Company Overview
We are engaged in the business
of developing, commercializing and licensing proprietary materials, processes and technologies for the $550+ billion semiconductor industry.
Our lead technology, named Mears Silicon TechnologyTM, or MST®, is a thin film of reengineered silicon, typically
100 to 300 angstroms (or approximately 20 to 60 silicon atomic unit cells) thick. MST can be applied as a transistor channel enhancement
to CMOS-type transistors, the most widely used transistor type in the semiconductor industry. MST is our proprietary and patent-protected
performance enhancement technology that we believe addresses a number of key engineering challenges facing the semiconductor industry.
We believe that by incorporating MST, transistors can be smaller, with increased speed, reliability and energy efficiency. MST is an additive
and low-cost technology that we believe semiconductor manufacturers can deploy on an industrial scale, with equipment commonly used in
their facilities. We believe that MST can improve existing products due to the physical properties of the film and can also enable customers
to design products with performance, power and scaling characteristics that are not possible using their current process technologies.
We believe that MST can be widely incorporated into the most common types of semiconductor products, including analog, logic, optical
and memory integrated circuits.
We do not intend to design
or manufacture integrated circuits directly. Instead, we develop and license technologies and processes that we believe offer the designers
and manufacturers of integrated circuits a low-cost solution to the industry’s need for greater performance and lower power consumption.
Our customers and partners include:
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foundries, which manufacture integrated circuits on behalf of fabless manufacturers;
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integrated device manufacturers, or IDMs, which are the fully integrated designers and manufacturers of integrated circuits;
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fabless semiconductor manufacturers, which are designers of integrated circuits that outsource the manufacture of their chips to foundries;
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original equipment manufacturers, or OEMs, which manufacture the epitaxial, or EPI, deposition machines used to deposit semiconductor layers, such as the MST film onto the base silicon wafer; and
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electronic design automation companies, which make tools used throughout the industry to simulate the performance of semiconductor products using different materials, design structures and process technologies.
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We currently generate revenue
through licensing arrangements whereby our customers initially pay us a fee for an integration license that provides them the right to
use MST technology in the manufacture of silicon wafers for internal testing and sampling. Our goal is for each integration license to
be the first of a three-stage licensing process with the customer, with the first integration stage to be followed by one or more agreements
granting them manufacturing and distribution licenses. Out manufacturing license grants our customer rights to manufacture MST-enabled
products for internal use only and the grant typically occurs when we deliver our MST film recipe to the customer. A distribution license
grants the customer the rights to manufacture and sell products utilizing MST. We expect that agreements granting manufacturing and distribution
licenses will provide for substantially larger upfront license fee payments than the integration licenses, and distribution agreements
will require licensees to make royalty payments to us based on the number and sales price of MST-enabled products they sell to their customers.
We also generate revenue through engineering services provided to customers during their evaluation of MST technology. In December 2020,
we released MSTcad which enables customers to simulate the effects of MST on their products using Synopsys, Inc.’s technology computer-aided
design, or TCAD, software.
Starting in 2019, we began
to develop deeper relationships with several large potential customers who were evaluating MST across multiple manufacturing processes
and product lines. Accordingly, we have begun proposing an engagement format called a joint development agreement, or JDA, to certain
customers. We expect that JDAs will be customized to a particular customer’s goals but that generally they will include development,
technology transfer, manufacturing and licensing components.
In January 2021, we entered
into a JDA with a leading semiconductor provider for integration of our MST technology into their manufacturing process. The JDA includes
the grant of an upfront, paid manufacturing license that allows the customer to install the recipe for our MST film into a tool in their
fab and to fabricate semiconductor wafers incorporating MST for internal use. This JDA also includes development milestones that, if achieved,
would result in additional revenue to Atomera. In February 2022, we successfully
achieved all these development milestones which entitles us to additional revenue. Although this JDA does not confer commercial distribution
rights, we believe that successful achievement of the JDA milestones is a significant step toward commercialization, as it should facilitate
progress toward integrating MST into one or more of our customer’s multiple production lines and thus provide opportunities for
additional license revenues and potential royalty streams.
In September and October 2018,
respectively, we entered into separate integration license agreements with Asahi Kasei Microdevices, or AKM, and STMicroelectronics, or
ST, both of which are leading IDMs. In October 2019, we entered into an integration license agreement with a leading fabless RF semiconductor
provider. In February 2022, we entered into an integration license agreement with a semiconductor foundry. Under the integration license
agreements, these customers have paid us for the right to evaluate MST technology, which is integrated onto their semiconductor wafers.
We deposit MST onto the customers’ wafers and the customer has the right under the license agreement to complete the manufacturing
process, which enables them to evaluate our technology and to provide limited samples to their customers. These agreements do not grant
our customers the right to deposit MST at their site or to sell products incorporating MST.
To date, initial application
of our MST technology has been for power devices, RFSOI devices and advanced CMOS integrated circuits. CMOS integrated circuits are the
most widely used type of integrated circuits in the semiconductor industry. As applied to CMOS-type transistors, MST functions as a transistor
channel enhancement. We believe MST has the potential to overcome the key challenges found in the implementation of next generation nano-scale
semiconductor devices incorporating CMOS type transistors, namely enhancing drive current, reducing gate leakage and reducing variability.
In addition, we believe that MST has the potential to deliver these benefits through a single technology that requires relatively minor
modifications to the industry-standard CMOS manufacturing flow. Consequently, we believe that by incorporating MST, designers can make
transistors with increased speed, reliability and energy efficiency, without significantly altering the current fabrication process or
cost of production.
We were organized as a Delaware
limited liability company under the name Nanovis LLC on November 26, 2001. On March 13, 2007, we converted to a Delaware corporation under
the name Mears Technologies, Inc. On January 12, 2016, we changed our name to Atomera Incorporated. Shares of our common stock are listed
on the NASDAQ Capital Market under the symbol “ATOM”.
Industry Overview
Semiconductors, Generally
Recent years have seen a remarkable
proliferation of consumer and commercial products, especially in wireless, automotive and high-speed devices. Cloud computing and artificial
intelligence technologies have provided people with new ways to create, store and share information. At the same time, the increasing
use of electronics in cars, buildings, appliances and other consumer products is creating a broad landscape of “smart” devices
such as wearable technologies and The Internet of Things. These trends in both enterprise and consumer applications are driving increasing
demand for integrated circuits and systems with greater functionality and performance, reduced size, and much less power consumption as
key requirements. During 2020 and 2021, the global COVID-19 pandemic accelerated trends toward remote work, cloud computing and mobile
devices. These trends coincided with the rollout of 5G cellular networks and 5G-enabled devices, growing popularity of augmented and virtual
reality technologies and the growth in popularity of cryptocurrencies, all of which require high levels of processing power.
These developments depend,
in large part, on integrated circuits, or microchips, which are sets of electronic circuits on a single chip of semiconductor material,
normally silicon. It is common for a single semiconductor chip to combine many components (processor, communications, memory, custom logic,
input/output) resulting in highly complex chip designs. Transistors are the building blocks of integrated circuits and the most complex
semiconductor chips today contain more than a billion transistors, each of which may have features that are much less than 1/1,000th
the diameter of a human hair.
The most widely used transistors
in semiconductor chips today are based on CMOS technology. Among its many attributes, CMOS allows for a higher density of transistors
on a chip and lower power usage than non-CMOS technologies.
The Pursuit of Increased Semiconductor Performance
For years, the semiconductor
industry was able to almost double the number of transistors it could pack into a single microchip about every two years, a rate of improvement
commonly known as “Moore’s Law.” The semiconductor industry uses the term “node” to describe the minimum
line width or geometry on a semiconductor chip, expressed in nanometers, or nm, for today’s technologies. Historically, the smaller
the node, the smaller the transistors and the more closely they are packed together, producing chips that are denser and thus less costly
on a per-transistor basis. Frequently, smaller nodes also correspond to an improvement in chip performance, making them the mile markers
of Moore’s Law, with each node marking a new generation of chip-manufacturing technology.
Until recently, the industry
succeeded at maintaining the rate of improvement predicted by Moore’s Law by scaling the key transistor parameters, such as shrinking
feature sizes and reducing operating voltages, thereby allowing more transistors to be packed onto a single microchip. This trend was
facilitated in large part by the development of CMOS technologies. However, a discontinuity in the rate of improvement delivered by scaling
appeared when transistor technology reached feature sizes below 100 nanometers. The industry responded with advanced materials to supplement
the ongoing geometry shrinks. Some of those materials advances included strained silicon, Silicon-on-Insulator and High-K/Metal Gate. Semiconductor
makers also attempted to obtain performance improvements through more exotic design architectures which frequently required material innovations
to support their manufacturability and reliability.
The designers and manufacturers
of integrated circuits and systems — our targeted customers — are facing intense pressure to deliver innovative products at
ever shorter times-to-market, as well as at lower prices. In other words, innovation in chip and system design today often hinges on “better,
sooner and cheaper.” We believe that the semiconductor industry has accepted that moving forward in the nano-era will require adoption
of new innovations that extend the scaling formula, including those based on the use of new engineered materials, a market opportunity
our MST technology seeks to address. Because shrinking geometries at the smaller nodes incurs higher capital and manufacturing costs,
only a limited number of companies can afford to continue investing in those nodes. We believe these constraints will cause semiconductor
designers and manufacturers to turn to engineered materials, like MST, to solve this problem.
Vertical Disaggregation of the Industry
In trying to keep research
and development costs manageable, while attempting to satisfy the demand for increasingly complex semiconductors, certain designers and
manufacturers of integrated circuits have transitioned to a more open innovation model in which competing companies and third-party providers
actively collaborate to address performance issues through various alliances, joint ventures, and licensing of externally developed technology.
Historically, most semiconductor
companies were vertically integrated. They designed, fabricated, packaged and tested their semiconductors using internally developed software
design tools and manufacturing processes and equipment. As the cost and skills required for designing and manufacturing complex semiconductors
have increased, the semiconductor industry has become disaggregated, with companies concentrating on one or more individual stages of
the semiconductor development and production process. This disaggregation has fueled the growth of fabless semiconductor companies, design
tool vendors, semiconductor equipment manufacturers, third-party semiconductor manufacturers (or foundries), semiconductor assembly, package
and test companies, and intellectual property companies that develop and license technology to others.
While specialization has enabled
greater development and manufacturing efficiency, it has also created an opportunity for licensing companies, such as Atomera, that develop
and license technology to meet fundamental, industry-wide challenges. These intellectual property companies have been able to gain broad
adoption of their technology throughout the industry by working with companies within the semiconductor supply chain to evaluate and integrate
their technology. Manufacturers and designers of semiconductors increasingly find it more cost-effective to license technologies from
IP-based companies than to develop processes internally that are not their core competence. We believe this collaboration and integration
of externally-developed IP benefits semiconductor companies by enabling them to bring new technology to market faster and more cost-effectively.
Applications of Mears Silicon Technology
The initial applications of
MST are for power devices, RFSOI devices and advanced CMOS integrated circuits. In November 2021 we announced the release of MST-SP, which
is a type of MST-enabled power device that offers what we believe to be industry-leading on-resistance (also referred to as Rsp) and reduced
footprint (enabling smaller devices). We believe that the MST-SP devices will have immediate application in power management integrated
circuits (or PMICs) which are pervasive in hand-held, battery-powered devices and elsewhere. We also believe that insertion of MST can
provide higher current and improved control of dopants, leading to improved device scaling.
We believe MST has the potential
to overcome the key challenges found in the implementation of next generation nano-scale semiconductor devices incorporating CMOS-type
transistors, namely enhancing drive current, reducing gate leakage and reducing variability. In addition, we believe that MST has the
potential to deliver these benefits through a single technology that requires relatively minor modifications to the industry standard
CMOS manufacturing flow. Consequently, we believe that by incorporating MST, designers can make transistors with increased speed, reliability
and energy efficiency, without significantly altering the current fabrication process or cost of production.
As illustrated by the accompanying
diagram, MST is a “silicon-on-silicon” solution that provides multiple potential benefits through a relatively simple modification
to the standard CMOS manufacturing flow. MST improvements are delivered through our proprietary and patent-protected approach that is
based on the quantum mechanics of modern deep sub-micron devices. The MST film allows carriers (electrons and holes) to flow more freely
in the plane of the transistor, thereby enhancing drive current, while reducing carrier flow or “leakage” in the transverse
direction. Our MST film can also create more controlled doping profiles, which allow dopants to be held in the desired locations, thereby
enabling optimized device designs, lower variability and improved production yield.
We believe the enhancements
enabled by MST, as demonstrated in simulations and on our own and our customers’ test chips, are approximately equivalent to the
enhancements enabled by one-half to a full node of improvement and, therefore, can extend the productive life of capital equipment and
wafer fabrication facilities. The extent of MST-enabled enhancement depends on the device technology and application. We believe that
MST compares favorably to other alternatives for enhancing performance of CMOS-type transistors as follows:
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Strained Silicon and
Silicon-on-Insulator, or SOI: Unlike strained silicon or SOI, we believe that MST delivers multiple benefits in a single film in
a cost-effective manner, including enhanced transistor drive current, reduced leakage, and reduced variability. Also, strained
silicon tends to lose much of its effectiveness below 45nm, constraining its scalability, while our results to date indicate that
the MST thin-film approach is scalable to the leading-edge nodes used for three-dimensional transistor devices using FinFET and
“gate-all-around” structures. Based on our own research and development and third-party evaluations, we believe that MST
can deliver improved cost-benefit performance, in most cases in an additive manner, compared to already successful strain
technologies, such as dual stress liners and SiGe. Work with our foundry partners and fabless licensee shows potential for additive
improvements on specialized SOI wafers used to manufacture radio frequency, or RF, devices, which are also referred to as RFSOI
wafers.
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High-K/Metal Gate, or HKMG: Unlike HKMG, MST is silicon-based. As a “silicon-on-silicon” solution, MST does not require new materials or equipment, which in our opinion makes it much easier and less costly to adopt than HKMG for devices not requiring ultrathin gate dielectrics. For devices with HKMG, lab tests and simulations indicate that MST benefits transistor performance and variability in a similar manner to the benefits observed in non-HKMG devices. Testing conducted with our university research partners indicates that MST has the potential to provide additive performance benefits in devices using HKMG.
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Because of its physical characteristics
in the channel region of the transistor, we believe MST has the further benefit of being complementary and additive to the performance-enhancing
technologies noted above, making MST broadly applicable across multiple devices and process flows to meet a wide variety of customer design
objectives. Given the costs of moving to more advanced technologies, we believe one of the most compelling aspects of MST is its cost/benefit
profile. We believe that MST will provide a lower cost of production due to our technology’s potential to reduce die size while
leveraging existing manufacturing tools, thereby providing chip makers with increased performance at all process nodes with significantly
fewer disruptions to manufacturing processes and less incremental cost than other advanced technologies.
We believe MST can improve
transistor performance in a variety of device types including microprocessors; logic products; analog, RF, and mixed-signal devices; as
well as DRAM, SRAM, and other memory integrated circuits. We have therefore developed different MST product options that can be applied
to the critical industry segments and technology nodes. As of the date of this Annual Report, we have done technology simulation work
with universities and leading industry players at nodes from 180nm to 5nm. We have also simulated devices with leading industry research
facilities and built and electrically verified test chips using MST in customer manufacturing facilities which have produced results that
demonstrate many of the benefits described above.
Development Partnerships
TSI Semiconductors.
Since 2016 we have worked under a Master R&D Services Agreement with TSI Technology Development & Commercialization Services LLC
(or TSI). Under this agreement, TSI provides us with engineering services in their semiconductor manufacturing facility in California.
By running tests in TSI's facility, which we utilize to run tests on a contract basis, we are able to build and test devices that incorporate
MST much more quickly than when we test in our potential customers' facilities. We believe this arrangement enables faster product development,
test, and integration, and should accelerate our time to market.
Synopsys. Since 2017
we have worked in collaboration with Synopsys, Inc., a provider of the most broadly used TCAD simulation software in the semiconductor
industry. As a result of our collaboration, Synopsys’ software now supports modeling of MST, which enables semiconductor manufacturers
and designers to model the interaction of MST with other process steps. In December 2020, we announced availability of our MSTcadTM
v1.0 software which runs on Synopsys’ Sentaurus TCAD software and enables semiconductor engineers to simulate the benefits of integrating
MST in a variety of devices. We believe these capabilities are helping us focus integration efforts for potential customers more quickly
on those areas most likely to deliver benefits, thus shortening test cycles and, we believe, accelerating the time to a license decision.
In the last two years, semiconductor fabs have generally been running at high capacity to keep up with industry supply shortages which
has made it challenging for us to run wafers through our customers’ fabrication lines. MSTcad has been increasingly used by existing
and potential customers to identify applications where MST can have the greatest benefit, without requiring access to customer fabs.
Epi Tool Lease. In
August 2021 we completed the acceptance process of an Applied Materials Centura epitaxial deposition reactor which handles both 200mm
and 300mm wafers. We utilize this tool under a five-year lease and perform deposition on both customer and internal R&D wafers. The
terms of our tool lease include the lessor’s maintenance and support as well as access to a clean-room with advanced cleaning and
inspection tools.
MST Commercialization
We do not intend to design
or manufacture integrated circuits directly. Instead, we develop and license technologies and processes that offer the designers and manufacturers
of integrated circuits increased performance at a lower cost than currently-available alternatives. Our customers and partners include
foundries, integrated device manufacturers, or IDMs, fabless semiconductor manufacturers, OEMs that manufacture epitaxial deposition,
or EPI, machines, and electronic design automation software companies, such as Synopsys.
Our business model is to enter
into licensing arrangements whereby foundries and IDMs pay us a license fee for their use of MST technology in the manufacture of silicon
wafers as well as a royalty for each silicon wafer (in the case of foundries) or device (in the case of IDMs) that they sell that incorporates
MST. In the case of fabless semiconductor licensees, our strategy is to charge a royalty for each device they sell that incorporates our
MST technology. The primary beneficiaries of our commercialization activities are the IDMs and fabless semiconductor manufacturers, as
they produce and distribute the integrated circuit devices which are enhanced when they incorporate MST technology. The foundries and
OEMs also play an important role in our commercialization strategy because these parties traditionally seek to provide new and improved
technologies to their customers – the fabless semiconductor manufacturers in the case of the foundries, and the IDMs and foundries
in the case of the OEMs.
In the semiconductor industry,
new technologies are vetted thoroughly and carefully by early adopters who are trying to achieve differentiation over competitors. After
the early adopters prove the technology in production, it then tends to be broadly and relatively quickly adopted by “followers”
who need to overcome their competitive disadvantage. Due to the cost and complexity of semiconductor manufacturing processes and the desire
to maintain a stable and repeatable process flow, new technologies tend to be adopted broadly by the industry and, wherever possible,
exploited for several generations until they are fully optimized and adoption costs are fully absorbed.
Although each customer or
potential customer follows an evaluation and adoption model that is particular to its business model and product focus, our engagements
generally consist of the following phases:
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Engineering Planning: In this phase we engage in a technical exchange of information under a non-disclosure agreement to understand the customer’s manufacturing process and to determine how best to integrate the deposition of MST film onto the customer’s semiconductor wafers.
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Set-up for MST Integration: We agree upon the technical evaluation details, including the expected rounds of evaluation testing, the parameters to be tested and allocation of costs. Customers provide us with wafers for our internal processing and physical characterization. Some customers work together with us to develop a TCAD model showing possible results of MST integration with their particular manufacturing process.
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MST Integration. Typically, this phase includes several rounds of tests that involve
building test devices on a semiconductor wafer using our MST technology within the customer’s manufacturing process flow. In
this phase, we perform the MST deposition on customer wafers, so wafers must be shipped back and forth between the customer and Atomera.
We believe that this phase will continue to be the longest in our customer engagement process because integrating into a customer’s
flow frequently requires us to conduct subsequent tests based on the result of earlier test runs. This phase also requires
investment of time and resources by customers. In order to progress beyond this phase, we must demonstrate benefits at a commercially
significant level. It is difficult for both customers and for Atomera to estimate the amount of time a customer will be in
the integration phase.
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Process Installation. Prior to enabling a customer to install and use MST technology on epitaxial deposition machines in their own fab, we require execution of a manufacturing license which grants rights limited to manufacturing MST-enabled products for internal R&D and qualification, but does not give the customer the right to distribute or sell products that use MST. The JDA that we announced in January 2021 granted a manufacturing license to our customer enabling the customer to install the MST film recipe in an epi tool in their fab for its internal use, at which point this customer entered Phase Four.
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Technology qualification. After installation of MST in the fab, the customer will conduct additional testing to ensure manufacturing reliability under accelerated test conditions that simulate volume production. Upon successfully completing the qualification phase, products can be built and shipped using this manufacturing process. We have not had any customer move into Phase Five as of the date of this Annual Report.
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Production. We expect that our license agreements will provide that upon commencement of sales of wafers or devices built using MST, our customer will pay us a royalty that will be a percentage of the selling price of the wafer or device, depending on the type of customer.
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While the above steps describe
a model customer engagement, we have engaged with some customers in ways that do not follow this precise order. JDAs are an example of
an engagement format that may combine engineering service, development, manufacturing, process optimization and other joint activities
that do not follow the order described above. In addition, we may from time to time enter into evaluation license agreements with certain
customers under which they may install MST in their fabs to run internal tests only and not for commercial use or distribution. Other
potential customers may run tests on wafers containing MST prior to further engagement with us to integrate MST into their manufacturing
process.
We believe that our success
is dependent upon the adoption of our MST technology through to commercial production by at least one IDM, foundry, or fabless semiconductor
manufacturer. As of the date of this Annual Report, MST was in the integration phase (Phase Three as described above) on 15 different
engagements and one engagement in Phase Four (process installation). Subject to process and subsequent product qualifications that demonstrate,
in commercial scale production, the enhancements we believe our MST technology offers, including increased speed, reliability and energy
efficiency, we expect that one or more of these companies will obtain licenses from us to take our MST technology to commercial production.
We are also working with OEMs
on process development and equipment optimization to ensure that MST can be reliably and predictably deposited using their manufacturing
tools. We have successfully deposited MST using tools made by each of the leading epitaxial deposition equipment suppliers and we believe
that if we are successful in our commercialization efforts, these tool OEMs will promote the incorporation of our MST technology as an
option to their standard offering. By doing so, we believe they will simultaneously stimulate additional sales of their capital equipment
and encourage more customers to adopt MST.
Through our collaboration
with Synopsys, we enable potential customers of MST to more quickly assess the potential benefits of MST to their semiconductor devices.
By creating TCAD software models, we can work with manufacturers to assess which of their product types would most benefit from MST. We
believe this modeling capability has shortened the time required for us to engage with new potential customers and should ultimately lead
to a faster decision process by the customer regarding licensing MST.
We market our MST technology
directly to the semiconductor industry through our significant industry contacts and relationships. We also sponsor academic research
and participate in industry conferences and associations. In certain foreign jurisdictions, we engage sales representatives to assist
us in establishing relationships with local customers.
Customers
In January 2021, we entered
into a JDA with a leading semiconductor provider for integration of our MST technology into their manufacturing process. The JDA includes
the grant of an upfront, paid manufacturing license that allows the customer to install the recipe for our MST film into a tool in their
fab and to fabricate semiconductor wafers incorporating MST for internal use. This JDA also includes development milestones that, if achieved,
would result in additional revenue to Atomera. In February 2022 we achieved all these development milestones which entitles us to additional
revenue. Although this JDA does not confer commercial distribution rights, we believe that successful achievement of the JDA milestones
is a significant step toward commercialization as it should facilitate progress toward integrating MST into one or more of our customer’s
multiple production lines and thus provide opportunities for additional license revenues and potential royalty streams.
In September and October 2018,
respectively, we entered into separate integration license agreements with AKM and ST, both of which are leading IDMs. In October 2019
we entered into an integration license agreement with a leading fabless RF semiconductor provider. In February 2022 we entered into an
integration license agreement with a semiconductor foundry. Under the integration license agreements, these customers have each agreed
to pay us for the right to evaluate MST technology which is integrated onto their semiconductor wafers. We deposit MST onto the customers’
wafers and the customer has the right under the license agreement to complete the manufacturing process which enables them to evaluate
our technology. These agreements do not grant the customer the right to deposit MST at their site or to sell products incorporating MST
and all of our licensees are in our Phase Three (MST Integration).
We intend that each integration
license agreement will be the first of a three-stage licensing process with each of AKM, ST and our RF licensee, to be followed by manufacturing
and distribution license agreements with each of them. Those manufacturing and distribution license agreements, if executed, will allow
each licensee to manufacture – or in the case of our RF licensee, to have its foundry partner manufacture – MST-enabled products
and to sell them to their customers. We expect that the manufacturing and distribution agreements will provide for substantially larger
upfront license fee payments than the integration license fees and will require the respective licensees to make royalty payments to us
based on the number and sales price of MST-enabled products they sell to their customers. However, our ability to enter into royalty-based
manufacturing and distribution agreements with AKM, ST and our RF licensee will depend, in large part, on the performance of devices they
build using MST and the successful integration of our MST technology on a high-volume production scale. There can be no assurance that
our MST technology will deliver the performance, power, cost reduction or other requirements our customers seek for their products or
that the integration of our technology with our customers’ manufacturing process will be successful in high volume. In addition,
even if our MST technology meets our customers’ technical objectives one or more of our licensees may decide, for reasons unrelated
to the price or performance of our MST technology, not to enter into manufacturing and distribution license agreements.
Competition
Our lead product, MST, is
a proprietary and patent-protected performance enhancement technology that we believe addresses a number of key engineering challenges
facing the semiconductor industry. Historically, development of a new material technology for the semiconductor industry has taken 10-20
years from conceptualization to volume production. Atomera’s MST technology has followed a similar trajectory, from early patents,
publications and presentations to the industry to early evaluations and installation at customers.
We compete with IDMs, OEMs,
foundries, fabless manufacturers of semiconductors and semiconductor IP licensing companies for the development and commercialization
of technologies that improve the performance of semiconductors. Historically, when a new fabrication process proves to be a low-cost improvement
to the standard fabrication process, and is additive, rather than in place of other performance technologies, it has been successfully
adopted industry-wide. Good examples of such advances have been chemical mechanical polishing (or CMP), strained silicon and High-K/Metal-Gate.
We believe that MST has the potential to be one of these low-cost additive technologies, in which case MST would not be subject to significant
direct competition from other technologies. We are not aware of another technology being offered in the market which provides the same
technical benefits as MST. Nevertheless, in some cases the engineering teams in our customers, who are developing their own process improvements,
may view MST as competition to their internally-developed solutions.
Research and Development
The principal focus of our
research and development efforts is on enabling existing and prospective customers to integrate MST into their manufacturing processes
and enable them to commercialize MST-enabled semiconductor products. We also dedicate research and development resources to evolving and
expanding our technology to address new process technologies in the semiconductor industry roadmap. Our research and development is conducted
internally, but we work closely with third parties in the semiconductor industry to evaluate and qualify our technology for incorporation
into semiconductor products and fabrication equipment. During the years ended December 31, 2021 and 2020, we incurred research and development
expenses of approximately $8.8 million and $8.4 million, respectively.
We believe that our success
depends in part on our ability to achieve the following in a cost-effective and timely manner:
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enable customers to integrate MST into their products;
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develop new technologies that meet the changing needs of the semiconductor industry;
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improve our existing technologies to enable growth into new application areas; and
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expand our intellectual property portfolio
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Intellectual Property Rights
We regard the protection of
our technologies and intellectual property rights as an important element of our business operations and crucial to our success. We rely
primarily on a combination of patent laws, trade secret laws, confidentiality procedures, and contractual provisions to protect our proprietary
technology. We require our employees, consultants, and advisors to enter into confidentiality agreements. These agreements provide that
all confidential information developed or made known to the individual during the course of the individual’s relationship with us
is to be kept confidential and not disclosed to third parties except under specific circumstances. In the case of our employees and certain
consultants, the agreements provide that all of the technology that is conceived by the individual during the course of employment is
our exclusive property. The development of our technology and many of our processes are dependent upon the knowledge, experience, and
skills of key scientific and technical personnel.
As of December 31, 2021, we
have been granted 118 patents in the U.S. and 95 abroad. Our core patents relating to MST cover materials, physical structures and manufacturing
processes. Our core patents relating to MST were filed beginning on August 22, 2003 and have grant dates beginning on December 14, 2004.
Our MST patent portfolio begins to expire commencing August 22, 2023. Our patent portfolio has grown significantly over the last five
years and during 2021 we were issued 34 new patents worldwide, an annual increase of 14%. We believe our core patents adequately block
competitors from using our MST technology without our approval and our patent activity over the past five years has focused on extending
the scope of our portfolio through a variety of means, including but not limited to patenting new structures, materials and methods uniquely
enabled by MST technology. However, there can be no assurance that one or more of our patents would survive a legal challenge to their
scope, validity, or enforceability, or provide significant protection for us. The failure of our patents, or the failure of trade secret
laws, to adequately protect our technology, might make it easier for our competitors to offer similar products or technologies or for
our potential customers to build products with methods and materials similar to MST without paying us a license fee. In addition, patents
may not issue from any of our current or future applications.
We also hold registered trademarks
in the United States for the marks “Atomera” and “MST” and in China for the mark “Mears”. We have
applied with the U.S. Patent and Trademark Office for the registration of the mark “MSTcad” in the United States.
Employees and Human Capital Management
As of the date of this Annual
Report, we employ 19 people on a full-time basis.
Our human capital resources
objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees. The
principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of stock-based compensation
awards that align their compensation with our business objectives and with creation of shareholder value.
Available Information
Our website is located at
www.atomera.com. The information on or accessible through our website is not part of this Annual Report on Form 10-K. Copies of our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act are available free of charge, on our investor relations website as soon as reasonably practicable
after we file such material electronically with or furnish it to the Securities and Exchange Commission, or the SEC. A copy of this Annual
Report on Form 10-K is also located at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information
on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet
site that contains reports and other information regarding our filings at www.sec.gov.
We are subject to various risks that may harm
our business, prospects, financial condition and results of operation or prevent us from achieving our goals. If any of these risks occur,
our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our
common stock could decline and investors could lose all or part of their investment.
Risks Related to Our Business
We only recently commenced
limited revenue producing operations, so it is difficult for potential investors to evaluate our business. To date, our operations
have consisted of technology research and development, testing, and joint development work with customers, potential customers and strategic
partners. Our business model is to derive our revenue primarily from license fees and royalties, but to date we have only recognized minimal
engineering services and licensing revenues. Our limited operating history makes it difficult to evaluate the commercial value of our
technology or our prospective operations. As an early-stage company, we are subject to all the risks inherent in the initial organization,
financing, expenditures, complications and delays in a new business, including, without limitation:
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the timing and success of our plan of commercialization and the fact that we have not entered into a royalty-based manufacturing or distribution license with a potential customer;
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our ability to replicate on a large commercial scale the benefits of our MST technology that we have demonstrated in preliminary testing;
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our ability to execute joint development agreements with potential customers;
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our ability to structure, negotiate and enforce license agreements that will allow us to operate profitably;
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our ability to advance the licensing arrangements with our initial integration licensees, Asahi Kasei Microdevices, STMicroelectronics and our RF licensee, to royalty-based manufacturing and distribution licenses;
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our success in achieving the milestones included in the JDA and our success at negotiating distribution and royalty agreements, which are not committed, with our JDA customer;
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our ability to successfully operate, the epitaxial deposition reactor for processing 300mm wafers that we recently began using for internal research and development and to support customer activities;
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our ability to protect our intellectual property rights; and
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our ability to raise additional capital as and when needed.
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Investors should evaluate
an investment in us in light of the uncertainties encountered by developing companies in a competitive environment. There can be no assurance
that our efforts will be successful or that we will ultimately be able to attain profitability.
We have a history of
significant operating losses and anticipate continued operating losses for at least the near term. For the years ended December
31, 2021 and 2020, we have incurred net losses of approximately $15.7 million and $14.9 million, respectively, and our operations have
used approximately $12.4 million and $12.1 million of cash, respectively. As of December 31, 2021, we had an accumulated deficit of approximately
$165.9 million. We will continue to experience negative cash flows from operations until at least such time as we are able to secure manufacturing
and distribution license agreements with one or more foundries, IDMs or fabless semiconductor manufacturers. While management will endeavor
to generate positive cash flows from the commercialization of our MST technology, there can be no assurance that we will be successful
doing so. If we are unable to generate positive cash flow within a reasonable period of time, we may be unable to further pursue our business
plan or continue operations.
While we have
entered into four integration license agreements and a joint development agreement, there can be no assurance that any of these
relationships will advance to further licensing stages or to royalty-based distribution license agreements. In September and
October 2018, respectively, we entered into separate license agreements with AKM and ST, both of which are leading IDMs. In October
2019, we entered into a license agreement with a leading RF semiconductor supplier. In February 2022, we entered into an integration
license agreement with a semiconductor foundry. Our licensees have paid us licensing fees for the right to build products that
integrate MST technology onto their semiconductor wafers, but the agreements do not grant the licensees the right to sell products
incorporating MST. Such rights require our integration licensees to enter into additional license agreements that, if executed,
would allow each licensee or their foundry to manufacture MST-enabled products and to sell them to their customers. We expect that
the manufacturing and distribution agreements will provide for substantially larger upfront license fee payments than integration
license fees and that the agreements will require the respective licensees to make royalty payments to us based the number and sales
price of MST-enabled products they sell to their customers. However, our ability to enter into royalty-based manufacturing and
distribution agreements with our current integration licensees or with new customers will depend, in large part, on the performance
of devices they build using MST and the successful integration of our MST technology on a high-volume production scale. Our JDA
customer paid us for a manufacturing license in the first quarter of 2021 when we delivered our MST recipe to them. In February
2022, we successfully achieved all the development milestones in the JDA. Nevertheless, the JDA does not commit the customer to take
MST to production. There can be no assurance that our MST technology will deliver the performance, power or other requirements our
customers seek for their products or that the integration of our technology with our customers’ manufacturing process will be
successful in high volume. In addition, even if our MST technology is successfully integrated into the licensees’ products,
any or all of our licensees may decide, for reasons unrelated to the price or performance of our MST technology, not to enter the
subsequent license agreements required to take MST to commercial production.
AKM, one of our licensees,
suffered substantial damage to one of its fabs from a fire, impacting their production capability and potentially delaying their work
with us. On October 20, 2020, a fire broke out in AKM’s factory in Nobeoka, Japan which lasted three days, causing substantial
damage to the building and equipment. As of the date of this Annual Report, the Nobeoka fab remains closed and it is unclear whether or
when it will re-open. Although Atomera’s work under our integration license agreement with AKM did not involve wafers in commercial
production in this fab, the fire substantially disrupted AKM’s business and interrupted their integration and testing of MST. We
expect that cooperation on integrating MST into AKM’s products will continue, but the fire has cast doubt on the timing for moving
toward a manufacturing license or commercial distribution. The timing of additional wafer runs with AKM will depend upon, among other
things, the timing of either re-opening the Nobeoka fab, moving production to another fab or external foundry, and AKM’s ability
to devote personnel and equipment to MST integration.
We expect that our product
qualification and licensing cycle will be lengthy and costly, and our marketing, engineering and sales efforts may be unsuccessful. We
have incurred significant engineering, marketing and sales expenses during customer engagements without entering into license agreements,
generating a license fee or establishing a royalty stream from the customer and we expect that such investments ahead of license revenue
will continue to be necessary in the future. The introduction of any new process technology into semiconductor manufacturing is a lengthy
process and we cannot forecast with any degree of assurance the length of time it takes to establish a new licensing relationship. However,
based on our engagements with potential customers to date, we believe the time from initial engagement until our customers incorporate
our technologies in their semiconductor products, can take 18 to 36 months or longer. Our integration license agreements with our current
licensees do not commit them to manufacturing or distribution licenses and we expect those licensees to perform additional tests on evaluation
wafers under their respective integration licenses before deciding whether to enter the next stages of licensing MST. As such, we will
incur additional expenses in our engagements with our licensees before we receive license fees, if any, for manufacturing and distribution
and before any subsequent royalty stream begins. Although we have successfully completed the objectives of our JDA and granted that customer
a manufacturing license, the agreement does not commit our customer to a distribution license. While we believe our JDA and our integration
license agreements should accelerate licensing decisions by other customers, the evaluation process for new technologies in the semiconductor
industry is inherently long and complex and there can be no assurance that we will successfully convert other customer prospects into
paying customers or that any of these customers will generate sufficient revenue to cover our expenses.
Our business may be
adversely affected by the recent coronavirus outbreak. The ongoing global COVID-19 pandemic—including both the resulting
public health crisis as well as the measures being taken by governments, businesses, and individuals in an effort to limit COVID-19’s
spread—has adversely affected, and continues to adversely affect, our business operations. The impacts of the COVID-19 pandemic
on our business operations and workforce, and the duration of such impacts, are uncertain, constantly evolving,
and difficult to quantify, but have thus far included,
or in the future may include, the following:
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We have implemented certain measures at our facilities in an effort to protect our employees’ health and well-being (including social distancing, allowing many employees to work remotely, limiting the number of employees attending meetings, screening employees and visitors when entering facilities, educating employees about the virus and preventative measures, enhancing cleaning protocols, and limiting employee travel), some of which have reduced the overall efficiency of our operations and increased costs. The expected duration of such protective measures remains uncertain, and we may be required to implement additional measures in the future, further impacting our business operations.
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Restrictions on travel imposed by us, our customers and countries to which we would otherwise travel, have required that contract negotiations and customer presentations be conducted by video or phone conferences, which have inherent limitations as compared to in-person meetings. Accordingly, new customer acquisition and completion of contracts have taken longer than we believe would be possible if we were able to meet with customers in the manner we had prior to the pandemic outbreak.
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Qualification of our
MST technology requires access to our potential customers’ manufacturing tools and facilities, as well as to leased tools and facilities,
which may not be available on a timely basis or at all. The qualification of a new process technology like MST entails the integration
of our MST film into the complex manufacturing processes employed by our potential customers. In order to validate the benefits of MST,
our customer engagement process involves fabrication of wafers that incorporate MST deposited by us using our epitaxial deposition tools
and then completing the manufacturing of the wafers in our customers’ facilities using their tools. The semiconductor industry in
2021 exceeded $550 billion in sales, and in recent months the industry has been characterized by product shortages as strong demand has
outstripped supply, resulting in tight capacity among our potential customers. Accordingly, we have experienced delays in completing the
processing of evaluation wafers by our customers as those customers prioritize utilization of their equipment for production use. If our
customers do not dedicate their equipment and facilities to testing our products in a timely fashion, we may experience delays that will
increase our expenses and delay our customers’ decisions on entering into a commercial license with us. Additionally, we conduct
our ongoing research and development and portions of our customer evaluation activities using a leased epitaxial (epi) deposition tool.
We recently entered into a lease for a new epi tool that we believe will accelerate internal development work and customer engagements.
However, epi tools require ongoing, complex maintenance and they have been and will continue to be subject to both planned and unplanned
downtime. Any interruption in our epi tool availability may negatively impact the progress of customer work as well as our internal research
and development and accordingly could delay or prevent customers from entering into commercial licenses.
The long-term success
of our business is dependent on a royalty-based business model, which is inherently risky. The long-term success of our business
is dependent on future royalties paid to us by licensee-customers, whose business requires them to market products to their end customers.
Royalty payments under our licenses are generally expected to be based on a percentage (i) in the case of foundries, the selling price
of wafers made using MST and (ii) in the case of IDMs and fabless vendors, the selling price of MST-enabled semiconductor die sold. We
will depend upon our ability to structure, negotiate and enforce agreements for the determination and payment of royalties, as well as
upon our licensees’ compliance with their agreements. We face risks inherent in a royalty-based business model, many of which are
outside of our control, such as the following:
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the rate of adoption and incorporation of our technology by semiconductor designers and manufacturers and the manufacturers of semiconductor fabrication equipment;
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customers’ willingness to agree to an ongoing royalty model, which may impact their wafer or chip costs and margins;
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our licensee customers’ ability to successfully market MST-enabled products to their end customers;
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the length of the design cycle and the ability to successfully integrate our MST technology into integrated circuits;
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the demand for products incorporating semiconductors that use our licensed technology;
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the cyclicality of supply and demand for products using our licensed technology;
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the impact of economic downturns; and
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the timing of receipt of royalty reports and the applicable revenue recognition criteria, which may result in fluctuation in our results of operations.
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We may need additional
financing to execute our business plan and fund operations, which additional financing may not be available on reasonable terms or at
all. As of December 31, 2021, we had total assets of approximately $36.1 million, cash and cash-equivalents of approximately
$28.7 million and working capital of approximately $26.3 million. We believe that we have sufficient capital to fund our current
business plans and obligations over, at least, the 12 months following the date of this Annual Report. However, even after installation
of MST in a customer’s fab under a manufacturing license, the full production qualification of a new technology like MST can take
more than an additional year, and we have limited ability to influence our customers’ testing and qualification processes. Accordingly,
we may require additional capital prior to obtaining a royalty-based license or prior to such a license generating sufficient royalty
income to cover our ongoing operating expenses. In the event we require additional capital over and above the amount of our presently
available working capital, we will endeavor to seek additional funds through various financing sources, including the sale of our equity
and debt securities, licensing fees for our technology and joint ventures with industry partners. In addition, we will consider alternatives
to our current business plan that may enable to us to achieve material revenue with a smaller amount of capital. However, there can be
no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory
terms, we may be unable to further pursue our business plan and we may be unable to continue operations.
Our revenues may be
concentrated in a few customers and if we lose any of these customers, or these customers do not pay us, our revenues could be materially
adversely affected. If we are able to secure the adoption of our MST by one or more foundries, IDMs or fabless semiconductor
manufacturers, we expect that for at least the first few years substantially all of our revenue will be generated from license fees and
engineering services before customers commence royalty-bearing shipments. Due to the concentration and ongoing consolidation within the
semiconductor industry, we may also find that over the longer term our royalty-based revenues are dependent on a relatively few customers.
If we lose any of these customers, or these customers do not pay us, our revenues could be materially adversely affected.
If we are unable to
manage future expansion effectively, our business, operations and financial condition may suffer significantly, resulting in decreased
productivity. If our MST proves to be commercially valuable, it is likely that we will experience a rapid growth phase that could
place a significant strain on our managerial, administrative, technical, operational and financial resources. Our organization, procedures
and management may not be adequate to fully support the expansion of our operations or the efficient execution of our business strategy.
If we are unable to manage future expansion effectively, our business, operations and financial condition may suffer significantly, resulting
in decreased productivity.
It may be difficult
for us to verify royalty amounts owed to us under our licensing agreements, and this may cause us to lose revenues. We will
endeavor to provide that the terms of our license agreements require our licensees to document their use of our technology and report
related data to us on a regular basis. We will endeavor to provide that the terms of our license agreements give us the right to audit
books and records of our licensees to verify this information, however audits can be expensive, time consuming, and may not be cost justified
based on our understanding of our licensees’ businesses. We will endeavor to audit certain licensees to review the accuracy of the
information contained in their royalty reports in an effort to decrease the likelihood that we will not receive the royalty revenues to
which we are entitled under the terms of our license agreements, but we cannot give assurances that such audits will be effective to that
end.
Our business operations
could suffer in the event of information technology systems’ failures or security breaches. While we believe that we
have implemented adequate security measures within our internal information technology and networking systems, our information technology
systems may be subject to security breaches, damages from computer viruses, natural disasters, terrorism, and telecommunication failures.
Any system failure or security breach could cause interruptions in our operations, including but not limited to our technology computer-aided
design, or TCAD, modeling using Synopsys software, in addition to the possibility of losing proprietary information and trade secrets.
To the extent that any disruption or security breach results in inappropriate disclosure of our confidential information, our competitive
position may be adversely affected, and we may incur liability or additional costs to remedy the damages caused by these disruptions or
security breaches.
If integrated
circuits incorporating our technologies are used in defective products, we may be subject to product liability or other claims. If
our MST technology is used in defective or malfunctioning products, we could be sued for damages, especially if the defect or malfunction
causes physical harm to people. While we will endeavor to carry product liability insurance, contractually limit our liability and obtain
indemnities from our customers, there can be no assurance that we will be able to obtain insurance at satisfactory rates or in adequate
amounts or that any insurance and customer indemnities will be adequate to defend against or satisfy any claims made against us. The costs
associated with legal proceedings are typically high, relatively unpredictable and not completely within our control. Even if we consider
any such claim to be without merit, significant contingencies may exist, similar to those summarized in the above risk factor concerning
intellectual property litigation, which could lead us to settle the claim rather than incur the cost of defense and the possibility of
an adverse judgment. Product liability claims in the future, regardless of their ultimate outcome, could have a material adverse effect
on our business, financial condition and reputation, and on our ability to attract and retain licensees and customers.
Risks Related to Intellectual Property
If we fail to protect
and enforce our intellectual property rights and our confidential information, our business will suffer. We rely primarily
on a combination of nondisclosure agreements and other contractual provisions and patent, trade secret and copyright laws to protect our
technology and intellectual property. If we fail to protect our technology and intellectual property, our licensees and others may seek
to use our technology and intellectual property without the payment of license fees and royalties, which could weaken our competitive
position, reduce our operating results and increase the likelihood of costly litigation. The growth of our business depends in large part
on our ability to secure intellectual property rights in a timely manner, our ability to convince third parties of the applicability of
our intellectual property rights to their products, and our ability to enforce our intellectual property rights. In certain instances,
we attempt to obtain patent protection for portions of our technology, and our license agreements typically include both issued patents
and pending patent applications as well as our proprietary know-how. If we fail to obtain patents in a timely manner or if the patents
issued to us do not cover all of the inventions disclosed in our patent applications, others could use portions of our technology and
intellectual property without the payment of license fees and royalties.
We also rely on trade secret
laws rather than patent laws to protect other portions of our proprietary technology. However, trade secrets can be difficult to protect.
The misappropriation of our trade secrets or other proprietary information could seriously harm our business. We protect our proprietary
technology and processes, in part, through confidentiality agreements with our employees, consultants, suppliers and customers. We cannot
be certain that these contracts have not been and will not be breached, that we will be able to timely detect unauthorized use or transfer
of our technology and intellectual property, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise
become known or be independently discovered by competitors. If we fail to use these mechanisms to protect our technology and intellectual
property, or if a court fails to enforce our intellectual property rights, our business will suffer. We cannot be certain that these protection
mechanisms can be successfully asserted in the future or will not be invalidated or challenged.
Further, the laws and enforcement
regimes of certain countries do not protect our technology and intellectual property to the same extent as do the laws and enforcement
regimes of the U.S. In certain jurisdictions, we may be unable to protect our technology and intellectual property adequately against
unauthorized use, which could adversely affect our business.
A court invalidation
or limitation of our key patents could significantly harm our business. Our patent portfolio contains some patents that are particularly
significant to our MST technology. If any of these key patents are invalidated, or if a court limits the scope of the claims in any of
these key patents, the likelihood that companies will take new licenses and that any current licensees will continue to agree to pay under
their existing licenses could be significantly reduced. The resulting loss in license fees and royalties could significantly harm our
business. Moreover, our stock price may fluctuate based on developments in the course of ongoing litigation.
We may become involved
in material legal proceedings in the future to enforce or protect our intellectual property rights, which could harm our business. From
time to time, we may identify products that we believe infringe our patents. In that event, we expect to initially seek to license the
manufacturer of the infringing products, however if the manufacturer is unwilling to enter into a license agreement, we may have to initiate
litigation to enforce our patent rights against those products. Litigation stemming from such disputes could harm our ability to gain
new customers, who may postpone licensing decisions pending the outcome of the litigation or who may, as a result of such litigation,
choose not to adopt our technologies. Such litigation may also harm our relationships with existing licensees, who may, because of such
litigation, cease making royalty or other payments to us or challenge the validity and enforceability of our patents or the scope of our
license agreements.
In addition, the costs associated
with legal proceedings are typically high, relatively unpredictable and not completely within our control. These costs may be materially
higher than expected, which could adversely impair our working capital, affect our operating results and lead to volatility in the price
of our common stock. Whether or not determined in our favor or ultimately settled, litigation would divert our managerial, technical,
legal and financial resources from our business operations. Furthermore, an adverse decision in any of these legal actions could result
in a loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from others, limit the value of
our licensed technology or otherwise negatively impact our stock price or our business and financial position, results of operations and
cash flows.
Even if we prevail in our
legal actions, significant contingencies may exist to their settlement and final resolution, including the scope of the liability of each
party, our ability to enforce judgments against the parties, the ability and willingness of the parties to make any payments owed or agreed
upon and the dismissal of the legal action by the relevant court, none of which are completely within our control. Parties that may be
obligated to pay us royalties could be insolvent or decide to alter their business activities or corporate structure, which could affect
our ability to collect royalties from such parties.
Our technologies may
infringe on the intellectual property rights of others, which could lead to costly disputes or disruptions. The semiconductor
industry is characterized by frequent allegations of intellectual property infringement. Any allegation of infringement could be time
consuming and expensive to defend or resolve, result in substantial diversion of management resources, cause suspension of operations
or force us to enter into royalty, license, or other agreements rather than dispute the merits of such allegation. Furthermore, third
parties making such claims may be able to obtain injunctive or other equitable relief that could block our ability to further develop
or commercialize some or all of our technologies, and the ability of our customers to develop or commercialize their products incorporating
our technologies, in the U.S. and abroad. If patent holders or other holders of intellectual property initiate legal proceedings, we
may be forced into protracted and costly litigation. We may not be successful in defending such litigation and may not be able to procure
any required royalty or license agreements on acceptable terms or at all.
Risks Related to Owning Our Common Stock
The market price of
our shares may be subject to fluctuation and volatility. You could lose all or part of your investment. The market price of our
common stock is subject to wide fluctuations in response to various factors, some of which are beyond our control. Between January 1,
2021 and February 9, 2022, the reported high and low sales prices of our common stock have ranged from $11.32 to $47.13. The market price
of our shares on the NASDAQ Capital Market may fluctuate as a result of a number of factors, some of which are beyond our control, including,
but not limited to:
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actual or anticipated variations in our results of operations and financial condition;
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market acceptance of our MST technology;
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success or failure of our research and development projects;
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announcements of technological innovations by us;
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failure by us to achieve a publicly announced milestone;
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failure by us to meet expectations of investors, some of which may not be within our control or related to our public announcements;
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delays between our expenditures to develop and market new or enhanced technological innovations and the generation of licensing revenue from those innovations;
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developments concerning intellectual property rights, including our involvement in litigation brought by or against us;
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changes in the amounts that we spend to develop, acquire or license new technologies or businesses;
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our sale or proposed sale, or the sale by our significant stockholders, of our shares or other securities in the future;
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changes in our key personnel;
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changes in earnings estimates or recommendations by securities analysts, if we continue to be covered by analysts;
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the trading volume of our shares; and
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general economic and market conditions and other factors, including factors unrelated to our operating performance.
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These factors and any corresponding
price fluctuations may materially and adversely affect the market price of our shares and result in substantial losses being incurred
by our investors. In the past, following periods of market volatility, public company stockholders have often instituted securities class
action litigation. If we were involved in securities litigation, it could impose a substantial cost upon us and divert the resources and
attention of our management from our business.
We have not paid dividends
in the past and have no immediate plans to pay dividends. We plan to reinvest all of our earnings, to the extent we have earnings,
to cover operating costs and otherwise become and remain competitive. We do not plan to pay any cash dividends with respect to our securities
in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available for
distribution to the holders of our common stock as a dividend. Therefore, you should not expect to receive cash dividends on our common
stock.
We expect to continue
to incur significant increased costs as a result of being a public company that reports to the Securities and Exchange Commission and
our management will be required to devote substantial time to meet compliance obligations. As a public company reporting to the
Securities and Exchange Commission, we incur significant legal, accounting and other expenses that we did not incur as a private company.
We are subject to reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented
by the Securities and Exchange Commission that impose significant requirements on public companies, including requiring establishment
and maintenance of effective disclosure and financial controls and changes in corporate governance practices. In addition, on July 21,
2010, the Dodd-Frank Wall Street Reform and Protection Act was enacted. There are significant corporate governance and executive compensation-related
provisions in the Dodd-Frank Act that increased our legal and financial compliance costs, make some activities more difficult, time-consuming
or costly and may also place undue strain on our personnel, systems and resources. Our management and other personnel devote a substantial
amount of time to these compliance initiatives.
Our charter documents
and Delaware law may inhibit a takeover that stockholders consider favorable. Provisions of our certificate of incorporation
and bylaws and applicable provisions of Delaware law may delay or discourage transactions involving an actual or potential change in control
or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions
that our stockholders might otherwise deem to be in their best interests. The provisions in our certificate of incorporation and bylaws:
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limit who may call stockholder meetings;
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do not permit stockholders to act by written consent;
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allow us to issue blank check preferred stock without stockholder approval;
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do not provide for cumulative voting rights; and
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provide that all vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.
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In addition, Section 203 of
the Delaware General Corporation Law may limit our ability to engage in any business combination with a person who beneficially owns 15%
or more of our outstanding voting stock unless certain conditions are satisfied. This restriction lasts for a period of three years following
the share acquisition. These provisions may have the effect of entrenching our management team and may deprive you of the opportunity
to sell your shares to potential acquirers at a premium over prevailing prices. This potential inability to obtain a control premium could
reduce the price of our common stock.
Our bylaws designate
the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by our stockholders,
which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with the Company. Our
bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware
shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim
of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting
a claim against us or any our directors, officers or other employees arising pursuant to any provision of the Delaware General Corporation
Law or our certificate of incorporation or bylaws, or (iv) any action asserting a claim against us or any our directors, officers or other
employees governed by the internal affairs doctrine. This forum selection provision in our bylaws may limit our stockholders’ ability
to obtain a favorable judicial forum for disputes with us or any our directors, officers or other employees.
Our board of directors
may issue blank check preferred stock, which may affect the voting rights of our holders and could deter or delay an attempt to obtain
control of us. Our board of directors is authorized, without stockholder approval, to issue preferred stock in series and to fix
and state the voting rights and powers, designation, preferences and relative, participating, optional or other special rights of the
shares of each such series and the qualifications, limitations and restrictions thereof. Preferred stock may rank prior to our common
stock with respect to dividends rights, liquidation preferences, or both, and may have full or limited voting rights. If issued, such
preferred stock would increase the number of outstanding shares of our capital stock, adversely affect the voting power of holders of
our common stock and could have the effect of deterring or delaying an attempt to obtain control of us.