Exhibit 99.1
NOTICE TO SHAREHOLDERS
For the Three and Six Months Ended June 30, 2017
(Unaudited and Expressed in US Dollars)
POET TECHNOLOGIES INC.
Auditors' involvement
The auditors of POET Technologies Inc. have not performed a review of these condensed unaudited consolidated financial statements for the three and six months ended June 30, 2017 and June 30, 2016.
POET TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | Audited | |||||||
(Expressed in US Dollars) | June 30, | December 31, | ||||||
2017 | 2016 | |||||||
Assets | ||||||||
Current | ||||||||
Cash | $ | 9,165,466 | $ | 14,376,282 | ||||
Short-term investments (Note 2) | 609,423 | 589,275 | ||||||
Accounts receivable (Note 4) | 529,869 | 292,849 | ||||||
Prepaids and other current assets (Note 5) | 642,655 | 758,917 | ||||||
Inventory (Note 6) | 969,309 | 1,116,880 | ||||||
11,916,722 | 17,134,203 | |||||||
Property and equipment (Note 7) | 8,670,548 | 9,364,210 | ||||||
Patents and licenses (Note 8) | 454,997 | 449,676 | ||||||
Intangible assets (Note 9) | 858,251 | 876,865 | ||||||
Goodwill (Note 2) | 7,681,003 | 7,681,003 | ||||||
Total Assets | $ | 29,581,521 | $ | 35,505,957 | ||||
Liabilities | ||||||||
Current | ||||||||
Accounts payable and accrued liabilities (Note 10) | $ | 729,776 | $ | 1,624,344 | ||||
729,776 | �� | 1,624,344 | ||||||
Deferred tax liability | 1,447,337 | 1,596,307 | ||||||
Deferred rent | 34,271 | 42,665 | ||||||
Total Liabilities | 2,211,384 | 3,263,316 | ||||||
Shareholders' Equity | ||||||||
Share capital (Note 11(b)) | 103,572,736 | 103,357,862 | ||||||
Warrants (Note 12) | 5,985,378 | 5,985,378 | ||||||
Contributed surplus (Note 13) | 30,004,641 | 29,062,874 | ||||||
Accumulated other comprehensive loss | (1,774,325 | ) | (2,088,117 | ) | ||||
Deficit | (110,418,293 | ) | (104,075,356 | ) | ||||
27,370,137 | 32,242,641 | |||||||
Total Liabilities and Equity | $ | 29,581,521 | $ | 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 condensed consolidated financial statements.
Page 2 |
POET TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Expressed in US Dollars)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 648,382 | $ | 576,741 | $ | 1,360,932 | $ | 576,741 | ||||||||
Cost of sales(1) | 320,857 | 280,563 | 609,048 | 280,563 | ||||||||||||
Gross margin | 327,525 | 296,178 | 751,884 | 296,178 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling, marketing and administration (Note 20)(1) | 2,127,083 | 3,095,609 | 4,923,477 | 5,345,092 | ||||||||||||
Research and development (Note 20) (1) | 1,244,258 | 654,139 | 2,482,678 | 1,323,958 | ||||||||||||
Impairment loss (Note 2) | - | - | - | 63,522 | ||||||||||||
Loss on disposal of property and equipment | - | - | - | 16,931 | ||||||||||||
Other income, including interest | (142,557 | ) | (14,950 | ) | (162,364 | ) | (35,752 | ) | ||||||||
Net loss before income tax recovery | (2,901,259 | ) | (3,438,620 | ) | (6,491,907 | ) | (6,417,573 | ) | ||||||||
Income tax recovery | (74,485 | ) | - | (148,970 | ) | - | ||||||||||
Net loss | (2,826,774 | ) | (3,438,620 | ) | (6,342,937 | ) | (6,417,573 | ) | ||||||||
Deficit, beginning of period | (107,591,519 | ) | (93,829,625 | ) | (104,075,356 | ) | (90,850,672 | ) | ||||||||
Net loss | (2,826,774 | ) | (3,438,620 | ) | (6,342,937 | ) | (6,417,573 | ) | ||||||||
Deficit, end of period | $ | (110,418,293 | ) | $ | (97,268,245 | ) | $ | (110,418,293 | ) | $ | (97,268,245 | ) | ||||
Basic and diluted net loss per share (Note 14) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.01 | ) |
(1) Certain prior period figures have been represented to conform with the current period's presentation.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Expressed in US Dollars)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net loss | $ | (2,826,774 | ) | $ | (3,438,620 | ) | $ | (6,342,937 | ) | $ | (6,417,573 | ) | ||||
Other comprehensive income - net of income taxes | ||||||||||||||||
Exchange differences on translating foreign operations | 194,694 | 32,920 | 313,792 | 703,060 | ||||||||||||
Comprehensive loss | $ | (2,632,080 | ) | $ | (3,405,700 | ) | $ | (6,029,145 | ) | $ | (5,714,513 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 3 |
POET TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in US Dollars)
For the Six Months Ended June 30, | 2017 | 2016 | ||||||
Share Capital | ||||||||
Beginning balance | $ | 103,357,862 | $ | 81,027,171 | ||||
Funds from the exercise of warrants and compensation warrants | - | 1,756,375 | ||||||
Fair value of warrants and compensation warrants exercised | - | 706,772 | ||||||
Funds from the exercise of stock options | 102,045 | 1,185,600 | ||||||
Fair value assigned to stock options exercised | 112,829 | 1,249,864 | ||||||
Commons shares issued on business acquisitions | - | 12,050,000 | ||||||
Common shares issued to settle liabilities | - | 1,843,629 | ||||||
June 30, | 103,572,736 | 99,819,411 | ||||||
Warrants | ||||||||
Beginning balance | 5,985,378 | 2,013,747 | ||||||
Fair value of warrants and compensation warrants exercised | - | (706,772 | ) | |||||
Fair value of expired warrants | - | (1,110,775 | ) | |||||
June 30, | 5,985,378 | 196,200 | ||||||
Contributed Surplus | ||||||||
Beginning balance | 29,062,874 | 25,618,159 | ||||||
Stock-based compensation | 1,054,596 | 2,147,041 | ||||||
Fair value of stock options exercised | (112,829 | ) | (1,249,864 | ) | ||||
Fair value of expired warrants | - | 1,110,775 | ||||||
June 30, | 30,004,641 | 27,626,111 | ||||||
Accumulated Other Comprehensive Loss | ||||||||
Beginning balance | (2,088,117 | ) | (2,388,987 | ) | ||||
Other comprehensive income attributable to common shareholders - translation adjustment | 313,792 | 703,060 | ||||||
June 30, | (1,774,325 | ) | (1,685,927 | ) | ||||
Deficit | ||||||||
Beginning balance | (104,075,356 | ) | (90,850,672 | ) | ||||
Net loss | (6,342,937 | ) | (6,417,573 | ) | ||||
June 30, | (110,418,293 | ) | (97,268,245 | ) | ||||
Total shareholders' equity | $ | 27,370,137 | $ | 28,687,550 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 4 |
POET TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in US Dollars)
For the Six Months Ended June 30, | 2017 | 2016 | ||||||
CASH (USED IN) PROVIDED BY: | ||||||||
OPERATING ACTIVITIES | ||||||||
Net loss | $ | (6,342,937 | ) | $ | (6,417,573 | ) | ||
Adjustments for: | ||||||||
Depreciation of property and equipment (Note 7) | 1,054,497 | 304,695 | ||||||
Amortization of patents and licenses (Note 8) | 26,201 | 23,107 | ||||||
Amortization of intangibles (Note 9) | 18,614 | - | ||||||
Loss on disposition of property and equipment | - | 16,931 | ||||||
Impairment of non-current asset held for sale | - | 63,522 | ||||||
Stock-based compensation (Note 13) | 1,054,596 | 2,147,041 | ||||||
Income tax recovery | (148,970 | ) | - | |||||
(4,337,999 | ) | (3,862,277 | ) | |||||
Net change in non-cash working capital accounts: | ||||||||
Accounts receivable | (217,879 | ) | (459,962 | ) | ||||
Prepaid and other current assets | 149,145 | (12,221 | ) | |||||
Inventory | 199,752 | (80,493 | ) | |||||
Accounts payable and accrued liabilities | (916,927 | ) | (253,426 | ) | ||||
Cash flows from operating activities | (5,123,908 | ) | (4,668,379 | ) | ||||
INVESTING ACTIVITIES | ||||||||
Cash proceeds from acquisitions | - | 18,791 | ||||||
Proceeds from the disposal of property and equipment | - | 2,195 | ||||||
Purchase of property and equipment (Note 7) | (293,290 | ) | (118,085 | ) | ||||
Purchase of patents and licenses (Note 8) | (31,522 | ) | (29,936 | ) | ||||
Cash flows from investing activities | (324,812 | ) | (127,035 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Advances made prior to acquisition | - | (500,000 | ) | |||||
Issue of common shares for cash, net of issue costs | 102,045 | 2,941,975 | ||||||
Cash flows from financing activities | 102,045 | 2,441,975 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 135,859 | 703,060 | ||||||
NET CHANGE IN CASH | (5,210,816 | ) | (1,650,379 | ) | ||||
CASH, beginning of period | 14,376,282 | 14,409,996 | ||||||
CASH, end of period | $ | 9,165,466 | $ | 12,759,617 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
1. | DESCRIPTION OF BUSINESS |
POET Technologies Inc. is incorporated in the Province of Ontario. POET Technologies Inc. and its subsidiaries (the "Company") are developers of the planar opto-electronic technology (“POET”) platform semiconductor process IP for monolithic fabrication of integrated devices containing both electronic and optical elements on a single die ("monolithic integration") and in a single package ("hybrid integration"). 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 condensed unaudited consolidated financial statements of the Company were approved by the Board of Directors of the Company on August 10, 2017.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These condensed unaudited consolidated financial statements of the Company and its subsidiaries were prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB").
These condensed unaudited interim consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated audited financial statements for the year ended December 31, 2016.
The preparation of financial statements in accordance with IAS 34 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 condensed unaudited 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 condensed consolidated statements of operations and deficit and condensed 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 condensed unaudited consolidated financial statements are presented in U.S. dollars ("USD"), which is the Company's presentation currency.
Page 6 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED 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.
Short-term investments
The short-term investments of $609,423 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 October 2017 and May 2018. Investments are carried at fair value.
Page 7 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
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.
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.
Page 8 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
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 for the six months ended June 30, 2016 and year ended December 31, 2016. No impairment loss has been recorded for the six months ended June 30, 2017.
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. Goodwill amounting to $7,681,003 arose in connection with the acquisition of DenseLight ($6,630,544) on May 11, 2016 and BB Photonics, Inc. ($1,050,459) on June 22, 2016.
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 or short-term investments classified as fair value through profit or loss is recognized as earned using the effective interest method.
Page 9 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
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. 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. Customer relationships of $186,131 was acquired when the the Company acquired DenseLight. 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 period after giving effect to potentially dilutive financial instruments. The dilutive effect of stock options and warrants is determined using the treasury stock method.
Page 10 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
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.
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:
June 30, | December 31, | |||||||||
2017 | 2016 | |||||||||
Product sales | United States dollar | $ | 529,869 | $ | 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:
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
Sales tax recoverable and other current assets | $ | 88,392 | $ | 147,119 | ||||
Security deposits on leased properties | 270,350 | 272,026 | ||||||
Deposits on materials and services | 283,913 | 339,772 | ||||||
$ | 642,655 | $ | 758,917 |
Page 11 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
6. | INVENTORY |
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
Raw materials | $ | 415,565 | $ | 662,458 | ||||
Finished goods | 349,701 | 358,386 | ||||||
Work in process | 204,043 | 96,036 | ||||||
$ | 969,309 | $ | 1,116,880 |
7. | PROPERTY AND EQUIPMENT |
Equipment not | Leasehold | Machinery and | Office | |||||||||||||||||
in service | improvements | equipment | equipment | Total | ||||||||||||||||
Cost | ||||||||||||||||||||
Balance, January 1, 2016 | $ | - | $ | 16,072 | $ | 1,400,103 | $ | 81,691 | $ | 1,497,866 | ||||||||||
Additions | 602,830 | 667,342 | 8,498,051 | 244,860 | 10,013,083 | |||||||||||||||
Disposals | - | (16,072 | ) | (64,747 | ) | (11,734 | ) | (92,553 | ) | |||||||||||
Reclassification | - | - | (98,522 | ) | - | (98,522 | ) | |||||||||||||
Balance, December 31, 2016 | 602,830 | 667,342 | 9,734,885 | 314,817 | 11,319,874 | |||||||||||||||
Additions | - | - | 280,690 | 12,600 | 293,290 | |||||||||||||||
Reclassification | (263,780 | ) | - | 263,780 | - | - | ||||||||||||||
Effect of changes in foreign exchange rates | 16,953 | - | 44,444 | 6,148 | 67,545 | |||||||||||||||
Balance, June 30, 2017 | 356,003 | 667,342 | 10,323,799 | 333,565 | 11,680,709 | |||||||||||||||
Accumulated Depreciation | ||||||||||||||||||||
Balance, January 1, 2016 | - | 3,104 | 523,198 | 24,457 | 550,759 | |||||||||||||||
Depreciation for the year | - | 83,189 | 1,320,050 | 45,286 | 1,448,525 | |||||||||||||||
Disposals | - | (3,104 | ) | (34,940 | ) | (5,576 | ) | (43,620 | ) | |||||||||||
Balance, December 31, 2016 | - | 83,189 | 1,808,308 | 64,167 | 1,955,664 | |||||||||||||||
Depreciation for the period | - | 94,837 | 931,762 | 27,898 | 1,054,497 | |||||||||||||||
Balance, June 30, 2017 | - | 178,026 | 2,740,070 | 92,065 | 3,010,161 | |||||||||||||||
Carrying Amounts | ||||||||||||||||||||
At December 31, 2016 | $ | 602,830 | $ | 584,153 | $ | 7,926,577 | $ | 250,650 | $ | 9,364,210 | ||||||||||
At June 30, 2017 | $ | 356,003 | $ | 489,316 | $ | 7,583,729 | $ | 241,500 | $ | 8,670,548 |
8. | PATENTS AND LICENSES |
Cost | ||||
Balance, January 1, 2016 | $ | 537,249 | ||
Additions | 72,638 | |||
Balance, December 31, 2016 | 609,887 | |||
Additions | 31,522 | |||
Balance, June 30, 2017 | 641,409 | |||
Accumulated Depreciation | ||||
Balance, January 1, 2016 | 110,436 | |||
Amortization | 49,775 | |||
Balance, December 31, 2016 | 160,211 | |||
Amortization | 26,201 | |||
Balance, June 30, 2017 | 186,412 |
Page 12 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
8. | PATENTS AND LICENSES (Continued) |
Carrying Amounts | ||||
At December 31, 2016 | $ | 449,676 | ||
At June 30, 2017 | $ | 454,997 |
9. | INTANGIBLE ASSETS |
Customer | ||||||||||||
Technology | Relationships | Total | ||||||||||
Cost | ||||||||||||
Balance, January 1, 2016 | $ | - | $ | - | $ | - | ||||||
Acquired through the acquisition of DenseLight | - | 186,131 | 186,131 | |||||||||
Acquired through the acquisition of BB Photonics | 714,000 | - | 714,000 | |||||||||
Balance, December 31, 2016 and June 30, 2017 | 714,000 | 186,131 | 900,131 | |||||||||
Accumulated Depreciation | ||||||||||||
Balance, January 1, 2016 | - | - | - | |||||||||
Depreciation for the year | - | 23,266 | 23,266 | |||||||||
Balance, December 31, 2016 | - | 23,266 | 23,266 | |||||||||
Depreciation for the period | - | 18,614 | 18,614 | |||||||||
Balance, June 30, 2017 | - | 41,880 | 41,880 | |||||||||
Carrying Amounts | ||||||||||||
At December 31, 2016 | $ | 714,000 | $ | 162,865 | $ | 876,865 | ||||||
At June 30, 2017 | $ | 714,000 | $ | 144,251 | $ | 858,251 |
10. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
Trade payable | $ | 371,044 | $ | 768,066 | ||||
Payroll related liabilities | 284,312 | 628,378 | ||||||
Accrued liabilities | 49,058 | 183,037 | ||||||
Lease commitment | 25,362 | 44,863 | ||||||
$ | 729,776 | $ | 1,624,344 |
Page 13 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED 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 | |||||||
January 1, 2016 | 197,097,815 | 81,027,171 | ||||||
Shares issued on public offering | 34,800,000 | 9,349,254 | ||||||
Cost of shares issued on public offering | - | (1,165,017 | ) | |||||
Fair value of warrants issued | - | (5,985,378 | ) | |||||
Shares issued to settle subsidiary accounts payable | 2,386,386 | 1,843,629 | ||||||
Shares issued on business combination | 15,607,240 | 12,050,000 | ||||||
Shares issued on the exercise of stock options | 5,648,000 | 1,654,988 | ||||||
Fair value of stock options exercised | - | 1,737,879 | ||||||
Shares issued on the exercise of warrants and compensation warrants | 3,794,412 | 1,943,919 | ||||||
Fair value of warrants exercised | - | 901,417 | ||||||
Balance, December 31, 2016 | 259,333,853 | 103,357,862 | ||||||
Shares issued on the exercise of stock options | 590,000 | 102,045 | ||||||
Fair value of stock options exercised | - | 112,829 | ||||||
Balance, June 30, 2017 | 259,923,853 | $ | 103,572,736 |
12. | WARRANTS |
The following table reflects the continuity of warrants:
Average Exercise | Number of | Historical | ||||||||||
Price | Warrants | Fair value | ||||||||||
Balance, January 1, 2016 | $ | 0.79 | 8,369,233 | $ | 2,013,747 | |||||||
Warrants issued | 0.39 | 34,800,000 | 5,985,378 | |||||||||
Warrants and compensation warrants exercised | (0.51 | ) | (3,794,412 | ) | (901,417 | ) | ||||||
Expired | (1.02 | ) | (4,574,821 | ) | (1,112,330 | ) | ||||||
Balance, December 31, 2016 and June 30, 2017 | $ | 0.39 | 34,800,000 | $ | 5,985,378 |
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.
Page 14 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
13. | STOCK OPTIONS AND CONTRIBUTED SURPLUS (Continued) |
Stock option transactions and the number of stock options outstanding were as follows:
Historical Weighted | ||||||||
Number | Average Exercise | |||||||
of Options | Price | |||||||
Balance, January 1, 2016 | 26,718,500 | $ | 0.89 | |||||
Expired/cancelled | (1,290,000 | ) | 0.96 | |||||
Exercised | (5,648,000 | ) | 0.37 | |||||
Granted | 4,025,000 | 0.62 | ||||||
Balance, December 31, 2016 | 23,805,500 | 0.96 | ||||||
Expired/cancelled | (3,455,209 | ) | 0.91 | |||||
Exercised | (590,000 | ) | 0.24 | |||||
Granted | 4,225,000 | 0.28 | ||||||
Balance, June 30, 2017 | 23,985,291 | $ | 0.86 |
During the period ended June 30, 2017, the Company granted 4,225,000 (2016 - 300,000) stock options to officers, employees and consultants of the Company to purchase common shares at an average price of $0.28 (2016 - $0.74) per share.
During the period ended June 30, 2017, the Company recorded stock-based compensation of $1,054,596 (2016 - $2,147,041) relating to stock options that vested during the period.
The stock options granted were valued using the Black-Scholes option pricing model using the following assumptions:
2017 | 2016 | |||||||
Weighted average exercise price | $ | 0.28 | $ | 0.74 | ||||
Weighted average risk-free interest rate | 1.73 | % | 1.29 | % | ||||
Weighted average dividend yield | 0 | % | 0 | % | ||||
Weighted average volatility | 103.48 | % | 105.7 | % | ||||
Weighted average estimated life | 10 years | 10 years | ||||||
Weighted average share price | $ | 0.28 | $ | 0.74 |
Share price on the various grant dates were:
First grant | $ | 0.32 | $ | 0.75 | ||||
Second grant | 0.27 | 0.74 | ||||||
Third grant | 0.25 | - | ||||||
Fourth grant | 0.28 | - | ||||||
Fifth grant | 0.22 | - |
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.
Page 15 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
13. | STOCK OPTIONS AND CONTRIBUTED SURPLUS (Continued) |
The weighted average remaining contractual life and weighted average exercise price of options outstanding and of options exercisable as at June 30, 2017 are as follows:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Historical | Weighted | Historical4 | ||||||||||||||||||
Weighted | Average | Weighted | ||||||||||||||||||
Average | Remaining | Average | ||||||||||||||||||
Exercise | Number | Exercise | Contractual | Number | Exercise | |||||||||||||||
Range | Outstanding | Price | Life (years) | Exercisable | Price | |||||||||||||||
$0.11 - $0.25 | 270,000 | $ | 0.23 | 4.63 | 270,000 | $ | 0.23 | |||||||||||||
$0.28 - $0.31 | 587,500 | $ | 0.28 | 1.85 | 487,500 | $ | 0.28 | |||||||||||||
$0.34 - $0.37 | 550,000 | $ | 0.34 | 8.98 | 50,000 | $ | 0.33 | |||||||||||||
$0.38 - $0.86 | 9,306,000 | $ | 0.43 | 6.94 | 2,731,000 | $ | 0.45 | |||||||||||||
$0.87 - $1.64 | 13,271,791 | $ | 1.24 | 2.83 | 8,800,772 | $ | 1.31 | |||||||||||||
23,985,291 | $ | 0.86 | 4.56 | 12,339,272 | $ | 1.05 |
Contributed Surplus
The following table reflects the continuity of contributed surplus:
Amount | ||||
Balance, January 1, 2016 | $ | 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 | |||
Balance, December 31, 2016 | 29,062,874 | |||
Stock-based compensation | 1,054,596 | |||
Fair value of stock options exercised | (112,829 | ) | ||
Balance, June 30, 2017 | $ | 30,004,641 |
14. | LOSS PER SHARE |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Numerator | ||||||||||||||||
Net loss | $ | (2,826,774 | ) | $ | (3,438,620 | ) | $ | (6,342,937 | ) | $ | (6,417,573 | ) | ||||
Denominator | ||||||||||||||||
Weighted average number of | ||||||||||||||||
common shares outstanding | 259,800,132 | 180,201,853 | 259,566,993 | 199,133,270 | ||||||||||||
Weighted average number of common | ||||||||||||||||
shares outstanding - diluted | 259,800,132 | 180,201,853 | 259,566,993 | 199,133,270 | ||||||||||||
Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.03 | ) |
The effect of common share purchase options, warrants, compensation warrants and shares to be issued on the net loss in 2017 and 2016 is not reflected as they are anti-dilutive.
Page 16 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
15. | COMMITMENTS AND CONTINGENCIES |
The Company has three facilities; head office located in Toronto, Canada, design and testing operations located in San Jose, California and operating facilities located in Singapore. The Company has operating leases for development operations and operating facilities. The Company's design and testing operations terminated a lease on January 31, 2017 and initiated a new lease an February 1, 2017 which expires on January 31, 2020. The lease on the Company's operating facilities expires on February 15, 2019. As at June 30, 2017, the Company's head office was on a month to month lease term.
Rent expense under these leases was $107,273 and $213,626 for the three and six months ended June 30, 2017 (2016 - $61,915 and $128,781).
Remaining minimum annual rental payments to the lease expiration date is as follows:
July 1, 2017 to June 30, 2018 | $ | 411,349 | ||
July 1, 2018 through 2020 | 285,793 | |||
$ | 697,142 |
16. | RELATED PARTY TRANSACTIONS |
Compensation to key management personnel were as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Salaries | $ | 218,500 | $ | 1,171,333 | $ | 487,133 | $ | 1,725,623 | ||||||||
Share-based payments(1) | 557,345 | 775,842 | 1,280,798 | 1,684,305 | ||||||||||||
Total | $ | 775,845 | 1,947,175 | $ | 1,767,931 | $ | 3,409,928 |
(1) Share-based payments are the fair value of options granted to key management personnel and expensed during the various periods as calculated using the Black-Scholes model.
The Company paid or accrued $28,313 and $55,556 in fees for the three and six months ended June 30, 2017 (2016 - $28,996 and $56,333) to a law firm, of which a director is counsel, for legal services rendered to the Company.
During the period ended June 30, 2017, the Company paid the final installment of $25,000 on a total of $150,000 of consulting fees to a director which were charged against the financing concluded on November 2, 2016.
All transactions with related parties have occurred in the normal course of operations and are measured at the exchange amounts, which are the amounts of consideration established and agreed to by the related parties.
Page 17 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
17. | SEGMENT INFORMATION |
The Company and its subsidiaries operate in a single segment; the design, manufacture and sale of semi-conductor products and services for commercial applications. The Company’s operating and reporting segment reflects the management reporting structure of the organization and the manner in which the chief operating decision maker regularly assesses information for decision making purposes, including the allocation of resources. A summary of the Company's operations is below:
ODIS
Odis is the developer of the POET platform semiconductor process IP for fabrication of integrated circuit devices containing both electronic and optical elements on a single die ("monolithic integration") and in a single package ("hybrid integration").
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:
2017 | ||||||||||||||||
As of June 30, | Singapore | US | Canada | Consolidated | ||||||||||||
Current assets | $ | 2,244,153 | $ | 7,664,163 | $ | 2,008,406 | $ | 11,916,722 | ||||||||
Property and equipment | 8,349,684 | 318,737 | 2,127 | 8,670,548 | ||||||||||||
Patents and licenses | - | 454,997 | - | 454,997 | ||||||||||||
Goodwill and intangibles assets | 7,067,535 | 1,471,719 | - | 8,539,254 | ||||||||||||
Total Assets | $ | 17,661,372 | $ | 9,909,616 | $ | 2,010,533 | $ | 29,581,521 | ||||||||
Six Months Ended June 30, | Singapore | US | Canada | Consolidated | ||||||||||||
Sales | $ | (1,360,932 | ) | $ | - | $ | - | $ | (1,360,932 | ) | ||||||
Cost of sales | 609,048 | - | - | 609,048 | ||||||||||||
Selling, marketing and | ||||||||||||||||
administration | 1,464,967 | 3,047,999 | 410,511 | 4,923,477 | ||||||||||||
Research and development | 1,119,598 | 1,251,517 | 111,563 | 2,482,678 | ||||||||||||
Other income including | ||||||||||||||||
Investment income | (145,044 | ) | (2,395 | ) | (14,925 | ) | (162,364 | ) | ||||||||
Net loss from operations | ||||||||||||||||
before income tax recovery | $ | 1,687,637 | $ | 4,297,121 | $ | 507,149 | $ | 6,491,907 |
Page 18 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
17. | SEGMENT INFORMATION (Continued) |
2016 | ||||||||||||||||
As of December 31, | Singapore | US | Canada | Consolidated | ||||||||||||
Current assets | $ | 2,118,561 | $ | 10,058,018 | $ | 4,957,624 | $ | 17,134,203 | ||||||||
Property and equipment | 9,039,069 | 322,633 | 2,508 | 9,364,210 | ||||||||||||
Patents and licenses | - | 449,676 | - | 449,676 | ||||||||||||
Goodwill and intangible assets | 7,086,149 | 1,471,719 | - | 8,557,868 | ||||||||||||
Total Assets | $ | 18,243,779 | $ | 12,302,046 | $ | 4,960,132 | $ | 35,505,957 | ||||||||
Six Months Ended June 30, | Singapore | US | Canada | Consolidated | ||||||||||||
Sales | $ | (576,741 | ) | $ | - | $ | - | $ | (576,741 | ) | ||||||
Cost of sales | 280,563 | - | - | 280,563 | ||||||||||||
Selling, marketing and | ||||||||||||||||
administration | 487,069 | 4,140,642 | 717,381 | 5,345,092 | ||||||||||||
Research and development | 156,853 | 1,167,105 | - | 1,323,958 | ||||||||||||
Impairment loss | - | 63,522 | - | 63,522 | ||||||||||||
Loss on disposal of property | ||||||||||||||||
and equipment | - | - | 16,931 | 16,931 | ||||||||||||
Other income including | ||||||||||||||||
Investment income | - | - | (35,752 | ) | (35,752 | ) | ||||||||||
Net loss from operations | ||||||||||||||||
before income tax recovery | $ | 347,744 | $ | 5,371,269 | $ | 698,560 | $ | 6,417,573 |
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:
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
Fair value through profit or loss, measured at fair value: | ||||||||
Cash | $ | 9,165,466 | $ | 14,376,282 | ||||
Short-term investments | 609,423 | 589,275 | ||||||
Loans and receivable, measured at amortized cost: | ||||||||
Accounts receivable | 529,869 | 292,849 | ||||||
Other liabilities, measured at amortized cost: | ||||||||
Accounts payable and accrued liabilities | (729,776 | ) | (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.
Page 19 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
18. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued) |
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 was as follows:
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
Current | $ | 408,764 | $ | 125,610 | ||||
31 - 60 days | 22,745 | 16,346 | ||||||
61 - 90 days | - | 75,816 | ||||||
> 90 days | 98,360 | 75,077 | ||||||
$ | 529,869 | $ | 292,849 |
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 $363,677.
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 unaudited condensed 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 June 30, 2017 were:
Cash and short-term investments | $ | 9,774,889 | ||
Shareholders' equity | $ | 139,562,755 |
The Company's objective in managing capital is to ensure that financial flexibility is present, a) to increase shareholder value through growth; b) to respond to changes in economic and/or market conditions; c) to maintain a strong capital base so as to retain investor, creditor and market confidence; d) to sustain future development of the business; and e) to safeguard the Company's ability to obtain financing should the need arise.
Page 20 |
POET TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
19. | CAPITAL MANAGEMENT (Continued) |
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.
20. | EXPENSES |
Research and development costs can be analysed as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Wages and benefits(1) | $ | 543,365 | $ | 330,568 | $ | 1,098,144 | $ | 589,770 | ||||||||
Subcontract fees | 438,464 | 204,288 | 843,754 | 424,816 | ||||||||||||
Supplies | 204,213 | 41,217 | 391,147 | 91,956 | ||||||||||||
Stock-based compensation | 58,216 | 78,066 | 149,633 | 217,416 | ||||||||||||
$ | 1,244,258 | $ | 654,139 | $ | 2,482,678 | $ | 1,323,958 |
Selling, marketing and administration costs can be analysed as follows:
Wages and benefits(1) | $ | 604,608 | $ | 1,054,413 | $ | 1,250,488 | $ | 1,537,582 | ||||||||
Depreciation and amortization | 558,919 | 239,958 | 1,099,312 | 327,802 | ||||||||||||
Stock-based compensation | 101,567 | 809,924 | 904,963 | 1,929,625 | ||||||||||||
General expenses(1) | 387,254 | 350,059 | 655,992 | 535,128 | ||||||||||||
Rent and facility costs(1) | 266,679 | 196,567 | 544,993 | 272,262 | ||||||||||||
Professional fees | 167,726 | 272,287 | 323,468 | 412,487 | ||||||||||||
Management and consulting fees | 40,330 | 172,401 | 144,261 | 330,206 | ||||||||||||
$ | 2,127,083 | $ | 3,095,609 | $ | 4,923,477 | $ | 5,345,092 |
(1) Certain prior period figures have been represented to conform with the current period's presentation.
Page 21