SEC Filing | Arteris, Inc.

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aip-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-40960

Arteris, Inc.

(Exact name of registrant as specified in its charter)


Delaware						27-0117058
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


595 Millich Dr. Suite 200
Campbell, CA 95008
(408) 470-7300
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value	AIP	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	x
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

As of May 2, 2022, there were 31,939,169 shares of the registrant’s common stock outstanding.

Table of Contents


TABLE OF CONTENTS


		Page
Part I. Financial Information		3
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Loss and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021	4
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the Three Months Ended March 31, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
Part II. Other Information		31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65
Signatures		66

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Part I - Financial Information

Item 1. Financial Statements

Arteris, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)


	As of
	March 31, 2022		December 31, 2021

ASSETS
Current assets:
Cash	$	82,236	$	85,825
Accounts receivable, net	8,199		13,873
Prepaid expenses and other current assets	8,456		6,949
Total current assets	98,891		106,647
Property and equipment, net	2,281		2,438
Operating lease right-of-use assets	2,595		2,765
Intangibles, net	2,840		2,959
Goodwill	2,677		2,677
Other assets	3,088		2,957
TOTAL ASSETS	$	112,372	$	120,443
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,032	$	1,722
Accrued expenses and other current liabilities	9,456		10,573
Operating lease liabilities, current	1,007		961
Deferred revenue, current	28,115		28,403
Vendor financing arrangements, current	802		833
Total current liabilities	40,412		42,492
Deferred revenue, noncurrent	21,361		20,773
Operating lease liabilities, noncurrent	1,660		1,851
Vendor financing arrangements, noncurrent	124		266
Other liabilities	1,156		2,157
Total liabilities	64,713		67,539
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, par value of $0.001 - 10,000,000 shares authorized and no shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	—		—
Common stock, par value of $0.001 - 300,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 31,858,420 and 31,530,682 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	31		31
Additional paid-in capital	93,520		91,945
Accumulated other comprehensive loss	(81)		(81)
Accumulated deficit	(45,811)		(38,991)
Total stockholders' equity	47,659		52,904
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	112,372	$	120,443

See accompanying notes to condensed consolidated financial statements.

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Arteris, Inc.

Condensed Consolidated Statements of Loss and Comprehensive Loss

(in thousands, except share and per share data)

(Unaudited)


	Three Months Ended March 31,
	2022		2021

Revenue
Licensing, support and maintenance	$	10,575	$	6,161
Variable royalties and other	1,180		497
Total revenue	11,755		6,658
Cost of revenue	979		868
Gross profit	10,776		5,790
Operating expenses:
Research and development	9,456		6,538
Sales and marketing	3,921		2,448
General and administrative	4,015		3,251
Total operating expenses	17,392		12,237
Loss from operations	(6,616)		(6,447)
Interest and other expense, net	(81)		(114)
Loss before provision for income taxes	(6,697)		(6,561)
Provision for income taxes	123		156
Net loss and comprehensive loss	$	(6,820)	$	(6,717)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.22)	$	(0.36)
Weighted average shares used in computing per share amounts, basic and diluted	31,619,706		18,832,800

See accompanying notes to condensed consolidated financial statements.

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Arteris, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

(In thousands, except share data)

(Unaudited)


	Three Months Ended March 31, 2022
	Redeemable Convertible Preferred Stock			Stockholders’ Equity (Deficit)
							Additional		Accumulated Other
				Common Stock			Paid-In		Comprehensive		Accumulated
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Total

BALANCE—December 31, 2021	—	$	—	31,530,682	$	31	$	91,945	$	(81)	$	(38,991)	$	52,904
Issuance of common stock for cash upon exercise of stock options	—	—		125,010	—		90		—		—		90
Issuance of common stock for settlement of restricted stock units	—	—		266,693	—		—		—		—		—
Tax withholding on RSUs settlement	—	—		(63,965)	—		(824)		—		—		(824)
Stock-based compensation expense	—	—		—	—		2,309		—		—		2,309
Net loss	—	—		—	—		—		—		(6,820)		(6,820)
BALANCE—March 31, 2022	—	$	—	31,858,420	$	31	$	93,520	$	(81)	$	(45,811)	$	47,659


	Three Months Ended March 31, 2021
	Redeemable Convertible Preferred Stock			Stockholders’ Equity (Deficit)
							Additional		Accumulated Other
				Common Stock			Paid-In		Comprehensive		Accumulated
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Total

BALANCE—Dec 31, 2020	4,471,316	$	5,712	18,486,989	$	18	$	3,612	$	(31)	$	(15,607)	$	(12,008)
Issuance of common stock for cash upon exercise of stock options	—	—		544,227	1		184		—		—		185
Stock-based compensation expense	—	—		—	—		333		—		—		333
Net loss	—	—		—	—		—		—		(6,717)		(6,717)
BALANCE—March 31, 2021	4,471,316	$	5,712	19,031,216	$	19	$	4,129	$	(31)	$	(22,324)	$	(18,207)

See accompanying notes to condensed consolidated financial statements.

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Arteris, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(6,820)	$	(6,717)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	401		369
Stock-based compensation	2,309		333
Operating non-cash lease expense	25		(3)
Other, net	—		(8)
Changes in operating assets and liabilities:
Accounts receivable, net	5,674		6,084
Prepaid expenses and other assets	(1,447)		(762)
Accounts payable	(434)		666
Accrued expenses and other liabilities	(1,370)		(1,237)
Deferred revenue	301		1,791
Net cash (used in) provided by operating activities	(1,361)		516
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(92)		(39)
Payments of deferred transaction costs relating to investment in Transchip	(191)		—
Net cash used in investing activities	(283)		(39)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of contingent consideration for business acquisition	(1,573)		—
Principal payments under vendor financing arrangements	(205)		(138)
Proceeds from exercise of stock options	90		184
Payments of deferred offering costs	(257)		(94)
Payments of principal portion of term loan	—		(150)
Other	—		(2)
Net cash used in financing activities	(1,945)		(200)
NET (DECREASE) INCREASE IN CASH	(3,589)		277
CASH, beginning of period	85,825		11,744
CASH, end of period	$	82,236	$	12,021

Noncash investing and financing activities:
Purchase of property and equipment through vendor financing	$	33	$	—
Unpaid deferred offering costs	$	—	$	416
Unpaid deferred transaction costs relating to investment in Transchip	$	73	$	—

See accompanying notes to condensed consolidated financial statements.

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ARTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. DESCRIPTION OF BUSINESS

Description of the Business

Arteris, Inc. and its subsidiaries (collectively, the “Company” or “Arteris”) was incorporated in Delaware on April 12, 2004. The Company develops, licenses, and supports the on-chip interconnect fabric technology used in System-on-Chip (SoC) designs for a variety of devices and in the development and distribution of Network-on-Chip (NoC) interconnect intellectual property (IP). The Company also provides software and services to enable efficient deployment of NoC IP, IP support & maintenance services, professional services and training and on-site support services. The Company is headquartered in Campbell, California and has offices in the United States, France, Japan, South Korea and China.

In October, 2021, the Company completed its initial public offering (IPO), in which it issued and sold 5,750,000 shares of its common stock at the public offering price of $14.00 per share, including 750,000 shares of its common stock upon the full exercise of the underwriters’ option to purchase additional shares. The Company received net proceeds of $71.1 million after deducting underwriting discounts and commissions and offering expenses.

Deferred offering costs for the IPO were $3.8 million and consisted primarily of direct incremental accounting, legal and other fees related to the IPO. Prior to the IPO, all deferred offering costs were capitalized and included in other assets, non-current on the condensed consolidated balance sheets. Upon completion of the IPO, deferred offering costs were reclassified into stockholders’ equity (deficit) as a reduction of the IPO proceeds.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic which has resulted in substantial global economic disruption and uncertainty. In response to the COVID-19 pandemic, the measures implemented by various authorities have caused us to change the Company’s business practices, including those related to where employees work, the distance between employees in the Company’s facilities, limitations on in-person meetings between employees and with customers, suppliers, service providers and stakeholders, as well as restrictions on business travel to domestic and international locations and to attend trade shows, technical conferences and other events. The extent and continued impact of the COVID-19 pandemic on our business will depend on certain developments including the duration and spread of the outbreak and new variant strains of the virus; the availability and distribution of effective vaccines; the severity of the economic decline attributable to the pandemic and timing, nature and sustainability of economic recovery; and government responses, including vaccination or testing mandates, all of which are highly uncertain and unpredictable.

The Company is unable to accurately predict the full impact that COVID-19 will have on its future results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures. The Company will continue to monitor health orders issued by applicable governments to ensure compliance with evolving domestic and global COVID-19 guidelines.

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2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 and the related notes included in the Company’s Form 10-K filed on March 7, 2022 (2021 Form 10-K) with the U.S. Securities and Exchange Commission (SEC). The December 31, 2021 condensed consolidated balance sheet was derived from the audited consolidated financial statements as of that date. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the condensed consolidated financial statements.

The operating results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Arteris, Inc. and its wholly-owned subsidiaries. All inter-company transactions and accounts have been eliminated.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates relate to, among others, revenue recognition, the useful lives of assets, assessment of recoverability of property, plant and equipment, fair values of goodwill and other intangible assets, including impairments, leases, allowances for doubtful accounts, deferred tax assets and related valuation allowance, stock-based compensation, potential reserves relating to litigation and tax matters, collectability of certain receivable, as well as other accruals or reserves. Actual results could differ from those estimates and such differences may be material to the condensed consolidated financial statements.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentration of credit risk consist of cash and accounts receivable. The Company maintains cash in checking and savings deposits. Management believes no significant concentration risk exists with respect to cash as in management’s judgment the banks that hold the Company’s cash are financially stable. The Company deposits cash with high-credit-quality financial institutions which, at times, may exceed federally insured amounts.

The Company’s accounts receivable are derived principally from revenue earned from customers located in Americas, Europe, Middle East and Asia Pacific regions.

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Accounts receivable from the Company’s major customers representing 10% or more of total accounts receivable was as follows:


	As of
	March 31, 2022		December 31, 2021
Customer A	12	%	*
Customer B	11	%	*
Customer C	*		12	%
Customer D	*		21	%
Customer E	*		33	%

*Customer accounted for less than 10% of total accounts receivable at period end.

Revenue from the Company’s major customers representing 10% or more of total revenue was as follows:


	Three Months Ended March 31,
	2022		2021
Customer C	20	%	*
Customer E	17	%	20	%

*Customer accounted for less than 10% of total revenue in the period.

Significant Accounting Policies

There have been no significant changes to the Company’s significant accounting policies during the three months ended March 31, 2022 from those disclosed in the annual consolidated financial statements for the year ended December 31, 2021.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This Update removes certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies the accounting for franchise taxes, transactions that result in a step-up in the tax basis of goodwill, and the effect of enacted changes in tax laws or rates in interim periods. The Company adopted ASU 2019-12 on January 1, 2021 and the adoption had no material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in May 2019 issued ASU No. 2019-05, Credit Losses (Topic 326): Targeted Transition Relief (collectively referred to as Topic 326), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. Topic 326 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses. Topic 326 is effective for the Company for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.

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In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This standard requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those years and early adoption is permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.

3. REVENUE

Disaggregated Revenue

The following table shows revenue by product and services groups (in thousands):


	Three Months Ended March 31,
	2022		2021
Licensing, support and maintenance	$	10,575	$	6,161
Variable royalties	984		490
Other	196		7
Total	$	11,755	$	6,658

Contract Balances

The following table provides information about accounts receivable, net, contract assets and deferred revenue (in thousands):


	As of
	March 31, 2022		December 31, 2021
Accounts receivable, net	$	8,199	$	13,873
Contract assets	$	1,555	$	1,486
Deferred revenue	$	49,476	$	49,176

The Company recognized revenue of $7.4 million and $5.1 million for the three months ended March 31, 2022 and 2021, respectively, that was included in the deferred revenue balance at the beginning of the respective periods.

Contracted but unsatisfied performance obligations were $49.6 million and $49.3 million as of March 31, 2022 and December 31, 2021, respectively, included unearned revenue and non-cancelable Flexible Spending Account (FSA) Agreements from customers where actual product selection and quantities of specific products are to be determined by customers at a future period. FSA commitments amounted to $0.2 million as of both March 31, 2022 and December 31, 2021. The Company has elected to exclude the potential future royalty receipts from the remaining performance obligations. The contracted but unsatisfied or partially unsatisfied performance obligations, excluding non-cancelable FSA, expected to be recognized in revenue over the next 12 months as of March 31, 2022 are $25.2 million, with the remainder recognized thereafter.

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Costs of Obtaining a Contract with a Customer

Incremental costs of obtaining a contract with a customer consist primarily of direct sales commissions incurred upon execution of the contract. These costs are required to be capitalized under ASC 340-40, Other Assets and Deferred Costs — Contracts With Customers, and amortized over the license term. As direct sales commissions paid for term extensions are commensurate with the amounts paid for initial contracts, the deferred incremental costs for initial contracts and for term extensions are recognized over the respective contract terms. Total capitalized direct commission costs were as follows (in thousands):


	As of
	March 31, 2022		December 31, 2021
Short-term commissions capitalized in prepaid expenses and other current assets	$	2,261	$	2,289
Long-term commissions capitalized in other assets	1,707		1,719
Total	$	3,968	$	4,008

Amortization of capitalized sales commissions was $0.7 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively.

Amortization of capitalized sales commissions are included in sales and marketing expense in the condensed consolidated statements of loss and comprehensive loss.

4. NET LOSS PER SHARE

The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):


	Three Months Ended March 31,
	2022		2021
Numerator:
Net loss	$	(6,820)	$	(6,717)
Denominator:
Weighted-average shares outstanding - basic and diluted	31,619,706		18,832,800
Net loss per share, basic and diluted	$	(0.22)	$	(0.36)

Since the Company was in a loss position for all periods presented, the diluted earnings per share is equal to the basic earnings per share as the effect of potentially dilutive securities would have been antidilutive.

The following table summarizes the potentially dilutive securities that were excluded from the calculation of diluted earnings per share because they would be antidilutive were as follows:


	As of
	March 31, 2022	March 31, 2021
Stock options	5,117,627	6,460,522
Restricted stock units	3,943,138	1,584,395
Redeemable convertible preferred stock	—	4,471,316
Total	9,060,765	12,516,233

5. FAIR VALUE MEASUREMENTS

Assets Measured and Recorded at Fair Value on a Non-Recurring Basis

Certain non-financial assets, such as intangible assets and property, plant and equipment, are remeasured at fair value only if an impairment or observable price adjustment is recognized in the current period.

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Financial Instruments Not Recorded at Fair Value on a Recurring Basis

Financial instruments not recorded at fair value on a recurring basis include vendor financing arrangements. The carrying value of the vendor financing agreements were $0.9 million and $1.1 million as of March 31, 2022 and December 31, 2021, respectively. The Company’s vendor financing arrangements are classified within Level 2 because these borrowings are not actively traded and have a variable interest rate structure based upon market rates currently available to the Company for debt with similar terms and maturities. The estimated fair values of these financial instruments approximate their carrying values.

6. INTANGIBLE ASSETS AND GOODWILL

Intangible assets, net

Intangible assets, net consisted of the following as of March 31, 2022 (in thousands):


	Gross Fair Value		Accumulated Amortization		Net Book Value
Developed technology	$	1,700	$	(453)	$	1,247
Customer relationships	1,100		(183)		917
IPR&D	500		—		500
Trade name and other	176		—		176
Total intangibles	$	3,476	$	(636)	$	2,840

Intangible assets, net consisted of the following as of December 31, 2021 (in thousands):


	Gross Fair Value		Accumulated Amortization		Net Book Value
Developed technology	$	1,700	$	(368)	$	1,332
Customer relationships	1,100		(149)		951
IPR&D	500		—		500
Trade name and other	176		—		176
Total intangibles	$	3,476	$	(517)	$	2,959

Amortization expense of intangible assets was $0.1 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.

The expected future amortization expense of these intangible assets as of March 31, 2022 is as follows (in thousands):


Fiscal year ending December 31,
Remainder of 2022	$	359
2023	478
2024	478
2025	449
2026	138
Thereafter	262
Total future amortization expense	$	2,164

Goodwill

As of March 31, 2022 and December 31, 2021, goodwill was $2.7 million. No goodwill impairments were recorded during the three months ended March 31, 2022 and 2021.

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7. LEASES

The Company leases its offices at various locations under noncancelable operating lease agreements expiring at various dates through 2027. Under the terms of these agreements, the Company also bears the costs for certain insurance, property tax, and maintenance. The terms of certain lease agreements provide for increasing rental payments at fixed intervals.

Total operating lease related costs were as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Operating lease cost	$	273	$	236
Short-term lease cost	133		16
Total lease cost	$	406	$	252

The weighted-average remaining term of the Company’s operating leases was 3.4 years and 3.6 years as of March 31, 2022 and December 31, 2021, respectively, and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 7.5% as of both March 31, 2022 and December 31, 2021.

Maturities of operating lease liabilities as of March 31, 2022 were as follows (in thousands):


Fiscal year ending December 31,
Remainder of 2022	$	886
2023	990
2024	449
2025	278
2026	212
Thereafter	212
Total undiscounted cash flows	$	3,027
Less: imputed interest	(360)
Present value of lease liabilities	$	2,667

Operating lease liabilities, current	$	1,007
Operating lease liabilities, non-current	1,660
	$	2,667

8. BORROWINGS

Vendor financing arrangements—The Company has various vendor financing arrangements with extended payment terms on the purchase of software licenses and equipment. In order to determine the present value of the commitments, the Company used an imputed interest rate of 7.5%, which is reflective of its collateralized borrowing rate with similar terms to that of the software licenses and equipment transactions.

Vendor financing arrangements as of March 31, 2022 were as follows (in thousands):


Fiscal year ending December 31,	Amount
Remainder of 2022	$	642
2023	319
Total undiscounted cash flows	$	961
Less: imputed interest	(35)
Present value of vendor financing arrangements	$	926

Vendor financing arrangements, current	$	802
Vendor financing arrangements, noncurrent	124
	$	926

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Interest expense from vendor financing arrangements was less than $0.1 million for the three months ended March 31, 2022. Interest expense from term loan and vendor financing arrangements was less than $0.1 million for the three months ended March 31, 2021.

9. COMMITMENTS AND CONTINGENCIES

Indemnifications—The Company often enters into limited indemnification provisions in license agreements in the ordinary course of the Company’s licensing business. Pursuant to these provisions, which are often inserted into license agreements in the semiconductor IP and software licensing industries, the Company agrees to indemnify, hold harmless, and reimburse the indemnified parties up to a capped amount for losses suffered or incurred by such indemnified parties due to third party claims if such claims are determined to be caused by the Company. The term of these indemnification provisions is generally either for a term of years or perpetual, in each case beginning on the execution date of the agreement. The Company has also agreed to indemnify under indemnity agreements with its directors and officers, to the extent legally permissible, against liabilities incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a director or officer, other than certain liabilities arising from willful misconduct of the individual.

The Company has incurred no actual payment obligations from these above-noted indemnification provisions and director and officer indemnity agreements for three months ended March 31, 2022 and 2021 and the condensed consolidated financial statements do not include liabilities for any potential indemnity-related obligations as of March 31, 2022 and December 31, 2021.

Legal—In the normal course of business, the Company may receive inquiries or become involved in legal disputes regarding various litigation matters. Although claims are inherently unpredictable, the Company currently is not aware of any matters that may have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

The Company has no other material contractual noncancelable commitments as of March 31, 2022 and December 31, 2021.

10. REDEEMABLE CONVERTIBLE PREFERRED STOCK, PREFERRED STOCK AND COMMON STOCK

Redeemable Convertible Preferred Stock

Immediately prior to the closing of the IPO, all shares of the Company’s redeemable convertible preferred stock outstanding, totaling 4,471,316, were automatically converted into an equal number of shares of common stock and their carrying value of $5.7 million was reclassified into stockholders’ equity. As of both March 31, 2022 and December 31, 2021, there were zero shares of redeemable convertible preferred stock issued and outstanding.

Preferred Stock

In connection with the IPO, the Company amended and restated its certificate of incorporation to authorize 10,000,000 shares of preferred stock with a par value of $0.001, which shares of preferred stock are currently undesignated.

Common Stock

Holders of common stock are entitled to one vote per share and to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to common stockholders. The common stock has no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. Common stock is subordinate to the preferred stock with respect to dividend rights and rights upon liquidation, winding-up, and dissolution of the Company. In connection with the IPO, the Company amended and restated its certificate of incorporation to authorize 300,000,000 shares of common stock.

11. STOCK-BASED COMPENSATION

2013 Stock Plan

The Board adopted and the Company’s stockholders approved the 2013 Equity Incentive Plan (the 2013 Plan) during the year ended December 31, 2013.

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2016 Stock Plan

On October 10, 2016, the Company amended and restated the 2013 Equity Incentive Plan and changed the name of the plan to Arteris, Inc. 2016 Incentive Plan (the 2016 Plan). Adoption of the 2016 Plan provides for participation by foreign nationals or those employed outside of the United States.

The 2016 Plan provides for the granting of the following types of stock awards: incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and other stock awards. The number of shares authorized for award was 20,803,838. The Company has granted awards of common stock in the form of 14,142,208 shares as of December 31, 2021. Following the Company’s IPO in October 2021, all future grants will be made under the 2021 Plan (as defined below), with none remaining available for future grant under the 2016 Plan.

2021 Stock Plan

The Company adopted the 2021 Incentive Award Plan (the 2021 Plan) effective October 26, 2021. The 2021 Plan provides for a variety of stock-based compensation awards, including stock options, stock appreciation rights, or SARs, restricted stock awards, restricted stock unit awards, performance bonus awards, performance stock unit awards, dividend equivalents, or other stock or cash based awards.

Following the effectiveness of the 2021 Plan, the Company will not make any further grants under the 2016 Plan. However, the 2016 Plan will continue to govern the terms and conditions of the outstanding awards granted under this plan. Shares of common stock subject to awards granted under the 2016 Plan that are forfeited or lapse unexercised and which following the effective date of the 2021 Plan are not issued under the 2016 Plan will be available for issuance under the 2021 Plan.

2021 Employee stock purchase plan

The Company adopted the 2021 Employee Stock Purchase Plan (the 2021 ESPP) effective on October 26, 2021. The 2021 ESPP will enable eligible employees of the Company to purchase shares of common stock at a discount to fair market value. As of March 31, 2022, there had been no offering period under the ESPP.

Shares Available for Future Grant

Shares available for future grant consisted of the following:


			As of
			March 31, 2022
Shares available for future grant under the 2021 Plan			4,977,913
Shares available for future grant under the 2021 ESPP			922,306

The Company issues new shares upon a share option exercise or release.

Stock Options

The following table summarizes the stock option activities under the Company’s 2013 and 2016 Plans:


	Options Outstanding
	Number of Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($'000s)

BALANCE—December 31, 2021	5,407,170	$	0.96	7.16	$	108,964
Exercised	(125,010)	$	0.72
Canceled	(164,533)	$	0.78
BALANCE—March 31, 2022	5,117,627	$	0.97	6.91	$	61,566
Options vested and exercisable—March 31, 2022	3,502,486	$	0.79	6.37	$	42,760

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The aggregate intrinsic value of the options exercised during the three months ended March 31, 2022 and 2021 was $1.6 million and $0.5 million, respectively. The total grant-date fair value of options vested was $0.1 million and less than $0.1 million during the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, there was $0.8 million of unamortized stock-based compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.3 years.

The Company had no stock option grants during the three months ended March 31, 2022.

Restricted Stock Units

The following table summarizes the restricted stock units activities under the Company’s 2013, 2016 and 2021 Plans:


	Restricted Stock Units
	Number of Shares	Weighted-Average Grant Date Fair Value

Unvested—December 31, 2021	3,925,097	$	5.60
Granted	350,659	$	13.43
Vested	(266,693)	$	3.97
Forfeited	(65,925)	$	11.20
Unvested—March 31, 2022	3,943,138	$	6.31

The total grant-date fair value of restricted stock units vested was $1.1 million and nil during the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, there was $18.9 million of unamortized stock-based compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 3.0 years.

Stock-based Compensation

Stock-based compensation expense is recorded on a departmental basis, based on the classification of the award holder. The following table presents the amount of stock-based compensation related to stock-based awards to employees on the Company’s condensed consolidated statements of loss and comprehensive loss (in thousands):


	Three Months Ended March 31,
	2022		2021
Cost of revenue	$	96	$	13
Research and development	1,144		199
Sales and marketing	271		24
General and administrative	798		97
Total stock-based compensation	$	2,309	$	333

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12. INCOME TAXES

The Company’s effective tax rate was (1.8)% and (2.4)% for the three months ended March 31, 2022 and 2021, respectively. The Company’s income tax provision was $0.1 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively. The decrease in forecasted foreign withholding tax, changes in the geographic mix of worldwide earnings which are taxed at different rates, and the impact of losses in jurisdictions with full valuation allowances, has resulted in the change in the income tax provision for the period ended March 31, 2022 compared to the period ended March 31, 2021.

The Company’s management continuously evaluates the need for a valuation allowance and, as of March 31, 2022, concluded that a full valuation allowance on its federal, state, and certain foreign jurisdictions deferred tax assets was still appropriate.

As of March 31, 2022 and 2021, the Company’s gross liability for unrecognized tax benefits was $3.1 million and $2.5 million, respectively. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of March 31, 2022 and 2021, the Company had no accrued interest or penalties related to its unrecognized tax benefits. If any unrecognized tax benefits are realized, it would not result in any income tax benefit as the Company currently has a full valuation allowance against the deferred tax assets in which there is an uncertain tax benefit.

13. RELATED PARTY TRANSACTIONS

The Company defines related parties as directors, executive officers, nominees for director, stockholders that have significant influence over the Company, or are a greater than 10% beneficial owner of the Company’s capital and their affiliates or immediate family members.

In November 2020, the Company entered into a lease agreement with Isabelle Geday, a member of the Board of Directors. The lease payments were less than $0.1 million for the three months ended March 31, 2022 and 2021. In addition, the Company signed a consulting agreement with Ms. Geday on December 1, 2021, which was subsequently assigned to Magillem Design Services S.A., effective January 10, 2022. Prior to signing the consulting agreement, Ms. Geday was paid as an executive employee of the Company from December 1, 2020 through November 30, 2021. As a consultant, Ms. Geday will provide services for an initial three-year term and is eligible to receive $26,445 per month for the first 12 months of the consulting term and $19,445 per month for the remaining 24 months of the consulting term. For the three months ended March 31, 2022, the Company paid Ms. Geday $0.1 million for consulting services. Lastly, the 455,000 stock options and 62,200 RSUs granted in connection with Ms. Geday’s prior employment and 6,250 RSUs granted as a member of the Board of Directors of the Company continue to vest.

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14. SUBSEQUENT EVENTS

On February 21, 2022, Arteris IP (Hong Kong) Ltd. (AHK), a wholly-owned subsidiary of the Company, entered into a Share Purchase and Shareholders Agreement (the SPA) with SME Development (Shaoxing) Venture Fund, LLP, Jiaxing Luojia Chuanzhi Investment Partnership Enterprise (Limited Partnership), Gongqing City Guinie Zhuyu No. 3 Investment Partnership (Limited Partnership) (together, the Investors) and Ningbo Transchip Information Consulting Partnership (Limited Partnership) (Management Co).

The Company, the Investors and Management Co, pursuant to the SPA, will subscribe for the registered capital of TransChip Technology (Nanjing) Co., Ltd. (Transchip), a wholly-owned subsidiary of the Company. The registered capital of Transchip will increase from RMB 200,000 to RMB 196,500,000 (or approximately $31.0 million). The Company will subscribe for the registered capital of RMB 79,230,000 (or approximately $12.5 million), of which RMB 77,330,000 (or approximately $12.2 million) of the contribution will be contributed in-kind by way of a technology license by the Company pursuant to a five-year technology license agreement and the remaining in cash.

Following the consummation of the foregoing transactions, and subject to closing terms and conditions in the SPA, it is currently anticipated that the Company will hold a 40.321% equity interest in Transchip and that Transchip will receive aggregate cash proceeds from the Investors of RMB 76,500,000 (or approximately $12.1 million).

The transaction was not closed as of March 31, 2022.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included under Part I, Item 1 in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2021 included in the 2021 Form 10-K. This discussion and analysis contains forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the heading “Risk Factors” in this Quarterly Report on Form 10-Q. Please also see the section under the heading “Cautionary Note Regarding Forward-Looking Statements” in the 2021 Form 10-K.

Unless the context otherwise requires, all references in this report to “we,” “us,” “our,” the “Company,” and “Arteris” refer to Arteris, Inc. and its subsidiaries.

Overview

We are a leading provider of interconnect and other intellectual property (IP) technology that manages the on-chip communications in System-on-Chip (SoC) semiconductor devices. Our products enable our customers to deliver increasingly complex SoCs that not only process data but are also able to make decisions. Growth in the total addressable market for our solutions is being driven by the addition of more processors, channels of memory access, machine learning sections, chiplets, additional input/output (I/Os) interface standards and other subsystems within SoCs. The growth in the numbers of these connected on-chip subsystems place an increasing premium on the interconnect IP capability to move data inside complex SoCs. We believe this increase in SoC complexity is creating a significant opportunity for sophisticated SoC system IP solutions which incorporate Network-on-Chip (NoC) interconnect IP, IP deployment software and NoC interface IP (consisting of peripheral data transport IP and control plane networks connected to NoC interconnect IPs).

Our IP deployment solutions, which were significantly enhanced by our acquisition of Magillem Design Services S.A. (Magillem) in 2020, complement our interconnect IP solutions by helping to automate not only the customer configuration of its NoC interconnect but also the process of integrating and assembling all of the customer’s IP blocks into an SoC. Products incorporating our IP are used to carry most of the important data inside complex SoCs for sophisticated applications, including automated driving, artificial intelligence/machine learning (AI/ML), 5G and wireless communications, data centers, and consumer electronics.

As of March 31, 2022, we had 227 full-time employees and offices in eight locations in the United States, France, China, South Korea and Japan. For the three months ended March 31, 2022, we generated revenue of $11.8 million, net loss of $6.8 million, and net loss per share, basic and diluted of $0.22. As of March 31, 2022, we had Annual Contract Value (as defined below) of $49.6 million. During the three months ended March 31, 2022, we added seven Active Customers (as defined below) and our customers had 19 Design Starts (as defined below).

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Recent Developments

On February 21, 2022, Arteris IP (Hong Kong) Ltd. (AHK), a wholly-owned subsidiary of the Company, entered into a Share Purchase and Shareholders Agreement (the SPA) with SME Development (Shaoxing) Venture Fund, LLP, Jiaxing Luojia Chuanzhi Investment Partnership Enterprise (Limited Partnership), Gongqing City Guinie Zhuyu No. 3 Investment Partnership (Limited Partnership) (the Investors) and Ningbo Transchip Information Consulting Partnership (Limited Partnership) (Management Co). Following the consummation of the foregoing transactions, and subject to closing terms and conditions in the SPA, it is currently anticipated that the Company will hold a 40.321% equity interest in Transchip.

We expect to benefit from this arrangement by way of expanding its customer and business relationships with Chinese entities in the automotive market. It also anticipates a potential longer-term benefit by way of investment returns on its minority equity interest.

Factors Affecting Our Business

We believe that the growth of our business and our future success are dependent upon many factors including those described under “Risk Factors” and elsewhere in this report, in addition to those described below. While each of these factors presents significant opportunities for us, these factors also pose challenges that we must successfully address in order to sustain the growth of our business and enhance our results of operations.

License Agreements with New and Existing Customers

Our ability to generate revenue from new license agreements, and the timing of such revenue, is subject to a number of factors, risks and contingencies. For new products, the time from initial development until we generate license revenue can be lengthy, typically between one and three years. In addition, because the selection process by our customers is typically lengthy and market requirements and alternative solutions available to customers for IP-based products change rapidly, we may be required to incur significant research and development expenditures in pursuit of new products over extended, multiyear periods of time with no assurance that our solutions will be successfully developed or ultimately selected by our customers. While we make efforts to observe market demand and market need trends, we cannot be certain that our investment in developing and testing new products will generate an adequate rate of return in the form of fees, royalties or other revenues, or any revenues. Moreover, the customer acquisition process has a typical duration of six to nine months; following this, a customer’s chip design cycle is typically between one to three years and may be delayed due to factors beyond our control, which may result in our customer’s product not reaching the market until long after we entered into a contract with such customer. Customers typically start shipping their products containing our interconnect IP solutions between one to five years following completion of their product design, known as mass production, at which point we start to receive royalties; this lasts for up to seven years depending on the market segment. Any significant delay in the ramp-up of volume production of the customer’s products into which our product is designed could adversely affect our business due to delayed or significantly reduced revenues. Further, because the average selling prices (ASPs) of our products may decline over time, we consider new license agreements and new product launches to be critical to our future success and anticipate that for our newer products, we are and will remain highly dependent on market demand timing and revenue from new license agreements.

End Customer Product Demand and Market Conditions

Demand for our interconnect IP solutions and associated royalty revenue is highly dependent on market conditions in the end markets in which our customers operate. These end markets, which include the automotive, AI/ML, 5G communications, data centers and consumer electronics sectors, are subject to a number of factors including end-product acceptance and sales, competitive pressures, supply chain issues and general market conditions. For example, our revenue has been supported by the increased need for more complex SoCs to enable sophisticated automated driving. If the demand in this market continues to grow, we anticipate it will continue to have a positive impact on our revenue. In contrast, if general market conditions deteriorate or other factors occur such as supply chain issues resulting in fewer semiconductors utilizing our IP solutions being available for sale, our revenue would be adversely affected.

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Terms of our Agreements with Customers

Our revenue from period to period can be impacted by the terms of the agreements we enter into with our customers. For example, in recent periods we have structured certain agreements with customers that include substantial up front licensing payments. As a result of how these contracts are structured and the revenue is recognized, our revenue in the three months ended March 31, 2022 may not be comparable to future periods if we do not enter into similar contractual agreements. Further, a meaningful percentage of our revenue is generated through royalty payments. Because the time between a new license agreement win and the customer’s end product being sold can be substantial, with sales of the end product being subject to a number of factors outside our control, our revenue from royalties is difficult to predict. As a result of the foregoing, revenue may fluctuate significantly from period to period and any increase or decrease in such revenue may not be indicative of future period-to-period increases or decreases.

Technological Development and Market Growth

We believe our growth has been and will continue to be driven by technology trends in our end markets. For example, the requirements of smaller die size, lower power consumption, a higher frequency of operation and management of critical net latency in a timely and cost-effective manner for on-chip processing in the automotive, AI/ML, 5G and wireless communications, data center and consumer electronic markets has resulted in increased SoC design complexity for chips used in these markets. This trend in turn has created increased demand for in-licensing commercial semiconductor design IP, which in turn has positively impacted our revenue and growth.

In order to address technological developments such as the above and expand our offerings, we have invested significantly in our research and development efforts. These investments, which included growth in engineering headcount, have resulted in substantially increased research and development expenses in recent periods. As we continue to invest in our technology and new product design efforts, we anticipate research and development expense will increase on an absolute basis and as a percentage of revenue in the near term. In the medium to longer term, however, while we expect to increase our research and development expense on an absolute basis, we expect this expense to reduce as a percentage of revenue.

We will continue to evaluate growth opportunities through acquisitions of other businesses, although there are currently no discussions with potential targets.

Cyclical Nature of the Semiconductor Industry

The semiconductor industry in which our customers operate is highly cyclical and is characterized by increasingly rapid technological change, product obsolescence, competitive pricing pressures, evolving standards, short product life cycles and fluctuations in product supply and demand. New technology may result in sudden changes in system designs or platform changes that may render some of our IP solutions obsolete and require us to devote significant research and development resources to compete effectively. Periods of rapid growth and capacity expansion are occasionally followed by significant market corrections in which our customers’ sales decline, inventories accumulate and facilities go underutilized. During an expansion cycle, we may increase research and development hiring to add to our product offerings or spend more on sales and marketing to acquire new customers, such as during the recent cycle of expansion in which we increased the number of our engineers significantly. During periods of slower growth or industry contractions, our sales generally suffer due to a decrease in customers’ Design Starts or in sales of our customers’ products.

COVID-19 Impact

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic which has resulted in substantial global economic disruption and uncertainty. In response to the COVID-19 pandemic, the measures implemented by various authorities have caused us to change our business practices, including those related to where employees work, the distance between employees in our facilities, limitations on in-person meetings between employees and with customers, suppliers, service providers and stakeholders, as well as restrictions on business travel to domestic and international locations and to attend trade shows, technical conferences and other events. Although we have experienced, and may continue to experience, some impact on certain parts of our business as a result of governmental restrictions and other measures to mitigate the spread of COVID-19, our results of operations, cash flows and financial condition were not materially adversely impacted in the three months ended March 31, 2022.

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We are unable to accurately predict the full impact that COVID-19 will have on our future results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures. Although we expect most of our employees to return to physical offices in the future, the nature and extent of that return is uncertain. We will continue to monitor health orders issued by applicable governments to ensure compliance with evolving domestic and global COVID-19 guidelines. For additional details, see the section titled “Risk Factors—Our business has been, and may continue to be, adversely affected by health epidemics, pandemics and other outbreaks of infectious disease, including the current COVID-19 pandemic.”

Key Performance Indicators

We use the following key performance indicators to analyze our business performance and financial forecasts and to develop strategic plans, which we believe provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. These key performance indicators are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles in the United States (GAAP), and may differ from similarly titled metrics or measures used by other companies, securities analysts, or investors.

Annual Contract Value

We define Annual Contract Value (ACV) for an individual customer agreement as the total fixed fees under the agreement divided by the number of years in the agreement term. Our total ACV is the aggregate ACVs for all our customers as measured at a given point in time. Total fixed fees includes licensing, support and maintenance and other fixed fees under IP licensing or software licensing agreements but excludes variable revenue derived from licensing agreements with customers, particularly royalties. ACV was $49.6 million and $38.1 million as of March 31, 2022 and 2021, respectively. In addition, total ACV and trailing-twelve-months royalties and other revenue was $52.8 million and $41.8 million as of March 31, 2022 and 2021, respectively. We monitor ACV to measure our success and believe the increase in the number shows our progress in expanding our customers’ adoption of our platform.

Active Customers

We define Active Customers as customers who have entered into a license agreement with us that remains in effect. The retention and expansion of our relationships with existing customers are key indicators of our revenue potential. We added seven Active Customers during both the three months ended March 31, 2022 and 2021. Our annual average customer retention rate, excluding IP deployment solutions, is 95% from March 31, 2021 to March 31, 2022.

Design Starts

We define Design Starts as when customers commence new semiconductor designs using our interconnect IP and notify us. Design Starts is a metric management uses to assess the activity level of our customers in terms of the number of new semiconductor designs that are started using our interconnect IP in a given period. Our interconnect IP and NoC interface IP customer base started a total of 19 and 20 designs during the three months ended March 31, 2022 and 2021, respectively. We believe that the number of Design Starts is an important indicator of the growth of our business and future royalty revenue trends.

Remaining Performance Obligations

We define Remaining Performance Obligations (RPO) as the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and contracted amounts that will be invoiced and recognized as revenue in future periods.

The RPO amount is intended to provide visibility into future revenue streams. We expect RPO to fluctuate up or down from period to period for several possible reasons, including amounts, timing, and duration of customer contracts, as well as the timing of billing cycles for each contract. Our RPO was $60.5 million and $47.4 million as of March 31, 2022 and 2021, respectively.

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Components of Our Results of Operations

Revenue: Our revenue is primarily derived from licensing intellectual property, licensing software, support and maintenance services, professional services, training services, and royalties. Our agreements often include other service elements including training and professional services which were immaterial for the three months ended March 31, 2022 and 2021, respectively.

Our interconnect solutions product arrangements provide customers the right to software licenses, services, software updates and technical support. We enter into licensing arrangements with customers that typically range from two to three years and generally consist of delivery of a design license that grants the customer the right to use the IP to design a contractually defined number of products and stand-ready support services that provides the customer with our application engineer support services. We believe our customers derive a significant benefit from our engineer support services, which consist of our proprietary software tool (RTL), ongoing access to Corporate Application Engineers (CAE) and Field Application Engineers (FAE) that perform certain verifications including benchmark performance, simulations and ultimately, through RTL, instantiate designs into silicon over the design term.

The support services, including access to application engineering support services and the benefits of the RTL, are integral and fundamental to the customer’s ability to derive its intended benefit from the IP.

CAEs are part of the product development team providing detailed requirements for engineering projects, working very closely with a customer’s chief technology officer and the marketing department, and performing quality assurance testing of customer products prior to shipment to their customers.

FAEs provide assistance to the customer’s engineering team in translating their desired SoC architecture into inputs for NoC IP configuration, assistance in optimizing the NoC configuration, answers to customer questions by the online support system or phone, constructive reviews of the progress achieved by the customer’s development team and provision of advice on how to best use the licensed IP, performance of design reviews before customer project RTL freeze and tape-out to ensure the customer used the licensed IP configuration tooling as intended so that the RTL output meets customer requirements and expectations. FAE reviews of the customer’s design are generally mandatory and consist of an understanding of the customer requirements and analysis of the adequacy of the contemplated IP considering the customer’s desired architecture and design goals and objectives, taking into consideration bandwidth, coherence/non-coherence, latency, clock and timing, areas, and any and all constraints, as identified and specific to the design under review.

Besides application engineer support services, support and maintenance services also consist of a stand-ready obligation to provide technical support and software updates over the support term. Generally, the first-year of technical support and software updates are bundled with and into the license fee with a customer option to renew additional years of support throughout the license term. However, we continue to provide technical support and software updates throughout the license term even if the customer does not renew these services in subsequent years, making the license term and support and maintenance term co-terminus.

Revenues that are derived from the sale of a licensee’s products that incorporate our IP are classified as royalty revenues. Royalty revenues are recognized during the quarter in which the sale of the product incorporating the IP occurs. Royalties are calculated either as a percentage of the revenues received by a licensee’s sale of products incorporating the IP or on a per unit basis, as specified in the agreements with the licensees. For a majority of our royalty revenues, we receive the actual sales data from our customers after the quarter ends and account for it as unbilled receivables. When we do not receive actual sales data from the customer prior to the finalization of its financial statements, royalty revenues are recognized based on our estimation of the customer’s sales during the quarter.

Our deployment solutions product arrangements provide customers the right to software licenses, software updates and technical support. The software licenses are time-based licenses with terms generally ranging from one to three years. These arrangements generally have two distinct performance obligations that consist of transferring the licensed software and the support and maintenance service. Support and maintenance services consist of a stand-ready obligation to provide technical support and software updates over the support term. Revenue allocated to the software license is recognized at a point in time upon the later of the delivery date or the beginning of the license period, and revenue allocated to support services is recognized ratably over the support term.

Cost of revenue: Cost of revenue relates to costs associated with our licensing agreements and support and maintenance, including applicable FAE personnel-related costs including stock-based compensation, travel, and allocated overhead. We expect cost of revenue as a percentage of revenue to modestly decline over time due to productivity improvements of our FAE processes.

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Allocation of Overhead Costs: Overhead costs that are not substantially dedicated for use by a specific functional group are allocated based on headcount. Such costs include costs associated with office facilities, depreciation of property and equipment, certain support function personnel costs and other expenses.

Research and development (R&D) expenses: R&D expenses consist primarily of salaries and associated personnel-related costs, facilities expenses associated with research and development activities, third-party project-related expenses connected with the development of our intellectual property which are expensed as incurred, and stock-based compensation expense and other allocated costs. We expect R&D expenses to increase in absolute terms and as a percentage of revenue in the short term and to continue to increase in absolute terms in the medium to long term but decrease as a percentage of revenue as certain new products are launched.

Sales and marketing (S&M) expenses: S&M expenses consist primarily of salaries, commissions, travel and other costs associated with S&M activities, as well as advertising, trade show participation, public relations, and other marketing costs, stock-based compensation expenses and other allocated costs. We expect S&M expenses to increase in absolute terms but decrease as a percentage of revenue due to productivity improvements of our sales processes.

General and administrative (G&A) expenses: G&A expenses consist primarily of salaries for management and administrative employees, depreciation, insurance costs, accounting, legal and consulting fees, other professional service fees, expenses related to the development of corporate initiatives and facilities expenses associated with G&A activities and stock-based compensation expense, fees for directors and other allocated costs.

We incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for additional G&A personnel, directors and officers insurance, investor relations, and professional services. We expect G&A expenses to increase as our business grows. In addition, we expect G&A expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.

Interest and other expense, net: Interest and other expense, net consists primarily of gains and losses from foreign currency transactions.

Provision for income taxes: Our income tax provision consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and includes foreign non-recoverable withholding taxes. We have a full valuation allowance against our U.S. federal and state deferred tax assets as the realization of the full amount of these deferred tax assets is uncertain, including net operating loss carryforwards and tax credits related primarily to research and development. We expect to maintain this full valuation allowance until it becomes more likely than not that the deferred tax assets will be realized.

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Results of Operations

The following table summarizes our GAAP results of operations for the periods presented. The results below are not necessarily indicative of results to be expected for future periods.


	Three Months Ended
	March 31,
	2022		2021
	(in thousands)
Total revenue	$	11,755	$	6,658
Cost of revenue	979		868
Gross profit	10,776		5,790
Operating expenses:
Research and development (1)	9,456		6,538
Sales and marketing (1)	3,921		2,448
General and administrative (1)	4,015		3,251
Total operating expenses	17,392		12,237
Loss from operations	(6,616)		(6,447)
Interest and other expense, net	(81)		(114)
Loss before provision for income taxes	(6,697)		(6,561)
Provision for income taxes	123		156
Net loss	$	(6,820)	$	(6,717)

(1)Includes stock-based compensation expense as follows:


	Three Months Ended
	March 31,
	2022		2021
	(in thousands)
Cost of revenue	$	96	$	13
Research and development	1,144		199
Sales and marketing	271		24
General and administrative	798		97
Total stock-based compensation expense	$	2,309	$	333

The following table summarizes our results of operations as a percentage of total revenue for each of the periods indicated:


	Three Months Ended
	March 31,
	2022		2021
	(as a percentage of total revenue)
Total revenue	100	%	100	%
Cost of revenue	8		13
Gross profit	92		87
Operating expenses:
Research and development	80		98
Sales and marketing	34		37
General and administrative	34		49
Total operating expenses	148		184
Loss from operations	(56)		(97)
Interest and other expense, net	(1)		(2)
Loss before provision for income taxes	(57)		(99)
Provision for income taxes	1		2
Net loss	(58)	%	(101)	%

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Comparison of the Three Months Ended March 31, 2022 and 2021

Revenue


	Three Months Ended March 31,				Change
	2022		2021		$		%
	(dollars in thousands)
Licensing, support and maintenance	$	10,575	$	6,161	$	4,414	72	%
Variable royalties	984		490		494		101	%
Other	196		7		189		*
Total	$	11,755	$	6,658	$	5,097	77	%

* not meaningful

Growth in our licensing and support and maintenance continued with a 72% increase during the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to increase in new license agreements with existing customers and the addition of new customers.

Cost of revenue


	Three Months Ended March 31,				Change
	2022		2021		$		%
	(dollars in thousands)
Cost of revenue	$	979	$	868	$	111	13	%

Cost of revenue increased, $0.1 million, or 13%, to $1.0 million for the three months ended March 31, 2022, from $0.9 million for the three months ended March 31, 2021. The increase in cost of revenue was primarily due to higher FAE employee-related costs as a result of increased headcount.

Operating expenses


	Three Months Ended March 31,				Change
	2022		2021		$		%
	(dollars in thousands)
Research and development	$	9,456	$	6,538	$	2,918	45	%
Sales and marketing	3,921		2,448		1,473		60	%
General and administrative	4,015		3,251		764		24	%
Total operating expenses	$	17,392	$	12,237	$	5,155	42	%

Research and development expenses

R&D expenses increased, $2.9 million, or 45%, to $9.5 million for the three months ended March 31, 2022 from $6.5 million for the three months ended March 31, 2021. The increase in R&D expenses was primarily due to higher employee-related costs of $1.6 million mainly driven by increased engineering headcount as a result of growth and our investment in our interconnect technology and IP deployment software and an increase in allocated costs of $1.2 million primarily attributable to increased headcount. The increase in employee-related costs includes an increase in stock-based compensation expense of $0.9 million primarily related to our RSUs granted prior to our initial public offering (IPO), as the performance-based vesting condition applicable to such RSUs was satisfied upon the effectiveness of our IPO in October 2021.

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Sales and marketing expenses

S&M expenses increased, $1.5 million, or 60%, to $3.9 million for the three months ended March 31, 2022 from $2.4 million for the three months ended March 31, 2021. The increase in S&M expenses was primarily due to higher employee-related costs of $0.8 million mainly driven by higher headcount to support our continued growth and an increase in stock-based compensation expense related to our RSUs granted prior to our IPO, as the performance-based vesting condition applicable to such RSUs was satisfied upon the effectiveness of our IPO in October 2021 and an increase in allocated costs of $0.4 million primarily attributable to increased headcount.

General and administrative expenses

G&A expenses increased, $0.8 million, or 24%, to $4.0 million for the three months ended March 31, 2022 from $3.3 million for the three months ended March 31, 2021. The increase in G&A expenses was primarily due to an increase in employee-related costs by $0.6 million driven by higher headcount to support our continued growth and an increased insurance expenses and other corporate expenses of $0.8 million to support the normal course of operating as a public company and our continued growth, partially offset by decrease in professional fees of $0.8 million. The increase in employee-related costs includes an increase in stock-based compensation expense of $0.7 million primarily related to our RSUs granted prior to our IPO, as the performance-based vesting condition applicable to such RSUs was satisfied upon the effectiveness of our IPO in October 2021.

Interest and other expense, net


	Three Months Ended March 31,				Change
	2022		2021		$		%
	(dollars in thousands)
Interest and other expense, net	$	(81)	$	(114)	$	33	29	%

Interest and other expense, net remained at $0.1 million for the three months ended March 31, 2022 and 2021.

Provision for income taxes


	Three Months Ended March 31,				Change
	2022		2021		$		%
	(dollars in thousands)
Provision for income taxes	$	123	$	156	$	(33)	(21)	%

Provision for income taxes for the three months ended March 31, 2022 was $0.1 million, compared to $0.2 million for the three months ended March 31, 2021. The decrease in our income tax expense was due to a change in the forecasted geographic mix of worldwide earnings which are taxed at different statutory tax rates, the impact of losses in jurisdictions which have full valuation allowances, and a decrease in current year foreign withholding taxes. Foreign withholding taxes are generally assessed on gross revenue generated, rather than pre-tax income, in certain countries in which the Company does not file an income tax return.

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Liquidity and Capital Resources

Since inception, we have financed operations primarily through proceeds received from payments received from our customers, the net proceeds from the sale of our common stock in the IPO as well as the net proceeds from the private issuance of our convertible preferred stock and common stock. As of March 31, 2022, we had $82.2 million in cash of which $4.8 million was held by our foreign subsidiaries.

We believe our cash, available borrowing capacity and cash expected to be generated from operations will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments and other liquidity requirements associated with our existing operations for at least the next 12 months. If these resources are not sufficient to satisfy our liquidity requirements, we may be required to seek additional financing. If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, may contain covenants that significantly restrict our operations or our ability to obtain additional debt financing in the future. Any additional financing that we raise may contain terms that are not favorable to us or our stockholders. We cannot assure you that we would be able to obtain additional financing on terms favorable to us or our existing stockholders, or at all. See “Risk Factors —Risks Related to Our Business and Industry—Our ability to raise capital in the future may be limited and could prevent us from executing our growth strategy” in our 2021 Form 10-K for additional information and elsewhere in this report.

Cash Flows

The following table summarizes changes in our cash flows for the periods indicated:


	Three Months Ended March 31,
	2022		2021
	(in thousands)
Net cash (used in) provided by operating activities	$	(1,361)	$	516
Net cash used in investing activities	$	(283)	$	(39)
Net cash used in financing activities	$	(1,945)	$	(200)

Operating Activities

Cash flows from operating activities may vary significantly from period to period depending on a variety of factors including the timing of our receipts and payments. Our ongoing cash outflows from operating activities primarily relate to payroll-related costs, payments for professional services, obligations under our property leases and design tool licenses. Our primary source of cash inflows is receipts from our accounts receivable. The timing of receipts of accounts receivable from customers is based upon the completion of agreed milestones or agreed dates as set forth in the contracts.

For the three months ended March 31, 2022, net cash used in operating activities was $1.4 million primarily due to our net loss of $6.8 million, adjusted for non-cash charges of $2.7 million and $2.7 million changes in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $5.7 million decrease in accounts receivable, partially offset by a $1.4 million increase in prepaid expenses and other assets and a $1.4 million decrease in accrued expenses and other current liabilities.

For the three months ended March 31, 2021, net cash provided by operating activities was $0.5 million primarily due to our net loss of $6.7 million, adjusted for non-cash charges of $0.7 million and $6.5 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization, and stock-based compensation. The primary drivers of the changes in operating assets and liabilities were a $6.1 million decrease in accounts receivable and a $1.8 million increase in deferred revenue, partially offset by a $1.2 million decrease in accrued expenses and other liabilities.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2022 and 2021 was $0.3 million and $39 thousand, respectively, primarily attributable to payments of deferred transaction costs relating to investment in Transchip and purchases of property and equipment to support our office facilities.

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Financing Activities

Net cash used in financing activities for the three months ended March 31, 2022 was $1.9 million, primarily attributable to payments of contingent consideration for business acquisition of $1.6 million.

Net cash used in financing activities for the three months ended March 31, 2021 was $0.2 million, primarily attributable to principal payments under vendor financing arrangements and term loan.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Estimates

Our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our financial condition, results of operations, and cash flows will be affected.

There have been no material changes to our critical accounting estimates as compared to those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our 2021 Form 10-K.

Recently Issued and Adopted Accounting Pronouncements

For more information regarding recently issued accounting pronouncements, see Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

JOBS Act

We are an emerging growth company, as defined in the Jumpstart Our Business Startups (JOBS) Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act for the adoption of certain accounting standards until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. See Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in the notes to our consolidated financial statements included on our 2021 Form 10-K. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for the Company as a smaller reporting company.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are met. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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Part II - Other Information

Item 1. Legal Proceedings

From time to time, we have been and will continue to be subject to legal proceedings and claims. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition, or cash flows.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. Before making your decision to invest in shares of our common stock, you should carefully consider and read carefully all of the risks described below, together with the other information contained in this report, including our financial statements and the related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report, before deciding whether to invest in our common stock. We cannot assure you that any of the events discussed below will not occur. These events could have a material and adverse impact on our business, financial condition, results of operations and prospects. Unless otherwise indicated, references to our business being harmed in these risk factors will include harm to our business, reputation, financial condition, results of operations, revenue and future prospects. In such event, the trading price of our common stock could decline, and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or not believed by us to be material may also negatively impact us.

Risks Related to Our Business and Industry

We face significant competition from larger companies and third party providers that may deploy their resources so they can develop their IP solutions internally.

We are engaged in a competitive segment of the global semiconductor industry. Our competitive landscape is characterized by competition from companies that have greater resources than us. A variety of factors could adversely impact our ability to compete, including rapid technological change in product design and manufacturing, customers that make purchase decisions based on a mix of factors of varying importance and continuous declines in average selling prices (ASPs). We compete principally on the basis of technology, product quality and features, license, royalty and usage terms, post-contract customer support, interoperability among products, and price and payment terms.

Often, we compete against larger companies that possess substantial financial, technical, research and development and engineering resources that can be deployed so they can develop their IP solutions internally. In addition, we also compete against other third-party providers of IP integration solutions that similarly possess substantial financial, technical, research and development and engineering resources. In addition, in certain cases, competitive companies may be supported by local or international government funding and similar resources. Varying combinations of these resources provide advantages to these competitors that enable them to influence industry trends and the pace at which they adapt to these trends. A strong competitive response from one or more of our competitors to our marketplace efforts, or a shift in customer preferences to competitors’ products, could result in increased pressure to lower our prices more rapidly than anticipated, increased sales and marketing expense, and/or market share loss. The consolidation of our competitors or collaboration among our competitors to deliver more comprehensive offerings than they could individually may also impact our ability to compete effectively. To the extent our revenue is negatively impacted by competitive pressures and reduced pricing, our business could be harmed.

In addition, our ability to compete in our market is subject to a variety of factors, many of which are beyond our control. The occurrence of any of the below could adversely affect our ability to compete and harm our business:

■Our ability to anticipate and lead critical product development cycles and technological shifts as driven by our target markets, to innovate rapidly and efficiently and to improve our existing solutions.

■Whether any competitor substantially increases its engineering and marketing resources to compete with us in the semiconductor IP deployment software technology arena.

■Whether a new entrant with substantially greater resources and/or supported by governmental resources decides to enter the markets in which we compete.

■Whether any existing or new competitor bundles its technologies into one package at a discounted price that would make it uneconomical for our customers to license our products separately.

■The challenges of developing, or acquiring externally developed, technology solutions that are adequate and competitive in meeting the rapidly evolving requirements of next-generation design challenges.

■Our ability to compete on the basis of payment and pricing features and terms.

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■Decisions by semiconductor companies, system companies, device or other end product producers, and/or OEMs to develop IP development internally, rather than license IP from outside vendors due to budget constraints or excess engineering capacity.

■Actions by regulators or governmental entities to limit product availability, trade and exportability or the features or contractual terms that either we or our customers can apply to product and service offerings, or to affect monetary policy.

■Actions by regulators or governmental entities to modify or augment tax treatment of our product and service offerings.

■The impact of global and regional inflation on our and our customers’ profitability due to increases in wages, salaries, operating expenses, and costs of insurance, benefits and medical coverage.

■The potential effects of geopolitical conflicts, such as the military conflict between Russia and Ukraine, including retaliatory and regulatory actions, on purchasing, development, sales and innovation responses and trends in response to such conflicts.

■Competition, embargoes, sanctions, boycotts and/or social unrest.

■Local or international economic headwind trends that may lead to recessions, economic slowdowns or sudden changes in economic needs of regions and consumers.

■Silicon chip supply chain and shipment volume restrictions on our customers and their end customers that will impact the amount of royalties payable to us.

We may also be unable to reduce the cost of our products sufficiently to enable us to compete with our competitors. Our cost reduction efforts may not allow us to keep pace with competitive pricing pressures and/or other economic factors including inflation and customer and end market supply chain constraints and could adversely affect our gross margins and ability to meet customer demand. To the extent we are unable to reduce the prices of our products and remain competitive, our revenue will likely decline, resulting in further pressure on our gross margins, which could harm our business. Many other companies in the IP interconnect space have not been able to continue as a going concern due to intense competition and low margins. See “Business—Competition” in our 2021 Form 10-K for additional information.

We have a history of net losses, and we may not achieve or maintain profitability in the future.

We have incurred net losses in certain periods historically. We incurred a net loss of $23.4 million in 2021 and $3.3 million in 2020, and our net loss for the three months ended March 31, 2022 was $6.8 million. As of March 31, 2022, we had an accumulated deficit of $45.8 million. We have spent significant funds on organizational and start-up activities, to recruit engineers and other employees and to support our research and development. The net losses we incur may fluctuate significantly from quarter to quarter and may increase as a result of the COVID-19 pandemic.

Our long-term success is dependent upon our ability to successfully market our interconnect IP and IP deployment solutions, develop new interconnect IP and IP deployment solutions, earn revenue, obtain additional capital when needed and, ultimately, to maintain profitable operations. We will need to generate significant additional revenue to achieve profitability. It is possible that we will not achieve profitability or that, even if we do achieve profitability, we may not maintain or increase profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.

Because our IP solutions are components of end products, if semiconductor, system producers and/or end product producer companies in the automotive market, artificial intelligence/machine learning (AI/ML) market, 5G and wireless communications market, large scale cloud and data center market and consumer electronics market do not incorporate our solutions into their end products or if the end products of our customers do not achieve market acceptance, we may not be able to generate adequate license sales and royalty income from our products.

Our IP solutions include technology that manages on-chip communications in SoC semiconductor devices. We do not license our IP solutions and deployment tools directly to end-users; we license our technology primarily to companies in the automotive market, AI/ML market, 5G and wireless communications market, large scale cloud and data center market and consumer electronics market, who then incorporate our technology into the products they sell. As a result, we rely on our customers to incorporate our technology into their end products at the design stage. Once a company incorporates a competitor’s technology or develops the technology internally and incorporates it into its end product, it becomes significantly more difficult for us to sell our technology to that company because changing suppliers involves significant cost, time, effort and risk for the company. As a result, we may not achieve targeted customer acceptance despite incurring significant expenditures to develop new technology.

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Moreover, even after a customer agrees to incorporate our technology into its end products, the design cycle is long and may be delayed due to factors beyond our control, which may result in our customers’ product not reaching the market until long after our initial design win, which we define as winning the competitive bid selection process. From initial product design-in to volume production, many factors could impact the timing and/or amount of sales actually realized from the design-in. These factors include, but are not limited to, changes in the competitive position of our customers’ product, our customers’ financial stability, and our customers’ ability to ship products under our customers’ original schedule. Moreover, several external factors affect our customers’ ability to start their own product designs and manufacture and ship their products, including target product market conditions, our customers’ financial stability, our customers’ competitive positioning and external economic conditions (such as but not limited to inflation, customer and end market supply chain constraints, geopolitical conflict, sanctions and competition) that may prolong the customers’ decision-making process and design cycle.

Further, we do not control the business practices of our customers and we do not influence the degree to which they promote, market or set their product pricing. We therefore cannot assure you that our customers will devote satisfactory efforts to promote their end products, which incorporate our IP technology and deployment solutions.

We depend on growth and economic stability in the end markets that use our products. Any slowdown in the growth and economic stability of these end markets could harm our business.

Our continued success will depend in large part on general economic growth and stability, and growth and stability within our target markets in the automotive market, AI/ML market, 5G and wireless communications market, large scale cloud and data center market and consumer electronics market. Factors affecting these markets could seriously harm our customers and/or end customers and, as a result, harm us, examples of which include:

■Reduced sales of our customers’ and/or end customers’ products.

■The effects of catastrophic and other disruptive events at our customers’ and/or end customers’ offices or facilities including, but not limited to, natural disasters, telecommunications failures, cyber-attacks, terrorist attacks, pandemics, epidemics or other outbreaks of infectious disease, including the current COVID-19 pandemic, breaches of security or loss of critical data.

■Increased costs associated with potential disruptions to our customers’ and/or end markets’ supply chain and other manufacturing and production operations.

■The deterioration of our customers’ and/or end customers’ financial condition.

■Delays and project cancellations as a result of design flaws in the products developed by our customers and/or end customers.

■The inability of our customers and/or end customers to dedicate the resources necessary to promote and commercialize their products.

■The inability of our customers and/or end customers to adapt to changing technological demands resulting in their products becoming obsolete.

■The failure of our customers’ and/or end customers’ products to achieve market success and gain broad market acceptance.

Any slowdown in the growth of these end markets, or the emergence of economic instability in these end markets, could harm our business. For example, a significant element of our growth strategy depends on the increasing adoption of vehicles with more sophisticated automated driving, which will likely require more complex SoCs. If anticipated demand in the end market for these vehicles does not materialize, whether due to consumer demand not materializing, regulatory interventions delaying the deployment of automated driving, or the emergence of economic instability in end markets arising from factors such as inflationary trends, deteriorating purchasing power, supply chain disruptions and regional and/or worldwide chip shortages, unemployment spikes, labor shortages or end market reactions to regional or global geopolitical uncertainties or conflicts, or other factors beyond our control, it would adversely affect demand for our products from customers and royalty revenue and impact our ability to execute our growth strategy.

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We depend on market acceptance of third-party semiconductor IP.

The semiconductor IP industry is a relatively small and emerging industry. Our future growth will depend on the level of market acceptance of our third-party licensable IP model, the variety of IP offerings available on the market and the shift in customer preference away from in-house development of semiconductor IP technologies and IP deployment software. Furthermore, the third-party licensable IP model is highly dependent on the market adoption of new services and products, including in the automotive market, AI/ML market, 5G and wireless communications market, large scale cloud and data center market and consumer electronics market. Such market adoption is important because the increased cost associated with ownership and maintenance of the more complex architectures in SoCs needed for the advanced services and products and time to market pressures on our customers may motivate companies to license third-party IP rather than design them in-house.

The trends that would enable our growth are largely beyond our control. Semiconductor customers also may choose to adopt a multi-chip, off-the-shelf chip solution versus licensing or using highly-integrated chipsets that embed our technologies or use our deployment software. If these market shifts do not materialize or third-party semiconductor IP does not achieve market acceptance, our business could be harmed.

The success of our business depends on sustaining or growing our licensing revenue and the failure to achieve such revenue would lead to a material decline in our results of operations.

Our revenue consists largely of technology license fees and other fees and royalties paid for access to our patented technologies, existing technology and other development and support services we provide to our customers. Our ability to secure and renew the licenses from which our revenue is derived depends on our customers adopting our technology and using it in the products they sell. Once secured, royalty revenue may be negatively affected by factors within and outside our control, including reductions in our customers’ sales prices, sales volumes, our failure to timely complete engineering deliverables and the customers’ negotiated contract terms. In addition, our customer acquisition cycle for new licenses and license renewals for existing licensees can be lengthy, typically between two to nine months, and can also be costly and unpredictable. We cannot provide any assurance that we will be successful in signing new license agreements or renewing existing license agreements on equal or favorable terms or at all. If we do not achieve our revenue goals, our results of operations could decline.

The nature of the design win process requires us to incur significant expenses without any guarantee that research and development and sales efforts will generate revenue, which could adversely affect our financial results.

We focus on winning competitive bid selection processes, called “design wins,” to incorporate our IP interconnect and other solutions in our customers’ products. These lengthy technical and commercial selection processes may require us to incur significant expenditures and dedicate valued engineering resources to the development or enhancement of our IP interconnect and other solutions without any assurance that our bids will be selected as the design wins. If we incur such expenditures and fail to be selected in the bid selection process, our operating and financial results may be adversely affected. Further, because of the significant costs associated with qualifying new suppliers, customers are likely to use the same or an enhanced version of semiconductor IP from existing suppliers across a number of similar and successor products for a lengthy period of time. As a result, if we fail to secure an initial design win for any of IP interconnect and other solutions to any particular customer, we may lose the opportunity to make future sales of those solutions to that customer for a significant period of time, or at all, and we may experience an associated decline in revenue relating to those products. Because we expect the ASPs of our products may decline over time, we consider design wins to be critical to our future success and anticipate that for our newer products, we are and will remain highly dependent on revenue from newer design wins. Failure to achieve initial design wins may also weaken our position in future competitive selection processes because we may not be perceived as an industry leader.

Further, a significant portion of our revenue in any period may depend on a single product design win with a large customer. As a result, the loss of any key design win or any significant delay in the ramp of volume production of the customer’s products into which our product is designed could harm our business. We may not be able to maintain sales to our key customers or continue to secure key design wins for a variety of reasons, and our customers can stop incorporating our products into their product offerings with limited notice to us and suffer little or no penalty.

The loss of a key customer or design win, a reduction in sales to any key customer, a significant delay or negative development in our customers’ product development plans, or our inability to attract new significant customers or secure new key design wins could harm our business.

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Even if we succeed in securing design wins for our IP interconnect and other solutions and our IP deployment solutions, we may not generate timely or sufficient margins or margins from those wins and our financial results could suffer.

After incurring significant design and development expenditures and dedicating engineering resources to achieve a single initial design win for an IP interconnect or other solution, a substantial period of time generally elapses before we generate meaningful revenue from royalties relating to such solution, if at all. The reasons for this delay include, among other things, the following:

■Changing customer requirements, resulting in an extended development cycle for the product.

■Delay in the ramp-up of volume production of the customer’s products into which our solutions are designed.

■Delay or cancellation of the customer’s product development plans.

■Competitive pressures to reduce our selling price for the customer’s end-product.

■The discovery of design flaws, defects, errors or bugs in the products, whether or not those defects, errors or bugs are related to our IP interconnect and other solutions that delay the customer from finishing the product in which our IP solution is incorporated.

■Lower than expected acceptance of the customers’ end-products.

Moreover, as noted above, even if a customer selects our IP interconnect and other solutions, we cannot guarantee that this will result in any royalty or future licensing revenue, as the customer may ultimately change or cancel its product plans, or the customer’s efforts to market and sell its product may not be successful.

We continually pursue new IP interconnect and other solutions and IP deployment technology initiatives, and if we fail to successfully carry out these initiatives, our business could be harmed.

As part of the evolution of our business, we have made substantial investments to develop IP interconnect and other solutions, IP deployment software solutions and enhancements to existing technologies we license through our acquisitions and research and development efforts. Continuing to meet the requirements of smaller die size, lower power consumption, a higher frequency of operation and management of critical net latency in a timely and cost-effective manner for chips used in the automotive market, AI/ML market, 5G and wireless communications market, large scale cloud and data center market and consumer electronics market have resulted in increased SoC design complexity for chips used in these markets. If we are unable to meet these demands for increased SoC design complexity, if we are unable to anticipate technological changes in our industry by introducing new or enhanced IP interconnect and other solutions and/or IP deployment solutions in a timely and cost-effective manner, or if we fail to introduce new technologies that meet market demand, we may lose our competitive position, our products may become obsolete, and our business could be harmed.

Additionally, from time to time, we invest in expansion into adjacent markets, including our recent acquisition of Magillem and our entry into the IP deployment solutions market. Although we believe these solutions are complementary to our IP interconnect solutions, we have less experience and a more limited operating history in offering software that, among other things, manages register configurations of IP blocks, assembles multiple IP blocks into SoC platforms and links design parameters and metadata to documentation, and our efforts in this area may not be successful. Our success in these new markets depends on a variety of factors, including the following:

■Our ability to attract a new customer base, including in industries in which we have less experience.

■Our successful development of new sales and marketing strategies to meet customer requirements.

■Our ability to accurately predict, prepare for, and promptly respond to technological developments in new fields.

■Our ability to compete with new and existing competitors in these new industries, many of which may have more financial resources, industry experience, brand recognition, relevant IP rights, and/or more established customer relationships than we currently do, and they could include free and open-source solutions that provide similar IP deployment solutions.

■Our ability to skillfully balance our investment in adjacent markets with investment in our existing products and services.

■Our ability to attract and retain employees with expertise in new or emerging fields affecting our business.

Difficulties in any of our new product development efforts or our efforts to enter adjacent markets, including delays or disruptions due to factors outside of our control such as any adverse impact resulting from the COVID-19 pandemic, could harm our business.

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A fundamental shift in technologies, the regulatory climate or demand patterns and preferences in our existing product markets or the product markets of our customers or end-users could make our current products obsolete, prevent or delay the introduction of new products or enhancements to our existing products or render our products irrelevant to our customers’ needs. If our new product development efforts fail to align with the needs of our customers, including due to circumstances outside of our control like a fundamental shift in the product markets of our customers and end users or regulatory changes, our business could be harmed.

Further, we design our IP interconnect solutions to function optimally with various industry-standard core IP transaction protocols including AMBA, ACE, CHI and AXI. Should developers limit access to their IP protocol information or cease cooperation with us for any reason, our ability to support certain processors and IP protocols would be delayed, which could harm our business.

We may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively affect our operating results.

We currently devote substantial resources to the research and development of new and enhanced interconnect IP and IP deployment solutions. However, we may be required to devote more resources than anticipated to address design requirements for specific target markets, new competitors, technological advances in the semiconductor industry or by competitors, our acquisitions, our entry into new markets, or other competitive factors. If we are required to invest significantly greater resources than anticipated without a corresponding increase in revenue, our operating results could decline. Additionally, our periodic research and development expenses may be independent of our level of revenue, which could negatively impact our financial results. We expect these expenses to increase in the foreseeable future as our technology development efforts continue, and there can be no guarantee that our research and development investments will result in products that create additional revenue.

We may also decide to increase our research and development investment to seize customer or market opportunities, which could negatively impact our financial results.

We are also faced with hiring constraints, including for hiring engineering resources.

Product errors or defects could expose us to liability and harm our reputation and we could lose market share.

Software products frequently contain errors or defects, especially when first introduced, when new versions are released, or when integrated with technologies developed by acquired companies. Product errors, including those resulting from third-party suppliers, could negatively affect the performance or interoperability of our IP interconnect and IP deployment solutions, could delay the development or release of new solutions or new versions and could adversely affect market acceptance or perception of our technology. In addition, any allegations of manufacturability issues resulting from use of our IP interconnect and other solutions or semiconductor design efficiency issues resulting from our IP deployment solutions could, even if untrue, adversely affect our reputation and our customers’ willingness to license our technology. Any such errors or delays in releasing new products or new versions of products or allegations of unsatisfactory performance could cause us to lose customers, increase our service costs, subject us to liability for damages and divert our resources from other tasks, any one of which could harm our business and operating results.

If we fail to offer high-quality support, our reputation could suffer.

Interconnect IP technology is complex, and our customer support is critical for the successful deployment of our IP in our customers’ designs, and we have 31 corporate and field application engineers in our global support organization. High-quality support is important for customer retention, and the importance of our support function will increase as we expand our business and pursue new customers. If we do not help our customers quickly resolve issues and provide effective ongoing support, our ability to maintain and expand our offerings to existing and new customers could suffer, and our reputation with existing or potential customers could suffer.

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Our dependence on international customers and operations also subjects us to a range of other additional regulatory, operational, financial and political risks that could adversely affect our financial results.

For 2021 and 2020, 56.9% and 67.1%, respectively, of our revenue was derived from sales to customers outside of the United States. In particular, we derived 27.1% and 44.9% of our revenue in 2021 and 2020, respectively, from customers located in China. As of March 31, 2022, 62.2% of our revenue was derived from sales to customers outside of the United states and 23.6% of our revenue was derived from customers located in China. We expect our revenue from China to decrease due to the applicable U.S. government trade restrictions. As a result, the economic, political, legal and social conditions in China could harm our business. In addition, we have offices globally with our sales and research and development being conducted in offices located in the San Francisco Bay Area, Texas, France, China, South Korea and Japan. Moreover, conducting business outside the United States subjects us to a number of additional risks and challenges, including:

■Changes in a specific country’s or region’s political, regulatory or economic conditions.

■A pandemic, epidemic or other outbreak of an infectious disease, including the current COVID-19 pandemic, which may cause us or our distributors, vendors and/or customers to temporarily suspend our or their respective operations in the affected city or country or completely.

■Compliance with a wide variety of domestic and foreign laws and regulations (including those of municipalities or provinces where we have operations) and unexpected changes in those laws and regulatory requirements, including uncertainties regarding taxes, social insurance contributions and other payroll taxes and fees to governmental entities, tariffs, quotas, export controls, export licenses and other trade barriers.

■Unanticipated restrictions on our ability to sell to foreign customers where sales of products and the provision of services may require export licenses or are prohibited by government action, unfavorable foreign exchange controls and currency exchange rates.

■Imposition of tariffs and other barriers and restrictions, including trade tensions such as U.S.-China trade tensions.

■Potential for substantial penalties and litigation related to violations of a wide variety of laws, treaties and regulations, including labor regulations, export control and anti-corruption regulations (including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act).

■Difficulties and costs of staffing and managing international operations across different geographic areas, time zones and cultures.

■Changes in diplomatic and trade relationships.

■Potential political, legal and economic instability, armed conflict, and civil unrest in the countries in which we and our customers are located.

■Difficulty and costs of maintaining effective data security.

■Inadequate protection of our IP.

■Nationalization and expropriation.

■Restrictions on the transfer of funds to and from foreign countries, including withholding taxes and other potentially negative tax consequences.

■Unfavorable and/or changing foreign tax treaties and policies.

■Increased exposure to general market and economic conditions outside of the United States.

■Currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future.

■Increased regulatory uncertainties with respect to our wholly foreign-owned enterprise operating in China and any joint ventures we may form or contribute IP or other resources to in the future.

■Trends such as global and regional inflation, supply shortages and supply chain disruptions, geopolitical conflicts and retaliatory actions and regulations affecting or relating to regions such as but not limited to Ukraine, Russia, Eastern Europe or in the Greater China region, may lead to the deterioration of our immediate customers’ and/or end market customers’ ability and/or willingness to purchase, use, develop, market or sell products or solutions that incorporate or are made while using our products.

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These factors, individually or in combination, could impair our ability to effectively operate one or more of our foreign facilities or deliver our semiconductor IP or IP deployment solutions, result in unexpected and material expenses, or cause an unexpected decline in the demand for our products in certain countries or regions. For example, one formerly substantial royalty customer became unable to source a key material in 2020 as a result of the trade disputes between the United States and China, and consequently shipment volumes of products containing our interconnect IP have been significantly lower, adversely affecting our royalty revenue. Our failure to manage the risks and challenges associated with our international business and operations could harm our business.

Downturns or volatility in general economic conditions, including as a result of the current COVID-19 pandemic or any other outbreak of an infectious disease, could harm our business.

Our revenue, gross margin, and ability to achieve and maintain profitability depend significantly on general economic conditions and the demand for products in the markets in which our customers compete. Weaknesses in the global economy and financial markets, including the current weaknesses resulting from the ongoing COVID-19 pandemic, and any adverse changes in general domestic and global economic conditions that may occur in the future, including any recession, economic slowdown or disruption of credit markets, may lead to, lower demand for products that incorporate our solutions, including in the automotive market, AI/ML market, 5G and wireless communications market, large scale cloud and data center market and consumer electronics market. A decline in end-user demand can affect our customers’ demand for our products, the ability of our customers to obtain credit and otherwise meet their payment obligations and the likelihood of customers canceling or deferring existing orders. Our business could be harmed by such actions.

In addition, any disruption in the credit markets, including as a result of the current COVID-19 pandemic, could impede our access to capital. If we have limited access to additional financing sources, we may be required to defer capital expenditures or seek other sources of liquidity, which may not be available to us on acceptable terms or at all. All of these factors related to global economic conditions, which are beyond our control, could harm our business. For a more detailed discussion of the COVID-19 pandemic and its recent and potential impact on our business, see “—Our business has been, and may continue to be, adversely affected by health epidemics, pandemics and other outbreaks of infectious disease, including the current COVID-19 pandemic.”

The cyclical nature of the semiconductor industry may limit our ability to maintain or improve our revenue.

The semiconductor industry is highly cyclical and is prone to significant downturns from time to time. Cyclical downturns can result from a variety of market forces including constant and rapid technological change, rapid product obsolescence, price erosion, evolving standards, short product life cycles and wide fluctuations in product supply and demand, all of which can result in significant declines in semiconductor demand. We have experienced downturns in the past and may experience such downturns in the future. For example, the industry experienced a significant downtown in connection with the most recent global recession in 2008, and further experienced a downturn in 2020, which may be prolonged as a result of the economic impact of the COVID-19 pandemic. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. Recently, downturns in the semiconductor industry have been attributed to a variety of factors, including the current COVID-19 pandemic, ongoing trade disputes among the United States and China, weakness in demand and pricing for semiconductors across applications and excess inventory. Recent downturns have directly impacted our business, as has been the case with many other companies, suppliers, distributors and customers in the semiconductor industry and other industries around the world, and any prolonged or significant future downturns in the semiconductor industry could harm our business. Conversely, significant upturns may suppress customer shipments of royalty-bearing products incorporating our IP solutions due to our customers having limited access to third-party foundry and assembly capacity. In the event of such an upturn, we may not be able to expand our workforce and operations in a sufficiently timely manner, procure adequate resources, or locate suitable third-party suppliers or other third-party subcontractors to respond effectively to changes in demand for our existing products or to the demand for new products requested by our customers, and our business could be harmed.

Our revenue has been concentrated among a small number of licensees and customers, and if we lose any of these customers and fail to replace them, our revenue may decrease substantially.

A significant amount of our revenue is derived from a limited number of customers. As of March 31, 2022, sales to Samsung Electronics Co., Ltd. accounted for 20% and Intel Corporation accounted for 17% of our revenue. We expect that a relatively small number of customers will continue to account for a substantial portion of our revenue for the foreseeable future.

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As a result of this revenue concentration, our results of operations could be adversely affected by the decision of a single key licensee or customer to cease using our technology or products or by a decline in the number of products that incorporate our technology that are sold by a single licensee or customer or by a small group of licensees or customers. We must continue to obtain new significant licensees and to increase our revenue and grow our business.

Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our products.

Our ability to increase our customer base and achieve broader market acceptance of our products and platform capabilities will depend to a significant extent on our ability to expand our global sales and application engineering organization. We plan to continue expanding our sales force, both domestically and internationally. We also plan to dedicate significant resources to sales and marketing programs. All of these efforts will require us to invest significant financial and other resources. Our business will be harmed if our sales and marketing efforts do not generate significant increases in revenue or increases in revenue are smaller than anticipated. We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop, integrate and retain talented and effective sales personnel, if our new and existing sales personnel, on the whole, are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective.

We experience a strong seasonality in sales in the fourth calendar quarter of the year. As a result, our results of operations are subject to substantial quarterly fluctuations, which may seriously harm our business.

We have experienced, and expect to continue to experience, seasonal fluctuations in sales due to the spending patterns of semiconductor customers who license our products. Typically, the number of total new license agreements we enter into have generally been lowest in the first and second calendar quarters. We expect these seasonality trends to continue. As a result, revenue recognized from our total new license agreements are subject to seasonal fluctuations, which may seriously harm our business.

Substantial portions of our sales are made, and we anticipate will be made, to consumer, automotive, network, AI/ML, large-scale cloud and data center, and other industry suppliers. Any downturn in any of these the markets could significantly harm our business.

Of our annual contract value at March 31, 2022, 31% was derived from customers supplying to the consumer industry, 13% was to customers in the network industry, 16% was to customers that supply various systems and components to the automotive industry, 19% was to customers in the AI/ML industry and 8% was to customers supplying large scale cloud and data center customers.

Each of these sectors is subject to specific market risks. The consumer sector, for example, is subject to changes in end consumer spending patterns, technology developments and general economic conditions.

We are also exposed to the risks associated with the automotive market. For example, our anticipated future growth is highly dependent on the adoption of autonomous driving technologies, which are expected to have increased sensor and power product content. A downturn in the automotive market could delay automakers’ plans to introduce new vehicles with these features, which would negatively impact the demand for our products and our ability to grow our business.

Several industries in which companies incorporate our technology, including the automotive industry and others, may undergo consolidation and reorganization and, in some cases, their suppliers may or have entered bankruptcy. Although we have not experienced any lost business or material bad debt write-offs as a result of such consolidation, such trends could harm our business.

Moreover, as a result of the COVID-19 pandemic and the associated responses by governments of various countries to prevent its spread, the automotive industry, including manufacturers, dealers, distributors and third-party suppliers have been adversely impacted. For example, many automotive manufacturers were forced to suspend manufacturing operations and may be required to do so again. In addition, government-imposed restrictions on businesses, operations and travel and the related economic uncertainty have impacted demand in many global markets. While demand in the automotive industry is dependent on a number of factors, automotive manufacturers expect the impact of COVID-19 to be highly dependent on its duration and severity. The foregoing impacts and other adverse effects on the automotive industry could harm our business, as well as our ability to execute our growth strategy.

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Our business has been, and may continue to be, adversely affected by health epidemics, pandemics and other outbreaks of infectious disease, including the current COVID-19 pandemic.

Public health threats, such as COVID-19, influenza and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate could adversely impact our operations, as well as the operations of our customers, end users of our products, and our and their respective vendors, suppliers and other business partners. Any of these public health threats and related consequences could adversely affect our financial results.

The COVID-19 pandemic has reached across the globe, resulting in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans intended to control the spread of the virus. Measures implemented by various authorities in response to the COVID-19 pandemic have caused us to change our business practices, including those related to where employees work, the distance between employees in our facilities, limitations on in-person meetings between employees and with customers, potential customers, suppliers, service providers and stakeholders, as well as restrictions on business travel to domestic and international locations and to attend trade shows, technical conferences and other events. While many of these measures are not currently in effect, ongoing social distancing measures, and future prevention and mitigation measures, as well as the potential for some of these measures to be reinstituted in the event of repeat waves of the virus are likely to have, an adverse impact on global economic conditions, which could further affect our operations. A widespread epidemic, pandemic or other health crisis could also cause significant volatility in global markets. The COVID-19 outbreak has caused disruption in financial markets, which if it continues or intensifies, could reduce our ability to access capital and thereby harm our business.

These current and potential future measures that could restrict access to our facilities, limit support operations and place restrictions on our workforce, suppliers and other business partners have impacted and may further impact our workforce and operations, the operations of our customers and end users of our products, and those of our respective vendors, suppliers and other business partners. The disruptions to our operations caused by the COVID-19 pandemic may result in inefficiencies, delays and additional costs in our product development, sales, marketing, and customer service efforts that we cannot fully mitigate through remote or other alternative work arrangements. In addition, the severe global economic disruption, including recession, depression or other sustained adverse market impact caused by health crisis such as the COVID-19 pandemic, may cause our customers and end-users of our products to suffer significant economic hardship and potentially even go out of business, which could result in decreased demand for our products and harm our business.

The ultimate extent of the impact of any epidemic, pandemic, or other health crisis on our business will depend on multiple factors that are highly uncertain and cannot be predicted, including its severity, location and duration, and actions taken to contain or prevent further its spread. Additionally, the COVID-19 pandemic could increase the magnitude of many of the other risks described in this Quarterly Report on Form 10-Q, and may have other material adverse effects on our operations that we are not currently able to predict. If our business and the markets in which we operate experience a prolonged occurrence of adverse public health conditions, such as COVID-19, it could materially adversely affect our business, financial condition, and results of operations.

We received a Paycheck Protection Program loan, and our application for the PPP Loan could in the future be determined to have been impermissible or could result in damage to our reputation.

In April 2020, we applied for and received an unsecured $1.6 million loan under the Paycheck Protection Program (the “PPP Loan”). In December 2020, the PPP Loan was forgiven in full. The Paycheck Protection Program was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and is administered by the U.S. Small Business Administration (the “SBA”).

Our receipt of the PPP Loan or the forgiveness of the PPP Loan could result in adverse publicity. In addition, if we are later determined to have been ineligible to receive the PPP Loan or loan forgiveness, we may be subject to significant penalties, including significant civil, criminal and administrative penalties, we could be required to repay the PPP Loan in its entirety, and our reputation could suffer. A review or audit by the SBA or other government entity or claims under the U.S. False Claims Act could consume significant financial and management resources.

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A significant portion of our revenue comes from licensing fees, which may vary period to period.

License agreements for our interconnect IP are generally treated as ratable revenue, with revenue being recognized evenly over the license term. However, certain license agreements for our IP interconnect solutions are recognized as point in time revenue, including one agreement resulting in our recognizing revenue of $7.4 million in 2020. Additionally, the majority of software license agreements for our IP deployment solutions are generally treated as point in time revenue at the start of the license period, so past revenue may not be indicative of the amount of revenue in any future period. Significant portions of our anticipated future revenue, therefore, will likely depend upon our success in attracting new customers, or continuing or expanding our relationships with existing customers. However, revenue recognized from licensing arrangements vary significantly from period to period, depending on the number and size of deals closed during a quarter, and is difficult to predict. In addition, as we expand our business into new markets, our licensing deals may be smaller in volume but greater in value in volume, which may further fluctuate our licensing revenue quarter to quarter. Our ability to succeed in our licensing efforts will depend on a variety of factors, including the market positioning, performance, quality, breadth and depth of our current and future IP interconnect and other solutions as well as our sales and marketing skills. Our failure to obtain future licensing customers would impede our future revenue growth and could materially harm our business.

As a result of these and other factors, you should not rely on the results of any prior quarterly or annual periods, or any historical trends reflected in such results, as indications of our future revenue or operating performance. Fluctuations in our revenue and operating results could cause our stock price to decline and, as a result, you may lose some or all of your investment.

Royalty rates could decrease for existing and future license agreements, which could materially adversely affect our operating results.

Royalty payments to us under existing and future license agreements could be lower than currently anticipated for a variety of reasons. Average selling prices for semiconductor products generally decrease over time during the lifespan of a product. In addition, there is significant pressure to maintain low royalty rates in certain markets where the end product may have a low average sales price, such as many consumer electronics products. In addition, there is increasing downward pricing pressures in the semiconductor industry on end products incorporating our technology, especially end products for consumer electronics markets. As a result, notwithstanding the existence of a license agreement, our customers may demand that royalty rates for our products on future or renewal agreements be lower than our historic royalty rates. Furthermore, our competitors may lower the royalty rates for their comparable products to win market share which may force us to lower our royalty rates on future or renewal agreements as well. As a consequence of the above referenced factors, as well as unforeseen factors in the future, the royalty rates we receive for use of our technology could decrease with new or renewed customers, thereby decreasing future anticipated revenue and cash flow. Variable royalty revenue was 8.4% of our revenue for the three months ended March 31, 2022. Therefore, a significant decrease in our royalty revenue could materially adversely affect our operating results.

Moreover, royalty rates may be negatively affected by macroeconomic trends, including from global semiconductor supply chain issues (including from shortages in the availability of the supply of chips in several semiconductor sectors and applications), the recent COVID-19 pandemic and its world effects and changes in products mix. Furthermore, consolidation among our customers may increase the leverage of our existing customers to extract concessions from us in royalty rates.

Changing currency exchange rates could harm our business.

We have operations and assets in the U.S. as well as foreign jurisdictions, and we prepare our consolidated financial statements in U.S. dollars, but a portion of our earnings and expenditures are denominated in other currencies. We therefore must translate our foreign assets, liabilities, revenue and expenses into U.S. dollars at applicable exchange rates. Consequently, fluctuations in the value of foreign currencies relative to the U.S. dollar may negatively affect the value of these items in our financial statements. In addition, since many of our sales in foreign jurisdictions are denominated in U.S. dollars, fluctuations in the value of foreign currencies relative to the U.S. dollar may effectively increase the price of our products in the currency of the jurisdiction in which the sale took place and may result in our products becoming too expensive for non-U.S. customers who do not conduct their business in U.S. dollars. Furthermore, currency exchange rates have been especially volatile in the recent past, and these currency fluctuations may make it difficult for us to predict our results of operations. If the volume of our international operations increases and foreign currency exchange rates change, the impact to our consolidated statements of operations could be significant and may affect the comparability of operating results. The impact from foreign currency transactions for the three months ended March 31, 2022 was immaterial. We do not believe a 10% increase or decrease in foreign exchange rates would have resulted in a material impact to our operating results. To the extent we fail to manage our foreign currency exposure adequately, we may suffer losses in the value of our net foreign currency investment, and our business may be harmed.

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In particular, in light of the military conflict between Russia and Ukraine and the resulting tensions between the European Union, other European countries, as well as the United States, with Russia, any resulting material change to the valuation of the Euro relative to the U.S. dollar could adversely impact our operating results.

We have made acquisitions and in the future expect to pursue acquisitions of and investments in new businesses, products or technologies, joint ventures and other strategic transactions that involve numerous risks and could disrupt and harm our business.

As part of our business strategy, we make acquisitions of and investments in new businesses, such as our acquisition of Magillem, products and technologies and enter into joint ventures and other strategic relationships in the ordinary course. Our ability to grow our revenue, earnings and cash flow at or above our historic rates depends in part upon our ability to identify and successfully acquire and integrate businesses at acceptable prices, realize anticipated synergies and make appropriate investments that support our long-term strategy. We may not be able to consummate acquisitions at rates similar to the past, which could adversely impact our growth rate and the trading price of our common stock. Promising acquisitions and investments are difficult to identify and complete for a number of reasons, including high valuations, competition among prospective buyers, the availability of affordable funding in the capital markets and the need to satisfy applicable closing conditions and obtain applicable antitrust and other regulatory approvals on a timely basis and on acceptable terms. In addition, competition for acquisitions and investment may result in higher purchase prices. Changes in accounting or regulatory requirements or instability in the credit markets could also adversely impact our ability to consummate acquisitions and investments on acceptable terms or at all.

In addition, even if we are able to consummate acquisitions and enter into joint ventures and other strategic relationships, these transactions and relationships, including our acquisition of Magillem, present a number of potential risks and challenges that could, if not met, disrupt our business operations, increase our operating costs, negatively affect our growth rate and the trading price of our common stock, and may harm our business. In addition, our Magillem acquisition as well as any acquisition, investment, joint venture or other strategic transaction we may enter into in the future, involve a number of additional financial, accounting, managerial, operational, legal, regulatory and other risks, which may include, among others:

■Any business, technology, service or product that we acquire or invest in could under-perform relative to our expectations and the price that we paid or not perform in accordance with our anticipated timetable, or we could fail to operate any such business profitably.

■We may incur or assume significant debt in connection with our acquisitions, joint ventures and other strategic relationships, which could also cause a deterioration of our credit ratings, result in increased borrowing costs and interest expense and diminish our future access to the capital markets. Alternatively, we may issue additional equity securities, which could dilute your ownership and voting power.

■Acquisitions, joint ventures and other strategic relationships could cause our financial results to differ from our own or the investment community’s expectations in any given period, or over the long-term challenges associated with integrating employees from the acquired company into our organization.

■Pre-closing and post-closing earnings charges could adversely impact operating results in any given period, and the impact may be substantially different from period to period.

■Acquisitions, joint ventures and other strategic relationships could create demands on our management, operational resources and financial and internal control systems that we are unable to effectively address.

■We could experience difficulty in integrating personnel, operations and financial and other controls and systems and retaining key employees and customers.

■We may be unable to achieve cost savings or other synergies anticipated in connection with an acquisition, joint venture or other strategic relationship.

■We may assume unknown liabilities, known contingent liabilities that become realized, known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the acquired company’s or investee’s activities and the realization of any of these liabilities or deficiencies may increase our expenses, adversely affect our financial position and/or cause us to fail to meet our public financial reporting obligations.

■In connection with acquisitions and joint ventures, we often enter into post-closing financial arrangements such as purchase price adjustments, earn-out obligations and indemnification obligations, which may have unpredictable financial results.

■As a result of our acquisitions, we have recorded significant goodwill and other assets on our consolidated balance sheet and if we are not able to realize the value of these assets, or if the fair value of our investments declines, we may be required to incur impairment charges.

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■We may have interests that diverge from those of our joint venture partners or other strategic partners and we may not be able to direct the management and operations of the joint venture or other strategic relationship in the manner we believe is most appropriate, exposing us to additional risk.

■Investing in or making loans to early-stage companies often entails a high degree of risk, and we may not achieve the strategic, technological, financial or commercial benefits we anticipate; we may lose our investment or fail to recoup our loan; or our investment may be illiquid for a greater-than-expected period of time.

Furthermore, potential acquisitions, investments, joint ventures and other strategic transactions, whether or not consummated, may divert our management’s attention and require considerable cash outlays at the expense of our existing operations. This, and any of the risks set forth above, could harm our business.

Our ability to raise capital in the future may be limited and could prevent us from executing our growth strategy.

Our ability to operate and expand our business depends on the availability of adequate capital, which in turn depends on cash flow generated by our business and equity or other applicable financing arrangements. We believe that our cash flow from operations, existing cash, and the net proceeds from our initial public offering will satisfy our anticipated cash requirements for at least the next 12 months. However, we have based this estimate on our current operating plans and expectations, which are subject to change, and cannot assure you that that our existing resources will be sufficient to meet our future liquidity needs. We may require additional capital to respond to business opportunities, challenges, acquisitions or other strategic transactions and/or unforeseen circumstances. The timing and amount of our working capital and capital expenditure requirements may vary significantly depending on numerous factors, including:

■market acceptance of our semiconductor IP and other solutions, and our IP deployment solutions;

■the need to adapt to changing technologies and technical requirements;

■the existence of opportunities for expansion; and

■access to and availability of sufficient management, technical, marketing and financial personnel.

If our capital resources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity securities or debt securities or obtain additional debt financing. The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders. Additional debt would result in increased expenses and could result in covenants that would restrict our operations and our ability to incur additional debt or engage in other capital-raising activities. We have not made arrangements to obtain additional financing and there is no assurance that financing, if required, will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow and support our business and respond to business opportunities and challenges could be significantly limited.

We may not be able to effectively manage our growth, and we may need to incur significant expenditures to address the additional operational and control requirements of our growth, either of which could harm our business and operating results.

In order to succeed in executing our business plan, we will need to manage our growth effectively as we make significant investments in research and development and sales and marketing and expand our operations and infrastructure both domestically and internationally. In addition, in connection with operating as a public company, we will incur additional significant legal, accounting and other expenses that we did not incur as a private company. If our revenue does not increase to offset these increases in our expenses, we may not achieve or maintain profitability in future periods.

To continue to grow and to meet our ongoing obligations as a public company, we must continue to expand our operational, engineering, accounting and financial systems, procedures, controls and other internal management systems. This may require substantial managerial and financial resources, and our efforts in this regard may not be successful. Our current systems, procedures and controls may not be adequate to support our future operations and we may be unable to meet reporting obligation deadlines under the Exchange Act. Unless our growth results in an increase in our revenue that is proportionate to the increase in our costs associated with this growth, our operating margins will be adversely affected. If we fail to adequately manage our growth, improve our operational, financial and management information systems, or effectively motivate and manage our new and future employees, it could harm our business.

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We depend on key and highly skilled personnel to operate our business, and if we are unable to retain our current personnel and hire additional personnel, our ability to develop and market our products could be harmed, which in turn could adversely affect our financial results.

Our success depends to a large extent upon the continued services of our executive officers, managers and skilled personnel, including our development engineers. In particular, we are highly dependent on the services of K. Charles Janac, our President, Chief Executive Officer and Chairman, who has been critical in the development and growth of our business and strategic direction, and we do not have key person insurance. From time to time, there may be changes in our executive management team or other key personnel, which could disrupt our business. Generally, our employees are not bound by obligations that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. Moreover, our employees are generally not subject to non-competition agreements. Given these limitations, we may not be able to continue to attract, retain and motivate qualified personnel necessary for our business.

In addition, we recruit from a limited pool of engineers with expertise in SoC design and the competition for such personnel can be intense. The loss of one or more of our executive officers or other key personnel, the loss of access to certain jurisdictions in the event of geopolitical conflict or changes in regulatory frameworks, or our inability to locate suitable or qualified replacements could be significantly detrimental to our product development efforts and could harm our business. In addition, we must attract and retain highly qualified personnel, including certain foreign nationals who are not U.S. citizens or permanent residents, many of whom are highly skilled and constitute an important part of our U.S. workforce, particularly in the areas of engineering and product development. Our ability to hire and retain these employees and their ability to remain and work in the U.S. are impacted by laws and regulations, as well as by procedures and enforcement practices of various government agencies. Changes in immigration laws, regulations or procedures may adversely affect our ability to hire or retain such workers, increase our operating expenses and negatively impact our ability to deliver our products and services, any of which would harm our business.

Volatility in, or lack of performance of, our stock price may also affect our ability to attract and retain key personnel. Employees may be more likely to terminate their employment with us if the shares they own or the shares underlying their vested options or restricted stock units have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options, or, conversely, if the exercise prices of the options that they hold are significantly above the trading price of our common stock. If we are unable to retain our employees, our business could be harmed.

Our management team has limited experience managing a public company.

Many members of our management team have limited experience managing a publicly-traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage us as a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could harm our business.

Catastrophic events may disrupt our business.

Our corporate headquarters are located in an area that is an active earthquake zone. In the event of a major earthquake, hurricane or other forms of catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war, terrorist attack or disease outbreak, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our product development, breaches of data security, or loss of critical data, any of which could have an adverse effect on our future results of operations.

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Risks Related to Intellectual Property, Information Technology and Data Security and Privacy

If we are unable to protect our proprietary technology and inventions through patents and other IP rights, our ability to compete successfully and our financial results could be adversely impacted.

We seek to protect our proprietary technology and innovations, particularly those relating to the design of our products, through patents, trade secrets and other IP rights. As of March 31, 2022, we had 114 total issued patents, pending patent applications and non-expired provisional patent applications worldwide. Of these, we had 38 issued or allowed patents, 34 of which are U.S. issued patents, one is a China issued patent and one is a U.K. issued patent. The 36 issued patents generally expire between 2035 and 2041. As of March 31, 2022, we had 74 pending non-provisional and provisional patent application filings, including 40 in the United States, 14 in Europe, 14 in China, four in Korea and two in Japan. Maintenance of patent portfolios, particularly outside of the United States, is expensive, and the process of seeking patent protection is lengthy and costly. While we intend to maintain our current portfolio of patents and to continue to prosecute our currently pending patent applications and file future patent applications when appropriate, the value of these actions may not exceed their expense. Existing patents and those that may be issued from any pending or future applications may be subject to challenges, invalidation or circumvention, and the rights granted under our patents may not provide us with meaningful protection or any commercial advantage. In addition, the protection afforded under the patent laws of one country may not be the same as that in other countries. This means, for example, that our right to exclusively commercialize a product in those countries where we have patent rights for that product can vary on a country-by-country basis. We also may not have the same scope of patent protection in every country where we do business.

Additionally, it is difficult and costly to monitor the use of our IP. It may be the case that our IP is already being infringed and infringement may occur in the future without our knowledge. Litigation may be necessary to enforce our IP rights. While it is our policy to protect and defend our rights to our IP, we cannot predict whether steps taken by us to enforce and protect our IP rights will be adequate to prevent infringement, misappropriation, or other violations of our IP rights. Any inability to meaningfully enforce our IP rights could harm our ability to compete. Moreover, in any lawsuit we bring to enforce our IP rights, a court may refuse to stop the other party from using the technology at issue on grounds that our IP rights do not cover the technology in question. Further, in such proceedings, the defendant could counterclaim that our IP is invalid or unenforceable and the court may agree, in which case we could lose valuable IP rights. Any litigation of this nature, regardless of outcome or merit, could materially harm our business and hurt our competitive advantage.

If we are unable to protect our proprietary technology and inventions through trade secrets, our competitive position and financial results could be adversely affected.

As noted above, we seek to protect our proprietary technology and innovations, particularly those relating to our products, as patents, trade secrets and other forms of IP. Additionally, while software and other forms of our proprietary works may be protected under copyright law, in some cases we have chosen not to register any copyrights in these works, and instead, primarily rely on protecting our software as a trade secret. In the United States, trade secrets are protected under the federal Economic Espionage Act of 1996 and the Defend Trade Secrets Act of 2016 (the “Defend Trade Secrets Act”), and under state law, with many states having adopted the Uniform Trade Secrets Act (the “UTSA”) and several of which that have not. In addition to these federal and state laws inside the United States, under the World Trade Organization’s Trade Related-Aspects of IP Rights Agreement (the “TRIPS Agreement”), trade secrets are to be protected by World Trade Organization member states as “confidential information.” Under the UTSA and other trade secret laws, protection of our proprietary information as trade secrets requires us to take steps to prevent unauthorized disclosure to third parties or misappropriation by third parties. In addition, the full benefit of the remedies available under the Defend Trade Secrets Act requires specific language and notice requirements present in the relevant agreements, which may not be present in all of our agreements. While we require our officers, employees, consultants, distributors, and existing and prospective customers and collaborators to sign confidentiality agreements and take various security measures to protect unauthorized disclosure and misappropriation of our trade secrets, we cannot assure or predict that these measures will be sufficient. The semiconductor industry is generally subject to high turnover of employees, so the risk of trade secret misappropriation may be amplified. If any of our trade secrets are subject to unauthorized disclosure or are otherwise misappropriated by third parties, our competitive position may be materially and adversely affected.

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Our ability to compete successfully depends in part on our ability to commercialize our IP solutions without infringing the patent, trade secret or other IP rights of others.

To the same extent that we seek to protect our technology and inventions with patents, trade secrets and other IP rights, our competitors and other third parties do the same for their technology and inventions. We have no means of knowing the content of patent applications filed by third parties until they are published. It is also difficult and costly to continuously monitor the IP portfolios of our competitors to ensure our technologies do not violate the IP rights of any third parties.

The semiconductor industry is ripe with patent assertion entities and is characterized by frequent litigation regarding patent and other IP rights. From time to time, we receive communications from third parties that allege that our products or technologies infringe their patent or other IP rights. As a public company with an increased profile and visibility, we may receive similar communications in the future. Lawsuits or other proceedings resulting from allegations of infringement could subject us to significant liability for damages, invalidate our proprietary rights and harm our business. In the event that any third-party succeeds in asserting a valid claim against us or any of our customers, we could be forced to do one or more of the following:

■discontinue selling access to certain technologies that contain the allegedly infringing IP which would result in a decline in our revenue and could result in breach of contract claim by our affected customers and damage to our reputation;

■stop receiving payment from a customer that can no longer sell the end-product if it contains allegedly infringing IP;

■seek to develop non-infringing technologies, which may not be feasible;

■incur significant legal expenses;

■pay substantial monetary damages to the party whose IP rights we may be found to be infringing; and/or

■we or our customers could be required to seek licenses to the infringed technology that may not be available on commercially reasonable terms, if at all.

If a third-party causes us to discontinue the use of any of our technologies, we could be required to design around those technologies. This could be costly and time consuming and could have an adverse effect on our financial results. Any significant impairments of our IP rights from any litigation we face could harm our business and our ability to compete in our industry.

We may not be able to continue to obtain licenses to third-party software and IP on reasonable terms or at all, which may disrupt our business and harm our financial results.

We license third-party software and other IP for use in product research and development and, in several instances, for inclusion in our products such as our license with Qualcomm for FlexNoC. We also license third-party software, including the software of our competitors, to test the interoperability of our products with other industry products and in connection with our professional services. Our third-party licenses typically limit our use of IP to specific uses and for specific time periods, and include other contractual obligations with which we must comply. Moreover, certain IP rights may be licensed to us on a non-exclusive basis, and accordingly, the owners of such IP are free to license such rights to third parties, including our competitors, on terms that may be superior to those offered to us, which could place us at a competitive disadvantage. These licenses may need to be renegotiated or renewed from time to time, or we may need to obtain new licenses in the future. For example, we may be required to renegotiate or seek a waiver to or consent under our license with Qualcomm with respect to our FlexNoC product in the event of certain changes of control (as defined in our agreements with Qualcomm) and there can be no guarantee we would be successful in such endeavor. Such provision could prevent us from pursuing a robust sales process in the event of a sale of the company, if Qualcomm refuses to provide consent or waive such change in control provision. In such an event, a change in control could cause us to lose our license with Qualcomm and our valuation could be adversely affected. See “Business—Material Agreement—Qualcomm Agreements” in our 2021 Form 10-K for additional information. Third parties may stop adequately supporting or maintaining their technology, or they or their technology may be acquired by our competitors. If we are unable to obtain licenses to these third-party software and IP on reasonable terms or at all, we may not be able to sell or support the affected products, our customers’ use of the products may be interrupted, and/or our product development processes and professional services offerings may be disrupted, which could in turn harm our financial results, our customers, and our reputation. Further, if we or our third-party licensors were to breach any material term of a license, such a breach could, among other things, prompt costly litigation, result in the license being invalidated and or result in fines and other damages. If any of the following were to occur, it could harm our business and our reputation.

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We also cannot be certain that our licensors are not infringing the IP rights of others or that our licensors have sufficient rights to the IP to grant us the applicable licenses. Although we seek to mitigate this risk contractually, we may not be able to sufficiently limit our potential liability. If we are unable to obtain or maintain rights to any of this IP because of IP infringement claims brought by third parties against our licensors or against us, our ability to develop, maintain and support our products and technology incorporating that IP could be severely limited and our business could be harmed. Furthermore, regardless of outcome, infringement claims may require us to use significant resources and may divert management’s attention.

Some of our products and technology, including those we acquire, may include software licensed under open-source licenses. Use and distribution of open-source software, where applicable, may entail greater risks than use of third-party commercial software, as open-source licensors generally do not provide support, warranties, indemnification or other contractual protections regarding infringement claims or the quality of the code. To the extent that our technology may in the future depend upon the successful operation of open-source software, any undetected errors or defects in this open-source software could prevent the deployment or impair the functionality of such technologies and injure our reputation.

Moreover, some open-source software licenses, if applicable, could require users who distribute open-source software as part of their proprietary software to publicly disclose all or part of the source code to such software and make available any derivative works or modifications of the open-source code on unfavorable terms or at no cost. If we were to combine our proprietary software with open-source software in a certain manner, we could, under certain circumstances, be required to comply with such license terms. Although we have tools and processes to monitor and restrict our use of open-source software, the risks associated with open-source usage may not be eliminated and may, if not properly addressed, result in unanticipated obligations that could harm our business.

Any dispute regarding our IP may require us to indemnify certain customers, the cost of which could severely harm our business.

In any potential dispute involving our patents or other IP, our customers could also become the target of litigation. While we generally do not indemnify our customers, some of our agreements provide for indemnification, and some require us to provide technical support and information to a customer that is involved in litigation involving use of our technology. In addition, we may be exposed to indemnification obligations, risks and liabilities that were unknown at the time that we acquired assets or businesses for our operations. Any of these indemnification and support obligations could result in substantial and material expenses. In addition to the time and expense required for us to indemnify or supply such support to our customers, a customer’s development, marketing and sales of licensed semiconductors, mobile communications and data security technologies could be severely disrupted or shut down as a result of litigation, which in turn could severely harm our business as a result of lower or no royalty payments.

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We have been and in the future may be subject to incidents, disruptions or breaches of our information technology systems that could damage our reputation and our business, expose us to liability and materially and adversely affect our results of operations, potentially irreparably.

In conducting our business, we routinely collect and store sensitive data, including proprietary technology and information about our business and our customers, suppliers and business partners, including our customers’ proprietary chip design architecture information, personal information and sensitive information owned by our customers. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Increasingly, companies are subject to a wide variety of attacks on their networks and information technology infrastructure on an ongoing basis. Traditional computer “hackers,” malicious code (such as viruses, and worms), phishing attempts, employee theft or misuse, denial of service attacks, and sophisticated nation-state and nation-state supported actors engage in intrusions and attacks that create risks for our (and our third-party service providers’) products and services, internal networks, infrastructure, and cloud deployed products and the information each stores and processes (such products, services, networks, infrastructure, and cloud resources collectively “Resources”). Although we have implemented security measures to prevent such attacks, our Resources have been and may in the future be breached due to the actions of outside parties, employee error, malfeasance, a combination of these, or otherwise, and as a result, an unauthorized party may obtain access to our Resources. We have been (and our third-party service providers), and may in the future be, subject to such disruptions or security breaches of our secured network caused by caused by computer viruses, ransomware, supply chain attacks and worldwide and/or regional shortages in the availability of chip supply in several semiconductor sectors and applications, illegal hacking, criminal fraud or impersonation, acts of vandalism or terrorism or actions or failure to act by our employees or other with access to our network. For example, in 2019 a customer paid an invoice to a fraudulent third party and such amount could not be recovered. Our security measures, those of our third-party service providers, or our customers may not timely detect or prevent such security breaches. The costs to us to reduce the risk of or alleviate cyber security breaches and vulnerabilities could be significant. Any type of security breach, attack, unauthorized access to or misuse of data, whether experienced by us or an associated third-party, could harm our reputation or deter existing or prospective customers from using our products and applications, increase our operating expenses in order to contain and remediate the incident, expose us to unbudgeted or uninsured liability, disrupt our operations, divert management focus away from other priorities, increase our risk of regulatory scrutiny, result in the imposition of penalties and fines under state, federal and foreign laws or by payment networks and adversely affect our continued payment network registration and financial institution sponsorship. We would also be exposed to a risk of loss or litigation and potential liability under laws, regulations and contracts that protect the privacy and security of personal information. For example, the California Consumer Privacy Act of 2018, or the CCPA, imposes a private right of action for security breaches that could lead to some form of remedy including regulatory scrutiny, fines, private right of action settlements, and other consequences. Where a security incident involves a breach of security leading to the accidental or unlawful destruction, loss, alternation, unauthorized disclosure of, or access to, personal data in respect of which we are a controller or processor under the GDPR or U.K. GDPR (as defined below), this could result in fines of up to €20.0 million or 4% of annual global turnover under the GDPR or £17.5 million and 4% of total annual revenue in the case of the U.K. GDPR. We may also be required to notify such breaches to regulators and/or individuals which may result in us incurring additional costs. Moreover, any such compromise of our information security or that of our third parties could result in the misappropriation or unauthorized publication or other exploitation of our confidential business or proprietary information or personal information or that of other parties with which we do business, an interruption in our operations, the unauthorized transfer of cash or other assets, the unauthorized release of customer or employee data or a violation of privacy or other laws. In addition, computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products, or that otherwise exploit any security vulnerabilities, and any such attack, if successful, could expose us to liability to customer claims. Any of the foregoing could irreparably damage our reputation and business, which could have a material adverse effect on our results of operations.

Further, notifications and follow-up actions related to a security incident could impact our reputation and cause us to incur significant costs, including legal expenses and remediation costs. To the extent that any disruption or security incident were to result in any loss, destruction, or alteration of, or damage or unauthorized access to, our data or other information that is processed or maintained on our behalf, or inappropriate disclosure of or dissemination of any such information, we could be exposed to litigation and governmental investigations, the further development and commercialization of our products could be delayed, and we could be subject to significant fines or penalties for any noncompliance with certain state, federal and/or international privacy and security laws.

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Our insurance policies may not be adequate to compensate us for the potential losses arising from any such disruption in or failure or security breach of our systems or third-party systems where information important to our business operations or commercial development is stored. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. Further, our insurance may not cover all claims made against us and could have high deductibles in any event, and defending a suit, regardless of its merit, could be costly and divert management attention.

We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security, and consumer protection laws across different markets where we conduct our business. Our actual or perceived failure to comply with such obligations could harm our business.

We are subject to a number of legal requirements, contractual obligations and industry standards regarding security, data protection and privacy and any failure to comply with these requirements, obligations or standards could harm our reputation and business. These include the GDPR and applicable United States federal, California and other jurisdictional privacy laws and regulations.

In the United States and other jurisdictions in which we operate, we are subject to various privacy, data protection and consumer protection laws and related regulations. If we are found to have breached any such laws or regulations in any such jurisdiction, we may be subject to enforcement actions that require us to change our business practices in a manner which may negatively impact our revenue, as well as expose us to litigation, fines, civil and/or criminal penalties and adverse publicity that could cause our customers to lose trust in us, negatively impacting our reputation and business in a manner that harms our financial position.

As part of our business, we collect information about individuals, also referred to as personal data, and other potentially sensitive and/or regulated data from our customers. Laws and regulations in the United States and around the world restrict how personal information is collected, processed, stored, used and disclosed, as well as set standards for its security, implement notice requirements regarding privacy practices, and provide individuals with certain rights regarding the use, disclosure and sale of their protected personal information.

In the United States, both the federal and various state governments have adopted or are considering, laws, or regulations for the collection, distribution, use and storage of information collected from or about individuals or their devices. A range of enforcement agencies exist at both the state and federal levels that can enforce these laws and regulations. These laws and regulations may apply to our activities, including, for example, state data breach notification laws, state personal data privacy laws, and federal and state consumer protection laws. For example, California enacted the California Consumer Privacy Act (CCPA) which became operative on January 1, 2020 and became enforceable by the California Attorney General on July 1, 2020, along with related regulations which came into force on August 14, 2020. Additionally, although not effective until January 1, 2023, the California Privacy Rights Act, or the CPRA, which expands upon the CCPA, was passed on November 3, 2020. The CCPA requires (and the CPRA will require) covered companies to, among other things, provide new disclosures to California consumers, and affords such consumers new privacy rights such as the ability to opt-out of certain sales of personal information and expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is collected, used and shared. The CCPA provides for civil penalties for violations, as well as a private right of action for security breaches that may increase security breach litigation. Further, Virginia enacted the Virginia Consumer Data Protection Act, or the CDPA, another comprehensive state privacy law, that will also be effective January 1, 2023. Also in 2021, Colorado enacted the Colorado Privacy Act, or the CPA, which goes into effect July 1, 2023. The CCPA, CPRA, CDPA, and CPA may increase our compliance costs and potential liability, particularly in the event of a data breach, and could harm our business, including how we use personal information. A number of other proposals exist for new federal and state privacy legislation that, if passed, could increase our potential liability, increase our compliance costs and harm our business.

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Several foreign jurisdictions, including the European Union (EU) and United Kingdom (UK), have laws and regulations which are more restrictive in certain respects than those in the United States. For example, the EU General Data Protection Regulation (EU GDPR) and the UK General Data Protection Regulation and the UK Data Protection Act 2018 (UK GDPR) (collectively, the GDPR) includes stringent operational requirements for the use of personal data. The European and UK regime also includes laws which, among other things, require EU member states and the UK to regulate marketing by electronic means and the use of cookies and similar technologies. The GDPR has resulted in, and will continue to result in, significant compliance burdens and costs for companies with customers and/or operations in the European Union and the UK. The GDPR, and national implementing legislation in each member state, imposes a strict data protection compliance regime including: providing detailed disclosures about how personal data is collected and processed; demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities; granting new rights for data subjects in regard to their personal data (including the right to be “forgotten” and the right to data portability), as well as enhancing current rights (e.g., data subject access requests); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; defining for the first time pseudonymized (i.e., key-coded) data; imposing limitations on retention of personal data; maintaining a record of data processing; and complying with the principal of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit. If our privacy or data security measures fail to comply with applicable current or future laws and regulations, we may be subject to litigation, regulatory investigations, and enforcement notices requiring us to change the way we use personal data or our marketing practices. For example, under the GDPR we may be subject to fines of up to €20 million / £17.5 million or up to 4% of the total worldwide annual group turnover of the preceding financial year (whichever is higher) for major violations. In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our processing of our data, enforcement notices, and/ or assessment notices (for a compulsory audit). We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, reputational harm and a potential loss of business.

We are also subject to European Union rules with respect to cross-border transfers of personal data out of the European Economic Area (EEA) and the UK. Recent legal developments in Europe have created complexity and uncertainty regarding transfers of personal data from the EEA and the UK to the United States. Most recently, on July 16, 2020, the Court of Justice of the European Union (CJEU) invalidated the EU-US Privacy Shield Framework (Privacy Shield) under which personal data could be transferred from the EEA to US entities who had self-certified under the Privacy Shield scheme. While the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on them alone may not necessarily be sufficient in all circumstances. Use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, and in particular applicable surveillance laws and rights of individuals and additional measures and/or contractual provisions may need to be put in place, however, the nature of these additional measures is currently uncertain. The CJEU went on to state that if a competent supervisory authority believes that the standard contractual clauses cannot be complied with in the destination country and the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend or prohibit that transfer. In addition, the European Commission has published revised standard contractual clauses for data transfers from the EEA: the revised clauses must be used for relevant new data transfers from September 27, 2021; existing standard contractual clauses arrangements must be migrated to the revised clauses by December 27, 2022. We will be required to implement the revised applicable standard contractual clauses within the relevant time frames. In addition, the UK’s Information Commissioner’s Office has published new data transfer standard contracts for transfers from the UK under the UK GDPR. This new documentation will be mandatory for relevant data transfers from September 21, 2022; existing standard contractual clauses arrangements must be migrated to the new documentation by March 21, 2024. We will be required to implement the latest UK data transfer documentation for data transfers subject to the UK GDPR, within the relevant time frames. These recent developments may require us to review and amend the legal mechanisms by which we make and/ or receive personal data transfers to/ in the U.S. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines.

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Further, the exit of the UK from the EU, often referred to as Brexit, has created uncertainty with regard to data protection regulation in the UK. The European Commission has adopted an adequacy decision in favor of the UK, enabling data transfers from EU member states to the UK without additional safeguards. However, the UK adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews/ extends that decision, and remains under review by the Commission during this period. In September 2021, the UK government launched a consultation on its proposals for wide-ranging reform of UK data protection laws following Brexit. There is a risk that any material changes which are made to the UK data protection regime could result in the Commission reviewing the UK adequacy decision, and the UK losing its adequacy decision if the Commission deems the UK to no longer provide adequate protection for personal data. The relationship between the UK and the EU in relation to certain aspects of data protection law remains unclear, and it is unclear how UK data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the UK will be regulated in the long term. These changes will lead to additional costs and increase our overall risk exposure.

Restrictions on the collection, use, sharing or disclosure of personal information or additional requirements and liability for security and data integrity could require us to modify our solutions and features, possibly in a material manner, could limit our ability to develop new products and features and could subject us to increased compliance obligations and regulatory scrutiny.

Although we make reasonable efforts to comply with all applicable data protection laws and regulations, our interpretations and such measures may have been or may prove to be insufficient or incorrect. Any failure to comply with any data protection laws and/or regulations that results in a data security breach could require notifications to data subjects and/or owners under federal, state and/or international data breach notification laws and regulations. The effects of any applicable U.S. state, U.S. federal and international laws and regulations that are currently in effect or that may go into effect in the future, are significant and may require us to modify our data processing practices and policies and to incur substantial costs and potential liability in an effort to comply with such laws and regulations. Allegations of non-compliance, whether or not true, could be costly, time consuming, distracting to management, and cause reputational harm. In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards. Because the interpretation and application of privacy and data protection laws are still uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with one another or inconsistent with our existing data management practices or the features of our products and services. Any actual or perceived failure to comply with these and other data protection and privacy laws and regulations could result in regulatory scrutiny and increased exposure to the risk of litigation or the imposition of consent orders, resolution agreements, requirements to take particular actions with respect to training, policies or other activities, and civil and criminal penalties, including fines, which could harm our business. In addition, we or our third-party service providers could be required to fundamentally change our business activities and practices or modify our products and services, which could harm our or our third-party service providers’ business. Any of the foregoing could result in additional cost and liability to us, damage our reputation, inhibit sales, and harm our business.

Risks Related to Legal, Regulatory, Accounting and Tax Matters

Our failure to comply with the large body of laws and regulations to which we are subject could materially harm our business.

We are subject to regulation by various governmental agencies in the United States and other jurisdictions in which we operate. These laws and regulations (and the government agency responsible for their enforcement in the United States) cover: radio frequency emission regulatory activities (Federal Communications Commission); anti-trust regulatory activities (Federal Trade Commission and Department of Justice); consumer protection laws (Federal Trade Commission); import/export regulatory activities (Department of Commerce); product safety regulatory activities (Consumer Products Safety Commission); worker safety (Occupational Safety and Health Administration); environmental protection (Environmental Protection Agency and similar state and local agencies); employment matters (Equal Employment Opportunity Commission); and tax and other regulations by a variety of regulatory authorities in each of the areas in which we conduct business. In certain jurisdictions, regulatory requirements in one or more of these areas may be more stringent than in the United States.

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In the area of employment matters, we are subject to a variety of federal, state and foreign employment and labor laws and regulations, including the Americans with Disabilities Act, the Federal Fair Labor Standards Act, the WARN Act and other regulations related to working conditions, wage and hour pay, overtime pay, employee benefits, anti-discrimination, and termination of employment. We are subject to local employment statutes and regulations in other jurisdictions. Noncompliance with any of these applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, fines, damages, penalties, or injunctions. In certain instances, former employees have brought claims against us and we expect that we will encounter similar actions against us in the future. An adverse outcome in any such litigation could require us to pay damages, attorneys’ fees and costs. These enforcement actions could harm our reputation and business. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business could be harmed. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees.

Our failure to comply with the Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable anti-money laundering laws could subject us to penalties and other adverse consequences.

We have extensive international operations and a substantial portion of our business is conducted outside of the United States. Our operations are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, as well as the anti-corruption, anti-bribery, and anti-money laundering laws in the countries where we do business. Anti-corruption laws are interpreted broadly and prohibit companies and their employees and agents from promising, authorizing, making, or offering, soliciting, or accepting, directly or indirectly, improper payments or other benefits to or from any person whether in the public or private sector. The FCPA also requires publicly traded companies to maintain records that accurately and fairly represent their transactions, and to have an adequate system of internal accounting controls. As we increase our international sales and business, our risks under these laws may increase.

Though we maintain policies, internal controls and other measures reasonably designed to promote compliance with applicable anticorruption, anti-bribery laws, and anti-money laundering laws and regulations, our employees or agents may nevertheless engage in improper conduct for which we might be held responsible. Any violations of these laws, or even allegations of such violations, can lead to an investigation and/or enforcement action, which could disrupt our operations, involve significant management distraction, and lead to significant costs and expenses, including legal fees. If we, or our employees or agents acting on our behalf, are found to have engaged in practices that violate these laws and regulations, we could suffer severe fines and penalties, profit disgorgement, injunctions on future conduct, securities litigation, bans on transacting government business, delisting from securities exchanges and other consequences that may harm our business. In addition, our reputation, our revenue or our stock price could be adversely affected if we become the subject of any negative publicity related to actual or potential violations of any of these laws and regulations.

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We are subject to government regulation, including import, export and economic sanctions laws and regulations that may expose us to liability and increase our costs.

Certain of our products, including our IP interconnect and other solutions and technology are subject to U.S. export controls, including the U.S. Department of Commerce’s Export Administration Regulations (EAR) and economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. These regulations may limit the export of our products and technology, and provision of our services outside of the United States, or may require export authorizations, including by license, a license exception, or other appropriate government authorizations and conditions, including annual or semi-annual reporting. Export control and economic sanctions laws may also include prohibitions on the sale or supply of certain of our products to embargoed or sanctioned countries, regions, governments, persons, and entities. In addition, various countries regulate the importation of certain products, through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products. The exportation, re-exportation, and importation of our products and technology and the provision of services, including by our partners, must comply with these laws or else we may be adversely affected through reputational harm, government investigations, penalties, and a denial or curtailment of our ability to export our products and technology. Complying with export control and sanctions laws may be time-consuming and may result in the delay or loss of sales opportunities. Although we take precautions to prevent our products and technology from being provided in violation of such laws, our products and technology have previously been, and could in the future be, provided inadvertently in violation of such laws, despite the precautions we take. If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the individuals working for us. Changes in export or import laws or sanctions policies may adversely impact our operations, delay the introduction and sale of our products in international markets, or, in some cases, prevent the export or import of our products and technology to certain countries, regions, governments, persons, or entities altogether, which could harm our business.

We will lose sales if we are unable to obtain government authorization to export certain of our products and services, and we will be subject to legal and regulatory consequences if we do not comply with applicable export control laws and regulations.

Exports of certain of our IP interconnect and other solutions are subject to export controls imposed by the U.S. government and administered by the U.S. Departments of State and Commerce. In certain instances, these regulations may require pre-shipment authorization from the administering department. For products subject to the EAR, administered by the Department of Commerce’s Bureau of Industry and Security (BIS), the requirement for a license is dependent on the type and end use of the product, the final destination, the identity of the end user and whether a license exception might apply. Certain of our solutions are subject to EAR. Obtaining export licenses can be difficult, costly and time-consuming and we may not always be successful in obtaining necessary export licenses, and our failure to obtain required import or export approval for our products or limitations on our ability to export or sell our products imposed by these laws may harm our international and domestic revenue. Noncompliance with these laws could have negative consequences, including government investigations, penalties and reputational harm. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position.

We derived 0.1%, and 31.2% of our revenue in 2021 and 2020, respectively, from parties that are currently subject to the Entity List of the EAR (a list of entities to which the transfer of EAR-controlled technology or software is generally prohibited absent a U.S. export license), including Chongxin Bada Technology Development Co., Ltd. (Bada), HiSilicon Technologies Co. Ltd. (HiSilicon), and SZ DJI Technology Co., Ltd. Current and future business with these entities may be limited in scope or suspended entirely in order to comply with the EAR and as a result, our revenue could be adversely impacted. Regulatory changes concerning the export classification of our products, changes to the applicability of the EAR to certain product offerings, or the addition of new entities to the restricted party lists can further increase the scope of export restrictions applicable to our business. Failure to obtain export licenses for our products or having one or more of our customers be restricted from receiving exports from us could significantly reduce our revenue and harm our business.

In addition, the U.S. federal government has increased its Entity List materially in recent years, which affects the range and number of customers, including Chinese customers available to license our products and technology. This raises an additional risk that China and/or other jurisdictions may enact retaliatory legislation or regulations that may raise similar adverse risks. As reflected in other Risk Factors, such risks may increase if additional Chinese entities are placed on the Entity List due, among other things, to their business with Russia in light of China’s stance and actions taken relating to Russia-Ukraine tensions and hostilities.

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In July 2021, we submitted a voluntary self-disclosure (VSD) to the BIS, noting potential violations of the EAR. On April 29, 2022, the Office of Export Enforcement of the BIS decided not to refer this matter for criminal or administrative prosecution and closed the matter with the issuance of a warning letter. In our VSD submission, we identified discrete transactions with two customers, Bada and HiSilicon, that may have resulted in inadvertent violations of the EAR. We no longer provide either customer with products or ongoing support.We have taken and continue to take remedial measures to help prevent similar situations from occurring in the future.

We face risks associated with doing business in China.

As of March 31, 2022, we derived 23.6% of our revenue from customers located in China. As a result, the economic, political, legal and social conditions in China could harm our business. In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. Various factors may in the future cause the Chinese government to impose controls on credit or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products. In addition, the legal system in China has inherent uncertainties that may limit the legal protections available in the event of any claims or disputes that we have with third parties, including our ability to protect the IP we develop in China or elsewhere. As China’s legal system is still evolving, the interpretation of many laws, regulations and rules is not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit the remedies available in the event of any claims or disputes with third parties. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. Some of the other risks related to doing business in China include:

■The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.

■Restrictions on currency exchange may limit our ability to receive, transfer and use our cash effectively.

■Increased uncertainties related to the enforcement of IP rights including any IP rights that we may license to a Chinese (or other emerging jurisdiction) entity, including any joint ventures we may form.

■Increased uncertainties relating to Chinese regulation of exports of products and technology to and from China.

■Increased and rapidly changing export and related trade regulations and restrictions imposed by U.S. and Chinese legislation, executive actions and regulations.

■Difficulty of travel to and from China (and to and from United States) arising from or related to the COVID-19 pandemic or any future pandemic.

■The Chinese government may favor its local businesses and make it more difficult for foreign businesses to operate in China on an equal footing, or create generally difficult conditions for foreign headquartered businesses to operate.

■Increased uncertainties related to the enforcement of contracts with certain parties.

■More restrictive rules on foreign investment could adversely affect our ability to expand our operations in China.

■Geopolitical tensions between China on the one hand and the United States and/or the European Union on the other hand, may increase and may lead to increased export sanctions with Chinese entities and sanctions made against China.

As a result of our growing operations in China, these risks could harm our business.

Further, on June 3, 2021, the President issued Executive Order 14032 (Addressing the Threat from Securities Investments that Finance Certain Companies of the People’s Republic of China) targeting entities that are deemed part of the Chinese military-industrial complex. The executive order, and the subsequent Office of Foreign Assets Control additions to its Non-SDN Chinese Military-Industrial Complex Companies List, include one or more entities that have indirectly invested in us. Among other things, this executive order prohibits the purchase or sale of any publicly traded securities of a designated entity. We do not expect that this executive order will impact us; however, further government escalation of restrictions related to Chinese investors and dealings in securities could harm certain shareholders.

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We anticipate conducting certain of our operations through joint venture arrangements with Chinese entities. If the Chinese government determines that these arrangements do not comply with applicable regulations, our business could be adversely affected. If the PRC regulatory agencies determine that the agreements that establish the structure and relationship for our operations in China do not comply with PRC regulatory restrictions on foreign investment, we could be subject to severe penalties. In addition, changes in such Chinese laws and regulations may materially and adversely affect our business.

There are uncertainties regarding the interpretation and application of PRC laws, rules and regulations, including, but not limited to, the laws, rules and regulations governing the validity and enforcement of the joint venture arrangement such as the one we are contemplating entering into with certain Chinese entities, including one of our shareholders who holds less than 5% of our outstanding common stock. Because many laws and regulations are relatively new, the interpretations of many laws, regulations and rules are not always uniform. Moreover, the interpretation of statutes and regulations may be subject to government policies reflecting domestic political agendas. Enforcement of existing laws or contracts based on existing law may be uncertain and sporadic. Although we believe, based on our understanding of the current PRC laws, rules and regulations, the structure for our current and contemplated operations based in China complies with all applicable PRC laws, rules and regulations and does not violate, breach, contravene or otherwise conflict with any applicable PRC laws, rules or regulations, we cannot assure you that the PRC regulatory authorities will not determine that such joint venture arrangements do not violate PRC laws, rules or regulations. If the PRC regulatory authorities determine that any joint ventures we may enter into are in violation of applicable PRC laws, rules or regulations, such joint venture arrangements may become invalid or unenforceable, which will substantially affect our operations adversely.

The Chinese government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted by relevant governmental agencies may be revoked at a later time by other regulatory agencies. We cannot predict the effect of the interpretation of existing or new Chinese laws or regulations on our business. Any of these or similar actions could significantly disrupt our operations or restrict us from conducting a substantial portion of our operations, which could materially and adversely affect our business, financial condition and results of operations.

Joint ventures are subject to a number of risks, the occurrence of which could adversely impact any of our current or future joint ventures, which in turn could harm our business.

Joint ventures such as the joint venture we may form for which we are in preliminary discussions as discussed elsewhere in this report, are subject to a number of risks, including but not limited to:

■Our joint venture partners may not commit sufficient resources to market and distribute our products or to otherwise support the joint venture and its intended operations.

■Our joint venture partners may infringe the IP we assign to such joint venture, or the IP of other parties, which may expose us to litigation and other potential liabilities.

■Disputes may arise among us and our joint venture partners that result in the delay or termination of activities contemplated by such joint venture or that could result in costly litigation or arbitration that diverts management attention and resources.

■Our joint venture partners may not provide us with timely and accurate information regarding the status or activities of the joint venture which could, among other things, impact our ability to accurately forecast financial results or provide timely information to our shareholders.

■Any of the risks related to doing business in China or having a Chinese joint venture that are discussed elsewhere in these risk factors.

The occurrence of one or more of the above risks, or any other negative events, could adversely impact our joint ventures and could in turn harm our business.

In addition to the risks mentioned above, we cannot guarantee that we will enter into the potential joint venture for which we are in preliminary discussions mentioned elsewhere in this report, despite expending substantial management time and other resources on such potential transaction. In addition, even if we do enter into this joint venture, we cannot guarantee that it will be successful.

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We could be subject to changes in tax rates or the adoption of new tax legislation, whether in or out of the United States, or could otherwise have exposure to additional tax liabilities, which could harm our business.

As a multinational business, we are subject to income and other taxes in both the United States and various foreign jurisdictions. Changes to tax laws or regulations in the jurisdictions in which we operate, or in the interpretation of such laws or regulations, could, significantly increase our effective tax rate and reduce our cash flow from operating activities, and otherwise have a material adverse effect on our financial condition. In addition, other factors or events, including business combinations and investment transactions, changes in the valuation of our deferred tax assets and liabilities, adjustments to taxes upon finalization of various tax returns or as a result of deficiencies asserted by taxing authorities, increases in expenses not deductible for tax purposes, changes in available tax credits, changes in transfer pricing methodologies, other changes in the apportionment of our income and other activities among tax jurisdictions, and changes in tax rates, could also increase our effective tax rate.

Our tax filings are subject to review or audit by the U.S. Internal Revenue Service (the “IRS”) and state, local and foreign taxing authorities. We may also be liable for taxes in connection with businesses we acquire. Our determinations are not binding on the IRS or any other taxing authorities, and accordingly the final determination in an audit or other proceeding may be materially different than the treatment reflected in our tax provisions, accruals and returns. An assessment of additional taxes because of an audit could harm our business.

Further changes in the tax laws of foreign jurisdictions could arise, in particular, as a result of the base erosion and profit shifting project that was undertaken by the Organization for Economic Co-operation and Development (the OECD). The OECD, which represents a coalition of member countries, recommended changes to numerous long-standing tax principles. These changes, if adopted, could increase tax uncertainty and may adversely affect our provision for income taxes and increase our tax liabilities.

Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.

We have incurred cumulative losses historically and it is possible that we will not achieve profitability in the future. Realization of our existing net operating loss (NOL) carryforwards and other tax attributes (such as research tax credits) depends on future taxable income, and there is a risk that our NOL carryforwards and other tax attributes could expire unused before we achieve profitability and be unavailable to offset future taxable income, which could materially and adversely affect our operating results.

In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” generally defined as a cumulative change of more than 50 percentage points (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. We may have experienced ownership changes in the past and may experience additional ownership changes in the future, including as a result of subsequent changes in our stock ownership, some of which are outside our control. Accordingly, we may not be able to utilize a material portion of our NOL carryforwards, even if we achieve profitability.

The requirements of being a public company require significant resources and management attention and affect our ability to attract and retain executive management and qualified board members.

As a public company, we incur increased legal, accounting, compliance and other expenses that we did not previously incur as a private company. We are subject to the Exchange Act, including the reporting requirements thereunder, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules and other applicable securities rules and regulations. These rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives, which divert their attention away from our core business operations and revenue-producing activities. Moreover, compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and increases demand on our systems and resources, particularly after we are no longer an ‘‘emerging growth company.’’ Further, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, which in turn could require us to incur substantially higher costs to obtain the same or similar coverage or accept reduced policy limits and coverage, which, if we accept such reduced policy limits and coverage, could make it more difficult for us to attract and retain qualified individuals to serve on our board of directors and as our executive officers. In addition, prior to our initial public offering, we were not required to comply with SEC requirements to have our financial statements completed and reviewed or audited within a specified time and, as such, we may experience difficulty in meeting the applicable reporting requirements under the Exchange Act. Any failure by us to file our periodic reports with the SEC in a timely manner could harm our reputation and reduce the trading price of our common stock.

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We are evaluating these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. In addition, if we fail to comply with these rules and regulations, we could be subject to a number of penalties, including the delisting of our common stock, fines, sanctions or other regulatory action or civil litigation.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Our disclosure controls and other procedures are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers, and we continue to evaluate how to improve controls. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our business or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we are required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K.

Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could harm our business and could cause a decline in the trading price of our common stock.

We are an “emerging growth company,” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we could remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of the closing of our initial public offering. For as long as we continue to be an emerging growth company, we may choose to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to:

■not being required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

■not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

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■not being required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden-parachutes”; and

■not being required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

In addition, as an emerging growth company, we are only permitted to provide two years of audited financial statements and two years of selected financial data (in addition to any required interim financial statements and selected financial data) in this report, and to present correspondingly reduced disclosure in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We have elected to take advantage of this reduced disclosure obligation and certain of the other exemptions described above and may elect to take advantage of these and other reduced reporting requirements in the future. As a result, the information that we provide to our stockholders may be different than the information you might receive from other public reporting companies in which you hold equity interests. In addition, the JOBS Act permits emerging growth companies to delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards until the earlier of the date we (i) are no longer an emerging growth company; or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements and the reported results of operations contained therein may not be directly comparable to those of other public companies. We cannot predict whether investors will find our common stock less attractive because of our reliance on these exemptions. If some investors do find our common stock less attractive, there may be a less active trading market for our common stock and our stock price may be reduced or become more volatile.

We will remain an emerging growth company, and will be able to take advantage of the foregoing exemptions, until the last day of our fiscal year following the fifth anniversary of the closing of our initial public offering or such earlier time that we otherwise cease to be an emerging growth company, which will occur upon the earliest of (i) the last day of the first fiscal year in which our annual gross revenue are $1.07 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which will occur as of the end of any fiscal year in which (x) the market value of our common equity held by non-affiliates is $700 million or more as of the last business day of our most recently completed second fiscal quarter, (y) we have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months and (z) we have filed at least one annual report pursuant to the Exchange Act.

Risks Related to Ownership of Our Common Stock

An active and liquid trading market for our common stock may not be sustained.

Our common stock is currently listed on the Nasdaq Stock Market under the symbol “AIP”. The price for our common stock may vary and an active or liquid market in our common stock may not be sustained. The lack of an active market may impair the value of your shares, your ability to sell your shares at the time you wish to sell them and the prices that you may obtain for your shares. An inactive market may also impair our ability to raise further capital by selling additional shares of our common stock and our ability to acquire other companies, products or technologies by using our common stock as consideration. Furthermore, there can be no guarantee that we will continue to satisfy the continued listing standards of the Nasdaq exchange. If we fail to satisfy the continued listing standards, we could be de-listed, which would negatively impact the value and liquidity of your investment.

Our stock price may be volatile, and investors in our common stock may not be able to resell shares of our common stock at or above the price paid, or at all.

The trading price of our common stock could be volatile and subject to wide fluctuations in response to various factors, many of which are beyond our control, including, but not limited to:

■variations in our actual or anticipated annual or quarterly operating results or those of others in our industry;

■the potential effects arising if U.S. inflationary and/or currency devaluation trends appear or increase;

■results of operations that otherwise fail to meet the expectations of securities analysts and investors;

■changes in earnings estimates or recommendations by securities analysts, or other changes in investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives;

■market conditions in the semiconductor industry;

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■publications, reports or other media exposure of our products or those of others in our industry, or of our industry generally;

■announcements by us or others in our industry, or by our or their respective suppliers, distributors or other business partners, regarding, among other things, significant contracts, price reductions, capital commitments or other business developments, the entry into or termination of strategic transactions or relationships, securities offerings or other financing initiatives, and public reaction thereto;

■additions or departures of key management personnel;

■regulatory actions involving us or others in our industry, or actual or anticipated changes in applicable government regulations or enforcement thereof;

■the development and sustainability of an active trading market for our common stock;

■sales, or anticipated sales, of large blocks of our common stock, such as any sales that may occur following the expiration of the lockups entered into in connection with our initial public offering or any sales to cover tax obligations or exercise costs in connection with the vesting of restricted stock units or the exercise of options, respectively;

■general economic and securities market conditions; and

■other factors discussed in this “Risk Factors” section and elsewhere in this report.

Furthermore, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies. Broad market and industry factors may significantly affect the market price of our common stock, regardless of our actual operating performance. These and other factors may cause the market price and demand for our common stock to fluctuate significantly, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our core business operations.

Since our stock price may be volatile, investors in our common stock may not be able to resell shares of our common stock at or above the price paid, or at all.

If equity research analysts or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that industry or equity research analysts publish about us or our business. As a newly public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with us, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. If only a few securities or industry analysts commence coverage of us, the trading price for our common stock will be negatively impacted. When we obtain industry or equity research analyst coverage, we will not have any control over the analysts’ content and opinions included in their reports. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, financial performance, stock price or otherwise, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline and result in the loss of all or a part of your investment in us.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline. As of March 31, 2022, we had 31.9 million shares of common stock outstanding.

Approximately 9.8 million shares became available for sale in the public market on April 25, 2022, following the scheduled expiration of lock-up agreements that certain of our stockholders and the underwriters entered into in connection with our IPO. An additional approximately 16.3 million shares are held by current directors, executive officers and stockholders owning 5% or more of our outstanding common stock, or are otherwise restricted securities under applicable securities laws. Such shares may be sold in the future subject to fulfilling the requirements under Rule 144 and other applicable securities laws.

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Following the expiration of lockup agreements, approximately 8.3 million shares of common stock that are either subject to outstanding options or reserved for future issuance pursuant to restricted stock unit grants, in each case, under our equity incentive plans are eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.

In addition, certain of our executive officers, directors and stockholders affiliated with our directors have entered or may enter into Rule 10b5-1 plans providing for sales of shares of our common stock from time to time. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the executive officer, director or affiliated stockholder when entering into the plan, without further direction from the executive officer, director or affiliated stockholder. A Rule 10b5-1 plan may be amended or terminated in some circumstances. Our executive officers, directors and stockholders affiliated with our directors also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information.

Our principal stockholder Ventech Capital F, which is affiliated with our director Christian Claussen, and K. Charles Janac, our President, Chief Executive Officer and Chairman, beneficially own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

As of March 31, 2022, Ventech Capital F, which is affiliated with our director Christian Claussen, and K. Charles Janac, our President, Chief Executive Officer and Chairman, held voting power over approximately 10% and 32%, respectively, of our outstanding voting stock. Therefore, these stockholders will have the ability to influence us through this ownership position. While there is no voting agreement or other arrangement between the stockholders, if they vote together they may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise could dilute the ownership and voting power of our other stockholders.

We have 300,000,000 shares of common stock authorized but unissued, based on the number of shares of our common stock outstanding as of March 31, 2022. In addition, our Certificate of Incorporation authorizes us to issue up to 10,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Our Certificate of Incorporation authorizes us to issue shares of common stock or other securities convertible into or exercisable or exchangeable for shares of our common stock from time to time, for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with a financing, an acquisition, an investment, our stock incentive plans or otherwise. Such additional shares of our common stock or such other securities may be issued at a discount to the market price of our common stock at the time of issuance. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. As discussed below, the potential issuance of preferred stock may delay or prevent a change in control of us, discourage bids for our common stock at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our common stock. Any issuance of such securities could result in substantial dilution to our existing stockholders and cause the market price of shares of our common stock to decline.

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We do not expect to declare or pay any dividends on our common stock for the foreseeable future.

We do not intend to pay cash dividends on our common stock for the foreseeable future. Consequently, investors must rely on sales of their shares of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking dividends should not purchase shares of our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and subject to, among other things, our compliance with applicable law, and depending on, among other things, our business prospects, financial condition, results of operations, cash requirements and availability, debt repayment obligations, capital expenditure needs, the terms of any preferred equity securities we may issue in the future, covenants in the agreements governing our current and future indebtedness, other contractual restrictions, industry trends, the provisions of the Delaware General Corporation Law (the “DGCL”) affecting the payment of dividends and distributions to stockholders and any other factors or considerations our board of directors may regard as relevant. Furthermore, because we are a holding company, our ability to pay dividends on our common stock will depend on our receipt of cash distributions and dividends from our direct and indirect wholly owned subsidiaries, which may be similarly impacted by, among other things, the terms of any preferred equity securities these subsidiaries may issue in the future, debt agreements, other contractual restrictions and provisions of applicable law. See “Dividend Policy” in our 2021 Form 10-K for additional information.

Management may apply our net proceeds from our initial public offering to uses that do not increase our market value or improve our operating results.

Our management has broad discretion in the application of the net proceeds from our initial public offering and could use these proceeds in ways that do not improve our results of operations or enhance the value of our common stock. We intend to use these proceeds for general corporate purposes. We may also use a portion of our net proceeds to acquire or invest in complementary businesses, products, services or technologies, though we do not have any agreements or commitments for any significant acquisitions or investments at this time. We have not reserved or allocated our net proceeds for any specific purpose, and we cannot state with certainty how our management will use our net proceeds. Accordingly, our management will have considerable discretion in applying our net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether we are using our net proceeds appropriately. We may use our net proceeds for purposes that do not result in any improvement in our results of operations or increase the market value of our common stock. The failure by our management to apply the net proceeds from our initial public offering effectively could impair our growth prospects and result in financial losses that could harm our business and cause the price of our common stock to decline. Until the net proceeds we receive are used, they may be placed in investments that do not produce income or that lose value.

Provisions in our Certificate of Incorporation and Bylaws and under the DGCL contain antitakeover provisions that could prevent or discourage a takeover.

Provisions in our Certificate of Incorporation and our Bylaws may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions include those establishing:

•a classified board of directors with three-year staggered terms, which may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control of us or our management;

•no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

•the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors;

•the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

•the ability of our board of directors to alter our bylaws without obtaining stockholder approval;

•the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to amend or repeal our bylaws or amend the provisions of our Certificate of Incorporation regarding the election and removal of directors;

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•a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

•the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors or a majority of our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take action, including the removal of directors; and

•advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at an annual meeting or special meeting of stockholders, which may discourage or delay a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us until the next stockholder meeting or at all.

In addition, we are subject to Section 203 of the DGCL. Subject to specified exceptions, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder unless such transaction is approved in a prescribed manner. “Business combinations” include mergers, asset sales and other transactions resulting in a financial benefit to the “interested stockholder.” Subject to various exceptions, an “interested stockholder” is a person who, together with his or her affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s outstanding voting stock.

Any provision of our Certificate of Incorporation, Bylaws or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our common stock.

Our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

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Our Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (the “Delaware Court of Chancery”) will be the exclusive forum for (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or stockholders to us or our stockholders; (3) any action asserting a claim against us, any director or our officers and employees arising pursuant to any provision of the DGCL, our Certificate of Incorporation or our Bylaws, or as to which the DGCL confers exclusive jurisdiction on the Delaware Court of Chancery; or (4) any action asserting a claim against us, any director or our officers or employees that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Act, the Exchange Act, the rules and regulations thereunder or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Delaware Court of Chancery dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware. Our Certificate of Incorporation further provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our Certificate of Incorporation described above.

We believe these provisions benefit us by providing increased consistency in the application of the DGCL by chancellors particularly experienced in resolving corporate disputes and in the application of the Securities Act by federal judges, as applicable, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, these provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees or agents, which may discourage such lawsuits against us and our directors, officers and other employees and agents. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our Certificate of Incorporation to be inapplicable or unenforceable in such action. If a court were to find the choice of forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business.

General Risk Factors

Actions of stockholders could cause us to incur substantial costs, divert management’s attention and resources and have an adverse effect on our business.

As a public company, we may, from time to time, be subject to proposals and other requests from stockholders urging us to take certain corporate actions, including proposals seeking to influence our corporate policies or effect a change in our management. In the event of such stockholder proposals, particularly with respect to matters which our management and board of directors, in exercising their fiduciary duties, disagree with or have determined not to pursue, our business could be harmed because responding to actions and requests of stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees. Additionally, perceived uncertainties as to our future direction may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners and customers.

Litigation, including securities class action litigation, may impair our reputation and lead us to incur significant costs.

From time to time, we may be party to various lawsuits and claims arising in the normal course of business, which may include lawsuits or claims relating to contracts, third-party contractors, IP, employment matters or other aspects of our business. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against companies that experienced such volatility. Litigation, if instituted against us, whether or not valid and regardless of outcome, could result in substantial costs, reputational harm and a diversion of our management’s attention and resources. In addition, we may be required to pay damage awards or settlements or become subject to injunctions or other equitable remedies, which could harm our business. The outcome of litigation is often difficult to predict, and any litigation may harm our business.

Although we have various insurance policies in place, the potential liabilities associated with litigation matters now or that could arise in the future, could be excluded from coverage or, if covered, could exceed the coverage provided by such policies. In addition, insurance carriers may seek to rescind or deny coverage with respect to any claim or lawsuit. If we do not have sufficient coverage under our policies, or if coverage is denied, we may be required to make material payments to settle litigation or satisfy any judgment. Any of these consequences could harm our business.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Public Offering of Common Stock

Our Registration Statement on Form S-1, as amended (File No. 333-259988) (the “Form S-1”), for our IPO was declared effective by the SEC on October 26, 2021. The Form S-1 registered the offering and sale of 5,750,000 shares of common stock. On October 29, 2021, we completed our IPO, in which we issued 5,750,000 shares of common stock at a price to the public of $14.00 per share, including 750,000 shares issued upon the full exercise of the underwriters’ option to purchase additional shares. We received net proceeds of approximately $71.1 million after deducting underwriting discounts and commissions and offering costs of approximately $3.8 million.

Jefferies LLC and Cowen served as lead book-running managers and BMO Capital Markets served as joint book-running manager for the offering. Northland Capital Markets and Rosenblatt Securities acted as co-managers.

No payments were made to our directors or officers or their associates, holders of 10% or more of any class of our equity securities or any affiliates in connection with the issuance and sale of the securities registered.

There has been no material change in the planned use of proceeds from our IPO as described in our Final Prospectus for the IPO dated as of October 26, 2021 and filed with the SEC pursuant to Rule 424(b)(4) on October 28, 2021.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit No.

Description of Exhibit

Form

Exhibit

Filing Date

Filed Herewith

3.1

Amended and Restated Certificate of Incorporation of Arteris, Inc.

8-K

3.1

10-29-2021

3.2

Amended and Restated Bylaws of Arteris, Inc.

8-K

3.2

10-29-2021

4.1

Specimen Stock Certificate evidencing the shares of common stock.

S-1/A

4.1

10-18-2021

10.1

Transchip Share Purchase and Shareholders Agreement

31.1

Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101).


#			Indicates a management contract or compensatory plan or arrangement.
†			Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K under the Securities Act of 1933, as amended, because they are both (i) not material and (ii) the type of information that the registrant both customarily and actually treats as private and confidential.
*			The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Arteris, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 10, 2022


Arteris, Inc.

By:			/s/ K. Charles Janac
Name:			K. Charles Janac
Title:			President and Chief Executive Officer
			(Principal Executive Officer)

By:			/s/ Nicholas B. Hawkins
Name:			Nicholas B. Hawkins
Title:			Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)

Document

SHARE PURCHASE AND SHAREHOLDERS AGREEMENT

among

Arteris HK Limited

Transchip Technology (Nanjing) Co., Ltd.

Arteris Semiconductor Technology (Nanjing) Co., Ltd.

SME Development (Shaoxing) Venture Fund, LLP

Jiaxing Luojia Chuanzhi Investment Partnership Enterprise (Limited Partnership)

Gongqing City Guinie Zhuyu No. 3 Investment Partnership (Limited Partnership)

and

Ningbo Transchip Information Consulting Partnership (Limited Partnership)

Date: February 21, 2022

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ARTICLE 1 DEFINITIONS AND INTERPRETATION RULES			2
1.1 Definitions			2
1.2 Rules of Interpretation			5
ARTICLE 2 SUBSCRIPTION OF REGISTERED CAPITAL			5
2.1 Registered Capital			5
2.2 Timing of Capital Contribution			6
ARTICLE 3 CAPITAL CONTRIBUTION OF INVESTING PARTIES			6
3.1 Closing Conditions.			6
3.2 Closing			9
3.3 Rights of Investing Parties			9
ARTICLE 4 SHAREHOLDERS’ MEETING			10
4.1 Quorum			10
4.2 Resolution of Shareholders’ Meeting			10
4.3 Ordinary Resolutions			10
4.4 Special Resolutions			10
4.5 The Initial Meeting of the Shareholders’ Meeting			11
4.6 Regular Meeting			11
4.7 Interim Meeting			11
4.8 Place and Method of Meeting			11
4.9 Attending the Meeting			11
4.10 Notice			11
4.11 Meeting Minutes			12
4.12 Written Resolution			12
ARTICLE 5 BOARD			12
5.1 Composition of the Board			12
5.2 Term of Office			12
5.3 Chairman			12
5.4 Board Meetings			13
5.5 Quorum and Adoption of Resolutions			13
5.6 Powers of the Board			14
5.7 Protective Provisions			15
5.8 Directors’ Remuneration and Indemnification			15
5.9 Meeting Minutes of Board Meetings			16
ARTICLE 6 SUPERVISORS			16
6.1 Appointment of Supervisors			16
6.2 Powers of Supervisors			16
ARTICLE 7 OPERATION AND MANAGEMENT ORGANIZATION			17
7.1 Management System			17
7.2 Powers and Responsibilities of the General Manager			17
ARTICLE 8 CONFIDENTIALITY			18
8.1 Confidentiality			18
8.2 Exceptions			19


8.3 Measures of Protection			19
8.4 Breach			19
8.5 Survival			20
ARTICLE 9 FINANCE, AUDIT AND DISTRIBUTION OF PROFIT			20
9.1 Financial and Accounting System			20
9.2 Auditing			20
9.3 Information and Inspection Rights			20
9.4 Distribution of Profits			21
9.5 Budgets and Business Plans			21
ARTICLE 10 REPRESENTATIONS AND WARRANTIES OF THE PARTIES			21
ARTICLE 11 ADDITIONAL COVENANTS			22
11.1 Non-Competition			22
11.2 Export Control			22
ARTICLE 12 TERM AND TERMINATION OF THE COMPANY			22
12.1 Term of the Company			22
12.2 Events of Termination			22
12.3 Shareholders’ Meeting to Discuss Termination and Dissolution			23
12.4 Dissolution due to Termination			23
ARTICLE 13 DISSOLUTION AND LIQUIDATION			23
13.1 Liquidation Committee			23
13.2 Principles of Liquidation			23
13.3 Survival			24
ARTICLE 14 INDEMNIFICATION			24
14.1 Indemnification for Breach			24
14.2 Damages for Breach			24
ARTICLE 15 GOVERNING LAW AND DISPUTE RESOLUTION			24
15.1 Applicable Law			24
15.2 Dispute Resolution			24
15.3 Arbitration			25
15.4 Continued Performance			25
ARTICLE 16 MISCELLANEOUS PROVISIONS			25
16.1 Effectiveness of this Agreement			25
16.2 Entire Agreement			25
16.3 Language			25
16.4 Amendment			25
16.5 Severability			26
16.6 Parties in Interest			26
16.7 Costs and Expenses			26
16.8 Waiver			26
16.9 No Agency			26
16.10 Notices			27
16.11 Publicity			29

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Schedule 1 Rights of the Investing Parties

iii

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SHARE PURCHASE AND SHAREHOLDERS AGREEMENT

PREAMBLE

THIS SHARE PURCHASE AND SHAREHOLDERS AGREEMENT, dated this 14th day of February, 2022 (this “Agreement”), is made by and among:

(a)Transchip Technology (Nanjing) Co., Ltd. (传智驿芯科技（南京）有限公司), a limited liability company incorporated under the laws of the PRC (the “Company”);

(b)Arteris HK Limited, a company incorporated under the laws of Hong Kong (“AHK”);

(c)Arteris Semiconductor Technology (Nanjing) Co., Ltd. (安通思半导体技术（南京）有限公司), a limited liability company incorporated under the laws of the PRC (the “Original Shareholder” or “Arteris Nanjing”);

(d)SME Development (Shaoxing) Venture Fund, LLP中小企业发展基金（绍兴）股权投资合伙企业（有限合伙),a limited partnership organized under the laws of the PRC (“Investor A” or “SME”);

(e)Jiaxing Luojia Chuangzhi Investment Partnership Enterprise (Limited Partnership) (嘉兴珞珈传智股权投资合伙企业（有限合伙)), a limited partnership organized under the laws of the PRC (“Investor B” or “Luojia”);

(f)Gongqing City Guinie Zhuyu No. 3 Investment Partnerhip (Limited Partnership) 共青城圭臬珠玉三号投资合伙企业（有限合伙),a limited partnership organized under the laws of the PRC (“Investor C” or “Guinie”);

(Investor A, Investor B and Investor C, collectively “Investors” and each an “Investor”); and

(g)Ningbo Transchip Information Consulting Partnership (Limited Partnership) (宁波传智驿芯信息咨询合伙企业（有限合伙), a limited partnership organized under the laws of the PRC (“Management Co.”).

together the “Parties” and each a “Party”.

WHEREAS,

(a)The Investing Parties (as defined below) desire to subscribe for certain capital contribution to the Company; and

(b)To protect the Investing Parties’ investment interests and to regulate the Shareholders’ rights and obligations in the Company, the Parties agree to enter into this Agreement.

NOW the Parties agree as follows:

ARTICLE 1DEFINITIONS AND INTERPRETATION RULES

1.1Definitions

The terms used in this Agreement have the meanings set forth below:

“Affiliate” means, with respect to any specified Person, any other Person that directly, or indirectly, Controls, is Controlled by, or is under common Control with, such specified Person;

“Approved Sale” has the meaning set forth in Section 5.1 of Schedule 1;

“Approved Sale Date” has the meaning set forth in Section 5.3 of Schedule 1;

“Articles of Association” means the articles of association of the Company, as amended or supplemented from time to time;

“Board” means the board of directors of the Company;

“Breaching Party” has the meaning set forth in Section 14.1;

“Business” means the development, sale, distribution and promotion of products in China;

“Business Day” means any day that is not a Saturday, Sunday, public holiday or other day on which commercial banks are required or authorized to be closed in the PRC.

“Business License” means the business license of the Company issued by the Registration Authority;

“Chairman” has the meaning set forth in Section 5.3;

“CFIUS” means the Committee on Foreign Investment in the United States;

“CFIUS Clearance” has the meaning set forth in Section 3.1(i);

“CFO” has the meaning set forth in Section 7.1(c);

“Closing” has the meaning set forth in Section 3.2;

“Closing Conditions” has the meaning set forth in Section 3.1;

“Closing Date” has the meaning set forth in Section 3.2;

“Confidential Information” has the meaning set forth in Section 8.1;

“Control” (including the terms “Controlled by” and “under common Control with”) means the direct or indirect possession of the decision-making authority over the management and policies of a Person, no matter through the ownership of voting securities, through contract or otherwise, including but not limited to, the direct or indirect ownership of securities with the right to elect a majority of the board or similar organ of authority that governing the affairs of such Person;

“Dilutive Equity” has the meaning set forth in Section 2.1 of Schedule 1;

“Dilutive Issuance” has the meaning set forth in Section 2.1 of Schedule 1;

“Directors” has the meaning set forth in Section 5.1;

“Disputes” has the meaning set forth in Section 15.2;

“DPA” has the meaning set forth in Section 3.1(i);

“Drag-Along Holder” has the meaning set forth in Section 5.1 of Schedule 1;

“Drag-Along Notice” has the meaning set forth in Section 5.3 of Schedule 1;

“Dragged Holders” has the meaning set forth in Section 5.1 of Schedule 1;

“ESOP” has the meaning set forth in Section 2.1(e);

“Establishment Date” means the establishment date recorded on the first Business License;

“General Manager” has the meaning set forth in Section 7.1(a);

“Indemnitees” has the meaning set forth in Section 14.1;

“Indemnifying Party” has the meaning set forth in Section 14.1;

“Initial Registered Capital Transfer” has the meaning set forth in Section 2.1(a)(III);

“Issuance Equity” has the meaning set forth in Section 4.1 of Schedule 1;

“Issuance Notice” has the meaning set forth in Section 4.2 of Schedule 1;

“Investing Parties” means AHK and the Investors (excluding Management Co.), and “Investing Party” means any of them.

“Investing Party Purchase Price” means the per-unit purchase price for the Registered Capital subscribed for by the Investing Party pursuant to this Agreement (as appropriately adjusted for any dividend or split upon restructuring into a joint stock corporation, or any securities or equivalents issued upon the public offering of shares of the Company in the PRC or an offshore stock market), which as of the date of this Agreement, shall be RMB 1.00 per unit of Registered Capital.

“Key Employees” means key employees identified before Closing, each of whose employment agreements are to be completed before Closing.

“Lead Investor” means Investor A.

“Licensed Items” has the meaning set forth in Section 3.1(f);

“Liquidation Committee” has the meaning set forth in Section 13.1(a);

“Liquidation Event” has the meaning set forth in Section 1.1 of Schedule 1;

“Liquidation Preference” has the meaning set forth in Section 1.1 of Schedule 1;

“New Investor’s Interest Rate” has the meaning set forth in Section 1.2 of Schedule 1;

“Notice Period of Redemption” has the meaning set forth in Section 7.3 of Schedule 1;

“Over-Allotment Issuance Equity” has the meaning set forth in Section 4.4 of Schedule 1;

“Party” and “Parties” has the meaning set forth in the Preamble;

“Person” means any individual, partnership, social organization, enterprise, company, association, trust, unincorporated organization or other entity or institution;

“Potential Purchaser” has the meaning set forth in Section 5.1 of Schedule 1;

“PRC” or “China” means the People’s Republic of China, for the purpose of this Agreement, excluding the Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan;

“PRC Accounting System” means the PRC Generally Accepted Accounting Principles;

“PRC Laws” means any published and effective PRC laws, administrative regulations, department rules and provisions and related local regulations, rules and provisions;

“Preemptive Rights” has the meaning set forth in Section 4.1 of Schedule 1;

“Preemptive Rights Holders” has the meaning set forth in Section 4.1 of Schedule 1;

“Proposed Transferee” has the meaning set forth in Section 3.2 of Schedule 1;

“Senior Management Personnel” has the meaning set forth in Section 7.1(d);

“Settlement Document” has the meaning set forth in Section 6 of Schedule 1;

“Shareholder” means a shareholder of the Company;

“Registered Capital” means the registered capital of the Company and any warrant, option, commitment or security convertible into, exchangeable or exercisable for the registered capital of the Company;

“Registration Authority” means the State Administration for Market Regulation of the PRC or its authorized local counterpart in charge of the registration of the Company;

“Remaining Transfer Equity” has the meaning set forth in Section 3.2 of Schedule 1;

“Renminbi” or “RMB” means the lawful currency of the PRC;

“Second ROFR Holder” has the meaning set forth in Section 3.2 of Schedule 1;

“Second Transfer Notice” has the meaning set forth in Section 3.2 of Schedule 1;

“Shareholders’ Meeting” means the supreme decision-making body of the Company, consisting of all of the Shareholders.

“Supervisors” has the meaning set forth in Section 6.1;

“Tag Along Equity” has the meaning set forth in Section 3.3 of Schedule 1;

“Tag Along Right” has the meaning set forth in Section 3.3 of Schedule 1;

“Technology License Agreement” has the meaning set forth in Section 3.1;

“Term” has the meaning set forth in Section 12.1;

“Transaction Documents” means (a) this Agreement, and (b) the Articles of Association of the Company.

“Transfer Equity” has the meaning set forth in Section 3.2 of Schedule 1;

“Transfer Notice” has the meaning set forth in Section 3.2 of Schedule 1;

“Transferring Party” has the meaning set forth in Section 3.2 of Schedule 1;

“U.S.” means the United States of America;

“U.S. Dollars” or “US$” means the lawful currency of the U.S..

1.2Rules of Interpretation

(a)Unless otherwise provided, all the terms, annexes and appendices referred to in this Agreement refer to the terms, annexes and appendices of this Agreement. “Of this Agreement”, “in this Agreement”, “under this Agreement” and other wordings with similar meaning used in this Agreement refer to this Agreement as a whole rather than any article or section of this Agreement.

(b)Reference to any document (including this Agreement) includes the amendment, supplement or replacement of that document from time to time.

(c)Reference to any Party includes any successor of its proprietorship or any permitted assigns.

(d)Reference to the singular includes the plural and vice versa; reference to any gender includes all the other genders.

(e)General words shall not be given a restrictive meaning by any particular examples introduced by “including”, “such as” or any similar expressions.

(f)The insertion of headings in this Agreement is for convenience of reference only and shall not define or limit the articles and sections of this Agreement.

ARTICLE 2SUBSCRIPTION AND TRANSFER OF REGISTERED CAPITAL

2.1Registered Capital

The Registered Capital of the Company shall be increased from RMB 200,000 to RMB 196,500,000 (“Capital Increase”). The Investing Parties and Management Co. agree to subscribe for and contribute the amounts of Registered Capital of the Company (each, a “Capital Contribution Amount”) as follows (the “Capital Contributions”):

(a)AHK agrees to subscribe for and contribute (including the features described below in Section 3.1(f)), RMB 79,230,000 representing 40.321% of the Registered Capital of the Company immediately after the Closing as described in Section 3.2 below, in which (I) RMB 77,330,000 will be contributed in-kind by way of a technology license for Licensed Items under the Technology License Agreement at appraised value, representing 39.354% of the Registered Capital of the Company immediately after the Closing (II) RMB 1,700,000 in cash will be contributed to the Company, representing 0.865% of the Registered Capital of the Company immediately after the Closing, and (III) RMB 200,000 in cash will be paid to Arteris Nanjing for the Initial Registered Capital of the Company that transferred earlier from Arteris Nanjing to AHK and representing 0.102% of the Registered Capital of the Company immediately after Closing (the “Initial Registered Capital Transfer”);

(b)SME agrees to subscribe for and contribute RMB 30,000,000 in cash, representing 15.267% of the Registered Capital of the Company immediately after Closing;

(c)Luojia agrees to subscribe for and contribute RMB 20,000,000 in cash, representing 10.178% of the Registered Capital of the Company immediately after Closing.

(d)Guinie agrees to subscribe for and contribute RMB 26,500,000 in cash, representing 13.486% of the Registered Capital of the Company immediately after Closing and

(e) Management Co agrees to subscribe for RMB 40,770,000 which representing 20.748% of the Registered Capital of the Company contributed on a timeframe preapproved by the Board after Closing, which shall be reserved for employees under an Employee Shares Option Plan (the “ESOP”) or another vehicle used for employee stock options, to be implemented after the Closing and administered by the Board.

2.2Timing of Capital Contribution

Subject to the provisions of Section 3.2 below, the Parties shall contribute their respective subscribed capital contributions to the Company as provided below.

ARTICLE 3CAPITAL CONTRIBUTION OF INVESTING PARTIES

3.1Closing Conditions.

The Investing Parties’ obligation to contribute their respective capital contributions to the Company as contemplated in Section 2.1 above will be subject to the satisfaction (or waiver in writing by the applicable Investing Party) of the following conditions (“Closing Conditions”):

(a)Each Lead Investor shall have completed its commercial, legal and financial due diligence investigation of the Company;

(b)Each of the Transaction Documents shall have been duly executed by the applicable parties thereto;

(c)Each Lead Investor’s investment committee if applicable shall have issued final approval for the Investor’s investment in the Company contemplated in this Agreement;

(d)All approvals and consents required to be obtained in connection with the Transaction from any third party, governmental authority, and the decision-making authority of the Company shall have been obtained;

(e)An employment agreement, proprietary rights assignment agreement, non-solicitation and non-competition agreement and non-disclosure agreement in a form and substance reasonably acceptable to each Lead Investor and AHK, which will has been duly signed and delivered by each Key Employees and the Company before the Closing Date.

(f)A technology collaboration and license agreement (the "Technology License Agreement”) satisfactory to AHK and the Company has been duly executed and delivered by the Company and AHK under which AHK shall have licensed to the Company a sufficient number of uses of the specific licensed products (collectively “Licensed Items”) noted below, so that the Company is able to conduct its SoC chip platform and automotive system-level IP business in automotive application(s) under terms including:

(i) A license agreement with a 5-year design term for FlexNoC v.4.x, FlexWay v.4.x, CodaCache 1.x, Ncore v.3.x and Resilience and AI package (without standalone licensing nor sublicensing rights) licensed by AHK to the Company (including nominal design license fees and no royalties, as set forth in the Technology License Agreement for such Licensed Items, which will be licensed in their current version and without upgrade rights absent mutual agreement) for a sufficient number of Company uses in the Company’s automotive semiconductor and automotive system IP designs for Company’s internal use. Support, training and enhancement arrangements will be jointly negotiated between the parties.

(ii) At the end of such initial term as indicated in preceding paragraph (i), AHK and Company shall upon Company’s election (and so long as Company is not in breach of the Technology License Agreement) enter into good faith discussions and execute a new license of the Licensed Items on substantially similar terms as the license in (i) with a new 5-year design term. Such new license shall not expand AHK’s Registered Capital in the Company in addition to AHK’s Registered Capital obtained under this Agreement.

(iii) Architecture designs and related technologies of CXL interchip link technology and support for the Company to complete the development of the IP family for interchip connections.

(iv) The technology for Automotive MLT Product for functional safety tracking so that the Company is able to support completion of the localization of China’s version of ISO 26262 for China projects including its compliance document generation, and necessary work to support Chinese National Standard equivalent to ISO 26262. Support and training arrangements will be jointly negotiated between the parties.

(v) A written document confirming the means of delivery of the Licensed Items through AHK, and confirming AHK’s legal authority to make such delivery;

(vi) Subject to (I) AHK and its licensors’ and affiliates’ underlying rights and ownership to the Licensed Items and intellectual property licensed under the Technology License Agreement and (II) the Company’s compliance with its commitments under this Agreement and Technology License Agreement, the Company’s independently developed intellectual property using the Licensed Items shall be owned by the Company.

(vii) Other items licensed to the Company by AHK set forth by the Technology License Agreement.

(g)An appraisal report with respect to the Licensed Items under the Technology License Agreement has been issued and made available to the Company by a qualified appraisal firm, and the appraised value thereof shall confirm the adequacy of AHK’s Capital Contribution Amount.

(h)The Licensed Items and those deliverables and separate files repositoried at the applicable AHK Licensed Technology’s country of origin under the Technology License Agreement shall have been prepared in electronic form and completely delivered by AHK or its designated Affiliate to the Company to download from AHK’s or its Affiliate’s FTP site.

(i)AHK and/or its U.S. affiliate shall have received from the Committee on Foreign Investment in the United States (the “CFIUS”), CFIUS Clearance. For the purpose of this Agreement, the “CFIUS Clearance” means that one or more of the following is applicable: (a) a final written notice or determination issued by CFIUS that it has determined that it will not exercise jurisdiction over the transaction contemplated under this Agreement; (b) a written notice or determination issued by CFIUS stating that CFIUS has concluded that the transaction contemplated under this Agreement does not constitute a “covered transaction,” pursuant to the Final Rule on Mandatory Declaration Provision (31 C.F.R. part 800); (c) a final written notice or determination issued by CFIUS that it has determined that there are no unresolved national security concerns with respect to the transaction contemplated under this Agreement, and has concluded all action under the Section 721 of the U.S. Defense Production Act of 1950 (as amended, including the implementing regulations thereof, codified at 31 C.F.R. part 800 and 801) (the “DPA”) or (d) either (i) the President of the Unites States shall have determined not to use his powers pursuant to the DPA to unwind, suspend, condition or prohibit the consummation of the transaction contemplated under this Agreement; or (ii) the period allocated for presidential action under the DPA shall have passed without any determination by the President.

(j)The board of directors of AHK and Arteris, Inc., which is AHK’s parent company, shall have approved the transactions contemplated hereunder.

3.2Closing

The closing of the Capital Contributions (“Closing”) shall occur no later than on the tenth (10th) Business Day (or another day as agreed by the Parties in writing; the day of the Closing agreed by the Parties is the “Closing Date”) following the fulfilment of all Closing Conditions (unless otherwise waived in writing by the applicable Investing Parties). For the avoidance of doubt, each Party shall complete its respective Closing agreed under this agreement independently and separately. If any Party fails to conduct the corresponding Closing, it shall not affect other Parties to complete their respective Closings under this agreement.

(a) On or before the Closing Date, each Investor shall pay its Capital Contribution Amount by wire transfer of immediately available funds to the bank account as notified by the Company to the Investors in writing.

(b) On or before the Closing Date or as soon as practicable under Chinese law but no later than the Closing Date, AHK shall (i) pay its Capital Contribution Amount of RMB

1,700,000 in cash by wire transfer of immediately available funds to the bank account as notified by the Company to AHK in writing; and (ii) pay RMB 200,000 in cash by wire transfer of immediately available funds to Arteris Nanjing for the Initial Registered Capital Transfer. To the extent required by Chinese law, AHK shall make any filings immediately following the Closing Date.

(c) Within ten (10) days after the Closing Date (or promptly after AHK’s completes its filings with the applicable PRC registration and foreign exchange authority(ies) but no later than the 10th day after the Closing Date, AHK shall then (I) contribute its Capital Contribution Amount in kind pursuant to the terms in Section 2.1(a) above under the Technology License Agreement and (II) cause to be assigned in writing to the Company by applicable affiliates of AHK, rights to the Transchip trademark and rights to the Transchip domain names.

(d) On the Closing Date and after the Company’s receipt of respective contributions, the Company shall deliver to each Investing Party the Company’s updated register of shareholders and an investment certificate issued by the Company, reflecting such Investing Party having contributed its Capital Contribution Amount and having become a shareholder holding the Registered Capital of the Company in the amount of the applicable Capital Contribution Amount.

(e) Promptly following the Closing Date, the Company shall, and the Shareholders shall cause the Company to, use its reasonable best efforts apply to the Registration Authority and any other applicable Chinese regulatory entities for filings and registrations with respect to the Capital Increase and the updated Articles of Association (as required by the PRC Laws).

(f) Management Co will subscribe to and hold the shares reserved for Company employees under the ESOP. Such ESOP is subject to the Board’s administration of the ESOP.

3.3Rights of the Investing Parties

The provisions of Schedule 1 will become effective, and the Investing Parties will enjoy the rights granted to them under Schedule 1, only upon completion of the Closing. Prior to the completion of the Closing, Schedule 1 will have no effect.

ARTICLE 4SHAREHOLDERS’ MEETING

4.1Quorum

Shareholders present in person or by proxy, which shall hold at least two thirds (2/3) of the voting rights of all Shareholders, shall constitute quorum for purpose of a meeting of the Shareholders’ Meeting.

4.2Resolution of Shareholders’ Meeting

The Shareholders shall exercise their voting rights at a meeting of the Shareholders’ Meeting in proportion to their respective contributions to the Registered Capital. Save for the matters to be resolved by special resolutions in Section 4.4, all matters to be decided by the Shareholders shall be resolved by ordinary resolution. To adopt an ordinary resolution, a simple majority of the voting rights of all Shareholders in attendance or by proxy, must be cast in favor of the resolution. To adopt a special resolution, two thirds (2/3) of the voting rights of all Shareholders must be cast in favor of the resolution.

4.3Ordinary Resolutions

The following matters shall be resolved by ordinary resolutions at a meeting of the Shareholders’ Meeting:

(a)determining the Company’s operational guidelines and investment plans;

(b)electing and changing the Directors and the Supervisors and determining matters relating to their salaries and compensation;

(c)approving the reports of the Board of Directors;

(d)approving the reports of the Supervisors;

(e)approving annual budgets and business plans of the Company, and any revisions thereof;

(f)approving profit distribution plans and loss recovery plans of the Company; and

(g)other matters to be decided the Shareholders (other than (a) through (f) above and the matters set forth in Section 4.4) as specified in this Agreement and the Articles of Association.

4.4Special Resolutions

The following matters shall be resolved by special resolutions at a meeting of the Shareholders’ Meeting:

(a)approving any amendment to the Articles of Association;

(b)approving any increase or reduction of the Company’s Registered Capital;

(c)approving termination and dissolution of the Company;

(d)approving any merger or division, or change of corporate form of the Company; and

(e)approving the establishment, adoption of, any change or amendment to the ESOP and the grant of options or incentives under the ESOP.

4.5The Initial Meeting of the Shareholders’ Meeting

The initial meeting of the Shareholders’ Meeting shall be convened and presided over by the person designated by Management Co. subject to China’s Company Law. The initial meeting of the Shareholders’ Meeting shall discuss and adopt resolutions with respect to the following matters:

(a)election of the first Board of Directors as per the provisions of this Agreement; and

(b)election of the Supervisors as per the provisions of this Agreement.

4.6Regular Meeting

A regular meeting of the Shareholders’ Meeting shall be held once (1) a year, and shall be convened by the Board and presided over by the Chairman. Where the Chairman is unable to or does not perform his or her function, the meeting shall be presided over by a Director designated in writing by the Chairman and/or preapproved by a majority of the Board.

4.7Interim Meeting

An interim meeting of the Shareholders’ Meeting shall only be held if proposed by the Shareholders representing ten percent (10%) or more of the voting rights, or by a

Supervisor. The interim meeting shall be presided over by the Chairman or a Director designated in writing by the Chairman and preapproved by a majority of the Board.

4.8Place and Method of Meeting

Each meeting of the Shareholders’ Meeting generally shall be held at the registered address of the Company or such other address in the PRC or abroad as is designated by the Chairman. A meeting of the Shareholders’ Meeting may be held by any method which allows all participants to hear and be heard simultaneously throughout the meeting, such as telephone, video-conferencing or other electronic communicating methods. Participation in the meeting through such method by a Shareholder shall be deemed presence in person by such Shareholder at the meeting.

4.9Attending the Meeting

Each Shareholder shall attend the Shareholders’ Meeting in person or by video or audio conference, or entrust other person(s) by proxy in writing to attend the meeting and exercise rights specified in the entrustment letter.

4.10Notice

Each Shareholder shall be given written notice by the Company at least fifteen (15) days before a meeting of the Shareholders’ Meeting is held.

4.11Meeting Minutes

The minutes of a Shareholders’ Meeting shall be taken by a Person designated by the Chairman. A transcript of such minutes shall be prepared by such designated Person in the Chinese and English languages and shall be delivered to each Shareholder as soon as reasonably practicable following such meeting of the Shareholders’ Meeting. The Shareholders shall sign or seal all resolutions duly adopted by the Shareholders’ Meeting and the minutes pursuant to this Agreement as soon as reasonably practical following the delivery of such resolutions or minutes to the Shareholders.

4.12Written Resolution

In lieu of a meeting of the Shareholders’ Meeting, a written resolution may be adopted by the Shareholders if such resolution is sent to all Shareholders and is affirmatively signed and adopted by all Shareholders. The written resolution shall be made in writing with the signatures or seals of all Shareholders. Such resolution shall be filed with the minutes of Shareholders’ Meetings and shall have the same force and effect as resolutions adopted by Shareholders present in person or by proxy at a duly convened meeting of the Shareholders’ Meeting.

ARTICLE 5BOARD

5.1Composition of the Board

The Board shall consist of three (3) (“Directors”), allocated as follows.

(a) AHK shall be entitled to nominate and appoint one (1) Director.

(b) The Lead Investor shall be entitled to nominate and appoint one (1) Director.

(c)The remaining one (1) Director shall be appointed by Management Co.

All persons appointed as Directors shall meet the qualification requirements for company directors as specified in PRC Laws. All Parties undertake to vote in favor of the candidates for Directors and Chairman as nominated by each Party pursuant to this provision to be elected on Shareholders’ Meeting.

5.2Term of Office

The term of each Director shall be three (3) years, and each Director shall be nominated by the Party to this Agreement that originally nominated such Director, on or prior to the conclusion of such Director’s then-current term. If a seat on the Board is vacated by the retirement, removal, resignation, illness, disability or death of a Director, the Party that originally nominated such Director shall be entitled to nominate a successor for election at the next relevant meeting of the Shareholders’ Meeting. The term of such successor Director shall end upon expiry of the term of the original Director. A Director may serve consecutive terms if nominated again by the Party who originally nominated that person and elected by the relevant meeting of the Shareholders’ Meeting. Any Director may resign at any time upon written notice to the Company and the Party who originally nominated that Director.

5.3Chairman

(a)The Chairman is the legal representative of the Company. The Chairman shall convene and preside over Board meetings, and exercise his or her powers within the limits given by the Board in accordance with this Agreement and the Articles of Association.

(b)When the Chairman is unable to perform his or her duties (including convening and presiding over Board meetings) for any reason, he or she shall appoint another Director to act on his or her behalf in accordance with China’s Company Law. If the Chairman further fails to appoint such Director, any Director elected by no less than half of the remaining Directors except the Chairman shall act on behalf of the Chairman until a new Chairman is elected by the Board.

5.4Board Meetings

(a)In each calendar year, the Board shall convene at least one (1) regular meeting to examine the operations and approve major matters of the Company. Upon written request of two (2) or more of the Directors, the Chairman shall convene an interim Board meeting to discuss relevant matters within ten (10) days after his or her receipt of such request. Board meetings may be attended by the Directors in person, or through television conference, video conference, tele-conference or other similar communication methods, so long as all attending Directors are able to hear each other and to communicate, and all such Directors are deemed to attend the Board meeting by presenting in this meeting in person.

(b)All Board meetings shall be convened and presided over by the Chairman. The Chairman shall give written notice of any Board meeting to each of the Directors at least ten (10) days prior to the meeting, which notice shall specify the time, place, agenda of the meeting and other documents related to such Board meeting (if any). Any Board meeting held without giving proper and timely notice to each of the Directors shall be invalid unless each of the Directors who did not receive proper and timely notice delivers a written waiver to the Chairman either before or after the meeting of the Board or attends the meeting. Board meetings shall be held at the registered address of the Company or such other place inside or outside the PRC as may be determined by the Chairman.

(c)Other details regarding Board meetings may be provided in the Articles of Association.

5.5Quorum and Adoption of Resolutions

(a)The quorum for a duly convened Board meeting shall include at least two-thirds (2/3) of the Directors present in person (including attending via television conference or tele-conference) or by proxy. In the absence of a quorum, any resolutions passed at a Board meeting shall be invalid and have no effect, subject to the following sentences if and when applicable. If the quorum is not present at any duly convened Board meeting, the Chairman (or another Director in accordance with Section 5.3(b)), shall send a notice to all Directors within two (2) Business Days to convene a second Board meeting (with the same agenda to be held at the same place as the first meeting) on or about the fifth (5th) Business Day after the first meeting, in accordance with the procedures provided in this Agreement and the Articles of Association, and so on until a quorum is present.

(b)If a Director is unable to attend a Board meeting for any reason, he or she may, so long as providing notice to the Chairman or Secretary prior to the Board meeting, appoint a proxy in writing to attend the meeting, who may be but not necessarily to be another Director of the Board. Any proxy so appointed shall have the same rights as the Director who appointed him or her, and one proxy may represent more than one Director. A proxy shall have one vote for each Director he or she represents and an additional vote if he or she is also a Director. The Chairman shall have the same right of one vote as accorded to each of the other Directors.

(c)Resolutions may be passed without a Board meeting if in writing and executed by the required Directors pursuant to Section 5.6 below, provided that the proposed resolution is delivered to each of the Directors. For such purposes, Directors may execute separate counterparts of identical written resolutions, which, taken together, shall constitute one valid set of written resolutions, and facsimile or email signatures of the Directors shall be valid and binding for such purposes. Such written resolutions shall have the same force and effect as resolutions adopted at a duly convened Board meeting.

5.6Powers of the Board

Except as reserved to the Shareholders’ Meeting, the Board shall have the power to manage and to direct the Senior Management Personnel and employees of the Company. The Board shall have the right to delegate authority to such Senior Management Personnel as the Board shall deem appropriate except for such authority that cannot be delegated according to the applicable laws. The Board shall decide on the following matters:

(a)provision of security or guarantee to a third party by the Company;

(b)appointment or dismissal and remuneration of the Senior Management Personnel;

(c)establishment or termination of subsidiaries, branches or other branch offices, or investment by the Company in any other entity or acquisition or disposal of any equity interest in any other entity;

(d)borrowing of any amounts involving value or amounts of more than RMB 1,000,000 in a single transaction or a series of related transactions (for the purpose of this Section 5.6, “a series of related transactions” shall mean a series of transactions (i) entered into with the same counterparty or its Affiliates, and (ii) regarding the same or related subject matter within a period of twelve (12) consecutive months);

(e)provision of any loans to organizations or individuals other than the Company;

(f)decisions on sales, transfers or other dispositions of any fixed assets and/or Company IP that is material to the business of the Company important business operated by the Company, the amount of which is or would exceed RMB 1,000,000 in a single transaction or a series of related transactions;

(g)selection and appointment of external auditor of the Company, subject to Article 9 below;

(h)any contract or other transaction to be entered into between the Company and any Party or its Affiliates involving value of RMB 5,000,000 or more in a single transaction or a series of related transactions;

(i)formulating the Company’s proposed annual budgets and business plans, for submission to the Shareholders’ Meeting for final approval;

(j)formulating the Company’s profit distribution plans and plans for making up losses, for submission to the Shareholders’ Meeting for final approval;

(k)formulating plans for the merger, division, change of corporate form or dissolution of the Company, for submission to the Shareholders’ Meeting for final approval;

(l)important rules and regulations of the Company, including without limitation financial system, investment management system, human resources and remuneration management system and market development system;

(m)matters relating to executive compensation and administration of the ESOP (including any grants and awards associated therewith); and

(n)other matters the Board has the right to determine in accordance with the applicable PRC Laws.

Unless otherwise provided in this Agreement, a decision on any matters specified in this Section 5.6 shall require the approval of affirmative votes of at least a majority of the Directors (including at least one (1) Director nominated by the Lead Investor) present in person or by proxy at a duly convened Board meeting or by an affirmative written resolution signed by at least a majority of the Directors (including at least one (1) Director nominated by the Lead Investor) in accordance with Section 5.5 above.

5.7Protective Provisions

Without limiting any other provisions in this Agreement, the Articles of Association and PRC Laws, the Company or its subsidiaries shall not, without the prior written consent or resolution from at least two-thirds (2/3) of the members of the Board, take or do or agree to take or do any of the following actions or transactions:

(a)Change in the principal business activities of the Company;

(b)Making or changing annual business plan and annual budget plan;

(c)Adoption or amendment of the Articles of Association, by-laws or any similar governing documents;

(d)Any change in accounting principles or policies materially or change auditors;

(e)Modification of the number of board of directors；

(f)Alternation or change in the rights, preferences or privileges of the Investing Parties, or provide other investors with any rights favorable than the Investing Parties;

(g)Transactions with any related or affiliated party;

(h)Making any guarantee for third parties;

(i)Any acquisition of part or all of the Company;

(j)Any corporate or product acquisition or merger activities;

(k)Any Company corporate reorganization, including divestiture or consolidation activities or resolutions;

(l)Any initial public offering of the Company;

(m)Any dividends or redemptions issued by the Company;

(n)Any new financing activity by the Company; and

(o)Any new stock issuance activity by the Company.

5.8Directors’ Remuneration and Indemnification

(a)The Directors are not entitled to receive any remuneration from the Company for their position as Directors of the Company, provided that reasonable costs incurred by Directors or their proxies in connection with attending Board meetings shall be reimbursed by the Company in Renminbi or U.S. Dollars based on vouchers permissible under the PRC Accounting System.

(b) Directors shall be indemnified by the Company from personal liabilities for acts performed in a normal manner within their respective capacities as such. After Closing, the Company shall enter into a standard indemnification agreement with the Directors, pursuant to which the Company will indemnify them, to the fullest extent possible under applicable PRC Laws, from and against any claim or charge brought against them, except for claims or charges resulting from acts or omissions of intent or gross negligence, fraud or serious dereliction of duties by the Director.

5.9Meeting Minutes of Board Meetings

The Board shall maintain complete and correct records of its meetings, including copies of all meeting notices to convene meetings. All Board meeting minutes and adopted resolutions shall be recorded by the secretary and/or assistant secretary appointed by the Board for a meeting designated by the Board and shall be circulated to all Directors within ten (10) days after the conclusion of each meeting. All Board resolutions shall be signed by all voting Directors, and Board meeting minutes shall be signed and approved by the Chairman and then filed by the secretary and kept in the Company Board meeting minutes books. The appointment and replacement of Directors shall be recorded in the Board meeting minutes books.

ARTICLE 6SUPERVISORS

6.1Appointment of Supervisors

The Company shall have two (2) supervisors (“Supervisors”). Each of AHK and Investor A is entitled to nominate one (1) Supervisor for the Company. Both Parties undertake to vote in favor of the candidates for Supervisors as nominated by each Party pursuant to this provision to be elected on Shareholders’ Meeting. The Directors and Senior Management Personnel of the Company shall not act as the Supervisors of the Company. Each Supervisor shall be appointed for a term of three (3) years and may serve consecutive terms if reappointed by the Party that originally appointed him or her. The Supervisors are not entitled to receive any remuneration from the Company for their position as Supervisors of the Company. Reasonable costs incurred by Supervisors or their proxies in connection with attending Board meetings shall be reimbursed by the Company in Renminbi or U.S. Dollars based on vouchers permissible under the PRC Accounting System.

6.2Powers of Supervisors

A Supervisor shall exercise the following powers:

(a)examine the financial status of the Company;

(b)supervise Directors’ and Senior Management Personnel’s behaviors to carry out his/her duties for the Company, and advise to dismiss any Director or Senior Management Personnel who violates any laws, the Articles of Association or any Board resolution;

(c)when the behaviors of Directors and Senior Management Personnel damage the interest of the Company, request the Director and Senior Management Personnel to rectify such behavior;

(d)make proposals in furtherance of Supervisor powers at or in connection with a Board meeting; and

(e)bring lawsuits against the Directors and Senior Management Personnel pursuant to Article 151 of the Company Law of the People’s Republic of China, as amended.

The Supervisors may attend Board meetings as observers.

ARTICLE 7OPERATION AND MANAGEMENT ORGANIZATION

7.1Management System

(a)The Company shall have one (1) general manager (“General Manager”), who shall be appointed by the Board. The day-to-day management and operation of the Company shall be carried out by the General Manager in accordance with the policies adopted by the Board from time to time. The General Manager will be the CEO of the Company. The General Manager shall be directly responsible to the Board.

(b)The term of office of the General Manager shall be three (3) years and he/she can serve consecutive terms upon re-appointment. The General Manager may be dismissed and replaced by the Board upon thirty (30) days’ notice.

(c)The Company shall have one (1) chief financial officer (“CFO”) who shall be in charge of matters of finance, accounting, financial reporting to the Board and

shareholders, internal control and tax. The CFO will be nominated by AHK, and shall be approved and appointed by the Board.

(d)The General Manager, CFO and any other personnel of the Company who are required to be senior management personnel of the Company under the PRC Laws, regulations, rules or as per the requirements of the regulatory authorities or departments (“Senior Management Personnel”) shall be appointed by the Board based on market-oriented principles.

7.2Powers and Responsibilities of the General Manager

The powers and responsibilities of the General Manager shall consist of the following:

(a)implementation of the resolutions adopted by the Board from time to time;

(b)reporting to the Board on the operation of, and matters of major importance to, the Company;

(c)preparation and submission to the Board of operational reports concerning the business, marketing, capital expenditure, personnel and other operational matters of the Company;

(d)within the powers delegated by the Board, negotiation, execution, amendment and implementation of business contracts and other contracts with third persons;

(e)formulation, amendment and submission to the Board of the rules and regulations required for the operation of the Company, including but not limited to internal employees management rules and regulations, confidentiality system, bonuses and welfare or benefit plans of the Company, which shall be implemented upon approval by the Board;

(f)suggestion to Board of the nomination and remuneration of the Senior Management Personnel (except for the General Manager), and determination of the employment, appointment and dismissal of other employees of the Company, and determination of the salaries, rewards, promotion and sanctions for employees in accordance with the Company’s employment policies;

(g)preparation and submission to the Board of proposals for an organizational structure suitable for the Company’s operations, the establishment of various departments and their responsibilities and functions, which shall be implemented upon approval by the Board;

(h)the daily management and direction of all the Company’s employees, including without limitation those engaged in the activities of marketing, sales and services; and

(i)all other responsibilities entrusted to him or her by the Board from time to time or necessary for the normal operation of the Company.

ARTICLE 8 CONFIDENTIALITY

8.1Confidentiality

Each Party shall maintain the secrecy and confidentiality of any information of the following (“Confidential Information”):

(a)the business or asset of the Company, the other Parties or its Affiliates;

(b)the existence and content of this Agreement; and

(c)all information provided by the other Party pursuant to this Agreement.

Each of the Parties and the Company receiving Confidential Information shall:

(a)limit the access to the Confidential Information to only such directors, senior management personnel and employees as are necessary for the implementation of this Agreement;

(b)not disclose, directly or indirectly, any Confidential Information to any third Person; and

(c)not use any Confidential Information for any purpose other than for the implementation of this Agreement or any ancillary contracts or agreements hereto.

Except for situations set forth in Section 8.2, none of the Parties may use or disclose any Confidential Information to any third party for its own business purpose or other purposes without the other Party’s prior written consent.

8.2Exceptions

The confidentiality obligations under Section 8.1 above shall not apply to:

(a)confidential communications to the Parties’ respective Affiliates, directors, senior management personnel, employees, agents, professional advisors or financing party that are under an equivalent confidentiality obligation necessary for the implementation of this Agreement of a Party;

(b)disclosure required to be made by applicable law; provided, however, that the Party subject to such requirement shall promptly notify the Party who disclosed the Confidential Information of such requirement to the extent of practically permissible and gives it reasonable opportunity to oppose such disclosure;

(c)information which has become public knowledge through no fault of any Party or the Company; and

(d)any information which was disclosed to the receiving party in good faith by a third Person who is not subject to any confidentiality obligation.

8.3Measures of Protection

(a)Each of the Parties and the Company shall advise its directors, senior management personnel, employees, agents, professional advisors or financing party having access to any Confidential Information of the existence and the requirements of Section 8.1 and shall formulate rules and regulations to cause its directors, senior management personnel, employees, agents, professional advisors or financing party and the directors, senior management personnel, employees, agents, professional advisors or financing party of its Affiliates to comply with the confidentiality obligations set forth in Section 8.1. Each of the Parties and the Company shall sign a confidentiality agreement with each of its directors, senior management personnel, employees, agents, professional advisors or financing party who may have access to any Confidential Information (confidentiality clauses in executed labor contracts, agency contracts, subcontracts or any other contracts or agreements with such personnel, which cover the Confidential Information, shall be considered as having executed such confidentiality agreement).

(b)In addition, without prejudice to the generality of the provisions of Section 8.1 above, each of the appointees or nominees to the Company from each Party (including without limitation the Chairman and Directors) shall not use or disclose any Confidential Information which may become known to him or her

in his or her involvement in the investments or investment decisions or business activities relating to the Party which appointed or recommended him or her or any of its Affiliates.

8.4Breach

If, without the prior written consent of the Party providing the Confidential Information or the Company, any Party discloses or permits or allows to be disclosed any Confidential Information to any unauthorized third Person, such Party shall be in breach of this Agreement and shall indemnify and hold the other Party and/or the Company thus affected harmless in accordance with applicable law and this Agreement.

8.5Survival

The provisions and obligations under this Article 8 shall survive within two (2) years of the expiry or termination of this Agreement, and shall continue to be binding on the Parties, the Company and their respective permitted assigns and successors.

ARTICLE 9FINANCE, AUDIT AND DISTRIBUTION OF PROFIT

9.1Financial and Accounting System

(a)The Company shall establish its financial and accounting systems in accordance with the PRC Accounting System and other applicable PRC Laws, which shall be submitted to the Board for approval.

(b)The Company shall adopt the accrual basis and debit and credit method for bookkeeping and shall separately prepare complete and accurate monthly, quarterly and annual financial statements in accordance with the PRC Accounting System.

(c)The Company shall adopt the Gregorian calendar year as its fiscal year, commencing on January 1 and ending on December 31 of each year. The first fiscal year of the Company shall begin on the Establishment Date and end on December 31 of the same year.

(d)Renminbi shall be the Company’s bookkeeping currency. For cash, bank deposits, funds, credits and debts, gains and expenses that are not in Renminbi, the Company shall also enter the currencies actually paid and received in its bookkeeping.

(e)The depreciation period of the fixed assets of the Company shall be decided by the Board in accordance with the then applicable PRC Laws.

9.2Auditing

The Company shall hire a Big Four accounting firm (Deloitte, Ernst & Young, KPMG or PwC) with securities business qualifications in the PRC as its external auditor for annual auditing. The external auditor shall audit the Company’s accounts and issue an audit report in accordance with the PRC Accounting System, which shall be submitted by the Company to the Board for approval. the Company shall provide the external auditor with all documents and books necessary for the external auditing.

9.3Information and Inspection Rights

(a)For as long as the Investing Parties continue to hold the shares of the Company, the Company shall deliver to each Investing Party (i) unaudited quarterly

consolidated financial statements and business reports, which shall be delivered to the Investors no later than 30 days after the end of each quarter, (ii) key Company metrics (to be determined based on the Investing Parties’ and the auditor’s feedback) by the end of the calendar month preceding the end of each quarter, (iii) unaudited annual financial statements and business reports, which shall be within 30 days after the end of each financial year, (iv) audited annual consolidated financial statements prepared by a recognized accounting firm within 60 days after each financial year ends, (v) an annual operating plan and budget which shall be approved by the Board/Shareholder Meeting (within their respective authority limits) and delivered to the Investors no later than 45 days prior to the beginning of each fiscal year, and (vi) other information relating to the Company as reasonably requested by the Investing Parties.

(b)Without affecting the Company’s normal operations, the Investing Parties shall be entitled to standard inspection rights to the facilities, assets, book and record of the Company and its subsidiaries. The Investing Parties shall be allowed to discuss the business, operations and other aspects of the Company and its subsidiaries with the managers, employees, accountants, legal counsel and the investment bankers.

9.4Distribution of Profits

(a)The distribution of the Company’s profits shall depend upon the available surplus of the Company’s profits and liquidity, as resulting from the Company’s financial statements approved by the Shareholders’ Meeting for each fiscal year. Any distribution of the Company’s profits shall be in accordance with the profit distribution plan approved by the Shareholders’ Meeting and in proportion to the shareholding of each Party. For the sake of clarity, Investors are not obligated to pay dividends that they had received to other Shareholders.

9.5Budgets and Business Plans

The Company shall operate in accordance with the annual budgets and business plans approved by the Shareholders’ Meeting.

ARTICLE 10REPRESENTATIONS AND WARRANTIES OF THE PARTIES

10.1 Each Party hereby represents and warrants to the other Parties as follows:

(a)It is a legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation;

(b)It has full legal right, power and authority to execute, deliver and perform this Agreement and all of the contracts and documents referred to in this Agreement to which it is a party;

(c)It has obtained or will obtain within 90 days from the Closing Date, all legally required, governmental or third Person consents, approvals ( and CFIUS Clearance shall have been obtained prior to the Closing Date) and authorizations necessary for the valid signing, delivery and performance of this Agreement and all of the contracts and documents referred to in this Agreement to which it is a party, and this Agreement shall constitute legal, valid and binding obligations of it, enforceable against it in accordance with its terms;

(d)Neither the signing and performance of this Agreement nor the consummation of the transactions contemplated hereby shall violate, result in a breach of any material term or provision of, or constitute a default under, any articles of association or any contract, agreement, law or regulation to which it is a party or by which it is bound; and

(e)There is no lawsuit, arbitration or other legal proceeding pending or threatened against it with respect to the subject of this Agreement or that would affect in any way its ability to enter into or perform this Agreement.

10.2 AHK hereby represents and warrants to the Investors that AHK and/or its Affiliates shall have the power and right to license to the Company all the Licensed Items under Section 3.1(f) and pursuant to the Technology License Agreement. To the knowledge of AHK, entrance into and performance of the Technology License Agreement has not and will not violate or infringe upon any other entity’s right relating to the Licensed Items.

ARTICLE 11 ADDITIONAL COVENANTS

11.1Non-Competition

Following the Closing Date, until the earlier of the expiry of the Term or early termination of this Agreement pursuant to its terms, without the prior written approval of the Investing Parties, AHK, AHK’s worldwide Affiliates, and Management Co shall not operate or conduct any business that competes directly with the automotive SoC business (which is namely the design and delivery of entire SoCs or entire SoC platforms) of the Company and its subsidiaries, including but not limited to establishing a joint venture with any third party, or entering into a strategic cooperation agreement.

Absent the express prior written permission of AHK and AHK’s applicable Affiliates, the Company shall not directly or indirectly enter or enable or cause third parties to enter, in any way, the interconnect IP and/or interchip link licensing business.

The Key Employees shall devote their full working time to the conduct and development of the business of the Company, protecting the interest of the Company. Without the prior written approval of all the Investing Parties, no Key Employee or his/her affiliates or family members shall, directly or indirectly, own, manage, operate, conduct, consult, render services for, or participate in any entity whose business may compete with the business of the Company.

11.2Export Control

Upon the execution of this Agreement, the Parties shall collaborate with each other to conduct an initial analysis on whether the Company’s technologies and products are subject to any export control requirements. In the event that the initial analysis indicates so, the Parties shall discuss in good faith for a viable solution.

ARTICLE 12TERM AND TERMINATION OF THE COMPANY

12.1Term of the Company

The term of the Company shall be twenty (20) years (“Term”) from the Establishment Date.

12.2Events of Termination

(a)This Agreement will terminate automatically upon expiration of the Term.

(b)This Agreement may be terminated prior to the expiry of the Term (absent mutual agreement by the Lead Investor and AHK under separate written agreement):

(i)by the Parties upon their mutual agreement; or

(ii)by a Lead Investor, if the Closing Conditions set forth under Section 3.1 shall have not been satisfied or waived in writing by such Lead Investor on or before March 31, 2022, provided that if not all the Lead Investors elect

to terminate this Agreement, this Agreement shall remain effective and binding upon the remaining Lead Investor and the other Parties; or

(iii)by AHK, if all Closing Conditions have been satisfied or waived on or before March 31, 2022 but the Lead Investors fail to fund and transfer their Capital Contribution Amount to the Company’s bank account; provided that this (iii) shall not apply if a Lead Investor or another Investor(s) acceptable to AHK funds and transfers a Capital Contribution Amount making up for aggregate unfunded Investor obligations.

12.3Shareholders’ Meeting to Discuss Termination and Dissolution

(c)Upon the occurrence of any of the events of termination enumerated in Section 12.2 above, any Party may request that a meeting of the Shareholders’ Meeting be convened to discuss the termination of this Agreement. The Board must convene a meeting of the Shareholders’ Meeting within ten (10) days of the receipt of that request in accordance with the provisions regarding Shareholders’ Meeting.

(d)At the meeting of the Shareholders’ Meeting, if the Shareholders are unable to reach any other solution acceptable to the Shareholders, the Shareholders may vote to dissolve and liquidate the Company.

12.4Dissolution due to Termination

Upon a termination pursuant to Sections 12.2 and 12.3 above, the Company shall be liquidated and dissolved, and the Shareholders shall liquidate the Company in accordance with ARTICLE 13, the applicable PRC Laws and the provisions of this Agreement.

ARTICLE 13DISSOLUTION AND LIQUIDATION

13.1Liquidation Committee

(a)If the Company is to be liquidated in accordance with Section 12.4, the Parties shall establish a liquidation committee (“Liquidation Committee”) pursuant to PRC Laws. The costs and expenses of the Liquidation Committee shall be paid by the Company.

(b)Upon completion of the liquidation of the Company, the Liquidation Committee shall prepare a liquidation report, which shall be submitted to the Shareholders’ Meeting for confirmation, and the Company shall then complete the de-registration procedures with the Registration Authority.

13.2Principles of Liquidation

The Liquidation Committee shall conduct an overall inspection and stock take of the Company’s assets, creditors’ rights and liabilities, prepare a balance sheet and assets inventory, put forward the basis on which the Company’s assets are to be valued and computed, and apply the assets of the Company to satisfy the Company’s liabilities. Thereafter, the remaining assets of the Company shall be distributed to the Parties in accordance with Section 1 of Schedule 1; provided, however, that any cash or assets to be distributed to the Breaching Party shall be used with priority to pay for the damages payable by the Breaching Party to the non-breaching Party.

13.3Survival

In case of a termination of this Agreement, none of the Parties shall be relieved from any obligation and responsibilities towards the Company or the other Party until the date of the resolution of the Shareholders’ Meeting to liquidate the Company.

ARTICLE 14 INDEMNIFICATION

14.1Indemnification for Breach

If a non-breaching Party (or both) (“Indemnitees”) suffers any expense, liability or loss, (including lost profits of the Company but excluding any other indirect or consequential losses of any nature) as a result of a breach of this Agreement, the breaching Party (“Indemnifying Party”) shall indemnify and defend the one or more Indemnitees against all demands, claims, Proceedings, and losses, including third-party claims.

14.2Damages for Breach

Each Party acknowledges that any breach of the covenants contained in this Agreement would cause irreparable injury so that damages and remedies under PRC Law for any breach of any such covenant would be inadequate. The remedies provided under this Article 14 will be non-exclusive and the Indemnitees will be free to pursue all remedies available at Law or otherwise against the Indemnifying Parties, including for injunction and liquidated damages.

ARTICLE 15 GOVERNING LAW AND DISPUTE RESOLUTION

15.1Applicable Law

The formation, validity, interpretation, execution of this Agreement and settlement of any Disputes arising hereunder shall be governed by and in accordance with the PRC Laws.

15.2Dispute Resolution

Any dispute, controversy or claim arising under or relating to this Agreement, or any breach hereof (collectively the “Disputes”) shall be resolved through amicable negotiation by the Parties. If the Dispute is not resolved through negotiation within thirty (30) days of its occurrence, any Party may submit the Dispute to arbitration in accordance with the provisions of Section 15.3.

15.3Arbitration

(a)Any Dispute that is not resolved in accordance with Section 15.2 shall be settled by final arbitration binding upon the Parties in Shanghai at the Shanghai International Economic and Trade Arbitration Commission by an arbitration tribunal in Shanghai, China in accordance with the then effective arbitration rules of the Shanghai International Economic and Trade Arbitration Commission.

(b)The arbitration proceedings shall be conducted in English and Chinese, using qualified translators. The Parties shall use their best efforts to effect the prompt execution of any such award and shall render whatever assistance as may necessary to this end. The arbitral reward shall be enforced by any court of competent jurisdiction, if necessary.

(c)The losing Party shall be responsible for the costs of the Shanghai International Economic and Trade Arbitration Commission, the fees of the arbitrators, fees and

expenses of the arbitration proceedings and all costs and expenses in relation to the enforcement of any arbitral award, including reasonable attorneys’ fees and expenses.

15.4Continued Performance

During the period when a Dispute is being resolved, the Parties shall continue to perform this Agreement except for the matters in dispute.

ARTICLE 16 MISCELLANEOUS PROVISIONS

16.1Effectiveness of this Agreement

This Agreement shall become effective and binding upon the Parties on the date of signing by duly authorized representatives of the Parties.

16.2Entire Agreement

This Agreement, together with the schedules and annexes, constitutes the entire agreement of the Parties with respect to the subject matter hereof, and shall supersede all previous oral or written agreements, contracts, letters of intent, undertakings and communications between the Parties with respect to the subject matter hereof.

16.3Language

This Agreement is written in English, with a Chinese translation. The languages will be interpreted consistently. The English language will prevail if strictly necessary to make a final interpretation.

16.4Amendment

Any amendment to this Agreement shall come into force only after a written agreement is signed by the duly authorized representatives of each of the Parties.

16.5Severability

If any term or provision of this Agreement shall be held to be invalid or unenforceable in whole or in part under any applicable law, it shall be excluded from this Agreement (to the extent of such invalidity or unenforceability only), and all other terms and provisions of this Agreement shall continue to be in full force and effect. Under such circumstances, the Parties shall use their best efforts to implement both the letter and spirit of this Agreement and replace the invalid or unenforceable term or provision with a valid and enforceable term or provision that corresponds as far as possible to the spirit and purpose of the invalid or unenforceable term or provision.

16.6Parties in Interest

This Agreement shall be binding on and inure to the benefit of the Parties and to their respective successors and administrators, as well as to their assigns where a Party’s interests in the Company are assigned in accordance with law and the terms and conditions hereof.

16.7Costs and Expenses

Any costs, expenses or fees of any nature incurred by a Party in connection with the preparation and execution of this Agreement and the Articles of Association shall be borne by the incurring Party; provided further that, the Company shall at its own cost make any notification to or filing to the Registration Authority for filings and registrations with respect to the Capital Increase and the updated Articles of Association (as required by the PRC Laws) contemplated by this Agreement. Amounts approved by the Board may in connection with such approval, be auditable by the Board.

16.8Waiver

No delay or failure by a Party to this Agreement to exercise any of its powers, rights or remedies under this Agreement shall be construed as a waiver of any of them, nor shall any single or partial exercise of any such powers, rights or remedies preclude any other. Any waiver by a Party of any provision of this Agreement shall not be construed as a waiver of any other provisions of this Agreement, nor shall such waiver be construed as a waiver of such provision with respect to any other event or circumstances, whether past, present or future. Further, the remedies provided in this Agreement are cumulative and not exclusive of any provided by law.

16.9No Agency

Nothing in this Agreement shall be construed so as to constitute a Party the agent or partner of another Party. On no account may a Party create (or hold itself out to third Person as being able to create) any binding obligation on behalf of another Party without the prior written consent of such other Party.

16.10Notices

Communications between the Parties, notices and documents of the Board and such other notices and financial reports of the Company as provided for herein shall be sent to each of the Parties and to the Company at their respective addresses set forth below, in each case by (i) personal delivery, (ii) prepaid airmail, (iii) prepaid air courier, or (iv) email. All such notices shall be deemed to have been given or received (i) upon receipt if personally delivered, (ii) on the tenth (10th) day after it is sent if delivered by airmail, (iii) on the fifth (5th) day after delivery to an internationally recognized courier service if delivered by air courier, (iv) twenty-four (24) hours following transmission by facsimile with confirmed successful answer back, if delivered by facsimile, and (v) upon receipt on the email system of the receiving Party, if delivered by email.

(a)In the case of AHK to:

Arteris HK Limited

Address: 26/F Three Exchange Square 8 Connaught Place Central Hong Kong

Attention: K. Charles Janac

Email [***]

(b)In the case of SME (Investor A) to:

SME Development (Shaoxing) Venture Fund, LLP 中小企业发展基金（绍兴）股权投资合伙企业（有限合伙)

Address: 11th Floor, Building 1, No. 1158 Zhangdong Road, Pudong New Area, Shanghai, P.R. China

Attention: Mr. Cangbo Zhao; Mr. Sen Zhao

Email: [***]

(c)In the case of Luojia (Investor B) to:

Jiaxing Luojia Chuangzhi Investment Partnership Enterprise (Limited Partnership) 嘉兴珞珈传智股权投资合伙企业（有限合伙)

Address: 26th Floor, Block A, Poly Plaza, No. 99 Zhongnan Road, Wuchang District, Wuhan, Hubei Province, P.R. China

Attention: Mr. Geng Lin; Ms. Huan Guo

Email: [***]

(d)In the case of Guinie (Investor C), to:

Gongqing City Guinie Zhuyu No. 3 Investment Partnerhip (Limited Partnership) 共青城圭臬珠玉三号投资合伙企业（有限合伙)

Address: Room 1703, Block B, Jinhui Global Center, Gong-jian Road, Yanta District, Xi 'an, Shaanxi Province, P.R. China

Attention: Zixi Yao

Email: [***]

(e)In the case of Management Co to:

Ningbo Transchip Information Consulting Partnership (Limited Partnership) 宁波传智驿芯信息咨询合伙企业（有限合伙)

Address: 107-6, 1F, No. 69, Dagang Second Road, Xinqi street, Beilun District, Ningbo City, Zhejiang Province, P.R. China

Attention: Zheng Wu

Email: [***]

(f)In the case of Arteris Nanjing to:

Arteris Semiconductor Technology (Nanjing) Co., Ltd. 安通思半导体技术(南京) 有限公司

Address: Room 1821, Fuying Building, No. 99, Tuanjie Road, Yanchuang Park, Jiangbei New Area, Nanjing, Jiangsu Province, P.R. China

Attention: K. Charles Janac

Email: [***]

(g)In the case of the Company to:

TransChip Technology (Nanjing) Co., Ltd. 传智驿芯科技（南京）有限公司

Address: Room 2307, Fuying Building, No. 99, Tuanjie Road, Yanchuang Park, Nanjing area, China (Jiangsu) pilot Free Trade Zone, P.R. China

Attention: K. Charles Janac

Email: [***]

During the term of this Agreement, any Party may change its address from time to time, provided that the other Parties will be notified in writing of that change promptly.

16.11Publicity

No Party shall make any declarations, announcements, or disclosures to the public with respect to this Agreement without the prior written consent of the other Parties.

16.12 Logo Usage

Names and logos of Investors shall not be used by other Parties to this Agreement absent the prior consent of the applicable Investor.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their representatives, duly authorized hereunto, on the date first above written.

Arteris HK Limited

By: /s/ K. Charles Janac

Name: K. Charles Janac

Title: Authorized Representative

Signature page to the Share Purchase and Shareholders Agreement

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their representatives, duly authorized hereunto, on the date first above written.

SME Development (Shaoxing) Venture Fund, LLP

中小企业发展基金（绍兴）股权投资合伙企业（有限合伙)

By: /s/ Mr. Yuwang Sun

Name: Mr. Yuwang Sun

Title: Representative Delegated by its General Partner

Signature page to the Share Purchase and Shareholders Agreement

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their representatives, duly authorized hereunto, on the date first above written.

Jiaxing Luojia Chuangzhi Investment Partnership Enterprise (Limited Partnership) 嘉兴珞珈传智股权投资合伙企业（有限合伙)

By: /s/ Mr. Geng Lin

Name: Mr. Geng Lin

Title: Representative Delegated by its General Partner

Signature page to the Share Purchase and Shareholders Agreement

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their representatives, duly authorized hereunto, on the date first above written.

Gongqing City Guinie Zhuyu No. 3 Investment Partnership (Limited Partnership)

共青城圭臬珠玉三号投资合伙企业（有限合伙)

By: /s/ Mr. Zixi Yao

Name: Mr. Zixi Yao

Title: Representative Delegated by its General Partner

Signature page to the Share Purchase and Shareholders Agreement

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their representatives, duly authorized hereunto, on the date first above written.

Arteris Semiconductor Technology (Nanjing) Co., Ltd. (安通思半导体技术南京)有限公司)

By: /s/ K. Charles Janac

Name: K. Charles Janac

Title: Legal Representative

Signature page to the Share Purchase and Shareholders Agreement

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their representatives, duly authorized hereunto, on the date first above written.

Ningbo Transchip Information Consulting Partnership (Limited Partnership)

宁波传智驿芯信息咨询合伙企业（有限合伙）

By: /s/ Mr. Zheng Wu

Name: Mr. Zheng Wu

Title: Representative Delegated by its General Partner

Signature page to the Share Purchase and Shareholders Agreement

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their representatives, duly authorized hereunto, on the date first above written.

Transchip Technology (Nanjing) Co., Ltd.

传智驿芯科技（南京）有限公司

By: /s/ K. Charles Janac

Name: K. Charles Janac

Title: Legal Representative

Signature page to the Share Purchase and Shareholders Agreement

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Schedule 1 Rights of the Investing Parties

1.Liquidation Preference

1.1 In the event of any Liquidation Event (as defined below), all assets and funds legally available for distribution to the Shareholders shall be distributed as follows:

(a)FIRST, prior to and in preference to any distribution of any of the assets and funds to any Shareholders other than the Investing Parties that made Capital Contributions, each Investing Party that made Capital Contributions shall be entitled to receive an amount, the price per unit of equity of which is equal to the Investing Party Purchase Price, plus a simple interest rate of 8% per annum from the date of the Closing until the full payment of the total liquidation preference amount, plus declared but unpaid dividends on the equity interests held by such Investing Party (the “Liquidation Preference”);

(b)SECOND, the remaining assets and funds legally available for distribution to the Shareholders shall be distributed ratably among all the Shareholders (including the Investing Parties) in proportion to the equity interests held by them.

A “Liquidation Event” shall be deemed to have occurred upon: (a) liquidation, dissolution or winding up of the Company, (b) any consummated merger, amalgamation, acquisition, or other business combination in which the Shareholders owning a majority of the voting power or voting stock of the Company immediately prior to such transaction do not own a majority of the voting power or voting stock of the Company, or (c) any sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the Company and its subsidiaries (taken as a whole).

1.2 In the event of any new equity financing by the Company after the Closing Date in which any new investor is entitled to receive a liquidation preference equal to the investment amount paid by such new investor, plus declared but unpaid dividend on the equity interests held by such new investor and further plus annual interest at a certain interest rate ("New Investor’s Interest Rate”), then the Investing Party’s Liquidation Preference hereof shall be automatically amended and equal to an amount, the price per unit of equity of which is equal to the Investing Party Purchase Price, plus declared but unpaid dividends on the equity interests held by such Investing Party, and further plus an annual interest at the New Investor’s Interest Rate.

2. Dilutive Issuance

2.1 Dilutive Adjustment. If at any time, the Company issues or sells any additional Registered Capital to any third party for a per-unit consideration that is less than the Investing Party Purchase Price (“Dilutive Issuance”), then simultaneously with or immediately after such issuance or sale of additional Registered Capital, an Investing Party shall be entitled to require the Company to issue to such Investing Party an additional number of units of Registered Capital determined by the following formula (as calculated below, “Dilutive Equity”):

Dilutive Equity = (Investing Party Registered Capital × IPP1 ÷ IPP2) – Investing Party Registered Capital

For the purposes of the foregoing formula, the following definitions will apply:

(a) “Investing Party Registered Capital” means the total units of Registered Capital held by the Investing Party immediately prior to the Dilutive Issuance;

(b) “IPP1” means the Investing Party Purchase Price in effect immediately prior to the Dilutive Issuance;

(c) “IPP2” means the Investing Party Purchase Price in effect immediately after the Dilutive Issuance as determined through the following formula:

IPP2 = IPP1* (A + B) ÷ (A + C)

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In this formula:

“A” means the total number of units of all Registered Capital immediately prior to the Dilutive Issuance;

“B” means the number of units of Registered Capital that would have been issued if the New Equity had been issued at the Investing Party Purchase Price; and

“C” means the total number of units of New Equity issued in the Dilutive Issuance.

2.2 Deemed Issuances of Registered Capital. In the case of the issuance of any option, the following provisions will apply for all purposes of this Section 2:

(a)The aggregate maximum number of units of Registered Capital deliverable upon exercise of any option will be deemed to have been issued at the time such option was issued, and for consideration equal to the consideration, if any, received by the Company upon the issuance of such option, plus the minimum exercise price provided in such option for number of units of Registered Capital covered thereby.

(b)If there is any change in the number of units of Registered Capital deliverable, or in the consideration payable to the Company, upon exercise of such option, including a change resulting from the Dilutive Issuance provisions thereof, the Investing Party Purchase Price, to the extent that it is in any way affected by or computed using such option, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of units of Registered Capital or any payment of such consideration upon the exercise of any such option.

(c)Upon the expiration or termination of any such option, the Investing Party Purchase Price shall, to the extent in any way affected by or computed using such option, be recomputed to reflect the issuance of only the number of units of Registered Capital actually issued upon the exercise of such option.

3. Transfer of Equity Interest

3.1 Transfer Restrictions. Without the prior written consent of the Lead Investors, within two (2) years of the Closing Date, neither AHK nor Management Co. may, directly nor indirectly, sell or transfer any equity interest in the Company (including but not limited to, transfer of the equity interest or its right of entitlement, issuance of any securities that may result in the transfer of the equity interest or its right of entitlement, entering into any arrangement that may result in change of control of the entity holding the equity interest in the Company, or creation of any trust, pledge or other arrangement over the equity interest or its right of entitlement that may result in change of control of the entity holding the equity interest in the Company), pledge any equity interest in the Company or otherwise create any third party rights on the equity interest of the Company. Notwithstanding the above and Section 3.2 below, a Shareholder may transfer any or all of its equity interest in the Company to any of its Affiliates, and each Shareholder hereby irrevocably consents to and shall cause the Director(s) nominated by it to the Board to vote in favor of, such transfer. If any Shareholder transfers its equity interest in the Company in accordance with provisions of this Agreement and the Articles of Association, the assignee (including Affiliates of any Party) shall accept all terms and conditions of this Agreement in writing, unless otherwise agreed in writing between the assignee and the other Parties.

3.2 Rights of First Refusal

(a)Subject to Section 3.1 above, if any Shareholder other than the Investing Parties (each, “Transferring Party”) wish to transfer all or portion of its equity interests in the Company (“Transfer Equity”) to any third party that is not a Shareholder (“Proposed Transferee”), the Transferring Party shall first offer the Transfer Equity to the Investing Parties.

(b)To offer the Transfer Equity to the Investing Parties, the Transferring Party shall deliver a written notice to each Investing Party containing the following (“Transfer Notice”):

(i) the amount of the Transfer Equity;

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(ii) a cash price per unit of Registered Capital at which the Transfer Equity will be transferred;

(iii) the identity of the Proposed Transferee;

(iv) a summary of the terms of purchase put forward by the Proposed Transferee, including details of the nature and amount of the consideration and the date on which it would be payable; and

(v) whether the Transferring Party’s offer is conditional on acceptances being received for all (or any other specified percentage) of the Transfer Equity.

(c)Within 20 Business Days after receiving the Transfer Notice, an Investing Party may purchase up to its pro rata share of the Transfer Equity on the terms set out in the Transfer Notice. The pro rata share of the Transfer Equity shall be equivalent to the product obtained by multiplying the Transfer Equity, by a fraction, of which the amount of the Registered Capital that has been contributed by the exercising Investing Party shall be the numerator and the total amount of the Registered Capital that has been contributed by all exercising Investing Parties shall be the denominator. A notice indicating an Investing Party’s acceptance of such offer will be irrevocable, and will give rise to a legally binding agreement between the Transferring Party and the exercising Investing Party.

(d)If any Investing Party chooses not to purchase its entire pro rata share of Transfer Equity, then the entire un-purchased Transfer Equity (“Remaining Transfer Equity”) will be offered to the Investing Parties that have elected to purchase their respective entire pro rata share of Transfer Equity (“Second ROFR Holder”). The Transferring Party shall deliver a written notice to the Company and each Second ROFR Holder to inform them of the number of the Remaining Transfer Equity that are available for purchase (“Second Transfer Notice”). The Second Rights Holder will have 10 Business Days after receiving the Second Transfer Notice to irrevocably elect to purchase all or a portion of the Remaining Transfer Equity at the same price per unit and subject to the same terms and conditions as described in the Transfer Notice by notifying the Transferring Party and the Company in writing of the number of units of Remaining Transfer Equity to be purchased.

(e)If an Investing Party or Second ROFR Holder elects to purchase any Transfer Equity, the Investing Party or Second ROFR Holder shall pay for the Transfer Equity by wire transfer in immediately available funds of the appropriate currency, against delivery of such Transfer Equity to be purchased, at a place and time agreed by the Transferring Party and the Investing Party or Second ROFR Holder that has elected to purchase the Transfer Equity, provided that the scheduled time for closing may not be later than 20 Business Days following the date on which the Investing Party or Second ROFR Holder notified the Transferring Party of its desire to purchase the Transfer Equity.

(f)If the non-transferring Parties fail to timely elect to purchase the entire Transfer Equity, then the Transferring Party may transfer all, but not less than all of the remaining portion of the Transfer Equity to the Proposed Transferee, on the terms set forth in the Transfer Notice. Any such transfer to the Proposed Transferee must be completed within 90 days after the date of the Transfer Notice or the requirements and procedures relating to the Right of First Refusal must be re-initiated with respect to such transfer; provided, that the above 90-day period shall not include the time for obtaining any government approvals required for the transfer.

(g)Each Investing Party or Second ROFR Holder may freely assign its rights of first refusal to any of its respective Affiliates at any time.

3.3 Tag Along Rights

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(a)If an Investing Party does not wish to execute its right of first refusal under Section 3.2 above, the Investing Party will have 20 Business Days after the date of the Transfer Notice to irrevocably elect to sell up to its Tag Along Share of any Transfer Equity proposed to be transferred by the Transferring Party at the same price and subject to the same terms and conditions as described in the Transfer Notice (“Tag Along Right”) by notifying the Transferring Party and the Company in writing of the amount of Transfer Equity to be sold (“Tag Along Equity”).

(b) The sale of the Tag Along Equity to the Proposed Transferee by the Investing Party will be consummated simultaneously with the sale by the Transferring Party. To the extent that any Proposed Transferee refuses to purchase any Tag Along Equity, the Transferring Party shall not sell to such Proposed Transferee any Registered Capital until, simultaneously with such sale, the Proposed Transferee purchases from the Investor such Tag Along Equity that the Investor would otherwise be entitled to sell to the Proposed Transferee pursuant to its Tag Along Right.

(c) The Investing Party’s “Tag Along Share” will be determined according to the amount of all units of Registered Capital held by the Investing Party on the date of the Transfer Notice in relation to the total amount of all units of Registered Capital held by the Transferring Party.

3.4 Further Assistance

(a)If any Shareholder proposes to transfer any of its Registered Capital under this Section 3 of Schedule 1, and the relevant procedures above have been completed, each Shareholder shall consent to the transfer and take any actions and execute any documents reasonably requested by the Transferring Party to evidence such agreement and to effect the transfer of the Transfer Equity (and Tag Along Equity, if applicable).

(b)All relevant parties to any transfer of the Registered Capital shall promptly enter into one or more equity transfer agreements setting forth the details of the transaction in question. Within 10 Business Days after the date on which the sale of the Transfer Equity (and the Tag Along Equity, if applicable) is closed, the Parties shall make all necessary amendments to this Agreement, the Articles of Association and any other documents of the Company, and undertake any necessary filings with applicable Governmental Authority to reflect the concluded transfer.

(c)For the avoidance of doubt, each Shareholder shall, and shall cause the Company to, promptly execute all such further documents and perform all such further acts as the Transferring Party, the Investing Party or the Proposed Transferee (or any combination of them) may reasonably require to formalize the transfer of Registered Capital.

4. Right of Participation

4.1 General. If the Company wishes to increase the Registered Capital in accordance with the terms and conditions of this Agreement, the Articles of Association or PRC Law, then the Investing Parties (“Preemptive Rights Holders”) will each have the right (“Preemptive Rights”) to subscribe for its pro rata share of the increased Registered Capital (“Issuance Equity”).

4.2 Issuance Notice. If the Company proposes to increase its Registered Capital, it shall deliver a written notice to the Preemptive Rights Holders containing the following information (“Issuance Notice”):

(a) the amount of the Issuance Equity;

(b) the cash price per unit of Registered Capital at which the Issuance Equity will be issued; and

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4.3 Notice to Exercise. Each Preemptive Rights Holder will have 30 Business Days after receipt of the Issuance Notice to agree in writing to purchase up to the Preemptive Rights Holder’s pro rata share of the Issuance Equity for the price and upon the terms and conditions specified in the Issuance Notice by giving written notice to the Company and stating in the notice the quantity of Issuance Equity to be purchased. If a Preemptive Rights Holder does not respond in writing within the 30-Business Day period, then the Preemptive Rights Holder will be deemed to have abandoned the purchase of that part of its pro rata share of such Issuance Equity.

4.4 Over-Allotment. If any Preemptive Rights Holder chooses not to purchase its entire pro rata share of Issuance Equity, then the entire un-purchased Issuance Equity will be offered to the Investing Parties that have fully exercised their Preemptive Rights. The Company shall deliver a notice to the Investing Parties that have fully exercised their Preemptive Rights to inform the remaining number of units of Registered Capital that are available for purchase (“Over-Allotment Issuance Equity”). The Investing Parties that have fully exercised their Preemptive Rights will have 10 Business Days after receiving the notice to irrevocably elect to subscribe all or a portion of the Over-Allotment Issuance Equity at the same price per unit and subject to the same terms and conditions as described in the Issuance Notice by notifying the Company in writing of the number of units of Over-Allotment Issuance Equity to be purchased.

4.5 Sale by the Company. Any remaining Issuance Equity and Over-Allotment Issuance Equity (as the case may be) not purchased by the Preemptive Rights Holders in accordance with Sections 4.1 to 4.4 of this Schedule 1 will fall under the control of the Board and may be offered for sale to third party purchasers according to the exact price, terms and conditions set forth in the Issuance Notice for a period of three months, calculated from the date of the Issuance Notice. If the Company does not complete the sale of remaining Issuance Equity and Over-Allotment Issuance Equity (as the case may be) within such 90-day period, the right of participation provided in this Section 4 in respect of such Issuance Equity and Over-Allotment Issuance Equity (as the case may be) shall be deemed to be revived and such equity interests of the Company shall not be offered to any person unless first re-offered to the Preemptive Rights Holders in accordance with this Section 4.

4.6 Exceptions. The Preemptive Rights Holders will not have any Preemptive Rights with respect to: (a) any increase of Registered Capital or any options issued pursuant to the ESOP or any other compensation plan that is related to the equity of the Company, or any increase of Registered Capital undertaken pursuant to options approved by the Board; (b) any increase in Registered Capital in connection with an acquisition or merger of equity or business of any other entity that is approved by the Board; (c) any increase in Registered Capital from the conversion of profits or reserved capital of the Company that is approved by the Board; or (d) any New Equity issued in the event of any share conversion, dividend or split upon restructuring into a joint stock corporation (as approved by a Shareholders’ Meeting of the Company), or any securities or equivalents issued upon the public offering of shares of the Company in the PRC or an offshore stock market approved by the Board.

4.7 Consideration. In the case of the issuance of increased Registered Capital for cash, the consideration will be deemed to be the amount of cash received by the Company. In the case of the issuance of increased Registered Capital for non-cash consideration, in whole or in part, the non-cash consideration will be deemed to be the fair market value thereof, as determined by the Board, irrespective of any accounting treatment.

5. Drag-along Right.

5.1 General. If AHK and at least one (1) Lead Investor (collectively, the “Drag-Along Holder”) consent to an acquisition or sale of the Company by merger, sale of more than fifty percent (50%) of the Registered Capital of the Company, sale of all or substantially all of the assets or business of the Company or otherwise, in which the pre-investment valuation of the Company shall not be less than the higher of (i) 1 billion RMB, and (ii) the latest post-investment valuation of the Company at that time (the “Approved Sale”) to a third-party potential purchaser (the “Potential Purchaser”) at any time after the second anniversary of the Closing date, then upon written notice from the Drag-Along Holder, each of other

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shareholders of the Company (the “Dragged Holders”) shall, (i) vote, or give its written consent with respect to, all Registered Capital held by them in favor of the Approved Sale; (ii) sell, transfer, and/or exchange, as the case may be, all Registered Capital held by them in such Approval Sale on the same terms to such Potential Purchaser; (iii) execute and deliver such instruments of conveyance and transfer, and (iv) take all actions reasonably necessary to consummate the proposed Approved Sale. If any Dragged Holder does not elect to vote, or give its written consent with respect to, all Registered Capital held by them in favor of the Approved Sale, such Dragged Holder shall be obligated to purchase all Registered Capital held by the Drag-Along Holder at the same price and terms offered by the Potential Purchaser within thirty (30) days from the date of failure to vote or give its written consent of such Approved Sale by the Dragged Holder. Notwithstanding any provision to the contrary, the restriction on transfer under Section 3.1 of this Schedule 1 shall not apply to any transfer made pursuant to this Section 5 of this Schedule 1.

5.2 Representation and Undertaking. Any such sale or disposition by the Dragged Holders shall be on the terms and conditions as the proposed Approved Sale by the Potential Purchaser. Each Dragged Holder shall be required to make customary and usual representations and warranties in connection with the Approval Sale. Each Dragged Holder undertake to obtain all consents, permits, approvals, orders, authorizations or registrations qualifications, designations, declarations, or filings with any governmental authority or any third party, which are required to be obtained or made in connection with the Approved Sale.

5.3 Drag-Along Notice. Prior to making any Approved Sale in which the Drag-Along Holder wishes to exercise its right under this Section 5 of Schedule 1, the Drag-Along Holder shall provide the Company and the Dragged Holders with written notice (the “Drag-Along Notice”) at least thirty (30) days prior to the proposed closing date of the Approved Sale (the “Approved Sale Date”). The Drag-Along Notice shall set forth (i) the name and address of the Potential Purchaser; (ii) the proposed amount and form of consideration to be paid, and the terms and conditions of payment offered by the Potential Purchaser; (iii) the Approved Sale Date; (iv) the number of units of the Registered Capital held of record by the Drag-Along Holder on the date of the Drag-Along Notice which form the subject to be transferred, sold or otherwise dispose of by the Drag-Along Holder; and (v) the number of units of the Registered Capital held of record by the Dragged Holders to be included in the Approved Sale.

5.4 Transfer Certificate. On the Approved Sale Date, each Dragged Holder shall deliver or cause to be delivered an executed instrument of transfer and/or a certificate (if required) representing and evidencing the number of units of the Registered Capital held by such Dragged Holder to be included in the Approved Sale, with all endorsement necessary for transfer to such Potential Purchaser in the manner and at the address indicated in the Drag-Along Notice.

5.5 Payment. If the Drag-Along Holder or the Dragged Holders receive the purchase price for their number of units of the Registered Capital or such purchase price is made available to them as part of an Approved Sale and, in either case such party elects in writing not to deliver an executed instrument of transfer and/or a certificate (if required) evidencing the number of units of Registered Capital as described under this Section 5, they shall for all purposes be deemed no longer to be a shareholder of the Company, shall have no voting rights, shall not be entitled to any dividends or other distributions with respect to any number of units of the Registered Capital held by them, shall have no other rights or privileges as a shareholder of the Company. In addition, the Company shall stop any subsequent transfer of any number of units of Registered Capital held by such shareholder.

6. Most Favored Nation for this Transaction. AHK, Management Co and the Company hereby jointly and severally represent and warrant and covenant, from the Closing Date, that terms offered to any Person with respect to any amendment, settlement or waiver (each a “Settlement Document”) relating to the terms and conditions and transactions contemplated by this Agreement will not, taken as a whole, be more favorable to such Person than those of the Investors. If the previous sentence is demonstrated by a court of applicable jurisdiction to have been violated, this Agreement shall be, without any further action by the Investors or the Company, deemed amended and modified in an economically and legally equivalent manner such that the Investors shall receive the benefit of the more favorable terms and conditions contained in such Settlement Documents. In the event that this Section 6 is triggered, AHK,

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Management Co and the Company jointly and severally agree, at their expense, to take such other actions (such as entering into amendments to this Agreement) as the Investors may reasonably request, in the form and substance reasonably acceptable to the Investors, to further effectuate this Section 6.

7. Right of Redemption

7.1 General. Each Investor has the right of redemption to ask the Company to redeem all or part of shares held by it in the Company once any of the following events is triggered: (i) the Company’s failure to consummate a qualified IPO within six years after the Closing; (ii) the violation of non-competition clause by any Key Employee, AHK, the Management Co or AHK’s worldwide Affiliates; (iii) failure of the Company to own or use necessary IP for its business operation, whether attributable to the laws and rules of export control or the Company’s incompliance with other applicable laws; (iv) intentional, verified and uncured violation or breach by AHK under the Technology License Agreement.

7.2 Good Faith Resolution Efforts; Redeem Price. Once any of the triggering events stated in this Section 7.1 occurs, (a) the relevant Investors will give written notice to the Company, and the relevant Investors and the Company will promptly thereafter for at least 60 days have regular good faith discussions and efforts to resolve such claim(s) that 7.1 was triggered, held by senior representatives of each party with authority to approve a resolution to such claim(s); and if the preceding (a) is unsuccessful despite such good faith discussions and efforts by the parties involved in such discussion and efforts, then (b) the Company shall redeem the Investor who exercises its right of redemption at the price per unit of equity of which is equal to the applicable Investor’s Investing Party Purchase Price, plus a simple interest rate of 8% per annum from the date of the Closing until the full payment of the total liquidation preference amount, plus declared but unpaid dividends on the equity interests held by such Investor.

7.3 Notice of Redemption Right. In case of any of events stated in this Section 7.1 is triggered, the Investor who intends to exercise its right of redemption, shall send a written notice to the Company no later than four (4) months from the date of the occurrence of the triggering events stated in this Section 7.1 (the “Notice Period of Redemption”).

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Document

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, K. Charles Janac, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Arteris, Inc;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date: May 10, 2022	By:	/s/ K. Charles Janac
	Name:	K. Charles Janac
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)

Document

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Nicholas B. Hawkins, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Arteris, Inc;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date: May 10, 2022	By:	/s/ Nicholas B. Hawkins
	Name:	Nicholas B. Hawkins
	Title:	Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Document

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Arteris, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: May 10, 2022	By:	/s/ K. Charles Janac
	Name:	K. Charles Janac
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

Document

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: May 10, 2022	By:	/s/ Nicholas B. Hawkins
	Name:	Nicholas B. Hawkins
	Title:	Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)