from the 20-F
posted on
Jan 28, 2014 10:28AM
We are party to an intellectual property license agreement granting a portion of all future revenues.
In 2003, the Company entered into a License Agreement with the University of Connecticut (“UConn”) whereby UConn granted the Company an exclusive license to the intellectual property developed by a consultant and director of the Company, Dr. Geoffrey Taylor, who is also a member of the faculty at UConn. Such a license may reduce the profitability of the Company if and when our products reach market. The Company is obligated to pay up to $1,000,000 per year when revenues reach certain milestones as well as pay an additional 30% of any sublicense revenue received for commercial, royalty bearing sublicenses of the licensed intellectual property to third parties. The Company and UConn are currently renegotiating the terms of this license.
We will be dependent on both semiconductor partners and major intellectual property licensees.
We will rely on semiconductor partners to manufacture and market microprocessors based on our architecture in order to receive royalties in the future. We also depend on them to add value to our licensed technology by providing complete POET-based solutions to meet the specific application needs of systems companies. However, the semiconductor partners, if any, will not be contractually obliged to manufacture, distribute or sell devices based on our technology or to market our POET technology on an exclusive basis. Some potential semiconductor partners design, develop and/or manufacture and market devices based on different competing architectures, including their own, and others may do so in the future.
We anticipate that our revenue will depend on these major customers, although the companies considered to be major customers and the percentage of revenue represented by each major customer may vary from period to period depending on the addition of new contracts, the timing of work performed by us and the number of designs utilizing our products. In addition, we cannot be certain that any of the integrated circuit manufacturers will produce products incorporating our intellectual property components or that, if production occurs, they will generate significant royalty revenue for us.
We cannot assure you that semiconductor device manufacturers will dedicate the resources necessary to promote and develop products based on our POET technology, that they will manufacture products based on our POET technology in quantities sufficient to meet demand, that we will be successful in maintaining our relationships with semiconductor manufacturers or that we will be able to develop relationships with new semiconductor manufacturers.
Our revenues will depend in large part on royalties that may be received on POET-based devices, which will likely be generated on the volumes and price of devices manufactured and sold by our semiconductor manufacturer customers, if any. Our royalties will be therefore influenced by many of the risks faced by the semiconductor market in general. These risks include reductions in demand and reduced average selling prices. The semiconductor market is intensely competitive. It is also generally characterized by declining average selling prices over the life of a generation of devices. The effect of these price decreases is compounded by the fact that royalty rates decrease as a function of volume. We cannot assure you that delays in licensing, poor demand for services or decreases in prices or in our royalty rates will not materially adversely affect our business, results of operations and financial condition.