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, 2016



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 Applicable.



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 shorter period that the registrant was required to submit and post
such files). Not Applicable.

☐ Yes ☐ No





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 the definitions
of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.



|Large
    Accelerated Filer o |  | Accelerated Filer ☒      
|----------------------------- |  | -------------------------
|Non-Accelerated Filer o       |  | Emerging Growth Company ☒



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. ☒



†  The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.





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                        | 2   
|ITEM 2.      | Offer Statistics and Expected Timetable                                      | 2   
|ITEM 3.      | Key Information                                                              | 2   
|ITEM 4.      | Information on the Company                                                   | 16  
|ITEM 4A.     | Unresolved Staff Comments                                                    | 22  
|ITEM 5.      | Operating and Financial Review and Prospects                                 | 22  
|ITEM 6.      | Directors, Senior Management, and Employees                                  | 31  
|ITEM 7.      | Major Shareholders and Related Party Transactions                            | 43  
|ITEM 8.      | Financial Information                                                        | 44  
|ITEM 9.      | The Offer and Listing                                                        | 45  
|ITEM 10.     | Additional Information                                                       | 46  
|ITEM 11.     | Quantitative and Qualitative Disclosures About Market Risk                   | 56  
|ITEM 12.     | Description of Securities Other Than Equity Securities                       | 57  
|             |                                                                              |     
|PART II     
|ITEM 13.     | Defaults, Dividend Arrearages and Delinquencies                              | 57  
|ITEM 14.     | Material Modifications to the Rights of Security Holders and Use of Proceeds | 57  
|ITEM 15.     | Controls and Procedures                                                      | 58  
|ITEM 16.     | Reserved                                                                     | 58  
|ITEM 16A.    | Audit Committee Financial Expert                                             | 58  
|ITEM 16B.    | Code Of Ethics                                                               | 58  
|ITEM 16C.    | Principal Accounting Fees and Services                                       | 58  
|ITEM 16D.    | Exemptions from the Listing Standards for Audit Committees                   | 59  
|ITEM 16E.    | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       | 59  
|ITEM 16F.    | Changes in Registrant’s Certifying Accountants                               | 59  
|ITEM 16G.    | Corporate Governance                                                         | 59  
|ITEM 16H.    | Mine Safety Disclosure                                                       | 59  
|             |                                                                              |     
|PART III    
|ITEM 17.     | Financial Statements                                                         | 59  
|ITEM 18.     | Financial Statements                                                         | 59  
|ITEM 19.     | Exhibits                                                                     | 59  












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 principal operations 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.



Business of POET Technologies
Inc.



POET and its subsidiaries are developers of opto-electronic and photonic fabrication
processes, devices and products. The company's vision is to enable the integration of photonics and electronics through both monolithic
and hybrid approaches to design and packaging.  Integration is fundamental to increasing functional scaling and lowering the
cost of current photonic solutions that drive applications in data communications, consumer products and industrial sensing. 
Leveraging both Gallium Arsenide (GaAs) and Indium Phosphide (InP) technology platforms, POET believes that its advanced processes
for active photonic devices and innovative passive components provide a unique and differentiated combination that will enable
substantial improvements in component cost, size and performance over current photonic solutions.



During the year ended December 31, 2016, the Company generated revenues
of $1,861,747 and gross profit of $481,909. The Company currently operates at a loss. The loss for 2016 was $13,224,684. 100% of
the Company’s revenue was generated over a seven and half month period by its subsidiary DenseLight Semiconductor Pte. Ltd.
(“DenseLight”), which it acquired on May 11, 2016.



During 2016, the Company spent $2,519,820 on research and
development activities directly related to the development and commercialization of the POET process or the development of
photonic sensing products. $6,041,942 was spent on selling, marketing and administration expenses which included costs
relating to the acquisition of two companies, ancillary costs related to a $9,349,254 public offering and costs associated
with being a publicly traded company. The Company had non-cash operating costs of $5,591,830, which included depreciation,
and amortization of $1,521,566 and the fair value of stock-based compensation of $4,070,264. Other items included in the 2016
loss were: $63,522 of impairment loss, $46,738 loss on the disposition of property and equipment, $66,872 of interest and
government grant income and $283,130 of recovered contingent consideration related to the acquisition of DenseLight. The
Company also had deferred income tax recovery of $207,257.



We have yet to commercialize the POET technology. To date, proceeds from
the issuance of its common shares have financed the Company’s continuing operations and research and development initiatives.



As of December 31, 2016, we had over $17.1 million in current assets
and approximately $1.6 million of accounts payable and accrued liabilities. We are confident that the current level of working
capital is sufficient to support the Company beyond 2017 as we work toward the goal of monetizing the POET process 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$” or “$”).



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:





|• | we have a limited operating history;                                                                     
|- | ---------------------------------------------------------------------------------------------------------
|• | our need for additional financing, which may not be available on acceptable terms or at all;             
|• | the possibility that we will not be able to compete in the highly competitive semiconductor market;      
|• | the risk that our
objectives will not be met within the time lines we expect or at all;                  
|• | research and development risks;                                                                          
|• | the risks associated with successfully protecting patents and trademarks and other intellectual property;
|• | the need to control costs and the possibility of unanticipated expenses;                                 







1








|• | manufacturing and development risks;                                                                               
|- | -------------------------------------------------------------------------------------------------------------------
|• | the risk that the price of our common stock will be volatile; and                                                  
|• | the risk that shareholders’ interests will be diluted through future stock offerings, option and warrant exercises.





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. Although the Company believes the foregoing data is reliable,
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 Applicable.



ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE



Not Applicable.



ITEM 3. KEY INFORMATION



A. Selected Financial Data



The selected financial data of the Company for the years ended December
31, 2016, 2015 and 2014 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, 2013 and 2012 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 2016,
2015 and 2014 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 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 its equity securities to provide funds for its activities. We believe the Company is well capitalized, nevertheless
the Company may affect 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.





2






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



Consolidated Statements
of Operations 
Under International Financial Reporting Standards

(US$)





|                                                |  | 2016 |              | 2015 |  | 2014 |             | 2013 |  | 2012
|----------------------------------------------- |  | ---- | ------------ | ---- |  | ---- | ----------- | ---- |  | ----
|Revenue                                         |  | $    | 1,861,747    |      |  | $    | -           |      |  | $   
|Cost of sales                                   |  |      | 1,379,838    |      |  |      | -           |      |  |     
|Gross margin                                    |  |      | 481,909      |      |  |      | -           |      |  |     
|Operating Expenses                              |  |      |              |      |  |      |             |      |  |     
|Selling, marketing and administration           |  |      | 11,260,576   |      |  |      | 8,614,109   |      |  |     
|Research and development                        |  |      | 2,893,016    |      |  |      | 3,532,492   |      |  |     
|Impairment loss                                 |  |      | 63,522       |      |  |      | -           |      |  |     
|Loss on disposal of property and equipment      |  |      | 46,738       |      |  |      | -           |      |  |     
|Other income, including interest                |  |      | (66,872      | )    |  |      | (76,431     | )    |  |     
|Operating expenses                              |  |      | 14,196,980   |      |  |      | 12,070,170  |      |  |     
|                                                |  |      |              |      |  |      |             |      |  |     
|Net loss from operations                        |  |      | (13,715,071  | )    |  |      | (12,070,170 | )    |  |     
|Change in fair value contingent consideration   |  |      | (283,130     | )    |  |      | -           |      |  |     
|Net loss before income tax recovery             |  |      | (13,431,941  | )    |  |      | (12,070,170 | )    |  |     
|Income tax recovery                             |  |      | (207,257     | )    |  |      | -           |      |  |     
|Net loss for the year                           |  |      |              |      |  |      |             |      |  |     
|Loss from continuing operations                 |  |      | (13,224,684  | )    |  |      | (12,070,170 | )    |  |     
|Loss from discontinued operations, net of taxes |  |      | -            |      |  |      | -           |      |  |     
|Net loss                                        |  |      | (13,224,684  | )    |  |      | (12,070,170 | )    |  |     
|Deficit, beginning of year                      |  |      | (90,850,672  | )    |  |      | (78,780,502 | )    |  |     
|Divestiture of non-controlling interest         |  |      | -            |      |  |      | -           |      |  |     
|Deficit, end of year                            |  | $    | (104,075,356 | )    |  | $    | (90,850,672 | )    |  | $   
|Basic and diluted loss per share:               |  | $    | (0.06        | )    |  | $    | (0.07       | )    |  | $   
|Continuing operations                           |  | $    | (0.06        | )    |  | $    | (0.07       | )    |  | $   
|Discontinued operations                         |  | $    | -            |      |  | $    | -           |      |  | $   





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





|                                                         |  | Years Ended December 31, |   |      |  |     
|-------------------------------------------------------- |  | ------------------------ | - | ---- |  | ----
|                                                         |  | 2016                     |   | 2015 |  | 2014
|Revenue                                                  |  | $                        | — |      |  | $   
|Costs and Expenses                                       |  |                          |   |      |  |     
|Cost of Goods Sold                                       |  |                          | — |      |  |     
|General and Administration                               |  |                          | — |      |  |     
|Research and Development                                 |  |                          | — |      |  |     
|Investment Income, including interest                    |  |                          | — |      |  |     
|Total Expenses                                           |  |                          | — |      |  |     
|                                                         |  |                          |   |      |  |     
|Net Operating Income (Loss) from Discontinued Operations |  |                          | — |      |  |     
|Loss on Divestiture of Subsidiaries                      |  |                          | — |      |  |     
|Net Income (Loss) from Discontinued Operations           |  |                          | — |      |  |     
|Attributable to non-controlling interest                 |  |                          | — |      |  |     
|Attributable to equity shareholders                      |  | $                        | — |      |  | $   







3






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



|                                              |  | December 31, |              |      |  |     
|--------------------------------------------- |  | ------------ | ------------ | ---- |  | ----
|Assets                                        |  | 2016         |              | 2015 |  | 2014
|Cash                                          |  | $            | 14,376,282   |      |  | $   
|Short-term investments                        |  |              | 589,275      |      |  |     
|Accounts and Other Receivable                 |  |              | 292,849      |      |  |     
|Prepaids and Other Current Assets             |  |              | 758,917      |      |  |     
|Inventory                                     |  |              | 1,116,880    |      |  |     
|Marketable  Securities                        |  |              | —            |      |  |     
|Assets Available for Sale                     |  |              | —            |      |  |     
|Property and Equipment                        |  |              | 9,364,210    |      |  |     
|Patents and Licenses                          |  |              | 449,676      |      |  |     
|Intangible assets                             |  |              | 876,865      |      |  |     
|Goodwill                                      |  |              | 7,681,003    |      |  |     
|Total Assets                                  |  | $            | 35,505,957   |      |  | $   
|Liabilities                                   |  |              |              |      |  |     
|Accounts Payable and Accrued Liabilities      |  | $            | 1,624,344    |      |  | $   
|Product Warranty                              |  |              | —            |      |  |     
|Disposal Group Liabilities                    |  |              | —            |      |  |     
|Deferred tax liability                        |  |              | 1,596,307    |      |  |     
|Deferred rent                                 |  |              | 42,665       |      |  |     
|Total Liabilities                             |  |              | 3,263,316    |      |  |     
|Shareholders’ Equity                          |  |              |              |      |  |     
|Share Capital                                 |  |              | 103,357,862  |      |  |     
|Special Voting Share                          |  |              | —            |      |  |     
|Warrants                                      |  |              | 5,985,378    |      |  |     
|Contributed Surplus                           |  |              | 29,062,874   |      |  |     
|Accumulated Other Comprehensive Income (loss) |  |              | (2,088,117   | )    |  |     
|Deficit                                       |  |              | (104,075,356 | )    |  |     
|Total Shareholders’ Equity                    |  |              | 32,242,641   |      |  |     
|Total Liabilities and Shareholders’ Equity    |  | $            | 35,505,957   |      |  | $   



B.Capitalization and Indebtedness



Not Applicable.



C.    Reasons for the Offer
and Use of Proceeds



Not Applicable.





4






D. Risk Factors



In addition to the other information presented in this Annual Report,
the following should be considered carefully in evaluating the Company and its business. This Annual Report contains 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 below and elsewhere in this Annual Report.



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.



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.





5






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. While we have not experienced material failures in the past, 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.





6






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



The initial target market for our GaAs-based
photonic engine is the Active Optical Cable (AOC) 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 AOC 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 GaAs and InP 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.



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.
| | - | -------------------------------------------------------------





7






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.



Our prior acquisitions created a large amount of goodwill,
which may have to 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.





8






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, which would adversely affect our financial condition.



Our predecessor company Opel Solar, 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 would have to borrow large sums 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 sustain 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, 2016, we had an accumulated deficit of $104,075,356.
For the years ended December 31, 2016 and December 31, 2015, we incurred losses from operations before income taxes of $13,431,941
and $12,070,170, respectively.



As of December 31, 2016, we held $14,965,557 in
cash and short-term investments, and we had working capital of $15,509,859.



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.





9






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 U.S. 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 in 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 other foreign countries may limit our ability to protect the intellectual property rights that
these applications and registrations intended to cover.



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.





10






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. While we have a
policy in place that is designed to reduce the risk of infringement of intellectual property rights of others, there can be no
assurance that third parties will not assert infringement claims against us. 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.



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 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, 2016, we had accumulated
net operating losses, or NOLs, of approximately $110 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 by value over a 3-year period. 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.





11






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.



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. Foreign 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.





12






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 U.S. Securities Exchange Commission (“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:





| | • | fluctuations in our operating results;                                                                                                                                                                                    
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | announcements 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;
| | • | innovations by us or our competitors;                                                                                                                                                                                     
| | • | governmental regulation;                                                                                                                                                                                                  
| | • | developments in patent or other proprietary rights;                                                                                                                                                                       
| | • | the results of technology and product development testing by us, our partners or our competitors;                                                                                                                         
| | • | litigation;                                                                                                                                                                                                               
| | • | general stock market and economic conditions;                                                                                                                                                                             
| | • | number of shares available for trading (float); and                                                                                                                                                                       
| | • | inclusion in or dropping from stock indexes.                                                                                                                                                                              





As of March 29, 2017, our 52-week high and low closing market price
for our common stock on the TSXV was CA$1.44 and CA$0.27 (US$1.14 and US$0.20), respectively, based on the closing exchange rates
on the respective dates.



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 March
29, 2017, there were outstanding options to purchase up to 12,976,499 shares of our common stock that are currently exercisable
and additional outstanding options to purchase up to 14,454,001 shares of common stock that are exercisable over the next several
years. As of March 29, 2017, there were outstanding warrants to purchase 34,800,000 shares of our stock. The holders of these options
and warrants 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 and warrants 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$1.04 and the
weighted average exercise price of warrants is CAD$0.52, which compares to the CAD$0.34 market price at closing on March 29, 2017.



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 March 29, 2017, there were 27,430,500 share purchase options outstanding with a weighted average
exercise price of CAD$1.04 and 34,800,000 share purchase warrants outstanding with a weighted average exercise price of CAD$0.52.
If all of these securities were exercised, an additional 62,230,500 common shares would become issued and outstanding. This represents
an increase of 23.99% in the number of shares issued and outstanding and would result in significant dilution to current shareholders.





13






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 registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price
and volume information with respect to transactions in such securities is provided by the exchange or system).



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.



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





14






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.



There is no limitation imposed by our Articles or other charter documents
on the right of a non-resident to hold or vote our common shares. However, the Investment Canada Act (the “Investment Act”),
as amended by the World Trade Organization Agreement Implementation Act (the “WTOA Act”), generally prohibits implementation
of a 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, unless, after review, the minister responsible for the Investment
Act is satisfied that the investment is likely to be a net benefit to Canada. An investment in our common shares by a non- Canadian
would be reviewable under the Investment Act if it were an investment to acquire direct control of the Company, and the value of
our assets were CA$5.0 million or more. However, an investment in our shares by a national of a country (other than Canada) that
is a member of the World Trade Organization or has a right of permanent residence in such a country (or by a corporation or other
entity that is a “WTO Investor-controlled entity” pursuant to detailed rules set out in the Investment Act) would be
reviewable at a higher threshold of CA$379 million in assets, except for certain economic sectors with respect to which the lower
threshold would apply. A non-Canadian, whether a national of a WTO member or otherwise, would acquire control of the Company for
purposes of the Investment Act if he or she acquired a majority of our common shares. The acquisition of less than a majority,
but at least one-third of our common shares, would also be presumed to be an acquisition of control of the Company, unless it could
be established that the Company was not controlled in fact by the acquirer through the ownership of voting shares. The United States
is a WTO Member for purposes of the Investment Act. Certain transactions involving our common shares would be exempt from the Investment
Act, including:





| | • | 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;                                                                                                                                                                                                                                                                                                
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | 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                                                                                                                                                                                                              
| | • | 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.



We have adopted a Shareholders Rights
Plan, which may discourage takeover offers, and limit the price investors may be willing to pay for our stock.



In 2014 our Board of Directors adopted and our shareholders ratified
a Shareholder Rights Plan, the effect of which would cause substantial dilution to acquirers of more than 20% of our outstanding
Common Shares, which could have the effect of delaying, deferring or preventing a change in control of our Company even if a change
in control would be beneficial to our shareholders. These provisions could limit the price that certain investors might be willing
to pay in the future for shares of our Common Stock.



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.





15






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:







Opel 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 2016 (1) |  | $                    | 10,985,852 |        
|Fiscal 2015     |  | $                    | 374,200    |        
|Fiscal 2014     |  | $                    | 527,068    |        



| | (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 both monolithic and hybrid approaches to device design
and packaging. The favorable economics of integration have been well established in silicon-based electronics, as demonstrated
by Very Large Scale Integrated (VLSI) circuits. Through integration, we believe that the Company can capture a meaningful portion
of the market for photonics devices that address the need for increased bandwidth, speed and sensitivity across a range of high
growth data communications and photonic sensing applications. We believe that the integration of discrete functions onto fewer
devices or ultimately onto a single chip 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.



Over the past few years, our Company has been focused on monolithic integration,
based on our proprietary POET gallium arsenide-based (GaAs) platform. POET has developed a design for a single, monolithic semiconductor
chip (our “photonic engine” technology) that has all of the elements needed to communicate data at the speed of light,
yet with the lower cost profile of copper. We believe we are the only company that has demonstrated the capability to cost effectively
integrate multiple electronic and optical functions on a single chip. The POET photonic engine, as designed, 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).





16






A single chip solution is not only the lowest cost approach to photonic
integration, it has the added benefits of lower power consumption and smaller size – all by a factor of 2X to 10X compared
to conventional solutions. The added benefits of lower power and smaller size could open up entirely new markets for photonic applications,
including in mobile devices and ultimately on-board chip-to-chip data transfer (“inside the box”). By integrating multiple
device functions, we believe we can capture the combined value associated with discrete devices, such as lasers, detectors and
multiplexers, disrupting the market for conventional solutions and creating new and expanded applications for our photonic engine
technology.



We expect that the first application of the POET photonic engine technology
will be in the data center market, initially in the form of Active Optical Cables (AOCs), a market that is today largely served
by Direct Attach Copper (DAC) cables. This “ultra short reach” segment of the data communications market covers distances
of less than five meters at datacom speeds of 25 to 100 Gigabits per second (Gbs). By providing a monolithically integrated solution,
we believe we can disrupt the market for copper-based short reach datacom, with a simple, low cost, scalable device that consumes
vastly lower power. According to LightCounting, the current market size for GaAs-based AOCs is $339 million, growing to
$779 million by 2021. The expected growth is the result of major cloud-based data center operators committing to AOCs because of
the higher cost associated with the power consumption of copper-based cables. “The application of GaAs VCSEL technology in
Active Optical Cables (AOCs) and Embedded Optical Modules (EOMs) is the fastest growing market opportunity. Low cost and power
consumption of VCSELs make AOCs and EOMs products competitive with copper connectivity.”1



In addition to monolithic integration, we are developing solutions based
on a novel “hybrid” integration approach, which combines Indium Phosphide (InP)-based photonics chips and dielectric
waveguide devices on a silicon base into a single package. This approach enables the replacement of high-cost optical components,
such as mirrors and lenses, with embedded dielectric devices, dramatically lowering the cost of potential solutions aimed at the
“medium-reach” segment of the data communications market (i.e., 500m–10 kilometers). 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.



Historically, DenseLight has manufactured and sold a range of InP-based
devices, primarily superluminescent light emitting diodes (SLEDs) for use in optical networks and sensing platforms. These devices
span a variety of form factors, including chips, modules and high-value, programmable subsystems. Recently, we announced the expected
availability in 2017 of narrow linewidth lasers for test and measurement applications, including LIDAR, as well as a newly designed
gain chip, based on a proprietary design from BB Photonics. POET is applying the intellectual property acquired from BB Photonics
to its DenseLight product portfolio in several novel ways to lower overall module cost by eliminating hermetic packaging, which
is a complex process that requires active alignment and the use of lenses and metallized fibers. By incorporating BB Photonics
designs for waveguide multiplexers and filters, the packaging costs of our DenseLight modules can be reduced by up to 90% from
current levels. This combination of DenseLight and BB Photonics under the POET umbrella offers an unprecedented opportunity for
the Company to address the market for sensing products with novel low-cost solutions. In addition, we believe it will allow POET
to pursue the large and growing market for 100G and potentially 400G transceiver products, with both integrated transceivers as
well as active and passive components.



InP-based transceivers currently represent a $4.5 billion market, according
to LightCounting, growing to over $7 billion, largely as a result of the proliferation of hybrid integration aimed at reducing
the cost of the optical components.2 The majority of today’s disaggregated
suppliers shipping 100G transceivers in a 4x25G format have 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 develop
Dielectric-InP Photonics, by embedding athermal dielectric waveguides in the InP epitaxial stack and combining with discrete electronics,
integrated lasers and PIN diodes. This example of “hybrid” integration involves the placement of both monolithically
integrated and discrete devices onto a silicon optical bench, requiring no active alignment. We believe this solution will be cost
competitive with silicon photonics in the <2km data center market, and it should ultimately be scalable to 10km, as well as
support 200G and 400G datacom speeds.



In addition to building transceivers engines, we believe the Company has
the opportunity to sell individual components to other suppliers of optical transceivers, including receiver optical sub-assemblies
(ROSA), modulators, multiplexers, demultiplexers and single-chip local area network (LAN) wavelength division multiplexing (WDM)
lasers.



As we continue in the product development phase for both monolithic and
hybrid solutions, we are focusing our efforts on meeting specifications for targeted photonic products, starting with active optical
cables and 100G transceiver components for the data communications market. Device developments in these areas can also be applied
to lower the cost and increase performance of next generation optical sensing products. Product development activities are iterative,
and include the optimization of designs, testing the manufacturability and reliability of prototypes, and successfully demonstrating
the required scalability and cost parameters. We continue to expect that the product development phase for the POET technology,
and for the integration of the BB Photonics technology into the DenseLight product line, will comprise a majority of the 2017 calendar
year. As such, we currently expect initial commercial revenues for our new sensing products in 2017, followed by early commercial
revenues for our monolithic photonic engine solutions in late 2018.



We have 58 issued patents and patents pending related to the semiconductor
Planar Opto-Electronic Technology (“POET”), including 26 related to device structures, 14 to the underlying technology,
11 related to application and 7 to process. We believe these patents provide a significant barrier to entry against competition,
along with trade secrets and know-how acquired from DenseLight and BB Photonics, and we will continue to apply for additional patents
in the future. Currently, we are working on the design of compound semiconductor devices, processes, and products for data communication
applications in the consumer, data center and high performance computing segments. The POET platform, along with technology acquired
from BB Photonics should enable applications in adjacent markets over the long term, including industrial and consumer products.



_________________________________

1 LightCounting Integrated
Optical Devices, January 2016

2 LightCounting Integrated
Optical Devices, January 2016



17






The Company is driving development and growth around three verticals -
data communications, sensing and displays. Since May 11, 2016, the Company has earned $1,861,747 of revenues in the sensing market
through our subsidiary DenseLight. The Company had no revenues in 2015 and 2014. The Company has not yet earned revenues in the
data communications or displays market. The Company is not dependent on any single customer or contract for its revenues. In 2016,
approximately 70% of its revenues came from its top ten customers. In protecting its intellectual property, the Company has ensured
that no supplier of services has access to all technical know-how and certain sensitive elements of the production process are
maintained in-house.



The Company is not dependent on unique or scarce raw materials. Prices
of raw materials are stable and subject to normal inflationary pressures. The Company’s revenues and technological development
are not significantly exposed to delivery issues resulting from a lack of raw materials. The Company expects that it can have better
pricing on its raw materials as it increases its sales volumes.





Research and Development Activities



Prior to and since our acquisitions of DenseLight and BB Photonics, we
have been focused on a new process for making devices using gallium arsenide (GaAs) as the substrate for wafers instead of silicon.
GaAs has a number of advantages over silicon, including faster speeds and lower energy consumption. More specific to POET, the
primary appeal of gallium arsenide is that it’s the most suitable substrate for integrating electronics and optics onto a
single chip, especially for short reach applications. Optical connections are much faster and more efficient than copper for transferring
data within and to/from a chip. The POET photonic engine 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 addition to the GaAs-based monolithic integration
of the POET optical engine, we are 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.









18






Industry Outlook



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 8% to 12% CAGR through
2021, reaching an estimated $54 billion.3 This market includes Photonic Sensing,
which consists of devices for test and measurement, navigation, LIDAR systems, and data communications – across both telecom
applications and optical communications, especially within data centers.



The Photonics Sensing market4
represents a Total Available Market (“TAM”) of approximately $23 billion 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-ox devices, and ophthalmic examination. We plan to address these high growth markets with a combination
of current and expected new products from our DenseLight subsidiary.



The growth of 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% CAGR5.
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 2 kilometers have already been transitioned from inherently
lower speed copper cable to optical fibers. However, 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. We believe that POET
is well positioned to address the high-volume short reach market within data centers, by changing the current economics and performance
of active optical cable (AOC) with our integrated photonic engine technology.



Photonic transceivers will represent a $36 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).6





______________________



| | 3. | MarketsandMarkets, “Photonics Market by Application – Global Forecasts to 2012,September
    2016.
| | -- | --------------------------------------------------------------------------------------------------



| | 4. | Global Market Insights, “Optical Sensors Market Size, by Product, Forecast 2016 –
    2024, August 2016.
| | -- | --------------------------------------------------------------------------------------------------------



| | 5  | Cisco Global Cloud Index, 2014-2019; LightCounting
        market Research “High-Speed Datacenter Optical Interconnects”, June 2015.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------
| | 6. | Oculi, llc Estimates for 2025 commissioned by
        POET Technologies, Inc., March 2017                                           







19












Our Products

The GaAs-based POET optical engine may provide the following advantages to
the industry:

| | · | Up to
                                         10X power savings improvement over existing copper technologies (especially for
                                         high speed data communication links)
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Up to
                                         5X cost improvement over existing optical component solutions
| | - | ------------------------------------------------------------------------------------------------------------

| | · | Performance
                                         and power of optical solutions at price points competitive to that of copper, thus potentially
                                         accelerating the adoption of optical communications solutions
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Flexible
                                         and integrated solution that can be applied to virtually any technical application
                                         that commands an optical IO for high bandwidth, including chip-to-chip communications,
                                         on-board optics and on-chip optical communications
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our InP-based solutions, based on DenseLight and BB Photonics
technologies, 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
| | - | --------------------------------------------------------------------------------------------------

| | · | 100Gbs
                                         ROSA (Receiver Optical Sub-Assemblies) and TOSA (Transmitter Optical Sub-Assemblies)
                                         for 100G Transceivers
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | · | CWDM (Coarse
                                         Wavelength Division Multiplexing) Laser Arrays
| | - | ----------------------------------------------------------------------------------------------------



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.
| | - | -------------------------



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





20






Our Strategy



Our vision is to become a global leader in photonics by deploying both monolithic
and hybrid approaches to the integration of photonics devices into a wide variety of vertical market applications. Our strategy
includes the following key elements:





| | • | Continue our transition from an R&D company to a commercial enterprise based on products and solutions.We will continue to leverage DenseLight’s existing manufacturing and sales capabilities in order to introduce new sensing and datacom products, as well as our integrated POET optical engine once it is fully productized.  In addition, we intend to grow revenue from the product families offered by our DenseLight subsidiary, largely through the introduction of new discrete and integrated products based on innovations we have developed internally and acquired from BB Photonics.                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | • | Continue technology development cycles for the POET optical engine and initiate product development cycles for our hybrid integrated products from DenseLight.  We are fully committed to continuing technology development cycles for the POET optical engine and have made continuous progress in the past six months. We have also made progress in designing novel products at DenseLight using the BB Photonics technology. Product development is an iterative process, involving optimization of designs, testing the manufacturability and reliability of prototypes, and demonstrating required scalability and cost parameters.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | • | 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 100G transceiver engine represent a uniquely attractive opportunity for collaborative development with strategic partners.                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | • | 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 funded 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 2014 and 2015. Sales
and geographic markets for 2016 were as follows:



|Asia – Pacific        |  | $ | 1,066,429 | 
|--------------------- |  | - | --------- | 
|Europe                |  | $ | 657,105   | 
|North & South America |  | $ | 138,213   | 
|                      |  | $ | 1,861,747 | 





| | 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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





21






| | 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 Applicable.



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 for the years ended December 31, 2016, 2015 and 2014 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.”



| | A. | Operating Results
| | -- | -----------------



Factors Affecting Our Results of Operations



Prior to May 11, 2016, the Company was solely a
research and development company. On May 11, 2016, the Company acquired all the issued and outstanding shares of DenseLight, a
Singapore company that designs, manufactures and sells optical light source products. Revenues since May 11, 2016 were $1,861,747.
Adjusted gross margin was 30% or $566,563, compared to actual gross margin of 26%. The Company reported a loss before taxes of
$13,431,941. While the Company is generating 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. Depreciation and amortization, also non-cash had a significant impact on the Company’s
operations in 2016. The increased value of the assets acquired in the acquisition of DenseLight is being amortized over five years,
which resulted in $1,093,037 of depreciation.



While government regulations did not impact the
Company’s revenues in 2016, import/export rules in the United States negatively impacted the progress of the Company’s
R&D program. The Company was unable to import test wafers from its supplier, Wavetek, due to import restrictions. This resulted
in unexpected delays and increased professional fees incurred to settle the issue that was resolved in the latter part of 2016.



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. 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.





22






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, 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.



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. As a result, the Company
reported an impairment loss of $63,522 for the year ended December 31, 2016. The Company did not record an impairment loss in
2015 and 2014.



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.





23






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.



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 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 2016 was $14,027 (2015 - nil and 2014 - $169,832). 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.



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.



Short-term investments

The short-term investments of $589,275 consist of guaranteed investment
certificates (GICs) held with one Canadian chartered bank and earn interest at a rate of 0.50%. The GICs have maturity dates between
May 2017 and October 2017. Investments are carried at fair value.



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.





24






Selected Annual Data



The selected financial data of the Company for the years ended December
31, 2016, 2015 and 2014 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 2016,
2015 and 2014 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,
|--------------------------------------------- |  | ------------------------
|                                              |  | 2016                    
|Revenue                                       |  | $                       
|Cost of sales                                 |  |                         
|Gross margin                                  |  |                         
|Operating Expenses                            |  |                         
|Selling, marketing and administration         |  |                         
|Research and development                      |  |                         
|Impairment loss                               |  |                         
|Loss on disposal of property and equipment    |  |                         
|Other income, including interest              |  |                         
|Operating expenses                            |  |                         
|                                              |  |                         
|Net loss from operations                      |  |                         
|Change in fair value contingent consideration |  |                         
|Net loss before income tax recovery           |  |                         
|Income tax recovery                           |  |                         
|Net loss for the year                         |  |                         
|Deficit, beginning of year                    |  |                         
|Deficit, end of year                          |  | $                       
|Basic and diluted loss per share:             |  | $                       





25






The selected annual information for 2016, 2015 and 2014 can be further analyzed as follows:



|                                                              |  | 2016 |            | 2015 |  | 2014
|------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ----
|Research and development expenses can be analyzed as follows: |  |      |            |      |  |     
|Wages and benefits                                            |  | $    | 1,299,758  |      |  | $   
|Subcontract fees                                              |  |      | 1,013,539  |      |  |     
|Stock-based  compensation                                     |  |      | 373,196    |      |  |     
|Supplies                                                      |  |      | 206,523    |      |  |     
|                                                              |  | $    | 2,893,016  |      |  | $   
|General and administrative costs can be analyzed as follows:  |  |      |            |      |  |     
|Stock-based  compensation                                     |  | $    | 3,697,068  |      |  | $   
|General expenses                                              |  |      | 1,292,341  |      |  |     
|Professional fees                                             |  |      | 715,716    |      |  |     
|Wages and benefits                                            |  |      | 3,073,687  |      |  |     
|Management and consulting fees                                |  |      | 611,861    |      |  |     
|Rent                                                          |  |      | 348,337    |      |  |     
|Depreciation and amortization                                 |  |      | 1,521,566  |      |  |     
|Shares issued as reduction of license fee                     |  |      | -          |      |  |     
|                                                              |  | $    | 11,260,576 |      |  | $   



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



The loss before taxes for the year ended December 31, 2016 increased
from $12,070,170 for the year ended December 31, 2015 to $13,431,941, 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 26%. 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 30%. Adjusted gross margin normalizes gross margin by reversing
the impact of the fair value inventory adjustment.



Research and Development

For the purposes of this analysis non-cash stock-based compensation
of $373,196 (2015- $552,416) has been excluded from the analysis of R&D and is included with the analysis of non-cash stock-based
compensation below.



R&D expense during 2016 decreased by $460,256 or 15% from 2015.
R&D expense was $2,980,076 in 2015 and $2,519,820 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 of $460,256 in 2016.



Wages and Benefits

Wages and benefits had the most significant increase from the 2015 to
2016. The expense increased by $1,767,636 or 135% from $1,306,051 in 2015 to $3,073,687 in 2016. The drivers behind this increase
were; inclusion of wages and benefits of DenseLight from May 12, 2016 to December 31, 2016 of $1,073,730 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 $396,073 or 32% from $1,244,605
in 2015 to $1,640,678 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 $695,692 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.



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.





26






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 |     





Year Ended December 31, 2015 compared
to Year Ended December 31, 2014



Costs and Expenses



During the year ended December 31, 2015, the Company recorded a loss
of $12,070,170 compared to a loss of $11,785,800 for the year ended December 31, 2014. Changes in major expense categories are
discussed below:



SBIR Grant Income



The Company had $169,832 in SBIR grant income for the year ended December
31, 2014. During 2014 the Company decided to eliminate its use of SBIR grants in order to focus all of its resources on developing
and monetizing the POET technology. The Company had no SBIR grant income for the year ended December 31, 2015.



Research and Development (“R&D”).



Non-cash stock-based compensation of $552,416 (2014 - $641,176) has
been excluded from the analysis of R&D and is included with the analysis of non-cash stock-based compensation below.



During the year ended December 31, 2015, $2,980,076 was spent on R&D,
of this amount, $1,560,819 was spent on subcontract services as compared to $582,943 in fiscal 2014. The subcontract fees related
to work done with the Company’s VCSEL technology, epitaxy substrates and technical design kits. This development process
required the use of third party consultants to both test and prove the concepts. During the year ended December 31, 2015, the Company
expanded on its development roadmap, which included additional proof of concept tests conducted by the Company’s then primary
R&D consultant, Anadigics, Inc. The Company also engaged other R&D services providers such as Epiworks Inc., Intelligent
Epitaxy Technology and Wavetek to expand the technology development. The Company has transitioned to an outsourcing model to expedite
the development process.



Additionally, in early 2015, the Company had expanded the capacity of
the work being undertaken by BAE but stopped this activity in the second half of 2015 with a transition to Anadigics. BAE was the
Company’s primary subcontractor in 2014; most of the subcontract fees for that year were spent on services provided by BAE.



R&D wages during the year ended December 31, 2015 increased by 38%
or $341,296 over 2014. The increase in wages relate to the addition of a CTO and Program Manager along with additional over-time
hours. These new employees were not with the Company in 2014. In addition, improper installation of equipment which was purchased
in 2014 contributed to the team working significant over time hours to identify the cause of poor test results generated by this
piece of equipment. The issues relating to the faulty installation were rectified in the first quarter of 2015. The increase is
consistent with the Company’s 2015 budget.





27






Management and Consulting Fees



Management and consulting fees increased for the year ended December
31, 2015 by $70,104 over 2014. The increase was mainly due to the compensation of the Executive Co- Chairman who joined the Company
in July 2014. The Company had some reduction in consulting fees due to discontinuing services that the Company felt were not adding
material value.



General expenses and rent



General expenses increased by $349,668 for the year ended December 31,
2015 over 2014. The increase is primarily due to increased investor relations, travel and promotion, which collectively increased
by $255,000. The Company implemented a promotion program for POET that included advertisements on Bloomberg TV and the Fox News
Network. The Company also had its annual general meeting in Silicon Valley, which resulted in increased logistics costs. Multiple
Asian trips in securing new opportunities with potential service providers and partners increased the travel costs during the year
over 2014.



Additionally, maintenance and repair costs, included in general and
administrative, increased by $25,000 for the year ended December 31, 2015 over 2014. These costs resulted primarily from the improper
installation of new equipment by a third party. The Company consulted with specialists in the field to assist with correcting the
issues related to the faulty installation. The issues relating to the faulty installation were rectified in the first quarter of
2015. The Company also spent $17,000 on specialized software that was required to operate the equipment along with optimizing the
optical elements of the POET process.



Rent expense increased by approximately $73,000 over 2014 due to the addition
of the Company’s new location in Silicon Valley.



Wages and Benefits



Wages and benefits decreased by $394,549 from 2014 to 2015 as a result
of the cessation of employment of the former president in September 2014 and the non-repetition of 2014 performance bonuses of
$337,000 paid to the former interim CEO and former COO. The compensation to the former president included a one-time debt settlement
of $100,000 that was settled in February 2014. Wages and benefits will, however, increase over the short-term with the addition
of the new CEO and COO, and the transition of responsibilities between the CEO and former interim CEO. While the Company experienced
decreases relating to bonuses paid to the former interim CEO and wages payable to the former president, there was a partial offsetting
due to the addition of the new COO and CEO salaries.



Professional Fees



Professional fees decreased by 11% from $907,794 in 2014 to $812,115
in 2015. Professional services in 2015 were primarily on routine operational matters as compared to 2014 when the Company incurred
additional fees for the updated Pellegrino valuation report previously commissioned by it. Additionally, increased fees were incurred
in 2014 for submitting a registration statement on Form 20-F in connection with the registration of its common stock under the
U.S. Securities Exchange Act of 1934.



Non-Cash Stock-based Compensation



Non-cash stock-based compensation increased by $202,123 from $4,615,997
in 2014 to $4,818,120 in 2015. The Company granted 11,655,000 stock options during the year ended December 31, 2015 as compared
to 6,155,000 in 2014. The number of options granted for the year ended December 31, 2015 was unusually high due to the recruitment
of two new senior executive officers. The valuation of stock options is driven by a number of factors including the quantity 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 2015 Plan which grants discretion to the Board of
Directors.



Shares issued for the reduction of license fee



For the year ended December 31, 2014, the Company had a one-time non-cash
issuance of 2,000,000 common shares to the University of Connecticut valued at $1,439,898 for the reduction of certain royalty
rights in exchange for an investment in the Company. The parties agreed to restructure the payment provisions of the License Agreement
by reducing royalty payments to three percent (3%) of amounts received from unaffiliated third parties in respect of the exploitation
of the Intellectual Property defined in the License Agreement, in consideration for 2,000,000 common shares of the Company. The
Company did not have a similar expense for the year ended December 31, 2015.



Exchange Rate Risk



The Company is exposed to foreign currency risk with the Canadian dollar.
The Company maintains bank accounts and cash reserves in both 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. A 10% change
in the Canadian dollar would increase or decrease other comprehensive loss by $1,135,639.





28






| | B. | Liquidity and Capital Resources
| | -- | -------------------------------



The Company had working capital of $15,509,859 on December 31, 2016
as compared to $14,045,498 on December 31, 2015.



During the year ended December 31, 2016, the Company raised $3,598,907
from the exercise of stock options and warrants to assist with its liquidity. Additionally, the Company raised $8,184,237 net of
share issue costs from the issuance of 34,800,000 common shares. The cash flow expended on operations for the year was $9,961,419,
which included funding the losses of DenseLight and BB Photonics from acquisition date of May 11, 2016 and June 22, 2016 respectively,
along with one-time cash outflows relating to the acquisitions during the period.



The Company’s balance sheet as at December 31, 2016 reflects assets
with a book value of $35,505,957 (2015 - $15,934,839) of which 48% (2015 - 91%) or $17,134,203 (2015 - $14,560,919) is current
and consists primarily of cash and short-term investments totaling $14,965,557 (2015 - $14,409,996).



The Company is embarking on an aggressive plan of attempting to monetize
POET while simultaneously improving shareholder value. The focus therefore is to remain sufficiently capitalized through lean operations.



Operating Activities



The Company’s board of directors approved the 2017 budget which continues
to see commitments made to expanding and developing the POET technology platform while growing the product portfolio of DenseLight
and growing its revenues.



The Company expects to launch at least two new products in 2017 and revenues
are expected to grow beyond the 2016 revenues. In support of our technology development, DenseLight
was recently approved for a grant from the Economic Development Board (“EDB”) of Singapore. This grant will be used
to offset the DenseLight’s operating expenses.



The POET process will continue to see investment in its technology.
2017 goals include the following:





| | • | Continue our transition from an R&D company to a commercial enterprise based on products and solutions.We intend to grow revenues of current products offered by our DenseLight subsidiary, develop new discrete and integrated products based on innovations we have developed internally or acquired, and exploit DenseLight’s existing manufacturing and sales capabilities in order to introduce our integrated POET optical engine once it is fully productized.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | • | Initiate product development cycles for the POET optical engine.  Now that we have completed the process of transitioning the technology out of the lab to the fab, we intend to begin product development.  This is an iterative process, and includes optimization of designs, testing the manufacturability and reliability of prototypes, and demonstrating required scalability and cost parameters.                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | • | 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.                                                                                                      







29






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



The Company does not have an immediate need for
debt or equity 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 $625,000 for the 2017 fiscal
year related to research and development equipment, manufacturing equipment and patent registration. In 2016, $1,281,170 was spent
in cash on acquiring development and manufacturing equipment and new patents. $374,200 and $527,068 were spent on similar capital
expenditures in 2015 and 2014, respectively





30








| | C. | Research and Development
| | -- | ------------------------



The Company is developing a unique, proprietary process that addresses
the deficiencies of size, integration, power and cost efficiency associated with current opto-electronic semiconductor manufacturing
technologies. We believe this novel process can be accommodated in existing semiconductor fabs with minimum re-tooling, thus potentially
reducing capital expenditures required to adopt POET’s process technologies.



In addition, we are 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.



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 $2,893,016, $3,532,492 and $2,277,927 of research and development
expenses in 2016, 2015 and 2014 respectively. Research and development expenditures in the semiconductor business include costs
associated with salaries, material costs, license fees, consulting services, stock-based compensation and third-party contract
manufacturing. The expenses in all years presented can be analyzed as follows:



|                                                              |  | 2016 |           | 2015 |  | 2014
|------------------------------------------------------------- |  | ---- | --------- | ---- |  | ----
|Research and development expenses can be analyzed as follows: |  |      |           |      |  |     
|Wages and benefits                                            |  | $    | 1,299,758 |      |  | $   
|Subcontract fees                                              |  |      | 1,013,539 |      |  |     
|Stock-based compensation                                      |  |      | 373,196   |      |  |     
|Supplies                                                      |  |      | 206,523   |      |  |     
|                                                              |  | $    | 2,893,016 |      |  | $   



| | 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, 2016:



POET Technologies Inc.





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





| | G. | Safe Harbor
| | -- | -----------



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



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.





31








|Name                    |  | Positions                                                              |  | Age |  | Date First Elected or Appointed a Director or 
Officer
|----------------------- |  | ---------------------------------------------------------------------- |  | --- |  | ------------------------------------------------------
|Peter Copetti           |  | Former Executive Co-Chairman – Resigned April 30, 2016                 |  | 51  |  | June 8, 2012                                          
|Ajit Manocha (2)(3)     |  | Chairman and Director                                                  |  | 65  |  | July 7, 2014                                          
|Dr. Suresh Venkatesan   |  | Chief Executive Officer and Director                                   |  | 50  |  | June 11, 2015                                         
|Dr. Subhash Deshmukh    |  | Chief Operating Officer                                                |  | 55  |  | June 8, 2015                                          
|Kevin Barnes            |  | Former Chief Financial Officer -New Corporate controller and treasurer |  | 45  |  | December 1, 2012                                      
|Thomas R. Mika          |  | Chief Financial Officer                                                |  | 65  |  | November 2, 2016                                      
|Dr. Geoff Taylor        |  | Founder and Chief Scientist – Retired April 30, 2016                   |  | 71  |  | April 2, 2013                                         
|John F. O’Donnell(2)(3) |  | Corporate Governance and Nominating Committee Chair and Director       |  | 70  |  | February 14, 2012                                     
|Chris Tsiofas (1)(2)(3) |  | Audit and Compensation Committee Chair and Director                    |  | 49  |  | August 21, 2012                                       
|Todd A. DeBonis (1)(2)  |  | Director                                                               |  | 52  |  | April 8, 2015                                         
|David E. Lazovsky (1)   |  | Director                                                               |  | 45  |  | April 8, 2015                                         
|Mohandas Warrior (1)    |  | Director                                                               |  | 56  |  | June 15, 2015                                         



______________________

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

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

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



Mr. Peter Copetti has over 25 years of capital markets and management
experience in key leadership roles. Since joining the company in 2012 he has been the chief architect and strategist leading the
Company’s transformation in its Lab to Fab strategy, recently transitioning this role to Suresh Venkatesan, the company’s
CEO, appointed in June 2015. Historically, Mr. Copetti was personally responsible for the restructuring of both secured and unsecured
debt, negotiated new equity infusion into the Company, and re-focused the Company on its original technical vision of monolithic
opto-electronic integration.



Mr. Ajit Manocha has over 35 years of experience in the semiconductor
industry with deep knowledge of semiconductor technology and operations. He has worked in all aspects of the business including
research, applied development, manufacturing, worldwide sales, to global supply chain and IT, and his most recent role has been
as CEO of Global Foundries from June 2011 to January 2014. He has a wealth of experience by working in companies like AT&T,
Bell Labs/Microelectronics, Philips Semiconductors (now known as NXP), Spansion, and Global Foundries. He has managed at various
executive levels and successfully led very small organizations with fewer than 15 people to very large organizations with well
over 25,000 people. He has also served on various boards as director and chairman. He is currently representing Global Foundries
on the Semiconductor Industry Association Board and is also serving on the U.S. Presidential Committee for Advanced Manufacturing
Partnership.



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.



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 asCFO. Mr. Mika served as the chairman of the
Board of Rennova Health, the successor company to CollabRx and its predecessor, Tegal Corporation, a semiconductor capital equipment
company. Since 2005, he has been the President and CEO, and at times the Acting Chief Financial Officer of CollabRx and Tegal,
retaining those positions following its merger with Rennova Health in November 2015. Previously, Mika co-founded IMTEC, a boutique
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.





32






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 Montana Gold Mining Company Inc. (MGM: CSE).



Mr. Chris Tsiofas, CA, CPA, earned a Bachelor’s of Commerce
Degree from the University of Toronto in 1991 and has been a member of the Institute of Chartered Accountants of Ontario since
1993. 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, a position he has held since 1994.



Dr. Geoff Taylor was Chief Scientist at the Company and has led
development of the POET platform since 2000, directing a focused team at the ODIS subsidiary of the Company. Dr. Taylor has a technical
background made-up of 30 years of design and development experience in electronic and optical device physics, circuit design, opto-electronic
technology, materials and applications. He is concurrently a Professor of Electrical Engineering and Photonics at the University
of Connecticut, a position he has held since 1994, and is responsible for ODIS’ development efforts at the GaAs growth and
fabrication facility. With over 150 papers in industry and scholarly respected journals, and dozens of patents, Dr. Taylor is widely
regarded as a leading authority on GaAs solid-state physics, III-V opto-technology, as well as a pioneer in the development of
monolithic integrated opto-electronic circuits. Dr. Taylor has a B.Sc. from Queen’s University, and a M.Sc. and Ph.D. from
the University of Toronto.





Todd A. DeBonis is a veteran semiconductor executive with expertise
in sales, marketing and corporate development. Mr. DeBonis is the President and CEO of Pixelworks, Inc. (NASDAQ: PXLW). Prior
to his role at Pixelworks, Mr. DeBonis was the Vice President of Global Sales and Strategic Development at TriQuint Semiconductor.
Mr. DeBonis played an integral part in the 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.



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. Mohan Warrior was president and chief executive
officer (CEO) of Alfalight Inc. (“Alfalight”) from February 2004 to July 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. 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 successfully
led the transactions to sell Alfaight's commercial business to Compound Photonics in 2013 and its defense business to Gooch
& Housego in 2016.



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.





33






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, except that in
connection with the entry into of a financing arrangement between the Company and IBK Capital Corporation in 2012, Mr. Copetti
was appointed a Director of the Company on June 8, 2012 but resigned his role on April 30, 2016.



| | 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.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





34






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.



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. Options granted prior to May
2012 had a term of 10 years and options granted between June 2012 and February 2016 had a term of 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 recently granted under the
Plan vest 25% immediately and 25% every six months from the date of issue, until fully vested; provided, however, that 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 2016 was $2,047,634. 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.



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 Board of Directors has to consider 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.



The following table sets forth all annual and long-term compensation for services
in all capacities to the Company for fiscal year 2016 of the Company.





35










|                              |  |              |      |                   |  |                                    |         | Options-Based Awards(1)(2) |  | Non-Equity Incentive Plan Compensation |   |                          |  |                              |           |                    
|----------------------------- |  | ------------ | ---- | ----------------- |  | ---------------------------------- | ------- | -------------------------- |  | -------------------------------------- | - | ------------------------ |  | ---------------------------- | --------- | -------------------
|Name and Principal Position   |  | Fiscal  Year |      | Salary  (2) (US$) |  | Share- Based  Awards  (1)(2) (US$) |         | No. of  Options            |  | (US$)(1)(2)                            |   | Annual  Incentive  Plans |  | Long- term  Incentive  Plans |           | Pension Value (US$)
|Peter Copetti                 |  |              |      |                   |  |                                    |         |                            |  |                                        |   |                          |  |                              |           |                    
|Former Executive Co- Chairman |  |              | 2016 |                   |  |                                    | 144,684 |                            |  |                                        | — |                          |  |                              | —         |                    
|Ajit Manocha                  |  |              |      |                   |  |                                    |         |                            |  |                                        |   |                          |  |                              |           |                    
|Executive Chairman            |  |              | 2016 |                   |  |                                    | 481,250 |                            |  |                                        | — |                          |  |                              | 200,000   |                    
|Dr. Suresh Venkatesan         |  |              |      |                   |  |                                    |         |                            |  |                                        |   |                          |  |                              |           |                    
|Chief Executive Officer       |  |              | 2016 |                   |  |                                    | 972,500 |                            |  |                                        | — |                          |  |                              | 300,000   |                    
|Dr. Subhash Deshmukh          |  |              |      |                   |  |                                    |         |                            |  |                                        |   |                          |  |                              |           |                    
|Chief Operating Officer       |  |              | 2016 |                   |  |                                    | 310,000 |                            |  |                                        | — |                          |  |                              | 550,000   |                    
|Kevin Barnes                  |  |              |      |                   |  |                                    |         |                            |  |                                        |   |                          |  |                              |           |                    
|Treasurer and Controller (3)  |  |              | 2016 |                   |  |                                    | 88,335  |                            |  |                                        | — |                          |  |                              | 100,000   |                    
|Thomas Mika                   |  |              |      |                   |  |                                    |         |                            |  |                                        |   |                          |  |                              |           |                    
|Chief Financial Officer       |  |              | 2016 |                   |  |                                    | 50,685  |                            |  |                                        | — |                          |  |                              | 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 stock options 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.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Mr. Barnes was appointed as
                                         Corporate Controller on November 2, 2016.
| | --- | --------------------------------------------------------------------------------------------------------------

| | (4) | Mr. Mika was appointed as Chief
                                         Financial Officer on November 2, 2016.
| | --- | ---------------------------------------------------------------------------------------------------------------





36






The following table sets forth information concerning all awards outstanding
under a stock option to each of the current officers, as of December 31, 2016:



|                      |  | Option-Based Awards                              |           | Share-Based Awards               
|--------------------- |  | ------------------------------------------------ | --------- | ---------------------------------
|Name                  |  | No. of Shares Underlying Unexercised Options (#) |           | Option Exercise Price (CA$/share)
|Peter Copetti         |  |                                                  | 590,000   |                                  
|                      |  |                                                  | 500,000   |                                  
|                      |  |                                                  | 300,000   |                                  
|                      |  |                                                  | 600,000   |                                  
|                      |  |                                                  | 50,000    |                                  
|Ajit Manocha          |  |                                                  | 2,000,000 |                                  
|                      |  |                                                  | 100,000   |                                  
|                      |  |                                                  | 200,000   |                                  
|                      |  |                                                  | 200,000   |                                  
|Kevin Barnes          |  |                                                  | 25,000    |                                  
|                      |  |                                                  | 10,000    |                                  
|                      |  |                                                  | 100,000   |                                  
|                      |  |                                                  | 100,000   |                                  
|                      |  |                                                  | 100,000   |                                  
|                      |  |                                                  | 25,000    |                                  
|                      |  |                                                  | 50,000    |                                  
|                      |  |                                                  | 50,000    |                                  
|                      |  |                                                  | 50,000    |                                  
|                      |  |                                                  | 25,000    |                                  
|                      |  |                                                  | 100,000   |                                  
|Thomas Mika           |  |                                                  | 1,000,000 |                                  
|Dr. Suresh Venkatesan |  |                                                  | 6,357,000 |                                  
|                      |  |                                                  | 300,000   |                                  
|Dr. Subhash Deshmukh  |  |                                                  | 1,500,000 |                                  
|                      |  |                                                  | 250,000   |                                  
|                      |  |                                                  | 300,000   |                                  

______________________

| | (1) | This
                                         amount is calculated based on the difference between the market value of the shares underlying
                                         the options as of December 31, 2016, being CAD $0.33 (US$0.25), and the exercise or base
                                         price of the option. The exchange rate used in these calculations to convert CAD to USD
                                         was 0.7438, being the closing price at December 31, 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The value vested or earned during fiscal year 2016 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                                                                                                                  | 
|Peter Copetti     |  |  | -                                                                                                     |  |  |  | N/A                                                                                              |  |  |  | N/A                                                                                                                  | 
|Kevin Barnes      |  |  | -                                                                                                     |  |  |  | N/A                                                                                              |  |  |  | N/A                                                                                                                  | 
|Suresh Venkatesan |  |  | -                                                                                                     |  |  |  | N/A                                                                                              |  |  |  | N/A                                                                                                                  | 
|Subhash Deshmukh  |  |  | -                                                                                                     |  |  |  | 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.



37






Director Compensation





The following table details compensation paid/accrued for fiscal year 2016
for each director who is not also an officer.





|                             |  |                 |      |                   |  |                              |        | Option-Based Awards (1)(2) |  | Non-Equity Incentive Plan Compensation |   |                        |  |                           |         |                     
|---------------------------- |  | --------------- | ---- | ----------------- |  | ---------------------------- | ------ | -------------------------- |  | -------------------------------------- | - | ---------------------- |  | ------------------------- | ------- | --------------------
|Name and Principal 
Position |  | Fiscal Year (6) |      | Salary (2) 
(US$) |  | Share-Based Awards (1)
(US$) |        | No. of Shares              |  | (US$)                                  |   | Annual Incentive Plans |  | Long-term Incentive Plans |         | Pension Value 
(US$)
|John F. O’Donnell(3)         |  |                 |      |                   |  |                              |        |                            |  |                                        |   |                        |  |                           |         |                     
|Director                     |  |                 | 2016 |                   |  |                              | 61,000 |                            |  |                                        | — |                        |  |                           | 150,000 |                     
|Todd. A. DeBonis             |  |                 |      |                   |  |                              |        |                            |  |                                        |   |                        |  |                           |         |                     
|Director                     |  |                 | 2016 |                   |  |                              | 48,500 |                            |  |                                        | — |                        |  |                           | 150,000 |                     
|David E. Lazovsky(4)         |  |                 |      |                   |  |                              |        |                            |  |                                        |   |                        |  |                           |         |                     
|Director                     |  |                 | 2016 |                   |  |                              | 46,250 |                            |  |                                        | — |                        |  |                           | 150,000 |                     
|Chris Tsiofas                |  |                 |      |                   |  |                              |        |                            |  |                                        |   |                        |  |                           |         |                     
|Director                     |  |                 | 2016 |                   |  |                              | 73,500 |                            |  |                                        | — |                        |  |                           | 150,000 |                     
|Mohan Warrior                |  |                 |      |                   |  |                              |        |                            |  |                                        |   |                        |  |                           |         |                     
|Director                     |  |                 | 2016 |                   |  |                              | 46,000 |                            |  |                                        | — |                        |  |                           | 150,000 |                     





| | (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 stock options vest
                                         from the date of grant.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | (3) | The firm of Stikeman Keeley
                                         Spiegel Pasternack LLP, of which Mr. O’Donnell is counsel, billed the sum of $113,250
                                         for legal fees and disbursements incurred in 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Mr. Lazovsky was paid $150,000
                                         during the year for strategic, technology, integration, general business consulting and
                                         services rendered in assisting the Company with a public offering in November 2016.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the year ended December 31, 2016, 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. If independent, the Chairman of the Board is entitled to receive an additional $10,000 annually and the
Committee Chairs are entitled to receive an additional $8,000 annually. Messrs. Copetti and Manocha both served as Executive Co-Chairmen
in 2016. 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. Directors’ involvement in special assignments or services as consultant or expert
will be negotiated on a case-by-case basis.



Subsequent to the end of the year, the Board of Directors adopted a
revised program that substantially reduces the total cash component of director compensation, effective April 1, 2017. The revised
program eliminates per meeting fees, and makes adjustments in the annual retainer and chairperson fees, to reduce cash payments
and award stock options. Revised total compensation for each non-executive director will be $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 will be
paid for attending board or committee meetings. An additional $10,000 in cash and $10,000 in value of options will be granted to
each of the three standing committee chairs. The options will vest quarterly over the one-year term of service as directors. No
options related to the revised compensation program for directors will be issued until after the next Annual General Meeting of
the shareholders.





38






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, 2016:



|                  |  | Option-Based Awards                              |         | Share-Based Awards               
|----------------- |  | ------------------------------------------------ | ------- | ---------------------------------
|Name              |  | No. of Shares Underlying Unexercised Options (#) |         | Option Exercise Price (CA$/share)
|John F. O’Donnell |  |                                                  | 150,000 |                                  
|                  |  |                                                  | 12,500  |                                  
|                  |  |                                                  | 500,000 |                                  
|                  |  |                                                  | 300,000 |                                  
|                  |  |                                                  | 300,000 |                                  
|                  |  |                                                  | 100,000 |                                  
|                  |  |                                                  | 150,000 |                                  
|Chris Tsiofas     |  |                                                  | 475,000 |                                  
|                  |  |                                                  | 500,000 |                                  
|                  |  |                                                  | 300,000 |                                  
|                  |  |                                                  | 300,000 |                                  
|                  |  |                                                  | 300,000 |                                  
|                  |  |                                                  | 150,000 |                                  
|Todd A. DeBonis   |  |                                                  | 275,000 |                                  
|                  |  |                                                  | 250,000 |                                  
|                  |  |                                                  | 150,000 |                                  
|David E. Lazovsky |  |                                                  | 250,000 |                                  
|                  |  |                                                  | 25,000  |                                  
|                  |  |                                                  | 150,000 |                                  
|Mohan Warrior     |  |                                                  | 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, 2016, being CAD $0.33 (US$0.25), and the exercise or base
                                         price of the option. The exchange rate used in these calculations to convert CAD to USD
                                         was 0.7438, being the closing price at December 31, 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The value vested or earned during fiscal year 2016 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                                                                          | 
|David E. Lazovsky |  |  | -                                                            |  |  |  | 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. For the Directors
to realize this value, they would have had to exercise their options and sell the shares on the day of vesting. None of these
options were exercised. The exchange rate used in these calculations to convert CAD to USD was the exchange rate applicable on
the vesting date.



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.





39






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. Manocha entered into a memorandum of understanding (MOU) dated July
3, 2014, wherein (i) he was to be paid US$41,667.67 per month (or US $500,000 per year) and he was granted 2,000,000 stock options.
On October 1, 2015, the Company extended Mr. Manocha’s employment at the same annual rate of pay. The extension, however,
divided his compensation between his compensation as an executive and his compensation has the co-chairman of the board. As of
October 1, 2015, Mr.

Manocha was paid annually US $375,000 as an executive and US $125,000 as co-chairman
of the board. Mr. Manocha agreed to reduce the executive portion of his compensation by 20% effective October 2016. Effective February
1, 2017, Mr. Manocha no longer serves as Chairman and receives compensation as determined for a Board member.



On June 30, 2014 Mr. Copetti entered into an Executive Employment Agreement
with an effective date of February 10, 2014, wherein

(i) he was to be paid CA$20,000 per month or (CA$240,000 per year) until
December 31, 2014, (ii) he would be eligible for annual and special bonuses as determined by the Board of Directors; (iii) he would
be reimbursed up to CA$5,000 for gym membership and medical tests; and (iv) he would receive a severance of twelve months on termination
of employment by the Company, other than for cause.



Mr. Copetti’s salary was adjusted to CA$31,250 per month or (CA$375,000
per year) in October 2014. On January 1, 2015, Mr. Copetti’s employment agreement was extended on a month-to-month basis
with an adjusted salary of CA$41,667.67 per month. On October 1, 2015, the Company extended Mr. Copetti’s employment agreement.
The extended agreement divided his compensation between his compensation as an executive and his compensation has the co-chairman
of the board. As of October 1, 2015, Mr. Copetti is paid, annually, CA$375,000 as an executive and US $125,000 as co-chairman of
the board. The other terms of the contract remained unchanged. Mr. Copetti resigned from the Board on April 30, 2016.



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$7,000 (2017
– 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. Deshmukh will continue to provide services to the Company on an as needed basis until June 30, 2017.



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
will be paid US$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
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.





40






| | C. | Board Practices
| | -- | ---------------



Our Board of Directors currently consists of seven directors, including
three 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 2016, the Board held eight 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, DeBonis and
Warrior are independent.



Directors’ Service Contracts



Messrs.Venkatesan, Copetti and Manocha entered into employment contracts as
explained above in “Written Management Agreements.” Mr. Copetti resigned from the board on April 30, 2016.



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 three members: Chris Tsiofas
(Chair), Todd DeBonis and Mohandas Warrior. All three 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.





41






Compensation Committee



The Compensation Committee is currently comprised of three members:
Chris Tsiofas (Chair), John O’Donnell and Todd DeBonis. 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.



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, 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.



At December 31, 2014, the Company had 12 full-time employees and 5 consultants,
including senior management; 10 employees and 2 consultants work at our lab facilities either as support staff or are engaged in
research and development initiatives; 2 employees and 3 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 March
20, 2017. 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 March 29, 2017. 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.



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





42






|                                |  | Number of Shares  Beneficially Owned (1) |            | Percent of Class
|------------------------------- |  | ---------------------------------------- | ---------- | ----------------
|Directors and Officers:         |  |                                          |            |                 
|Peter Copetti                   |  |                                          | 2,040,000  | (2)             
|Ajit Manocha                    |  |                                          | 2,500,000  | (3)             
|Chris Tsiofas                   |  |                                          | 2,050,000  | (4)             
|John F. O’Donnell               |  |                                          | 1,542,500  | (5)             
|Thomas Mika                     |  |                                          | 1,000,000  | (6)             
|Kevin Barnes                    |  |                                          | 642,463    | (7)             
|Todd DeBonis                    |  |                                          | 675,000    | (8)             
|David Lazovsky                  |  |                                          | 425,000    | (9)             
|Mohandas Warrior                |  |                                          | 400,000    | (10)            
|Suresh Venkatesan               |  |                                          | 6,697,000  | (11)            
|Subhash Deshmukh                |  |                                          | 2,050,000  | (12)            
|Directors and Officers Subtotal |  |                                          | 20,021,963 |                 
|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: 2,040,000 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) 2,500,000 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) 2,025,000 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) 1,512,500 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) 1,000,000 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) 625,000 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) 675,000 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) 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) 400,000 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) 6,657,000 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 (ii) 2,050,000 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.



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.





43






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



U.S. Share Ownership



As of March 29, 2017, there were a total of 445 holders of record of our
common shares with addresses in the U.S. We believe that the number of beneficial owners is substantially greater than the number
of record holders, because a large portion of our common shares are held in broker “street names.” As of March 29,
2017, U.S. holders of record held approximately 1.34% 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



On August 13, 2013, the Board of Directors of the
Company approved a resolution authorizing the Company to implement a Shareholders Rights Plan (a “Rights Plan”), subject
to all required approvals, including TSXV approval. The shareholders of the Company ratified the Board’s resolution at a
meeting held on August 12, 2014. Authorization of a Rights Plan is intended to reflect developments in Canada with respect to shareholder
rights plans and is designed to encourage the fair treatment of shareholders in connection with any take-over bid for the Company.
See ITEM 10.B. “Articles of the Corporation.”



| | B. | Related Party Transactions
| | -- | --------------------------



The firm of Stikeman Keeley Spiegel Pasternack LLP, of which Mr. O’Donnell
is counsel, billed the sum of $113,250 for legal fees and disbursements incurred in 2016 (2015 - $104,790).



In 2016, the Company paid or accrued $150,000 in consulting fees to a director
for strategic, technology, integration, general business consulting and services rendered in assisting the Company with a public
offering.



| | 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.





44






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.



| | B. | Significant Changes
| | -- | -------------------



There were no significant changes between January 1, 2017 and March 29, 2017.



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 29, 2017     |  | $          | 0.34 |          
|February 28, 2017  |  | $          | 0.37 |          
|January 31, 2017   |  | $          | 0.42 |          
|December 31, 2016  |  | $          | 0.51 |          
|November 30, 2016  |  | $          | 0.36 |          
|October 31, 2016   |  | $          | 0.35 |          
|Quarterly          |  |            |      |          
|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 |          
|June 30, 2015      |  | $          | 2.00 |          
|March 31, 2015     |  | $          | 1.62 |          
|December 31, 2014  |  | $          | 1.61 |          
|September 30, 2014 |  | $          | 2.24 |          
|Yearly             |  |            |      |          
|December 31, 2016  |  | $          | 1.44 |          
|December 31, 2015  |  | $          | 2.00 |          
|December 31, 2014  |  | $          | 2.87 |          
|December 31, 2013  |  | $          | 0.74 |          
|December 31, 2012  |  | $          | 0.74 |          





45






| | B. | Plan of Distribution
| | -- | --------------------



Not Applicable.



| | 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 Applicable.



| | E. | Dilution
| | -- | --------



Not Applicable.



| | F. | Expenses of the Issue
| | -- | ---------------------



Not Applicable.



ITEM 10. ADDITIONAL INFORMATION



| | A. | Share Capital
| | -- | -------------



Not Applicable.



| | 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





46






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 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.



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.



The holder of the Company’s one outstanding Special Voting Share
is not entitled to any dividends or other distributions in respect of such share or any proceeds of liquidation or dissolution.
The holder of such share is entitled to receive notice of and to attend and vote at any annual and special meetings of the shareholders
and is entitled to the number of votes as is equal to the aggregate number of common shares that may be acquired upon exercise
of the holder exchange rights attached to outstanding shares of Exchangeable Common Stock. The Special Voting Share is automatically
redeemed by the Company, without notice, immediately once no Exchangeable Common Shares remain outstanding. The Special Voting
Share was cancelled following a Board resolution on June 21, 2013.



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.





47






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 an amount determined by the Minister of Finance (Canada) (the “Minister”)
on an annual basis. The Minister has determined that the threshold for review for WTO Investors or vendors (other than Canadians)
to be CA$379 million for the year 2016. 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 World Trade Organization (“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:





| | • | 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;                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | 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                                       
| | • | 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 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.





48






Impediments to
Change of Control



There are no provisions of our Articles or By-laws that would have an effect
of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition
or corporate restructuring involving the Company. On August 13, 2013, the Board of Directors of the Company approved a resolution
authorizing the Company to implement a Shareholders Rights Plan (a “Rights Plan”), subject to all required approvals,
including TSXV approval. The shareholders of the Company ratified the Board’s resolution at a meeting held on August 12,
2014. The approval of a Rights Plan is intended to reflect developments in Canada with respect to shareholder rights plans and
is designed to encourage the fair treatment of shareholders in connection with any take-over bid for the Company.



The Rights Plan will provide the Board and the
shareholders with more time to fully consider any unsolicited take-over bid for the Company without undue pressure. Furthermore,
the Rights Plan will allow the Board to pursue, if appropriate, other alternatives to maximize shareholder value and to allow additional
time for competing bids to emerge.



The Rights Plan was not proposed in response to,
or in anticipation of, any acquisition or takeover offer and is not intended to prevent a take-over bid for the Company. Under
the Rights Plan, take-over bids that meet certain requirements intended to protect the interests of all shareholders will be deemed
to be “Permitted Bids”. Permitted Bids must be made by way of a takeover bid circular prepared in compliance with applicable
securities laws and, among other conditions, must remain open for sixty days.



The details of the Rights Plan are summarized below.



Rights



One Right will be issued and will attach to each outstanding Common
Share of the Company. A Right only becomes exercisable upon the occurrence of a Flip-In Event, which is a transaction by which
a person becomes an Acquiring Person and which otherwise does not meet the requirements of a Permitted Bid. Prior to the Flip-In
Event, the Rights are priced at five (5) times the Market Price of the Common Shares at the Separation Time (the “Exercise
Price”). Separation Time means the close of business on the tenth Trading Day after the earlier of the first public announcement
indicating that a person has become an Acquiring Person or the date of the commencement or first public announcement of an intention
to commence a Take-over Bid (other than a Permitted Bid or Competitive Permitted Bid). If a Flip-In Event occurs, each Right issued
under the Rights Plan thereafter will entitle all holders, other than the Acquiring Person, to purchase for the Exercise Price
(5 times the Market Price) that number of Common Shares of the Company having an aggregate market value equal to twice the Exercise
Price (2 times 5 times the Market Prices being 10 times the Market Price). The result of this provision is that, in the event a
Flip-In Event occurs, subject to all other provisions of this agreement, each Right will constitute the right to purchase from
the Company ten (10) additional Common Shares at 50% of the Market Price at the time of the Flip-In Event. This purchase could
cause substantial dilution to the person or group of persons attempting to acquire control of the Company, other than by way of
a Permitted Bid. The Rights expire on the termination of the Rights Plan, unless redeemed before such time.



Acquiring Person



An Acquiring Person is generally a person who becomes the beneficial
owner of 20% or more of the outstanding Common Shares of the Company. Under the Rights Plan, there are various exceptions to the
definition of Acquiring Person, including a person who acquires 20% or more of the outstanding Common Shares from (i) acquisitions
of Common Shares by the Company (e.g. through an issuer bid), (ii) pro rata distributions of Common Shares by the Company, (iii)
acquisitions of Common Shares upon exercise of Convertible Securities acquired pursuant to certain exempt transactions, (iv) an
amalgamation, merger or other statutory procedure requiring shareholder approval, or (v) the issuance of Common Shares on an exempt
private placement basis (subject to certain limits); and underwriters who acquire Common Shares for the purpose of a public distribution.



Beneficial Ownership



The thresholds for triggering the Rights Plan are
based on the percentage of shares that are Beneficially Owned by a person or its Affiliates or Associates. This is defined in terms
of legal or beneficial ownership of Common Shares. In addition, a person is deemed to be the Beneficial Owner of Common Shares
in circumstances where that person or its Affiliates or Associates, as such terms are defined in the Rights Plan, and any other
person acting jointly or in concert with such person, has a right to acquire Common Shares within 60 days. There are various exceptions
to this definition set forth in the Rights Plan.



Permitted Bid



If a Take-over Bid is structured as a Permitted
Bid, a Flip-In Event will not occur and the Rights will not become exercisable. Permitted Bids must be made by means of a Take-over
Bid circular and comply with the following:





| | • | the Take-over Bid must be made to all shareholders other than the bidder;
| | - | -------------------------------------------------------------------------





49






| | • | the Take-over Bid must not permit the bidder to take up any Common Shares that have been tendered pursuant to the Take- over Bid prior to the expiry of a period not less than 60 days after the Take-over Bid is made, and then only if at such time more than 50% of the Common Shares held by the Independent Shareholders (which term generally includes shareholders other than the bidder, its Affiliates, Associates and persons acting jointly or in concert with the bidder), have been tendered pursuant to the Take-over Bid and not withdrawn;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | the Take-over Bid must contain an irrevocable and unqualified provision that, unless it is withdrawn, Common Shares may be tendered at any time during the 60-day period referred to in the immediately preceding paragraph and that any Common Shares deposited pursuant to the Take-over Bid may be withdrawn until they have been taken up and paid for; and                                                                                                                                                                                           
| | • | the Take-over Bid must contain an irrevocable and unqualified provision that, if more than 50% of the Common Shares held by Independent Shareholders are tendered pursuant to the Takeover Bid within the 60-day period, then the bidder must make a public announcement of that fact and the Take-over Bid must then remain open for an additional 10 business days from the date of such public announcement.                                                                                                                                           





The Rights Plan also allows a Competing Permitted
Bid to be made while a Permitted Bid is in existence. A Competing Permitted Bid is a Take-over Bid that is made after a Permitted
Bid has been made, but prior to its expiry, that satisfies all of the requirements of a Permitted Bid, except that (i) no Common
Shares will be taken up or paid for until the later to occur of the date which is generally 35 days after the date the Take-over
Bid is made and the 60th day after the date of the Permitted Bid that is then outstanding, and (ii) at the close of business on
the date Common Shares are first taken up or paid for, more than 50% of the then outstanding Common Shares held by Independent
Shareholders have been tendered in such Take-over Bid and not withdrawn. If this 50% requirement is satisfied, the applicable bidder
must make a public announcement of that fact and the Take-over Bid must remain open for tenders of Common Shares for at least ten
business days after the date of such public announcement.



The requirements of a Permitted Bid and a Competing
Permitted Bid enable shareholders to decide whether the Take-over Bid or any Competing Permitted Bid is adequate on its own merits,
without being influenced by the likelihood that a Take-over Bid will succeed. Moreover, if there is sufficient support for a Take-over
Bid such that at least 50% of the Common Shares held by Independent Shareholders have been tendered to it, a shareholder who has
not yet tendered to that bid will have a further 10 business days in which to decide whether to withdraw its Common Shares from
a Competing Take-over Bid, if any, and whether to tender to the Take-over Bid.



Waiver and Redemption



Until the occurrence of a Flip-In Event as to which the Board has not
issued a waiver, the Board, with the prior consent of the holders of Common Shares, may elect to redeem all but not less than all
of the then outstanding Rights at a redemption price of $0.0001 (subject to adjustment) per Right. In addition, until the occurrence
of a Flip-In Event as to which the Board has not issued a waiver, the Board may determine to waive the application of the Rights
Plan to any Flip-In Event, provided that the Board will be deemed to have waived the application of the Rights Plan to any other
Flip-In Event occurring by reason of a Take-over Bid made prior to the expiry of the Take-over Bid in respect of which the waiver
is granted. The Board may also waive the application of the Rights Plan to any Flip-In Event if the Board determines that the Person
became an Acquiring Person by inadvertence and without any intention to become, or knowledge that it would become, an Acquiring
Person and such Person has reduced its Beneficial Ownership of Common Shares such that, at the time of the granting of a waiver,
such Person is no longer an Acquiring Person. The Board will be deemed to have redeemed the Rights at the Redemption Price on the
date that the Person making the Permitted Bid, Competing Permitted Bid or Takeover Bid in respect of which the Board has waived
or been deemed to waive the application of the Rights Plan, has taken up and paid for the Common Shares pursuant to the applicable
bid.



Termination



The Rights Plan will expire, subject to certain conditions, at the close
of the Annual Meeting of Shareholders of the Company three years after the Rights Plan is ratified by shareholders, and every three-year
anniversary thereafter and so on unless the continuation of the Rights Plan for each such three- year period (or other period approved
by the Independent Shareholders) is approved by the Independent Shareholders of the Company.



Full Text of Rights Plan



The full text of the Rights Plan is contained in a Shareholders’
Rights Plan Agreement between the Company and the Rights Agent, TMX Equity Transfer Services Inc., and is available on the Company’s
website at www.poet-technologies.com.



The Rights Plan will be subject to reconfirmation at every third annual
meeting of shareholders subsequent to the approval date until its expiry. If the shareholders do not confirm the Rights Plan, the
Rights Plan will terminate and cease to be effective at that time.





50






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 contracts 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 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.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | 8. | On January 8, 2016 and amended on March 4, 2016, BB Photonics entered into a Collaboration
Agreement with Swansea University and Compound Semiconductor Technologies Global Ltd. As per the Agreement, Swansea University
would provide the Company access to its clean room facilities and perform fabrication and deposition services as required by BB
Photonics for a total of 120 days.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







51






| | 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.



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:





| | • | an individual who is a citizen or resident of the U.S. for U.S. federal income tax purposes;                                                                                                                                   
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | 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;
| | • | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or                                                                                                                              





52






| | • | 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:





| | • | are broker-dealers or insurance companies;                                                               
| | - | ---------------------------------------------------------------------------------------------------------
| | • | have elected market-to-market accounting;                                                                
| | • | are tax-exempt organizations or retirement plans;                                                        
| | • | are financial institutions or “financial services entities”;                                             
| | • | hold our common shares as part of a straddle, “hedge” or “conversion transaction” with other investments;
| | • | acquired our common shares upon the exercise of employee stock options or otherwise as compensation;     
| | • | own directly, indirectly or by attribution at least 10% of our voting power;                             
| | • | have a functional currency that is not the U.S. Dollar;                                                  
| | • | are grantor trusts;                                                                                      
| | • | are certain former citizens or long-term residents of the U.S.; or                                       
| | • | are real estate trusts or regulated investment companies.                                                





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





53






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.



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





54






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.



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:





| | • | 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
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





55






| | • | 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 Applicable.



| | G. | Statements by Experts
| | -- | ---------------------



The consolidated financial statements of POET Technologies Inc. as of
December 31, 2016, 2015 and 2014 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 is 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.



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, quarterly and current 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 Applicable.



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.





56






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 $620,560.



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



|Period                        |  | High (1) |        | Low (1) |  | Average (2)
|----------------------------- |  | -------- | ------ | ------- |  | -----------
|March 2017                    |  |          | 0.7539 |         |  |            
|February 2017                 |  |          | 0.7703 |         |  |            
|January 2017                  |  |          | 0.7710 |         |  |            
|December 2016                 |  |          | 0.7644 |         |  |            
|November 2016                 |  |          | 0.7489 |         |  |            
|October 2016                  |  |          | 0.7689 |         |  |            
|October 2016 — March 29, 2017 |  |          | 0.7710 |         |  |            

__________________________________

| | (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 2017                    |  |          | 0.7176 |         |  |            
|February 2017                 |  |          | 0.7131 |         |  |            
|January 2017                  |  |          | 0.7098 |         |  |            
|December 2016                 |  |          | 0.7061 |         |  |            
|November 2016                 |  |          | 0.7227 |         |  |            
|October 2016                  |  |          | 0.7325 |         |  |            
|October 2016 — March 29, 2017 |  |          | 0.7325 |         |  |            

_________________________________

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

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





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 Applicable



| | B. | Warrants and Rights
| | -- | -------------------



Not Applicable.



| | C. | Other Securities
| | -- | ----------------



Not Applicable.



| | D. | American Depositary Shares
| | -- | --------------------------



Not Applicable.



PART II



ITEM 13. Defaults, Dividend Arrearages and Delinquencies



Not Applicable.



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



Not Applicable.





57






ITEM 15. Controls and Procedures



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



We have performed an evaluation of the effectiveness
of our disclosure controls and procedures that are designed to ensure that the material financial and non-financial information
required to be disclosed to the SEC is recorded, processed, summarized and timely reported. Based on our evaluation, our management,
including the CEO and CFO, has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report are effective. 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.



Management assessed the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2016. 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, management concluded that, as of December 31, 2016, the Company’s internal control
over financial reporting is effective based on those criteria.



| | (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, 2016 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      |                        
|Audit-Related Fees (1) |                        
|All Other 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.
| | --- | ------------------------------------------------------------------------------------------------





58






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.



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



Not Applicable.



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



Not Applicable.



ITEM 16F. Change in Registrant’s Certifying Accountants



Not Applicable.



ITEM 16G. Corporate Governance



Not Applicable.



ITEM 16H. Mine Safety Disclosure



Not Applicable.



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, 2016, 2015 and 2014 and as of December 31, 2016,
2015 and 2014
| | -- | ------------------------------------------------------------------------------------------------------------------------------



ITEM 18. Financial Statements



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



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 | Collaboration Agreement with Swansea University and Compound Semiconductor Technologies Global Ltd ****
| | ---- | -------------------------------------------------------------------------------------------------------
| | 4.23 | 2014 Stock Option Plan**                                                                               

| | 4.24 | Form of Option Agreement*
| | ---- | -------------------------

| | 4.25 | Form of Warrant for Purchase of Common Shares*
| | ---- | ----------------------------------------------

| | 4.26 | 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****
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



*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 herewith.





59






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.



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,
2016, 2015 and 2014 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.





60






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 
|                     | CEO                   
|Date: April 17, 2017 |                       



















61






















INDEPENDENT AUDITORS’ REPORT





To the Audit Committee of the 
Board of Directors and Shareholders 
of POET Technologies Inc.





We have audited the accompanying consolidated financial statements of POET Technologies
Inc., which comprise the consolidated statements of financial position as at December 31, 2016, 2015 and 2014, and the consolidated
statements of operations and deficit, comprehensive loss, changes in shareholders’ equity and cash flows for the years ended
December 31, 2016, 2015 and 2014, and notes, comprising a summary of significant accounting policies and other explanatory information.





Management's responsibility for the consolidated
financial statements



Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards (“IFRS”) 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). Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.



An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’ 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 entity'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 entity's internal control. An audit also includes evaluating the appropriateness of accounting
policies 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 basis for our audit opinion.





Opinion



In our opinion the financial statements present fairly, in all material respects, the consolidated financial position of POET
Technologies Inc. as at December 31, 2016, 2015 and 2014, and its consolidated financial performance and its consolidated
cash flows for the years ended December 31, 2016, 2015 and 2014 in accordance with IFRS as issued by the International Accounting
Standards Board.









Hartford, CT

April 17, 2017



















POET TECHNOLOGIES INC.



CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in US Dollars)





|December 31,                                       |  | 2016 |              | 2015 |  | 2014
|-------------------------------------------------- |  | ---- | ------------ | ---- |  | ----
|                                                   |  |      |              |      |  |     
|Assets                                            
|Current                                            |  |      |              |      |  |     
|Cash                                               |  | $    | 14,376,282   |      |  | $   
|Short-term investments (Note 2)                    |  |      | 589,275      |      |  |     
|Accounts receivable (Note 4)                       |  |      | 292,849      |      |  |     
|Prepaids and other current assets (Note 5)         |  |      | 758,917      |      |  |     
|Inventory (Note 6)                                 |  |      | 1,116,880    |      |  |     
|                                                   |  |      |              |      |  |     
|                                                   |  |      | 17,134,203   |      |  |     
|                                                   |  |      |              |      |  |     
|Property and equipment (Note 7)                    |  |      | 9,364,210    |      |  |     
|Patents and licenses (Note 8)                      |  |      | 449,676      |      |  |     
|Intangible assets (Note 9)                         |  |      | 876,865      |      |  |     
|Goodwill (Note 22)                                 |  |      | 7,681,003    |      |  |     
|                                                   |  |      |              |      |  |     
|                                                   |  | $    | 35,505,957   |      |  | $   
|                                                   |  |      |              |      |  |     
|Liabilities                                       
|Current                                            |  |      |              |      |  |     
|Accounts payable and accrued liabilities (Note 10) |  | $    | 1,624,344    |      |  | $   
|                                                   |  |      |              |      |  |     
|                                                   |  |      | 1,624,344    |      |  |     
|                                                   |  |      |              |      |  |     
|Deferred tax liability (Note 22)                   |  |      | 1,596,307    |      |  |     
|Deferred rent                                      |  |      | 42,665       |      |  |     
|                                                   |  |      |              |      |  |     
|                                                   |  |      | 3,263,316    |      |  |     
|                                                   |  |      |              |      |  |     
|                                                   |  |      |              |      |  |     
|Shareholders' Equity                              
|Share capital (Note 11(b))                         |  |      | 103,357,862  |      |  |     
|Warrants (Note 12)                                 |  |      | 5,985,378    |      |  |     
|Contributed surplus (Note 13)                      |  |      | 29,062,874   |      |  |     
|Accumulated other comprehensive loss               |  |      | (2,088,117   | )    |  |     
|Deficit                                            |  |      | (104,075,356 | )    |  |     
|                                                   |  |      |              |      |  |     
|                                                   |  |      | 32,242,641   |      |  |     
|                                                   |  |      |              |      |  |     
|                                                   |  | $    | 35,505,957   |      |  | $   







Commitments and contingencies (Note 15)



On behalf of the Board of Directors











|/s/ Suresh Venkatesan |  | /s/ Chris Tsiofas | 
|--------------------- |  | ----------------- | 
|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,                           |  | 2016 |              | 2015 |  | 2014
|---------------------------------------------------------- |  | ---- | ------------ | ---- |  | ----
|                                                           |  |      |              |      |  |     
|Revenue                                                    |  | $    | 1,861,747    |      |  | $   
|                                                           |  |      |              |      |  |     
|Cost of sales                                              |  |      | 1,379,838    |      |  |     
|                                                           |  |      |              |      |  |     
|Gross margin                                               |  |      | 481,909      |      |  |     
|                                                           |  |      |              |      |  |     
|Operating expenses                                         |  |      |              |      |  |     
|Selling, marketing and administration (Note 20)            |  |      | 11,260,576   |      |  |     
|Research and development (Note 20)                         |  |      | 2,893,016    |      |  |     
|Impairment loss (Notes 2, 7 and 21)                        |  |      | 63,522       |      |  |     
|Loss on disposal of property and equipment (Note 7)        |  |      | 46,738       |      |  |     
|Other income, including interest                           |  |      | (66,872      | )    |  |     
|                                                           |  |      |              |      |  |     
|Operating expenses                                         |  |      | 14,196,980   |      |  |     
|                                                           |  |      |              |      |  |     
|Net loss from operations                                   |  |      | (13,715,071  | )    |  |     
|Change in fair value of contingent consideration (Note 22) |  |      | (283,130     | )    |  |     
|                                                           |  |      |              |      |  |     
|Net loss before income tax recovery                        |  |      | (13,431,941  | )    |  |     
|Income tax recovery (Note 23)                              |  |      | (207,257     | )    |  |     
|                                                           |  |      |              |      |  |     
|Net loss                                                   |  |      | (13,224,684  | )    |  |     
|                                                           |  |      |              |      |  |     
|Deficit, beginning of year                                 |  |      | (90,850,672  | )    |  |     
|Net loss                                                   |  |      | (13,224,684  | )    |  |     
|                                                           |  |      |              |      |  |     
|Deficit, end of year                                       |  | $    | (104,075,356 | )    |  | $   
|                                                           |  |      |              |      |  |     
|Basic and diluted net loss per share (Note 14)             |  | $    | (0.06        | )    |  | $   











|CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS           |  |      |             |      |  |     
|------------------------------------------------------- |  | ---- | ----------- | ---- |  | ----
|(Expressed in US Dollars)                               |  |      |             |      |  |     
|For the Years Ended December 31,                        |  | 2016 |             | 2015 |  | 2014
|                                                        |  |      |             |      |  |     
|                                                        |  |      |             |      |  |     
|Net loss                                                |  | $    | (13,224,684 | )    |  | $   
|                                                        |  |      |             |      |  |     
|Other comprehensive income (loss) - net of income taxes |  |      |             |      |  |     
|Exchange differences on translating foreign operations  |  |      | 300,870     |      |  |     
|                                                        |  |      |             |      |  |     
|Comprehensive loss                                      |  | $    | (12,923,814 | )    |  | $   







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,                                                               |  | 2016 |              | 2015 |  | 2014
|---------------------------------------------------------------------------------------------- |  | ---- | ------------ | ---- |  | ----
|                                                                                               |  |      |              |      |  |     
|Share Capital                                                                                  |  |      |              |      |  |     
|Beginning balance                                                                              |  | $    | 81,027,171   |      |  | $   
|Funds from the exercise of warrants and compensation warrants                                  |  |      | 1,943,919    |      |  |     
|Fair value of warrants and compensation warrants exercised                                     |  |      | 901,417      |      |  |     
|Warrant exercise incentive                                                                     |  |      | -            |      |  |     
|Funds from the exercise of stock options                                                       |  |      | 1,654,988    |      |  |     
|Fair value assigned to stock options exercised                                                 |  |      | 1,737,879    |      |  |     
|Commons 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   | )    |  |     
|Common shares issued for reduction of license fee                                              |  |      | -            |      |  |     
|                                                                                               |  |      |              |      |  |     
|December 31,                                                                                   |  |      | 103,357,862  |      |  |     
|                                                                                               |  |      |              |      |  |     
|Warrants                                                                                       |  |      |              |      |  |     
|Beginning balance                                                                              |  |      | 2,013,747    |      |  |     
|Fair value of warrants issued                                                                  |  |      | 5,985,378    |      |  |     
|Fair value of warrants and compensation warrants exercised                                     |  |      | (901,417     | )    |  |     
|Fair value of expired warrants                                                                 |  |      | (1,112,330   | )    |  |     
|                                                                                               |  |      |              |      |  |     
|December 31,                                                                                   |  |      | 5,985,378    |      |  |     
|                                                                                               |  |      |              |      |  |     
|Contributed Surplus                                                                            |  |      |              |      |  |     
|Beginning balance                                                                              |  |      | 25,618,159   |      |  |     
|Stock-based compensation                                                                       |  |      | 4,070,264    |      |  |     
|Fair value of stock options exercised                                                          |  |      | (1,737,879   | )    |  |     
|Fair value of expired warrants                                                                 |  |      | 1,112,330    |      |  |     
|                                                                                               |  |      |              |      |  |     
|December 31,                                                                                   |  |      | 29,062,874   |      |  |     
|                                                                                               |  |      |              |      |  |     
|Accumulated Other Comprehensive Loss                                                           |  |      |              |      |  |     
|Beginning balance                                                                              |  |      | (2,388,987   | )    |  |     
|Other comprehensive income (loss) attributable to common shareholders - translation adjustment |  |      | 300,870      |      |  |     
|                                                                                               |  |      |              |      |  |     
|December 31,                                                                                   |  |      | (2,088,117   | )    |  |     
|                                                                                               |  |      |              |      |  |     
|Deficit                                                                                        |  |      |              |      |  |     
|Beginning balance                                                                              |  |      | (90,850,672  | )    |  |     
|Net loss                                                                                       |  |      | (13,224,684  | )    |  |     
|                                                                                               |  |      |              |      |  |     
|December 31,                                                                                   |  |      | (104,075,356 | )    |  |     
|                                                                                               |  |      |              |      |  |     
|Total shareholders' equity                                                                     |  | $    | 32,242,641   |      |  | $   







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,                                  |  | 2016 |             | 2015 |  | 2014
|----------------------------------------------------------------- |  | ---- | ----------- | ---- |  | ----
|                                                                  |  |      |             |      |  |     
|CASH (USED IN) PROVIDED BY:                                       |  |      |             |      |  |     
|OPERATING ACTIVITIES                                              |  |      |             |      |  |     
|Net loss                                                          |  | $    | (13,224,684 | )    |  | $   
|Adjustments for:                                                  |  |      |             |      |  |     
|Depreciation of property and equipment (Note 7)                   |  |      | 1,448,525   |      |  |     
|Amortization of patents and licenses (Note 8)                     |  |      | 49,775      |      |  |     
|Amortization of intangibles (Note 9)                              |  |      | 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)                                |  |      | 4,070,264   |      |  |     
|Change in fair value of contingent consideration (Note 22)        |  |      | (283,130    | )    |  |     
|Income tax recovery (Note 23)                                     |  |      | (207,257    | )    |  |     
|Deferred rent                                                     |  |      | 42,665      |      |  |     
|Shares issued on the reduction of license fee                     |  |      | -           |      |  |     
|                                                                  |  |      | (7,970,316  | )    |  |     
|                                                                  |  |      |             |      |  |     
|Net change in non-cash working capital accounts:                  |  |      |             |      |  |     
|Accounts receivable                                               |  |      | (77,415     | )    |  |     
|Prepaid and other current assets                                  |  |      | (443,590    | )    |  |     
|Inventory                                                         |  |      | (841,806    | )    |  |     
|Accounts payable and accrued liabilities                          |  |      | (628,292    | )    |  |     
|                                                                  |  |      |             |      |  |     
|Cash flows from operating activities                              |  |      | (9,961,419  | )    |  |     
|                                                                  |  |      |             |      |  |     
|INVESTING ACTIVITIES                                              |  |      |             |      |  |     
|Cash proceeds from acquisitions                                   |  |      | 18,791      |      |  |     
|Proceeds from the disposal of property and equipment (Note 7)     |  |      | 37,195      |      |  |     
|Purchase of property and equipment (Note 7)                       |  |      | (1,208,532  | )    |  |     
|Purchase of patents and licenses (Note 8)                         |  |      | (72,638     | )    |  |     
|Advances made prior to acquisition (Note 22)                      |  |      | (500,000    | )    |  |     
|Purchase of short-term investments                                |  |      | (598,148    | )    |  |     
|                                                                  |  |      |             |      |  |     
|Cash flows from investing activities                              |  |      | (2,323,332  | )    |  |     
|                                                                  |  |      |             |      |  |     
|FINANCING ACTIVITIES                                              |  |      |             |      |  |     
|Issue of common shares for cash, net of issue costs (Note 11)     |  |      | 11,783,144  |      |  |     
|                                                                  |  |      |             |      |  |     
|Cash flows from financing activities                              |  |      | 11,783,144  |      |  |     
|                                                                  |  |      |             |      |  |     
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                           |  |      | 467,893     |      |  |     
|                                                                  |  |      |             |      |  |     
|NET CHANGE IN CASH                                                |  |      | (33,714     | )    |  |     
|                                                                  |  |      |             |      |  |     
|CASH, beginning of year                                           |  |      | 14,409,996  |      |  |     
|                                                                  |  |      |             |      |  |     
|CASH, end of year                                                 |  | $    | 14,376,282  |      |  | $   







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



POET Technologies Inc. is incorporated in the Province
of Ontario. POET Technologies Inc. and its subsidiaries (the "Company") are developers of the planar opto-electronic
technology (“POET”) platform semiconductor process IP for monolithic fabrication of integrated circuit devices containing
both electronic and optical elements on a single die. The Company also designs, manufactures and sells photonic sensing and optical
light source products. 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 March 31,
2017.



|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.



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 profit or loss 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.





Page 6






POET TECHNOLOGIES
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Expressed in US Dollars)






|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



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.



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 date, no provision
was required for accounts receivable.





Page 7






POET TECHNOLOGIES
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Expressed in US Dollars)






|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



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 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.



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 $63,522 (note
21) for the year ended December 31, 2016. The Company did not record an impairment loss in 2015 and 2014.



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.





Page 8






POET TECHNOLOGIES
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Expressed in US Dollars)






|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



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.



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 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 2016 was $14,027 (2015 - nil and 2014 - $169,832).



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 9






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 $589,275 consist of guaranteed
investment certificates (GICs) held with one Canadian chartered bank and earn interest at a rate of 0.50%. The GICs have maturity
dates between May 2017 and October 2017. Investments are carried at fair value.



|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. 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.





Page 10






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.



|4. | ACCOUNTS RECEIVABLE
|-- | -------------------



The carrying amounts of accounts receivable approximate
their fair value and are originally denominated in the following currencies before conversion to US dollars below at December 31:





|              |  |                      |  | 2016 |         | 2015 |  | 2014
|------------- |  | -------------------- |  | ---- | ------- | ---- |  | ----
|              |  |                      |  |      |         |      |  |     
|Product sales |  | United States dollar |  | $    | 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.



|5. | PREPAIDS AND OTHER CURRENT ASSETS
|-- | ---------------------------------



The following table reflects the details of prepaids
and other current assets at December 31:





|                                               |  | 2016 |         | 2015 |  | 2014
|---------------------------------------------- |  | ---- | ------- | ---- |  | ----
|                                               |  |      |         |      |  |     
|Sales tax recoverable and other current assets |  | $    | 147,119 |      |  | $   
|Security deposits on leased properties         |  |      | 272,026 |      |  |     
|Prepaid expenses                               |  |      | 339,772 |      |  |     
|                                               |  |      |         |      |  |     
|                                               |  | $    | 758,917 |      |  | $   





|6. | INVENTORY
|-- | ---------



The following table reflects the details of inventory at December
31:





|                |  | 2016 |           | 2015 |  | 2014
|--------------- |  | ---- | --------- | ---- |  | ----
|                |  |      |           |      |  |     
|Raw materials   |  | $    | 662,458   |      |  | $   
|Finished goods  |  |      | 358,386   |      |  |     
|Work in process |  |      | 96,036    |      |  |     
|                |  |      |           |      |  |     
|                |  | $    | 1,116,880 |      |  | $   







Page 11






POET TECHNOLOGIES
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Expressed in US Dollars)






|7. | PROPERTY AND EQUIPMENT
|-- | ----------------------





|                                |  | Equipment not in service |         | Leasehold improvements |  | Machinery and equipment |         | Office equipment |  | Total
|------------------------------- |  | ------------------------ | ------- | ---------------------- |  | ----------------------- | ------- | ---------------- |  | -----
|Cost                            |  |                          |         |                        |  |                         |         |                  |  |      
|Balance, January 1, 2014        |  | $                        | -       |                        |  | $                       | -       |                  |  | $    
|Additions                       |  |                          | 3,152   |                        |  |                         | -       |                  |  |      
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|Balance, December 31, 2014      |  |                          | 3,152   |                        |  |                         | -       |                  |  |      
|Additions                       |  |                          | 7,024   |                        |  |                         | 5,896   |                  |  |      
|Reclassification                |  |                          | (10,176 | )                      |  |                         | 10,176  |                  |  |      
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|Balance, December 31, 2015      |  |                          | -       |                        |  |                         | 16,072  |                  |  |      
|Additions (1) (Note 21)         |  |                          | 602,830 |                        |  |                         | 667,342 |                  |  |      
|Disposals (1) (Note 21)         |  |                          | -       |                        |  |                         | (16,072 | )                |  |      
|Reclassification/impairment (2) |  |                          | -       |                        |  |                         | -       |                  |  |      
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|Balance,December 31, 2016       |  |                          | 602,830 |                        |  |                         | 667,342 |                  |  |      
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|Accumulated Depreciation        |  |                          |         |                        |  |                         |         |                  |  |      
|Balance, January 1, 2014        |  |                          | -       |                        |  |                         | -       |                  |  |      
|Depreciation for the year       |  |                          | -       |                        |  |                         | -       |                  |  |      
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|Balance, December 31, 2014      |  |                          | -       |                        |  |                         | -       |                  |  |      
|Depreciation for the year       |  |                          | -       |                        |  |                         | 3,104   |                  |  |      
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|Balance, December 31, 2015      |  |                          | -       |                        |  |                         | 3,104   |                  |  |      
|Depreciation for the year       |  |                          | -       |                        |  |                         | 83,189  |                  |  |      
|Disposals (1)                   |  |                          | -       |                        |  |                         | (3,104  | )                |  |      
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|Balance, December 31, 2016      |  |                          | -       |                        |  |                         | 83,189  |                  |  |      
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|Carrying Amounts                |  |                          |         |                        |  |                         |         |                  |  |      
|At December 31, 2014            |  | $                        | 3,152   |                        |  | $                       | -       |                  |  | $    
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|At December 31, 2015            |  | $                        | -       |                        |  | $                       | 12,968  |                  |  | $    
|                                |  |                          |         |                        |  |                         |         |                  |  |      
|At December 31, 2016            |  | $                        | 602,830 |                        |  | $                       | 584,153 |                  |  | $    





(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.



|8. | PATENTS AND LICENSES
|-- | --------------------



|Cost                       |  |  
|-------------------------- |  | -
|Balance, January 1, 2014   |  | $
|Additions                  |  |  
|                           |  |  
|Balance, December 31, 2014 |  |  
|Additions                  |  |  
|                           |  |  
|Balance, December 31, 2015 |  |  
|Additions                  |  |  
|                           |  |  
|Balance, December 31, 2016 |  |  







Page 12






POET TECHNOLOGIES
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Expressed in US Dollars)








|8. | PATENTS AND LICENSES (Continued)
|-- | --------------------------------





|Accumulated Amortization   |  |  
|-------------------------- |  | -
|Balance, January 1, 2014   |  |  
|Amortization               |  |  
|                           |  |  
|Balance, December 31, 2014 |  |  
|Amortization               |  |  
|                           |  |  
|Balance, December 31, 2015 |  |  
|Amortization               |  |  
|                           |  |  
|Balance, December 31, 2016 |  |  
|                           |  |  
|                           |  |  
|Carrying Amounts           |  |  
|At December 31, 2014       |  | $
|                           |  |  
|At December 31, 2015       |  | $
|                           |  |  
|At December 31, 2016       |  | $





|9. | INTANGIBLE ASSETS
|-- | -----------------





|                                                 |  | Technology |         | Customer  Relationships |  | Total
|------------------------------------------------ |  | ---------- | ------- | ----------------------- |  | -----
|                                                 |  |            |         |                         |  |      
|Cost                                             |  |            |         |                         |  |      
|Balance, January 1, 2014, 2015 and 2016          |  | $          | -       |                         |  | $    
|Acquired through the acquisition of DenseLight   |  |            | -       |                         |  |      
|Acquired through the acquisition of BB Photonics |  |            | 714,000 |                         |  |      
|                                                 |  |            |         |                         |  |      
|Balance, December 31, 2016                       |  |            | 714,000 |                         |  |      
|                                                 |  |            |         |                         |  |      
|Accumulated Amortization                         |  |            |         |                         |  |      
|Balance, January 1, 2014, 2015 and 2016          |  |            | -       |                         |  |      
|Amortization for the year                        |  |            | -       |                         |  |      
|                                                 |  |            |         |                         |  |      
|Balance, December 31, 2016                       |  |            | -       |                         |  |      
|                                                 |  |            |         |                         |  |      
|Carrying Amounts                                 |  |            |         |                         |  |      
|At January 1, 2014, 2015 and 2016                |  | $          | -       |                         |  | $    
|                                                 |  |            |         |                         |  |      
|At December 31, 2016                             |  | $          | 714,000 |                         |  | $    



|10. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|--- | ----------------------------------------



Accounts payable and accrued liabilities at December
31 was as follows:





|                            |  | 2016 |           | 2015 |  | 2014
|--------------------------- |  | ---- | --------- | ---- |  | ----
|                            |  |      |           |      |  |     
|Trade payable               |  | $    | 768,066   |      |  | $   
|Payroll related liabilities |  |      | 628,378   |      |  |     
|Accrued liabilities         |  |      | 183,037   |      |  |     
|Lease commitment            |  |      | 44,863    |      |  |     
|                            |  |      |           |      |  |     
|                            |  | $    | 1,624,344 |      |  | $   





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.





Page 13






POET TECHNOLOGIES
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Expressed in US Dollars)








|11. | SHARE CAPITAL
|--- | -------------





| | (a) | AUTHORIZED                       
| | --- | ---------------------------------
| |     | Unlimited number of common shares
| |     | One special voting share         
| |     |                                  
| | (b) | COMMON SHARES ISSUED             

|                                                                     |  | Number of 
Shares |             | Amount
|-------------------------------------------------------------------- |  | ----------------- | ----------- | ------
|                                                                     |  |                   |             |       
|Balance, January 1, 2014                                             |  |                   | 132,676,115 |       
|Shares issued on the exercise of stock options                       |  |                   | 4,824,950   |       
|Fair value of stock options exercised                                |  |                   | -           |       
|Shares issued on private placements                                  |  |                   | 7,692,307   |       
|Fair value of warrants and compensation warrants issued              |  |                   | -           |       
|Shares issued on the exercise of warrants and  compensation warrants |  |                   | 19,384,712  |       
|Fair value of warrants and compensation warrants exercised           |  |                   | -           |       
|Warrant exercise incentive                                           |  |                   | -           |       
|Shares issued for reduction of license fee                           |  |                   | 2,000,000   |       
|                                                                     |  |                   |             |       
|Balance, December 31, 2014                                           |  |                   | 166,578,084 |       
|Shares issued on the exercise of stock options                       |  |                   | 8,106,300   |       
|Fair value of stock options exercised                                |  |                   | -           |       
|Shares issued on the exercise of warrants and  compensation warrants |  |                   | 22,413,431  |       
|Fair value of warrants and compensation warrants exercised           |  |                   | -           |       
|                                                                     |  |                   |             |       
|Balance, December 31, 2015                                           |  |                   | 197,097,815 |       
|Shares issued on public offering                                     |  |                   | 34,800,000  |       
|Cost of shares issued on public offering                             |  |                   | -           |       
|Fair value of warrants issued                                        |  |                   | -           |       
|Shares issued to settle subsidiary accounts payable                  |  |                   | 2,386,386   |       
|Shares issued on business combination                                |  |                   | 15,607,240  |       
|Shares issued on the exercise of stock options                       |  |                   | 5,648,000   |       
|Fair value of stock options exercised                                |  |                   | -           |       
|Shares issued on the exercise of warrants and compensation warrants  |  |                   | 3,794,412   |       
|Fair value of warrants exercised                                     |  |                   | -           |       
|                                                                     |  |                   |             |       
|Balance, December 31, 2016                                           |  |                   | 259,333,853 |       







Page 14






POET TECHNOLOGIES
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Expressed in US Dollars)








|11. | SHARE CAPITAL (Continued)
|--- | -------------------------



On February 13, 2014, the Company completed a $4,546,000
($5,000,000 CAD) private placement financing. The financing consisted of 7,692,307 units at a price of $0.59 ($0.65 CAD) per unit.
Each unit comprised one common share and one common share purchase warrant. One warrant allows the holder to acquire one additional
common share of the Company at an exercise price of $0.91 ($1.00 CAD) per share for a year of 2 years, expiring on February 12,
2016. No commission was payable with respect to this financing.



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 1.017%, volatility of
92.22% and estimated life of 2 years. The estimated fair value assigned to the warrants was $1,869,231 ($2,076,923 CAD).



During 2014, the Company paid $31,712 ($35,000 CAD) as
incentives for the exercise of warrants.



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).



|12. | WARRANTS
|--- | --------



The following table
reflects the continuity of warrants:





|                                             |  | Average Exercise  Price |       | Number of  Warrants |  | Historical  Fair value
|-------------------------------------------- |  | ----------------------- | ----- | ------------------- |  | ----------------------
|                                             |  |                         |       |                     |  |                       
|Balance, January 1, 2014                     |  | $                       | 0.48  |                     |  |                       
|Warrants issued                              |  |                         | 0.91  |                     |  |                       
|Expired                                      |  |                         | (0.29 | )                   |  |                       
|Exercised                                    |  |                         | (0.43 | )                   |  |                       
|                                             |  |                         |       |                     |  |                       
|Balance, December 31, 2014                   |  |                         | 0.61  |                     |  |                       
|Warrants and compensation warrants exercised |  |                         | (0.42 | )                   |  |                       
|                                             |  |                         |       |                     |  |                       
|Balance, December 31, 2015                   |  |                         | 0.79  |                     |  |                       
|Warrants issued                              |  |                         | 0.39  |                     |  |                       
|Warrants and compensation warrants exercised |  |                         | (0.51 | )                   |  |                       
|Expired                                      |  |                         | (1.02 | )                   |  |                       
|                                             |  |                         |       |                     |  |                       
|Balance, December 31, 2016                   |  | $                       | 0.39  |                     |  |                       







Page 15






POET TECHNOLOGIES
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Expressed in US Dollars)








|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:





|                           |  | Number of  Options |            | Weighted average  Exercise  Price
|-------------------------- |  | ------------------ | ---------- | ---------------------------------
|                           |  |                    |            |                                  
|Balance, January 1, 2014   |  |                    | 23,732,750 |                                  
|Expired/cancelled          |  |                    | (825,000   | )                                
|Exercised                  |  |                    | (4,824,950 | )                                
|Granted                    |  |                    | 6,155,000  |                                  
|                           |  |                    |            |                                  
|Balance, December 31, 2014 |  |                    | 24,237,800 |                                  
|Expired/cancelled          |  |                    | (1,068,000 | )                                
|Exercised                  |  |                    | (8,106,300 | )                                
|Granted                    |  |                    | 11,655,000 |                                  
|                           |  |                    |            |                                  
|Balance, December 31, 2015 |  |                    | 26,718,500 |                                  
|Expired/cancelled          |  |                    | (1,290,000 | )                                
|Exercised                  |  |                    | (5,648,000 | )                                
|Granted                    |  |                    | 4,025,000  |                                  
|                           |  |                    |            |                                  
|Balance, December 31, 2016 |  |                    | 23,805,500 |                                  





During the year ended December 31, 2016, the Company granted
4,025,000 (2015 - 11,655,000, 2014 - 6,155,000) stock options to officers, employees and consultants of the Company to purchase
common shares at an average price of $0.62 (2015 - $1.19, 2014 - $1.26) per share.



During the year ended December 31, 2016, the Company recorded
stock-based compensation of $4,070,264 (2015 - $4,818,120, 2014 - $4,615,997) 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:





|                                         |  | 2016 |          | 2015 |  | 2014
|---------------------------------------- |  | ---- | -------- | ---- |  | ----
|                                         |  |      |          |      |  |     
|Weighted average exercise price          |  | $    | 0.62     |      |  | $   
|Weighted average risk-free interest rate |  |      | 1.05     | %    |  |     
|Weighted average dividend yield          |  |      | 0        | %    |  |     
|Weighted average volatility              |  |      | 104.3    | %    |  |     
|Weighted average estimated life          |  |      | 10 years |      |  |     
|Weighted average share price             |  | $    | 0.62     |      |  | $   







Page 16






POET TECHNOLOGIES
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Expressed in US Dollars)








|13. | STOCK OPTIONS AND CONTRIBUTED SURPLUS (Continued)
|--- | -------------------------------------------------



Share price on the various grant dates were:





|                 |  | 2016 |      | 2015 |  | 2014
|---------------- |  | ---- | ---- | ---- |  | ----
|                 |  |      |      |      |  |     
|First grant      |  | $    | 0.75 |      |  | $   
|Second grant     |  |      | 0.74 |      |  |     
|Third grant      |  |      | 0.66 |      |  |     
|Fourth grant     |  |      | 0.71 |      |  |     
|Fifth grant      |  |      | 0.62 |      |  |     
|Sixth grant      |  |      | 0.46 |      |  |     
|Seventh grant    |  |      | -    |      |  |     
|Eigth grant      |  |      | -    |      |  |     
|Ninth grant      |  |      | -    |      |  |     
|Tenth grant      |  |      | -    |      |  |     
|Eleventh grant   |  |      | -    |      |  |     
|Twelfth grant    |  |      | -    |      |  |     
|Thirteenth grant |  |      | -    |      |  |     





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, 2016 are as follows:





|Options Outstanding |  | Options Exercisable
|------------------- |  | -------------------
|Exercise  Range     |  | Number  Outstanding
|                    |  |                    
|$0.11 - $0.25       |  |                    
|$0.28 - $0.31       |  |                    
|$0.34 - $0.37       |  |                    
|$0.38 - $0.86       |  |                    
|$0.87 - $1.64       |  |                    
|                    |  |                    
|                    |  |                    





Contributed Surplus



The following table reflects the continuity of contributed surplus:





|                                      |  | Amount
|------------------------------------- |  | ------
|                                      |  |       
|Balance, January 1, 2014              |  | $     
|Stock-based compensation              |  |       
|Fair value of stock options exercised |  |       
|Fair value of expired warrants        |  |       
|                                      |  |       
|Balance, December 31, 2014            |  |       
|Stock-based compensation              |  |       
|Fair value of stock options exercised |  |       
|                                      |  |       
|Balance, December 31, 2015            |  |       
|Stock-based compensation              |  |       
|Fair value of stock options exercised |  |       
|Fair value of expired warrants        |  |       
|                                      |  |       
|Balance, December 31, 2016            |  | $     







Page 17






POET TECHNOLOGIES
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Expressed in US Dollars)








|14. | LOSS PER SHARE
|--- | --------------





|                                                               |  | 2016 |             | 2015 |  | 2014
|-------------------------------------------------------------- |  | ---- | ----------- | ---- |  | ----
|                                                               |  |      |             |      |  |     
|Numerator                                                      |  |      |             |      |  |     
|Net loss                                                       |  | $    | (13,224,684 | )    |  | $   
|                                                               |  |      |             |      |  |     
|Denominator                                                    |  |      |             |      |  |     
|Weighted average number of common shares outstanding           |  |      | 220,058,321 |      |  |     
|Weighted average number of common shares outstanding - diluted |  |      | 220,058,321 |      |  |     
|                                                               |  |      |             |      |  |     
|Basic and diluted loss per share                               |  | $    | (0.06       | )    |  | $   





The effect of common share purchase options, warrants, compensation warrants
and shares to be issued on the net loss in 2016, 2015 and 2014 is not reflected as they are anti-dilutive.



|15. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------



The Company has three facilities; head office located in
Toronto, Canada, development operations located in San Jose, California and operating facilities located in Singapore. The Company
has operating leases for development operations and operating facilities expiring January 31, 2017 (not renewed) and February 15,
2019 respectively. As at December 31, 2016, the Company's head office was on a month to month lease term.



Rent expense under these leases was $312,842 for the year
ended December 31, 2016 (2015 - $204,987, 2014 - $153,398).



Remaining minimum annual rental payments to the lease expiration
date is as follows:





|2017                         |  | $ | 387,157 | 
|---------------------------- |  | - | ------- | 
|January 1, 2018 through 2019 |  |   | 419,420 | 
|                             |  |   |         | 
|                             |  | $ | 806,577 | 





The Company has a letter of guarantee ("LG")
in the amount of $578,330 in the name of the landlord in Singapore. DenseLight owes $130,934 of unpaid rent plus accrued penalties.
The LG was put in place as a guarantee that the unpaid rent would be paid by April 30, 2017 based on an agreed repayment plan.



|16. | RELATED PARTY TRANSACTIONS
|--- | --------------------------



Compensation to key management personnel were as follows:





|                         |  | 2016 |           | 2015 |  | 2014
|------------------------ |  | ---- | --------- | ---- |  | ----
|                         |  |      |           |      |  |     
|Salaries                 |  |      | 2,047,634 |      |  | $   
|Share-based payments (1) |  |      | 3,061,686 |      |  |     
|                         |  |      |           |      |  |     
|Total                    |  |      | 5,109,320 |      |  | $   

(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 2014, the Company settled $100,000 that was advanced
to the former CEO of the Company. The amount was non interest bearing and short-term in nature. The Company settled the amount
due from the former CEO in return for a reduction in his compensation and certain other entitlements.





Page 18






POET TECHNOLOGIES
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Expressed in US Dollars)








|16. | RELATED PARTY TRANSACTIONS (Continued)
|--- | --------------------------------------



In 2014, the former CEO of the Company received a severance
package of $185,000 to be paid over one year. The full amount of the severance package was accounted for in 2014.



The Company paid or accrued $113,250 for the year ended
December 31, 2016 (2015 - $104,790, 2014 - $174,549) to a law firm, of which a director is counsel, for legal services rendered
to the Company.



In 2016, the Company paid or accrued $150,000 in consulting
fees to a director for strategic, technology, integration and general business consulting services.



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 military and 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 datacenter market
utilizing embedded dielectric technology that is intended to enable onchip athermal wavelength control and lower the total solution
cost of datacenter photonic integrated circuits.



DenseLight

DenseLight designs, manufactures, and delivers photonic
optical light source products and solutions to the communications, medical, instrumentations, industrial, defense, 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:



|                               |  | 2016     
|------------------------------ |  | ---------
|                               |  |          
|As of December 31,             |  | Singapore
|                               |  |          
|Current assets                 |  | $        
|Property and equipment         |  |          
|Patents and licenses           |  |          
|Goodwill and intangible assets |  |          
|                               |  |          
|Total Assets                   |  | $        







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 |           | Consolidated
|------------------------------------------- |  | --------- | --------- | -- |  | ------ | --------- | ------------
|                                            |  |           |           |    |  |        |           |             
|Sales                                       |  | $         | 1,861,747 |    |  | $      | -         |             
|Cost of sales                               |  |           | 1,379,838 |    |  |        | -         |             
|Selling, marketing and administration       |  |           | 2,908,465 |    |  |        | 7,200,243 |             
|Research and development                    |  |           | 770,033   |    |  |        | 2,122,983 |             
|Impairment loss                             |  |           | -         |    |  |        | 63,522    |             
|Loss on disposal of property  and equipment |  |           | -         |    |  |        | 29,807    |             
|Other income                                |  |           | (14,027   | )  |  |        | -         |             
|                                            |  |           |           |    |  |        |           |             
|Net loss from operations                    |  | $         | 3,182,562 |    |  | $      | 9,416,555 |             





|                       |  | 2015     
|---------------------- |  | ---------
|As of December 31,     |  | Singapore
|                       |  |          
|Current assets         |  | $        
|Property and equipment |  |          
|Patents and licenses   |  |          
|                       |  |          
|Total Assets           |  | $        





|Year Ended December 31,    |  | Singapore |   | US |  | Canada |            | Consolidated
|-------------------------- |  | --------- | - | -- |  | ------ | ---------- | ------------
|                           |  |           |   |    |  |        |            |             
|General and administration |  | $         | - |    |  | $      | 6,622,514  |             
|Research and development   |  |           | - |    |  |        | 3,532,492  |             
|Other income               |  |           | - |    |  |        | -          |             
|                           |  |           |   |    |  |        |            |             
|Net loss from operations   |  | $         | - |    |  | $      | 10,155,006 |             





|                       |  | 2014     
|---------------------- |  | ---------
|As of December 31,     |  | Singapore
|                       |  |          
|Current assets         |  | $        
|Property and equipment |  |          
|Patents and licenses   |  |          
|                       |  |          
|Total Assets           |  | $        





|Year Ended December 31,    |  | Singapore |   | US |  | Canada |           | Consolidated
|-------------------------- |  | --------- | - | -- |  | ------ | --------- | ------------
|                           |  |           |   |    |  |        |           |             
|General and administration |  | $         | - |    |  | $      | 5,827,262 |             
|Research and development   |  |           | - |    |  |        | 2,277,927 |             
|Other income               |  |           | - |    |  |        | (169,832  | )           
|                           |  |           |   |    |  |        |           |             
|Net loss from operations   |  | $         | - |    |  | $      | 7,935,357 |             







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:





|                                                           |  | 2016 |            | 2015 |  | 2014
|---------------------------------------------------------- |  | ---- | ---------- | ---- |  | ----
|                                                           |  |      |            |      |  |     
|Fair value through profit or loss, measured at fair value: |  |      |            |      |  |     
|Cash                                                       |  | $    | 14,376,282 |      |  | $   
|Short-term investments                                     |  |      | 589,275    |      |  |     
|Loans and receivable, measured at amortized cost:          |  |      |            |      |  |     
|Accounts receivable                                        |  |      | 292,849    |      |  |     
|Other liabilities, measured at amortized cost:             |  |      |            |      |  |     
|Accounts payable and accrued liabilities                   |  |      | (1,624,344 | )    |  |     





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.



The Company's accounts receivable ageing at December 31
was as follows:





|             |  | 2016 |         | 2015 |  | 2014
|------------ |  | ---- | ------- | ---- |  | ----
|             |  |      |         |      |  |     
|Current      |  | $    | 125,610 |      |  | $   
|31 - 60 days |  |      | 16,346  |      |  |     
|61 - 90 days |  |      | 75,816  |      |  |     
|> 90 days    |  |      | 75,077  |      |  |     
|             |  |      |         |      |  |     
|             |  | $    | 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 $620,560.



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), cash and short-term investments. The components of capital
on December 31, 2016 were:





|Cash and short-term investments |  | $ | 14,965,557  | 
|------------------------------- |  | - | ----------- | 
|Shareholders' equity            |  | $ | 138,406,114 | 





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:





|                         |  | 2016 |           | 2015 |  | 2014
|------------------------ |  | ---- | --------- | ---- |  | ----
|                         |  |      |           |      |  |     
|Wages and benefits       |  | $    | 1,299,758 |      |  | $   
|Subcontract fees         |  |      | 1,013,539 |      |  |     
|Stock-based compensation |  |      | 373,196   |      |  |     
|Supplies                 |  |      | 206,523   |      |  |     
|                         |  |      |           |      |  |     
|                         |  | $    | 2,893,016 |      |  | $   







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







|Stock-based compensation                            |  | $ | 3,697,068  |  |  | $ | 4,265,704 |  |  | $ | 3,974,821 | 
|--------------------------------------------------- |  | - | ---------- |  |  | - | --------- |  |  | - | --------- | 
|Wages and benefits                                  |  |   | 3,073,687  |  |  |   | 1,306,051 |  |  |   | 1,700,600 | 
|Depreciation and amortization                       |  |   | 1,521,566  |  |  |   | 319,863   |  |  |   | 236,955   | 
|General expenses                                    |  |   | 1,292,341  |  |  |   | 1,012,340 |  |  |   | 662,672   | 
|Professional fees                                   |  |   | 715,716    |  |  |   | 812,115   |  |  |   | 907,794   | 
|Management and consulting fees                      |  |   | 611,861    |  |  |   | 665,771   |  |  |   | 595,667   | 
|Rent                                                |  |   | 348,337    |  |  |   | 232,265   |  |  |   | 159,298   | 
|Shares issued as reduction of license fee (Note 24) |  |   | -          |  |  |   | -         |  |  |   | 1,439,898 | 
|                                                    |  |   |            |  |  |   |           |  |  |   |           | 
|                                                    |  | $ | 11,260,576 |  |  | $ | 8,614,109 |  |  | $ | 9,677,705 | 





|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.





Page 23






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 provider 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 include $184,570
still due to past and current employees that will be paid over the next 3 months.



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 the shares of the Company for a period of six months, at which time they may
each sell up to 25% of their shares. They may sell an additional 25% of the shares after twelve months. Thereafter, all management
shareholders shall be able to sell the remaining shares after 24 months from closing. Former non-management shareholders of DenseLight
agreed not to sell, transfer, pledge or otherwise dispose of the shares they received for six months, at which time they may sell
up to 25% of the shares received. Thereafter, they may sell the remaining shares after 12 months from closing.



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 paid





|Fair value of 13,611,150 shares issued |  | $ | 10,500,000 | 
|-------------------------------------- |  | - | ---------- | 
|Contingent consideration payable       |  |   | 283,130    | 
|                                       |  |   |            | 
|Total consideration                    |  | $ | 10,783,130 | 





Recognised amounts of identifiable net assets:



|Cash                                      |  | $ | 2,971      |  
|----------------------------------------- |  | - | ---------- | -
|Accounts receivables and unbilled revenue |  |   | 198,898    |  
|Prepaid and other current assets          |  |   | 293,386    |  
|Inventory                                 |  |   | 319,257    |  
|Property and equipment                    |  |   | 8,635,650  |  
|Customer relationships                    |  |   | 186,131    |  
|Goodwill                                  |  |   | 6,630,544  |  
|Trade 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, 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 $207,257. Deferred tax liability at December
31, 2016 was $1,303,567.



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 paid



|Fair value of 1,996,090 shares issued |  | $ | 1,550,000 | 
|------------------------------------- |  | - | --------- | 





Recognised amounts of identifiable net assets:





|Cash                   |  | $ | 15,820    |  
|---------------------- |  | - | --------- | -
|Property and equipment |  |   | 70,379    |  
|Intangibles            |  |   | 714,000   |  
|Goodwill               |  |   | 1,050,459 |  
|Trade payables         |  |   | (7,918    | )
|Deferred tax liability |  |   | (292,740  | )
|                       |  |   |           |  
|Net assets acquired    |  | $ | 1,550,000 |  





From the date of acquisition, 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.





Page 26






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 2016 (2015 - 26.5%, 2014 - 26.5%) to the amounts recognized in
operations.





|For the Year Ended December 31,       |  | 2016 |            | 2015 |  | 2014
|------------------------------------- |  | ---- | ---------- | ---- |  | ----
|                                      |  |      |            |      |  |     
|Net loss before taxes                 |  | $    | 13,431,941 |      |  | $   
|                                      |  |      |            |      |  |     
|Expected current  income tax recovery |  |      | 3,559,000  |      |  |     
|Deferred tax recovery                 |  |      | 207,257    |      |  |     
|                                      |  |      |            |      |  |     
|                                      |  |      | 3,766,257  |      |  |     





Changes from:





|Amounts not deductible for tax purposes |  |   | (1,079,000 | ) |  |   | (1,276,802 | ) |  |   | (1,604,700 | )
|--------------------------------------- |  | - | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|Other non-deductible items              |  |   | -          |   |  |   | (2,700     | ) |  |   | (6,100     | )
|Deductible share issuance costs         |  |   | 118,000    |   |  |   | 56,000     |   |  |   | 100,000    |  
|Fair value consideration                |  |   | 116,000    |   |  |   | -          |   |  |   | -          |  
|Effect of prior years' loss adjustment  |  |   | -          |   |  |   | -          |   |  |   | 171,600    |  
|Foreign tax differential                |  |   | 507,213    |   |  |   | 879,000    |   |  |   | 563,300    |  
|Unrecognized tax losses                 |  |   | (3,221,213 | ) |  |   | (2,854,093 | ) |  |   | (2,347,300 | )
|                                        |  |   |            |   |  |   |            |   |  |   |            |  
|Income tax recovery recognized          |  | $ | 207,257    |   |  | $ | -          |   |  | $ | -          |  





The following table reflects future income tax assets at December 31:





|                                    |  | 2016 |              | 2015 |  | 2014
|----------------------------------- |  | ---- | ------------ | ---- |  | ----
|                                    |  |      |              |      |  |     
|Resource assets                     |  | $    | 1,024,271    |      |  | $   
|Gross unamortized share issue costs |  |      | 1,050,599    |      |  |     
|Canadian non-capital losses         |  |      | 10,137,652   |      |  |     
|US non-capital losses               |  |      | 63,725,982   |      |  |     
|Singapore non-capital losses        |  |      | 37,448,290   |      |  |     
|                                    |  |      | 113,386,794  |      |  |     
|Unrecognized deferred tax assets    |  |      | (113,386,794 | )    |  |     
|                                    |  |      |              |      |  |     
|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.



|24. | REDUCTION OF LICENSE FEE
|--- | ------------------------



In 2014 the University of Connecticut agreed to convert
certain royalty rights into a significant investment in the Company. The parties agreed to restructure the payment provisions of
the License Agreement by reducing royalty payments to three percent (3%) of amounts received from unaffiliated third parties in
respect of the exploitation of the Intellectual Property defined in the License Agreement, in consideration for 2,000,000 common
shares of the Company. The common shares were valued at $1,439,898 (CAD $1,580,000). The market value of shares was determined
using the quoted market price of the Company's stock on the TSX.V on the date of the agreement between the Company and the University
of Connecticut.





Page 27