POET Technologies Inc. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; separate Q4 results are not provided in the filing text. Figures are in U.S. dollars unless otherwise noted. Financial statements are audited and prepared under IFRS.
Business context and financial performance
POET develops and manufactures optical light-source products and photonic integrated devices, including its Optical Interposer platform. In 2018, revenue was generated through Singapore subsidiary DenseLight, principally from product sales and non-recurring engineering (NRE) services. The company remained loss-making.
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $3.888 million | $2.794 million |
| Gross profit / margin | $2.412 million / 62% | $1.451 million / 52% |
| Operating loss | $16.621 million | $13.096 million |
| Net loss | $16.323 million | $12.798 million |
| Basic and diluted loss per share | $0.06 | $0.05 |
| Cash used in operating activities | $9.289 million | $9.164 million |
| Cash used in investing activities | $3.536 million | $0.441 million |
| Cash and cash equivalents at year-end | $2.568 million | $4.974 million |
| Total assets | $25.138 million | $25.206 million |
| Total liabilities / shareholders’ equity | $4.043 million / $21.095 million | $2.133 million / $23.073 million |
Product sales were $3.262 million and contract revenue was $626,667 (of which $441,667 was recognized over time). Research and development expense increased to $8.693 million from $5.443 million; selling, marketing and administration expense rose to $11.689 million from $10.871 million. The company recorded $4.022 million of stock-based compensation and $2.563 million of depreciation and amortization. Other income was $1.506 million, including $1.481 million of Singapore Economic Development Board (EDB) expense recoveries. A $297,940 deferred tax recovery reduced the reported net loss.
Liquidity, capital and material changes
- Working capital was $3.848 million at year-end, versus $7.140 million a year earlier. Cash declined by $2.407 million during 2018; the company reported $9.289 million of operating cash outflow and $3.536 million of investing cash outflow.
- Management stated that available working capital was insufficient for the next 12 months. The cash forecast showed funding needs to meet minimum commitments, and management and the auditor disclosed substantial doubt about the company’s ability to continue as a going concern.
- 2018 financing included a public offering with gross proceeds of $10.664 million and net proceeds of $9.532 million, plus $1.116 million from warrant and option exercises. At December 31, 2018, the filing reports no credit facility; accounts payable and accrued liabilities were $3.040 million. The filing does not identify year-end borrowings as outstanding debt.
- Capital expenditure on equipment, instruments and patents was approximately $3.786 million in 2018. The company also deferred part of the cost of equipment purchased during the year to 2019.
- Revenue increased 39% year over year and gross margin improved from 52% to 62%, but the pre-tax loss widened 27%, primarily amid increased R&D investment and operating costs. Operating cash use was broadly similar to 2017.
Outlook, strategy and principal risks
- In February 2019, POET signed a non-binding LOI to sell all DenseLight shares for proposed cash consideration of $26–$30 million, including a $4 million earn-out. Definitive agreements and required approvals remained outstanding; the parties targeted signing by September 15, 2019. The company expected proceeds of CAD$34.5–$40 million on completion.
- Management committed to a “fab-light” strategy focused on the Optical Interposer. The proposed sale would remove the company’s existing revenue-generating subsidiary and could reduce cash burn, but also creates risk of lost revenue, technical capabilities and staff, as well as possible impairment of goodwill or other assets. DenseLight-related assets and liabilities were presented as held for sale following the decision.
- Management expected 100G and 400G Optical Engine prototypes in the second half of 2019, with development prioritized for 400G in collaboration with large networking companies. Management also anticipated higher sensing revenue and, if DenseLight remained a subsidiary, forecast 2019 revenue of approximately $8–$10 million; it did not expect cash break-even until 2020. These statements are forward-looking and conditional.
- Management said NRE contracts exceeding US$3 million extended into 2019 and were expected to provide high-margin cash flow. A 2019 capital budget of $2.629 million was disclosed.
- Subsequent to year-end, POET closed a first tranche of CAD$1.929 million in unsecured convertible debentures bearing 12% annual interest, with monthly interest payments and an April 2021 maturity. It also arranged a bridge facility of up to US$5 million and received an initial US$2 million advance in April 2019. These financings do not resolve the uncertainty over longer-term funding.
- Key risks include continued losses and financing dependence, potential shareholder dilution, customer qualification and adoption of unproven Optical Interposer products, execution of the DenseLight sale and fab-light transition, competitive and manufacturing risks, reliance on limited suppliers, and protection of intellectual property. Goodwill was $7.681 million; management reported no goodwill impairment at year-end, while recording a $156,717 equipment impairment.
Most important facts for investors to verify
- Whether the DenseLight sale closed, its final consideration and terms, required approvals, and any continuing supply or cooperation agreements.
- Actual cash runway and funding availability after the reported debenture and bridge-loan advances, including facility covenants, interest costs and repayment terms.
- Whether Optical Engine prototypes met customer specifications, completed qualification, and resulted in production orders or meaningful revenue.
- Whether management’s 2019 revenue, margin and cash-burn expectations were achieved, and how much revenue remained after any DenseLight divestiture.
- Potential dilution from convertible debentures, warrants and options, and any impairment or other accounting consequences of the divestiture.