Mr. John O'Donnell reports

POET TECHNOLOGIES REPORTS FULL YEAR 2016 FINANCIAL RESULTS

Poet Technologies Inc. had consolidated financial results for the year ended Dec. 31, 2016. These financial results, along with the management discussion and analysis, have been filed on SEDAR.

2016 and recent highlights

• Revenue of $1.86-million (U.S.) in 2016, driven by contribution from acquired DenseLight subsidiary;
• Appointed Rajan Rajgopal as president and general manager of DenseLight and completed streamlining of the combined organization;
• Introduced next-generation Constellation Series of NLWL solutions;
• Announced development of new micromultiplexer and demultiplexer solutions;
• Appointed David Lazovsky as executive chairman of the board;
• Ended the year with cash and short-term investments of $14.9-million (U.S.);
• Validated the functionality of VCSELs (vertical-cavity surface-emitting laser) for the company's monolithically integrated GaAs (gallium arsenide) opto-electronic platform.

Total sales in calendar year 2016 were $1.86-million (U.S.), reflecting approximately seven months of revenue contribution from the company's DenseLight subsidiary that it acquired in May, 2016, which included non-recurring engineering (NRE) revenue of $154,000 (U.S.). For the six months ended Dec. 31, 2016, total revenue was $1.29-million (U.S.), below the company's previous revenue guidance of $1.6-million (U.S.) to $1.8-million (U.S.) due to previously disclosed operational inefficiencies. Gross margin was 26 per cent during the period and impacted by fair value of inventory adjustments related to a previous acquisition, and net loss was $13.2-million (U.S.), or six cents per share. The company reported no revenue and a net loss of $12.1-million (U.S.), or seven cents per share, in 2015.

Revenue in 2016 primarily consisted of the sale of DenseLight photonic sensors for test and measurement applications. Beginning in late 2016, the company conducted a strategic review of its DenseLight subsidiary, while simultaneously taking a number of steps to improve operational efficiencies. These and other actions taken to streamline the consolidated company and realign management responsibilities were completed during the first quarter of 2017. As part of these efforts, Poet also strengthened its management team with the addition of several key staff, including the appointment of Rajan Rajgopal as president and general manager of DenseLight.

Business update

Commenting on the company's recent progress and business update, Dr. Suresh Venkatesan, chief executive officer of Poet, stated: "Since our last earnings release, Poet has made notable progress with the development of our integrated photonics engine. I am pleased to announce that we have achieved a very significant milestone for the company -- successfully demonstrating the functionality of our vertical-cavity surface-emitting laser (VCSEL) for the integrated GaAs opto-electronic platform. After establishing a second supplier for the proprietary epitaxial stack, we were able to complete the first phase of epitaxial design optimization in January, 2017, followed by VCSEL fabrication and validation of its functionality and performance. The pace of progress has rapidly increased with the resumed development cycles at our epitaxial wafer vendor and our foundry partner in Taiwan, helping to further advance the development of our fully integrated optical engine. The development program for the Poet photonic engine continues to be focused on single-chip transceivers for the active optical cable (AOC) market."

Results from the company's recent validation process indicated that the VCSEL threshold currents were near expectations and with good process yields, demonstrating excellent material properties and surpassing the results previously achieved. The company is now focused on additional performance optimization and is addressing that, along with the rest of its planned continuing development activities toward a single chip transceiver optical engine.

Strategic update

In conjunction with Poet's announcement of validating functionality of the VCSEL and the completion of its broader strategic review, the company substantiated a complementary opportunity to further leverage DenseLight's indium phosphide (InP) technology and dielectric waveguide devices developed at BB Photonics. This new dielectric photonics approach consists of integrating indium-phosphide-based chips together with dielectric waveguide devices, eliminating the need for active alignment and expensive packaging. In addition to Poet targeting the short reach AOC market, dielectric-photonics-based hybrid integration enables the potential for significantly lower-cost solutions in medium-reach data centre applications -- greatly expanding the company's addressable market across multiple higher volume opportunities. Poet also expects to increase its addressable market for sensing products with unique low-cost solutions by incorporating BB Photonics' designs for waveguide multiplexers and filters together with the company's DenseLight InP product portfolio. Collectively, Poet's strategy to pursue new solutions that combine both monolithic and hybrid integration approaches will enable the company to target the fast-growing 100-gigabit-and-beyond transceiver market, offering both fully integrated optical engines as well as individual active and passive components.

Poet's executive chairman of the board, David Lazovsky, commented: "Since my appointment earlier this year, I have worked extensively with the board and management team to formalize a strategy that we believe can fully leverage the company's GaAs and InP technology platforms. The acquisitions of DenseLight and BB Photonics provided the company with critical capabilities to pursue additional high-volume markets within data communications in order to expand and diversify our business. Moreover, by broadening our integrated photonics platform capabilities, we are significantly expanding the size of the company's addressable market and business opportunities in data communications with the addition of medium-reach applications. Although it will take additional time to realize these opportunities, I believe our strategy will ultimately drive higher unit volumes and revenue across a broader target market."

The company expects that the product development phase for the Poet monolithic integration technology and the integration of BB Photonics technology into the DenseLight product portfolio as part of new hybrid approaches will be the primary focus of its development activities throughout the 2017 calendar year. Initial commercial revenue contribution from new DenseLight sensing products is also anticipated in 2017.

New products

Also subsequent to year-end, the company announced the development of low-loss micromultiplexer and demultiplexer solutions for 100-gigabit-and-above transceivers. These products are currently under development and leverage passive dielectric waveguide technology from the acquisition of BB Photonics. Poet recently highlighted this technology at the Photonic Integrated Circuits (PIC) conference in February and also discussed the first target application as being LAN WDM filters for the high-speed transceiver market. The company currently expects prototypes will be available in the second quarter of 2017, followed by initial sampling with customers during the third quarter.

In February, Poet's DenseLight subsidiary demonstrated the newest generation of its Constellation Series of narrow-linewidth laser (NLWL) solutions for wind LIDAR (light detection and ranging) and distributed acoustic sensing applications. These NLW lasers were specifically designed to meet the increasing requirement across multiple end markets for superior relative intensity noise (RIN) performance and ultranarrow linewidths. This new family of products simplifies the overall design process for original equipment manufacturers while also shortening development time and significantly accelerating time to market. The company plans to make engineering samples available in the second quarter of 2017 and expects to begin commercial production in the second half of the year.

Business outlook

Poet is not providing specific quantitative guidance for future periods; however, preliminary financial results for the first quarter of 2017 are expected to reflect a sequential improvement in revenue. Additionally, while management continues to emphasize efforts aimed at minimizing the net cash used from operations, the timing of the company reaching cash flow break-even will largely depend on the future revenue performance of its DenseLight subsidiary as well as continued expense management.

About Poet Technologies Inc.

Poet is a developer of opto-electronics and photonic fabrication processes and products.

We seek Safe Harbor.