dividends may be paid in money or property or by issuing fully
paid shares of the Company. Subject to the rights, privileges, restrictions and conditions attaching to any other class or series
of shares of the Company, the holders of the common shares are entitled to receive the remaining property of the Company upon
dissolution.



No shares have been issued subject to call or assessment.
There are no preemptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking
or purchase funds. The common shares must be issued as fully-paid and non-assessable, and are not subject to further capital calls
by the Company. The common shares are without par value. All of the common shares rank equally as to voting rights, participation
in a distribution of the assets of the Company on a liquidation, dissolution or winding-up of the Company and the entitlement
to dividends.



The Company does not currently have any preferred shares
outstanding.



Ordinary and Special Shareholders’ Meetings



The OBCA provides that the directors of a corporation
shall call an annual meeting of shareholders not later than 15 months after holding the last preceding annual meeting. The OBCA
also provides that, in the case of an offering corporation, the directors shall place before each annual meeting of shareholders,
the financial statements required to be filed under the Ontario Securities Act and the regulation thereunder relating to the period
that began immediately after the end of the last completed financial year and ended not more than six months before the annual
meeting and the immediately preceding financial year, if any.



The Board has the power to call a special meeting of shareholders
at any time.



Notice of the date, time and location of each meeting of
shareholders must be given not less than 21 days or more than 50 days before the date of each meeting to each director, to the
auditor of the Company and to each shareholder who at the close of business on the record date for notice is entered in the securities
register as the holder of one or more shares carrying the right to vote at the meeting.



Notice of a meeting of shareholders called for any other
purpose other than consideration of the minutes of an earlier meeting, financial statements, reports of the directors or auditor,
setting or changing the number of directors, the election of directors and reappointment of the incumbent auditor, must state
the general nature of the special business in sufficient detail to permit the shareholder to form a reasoned judgment on such
business, must state the text of any special resolution to be submitted to the meeting, and must, if the special business includes
considering, approving, ratifying, adopting or authorizing any document or the signing of or giving of effect to any document,
have attached to it, a copy of the document or state that a copy of the document will be available for inspection by shareholders
at the Company’s records office or another accessible location.



The only persons entitled to be present at a meeting of shareholders
are those entitled to vote, the directors of the Company and the auditor of the Company. Any other person may be admitted only
on the invitation of the chairman of the meeting or with the consent of the meeting. In circumstances where a court orders a meeting
of shareholders, the court may direct how the meeting may be held, including who may attend the meeting.



Limitations on Rights to Own Securities



No share may be issued until it is fully paid.



Neither Canadian law nor our Articles or By-laws limit the right
of a non-resident to hold or vote common shares of the Company, other than as provided in the Investment Canada Act (the “Investment
Act”), as amended by the World Trade Organization Agreement Implementation Act (the “WTOA Act”). The Investment
Act generally prohibits implementation of a direct reviewable investment by an individual, 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, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be of net
benefit to Canada. An investment in the common shares of the Company by a non-Canadian (other than a “WTO Investor,”
as defined below) would be reviewable under the Investment Act if it were an investment to acquire direct control of the Company,
and the value of the assets of the Company were CA$5.0 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 Investors) would be reviewable under the Investment Act if it were an investment to acquire direct control of
the Company and the value of the assets of the Company equaled or exceeded certain threshold amounts determined on an annual basis.





53





The threshold for a pre-closing net benefit review depends on whether
the purchaser is: (a) controlled by a 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 2018 threshold for WTO investors that are SOEs will be $398
million based on the book value of the Canadian business' assets, up from $379 million in 2017.



The 2018 thresholds for review for direct acquisitions of control
of Canadian businesses by private sector investor WTO investors ($1 billion) and private sector trade-agreement investors ($1.5
billion) remain the same and are both based on the "enterprise value" of the Canadian business being acquired.



A non-Canadian,
whether a WTO Investor or otherwise, would be deemed to acquire control of the Company for purposes of the Investment Act if he
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, unless it could be established 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 of the WTO (“WTO Member”)
or has a right of permanent residence in a WTO Member. A corporation or other entity 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 involving our common shares would be exempt from the Investment Act, including:



ö an acquisition
of the shares if the acquisition were made in the ordinary course of that person’s business as a trader or dealer in securities;

ö an acquisition of control of the Company in connection with the realization of a security interest granted for a loan or
other financial assistance and not for any purpose related to the provisions of the Investment Act; and

öan acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization,
following which the ultimate direct or indirect control in fact of the Company, through the ownership of voting interests, remains
unchanged.



Procedures to Change the Rights of Shareholders



In order to change the rights of our shareholders
with respect to certain fundamental changes as described in Section 168 of the OBCA, the Company would need to amend our Articles
to effect the change. Such an amendment would require the approval of holders of two-thirds of the votes of the Company’s
common shares, and any other shares carrying the right to vote at any general meeting of the shareholders of the Company, cast
at a duly called special meeting. The OBCA also provides that a sale, lease or exchange of all or substantially all of the property
of a corporation other than in the ordinary course of business of the corporation likewise requires the approval of the shareholders
at a duly called special meeting. For such fundamental changes and sale, lease and exchange, a shareholder is entitled under the
OBCA to dissent in respect of such a resolution amending the Articles and, if the resolution is adopted and the Company implements
such changes, demand payment of the fair value of the shareholder’s common shares.



Impediments to Change of Control



The Company had a shareholders rights plan (“SRP”)
(often referred to as a “poison pill”) in place since 2014. Under the terms of the SRP and regulatory requirements,
the SRP was scheduled to expire automatically unless re-approved by shareholders at the meeting of shareholders on July 13, 2017.
The management and directors of the Company determined not to ask the shareholders to renew the SRP because they believe that
it is no longer necessary to protect the interests of the shareholders at this time, and, as such, the SRP expired.



In 2016, the Canadian Securities Administrators (the “CSA”)
enacted amendments (the “Bid Amendments”) to the Take-Over Bid Regime. The Bid Amendments, which are very significant,
are contained in National Instrument (NI) 62-104.



The Bid Amendments were intended to enhance the quality and integrity
of the take-over bid regime and rebalance the current dynamics among offerors, offeree issuer boards of directors (“Offeree
Boards”), and offeree issuer security holders by (i) facilitating the ability of offeree issuer security holders to
make voluntary, informed and coordinated tender decisions, and (ii) providing the Offeree Board with additional time and discretion
when responding to a take-over bid.



Specifically, the Bid Amendments require that all non-exempt take-over
bids

(1) receive tenders of more than 50% of the outstanding securities
of the class that are subject to the bid, excluding securities beneficially owned, or over which control or direction is exercised,
by the offeror or by any person acting jointly or in concert with the offeror (the Minimum Tender Requirement);

(2) be extended by the offeror for an additional 10 days after
the Minimum Tender Requirement has been achieved and all other terms and conditions of the bid have been complied with or waived
(the 10 Day Extension Requirement); and



54





(3) remain open for a minimum deposit period of 105 days (the Minimum
105 Day Bid Period) unless

(a) the offeree board states in a news release a shorter deposit
period for the bid of not less than 35 days, in which case all contemporaneous take-over bids must remain open for at least the
stated shorter deposit period, or

(b) the issuer issues a news release that it intends to effect,
pursuant to an agreement or otherwise, a specified alternative transaction, in which case all contemporaneous take-over bids must
remain open for a deposit period of at least 35 days.



The Bid Amendments involved fundamental changes to the bid regime
to establish a majority acceptance standard for all non-exempt take-over bids, a mandatory extension period to alleviate offeree
security holder coercion concerns, and a 105 day minimum deposit period to address concerns that offeree boards did not have enough
time to respond to an unsolicited take-over bid. The CSA determined not to amend National Policy 62-202 Defensive Tactics(NP
62-202) in connection with these amendments. They reminded participants in the capital markets of the continued applicability
of NP 62-202, which means that securities regulators will be prepared to examine the actions of offeree boards in specific cases,
and in light of the amended bid regime, to determine whether they are abusive of security holder rights.



After canvassing several commentaries concerning the new regime,
we have concluded that:



| | • | It will be much more difficult for hostile bidders as a result of target issuers having a much
longer period of time to respond, concurrent with the added risk and cost to such bidders.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | • | There is good reason to expect that, except in unusual circumstances, regulators will not permit
SRPs to remain in effect after a 105 day bidding period.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------





| | • | A significant number of reporting issuers have not sought re-approval of their SRPs since the amendments
were introduced and those that have sought to renew their SRPs have been required to amend the plans to comply with the new rules.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | • | A large part of the traditional rationale for adopting SRPs has now been eliminated.
| | - | ------------------------------------------------------------------------------------



We believe that the amended take-over bid rules provide adequate
protection against hostile bids. Having said that, it has been suggested that the new rules do not protect against creeping take-over
bids for control which are exempt from the rules (such as the accumulation of 20% or more of the issuer’s shares through
market transactions or the acquisition of a control block through private agreements with a few large shareholders). These activities
would however be identifiable through the early warning filing requirements. If, prior to making a determination that the Company
ought to adopt a “strategic” SRP at an annual or special meeting of shareholders, the Company were faced with a hostile
bid that we believed was not in the best interests of the Company and its shareholders, the directors could adopt a “tactical”
plan which we could take to the shareholders for approval. Nevertheless, at this point in time, we are of the opinion that such
action is not necessary and the shareholders should be the best arbiters of when “the pill must go”.



Stockholder Ownership Disclosure Threshold in Bylaws



Neither our Articles nor By-laws contain a
provision governing the ownership threshold above which shareholder ownership must be disclosed. Pursuant to securities legislation,
an Early Warning Report and an Insider Report must be filed if a shareholder obtains ownership on a partially diluted basis of
10% or greater of the Company.



Special Conditions for Changes in Capital



The conditions imposed by the Company’s
Articles are not more stringent than required under the OBCA.



C. Material Contracts



In addition to any contracts described in “ITEM
7.B. Related Party Transactions” or “ITEM 4. Business Overview”, below is a summary of material contracts, other
than those entered into by the Company in the ordinary course of business, to which we are or have been a party during the two
years immediately preceding the date of this document. Other than contracts entered into in the ordinary course of business, we
have not been a party to any other material contract within such two-year period.



| | 1. | On May 21, 2008, the Company entered into an Agreement with BAE Systems
Information And Electronic Systems Integration, Inc. (“BAE”), with a term of 15 years, whereby BAE and the Company
initiated a joint development program of the Company’s POET technology, with royalties running from each to the other for
licensed products sold. This Agreement was supplemented on February 25, 2015 to expand the scope of work to be performed through
2015. At present, there has not been any joint process development or transfer under this agreement, and none is anticipated in
the future.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



55







| | 2. | On April 28, 2003, the Company entered into a License Agreement with the
University of Connecticut (“UCONN”), as amended on April 15, 2014 whereby UCONN granted the Company an exclusive license
to the intellectual property developed under the direction of Dr. Taylor that is owned or jointly owned by UCONN for the payment
of $50,000 due in the first and each subsequent year
after the Company has revenue of $100,000 from the products developed pursuant to the licensed intellectual property, such amounts
of consideration subject to increase by 25% every two years, up to a maximum of $1,000,000. In addition, the Company must pay annually
to UCONN 3% of any sublicense revenue received for commercial, royalty bearing sublicenses of licensed intellectual property to
third parties. By making a $100,000 payment to UCONN in April 2007, the license became irrevocable. As consideration for the amendment
entered into on April 15, 2014, changing the royalty rate to 3%, the Company issued 2,000,000 common shares, subject to approval
of the TSXV, which were restricted from trading until May 31, 2016.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | On October 21, 2010, the Company entered into a Lease Agreement, as amended
on March 20, 2013, with UCONN whereby the Company leases property from UCONN beginning on April 1, 2010 and extending through March
31, 2014. Monthly rent increases from $6,130 in the first three months of year one to $10,966 in year five. This Agreement was
renewed on December 11, 2014 for a period of one year commencing April 1, 2015 and ending on March 31, 2016. The renewal provides
for an annual rent of $158,894, discounted to $144,490 if the full amount is prepaid. This Lease Agreement was not renewed in 2016.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | On February 15, 2013, the Company entered into a Service Agreement with
True South Renewables, Inc. (“True South”), for a period of five years, whereby the True South will perform monitoring
and maintenance services on solar trackers installed by the Company prior to the discontinuation of the solar business and divestiture
of the solar assets. The Company will pay a minimum of $6,000.00 in the first year and $8,013.00 in the fifth year, in addition
to hourly charges for labor and travel.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | On May
                                         11, 2016 the Company acquired all the issued and outstanding shares of DenseLight Semiconductor
                                         Pte. Ltd. in an all-stock acquisition for $10,500,000 satisfied through the issuance
                                         of 13,611,150 common shares.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | On June 22, 2016, the Company acquired all the issued and outstanding shares
of BB Photonics, a New Jersey company and its subsidiary BB Photonics UK Ltd, collectively BB Photonics, a designer of integrated
photonic solutions for the data communications market for consideration of $1,550,000. The all-stock purchase was accomplished
with the issuance of 1,996,090 common share of the Company at a price of $0.777 per share.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | On October 19, 2016, the Company announced that it had entered into an
agreement with Singapore’s Economic Development Board (EDB) to expand the Company’s research and development operations
in Singapore. Under this agreement, the Company is eligible to receive support up to a maximum of S$10.7 million (US$7.7 million)
over five years subject to certain expenditure, capital acquisition and head count thresholds.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



D. Exchange Controls



Canada has no system of exchange controls. There
are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors.
There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other
payments to non-resident holders of the Company’s securities, except as discussed in “ITEM 10.E. Taxation” below.



E. Taxation



Canadian Federal Income
Tax Considerations



The Company believes the following is a brief summary
of the material principal Canadian federal income tax consequences to a U.S. Holder (as defined below) of common shares of the
Company who deals at arm’s length with the Company, holds the shares as capital property and who, for the purposes of the
Income Tax Act (Canada) (the “Tax Act”) and the Canada — U.S. Income Tax Convention (1980) (the “Treaty”),
is at all relevant times resident in the U.S., is not and is not deemed to be resident in Canada and does not use or hold and is
not deemed to use or hold the shares in carrying on a business in Canada. Special rules, which are not discussed below, may apply
to a U.S. Holder that is an insurer that carries on business in Canada and elsewhere. U.S. Holders are urged to consult their own
tax advisors with respect to their particular circumstances.



This summary is based upon the current provisions
of the Tax Act, the regulations thereunder in force at the date hereof, all specific proposals to amend such regulations and the
Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and the current provisions
of the Convention and the current administrative practices of the Canada Revenue Agency published in writing prior to the date
hereof. This summary does not otherwise take into account or anticipate any changes in law or administrative practices whether
by legislative, governmental or judicial decision or action, nor does it take into account tax laws of any province or territory
of Canada or of the U.S. or of any other jurisdiction outside Canada.





56





For the purposes of the Tax Act, all amounts relating
to the acquisition, holding or disposition of the common shares must be converted into Canadian dollars based on the relevant exchange
rate applicable thereto.



This summary does not address
all aspects of Canadian federal income taxation that may be relevant to any particular U.S. Holder in light of such holder’s
individual circumstances. Accordingly, U.S. Holders should consult with their own tax advisors for advice with respect to their
own particular circumstances.



Under the Tax Act and the Treaty, a U.S. Holder
of common shares will generally be subject to a 15% withholding tax on dividends paid or credited or deemed by the Tax Act to have
been paid or credited on such shares. The withholding tax rate is 5% where the U.S. Holder is a corporation that beneficially owns
at least 10% of the voting shares of the Company and the dividends may be exempt from such withholding in the case of some U.S.
Holders such as qualifying pension funds and charities.



A U.S. Holder will generally not be subject to
tax under the Tax Act on any capital gain realized on a disposition of common shares, provided that the shares do not constitute
“taxable Canadian property” to the U.S. Holder at the time of disposition. Generally, common shares will not constitute
taxable Canadian property to a U.S. Holder provided that such shares are listed on a designated stock exchange (which currently
includes the TSXV) at the time of the disposition and, during the 60-month period immediately preceding the disposition, the U.S.
Holder, persons with whom the U.S. Holder does not deal at arm’s length, or the U.S. Holder together with all such persons
has not owned 25% or more of the issued shares of any series or class of the Company’s capital stock. If the common shares
constitute taxable Canadian property to a particular U.S. Holder, any capital gain arising on their disposition may be exempt from
Canadian tax under the Convention if at the time of disposition the common shares do not derive their value principally from real
property situated in Canada.



U.S. Federal Income Tax Considerations



Subject to the limitations described herein, the following
discussion summarizes certain U.S. federal income tax consequences to a U.S. Holder of our common shares. A “U.S.
Holder” means a holder of our common shares who is:



ö an
individual who is a citizen or resident of the U.S. for U.S. federal income tax purposes;

ö a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the
U.S. or under the laws of the U.S. or any political subdivision thereof, or the District of Columbia;

ö an
estate, the income of which is subject to U.S. federal income tax regardless of its source; or





ö a trust
(i) if, in general, a court within the U.S. is able to exercise primary supervision over its administration and one or more

U.S. persons have the authority to control all
of its substantial decisions, or (ii) that has in effect a valid election under applicable U.S. Treasury Regulations to be treated
as a U.S. person.



Unless otherwise specifically indicated, this discussion does not
consider the U.S. tax consequences to a person that is not a U.S. Holder (a “Non-U.S. Holder”). This discussion considers
only U.S. Holders that will own our common shares as capital assets (generally, for investment) and does not purport to be a comprehensive
description of all of the tax considerations that may be relevant to each U.S. Holder’s decision to purchase our common
shares.



This discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended (the “Code”), current and proposed Treasury Regulations promulgated thereunder, and
administrative and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis.
This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. Holder
in light of such holder’s individual circumstances. In particular, this discussion does not address the potential application
of the alternative minimum tax or the U.S. federal income tax consequences to U.S. Holders that are subject to special treatment,
including U.S. Holders that:



ö are broker-dealers
or insurance companies;

öhave
elected market-to-market accounting;

ö are tax-exempt
organizations or retirement plans;

ö are financial
institutions or “financial services entities”;

ö hold
our common shares as part of a straddle, “hedge” or “conversion transaction” with other investments;

ö acquired
our common shares upon the exercise of employee stock options or otherwise as compensation;

ö own directly,
indirectly or by attribution at least 10% of our voting power;

ö have
a functional currency that is not the U.S. Dollar;

ö are grantor
trusts;

ö are certain
former citizens or long-term residents of the U.S.; or

ö are real
estate trusts or regulated investment companies.





57





If a partnership (or any other entity treated as a partnership
for U.S. federal income tax purposes) holds our common shares, the tax treatment of the partnership and a partner in such partnership
will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should
consult its own tax advisor as to its tax consequences.



In addition, this discussion does not address any aspect
of state, local or non-U.S. laws or the possible application of U.S. federal gift or estate taxes.



Each holder of our common shares is advised to consult its own
tax advisor with respect to the specific tax consequences to it of purchasing, holding or disposing of our common shares, including
the applicability and effect of federal, state, local and foreign income tax and other laws to its particular circumstances.



Distributions



Subject to the discussion below under “Passive Foreign
Investment Company Status,” a U.S. Holder will be required to include in gross income as ordinary dividend income the
amount of any distribution paid on our common shares, including any non-U.S. taxes withheld from the amount paid, to the extent
the distribution is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes.
Distributions in excess of such earnings and profits will be applied against and will reduce the



U.S. Holder’s basis in our
common shares and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of our common shares.
The dividend portion of such distributions generally will not qualify for the dividends received deduction available to corporations.



Subject to the discussion below under “Passive Foreign
Investment Company Status,” dividends that are received by U.S. Holders that are individuals, estates or trusts will
be taxed at the rate applicable to long-term capital gains (a maximum rate of 20% for taxable years beginning after January 1,
2013), provided that such dividends meet the requirements of “qualified dividend income.” For this purpose, qualified
dividend income generally includes dividends paid by a non-U.S. corporation if certain holding period and other requirements are
met and the non-U.S. corporation is eligible for benefits of a comprehensive income tax treaty with the U.S., which benefits include
an information exchange program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The IRS has determined
that the U.S.-Canada Tax Treaty is satisfactory for this purpose.







Dividends that fail to meet such requirements, and
dividends received by corporate U.S. Holders, are taxed at ordinary income rates. No dividend received by a U.S. Holder will
be a qualified dividend (i) if the U.S. Holder held the common share with respect to which the dividend was paid for less
than 61 days during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such
dividend, excluding for this purpose, under the rules of Code Section
246(c), any period during which the U.S. Holder has an option to sell, is under a contractual obligation to sell, has made and
not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished
its risk of loss by holding other positions with respect to, such common share (or substantially identical securities); or (ii)
to the extent that the U.S. Holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with
respect to positions in property substantially similar or related to the common share with respect to which the dividend is paid.
If we were to be a “passive foreign investment company” (as such term is defined in the Code) for any taxable year,
dividends paid on our common shares in such year or in the following taxable year would not be qualified dividends. In addition,
a non-corporate U.S. Holder will be able to take a qualified dividend into account in determining its deductible investment interest
(which is generally limited to its net investment income) only if it elects to do so; in such case the dividend will be taxed at
ordinary income rates.



Distributions of current or accumulated earnings and profits
paid in foreign currency to a U.S. Holder (including any non-U.S. taxes withheld therefrom) will be includible in the income of
a U.S. Holder in a U.S. Dollar amount calculated by reference to the exchange rate on the day the distribution is received. A
U.S. Holder that receives a foreign currency distribution and converts the foreign currency into U.S. dollars subsequent to receipt
may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against
the U.S. dollar, which will generally be U.S. source ordinary income or loss.



U.S. Holders will have the option of claiming the amount of any
non-U.S. income taxes withheld at source either as a deduction from gross income or as a dollar-for-dollar credit against their
U.S. federal income tax liability. Individuals who do not claim itemized deductions, but instead utilize the standard deduction,
may not claim a deduction for the amount of the non-U.S. income taxes withheld, but such amount may be claimed as a credit against
the individual’s U.S. federal income tax liability. The amount of non-U.S. income taxes which may be claimed as a credit
in any taxable year is subject to complex limitations and restrictions, which must be determined on an individual basis by each
shareholder. These limitations include, among others, rules that limit foreign tax credits allowable with respect to specific
classes of income to the U.S. federal income taxes otherwise payable with respect to each such class of income. A U.S. Holder
will be denied a foreign tax credit with respect to non-U.S. income tax withheld from a dividend received on the common shares
if such U.S. Holder has not held the common shares for at least 16 days of the 31-day period beginning on the date which is 15
days before the ex-dividend date with respect to such dividend, or to the extent such U.S. Holder is under an obligation to make
related payments with respect to substantially similar or related property. Any days during which a U.S. Holder has substantially
diminished its risk of loss on the common shares are not counted toward meeting the required 16-day holding period. Distributions
of current or accumulated earnings and profits generally will be foreign source passive income for U.S. foreign tax credit purposes.





58





Disposition of Common Shares



Subject to the discussion below under “Passive
Foreign Investment Company Status,” upon the sale, exchange or other disposition of our common shares, a U.S. Holder
will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s basis in such common
shares, which is usually the cost of such shares, and the amount realized on the disposition. A U.S. Holder that uses the cash
method of accounting calculates the U.S. Dollar value of the proceeds received on the sale as of the date that the sale settles,
while a U.S. Holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale
as of the “trade date,” unless such U.S. Holder has elected to use the settlement date to determine its proceeds of
sale. Capital gain from the sale, exchange or other disposition of common shares held more than one year is long-term capital
gain, and is eligible for a reduced rate of taxation for individuals (currently a maximum rate of 20% for taxable years beginning
after January 1, 2013). Gains recognized by a U.S. Holder on a sale, exchange or other disposition of common shares generally
will be treated as U.S. source income for U.S. foreign tax credit purposes. A loss recognized by a U.S. Holder on the sale, exchange
or other disposition of common shares generally is allocated to U.S. source income. The deductibility of capital losses recognized
on the sale, exchange or other disposition of common shares is subject to limitations. A U.S. Holder that receives foreign currency
upon disposition of common shares and converts the foreign currency into U.S. dollars subsequent to the settlement date or trade
date (whichever date the taxpayer was required to use to calculate the value of the proceeds of sale) may have foreign exchange
gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. Dollar, which will
generally be U.S. source ordinary income or loss.



Passive Foreign Investment Company Status



We would be a passive foreign investment company (a
“PFIC”) if (taking into account certain “look-through” rules with respect to the income and assets of
our corporate subsidiaries in which we own 25 percent (by value) of the stock) either (i) 75 percent or more of our gross income
for the taxable year was passive income or (ii) the average percentage (by value) of our total assets that are passive assets
during the taxable year was at least 50 percent.



If we were a PFIC, each U.S. Holder would (unless it made one
of the elections discussed below on a timely basis) be taxable on gain recognized from the disposition of our common
shares (including gain deemed recognized if the common shares are used as security for a loan) and upon receipt of certain
“excess distributions” (generally, distributions that exceed 125% of the average amount of distributions in
respect to such common shares received during the preceding three taxable years or, if shorter, during the U.S.
Holder’s holding period prior to the distribution year) with respect to our common shares as if such income had been
recognized ratably over the U.S. Holder’s holding period for the common shares. The U.S. Holder’s income for the
current taxable year would include (as ordinary income) amounts allocated to the current taxable year and to any taxable year
period prior to the first day of the first taxable year for which we were a PFIC. Tax would also be computed at the highest
ordinary income tax rate in effect for each other taxable year period to which income is allocated, and an interest charge on
the tax as so computed would also apply. Additionally, if we were a PFIC, U.S. Holders who acquire our common shares from
decedents (other than nonresident aliens) would be denied the normally available step-up in basis for such shares to fair
market value at the date of death and, instead, would have a tax basis in such shares equal to the decedent’s basis, if
lower.



As an alternative to the tax treatment described above, a U.S.
Holder could elect to treat us as a “qualified electing fund” (a “QEF”), in which case the U.S. Holder
would be taxed currently, for each taxable year that we are a PFIC, on its pro rata share of our ordinary earnings and net capital
gain (subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge). Special rules
apply if a U.S. Holder makes a QEF election after the first taxable year in its holding period in which we are a PFIC. In the
event that we conclude that we will be classified as a PFIC, we will make a determination at such time as to whether we will be
able to provide U.S. Holders with the information that is necessary to make a QEF election. Amounts includable in income as a
result of a QEF election will be determined without regard to our prior year losses or the amount of cash distributions, if any,
received from us. A U.S. Holder’s basis in its common shares will increase by any amount included in income and decrease
by any amounts not included in income when distributed because such amounts were previously taxed under the QEF rules. So long
as a U.S. Holder’s QEF election is in effect with respect to the entire holding period for its common shares, any gain or
loss realized by such holder on the disposition of its common shares held as a capital asset ordinarily will be capital gain or
loss. Such capital gain or loss ordinarily would be long-term if such U.S. Holder had held such common shares for more than one
year at the time of the disposition. For non- corporate U.S. Holders, long-term capital gain is generally subject to a maximum
U.S. federal income tax rate of 15% for taxable years beginning on or before December 31, 2012. The QEF election is made on a
shareholder-by-shareholder basis, applies to all common shares held or subsequently acquired by an electing U.S. Holder and can
be revoked only with the consent of the IRS.





59





As an alternative to making the QEF election, a U.S. Holder
of PFIC stock which is publicly traded may in certain circumstances avoid certain of the tax consequences generally applicable
to holders of a PFIC by electing to mark the stock to market and recognizing as ordinary income or loss, each taxable year that
we are a PFIC, an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC
stock and the U.S. Holder’s adjusted tax basis in the PFIC stock. Special rules apply if a U.S. Holder makes a mark-to-market
election after the first taxable year in its holding period in which we are a PFIC. Losses would be allowed only to the extent
of net mark-to-market gain previously included by the U.S. Holder under the election for prior taxable years. This election is
available for so long as the Company’s common shares constitute “marketable stock,” which includes stock of
a PFIC that is “regularly traded” on a “qualified exchange or other market.” Generally, a “qualified
exchange or other market” includes a national market system established pursuant to Section 11A of the Exchange Act, or
a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is
located and that has certain characteristics. A class of stock that is traded on one or more qualified exchanges or other markets
is “regularly traded” on an exchange or market for any calendar year during which that class of stock is traded, other
than in de minimis quantities, on at least 15 days during each calendar quarter, subject to special rules relating to an
initial public offering. It is not entirely clear whether either the OTCBB or TSXV are qualified exchanges or other markets, or
whether there will be sufficient trading volume with respect to the Company’s common shares, and accordingly, whether the
common shares will be “marketable stock” for these purposes. Furthermore, there can be no assurances that the Company’s
common shares will continue to trade on any of the exchanges listed above.



We believe we were not a PFIC for the year ending December
31, 2015 and do not expect to be classified as a PFIC for the year ending December 31, 2016. However, PFIC status is determined
as of the end of each taxable year and is dependent on a number of factors, including the value of our passive assets, the amount
and type of our gross income, and our market capitalization. Therefore, there can be no assurance that we will not become a PFIC
for the current taxable year ending December 31, 2016 or in a future taxable year. We will notify U.S. Holders in the event we
conclude that we will be treated as a PFIC for any taxable year.



Non–U.S. Holders



Except as described in “Information Reporting
and Backup Withholding” below, a Non-U.S. Holder of common shares will not be subject to U.S. federal income or withholding
tax on the payment of dividends on, or the proceeds from the disposition of, our common shares, unless, in the case of U.S. federal
income taxes:



ö such item is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the U.S. and, in
the case of a resident of a country which has a treaty with the U.S., such item is attributable to a permanent establishment or,
in the case of an individual, a fixed place of business, in the U.S.; or



ö the Non-U.S. Holder is an individual who holds the common shares as a capital asset and is present in the U.S. for 183
days or more in the taxable year of the disposition of our common shares and certain other conditions are met.



Information Reporting and Backup Withholding



U.S. Holders (other than exempt recipients, such as
corporations) generally are subject to information reporting requirements with respect to dividends paid on, or proceeds from
the disposition of, our common shares. U.S. Holders are also generally subject to backup withholding (currently at a rate of 28%)
on dividends paid on, or proceeds from the disposition of, our common shares unless the U.S. Holder provides IRS Form W-9 or otherwise
establishes an exemption.



Non-U.S. Holders generally are not subject to information
reporting or backup withholding with respect to dividends paid on, or proceeds from the disposition of, our common shares, provided
that such Non-U.S. Holder provides taxpayer identification number, certifies to its foreign status, or otherwise establishes an
exemption.



The amount of any backup withholding will be allowed as a
credit against a U.S. or Non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided
that certain required information is furnished to the IRS.



F. Dividends and Paying Agents



Not Required.



G. Statements by Experts



The consolidated financial statements of POET Technologies
Inc. as of December 31, 2017, 2016 and 2015 included herein, have been audited by Marcum LLP, our independent registered accounting
firm for that period, 185 Asylum St, 17th Floor, Hartford, CT 06103, USA, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.



H. Documents on Display



The Company’s documents can be viewed at its
Canadian office, located at: Suite 1107, 120 Eglinton Avenue East, Toronto, Ontario M4P 1E2, Canada. Further, we file reports
under Canadian regulatory requirements on SEDAR; you may access our reports filed on SEDAR by accessing their website at www.sedar.com.
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act),
and files reports, Annual Reports and other information with the SEC. The Company’s reports, Annual Reports and other information
can be inspected on the SEC’s website at www.sec.gov and such information can also be inspected and copies ordered at the
public reference facilities maintained by the SEC at the following location: 100 F Street NE, Washington, D.C. 20549.





60





As a foreign private issuer, we are exempt from the rules
under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders
are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition,
we are not required under the Exchange Act to file annual, and other reports and financial statements with the SEC as frequently
or as promptly as United States companies whose securities are registered under the Exchange Act.



We maintain a corporate website at www.poet-technologies.com.Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report on
Form 20-F. We have included our website address in this Annual Report on Form 20-F solely as an inactive textual reference.



I. Subsidiary information



Not Required.



ITEM 11. Quantitative and Qualitative Disclosures About Market
Risk



Interest Rate Risk



Short-term investments bear interest at fixed
rates, and as such, are subject to interest rate risk resulting from changes in fair value from market fluctuations in interest
rates. The Company does not depend on interest from its investments to fund its operations.



Exchange Rate Risk



The Company is exposed to foreign currency
risk with the Canadian and Singapore dollar. The Company maintains bank accounts and cash reserves in US, Canadian and Singapore
dollars with the majority of reserves currently split between Canadian and US dollars. The Canadian dollar reserves are exposed
to currency fluctuations. Most of the company’s operations are transacted in US and Singapore dollars. A 10% change in the
Canadian and Singapore dollar would increase or decrease other comprehensive loss by $260,175.



The following table shows exchange rates, from CAD to USD,
for the past six months:



|Period                        |  | High (1) |        | Low (1) |  | Average (2)
|----------------------------- |  | -------- | ------ | ------- |  | -----------
|March 2018                    |  |          | 0.7807 |         |  |            
|February 2018                 |  |          | 0.8163 |         |  |            
|January 2018                  |  |          | 0.8142 |         |  |            
|December 2017                 |  |          | 0.7991 |         |  |            
|November 2017                 |  |          | 0.7895 |         |  |            
|October 2017                  |  |          | 0.8035 |         |  |            
|October 2017 — March 31, 2018 |  |          | 0.8163 |         |  |            

_________________________________



|(1) |  | Bank of Canada monthly average rates
|--- |  | ------------------------------------

|(2) |  | Bank of Canada daily closing average rates
|--- |  | ------------------------------------------





The following table shows exchange rates, from SGD to USD, for the past six
months:



|Period                        |  | High (1) |        | Low (1) |  | Average (2)
|----------------------------- |  | -------- | ------ | ------- |  | -----------
|March 2018                    |  |          | 0.7640 |         |  |            
|February 2018                 |  |          | 0.7645 |         |  |            
|January 2018                  |  |          | 0.7649 |         |  |            
|December 2017                 |  |          | 0.7486 |         |  |            
|November 2017                 |  |          | 0.7433 |         |  |            
|October 2017                  |  |          | 0.7410 |         |  |            
|October 2017 — March 31, 2018 |  |          | 0.7649 |         |  |            

_________________________________

|(1) |  | Bank of Singapore monthly average rates
|--- |  | ---------------------------------------

|(2) |  | Bank of Singapore daily closing average rates
|--- |  | ---------------------------------------------





61





Market Risk



Market risk arises from the possibility that
changes in market prices will affect the value of the financial instruments of the Company. The Company is exposed to fair value
fluctuations on its cash equivalents. The Company’s other financial instruments (cash and accounts payable and accrued liabilities)
are not subject to market risk, due to the short- term nature of these instruments.



ITEM 12. Description of Securities Other than Equity Securities



A. Debt Securities



Not Required



B. Warrants and Rights



Not Required.



C. Other Securities



Not Required.



D. American Depositary Shares



Not Required.



PART II



ITEM 13. Defaults, Dividend Arrearages and Delinquencies



Not Required.



ITEM 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds



Not Required.



ITEM 15. Controls and Procedures



| | (a) | Disclosure Controls and Procedures
| | --- | ----------------------------------



We carried out an evaluation,
under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective
to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported accurately and within the time frames specified in the SEC's rules
and forms and accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure. Notwithstanding the foregoing, there can be no assurance
that our disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material
information otherwise required to be set forth in our reports.



| | (b) | Management’s Annual Report on Internal Control over Financial Reporting
| | --- | -----------------------------------------------------------------------



The Company’s Board
of Directors and management are responsible for establishing and maintaining adequate internal control over financial reporting.
The Company’s internal control system was designed to provide reasonable assurance to management and the Board of Directors
regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial
statements.



All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent
or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.





62





Management assessed the effectiveness
of the Company’s internal control over financial reporting as of December 31, 2017. In making this assessment, it used the
criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on that assessment and those criteria, management concluded that, as of December 31, 2017,
the Company’s internal control over financial reporting was effective.



| | (c) | Attestation Report of Registered Public Accounting Firm
| | --- | -------------------------------------------------------



Not applicable.



| | (d) | Changes in Internal Controls over Financial Reporting
| | --- | -----------------------------------------------------



There were no changes in our
internal control over financial reporting that occurred during the year ended December 31, 2017 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.



ITEM 16. [RESERVED]



ITEM 16A. Audit Committee Financial Expert



Our Board of Directors has
determined that Chris Tsiofas is the audit committee financial expert. The Board has determined that Mr. Tsiofas satisfies the
criteria of “audit committee financial expert” within the meaning of Item 401(h) of Regulation S-K and is independent
in accordance with Rule 4200 of the Nasdaq Marketplace Rules.



ITEM 16B. Code of Ethics



In December 2007, our Board
of Directors adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all our employees, including
without limitation our chief executive officer, chief financial officer and principal accounting officer. Our Code may be viewed
on our website at www.poet-technologies.com and is filed as an Exhibit to this Annual Report. A copy of our Code may be
obtained, without charge, upon a written request addressed to our investor relations department, 121 Richmond Street West, Suite
201, Toronto, Ontario M5H 2K1, Canada.



ITEM 16C. Principal Accountant Fees and Services Fees Paid to
Independent Registered Public Accounting Firm



The following table sets forth, for each of the years
indicated, the fees billed by our independent registered public accounting firm, Marcum LLP.





|                  |  | Year Ended December 31,
|----------------- |  | -----------------------
|Services
Rendered |  | 2017                   
|                  |  |                        
|Audit Fees (1)    |  | $                      
|Tax Fees (2)      |  |                        
|Total             |  | $                      



__________________________

|(1) |  | Audit fees consist of services that would normally be provided in connection with
statutory and regulatory filings or engagements, including services that generally only the independent accountant can reasonably
provide.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Tax fees relate to tax compliance, planning and advice.
|--- |  | -------------------------------------------------------







63





Our Audit Committee, in accordance with its charter,
reviews and pre-approves all audit services and permitted non-audit services (including the fees and other terms) to be provided
by our independent auditors. All of the services provided by Marcum LLP over the past two years were pre-approved by the Audit
Committee.



ITEM 16D. Exemptions from the Listing Standards for Audit Committees



Not Required.



ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers



Not Required.



ITEM 16F. Change in Registrant’s Certifying Accountants



Not Required.



ITEM 16G. Corporate Governance



Not Required.



ITEM 16H. Mine Safety Disclosure



Not Required.



PART III



ITEM 17. Financial Statements



The Company’s consolidated financial statements are stated in U.S.
dollars and are prepared in accordance with IFRS as issued by the International Accounting Standards Board.



The consolidated financial statements required under ITEM 17 are attached hereto
and found immediately following the text of this Annual Report and are incorporated by reference herein. The audit report of Marcum
LLP, independent registered public accounting firm, is included herein immediately preceding the audited consolidated financial
statements.



| | a. | Audited Financial Statements — for the years ended December 31, 2017, 2016 and 2015 and as of December 31, 2017,
2016 and 2015
| | -- | ------------------------------------------------------------------------------------------------------------------------------



ITEM 18. Financial Statements



The Company has elected to provide financial statements pursuant to ITEM
17.





64





ITEM 19. Exhibits



| | 1.1 | Certificate and Articles of Continuance*
| | --- | ----------------------------------------

| | 1.2 | Amended and Restated Bylaws**
| | --- | -----------------------------

| | 4.1 | Asset Purchase Agreement with Tracker Acquisition, Inc., dated December 17, 2012*
| | --- | ---------------------------------------------------------------------------------

| | 4.2 | Agreement with BAE Systems Information And Electronic Systems Integration, Inc., dated May 21, 2008*
| | --- | ----------------------------------------------------------------------------------------------------

| | 4.3 | License Agreement with the University of Connecticut, dated April 28, 2003, as amended April 15, 2014*
| | --- | ------------------------------------------------------------------------------------------------------

| | 4.4 | Lease Agreement with the University of Connecticut, dated December 11, 2014.**
| | --- | ------------------------------------------------------------------------------

| | 4.5 | Agency Agreement with IBK Capital Corp., dated February 14, 2013*
| | --- | -----------------------------------------------------------------

| | 4.6 | Credit Agreement with TCA Global Credit Master Fund, LP, dated March 30, 2012*
| | --- | ------------------------------------------------------------------------------

| | 4.7 | Memorandum of Understanding with Ajit Manocha, dated July 3, 2014**
| | --- | -------------------------------------------------------------------

| | 4.8 | Letter of Agreement with Daniel DeSimone, dated March 28, 2014**
| | --- | ----------------------------------------------------------------

| | 4.9 | Executive Employment Agreement with Peter Copetti, dated June 30, 2014**
| | --- | ------------------------------------------------------------------------

| | 4.10 | Shareholder Rights Plan Agreement between the Company and TMX Equity Transfer Services, Inc.**
| | ---- | ----------------------------------------------------------------------------------------------

| | 4.11 | Consulting Agreement with Dr. Geoff Taylor, dated January 12, 2015**
| | ---- | --------------------------------------------------------------------

| | 4.12 | Employment Agreement with Stephane Gagnon, dated November 5, 2013*
| | ---- | ------------------------------------------------------------------

| | 4.13 | Employment Agreement with Suresh Venkatesan, dated June 10, 2015 ***
| | ---- | --------------------------------------------------------------------

| | 4.14 | Employment Agreement with Subhash Deshmukh, dated June 8, 2015 ***
| | ---- | ------------------------------------------------------------------

| | 4.15 | Employment Agreement with Rajan Rajgopal, dated December 27, 2016 ****
| | ---- | ----------------------------------------------------------------------

| | 4.16 | Employment Agreement with Thomas Mika, dated November 2, 2016 ****
| | ---- | ------------------------------------------------------------------

| | 4.17 | Employment Agreement with Dave Lazovsky, dated February 1, 2017 ****
| | ---- | --------------------------------------------------------------------

| | 4.18 | Consulting Agreement with Dave Lazovsky, dated July 1, 2016 ****
| | ---- | ----------------------------------------------------------------

| | 4.19 | Agreement with the Singapore Economic Development Board, dated August 15, 2016****
| | ---- | ----------------------------------------------------------------------------------

| | 4.20 | Sale and Purchase Agreement for DenseLight Semiconductors PTE, LTD, dated April 27, 2016****
| | ---- | --------------------------------------------------------------------------------------------

| | 4.21 | Sale and Purchase Agreement for BB Photonics Inc. dated May 16, 2016****
| | ---- | ------------------------------------------------------------------------



| | 4.22 | 2016 Stock Option Plan*****
| | ---- | ---------------------------

| | 4.23 | Form of Option Agreement*
| | ---- | -------------------------

| | 4.24 | Form of Warrant for Purchase of Common Shares*
| | ---- | ----------------------------------------------

| | 4.25 | Stock Specimen Certificate*           
| | ---- | --------------------------------------
| | 8.1  | List of Subsidiaries: See ITEM
4.C.   
| | 11.1 | Code of Business Conduct and
Ethics **



| | 12.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)*****
| | ---- | ----------------------------------------------------------------------------------------------

| | 12.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)*****
| | ---- | ----------------------------------------------------------------------------------------------

| | 13.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*****
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 13.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*****
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 23.1 | Consent of Marcum LLP, independent registered accounting firm*****
| | ---- | ------------------------------------------------------------------





*Filed as an exhibit to the Company’s
registration statement under the Securities and Exchange Act on Form 20-F/A on May 15, 2014 and incorporated herein by reference.

**Filed as an exhibit to the Company’s
annual Form 20-F on April 13, 2015 and incorporated herein by reference.

***Filed as an exhibit to the Company’s
annual Form 20-F on March 18, 2016 and incorporated herein by reference.

****Filed as an exhibit to the Company’s annual Form 20-F on April 17,
2017 and incorporated herein by reference.

***** Filed herewith.





WHERE TO FIND ADDITIONAL INFORMATION



We file reports and other information with the Securities
and Exchange Commission located at 100 F Street NE, Washington, D.C. 20549; you may obtain copies of our filings with the SEC
by accessing their website located at www.sec.gov. Further, we file reports under Canadian regulatory requirements on SEDAR; you
may access our reports filed on SEDAR by accessing their website at www.sedar.com.





65





MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION



The accompanying consolidated financial statements
of the Company and other financial information contained in this Annual Report are the responsibility of management. The consolidated
financial statements have been prepared in conformity with IFRS, using management’s best estimates and judgments, where
appropriate. In the opinion of management, these consolidated financial statements reflect fairly the financial position and the
results of operations and cash flows of the Company within reasonable limits of materiality. The financial information contained
elsewhere in this Annual Report has been reviewed to ensure consistency with that in the consolidated financial statements.



To assist management in discharging these responsibilities,
the Company maintains a system of procedures and internal control which is designed to provide reasonable assurance that its
assets are safeguarded against loss from unauthorized use or disposition, that transactions are executed in accordance with
management’s authorization and that the financial records form a reliable base for the preparation of accurate and
reliable financial information.



The Board of Directors ensures that management fulfills its
responsibilities for the financial reporting and internal control. The Board of Directors exercises this responsibility through
its independent Audit Committee comprising a majority of unrelated and outside directors. The Audit Committee meets periodically
with management and annually with the external auditors to review audit recommendations and any matters that the auditors believe
should be brought to the attention of the Board of Directors. The Audit Committee also reviews the consolidated financial statements
and recommends to the Board of Directors that the statements be approved for issuance to the shareholders.



The consolidated financial statements for the years ended
December 31, 2017, 2016 and 2015 have been audited by Marcum LLP, independent registered public accounting firm, which has full
and unrestricted access to the Audit Committee. Marcum’s report on the consolidated financial statements is presented herein.





SIGNATURES



The Registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.







|                     | POET TECHNOLOGIES INC.
|-------------------- | ----------------------
|                     |                       
|                     | /s/ Suresh Venkatesan 
|                     | Suresh Venkatesan     
|                     | CEO                   
|                     |                       
|Date: April 27, 2018 |                       































66











REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Shareholders and Directors of POET Technologies Inc.



Opinion on the Consolidated Financial Statements



We have audited the accompanying consolidated financial statements
of POET Technologies Inc. (the “Company”), which comprise the consolidated statements of financial position as at December
31, 2017, December 31, 2016 and December 31, 2015, and the related consolidated statements of operations and deficit, comprehensive
loss, changes in shareholders’ equity and cash flows for the years then ended, and the related notes, comprising a summary
of significant accounting policies and other explanatory information (collectively referred to as the consolidated financial statements).



In our opinion, the consolidated financial statements present fairly,
in all material respects, the consolidated financial position of the Company as at December 31, 2017, December 31, 2016 and December
31, 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board.



Basis for Opinion



Management is responsible for the preparation and fair presentation
of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.



Auditors’ Responsibility



Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards
and the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
from material misstatement, whether due to error or fraud. Those standards also require that we comply with ethical requirements,
including independence. We are required to be independent with respect to the Company in accordance with the ethical requirements
that are relevant to our audit of the consolidated financial statements in Canada, the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB. We are a public accounting firm registered with
the PCAOB.















An audit includes performing procedures to assess the risks of material
misstatements of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to
those risks. Such procedures included obtaining and examining, on a test basis, audit evidence regarding the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments,
we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. Accordingly, we express no such opinion.



An audit also includes evaluating the appropriateness of accounting
policies and principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.



We believe that the audit evidence we have obtained in our audits
is sufficient and appropriate to provide a reasonable basis for our audit opinion.









Marcum LLP



We have served as the Company’s auditor since 2009, such date
takes into account the acquisition of a portion of UHY LLP by Marcum LLP in April 2010.



New Haven, Connecticut

April 27, 2018

































POET TECHNOLOGIES INC.



CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in US Dollars)





December 31,
    2017
    2016
    2015AssetsCurrentCash
    $4,974,478
    $14,376,282
    $14,409,996Short-term investments (Note 2)
    -
    589,275
    -Accounts receivable (Note 4)
    493,925
    292,849
    -Prepaids and other current assets (Note 5)
    1,957,727
    758,917
    150,923Inventory (Note 6)
    524,582
    1,116,880
    -7,950,712
    17,134,203
    14,560,919Property and equipment (Note 7)
    8,278,170
    9,364,210
    947,107Patents and licenses (Note 8)
    456,250
    449,676
    426,813Intangible assets (Note 9)
    839,637
    876,865
    -Goodwill (Note 22)
    7,681,003
    7,681,003
    -$25,205,772
    $35,505,957
    $15,934,839LiabilitiesCurrentAccounts payable and accrued liabilities (Note 10)
    $810,593
    $1,624,344
    $515,421810,593
    1,624,344
    515,421Deferred tax liability (Note 22)
    1,298,367
    1,596,307
    -Deferred rent
    24,031
    42,665
    -2,132,991
    3,263,316
    515,421Shareholders' EquityShare capital (Note 11(b))
    103,616,221
    103,357,862
    81,027,171Warrants (Note 12)
    5,985,378
    5,985,378
    2,013,747Contributed surplus (Note 13)
    32,102,967
    29,062,874
    25,618,159Accumulated other comprehensive loss
    (1,758,632)
    (2,088,117)
    (2,388,987)Deficit
    (116,873,153)
    (104,075,356)
    (90,850,672)23,072,781
    32,242,641
    15,419,418$25,205,772
    $35,505,957
    $15,934,839








Commitments and contingencies (Note 15)



On behalf of the Board of Directors











|/s/ Chris Tsiofas |  | /s/ Suresh Venkatesan
|----------------- |  | ---------------------
|Director          |  | Director             







The accompanying notes are an integral part of these consolidated financial statements.Page 2









POET TECHNOLOGIES INC.



CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

(Expressed in US Dollars)



For the Years Ended December 31,
    2017
    2016
    2015Revenue
    $2,794,044
    $1,861,747
    $-Cost of sales (1)
    1,342,691
    946,001
    -Gross margin
    1,451,353
    915,746
    -Operating expensesSelling, marketing and administration (Note 20)(1)
    10,870,741
    11,421,604
    8,614,109Research and development (Note 20)(1)
    5,442,873
    3,165,825
    3,532,492Impairment loss (Notes 2, 7 and  21)
    -
    63,522
    -Loss on disposal of property and equipment (Note 7)
    -
    46,738
    -Other income, including interest (Note 2)
    (1,766,524)
    (66,872)
    (76,431)Operating expenses
    14,547,090
    14,630,817
    12,070,170Net loss from operations
    (13,095,737)
    (13,715,071)
    (12,070,170)Change in fair value of contingent consideration (Note 22)
    -
    (283,130)
    -Net loss before income tax recovery
    (13,095,737)
    (13,431,941)
    (12,070,170)Income tax recovery (Note 23)
    (297,940)
    (207,257)
    -Net loss
    (12,797,797)
    (13,224,684)
    (12,070,170)Deficit, beginning of year
    (104,075,356)
    (90,850,672)
    (78,780,502)Net loss
    (12,797,797)
    (13,224,684)
    (12,070,170)Deficit, end of year
    $(116,873,153)
    $(104,075,356)
    $(90,850,672)Basic and diluted net loss per share (Note 14)
    $(0.05)
    $(0.06)
    $(0.07)








(1) Certain prior period figures have
been reclassified to conform with the current period's presentation.














CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Expressed in US Dollars)



For the Years Ended December 31,
    2017
    2016
    2015Net loss
    $(12,797,797)
    $(13,224,684)
    $(12,070,170)Other comprehensive income (loss) - net of income taxesExchange differences on translating foreign operations
    329,485
    300,870
    (1,804,435)Comprehensive loss
    $(12,468,312)
    $(12,923,814)
    $(13,874,605)










The accompanying notes are an integral part of these consolidated financial statements.Page 3









POET TECHNOLOGIES INC.



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Expressed in US Dollars)





For the Years Ended December 31,
    2017
    2016
    2015Share CapitalBeginning balance
    $103,357,862
    $81,027,171
    $61,688,953Funds from the exercise of warrants and compensation warrants
    -
    1,943,919
    9,373,245Fair value of warrants and compensation warrants exercised
    -
    901,417
    4,444,912Funds from the exercise of stock options
    123,528
    1,654,988
    2,703,436Fair value assigned to stock options exercised
    134,831
    1,737,879
    2,816,625Commons shares issued on business acquisitions
    -
    12,050,000
    -Common shares issued to settle liabilities
    -
    1,843,629
    -Common shares issued on public offering
    -
    9,349,254
    -Warrants issued on public offering
    -
    (5,985,378)
    -Share issue costs
    -
    (1,165,017)
    -December 31,
    103,616,221
    103,357,862
    81,027,171WarrantsBeginning balance
    5,985,378
    2,013,747
    6,458,659Fair value of warrants issued
    -
    5,985,378
    -Fair value of warrants and compensation warrants exercised
    -
    (901,417)
    (4,444,912)Fair value of expired warrants
    -
    (1,112,330)
    -December 31,
    5,985,378
    5,985,378
    2,013,747Contributed SurplusBeginning balance
    29,062,874
    25,618,159
    23,616,664Stock-based compensation
    3,174,924
    4,070,264
    4,818,120Fair value of stock options exercised
    (134,831)
    (1,737,879)
    (2,816,625)Fair value of expired warrants
    -
    1,112,330
    -December 31,
    32,102,967
    29,062,874
    25,618,159Accumulated Other Comprehensive LossBeginning balance
    (2,088,117)
    (2,388,987)
    (584,552)Other comprehensive income (loss) attributable to common shareholders - translation adjustment
    329,485
    300,870
    (1,804,435)December 31,
    (1,758,632)
    (2,088,117)
    (2,388,987)DeficitBeginning balance
    (104,075,356)
    (90,850,672)
    (78,780,502)Net loss
    (12,797,797)
    (13,224,684)
    (12,070,170)December 31,
    (116,873,153)
    (104,075,356)
    (90,850,672)Total shareholders' equity
    $23,072,781
    $32,242,641
    $15,419,418








The accompanying notes are an integral part of these consolidated financial statements.Page 4











POET TECHNOLOGIES INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in US Dollars)





For the Years Ended December 31,
    2017
    2016
    2015CASH (USED IN) PROVIDED BY:OPERATING ACTIVITIESNet loss
    $(12,797,797)
    $(13,224,684)
    $(12,070,170)Adjustments for:Depreciation of property and equipment (Note 7)
    2,183,963
    1,448,525
    276,139Amortization of patents and licenses (Note 8)
    53,969
    49,775
    43,722Amortization of intangibles (Note 9)
    37,228
    23,266
    -Loss on disposition of property and equipment (Note 7)
    -
    46,738
    -Impairment of non-current asset held for sale (Notes 2, 7 and 21)
    -
    63,522
    -Stock-based compensation (Note 13)
    3,174,924
    4,070,264
    4,818,120Change in fair value of contingent consideration (Note 22)
    -
    (283,130)
    -Income tax recovery (Note 23)
    (297,940)
    (207,257)
    -Deferred rent
    -
    42,665
    -Net change in non-cash working capital accounts:Accounts receivable
    (171,257)
    (77,415)
    -Prepaid and other current assets
    (1,116,758)
    (443,590)
    92,578Inventory
    663,992
    (841,806)
    -Accounts payable and accrued liabilities
    (894,013)
    (628,292)
    63,697Cash flows from operating activities
    (9,163,689)
    (9,961,419)
    (6,775,914)INVESTING ACTIVITIESCash proceeds from acquisitions
    -
    18,791
    -Proceeds from the disposal of property and equipment (Note 7)
    -
    37,195
    -Purchase of property and equipment (Note 7)
    (969,797)
    (1,208,532)
    (164,386)Purchase of patents and licenses (Note 8)
    (60,543)
    (72,638)
    (209,814)Advances made prior to acquisition (Note 22)
    -
    (500,000)
    -Proceeds from the sale of short-term investments
    589,275
    (598,148)
    -Cash flows from investing activities
    (441,065)
    (2,323,332)
    (374,200)FINANCING ACTIVITIESIssue of common shares for cash, net of issue costs (Note 11)
    123,528
    11,783,144
    12,076,681Cash flows from financing activities
    123,528
    11,783,144
    12,076,681EFFECT OF EXCHANGE RATE CHANGES ON CASH
    79,422
    467,893
    (1,804,435)NET CHANGE IN CASH
    (9,401,804)
    (33,714)
    3,122,132CASH, beginning of year
    14,376,282
    14,409,996
    11,287,864CASH, end of year
    $4,974,478
    $14,376,282
    $14,409,996












The accompanying notes are an integral part of these consolidated financial statements.Page 5


POET TECHNOLOGIES INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in US Dollars)








1.DESCRIPTION OF BUSINESS AND LIQUIDITY  POET Technologies Inc. is incorporated in the Province
of Ontario. POET Technologies Inc. and its subsidiaries (the "Company") are developers and manufacturers of optical source
products and photonic integrated devices for the sensing, datacom and telecom markets. The Company's head office is located at
120 Eglinton Avenue East, Suite 1107, Toronto, Ontario, Canada M4P 1E2. These consolidated financial statements of the Company
were approved by the Board of Directors of the Company on April 26, 2018.  The Company has working capital of $7,140,119 as of
December 31, 2017 compared to working capital of $15,509,859 at December 31, 2016 and $14,045,498 at December 31, 2015. The Company
is in a position to cover its liabilities as they come due, however, due to the continuation of losses, the Company will need to
seek debt or equity financing to fund its operations. Consistent with its needs for additional financing, on March 21, 2018, the
Company completed a public offering of 25,090,700 units at a price of $0.425 (CAD$0.55) per unit for gross proceeds of $10,663,548
(CAD$13,799,885). Additionally, subsequent to December 31, 2017 the Company raised $1,131,921 from the exercise of warrants and
stock options.




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|

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  These 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").  The preparation of financial statements in accordance
with IFRS 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., BB Photonics Inc., BB Photonics
UK Limited (collectively "BB Photonics") and DenseLight Semiconductors Pte. Ltd ("DenseLight"). All intercompany
balances and transactions have been eliminated on consolidation.  Business combinations Acquisitions of businesses are accounted for using the
acquisition method. The acquisition cost is measured at the acquisition date at the fair value of the consideration transferred,
including all contingent consideration.  Subsequent changes in contingent consideration are accounted
for through the consolidated statements of operations and deficit and consolidated statements of comprehensive loss in accordance
with the applicable standards.    Page 6
 POET TECHNOLOGIES INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in US Dollars)
   2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  Goodwill arising on acquisition is initially measured
at cost, being the difference between the fair value of the consideration transferred including the recognized amount of any non-controlling
interest in the acquiree and the net recognized amount (generally fair value) of the identifiable assets and liabilities assumed
at the acquisition date. If the net of the amounts of the identifiable assets acquired and liabilities assumed exceeds the sum
of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s
previously held interest in the acquiree (if any), the excess is recognized immediately in the consolidated statements of operations
and deficit as a bargain purchase gain.  Acquisition-related costs, other than those that are
associated with the issue of debt or equity securities that the Company incurs in connection with a business combination, are expensed
as incurred.  Foreign currency translation These 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.  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.  Financial Instruments Financial instruments are required to be classified
as one of the following: held-to-maturity; loans and receivables, fair value through profit or loss; available-for-sale or other
financial liabilities.  The Company's financial instruments include cash, short-term
investments, accounts receivable, accounts payable and accrued liabilities. The Company designated its cash and short-term investments
as fair value through profit or loss and its accounts payable and accrued liabilities as other financial liabilities.  Fair value through profit or loss financial assets are
measured at fair value with gains and losses recognized in operations. Financial assets, loans and receivables and other financial
liabilities are measured at amortized cost. Available-for-sale financial assets are measured at fair value with unrealized gains
and losses recognized in other comprehensive loss.    Page 7
 POET TECHNOLOGIES INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in US Dollars)
  2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  Fair value of a financial instrument is the amount of
consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under
no compulsion to act. The fair value of a financial instrument on initial recognition is the transaction price, which is the fair
value of the consideration given or received. Subsequent to initial recognition, the fair value of a financial instrument that
is quoted in active markets is based on the bid price for a financial asset held and the offer price for a financial liability.
When an independent price is not available, fair value is determined by using a valuation methodology that refers to observable
market data. Such a valuation technique includes comparisons with a similar financial instrument where an observable market price
exists, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.
If no reliable estimate can be made, the Company measures the financial instrument at cost less impairment as a last resort.  Accounts receivable Accounts receivable are amounts due from customers from
the sale of products or services in the ordinary course of business. Accounts receivables are classified as current (on the consolidated
statements of financial position) if payment is due within one year of the reporting period date, and are initially recognized
at fair value and subsequently measured at amortized cost.  The provision policy for doubtful accounts of the Company
is based on the ageing analysis and management's ongoing evaluation of the recoverability of the outstanding receivables. A considerable
amount of judgement is required in assessing the ultimate realization of these receivables, including the assessment of the creditworthiness
and the past collection history of each customer. If the financial conditions of these customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances may be required. As at the balance sheet dates, no provision
was required for accounts receivable.  Inventory Inventory consists of raw material inventory, work in
process, and finished goods and are recorded at the lower of cost and net realizable value. Cost is determined on a first in first
out basis and includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventory to its present
condition.  An assessment is made of the net realizable value of
inventory at each reporting period. Net realizable value is the estimated selling price less the estimated cost of completion and
the estimated costs necessary to make the sale. When circumstances that previously caused inventories to be written down no longer
exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount
of any write down previously recorded is reversed so that the new carrying amount is the lower of the cost and the revised net
realizable value. Raw materials are not written down unless the goods in which they are incorporated are expected to be sold for
less than cost, in which case, they are written down by reference to replacement cost of the raw materials, as this is the best
indicator of net realizable value.  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 yearsLeasehold improvements
    Straight Line, 5 years or life of the lease, whichever is lessOffice equipment
    Straight Line, 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.    Page 8
 POET TECHNOLOGIES INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in US Dollars)
  2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  Impairment of long-lived assets The Company’s tangible and intangible assets are
reviewed for indications of impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets
may not be recoverable. An assessment is made at each reporting date whether there is any indication that an asset may be impaired.  An impairment loss is recognized when the carrying amount
of an asset exceeds its recoverable amount. Impairment losses are recognized in profit and loss for the year. The recoverable amount
is the greater of the asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows,
the recoverable amount is determined for the cash-generating unit ("CGU") to which the asset belongs.  An impairment loss is reversed if there is an indication
that there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to
the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortization, if no impairment loss had been recognized.  The Company reported an impairment loss of nil for the
year ended December 31, 2017 (2016 - $63,522, 2015 - nil).  Goodwill Goodwill represents the excess of the cost of an acquired
business over the fair value of the identifiable assets acquired net of liabilities assumed. Goodwill is measured at cost less
accumulated impairment losses and is not amortized. Goodwill is tested for impairment on an annual basis or whenever facts or circumstances
indicate that the carrying amount may exceed its recoverable amount.  Income taxes The Company follows the liability method of accounting
for income taxes. Under this method, deferred income taxes are provided on differences between the financial reporting and income
tax bases of assets and liabilities and on income tax losses available to be carried forward to future years for tax purposes.
Deferred income taxes are measured using the substantively enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse. Valuation allowances are provided to reduce deferred income tax assets to the amount expected
to be realized.  Recently Enacted U.S. Federal Tax Legislation Introduced initially as the Tax Cuts and Jobs Act, the
Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (the
“Act”) was enacted on December 22, 2017. The Act applies to corporations generally beginning with taxable years starting
after December 31, 2017 and reduces the corporate tax rate from a graduated set of rates with a maximum 35% tax rate to a flat
21% tax rate. Additionally, the Act introduces other changes that impact corporations, including a net operating loss (“NOL”)
deduction annual limitation, an interest expense deduction annual limitation, elimination of the alternative minimum tax, and immediate
expensing of the full cost of qualified property. The Act also introduces an international tax reform that moves the U.S. toward
a territorial system, in which income earned in other countries will generally not be subject to U.S. taxation. However, the accumulated
foreign earnings of certain foreign corporations will be subject to a one-time transition tax, which can be elected to be paid
over an eight-year tax transition period, using specified percentages, or in one lump sum. NOL and foreign tax credit (“FTC”)
carryforwards can be used to offset the transition tax liability. The Company does not expect that this change will have an impact
on the Company as it has not earned taxable income in the past and it has significant NOL carryforwards.    Page 9
 POET TECHNOLOGIES INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in US Dollars)
  2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  Revenue recognition Sale of goods Revenue from the sale of goods is recognized when significant
risks and rewards of ownership are transferred to the buyer, there is persuasive evidence of an arrangement, collection is probable
and fees are fixed and determinable.  Service revenue Revenue from services that are one year or less is recognized
when the services are completed. Revenue from services of a long-term nature is recognized by reference to the stage of completion
of the transaction at the end of the reporting period determined by services performed to date as a percentage of total services
and the amount of revenue, stage of completion, and the costs incurred for the transaction and the costs to complete the transaction
can be measured reliably.  Interest income Interest income on cash classified as fair value through
profit or loss is recognized as earned using the effective interest method.  Other income Government Grants Grants received exclusively from governmental agencies
such as the Department of Defense of the United States of America, NASA and Productivity and Innovation Credit Scheme Singapore
("PIC Grant"), relating to research and development or expenditure on technology, are recognized as other income.  Government grants from the United States are based on
the agreed upon milestones of the projects. PIC Grants are offered as a percentage of qualifying expenditures. PIC Grants are paid
out in cash. Other income earned on government grants in 2017 was nil (2016 - $14,027 and 2015 - nil).  Research and Development Credits The Company is eligible to receive cash credits for
certain qualifying research and development expenses based on actual spending over a three year period, with an expectation that
the credits will not exceed a certain dollar value over the three year period. The Company has accrued or collected $1,695,383
relating to these research and development credits in 2017 (2016 - nil, 2015 - nil) which represents actual expenses incurred in
2017.  Intangible assets Research and development costs Research costs are expensed in the year incurred. Development
costs are also expensed in the year incurred unless the Company believes a development project meets IFRS criteria as set out in
IAS 38, Intangible Assets, for deferral and amortization. IAS 38 requires all research costs be charged to expense while
development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established.
This means that the entity must intend and be able to complete the intangible asset and either use it or sell it and be able to
demonstrate how the asset will generate future economic benefits. Development costs are tested for impairment whenever events or
changes indicate that its carrying amount may not be recoverable.    Page 10
 POET TECHNOLOGIES INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in US Dollars)
  2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)   In-Process Research and Development Under IFRS, in-process research and development ("IPR&D")
acquired in a business combination that meets the definition of an intangible asset is capitalized with amortization commencing
when the asset is ready for use (i.e., when development is complete). The Company acquired $714,000 of IPR&D when it acquired
BB Photonics Inc.  Customer relationships Intangible assets include customer relationships acquired
with the acquisition of DenseLight. Customer relationships is an externally acquired intangible asset and is measured at cost less
accumulated amortization and any accumulated impairment losses. Customer relationships are amortized on a straight-line basis over
their estimated useful lives and is tested for impairment whenever events or changes indicate that their carrying amount may not
be recoverable. The useful life of customer relationships was determined to be 5 years.  Stock-based compensation Stock options and warrants awarded to non employees
are accounted for using the fair value of the instrument awarded or service provided whichever is considered more reliable. 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 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 year after giving effect to potentially dilutive financial
instruments. The dilutive effect of stock options and warrants is determined using the treasury stock method.  Short-term investments The short-term investments of nil at December 31, 2017
and $589,275 at December 31, 2016 and nil at December 31, 2015 consisted of guaranteed investment certificates ("GICs")
held with one Canadian chartered bank and earn interest at a rate of 0.50%.




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3.RECENT ACCOUNTING PRONOUNCEMENTS  The following is a summary of recent accounting pronouncements
that may affect the Company:  IFRS 15, Revenue from Contracts with Customers ("IFRS
15"). The IASB issued IFRS 15, which is effective for annual periods beginning on or after January 1, 2018. The standard contains
a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time and over
time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is
recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue
recognized. Based on current assessment, the Company does not expect that this new standard will impact how the Company currently
recognizes revenue.    Page 11
 POET TECHNOLOGIES INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in US Dollars)
   3.RECENT ACCOUNTING PRONOUNCEMENTS (Continued)  IFRS 16, Leases (“IFRS 16”) sets out the
principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, the customer
(lessee) and the supplier (lessor). This will replace IAS 17, Leases (“IAS 17”) and related Interpretations. IFRS 16
provides revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16 introduces
a single accounting model for all lessees and requires a lessee to recognize right-of-use assets and lease liabilities for leases
with terms of more than 12 months, unless the underlying asset is of low value, and depreciation of lease assets is reported separately
from interest on lease liabilities in the income statement. Under IFRS 16, lessor accounting for operating and finance leases will
remain substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier application
permitted for entities that apply IFRS 15, Revenue from Contracts with Customers. The Company is in the process of assessing the
impact of this standard on its consolidated financial statements.




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4.ACCOUNTS RECEIVABLE  The carrying amounts of accounts receivable approximate
their fair value and are originally denominated in Singapore dollars before conversion to US dollars at December 31:   2017
    2016
    2015Product sales
    United States dollar
    $493,925
    $292,849
    $-
  In determining the recoverability of a trade receivable,
the Company considers any change in the credit quality of the trade receivable from the date credit was initially granted up to
the reporting date. The trade receivables that are neither past due nor impaired relates to customers that the company has assessed
to be creditworthy based on the credit evaluation process performed by management which considers both customers' overall credit
profile and its payment history with the Company.




5.PREPAIDS AND OTHER CURRENT ASSETS  The following table reflects the details of prepaids
and other current assets at December 31:   2017
    2016
    2015Sales tax recoverable and other current assets
    $119,482
    $147,119
    $52,401Research and development credit
    1,287,539
    -
    -Security deposits on leased properties
    228,170
    272,026
    -Prepaid expenses
    322,536
    339,772
    98,522$1,957,727
    $758,917
    $150,923






Page 12


POET TECHNOLOGIES INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in US Dollars)






6.INVENTORY  The following table reflects the details of inventory at December
31:   2017
    2016
    2015Raw materials
    $112,768
    $662,458
    $-Finished goods
    260,105
    358,386
    -Work in process
    151,709
    96,036
    -$524,582
    $1,116,880
    $-
   The Company recorded an inventory write-down
of $353,476 in 2017. Raw materials related to products under development represented the most significant portion of the
write-down. Although, a value is no longer attributed to these materials, the Company continues to utilize them in its
R&D activities.




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7.PROPERTY AND EQUIPMENT   Equipment not
    Leasehold
    Machinery and
    Officeready
    for use
    improvements
    equipment
    equipment
    TotalCostBalance, January 1, 2015
    $3,152
    $-
    $1,273,922
    $56,406
    $1,333,480Additions
    7,024
    5,896
    126,181
    25,285
    164,386Reallocations
    (10,176)
    10,176
    -
    -
    -Balance, December 31, 2015
    -
    16,072
    1,400,103
    81,691
    1,497,866Additions (1) (Note 21)
    602,830
    667,342
    8,498,051
    244,860
    10,013,083Disposals (Note 21)
    -
    (16,072)
    (64,747)
    (11,734)
    (92,553)Reallocations
    -
    -
    (98,522)
    -
    (98,522)Balance, December 31, 2016
    602,830
    667,342
    9,734,885
    314,817
    11,319,874Additions
    806,182
    -
    113,433
    50,182
    969,797Reclassification
    (874,371)
    -
    874,371
    -
    -Effect of changes
    in foreign exchange rates
    46,433
    -
    72,779
    8,914
    128,126Balance,
    December     31, 2017
    581,074
    667,342
    10,795,468
    373,913
    12,417,797Accumulated DepreciationBalance, January 1, 2015
    -
    -
    265,008
    9,612
    274,620Depreciation for
    the year
    -
    3,104
    258,190
    14,845
    276,139Balance, December 31, 2015
    -
    3,104
    523,198
    24,457
    550,759Depreciation for the year
    -
    83,189
    1,320,050
    45,286
    1,448,525Disposals
    -
    (3,104)
    (34,940)
    (5,576)
    (43,620)Balance, December 31, 2016
    -
    83,189
    1,808,308
    64,167
    1,955,664Depreciation for
    the year
    -
    133,499
    1,857,474
    192,990
    2,183,963Balance, December
    31, 2017
    -
    216,688
    3,665,782
    257,157
    4,139,627Carrying AmountsAt December 31,
    2015
    $-
    $12,968
    $876,905
    $57,234
    $947,107At December 31,
    2015
    $602,830
    $584,153
    $7,926,577
    $250,650
    $9,364,210At December 31,
    2017
    $581,074
    $450,654
    $7,129,686
    $116,756
    $8,278,170
   (1)During
                                         2016, the Company (a) reduced its operations in Toronto and disposed of $27,806 of its
                                         property and equipment for proceeds of $2,195 and recorded a loss on the disposal of
                                         property and equipment of $16,931. The Company disposed of an additional $64,747 of machinery
                                         and equipment at a loss of $29,807 (b) added $217,722 of new equipment, however, only
                                         $119,200 was purchased during the year, $98,522 was purchased in 2015 but was classified
                                         as a prepaid deposit as it was not placed in use at December 31, 2015 (c) through the
                                         acquisition of DenseLight and BB Photonics, the Company acquired $8,706,029 of leaseholds
                                         improvements, machinery and office equipment (d) purchased an additional $1,089,332 of
                                         machinery and office equipment at DenseLight, $602,830 of which has not yet been placed
                                         into service.  (2)$35,000
                                         was reclassified to non-current assets held for sale and was sold in July 2016, while
                                         $63,522 was recorded as an impairment loss on the consolidated statements of operations
                                         and deficit.


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POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)




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|

8.PATENTS AND LICENSES   CostBalance, January 1, 2015
    $327,435Additions
    209,814Balance, December 31, 2015
    537,249Additions
    72,638Balance, December 31, 2016
    609,887Additions
    60,543Balance, December 31, 2017
    670,430Accumulated AmortizationBalance, January 1, 2015
    66,714Amortization
    43,722Balance, December 31, 2015
    110,436Amortization
    49,775Balance, December 31, 2016
    160,211Amortization
    53,969Balance, December 31, 2017
    214,180Carrying AmountsAt December 31, 2015
    $426,813At December 31, 2016
    $449,676At December 31, 2017
    $456,250




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|

9.INTANGIBLE ASSETS   CustomerTechnology
    Relationships
    TotalCostBalance, January 1, 2015 and 2016
    $-
    $-
    $-Acquired through
    the acquisition of DenseLight
    -
    186,131
    186,131Acquired through the acquisition
    of BB Photonics
    714,000
    -
    714,000Balance, December 31, 2016 and 2017
    714,000
    186,131
    900,131Accumulated
    AmortizationBalance, January 1, 2015 and 2016
    -
    -
    -Amortization for the year
    -
    23,266
    23,266Balance, December 31, 2016
    -
    23,266
    23,266Amortization for the year
    -
    37,228
    37,228Balance, December 31, 2017
    -
    60,494
    60,494Carrying
    AmountsAt December 31, 2015
    $-
    $-
    $-At December 31, 2016
    $714,000
    $162,865
    $876,865At December 31, 2017
    $714,000
    $125,637
    $839,637


Page 14


POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)




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10.ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES    Accounts payable and accrued liabilities at December
31 was as follows:  2017
    2016
    2015Trade payable
    $504,229
    $768,066
    $337,564Payroll related liabilities (1)
    112,913
    628,378
    104,788Accrued liabilities
    193,451
    183,037
    73,069Lease commitment
    -
    44,863
    -$810,593
    $1,624,344
    $515,421
   (1) Payroll related liabilities at December 31, 2016 includes $450,000 of bonus
payable to the CEO along with $87,751 of past salaries due to some current and former employees of DenseLight.




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|

11.SHARE CAPITAL   (a)    AUTHORIZED Unlimited number of common shares One special voting share  (b)   COMMON
SHARES ISSUED  Number ofShares
    AmountBalance, January 1, 2015
    166,578,084
    $61,688,953Shares issued on the exercise
    of stock options
    8,106,300
    2,703,436Fair value of stock options
    exercised
    -
    2,816,625Shares issued on the exercise
    of warrants and compensation warrants
    22,413,431
    9,373,245Fair value of warrants
    and compensation warrants exercised
    -
    4,444,912Balance, December 31, 2015
    197,097,815
    81,027,171Shares issued on public
    offering
    34,800,000
    9,349,254Cost of shares issued on
    public offering
    -
    (1,165,017)Fair value of warrants issued
    -
    (5,985,378)Shares issued to settle
    subsidiary accounts payable
    2,386,386
    1,843,629Shares issued on business
    combination
    15,607,240
    12,050,000Shares issued on the exercise
    of stock options
    5,648,000
    1,654,988Fair value of stock options
    exercised
    -
    1,737,879Shares issued on the exercise
    of warrants and compensation warrants
    3,794,412
    1,943,919Fair value of warrants exercised
    -
    901,417Balance, December 31, 2016
    259,333,853
    103,357,862Shares issued on the exercise
    of stock options
    685,000
    123,528Fair value of stock options
    exercised
    -
    134,831Balance, December 31, 2017
    260,018,853
    $103,616,221
   On November 2, 2016 the Company completed a Short Form
Base Shelf and Supplemental Prospectus offering of 34,800,000 units at a price of $0.269 (CAD$0.36) per unit for gross proceeds
of $9,349,254 (CAD$12,528,000). Each unit consists of one common share and one common share purchase warrant. Each whole warrant
entitles the holder to purchase one additional common share of the Company at a price of $0.388 (CAD$0.52) per share for a period
of five years. The agents received cash commissions in the aggregate of $654,447 (CAD$876,960). Additional issue costs approximated
$510,570 (CAD$666,618).  The fair value of the warrants was estimated using the
Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, interest rate of 0.68%, volatility of
91.37% and estimated life of 5 years. The estimated fair value assigned to the warrants was $5,985,378 ($8,015,323 CAD).








Page 15


POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)




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12.WARRANTS  The following table
reflects the continuity of warrants:  Average Exercise
    Number of
    HistoricalPrice
    Warrants
    Fair valueBalance, January 1, 2015
    $0.61
    30,782,664
    $6,458,659Warrants and compensation
    warrants exercised
    (0.42)
    (22,413,431)
    (4,444,912)Balance, December 31, 2015
    0.79
    8,369,233
    2,013,747Warrants issued
    0.39
    34,800,000
    5,985,378Warrants and compensation
    warrants exercised
    (0.51)
    (3,794,412)
    (901,417)Expired
    (1.02)
    (4,574,821)
    (1,112,330)Balance, December 31, 2016 and 2017
    $0.39
    34,800,000
    $5,985,378




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13.STOCK OPTIONS AND
CONTRIBUTED SURPLUS   Stock Options On July 7, 2016, shareholders of the Company approved
amendments to the Company's fixed 20% stock option plan (as amended, referred to as the "2016 Plan"). Under the 2016
Plan, the board of directors may grant options to acquire common shares of the Company to qualified directors, officers, employees
and consultants. The 2016 Plan provides that the number of common shares issuable pursuant to options granted under the 2016 Plan
and pursuant to other previously granted options is limited to 44,352,885 (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 2016 Plan which grants discretion to the Board of Directors.  Stock option transactions
and the number of stock options outstanding were as follows:  Weighted averageNumber of
    ExerciseOptions
    PriceBalance, January 1, 2015
    24,237,800
    $0.61Expired/cancelled
    (1,068,000)
    1.13Exercised
    (8,106,300)
    0.43Granted
    11,655,000
    1.19Balance, December 31, 2015
    26,718,500
    0.89Expired/cancelled
    (1,290,000)
    0.96Exercised
    (5,648,000)
    0.37Granted
    4,025,000
    0.62Balance, December 31, 2016
    23,805,500
    0.96Expired/cancelled
    (5,455,209)
    0.73Exercised
    (685,000)
    0.19Granted
    15,425,000
    0.24Balance, December
    31, 2017
    33,090,291
    $0.68
   During the year ended December 31, 2017, the Company granted
15,425,000 (2016 - 4,025,000, 2015 - 11,655,000) stock options to officers, employees and consultants of the Company to purchase
common shares at an average price of $0.24 (2016 - $0.62, 2015 - $1.19) per share.   Page 16
 POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)
  13.STOCK OPTIONS AND
CONTRIBUTED SURPLUS (Continued)     During the year ended December 31, 2017, the Company recorded
stock-based compensation of $3,174,924 (2016 - $4,070,264, 2015 - $4,818,120) relating to stock options that vested during the
year.  The stock options granted were valued using the Black-Scholes
option pricing model using the following assumptions:  2017
    2016
    2015Weighted average exercise price
    $0.24
    $0.62
    $1.19Weighted average risk-free interest rate
    1.87%
    1.05%
    0.98%Weighted average dividend yield
    0%
    0%
    0%Weighted average volatility
    102.73%
    104.3%
    102.7%Weighted average estimated life (years)
    10
    10
    5Weighted average share price
    $0.24
    $0.62
    $1.19
  Share price on the various grant dates were:  2017
    2016
    2015First grant
    $0.32
    $0.75
    $1.31Second grant
    0.27
    0.74
    1.59Third grant
    0.25
    0.66
    1.33Fourth grant
    0.28
    0.71
    1.14Fifth grant
    0.22
    0.62
    1.13Sixth grant
    0.22
    0.46
    1.25Seventh grant
    0.23
    -
    1.19Eighth grant
    0.24
    -
    0.83Ninth grant
    0.28
    -
    0.72Tenth grant
    0.29
    -
    0.63Eleventh grant
    0.21
    -
    0.74Twelfth grant
    -
    -
    0.62Thirteenth grant
    -
    -
    0.65
  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 December 31, 2017 are as follows:  Options Outstanding
    Options ExercisableWeightedWeighted
    Average
    
    WeightedAverage
    Remaining
    
    AverageExercise
    Number
    Exercise
    Contractual
    Number
    ExerciseRange
    Outstanding
    Price
    Life (years)
    Exercisable
    Price$0.11 - $0.25
    225,000
    $0.23
    4.13
    225,000
    $0.23$0.26 - $0.31
    10,450,000
    $0.22
    9.54
    1,031,250
    $0.22$0.32 - $0.37
    1,337,500
    $0.28
    9.40
    12,500
    $0.33$0.38 - $0.86
    7,851,000
    $0.43
    7.60
    2,135,375
    $0.52$0.87 - $1.64
    13,226,791
    $1.24
    2.33
    9,872,746
    $1.2833,090,291
    $0.68
    6.16
    $13,276,871
    $1.06
      Page 17
 POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)
  13.STOCK OPTIONS AND
CONTRIBUTED SURPLUS (Continued)   Contributed Surplus  The following table reflects the continuity of contributed surplus:   AmountBalance, January 1, 2015
    $23,616,664Stock-based compensation
    4,818,120Fair value of stock options exercised
    (2,816,625)Balance, December 31, 2015
    25,618,159Stock-based compensation
    4,070,264Fair value of stock options exercised
    (1,737,879)Fair value of expired warrants
    1,112,330Balance, December 31, 2016
    29,062,874Stock-based compensation
    3,174,924Fair value of stock options exercised
    (134,831)Balance, December 31, 2017
    $32,102,967




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13.LOSS
PER SHARE   2017
    2016
    2015NumeratorNet loss
    $(12,797,797)
    $(13,224,684)
    $(12,070,170)DenominatorWeighted average number of common shares outstanding
    259,771,793
    220,058,321
    185,091,882Weighted average number of common shares outstanding - diluted
    259,771,793
    220,058,321
    185,091,882Basic and diluted loss per share
    $(0.05)
    $(0.06)
    $(0.07)
   The effect of common share purchase options, warrants, compensation warrants
and shares to be issued on the net loss in 2017, 2016 and 2015 is not reflected as they are anti-dilutive.




| | 
| | 

15.COMMITMENTS
AND CONTINGENCIES   The Company has operating leases on three facilities; head
office located in Toronto, Canada, design and testing operations located in San Jose, California and operating facilities located
in Singapore. The Company's design and testing operations terminated a lease on January 31, 2017 and initiated a new lease an February
1, 2017 which expires on January 31, 2020. The lease on the Company's operating facilities expires on February 15, 2019. As at
December 31, 2017, the Company's head office was on a month to month lease term.  Rent expense under these leases was $421,316 for the year
ended December 31, 2017 (2016 - $312,842 2015 - $204,987).  Remaining minimum annual rental payments to the lease expiration
date is as follows:  2018
    $411,349January 1, 2019 through 2020
    80,119$491,468








Page 18


POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)




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| | 

16.RELATED
PARTY TRANSACTIONS    Compensation to key management personnel were as follows:  2017
    2016
    2015Salaries
    $932,133
    $2,047,634
    $1,979,601Share-based payments (1)
    2,110,773
    3,061,686
    3,283,361Total
    $3,042,906
    $5,109,320
    $5,262,962
   (1) Share-based payments are the fair value of options
granted to key management personnel and expensed during the various years as calculated using the Black-Scholes model.  In 2016, the Company paid or accrued $150,000 in consulting
fees to a director for strategic, technology, integration and general business consulting services.  The Company paid or accrued $115,660 in fees for the year
ended December 31, 2017 (2016 - $113,250, 2015 - $104,790) to a law firm, of which a director is counsel, for legal services rendered
to the Company.  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.




17.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:  ODIS Odis is the developer 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 develops 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.  DenseLight DenseLight designs, manufactures, and delivers photonic
optical light source products and packaging solutions to the communications, medical, instrumentation, industrial, and security
industries. DenseLight processes III-V based optoelectronic devices and photonic integrated circuits through its in-house wafer
fabrication and assembly & test facilities.  On a consolidated basis,
the Company operates geographically in Singapore, the United States and Canada. Geographical information is as follows:  2017As of December
    31,
    Singapore
    US
    Canada
    ConsolidatedCurrent assets
    $3,190,298
    $4,621,318
    $139,096
    $7,950,712Property and equipment
    8,018,900
    259,270
    -
    8,278,170Patents and licenses
    18,816
    437,434
    -
    456,250Goodwill and intangible assets
    6,756,181
    1,764,459
    -
    8,520,640Total Assets
    $17,984,195
    $7,082,481
    $139,096
    $25,205,772
     Page 19
 POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)
   17.SEGMENT
INFORMATION (Continued)     Year
    Ended December 31,
    Singapore
    US
    Canada
    ConsolidatedSales
    $2,794,044
    $-
    $-
    $2,794,044Cost of sales
    1,342,691
    -
    -
    1,342,691Selling, marketing and administration
    4,955,497
    4,872,902
    1,042,342
    10,870,741Research and development
    3,237,713
    1,877,966
    327,194
    5,442,873Other income
    (1,748,244)
    -
    (18,280)
    (1,766,524)Net loss from
    operations
    $4,993,613
    $6,750,868
    $1,351,256
    $13,095,737
     2016As of December 31,
    
    Singapore
    
    
    US
    
    
    Canada
    
    
    ConsolidatedCurrent assets
    $2,118,561
    $10,058,018
    $4,957,624
    $17,134,203Property and equipment
    9,039,069
    322,633
    2,508
    9,364,210Patents and licenses
    -
    449,676
    -
    449,676Goodwill and intangible assets
    6,793,409
    1,764,459
    -
    8,557,868Total Assets
    $17,951,039
    $12,594,786
    $4,960,132
    $35,505,957Year Ended December 31,
    Singapore
    US
    Canada
    ConsolidatedSales
    $1,861,747
    $-
    $-
    $1,861,747Cost of sales
    1,379,838
    -
    -
    1,379,838Selling, marketing and administration
    2,908,465
    7,200,243
    1,151,868
    11,260,576Research and development
    770,033
    2,122,983
    -
    2,893,016Impairment loss
    -
    63,522
    -
    63,522Loss on disposal of property and equipment
    -
    29,807
    16,931
    46,738Other income
    (14,027)
    -
    (52,845)
    (66,872)Net loss from operations
    $3,182,562
    $9,416,555
    $1,115,954
    $13,715,071
   2015As of December 31,
    
    Singapore
    
    
    US
    
    
    Canada
    
    
    ConsolidatedCurrent assets
    $-
    $3,055,947
    $11,504,972
    $14,560,919Property and equipment
    -
    924,443
    22,664
    947,107Patents and licenses
    -
    426,813
    -
    426,813Total Assets
    $-
    $4,407,203
    $11,527,636
    $15,934,839Year Ended December 31,
    Singapore
    US
    Canada
    ConsolidatedGeneral and administration
    $-
    $6,622,514
    $1,991,595
    $8,614,109Research and development
    -
    3,532,492
    -
    3,532,492Other income
    -
    -
    (76,431)
    (76,431)Net loss from operations
    $-
    $10,155,006
    $1,915,164
    $12,070,170










Page 20


POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)








18.FINANCIAL INSTRUMENTS AND RISK MANAGEMENT   The Company's financial instruments consist of cash, short-term
investments, accounts receivable, 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
the fair value of these instruments approximates fair value due to their short term nature.  The Company has classified financial assets and (liabilities)
as follows at December 31:  2017
    2016
    2015Fair value through profit or loss, measured at
    fair value:Cash
    $4,974,478
    $14,376,282
    $14,409,996Short-term investments
    -
    589,275
    -Loans and receivable, measured at amortized cost:Accounts receivable
    493,925
    292,849
    -Other liabilities, measured at amortized cost:Accounts payable
    and accrued liabilities
    (810,593)
    (1,624,344)
    (515,421)
   Financial instruments recorded at fair value on the balance
sheet are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
The fair value hierarchy has the following levels:  Level 1 - valuation based on quoted prices (unadjusted) observed in active markets
for identical assets or liabilities.  Level 2 - valuation techniques based on inputs other than quoted prices included
in Level 1 that are observable for the asset or liability either directly or indirectly.  Level 3 - valuation techniques based on inputs for the asset or liability that
are not based on observable market data.  Cash was determined using level 1 inputs. Short-term investments
were determined using level 2 inputs.  Credit Risk The Company is exposed to credit risk associated with its
accounts receivable. The Company has accounts receivable from both governmental and non-governmental agencies. Credit risk is minimized
substantially by ensuring the credit worthiness of the entities with which it carries on business. Credit terms are provided on
a case by case basis. The Company has not experienced any significant instances of non-payment from its customers. No provision
has been made for potentially uncollectable amounts.  The Company's accounts receivable ageing at December 31
was as follows:  2017
    2016
    2015Current
    $330,731
    $125,610
    $-31 - 60 days
    56,094
    16,346
    -61 - 90 days
    -
    75,816
    -> 90 days
    107,100
    75,077
    -$493,925
    $292,849
    $-
     Page 21
 POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)
   18.FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(Continued)   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 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 with the Canadian and Singapore dollar. A 10% change in the Canadian and Singapore dollar would increase
or decrease other comprehensive loss by $260,175.  Liquidity Risk The Company currently does not maintain credit facilities.
The Company's existing cash and cash resources are considered sufficient to fund operating and investing activities beyond one
year from the issuance of these consolidated financial statements.




| | 
| | 

19.CAPITAL
MANAGEMENT   In the management of capital, the Company includes shareholders'
equity (excluding accumulated other comprehensive loss and deficit) and cash. The components of capital on December 31, 2017 were:  Cash
    $4,974,478Shareholders' equity
    $141,704,566
  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.










Page 22


POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)








20.EXPENSES   Research and development costs can be analysed
as follows:  2017
    2016
    2015Wages and benefits(1)
    $2,839,088
    $1,572,567
    $1,241,054Subcontract fees
    1,044,936
    1,013,539
    1,560,819Stock-based compensation
    369,007
    373,196
    552,416Supplies
    1,189,842
    206,523
    178,203$5,442,873
    $3,165,825
    $3,532,492Selling, marketing and administration costs can
    be analysed as follows:Stock-based compensation
    $2,805,917
    $3,697,068
    $4,265,704Wages and benefits(1)
    2,574,978
    2,800,878
    1,306,051Depreciation and amortization
    2,275,160
    1,521,566
    319,863General expenses(1)
    1,038,857
    1,292,341
    1,012,340Professional fees
    624,941
    715,716
    812,115Management and consulting fees
    229,577
    611,861
    665,771Rent and facility
    costs(1)
    1,321,311
    782,174
    232,265$10,870,741
    $11,421,604
    $8,614,109
   (1) Certain prior period figures have been reclassified
to conform with the current period's presentation.




21.NON CURRENT ASSET
HELD FOR SALE   During the year ended December 31, 2016, the Company
reclassified $98,522 from prepaids and other current assets to property and equipment. During the year management determined that
the equipment would not be used to generate future cash flows and committed to a plan to dispose of the equipment by December 31,
2016.  Management used a market approach to determine the equipment's
fair value less cost of sell. Key assumptions included the cost of similar assets, the impact of customization and unique use.
The fair value less cost to sell was determined to be $35,000 which is greater than its value in use. The Company recorded an impairment
loss of $63,522 on the equipment and reclassified $35,000 from property and equipment to non current assets held for sale. The
equipment was sold for $35,000 in July 2016.












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POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)








22.BUSINESS ACQUISITIONS    DenseLight On May 11, 2016, the Company acquired all the issued and
outstanding shares of DenseLight, a designer, manufacturer and distributor of photonic sensing and optical light source products
for consideration of $10,500,000. The all stock purchase was accomplished with the issuance of 13,611,150 common share of the Company
at a price of $0.7714 per share. The Company also committed to issuing shares representing $1,000,000 to the sellers in the event
that DenseLight meets or exceeds a pre-determined revenue target during calendar 2016.  This acquisition provides the Company with direct and preferred
access to a fab infrastructure for future product development, access to product sales and channel distribution networks and a
broader product portfolio of photonic products, technology and know-how.  Upon closing the acquisition, the Company negotiated a
settlement agreement relating to obligations that were due to past or current employees of DenseLight. As part of the settlement
agreement, the Company issued 1,738,236 common shares at a price of $0.7714 per share for a total of $1,343,629. The Company also
paid $240,266 to current and past employees as part of the debt settlement. Accounts payable and accrued liabilities included $184,570
that was due to past and current employees have been settled.  The Company also settled a loan of $500,000 owing to EDB
Investments Pte. Ltd., an investor in DenseLight, with the issuance of 648,150 shares at a price of 0.771 per share.  Former management shareholders of DenseLight agreed not
to sell, transfer, pledge or otherwise dispose of 50% of their shares of the Company for periods up to twelve months, which have
since expired. All management shareholders will be able to sell their remaining 50% after 24 months from closing. Former non-management
shareholders of DenseLight are no longer restricted from selling their shares.  On acquisition, DenseLight held accounts receivable and
unbilled revenue in the amount of $198,898 which reflected their fair value. The Company does not expect that there will be any
contractual cash flows that may not be realized. The billed receivables at closing have been subsequently collected.  The acquisition has been accounted for using the acquisition
method of accounting. Acquisition related costs of $197,284 were expensed in the year and included in selling, marketing and administrative
expenses.  A final assessment of the fair value of identifiable assets
and liabilities acquired has been completed. The assessment of the purchase price allocation on the date of purchase has been determined
as follows:    Page 24
 POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)
   22.BUSINESS ACQUISITIONS
(Continued)     Fair value of consideration paidFair value of 13,611,150 shares issued
    $10,500,000Contingent consideration payable
    283,130Total consideration
    $10,783,130Recognised amounts of identifiable net assets:Cash
    $2,971Accounts receivables and unbilled revenue
    198,898Prepaid and other current assets
    293,386Inventory
    319,257Property and equipment
    8,635,650Customer relationships
    186,131Goodwill
    6,630,544Trade payables
    (2,979,546)Loans and advances
    (1,000,000)Deferred tax liability
    (1,504,161)Net assets acquired
    $10,783,130
   Loans and advances include $500,000 that was advanced to
DenseLight by the Company prior to its acquisition. This advance was used by DenseLight to cover the expenses required for the
development under the Development Services Agreement between DenseLight and the Company, based on the special pricing negotiated
between the parties.  The purchase and sale agreement provides for an additional
$1,000,000 worth of shares to be issued to the sellers should gross revenue from DenseLight exceed certain targets for 2016. The
fair value of this contingent consideration payable is determined by estimating the probability of the Company making that future
payment and then discounting it to present value using a discount rate of 9% being the estimated cost of debt for the Company.
At December 31, 2016, DenseLight did not exceed the established revenue targets for 2016. The Company has therefore adjusted the
fair value of contingent consideration to nil through earnings.  From the date of acquisition through December 31, 2016,
DenseLight contributed $1,861,747 to consolidated revenues and $3,182,562 to consolidated net loss. Had the acquisition occurred
on January 1, 2016, the Company estimates that DenseLight's contribution to consolidated revenue would have been $2,316,169 (unaudited)
and would have contributed net loss of $2,344,976 (unaudited). In determining these amounts, the Company assumed that the preliminary
fair value adjustments that arose on the acquisition date would have been the same had the acquisition occurred on January 1, 2016.  A deferred tax liability of $1,504,161 was created on the
date of purchase and related to the fair value adjustment of the assets acquired. The change in the fair value assets acquired
arising from amortization or the sale of assets resulted in a deferred tax recovery of $297,940 in 2017 and $200,596 in 2016. Deferred
tax liability at December 31, 2017 and 2016 was $1,005,627 and $1,303,567 respectively.  BB Photonics On June 22, 2016, the Company acquired all the issued and
outstanding shares of BB Photonics, a designer of integrated photonic solutions for the data communications market for consideration
of $1,550,000. The all stock purchase was accomplished with the issuance of 1,996,090 common share of the Company at a price of
$0.777 per share.    Page 25
 POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)
   22.BUSINESS ACQUISITIONS
(Continued)   The acquisition of BB Photonics provides the Company with
additional differentiated intellectual property and know-how for product development which will enable the Company to better service
its first identified commercialization market, the end-to-end data communications market, and augment its sensing roadmap.  The acquisition has been accounted for using the acquisition
method of accounting. Acquisition related costs of $59,930 were expensed in the year and included in selling, marketing and administrative
expenses.  A final assessment of the fair value of identifiable assets
and liabilities acquired has been completed. The assessment of the purchase price allocation on the date of purchase has been determined
as follows:  Fair value of consideration paidFair
    value of 1,996,090 shares issued
    $1,550,000Recognised amounts of identifiable
    net assets:Cash
    $15,820Property and equipment
    70,379Intangibles
    714,000Goodwill
    1,050,459Trade payables
    (7,918)Deferred
    tax liability
    (292,740)Net assets acquired
    $1,550,000
   From the date of acquisition through December 31, 2016,
BB Photonics contributed nil to consolidated revenues and $181,782 to consolidated net loss. Had the acquisition occurred on January
1, 2016, the Company estimates that BB Photonics' contribution to consolidated revenue would have been nil (unaudited) and it would
have contributed net loss of $272,793 (unaudited). In determining these amounts, the Company assumed that the preliminary fair
value adjustments that arose on the acquisition date would have been the same had the acquisition occurred on January 1, 2016.  A deferred tax liability of $292,740 was created on the
date of purchase and related to the fair value adjustment of the assets acquired. There was no amortization of related intangible
assets in 2017 or 2016, therefore there has been no amortization of the deferred tax liability.










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POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)






| | 
| | 

23.INCOME TAXES   The following table reconciles the expected income tax
recovery at the Canadian statutory income tax rate of 26.5% for 2017 (2015 - 26.5%, 2015 - 26.5%) to the amounts recognized in
operations.  For the Year Ended December 31,
    2017
    2016
    2015Net loss before taxes
    $13,095,737
    $13,431,941
    $12,070,170Expected current income tax recovery
    3,470,370
    3,559,000
    3,198,595Deferred tax recovery
    297,940
    207,257
    -3,768,310
    3,766,257
    3,198,595Changes from:Amounts not deductible for tax purposes
    (841,000)
    (1,079,000)
    (1,276,802)Other non-deductible items
    (463,000)
    -
    (2,700)Deductible share issuance costs
    94,000
    118,000
    56,000Fair value consideration
    -
    116,000
    -Impact of US statutory income tax rate change (1)
    (9,472,000)
    -
    -Foreign tax differential
    (69,000)
    507,213
    879,000Unrecognized tax recovered (losses)
    7,280,630
    (3,221,213)
    (2,854,093)Income tax recovery recognized
    $297,940
    $207,257
    $-
   (1) Due to the reduction of US corporate tax rates from 35% to 21%, the Company
will not be able to apply $9,472,000 against any future US taxes payable.  The following table reflects future income tax assets at December 31:  2017
    2016
    2015Resource assets
    $1,024,271
    $1,024,271
    $1,024,271Gross unamortized share issue costs
    705,351
    1,050,599
    328,119Canadian non-capital losses
    11,100,672
    10,137,652
    9,451,357US non-capital losses
    67,654,438
    63,725,982
    58,742,322Singapore non-capital losses
    43,671,200
    37,448,290
    -124,155,932
    113,386,794
    69,546,069Unrecognized deferred tax assets
    (124,155,932)
    (113,386,794)
    (69,546,069)Future income tax assets recognized
    $-
    $-
    $-
   In accordance with Section 382 of the Internal Revenue
Code, the usage of the Company’s net operating loss carry forward could be subject to annual limitation if there have been
greater than 50% ownership changes.










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POET TECHNOLOGIES INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars)




24.SUBSEQUENT EVENTS   On March 21, 2018, the Company completed a brokered
"bought deal" public offering of 25,090,700 units at a price of $0.425 (CAD$0.55) per unit for gross proceeds of $10,663,548
(CAD$13,799,885). Each unit consists of one common share 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 (CAD$0.75) per share until March 21, 2020. The broker
was paid a cash commission of $639,813 (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 $0.425 (CAD$0.55) per compensation option until March
21, 2020 with each compensation unit comprising one common share and one-half compensation share purchase warrant. Each compensation
share purchase warrant entitles the broker to purchase one common share of the Company at a price of $0.425 (CAD$0.55) per share
until March 21, 2020.  Subsequent to December 31, 2017 the Company also raised
$1,131,921 from the exercise of warrants and stock options.
























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