Here are some points of interest from the last MD&A.

With the acquisition of DenseLight and BB photonics, along with 3rd party foundry relationships for the processing of wafers, the Company is increasing its international footprint. There are complexities associated with this scope of operation, including language, time zones, regulations and technology transfer issues. However, there are also benefits as the technological market is also international. Currently, the Company has applied for an export permit from the US Department of Commerce for the transfer of its proprietary epitaxial stack for further processing by an international third party foundry to continue the development of the VCSEL. We anticipate that we will need additional export permits in the future as our global reach increases.

Sales

The Company reported sales of $576,741 during the period wholly attributable to the newly acquired DenseLight subsidiary. No sales were reported in Q2 2015. Gross margin during the period was 29%. Due to the accounting rules relating to acquisitions, gross margin is lower than what would have been reported had the acquisition not taken place. Finished goods inventory is carried at fair value on the date of acquisition, finished goods inventory was written up by $178,087, this resulted in increased cost of sales and lower gross margin on inventory sold from the acquisition date to the period end. Gross margin will continue to be affected by the write up until that related finished goods inventory has been sold. Adjusted gross margin for the period was 39%. Adjusted gross margin normalizes gross margin for the period by reversing the impact of the fair value inventory adjustment.

Research and Development

Research and development (“R&D”) decreased by 39% or $278,133 from $715,732 in Q2 2015 to $437,599 in Q2 2016. During Q2 2016, the Company spent significant time on the due diligence process relating to technology and products of BB Photonics and DenseLight to ensure a seamless integration with POET. The attention on the integration and due diligence resulted in an increase in general expenses and a reduction in R&D. Additionally, the Company adopted an outsourced R&D model which resulted in $100,000 of savings on R&D salaries over the period. R&D expense in Q2 2016 is consistent with the expectations of the Company.

R&D expense decreased by $312,266 from Q2 2015. R&D expense was $1,280,334 in Q2 2015 and $968,068 in Q2 2016. The Company has chosen to outsource a significant portion of its R&D. The outsourcing to Companies like Wavetek and Epiworks has resulted in the Company achieving a milestone with its resonant cavity detector. The Company has demonstrated a detector that exceeds the performance of the best detectors currently in the market. Synergies in technology development and operations resulted in reduced R&D expenses.

General expenses

General expenses and rent increased in Q2 2016 as compared to Q2 2015 by $176,136. The expense was $241,088 in Q2 2015 and $417,224 in Q2 2016. The expense was unusually high in Q2 2016 due to the increased travel, due diligence and other acquisition costs related to the acquisition of DenseLight and BB Photonics. The expense also includes the activities of DenseLight since May 12, 2016 which contributed $74,000 to the expense in Q2 2016. The Company also incurred substantial shipping costs in transferring most of its equipment from the US to Singapore in Q2 2016 as part of its integration plan.

A final assessment of the fair value of identifiable assets and liabilities acquired has not yet been completed. Apreliminary assessment of the acquisition has been determined as follows:

Denselight

Fair value of consideration paid

Fair value of 13,611,150 shares issued $ 10,500,000

Contingent consideration payable 366,972

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Total consideration $ 10,866,972

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Recognised amounts of identifiable net assets:

Cash $ 2,971

Accounts receivables and prepaid expenses 662,296

Inventory 412,690

Property and equipment 8,635,650

Unallocated intangibles and goodwill 6,303,585

Trade payables (2,658,437)

Loans and advances (1,000,000)

Deferred tax liability (1,491,783)

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Net assets acquired $ 10,866,972

BB Photonics

Fair value of consideration paid

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

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Recognised amounts of identifiable net assets:

Cash $ 15,820

Property and equipment 70,379

Unallocated intangibles and goodwill 1,471,719

Trade payables (7,918)

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Net assets acquired $ 1,550,000

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Expanded Technology and Product Portfolio

The recent acquisitions of DenseLight Semiconductor Pte. Ltd. (“DenseLight”) and BB Photonics have expanded the Company’s use of III-V based processes from GaAs to now include InP. Through these acquisitions, the Company now designs, manufactures, and delivers leading photonic optical light source products and solutions to the communications, medical, instrumentations and industrial industries. POET Technologies now has the capability to process Indium Phosphide (InP) and Gallium Arsenide (GaAs) based optoelectronic devices and photonic integrated circuits through its in-house wafer fabrication and assembly & test facilities. DenseLight is recognized worldwide for its technological innovations in high performance semiconductor infrared superluminescent light sources and lasers, with a proven track record in deployed applications. Together with these recent acquisitions, POET Technologies has further advanced its platform approach to the integration of photonic functions. This approach can be applied across a range of material systems to enable both routing and Optical/Electronic (“O/E”) conversion, and the technology is applicable to wavelength multiplexing and demultiplexing as well as signal routing in both vertical and horizontal directions.

Areas of expertise include:

o Vertical Cavity and Edge Emitting Lasers in the wavelength range from 850nm to 1610nm

o Super-luminescent Light Emitting Diodes for Sensing Products in the fields of Test and Measurement, Navigation devices such as Fiber Optic Gyroscopes, Structural Health Monitoring such as LIDAR and Medical Applications (Optical Coherence Tomography)

o High speed RF devices and characterization

o High speed data communications component design and manufacturing

o Up to 6-inch III-V wafer processing, process requirements, equipment

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The Company has demonstrated such successes in the past and continues to establish and achieve significant milestones. Significant milestones achieved over the last 3 years include:

1) Achieving radio frequency and microwave operation of both n-channel and p-channel transistors. By reaching this milestone, 3-inch POET wafers fabricated at BAE Systems (Nashua, NH) yielded submicron n-channel and micron-sized p-channel transistors operating at frequencies of 42 GHz and 3 GHz respectively.

2) The integration of the complementary inverter. Specifically, the Company successfully demonstrated complementary heterostructure field effect transistor based inverter operation using the POET process.

3) The fabrication of infrared (IR) detectors, using its proprietary planar optoelectronic technology (POET) platform. Adding to its significance is the fact that the POET wafers used for the IR devices were fabricated within an independent foundry, BAE Systems’ Microelectronics Center in Nashua, New Hampshire. This milestone represents the integration by a third party of the optoelectronic process previously demonstrated in POET laboratories.

4) Demonstration of a two terminal Thyristor VCSEL – which is a key optical engine in the creation of single chip optoelectronic transceivers and changes the current paradigm of analog lasers and detectors.

5) Recent demonstration of a best in class two terminal resonant cavity detector – which is also a critical device component used in its optical transceiver products.

6) Most recent first demonstration of functional Hetero-junction Field Effect Transistors (HFETs) down to 250nm effective gate lengths on the same proprietary epitaxy and utilizing the same integrated process sequence that was previously used to demonstrate high performance detectors