MANAGEMENT REPORT AND ANALYSIS OF THE FINANCIAL POSITION AND OPERATING RESULTS

The next dialogue and evaluation of our monetary situation and outcomes of
operations must be learn at the side of our unaudited condensed
consolidated monetary statements and associated notes included underneath Half I, Merchandise
1 on this Quarterly Report on Type 10-Q and our audited consolidated monetary
statements and the associated notes and the dialogue underneath the heading
"Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of
Operations" for the fiscal yr ended December 31, 2020 included within the last
prospectus for our preliminary public providing ("IPO") dated as of October 26, 2021
that varieties part of our Registration Assertion on Type S-1 (File No.
333-259988) that was filed with the Securities and Alternate Fee ("SEC"),
pursuant to Rule 424(b)(4) on October 28, 2021 ("Remaining Prospectus"). This
dialogue and evaluation incorporates forward-looking statements based mostly upon present
beliefs, plans and expectations that contain dangers, uncertainties and
assumptions, comparable to statements relating to our plans, aims, expectations,
intentions and projections. Our precise outcomes and the timing of chosen occasions
might differ materially from these anticipated in these
forward-looking statements on account of a number of components, together with these set
forth underneath the heading "Danger Elements" within the Remaining Prospectus. Please additionally see
the part underneath the heading "Cautionary Word Relating to Ahead-Trying
Statements" within the Remaining Prospectus.

Until the context in any other case requires, all references on this report back to "we,"
"us," "our," the "Firm," and "Arteris" consult with Arteris, Inc. and its
subsidiaries.
Overview
We're a number one supplier of interconnect and different mental property ("IP")
expertise that manages the on-chip communications in System-on-Chip ("SoC")
semiconductor units. Our merchandise allow our prospects to ship more and more
complicated SoCs that not solely course of knowledge however are additionally capable of make selections.
Development within the complete addressable marketplace for our options is being pushed by the
addition of extra processors, channels of reminiscence entry, machine studying
sections, chiplets, extra enter/output ("I/Os") interface requirements and
different subsystems inside SoCs. The expansion within the numbers of those related
on-chip subsystems place an rising premium on the interconnect IP functionality
to maneuver knowledge inside complicated SoCs. We consider this enhance in SoC complexity is
creating a major alternative for classy SoC system IP options
which incorporate Community-on-Chip ("NoC") interconnect IP, IP deployment
software program and NoC interface IP (consisting of peripheral knowledge transport IP and
management aircraft networks related to NoC interconnect IPs).
Our IP deployment options, which have been considerably enhanced by our
acquisition of Magillem Design Providers S.A. ("Magillem") in 2020, complement
our interconnect IP options by serving to to automate not solely the client
configuration of its NoC interconnect but in addition the method of integrating and
assembling the entire buyer's IP blocks into an SoC. Merchandise incorporating
our IP are used to hold many of the necessary knowledge inside complicated SoCs for
refined functions, together with automated driving, synthetic
intelligence/machine studying ("AI/ML"), 5G and wi-fi communications, knowledge
facilities, and client electronics.

As of September 30, 2021, we had 218 full-time workers and workplaces in eight
areas in the USA, France, China, South Korea and Japan. For the
three and 9 months ended September 30, 2021, we generated income of $9.0
million and $26.4 million, respectively, internet lack of $5.0 million and $15.6
million, respectively, and internet loss per share, primary and diluted of $0.24 and
$0.79, respectively. As of September 30, 2021, we had Annual Contract Worth (as
outlined beneath) of $42.7 million and 179 Energetic Clients (as outlined beneath).
In the course of the 9 months ended September 30, 2021, our prospects had 65 Design
Begins (as outlined beneath).
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Preliminary Public Providing
In October, 2021, we accomplished our preliminary public providing ("IPO"), through which we
issued and bought 5,750,000 shares of the widespread inventory on the public providing
value of $14.00 per share, together with 750,000 shares issued upon the complete
train of the underwriters' choice to buy extra shares. We acquired
internet proceeds of $71.1 million after deducting underwriting reductions and
commissions and estimated providing bills. In reference to the IPO, all of
the shares of our excellent redeemable convertible most popular inventory
mechanically transformed into an combination of 4,471,316 shares of the widespread
inventory instantly previous to the closing of the IPO.

Deferred providing prices consist primarily of accounting, authorized and different charges
associated to the IPO. Previous to the IPO, all deferred providing prices have been
capitalized and included in different property, non-current on the condensed
consolidated steadiness sheets. Upon completion of the IPO, deferred providing prices
have been reclassified into stockholders' fairness as a discount of the IPO proceeds.

Acquisition

On November 30, 2020, Arteris IP, SAS, our wholly owned subsidiary, accomplished
the acquisition of Magillem for a complete consideration of $7.8 million. Magillem
is a number one supplier of design movement and content material administration software program options
for the complicated chip market. The first purpose for the acquisition was to
combine our applied sciences in an effort to speed up and simplify the SoC meeting
design movement and improve innovation in each SoC IP integration software program and the
extremely configurable on-chip interconnect IP that implements chip architectures.
Elements Affecting Our Enterprise
We consider that the expansion of our enterprise and our future success are dependent
upon many components together with these described underneath the heading "Danger Elements" in
the Remaining Prospectus, in addition to the components described elsewhere within the Remaining
Prospectus and this Quarterly report on Type 10-Q, along with these
described beneath. Whereas every of those components presents important alternatives
for us, these components additionally pose challenges that we should efficiently deal with in
order to maintain the expansion of our enterprise and improve our outcomes of
operations.
License Agreements with New and Current Clients
Our capability to generate income from new license agreements, and the timing of
such income, is topic to various components, dangers and contingencies. For
new merchandise, the time from preliminary growth till we generate license
income could be prolonged, usually between one and three years. As well as,
as a result of the choice course of by our prospects is usually prolonged and market
necessities and various options obtainable to prospects for IP-based
merchandise change quickly, we could also be required to incur important analysis and
growth expenditures in pursuit of recent merchandise over prolonged, multiyear
intervals of time with no assurance that our options will probably be efficiently
developed or in the end chosen by our prospects. Whereas we make efforts to
observe market demand and market want developments, we can't be sure that our
funding in creating and testing new merchandise will generate an satisfactory price
of return within the type of charges, royalties or different revenues, or any revenues.
Furthermore, the client acquisition course of has a typical period of six to 9
months; following this, a buyer's chip design cycle is usually between one
to a few years and could also be delayed as a result of components past our management, which can
lead to our buyer's product not reaching the market till lengthy after we
entered right into a contract with such buyer. Clients usually begin transport
their merchandise containing our interconnect IP options between one to 5
years following completion of their product design, referred to as mass manufacturing at
which level we begin to obtain royalties; this lasts for as much as seven years
relying available on the market phase. Any important delay within the ramp-up of quantity
manufacturing of the client's merchandise into which our product is designed might
adversely have an effect on our enterprise as a result of delayed or considerably decreased revenues.
Additional, as a result of the common promoting costs ("ASPs") of our merchandise might decline
over time, we take into account new license agreements and new product launches to be
crucial to our future success and anticipate that for our newer merchandise, we
are and can stay extremely depending on market demand timing and income from
new license agreements.
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Finish Buyer Product Demand and Market Situations
Demand for our interconnect IP options and related royalty income is
extremely depending on market situations ultimately markets through which our prospects
function. These finish markets, which embody the automotive, AI/ML, 5G
communications, knowledge facilities and client electronics sectors, are topic to a
variety of components together with end-product acceptance and gross sales, aggressive
pressures, provide chain points and normal market situations. For instance, our
income has been supported by the elevated want for extra complicated SoCs to allow
refined automated driving. If the demand on this market continues to develop,
we anticipate it should proceed to have a optimistic impression on our income. In
distinction, if normal market situations deteriorate or different components happen such
as provide chain points leading to fewer semiconductors using our IP
options being obtainable on the market, our income could be adversely affected.
Phrases of our Agreements with Clients
Our income from interval to interval could be impacted by the phrases of the agreements
we enter into with our prospects. For instance, in latest intervals we now have
structured sure agreements with prospects that embody substantial up entrance
licensing funds. On account of how these contracts are structured and the
income is acknowledged, our income within the three and 9 months ended September
30, 2021 will not be akin to future intervals if we don't enter into comparable
contractual agreements. Additional, a significant proportion of our income is
generated via royalty funds. As a result of the time between a brand new license
settlement win and the client's finish product being bought could be substantial, with
gross sales of the top product being topic to various components exterior our
management, our income from royalties is tough to foretell. On account of the
foregoing, income might fluctuate considerably from interval to interval and any
enhance or lower in such income will not be indicative of future
period-to-period will increase or decreases.
Technological Improvement and Market Development
We consider our progress has been and can proceed to be pushed by expertise
developments in our finish markets. For instance, the necessities of smaller die measurement,
decrease energy consumption, a better frequency of operation and administration of
crucial internet latency in a well timed and cost-effective method for on-chip
processing within the automotive, AI/ML, 5G and wi-fi communications, knowledge middle
and client digital markets has resulted in elevated SoC design complexity
for chips utilized in these markets. This development in flip has created elevated demand
for in-licensing industrial semiconductor design IP, which in flip has
positively impacted our income and progress.
To be able to deal with technological developments such because the above and develop our
choices, we now have invested considerably in our analysis and growth
efforts. These investments, which included progress in engineering headcount, have
resulted in considerably elevated analysis and growth bills in latest
intervals. As we proceed to spend money on our expertise and new product design
efforts, we anticipate analysis and growth expense will enhance on an
absolute foundation and as a proportion of income within the close to time period. Within the medium to
long term, nevertheless, whereas we anticipate to extend our analysis and growth
expense on an absolute foundation, we anticipate this expense to scale back as a proportion
of income.
We'll proceed to guage progress alternatives via acquisitions of different
companies, though there are at the moment no discussions with potential targets.
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Cyclical Nature of the Semiconductor Business
The semiconductor business through which our prospects function is extremely cyclical and
is characterised by more and more speedy technological change, product
obsolescence, aggressive pricing pressures, evolving requirements, quick product
life cycles and fluctuations in product provide and demand. New expertise might
lead to sudden modifications in system designs or platform modifications that will render
a few of our IP options out of date and require us to dedicate important analysis
and growth assets to compete successfully. Intervals of speedy progress and
capability growth are often adopted by important market corrections
through which our prospects' gross sales decline, inventories accumulate and amenities go
underutilized. Throughout an growth cycle, we might enhance analysis and
growth hiring so as to add to our product choices or spend extra on gross sales and
advertising and marketing to amass new prospects, comparable to throughout the latest cycle of growth
through which we elevated the variety of our engineers considerably. During times
of slower progress or business contractions, our gross sales typically endure as a result of a
lower in prospects' Design Begins or in gross sales of our prospects' merchandise.
COVID-19 Influence
In March 2020, the World Well being Group declared the outbreak of COVID-19 a
pandemic which has resulted in substantial world financial disruption and
uncertainty. In response to the COVID-19 pandemic, the measures carried out by
varied authorities have prompted us to vary our enterprise practices, together with
these associated to the place workers work, the gap between workers in our
amenities, limitations on in-person conferences between workers and with
prospects, suppliers, service suppliers and stakeholders, in addition to
restrictions on enterprise journey to home and worldwide areas and to
attend commerce exhibits, technical conferences and different occasions. Though we now have
skilled, and should proceed to expertise, some impression on sure components of our
enterprise on account of governmental restrictions and different measures to mitigate
the unfold of COVID-19, our outcomes of operations, money flows and monetary
situation weren't adversely impacted within the three and 9 months ended
September 30, 2021.
We're unable to precisely predict the complete impression that COVID-19 could have on
our future outcomes of operations, monetary situation, liquidity and money flows
as a result of quite a few uncertainties, together with the period and severity of the
pandemic and containment measures. Though we anticipate most of our workers to
return to bodily workplaces sooner or later, the character and extent of that return
is unsure. We'll proceed to watch well being orders issued by relevant
governments to make sure compliance with evolving home and world COVID-19
pointers. For extra particulars, see the part underneath the heading "Danger
Elements" within the Remaining Prospectus.
Key Efficiency Indicators
We use the next key efficiency indicators to investigate our enterprise
efficiency and monetary forecasts and to develop strategic plans, which we
consider present helpful data to traders and others in understanding and
evaluating our outcomes of operations in the identical method as our administration staff.
These key efficiency indicators are introduced for supplemental informational
functions solely, shouldn't be thought of an alternative choice to monetary data
introduced in accordance with typically accepted accounting rules in the
United States ("GAAP"), and should differ from equally titled metrics or measures
utilized by different corporations, securities analysts, or traders.
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Annual Contract Worth
We outline Annual Contract Worth ("ACV") for a person buyer settlement as
the overall mounted charges underneath the settlement divided by the variety of years within the
settlement time period. Our complete ACV is the combination ACVs for all our prospects as
measured at a given cut-off date. Whole mounted charges contains licensing, assist
and upkeep and different mounted charges underneath IP licensing or software program licensing
agreements however excludes variable income derived from licensing agreements with
prospects, notably royalties. ACV was $42.7 million and $32.8 million as of
September 30, 2021 and September 30, 2020, respectively. As well as, complete ACV
and trailing-twelve-months royalties and different income was $45.6 million and
$37.7 million as of September 30, 2021 and September 30, 2020, respectively. We
monitor ACV to measure our success and consider the rise within the quantity exhibits
our progress in increasing our prospects' adoption of our platform.
Clients and Buyer Retention
We outline Energetic Clients as prospects who have entered right into a license
settlement with us that is still in impact. The retention and growth of our
relationships with current prospects are key indicators of our income
potential. We had 179 and 104 Energetic Clients as of September 30, 2021 and
2020, respectively. Our annual common buyer retention price, excluding IP
deployment options, is 96.2% from September 30, 2020 to September 30, 2021.
Moreover, we added 38 Energetic Clients for our IP deployment options
via our acquisition of Magillem in November 2020.
Design Begins
We outline Design Begins as when prospects start new semiconductor designs
utilizing our interconnect IP and notify us. Design Begins is a metric administration
makes use of to evaluate the exercise stage of our prospects when it comes to the variety of new
semiconductor designs which are began utilizing our interconnect IP in a given
interval. Our interconnect IP and NoC interface IP buyer base began a complete
of 65 and 43 designs throughout the 9 months ended September 30, 2021 and 2020,
respectively. The variety of Design Begins in 2020 slowed as a result of hostile
impression of the COVID-19 pandemic on the operations of a few of our prospects. We
consider that the variety of Design Begins is a crucial indicator of the expansion
of our enterprise and future royalty income developments.
Remaining Efficiency Obligations
We outline Remaining Efficiency Obligations ("RPO") as the quantity of contracted
future income that has not but been acknowledged, together with each deferred income
and contracted quantities that will probably be invoiced and acknowledged as income in future
intervals.
The RPO quantity is meant to offer visibility into future income streams. We
anticipate RPO to fluctuate up or down from interval to interval for a number of doable
causes, together with quantities, timing, and period of buyer contracts, as properly
because the timing of billing cycles for every contract. Our RPO was $50.6 million and
$34.2 million as of September 30, 2021 and 2020, respectively.
Elements of Our Outcomes of Operations
Income: Our income is primarily derived from licensing mental property,
licensing software program, assist and upkeep providers, skilled providers,
coaching providers, and royalties. Our agreements typically embody different service
parts together with coaching {and professional} providers which have been immaterial for
the three and 9 months ended September 30, 2021.
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Our interconnect options product preparations present prospects the best to
software program licenses, providers, software program updates and technical assist. We enter
into licensing preparations with prospects that usually vary from two to
three years and customarily encompass supply of a design license that grants
the client the best to make use of the IP to design a contractually outlined variety of
merchandise and stand-ready assist providers that gives the client with our
software engineer assist providers. We consider our prospects derive a
important profit from our engineer assist providers, which encompass our
proprietary software program software ("RTL"), ongoing entry to Company Utility
Engineers ("CAE") and Area Utility Engineers ("FAE") that carry out sure
verifications together with benchmark efficiency, simulations and in the end,
via RTL, instantiate designs into silicon over the design time period.
The assist providers, together with entry to software engineering assist
providers and the advantages of the RTL, are integral and elementary to the
buyer's capability to derive its meant profit from the IP.
CAEs are a part of the product growth staff offering detailed necessities
for engineering tasks, working very carefully with a buyer's chief
expertise officer and the advertising and marketing division, and performing high quality
assurance testing of buyer merchandise previous to cargo to their prospects.
FAEs present help to the client's engineering staff in translating their
desired SoC structure into inputs for NoC IP configuration, help in
optimizing the NoC configuration, solutions to buyer questions by the web
assist system or telephone, constructive evaluations of the progress achieved by the
buyer's growth staff and provision of recommendation on find out how to finest use the
licensed IP, efficiency of design evaluations earlier than buyer challenge RTL freeze
and tape-out to make sure the client used the licensed IP configuration tooling
as meant in order that the RTL output meets buyer necessities and expectations.
FAE evaluations of the client's design are typically obligatory and encompass an
understanding of the client necessities and evaluation of the adequacy of the
contemplated IP contemplating the client's desired structure and design objectives
and aims, bearing in mind bandwidth, coherence/non-coherence,
latency, clock and timing, areas, and any and all constraints, as recognized and
particular to the design underneath evaluation.
In addition to software engineer assist providers, assist and upkeep providers
additionally encompass a stand-ready obligation to offer technical assist and
software program updates over the assist time period. Typically, the first-year of technical
assist and software program updates are bundled with and into the license payment with a
buyer choice to renew extra years of assist all through the license
time period. Nevertheless, we proceed to offer technical assist and software program updates
all through the license time period even when the client doesn't renew these providers
in subsequent years, making the license time period and assist and upkeep time period
co-terminus.
Revenues which are derived from the sale of a licensee's merchandise that
incorporate our IP are categorized as royalty revenues. Royalty revenues are
acknowledged throughout the quarter through which the sale of the product incorporating the
IP happens. Royalties are calculated both as a proportion of the revenues
acquired by a licensee's sale of merchandise incorporating the IP or on a per unit
foundation, as specified within the agreements with the licensees. For a majority of our
royalty revenues, we obtain the precise gross sales knowledge from our prospects after the
quarter ends and account for it as unbilled receivables. When we don't obtain
precise gross sales knowledge from the client previous to the finalization of its monetary
statements, royalty revenues are acknowledged based mostly on our estimation of the
buyer's gross sales throughout the quarter.
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Our deployment options product preparations present prospects the best to
software program licenses, software program updates and technical assist. The software program licenses
are time-based licenses with phrases typically starting from one to a few years.
These preparations typically have two distinct efficiency obligations that
encompass transferring the licensed software program and the assist and upkeep
service. Help and upkeep providers encompass a stand-ready obligation to
present technical assist and software program updates over the assist time period. Income
allotted to the software program license is acknowledged at a cut-off date upon the
later of the supply date or the start of the license interval, and income
allotted to assist providers is acknowledged ratably over the assist time period.
Value of income: Value of income pertains to prices related to our licensing
agreements and assist and upkeep, together with relevant FAE
personnel-related prices together with stock-based compensation, journey, and
allotted overhead. We anticipate value of income to modestly decline over time due
to productiveness enhancements of our FAE processes.
Analysis and growth ("R&D") bills: R&D bills consist primarily of
salaries and related personnel-related prices, amenities bills related
with analysis and growth actions, third-party project-related bills
related with the event of our mental property that are expensed
as incurred, and stock-based compensation expense and different allotted prices. R&D
bills have elevated considerably for the three and 9 months ended
September 30, 2021 in absolute phrases and as a proportion of income as we added
to our engineering headcount in an effort to speed up new product growth. We
anticipate R&D bills to extend additional in absolute phrases and as a proportion of
income within the quick time period and to proceed to extend in absolute phrases within the
medium to long run however lower as a proportion of income as sure new
merchandise are launched.
Gross sales and advertising and marketing ("S&M") bills: S&M bills consist primarily of
salaries, commissions, journey and different prices related to gross sales and
advertising and marketing actions, in addition to promoting, commerce present participation, public
relations, and different advertising and marketing prices, stock-based compensation bills and
different allotted prices. We anticipate S&M bills to extend in absolute phrases however
lower as a proportion of income as a result of productiveness enhancements of our
gross sales processes.
Normal and administrative ("G&A") bills: G&A bills consist primarily of
salaries for administration and administrative workers, depreciation, insurance coverage
prices, accounting, authorized and consulting charges, different skilled service charges,
bills associated to the event of company initiatives and amenities
bills related to normal and administrative actions and stock-based
compensation expense, charges for administrators and different allotted prices.
Following the closing of the IPO, we anticipate to incur extra bills as a
results of working as a public firm, together with prices to adjust to the
guidelines and laws relevant to corporations listed on a nationwide securities
change, prices associated to compliance and reporting obligations, and elevated
bills for added G&A personnel, administrators and officers insurance coverage,
investor relations, {and professional} providers. We anticipate normal and
administrative bills to extend as our enterprise grows. As well as, we
anticipate normal and administrative bills as a proportion of income to range
from interval to interval however typically lower over the long run.
Curiosity and different expense, internet: Curiosity and different expense, internet consists
primarily of curiosity expense related to our 2018 Time period Mortgage.
Provision for revenue taxes: Our revenue tax provision consists primarily of
revenue taxes in sure overseas jurisdictions through which we conduct enterprise and
contains overseas non-recoverable withholding taxes. We have now a full valuation
allowance in opposition to our U.S. federal and state deferred tax property because the
realization of the complete quantity of those deferred tax property is unsure,
together with internet working loss carryforwards and tax credit associated primarily to
analysis and growth. We anticipate to keep up this full valuation allowance
till it turns into extra doubtless than not that the deferred tax property will probably be
realized.
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Outcomes of Operations
The next desk summarizes our GAAP outcomes of operations for the intervals
introduced. The outcomes beneath aren't essentially indicative of outcomes to be
anticipated for future intervals.
                                              Three Months Ended            9 Months Ended
                                                September 30,                 September 30,
                                              2021           2020          2021           2020
                                                               (in 1000's)
Whole income                             $    8,959      $  6,429      $  26,430      $  17,366
Value of income                                  883           227          2,618          1,118
Gross revenue                                   8,076         6,202         23,812         16,248
Working bills:
Analysis and growth (1)                   7,609         4,011         20,572         11,842
Gross sales and advertising and marketing (1)                        3,242         2,240          7,971          6,345
Normal and administrative (1)                 1,742         2,570          9,754          4,993
Whole working bills                      12,593         8,821         38,297         23,180
Loss from operations                          (4,517)       (2,619)       (14,485)        (6,932)
Curiosity and different expense, internet                 (183)          (26)          (497)          (111)
Loss earlier than provision for revenue taxes        (4,700)       (2,645)       (14,982)        (7,043)
Provision for revenue taxes                       268         1,199            612          3,793
Web loss                                  $   (4,968)     $ (3,844)     $ (15,594)     $ (10,836)

(1) Consists of stock-based compensation expense as follows:

                                              Three Months Ended                           9 Months Ended
                                                September 30,                                September 30,
                                          2021                  2020                   2021                    2020
                                                                       (in 1000's)
Analysis and growth             $        225          $        68          $        645              $       158
Gross sales and advertising and marketing                            38                   21                   114                       66
Normal and administrative                    170                   22                   385                       57

Whole stock-based compensation $ 433 $ 111

     $      1,144              $       281

prices

The next desk summarizes our working outcomes as a proportion of complete gross sales for every of the intervals proven:

                                                 Three Months Ended                                 9 Months Ended
                                                    September 30,                                     September 30,
                                            2021                     2020                     2021                     2020
                                                                  (as a proportion of complete income)
Whole income                                     100  %                  100  %                    100  %                  100  %
Value of income                                    10                       4                        10                       6
Gross revenue                                       90                      96                        90                      94
Working bills:
Analysis and growth                           85                      62                        78                      68
Gross sales and advertising and marketing                                36                      35                        30                      37
Normal and administrative                         19                      40                        37                      29
Whole working bills                          140                     137                       145                     134
Loss from operations                              (50)                    (41)                      (55)                    (40)
Curiosity and different expense, internet                    (2)                      -                        (2)                     (1)
Loss earlier than provision for revenue                  (52)                    (41)                      (57)                    (41)

taxes

Provision for revenue taxes                          3                      19                         2                      21
Web loss                                          (55) %                  (60) %                    (59) %                  (62) %


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Comparability of the Three Months Ended September 30, 2021 and 2020
Income
                                            Three Months Ended                 Change
                                               September 30,
                                             2021            2020           $           %
                                                 ({dollars} in 1000's)
Licensing, assist and upkeep     $    8,136          $ 5,211      $ 2,925        56  %
Variable royalties                            739              832          (93)      (11) %
Different                                          84              386         (302)      (78) %
Whole                                  $    8,959          $ 6,429      $ 2,530        39  %


Development in our licensing and assist and upkeep continued with a 56%
enhance throughout the three months ended September 30, 2021 in comparison with the three
months ended September 30, 2020. The rise was primarily as a result of addition
of recent prospects, together with these gained on account of the Magillem
acquisition, in addition to enhance in new license agreements with current
prospects.
Value of income
                        Three Months Ended                 Change
                           September 30,
                          2021             2020         $          %
                            ({dollars} in 1000's)
Value of income   $      883              $ 227      $ 656       289  %


Value of income elevated, $0.7 million, or 289%, to $0.9 million for the three
months ended September 30, 2021, from $0.2 million for the three months ended
September 30, 2020. The rise in value of income was primarily as a result of
enhance in employee-related prices on account of elevated headcount.
Working bills
                                 Three Months Ended               Change
                                   September 30,
                                 2021           2020           $           %
                                     ({dollars} in 1000's)
Analysis and growth     $     7,609      $ 4,011      $ 3,598        90  %
Gross sales and advertising and marketing                3,242        2,240        1,002        45  %
Normal and administrative         1,742        2,570         (828)      (32) %
Whole working bills     $    12,593      $ 8,821      $ 3,772        43  %


Analysis and growth bills
R&D bills elevated, $3.6 million, or 90%, to $7.6 million for the three
months ended September 30, 2021 from $4.0 million for the three months ended
September 30, 2020. The rise in R&D bills was primarily as a result of
enhance in employee-related value of $3.1 million primarily pushed by elevated
engineering headcount on account of progress and our funding in our
interconnect expertise, together with extra headcount on account of the
Magillem acquisition.
Gross sales and advertising and marketing bills
S&M bills elevated, $1.0 million, or 45%, to $3.2 million for the three
months ended September 30, 2021 from $2.2 million for the three months ended
September 30, 2020. The rise in S&M bills was primarily as a result of
enhance in employee-related prices of $0.5 million primarily pushed by increased
headcount to assist our continued progress.
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Normal and administrative bills
G&A bills decreased, $0.8 million, or 32%, to $1.7 million for the three
months ended September 30, 2021 from $2.6 million for the three months ended
September 30, 2020. G&A bills as a proportion of our complete income have been 19%
and 40% for the three months ended September 30, 2021 and 2020, respectively.
The lower in G&A bills was primarily as a result of a lower of roughly
$0.8 million in skilled providers, which was comprised primarily of authorized,
accounting and consulting charges.
Curiosity and different expense, internet
                                         Three Months Ended September 30,                     Change
                                              2021                2020                $                   %
                                                        ({dollars} in 1000's)

Curiosity and different costs, internet $ (183) $ (26)

      $    (157)                (604) %


Curiosity and different expense, internet for the three months ended September 30, 2021
was $0.2 million, in comparison with lower than $0.1 million for the three months ended
September 30, 2020. The rise is primarily associated to overseas foreign money
change.
Provision for revenue taxes
                                   Three Months Ended                Change
                                      September 30,
                                    2021            2020          $           %
                                       ({dollars} in 1000's)
Provision for revenue taxes    $    268            $ 1,199      $ (931)      (78) %


Provision for revenue taxes for the three months ended September 30, 2021 was
$0.3 million, in comparison with $1.2 million for the three months ended September 30,
2020. The lower in our revenue tax expense was as a result of a rise in our
forecasted pre-tax loss for the yr ended December 31, 2021 in comparison with the
e book loss for the yr ended December 31, 2020, a change within the forecasted
geographic mixture of worldwide earnings that are taxed at completely different statutory tax
charges, the impression of losses in jurisdictions which have full federal and state
valuation allowances, and a lower in present yr overseas withholding taxes.
Included within the provision for revenue taxes was $0.2 million and $1.5 million of
forecasted overseas withholding tax for the yr ended December 31, 2021 and
2020, respectively. Overseas withholding taxes are typically assessed on gross
income generated, slightly than pre-tax revenue, in sure international locations through which the
Firm doesn't file an revenue tax return.
Comparability of the 9 Months Ended September 30, 2021 and 2020
Income
                                           9 Months Ended               Change
                                             September 30,
                                          2021           2020           $            %
                                               ({dollars} in 1000's)
Licensing, assist and upkeep     $  24,353      $ 14,005      $ 10,348        74  %
Variable royalties                         1,913         2,679          (766)      (29) %
Different                                        164           682          (518)      (76) %
Whole                                  $  26,430      $ 17,366      $  9,064        52  %


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Development in our licensing and assist and upkeep continued with a 74%
enhance throughout the 9 months ended September 30, 2021 in comparison with the 9
months ended September 30, 2020. The rise was primarily as a result of addition
of recent prospects, together with these gained on account of the Magillem
acquisition, in addition to enhance in new license agreements with current
prospects. The lower in variable royalty income throughout the 9 months ended
September 30, 2021 was primarily as a result of a lower in gross sales quantity of a
important buyer on account of U.S. authorities commerce restrictions limiting
the client's capability to have their semiconductors fabricated.
Value of income
                      9 Months Ended               Change
                        September 30,
                      2021          2020           $           %
                          ({dollars} in 1000's)
Value of income   $    2,618      $ 1,118      $ 1,500       134  %


Value of income elevated, $1.5 million, or 134%, to $2.6 million for the 9
months ended September 30, 2021, from $1.1 million for the 9 months ended
September 30, 2020. The rise in value of income was primarily as a result of
enhance in employee-related prices on account of enhance headcount.
Working bills
                                 9 Months Ended               Change
                                   September 30,
                                2021           2020           $            %
                                     ({dollars} in 1000's)
Analysis and growth     $  20,572      $ 11,842      $  8,730        74  %
Gross sales and advertising and marketing              7,971         6,345         1,626        26  %
Normal and administrative       9,754         4,993         4,761        95  %
Whole working bills     $  38,297      $ 23,180      $ 15,117        65  %


Analysis and growth bills
R&D bills elevated, $8.7 million, or 74%, to $20.6 million for the 9
months ended September 30, 2021 from $11.8 million for the 9 months ended
September 30, 2020. The rise in R&D bills was primarily as a result of
enhance in employee-related value of $8.8 million which have been primarily pushed by
elevated engineering headcount on account of progress and our funding in our
interconnect expertise, together with prices as a result of extra headcount
ensuing from the Magillem acquisition.
Gross sales and advertising and marketing bills
S&M bills elevated, $1.6 million, or 26%, to $8.0 million for the 9
months ended September 30, 2021 from $6.3 million for the 9 months ended
September 30, 2020. The rise in S&M bills was primarily as a result of
enhance in employee-related value of $0.6 million primarily pushed by increased
headcount to assist our continued progress and $0.5 million in advertising and marketing and
occasion prices primarily as a result of will increase in promoting and model consciousness
efforts geared toward buying new prospects.
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Normal and administrative bills
G&A bills elevated, $4.8 million, or 95%, to $9.8 million for the 9
months ended September 30, 2021 from $5.0 million for the 9 months ended
September 30, 2020. The rise normally and administrative bills was
primarily as a result of a rise of $3.0 million in worker compensation prices
primarily associated to increased headcount to assist our continued progress and $2.1
million in skilled providers, which was comprised primarily of authorized,
accounting, and consulting charges.
Curiosity and different expense, internet
                                          9 Months Ended                 Change
                                            September 30,
                                          2021             2020         $            %
                                             ({dollars} in 1000's)

Curiosity and different costs, internet $ (497) (111) $ $ (386) (348)%


Curiosity and different expense, internet for the 9 months ended September 30, 2021 was
$0.5 million, in comparison with $0.1 million for the 9 months ended September 30,
2020. The rise is primarily associated to overseas foreign money change, which was
partially offset by a decreased curiosity expense on our 2018 Time period Mortgage in 2020 as
a results of the discount in excellent principal.
Provision for revenue taxes
                                   9 Months Ended                 Change
                                     September 30,
                                   2021            2020           $            %
                                        ({dollars} in 1000's)
Provision for revenue taxes    $    612           $ 3,793      $ (3,181)     

(84)%


Provision for revenue taxes for the 9 months ended September 30, 2021 was $0.6
million, in comparison with $3.8 million for the 9 months ended September 30, 2020.
The lower in our revenue tax expense was as a result of a rise in our forecasted
pre-tax loss for the yr ended December 31, 2021 in comparison with the e book loss for
the yr ended December 31, 2020, a change within the forecasted geographic mixture of
worldwide earnings that are taxed at completely different statutory tax charges, the impression
of losses in jurisdictions which have full federal and state valuation
allowances, and a lower in present yr overseas withholding taxes. Included
within the provision for revenue taxes was $0.2 million and $1.5 million of
forecasted overseas withholding tax for the yr ended December 31, 2021 and
2020, respectively. Overseas withholding taxes are typically assessed on gross
income generated, slightly than pre-tax revenue, in sure international locations through which the
Firm doesn't file an revenue tax return.
Liquidity and Capital Assets
Since inception, we now have financed operations primarily via proceeds acquired
from funds acquired from our prospects, the web proceeds from the sale of our
widespread inventory within the IPO in addition to the web proceeds from the non-public issuance of
our convertible most popular inventory and customary inventory, and to a lesser extent,
borrowings underneath our 2018 Time period Mortgage settlement. As of September 30, 2021, we had
$11.2 million in money, which doesn't embody $71.1 million in internet proceeds we
acquired in reference to the IPO in October 2021. Roughly $4.3 million
of complete money was held by our overseas subsidiaries as of September 30, 2021.
In November 2018, we entered right into a enterprise financing settlement with Bridge
Financial institution ("Lender") for a time period mortgage of $1.5 million with a maturity date of November
2021, repayable month-to-month ("2018 Time period Mortgage"). The rate of interest of the 2018 Time period
Mortgage is prime plus 2%.
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Beneath the phrases of the 2018 Time period Mortgage, we're required to adjust to sure
monetary and non-financial covenants. Any failure to adjust to these
covenants and another obligations underneath the settlement might lead to an occasion
of default, which might enable the Lender to require accelerated repayments of
quantities owed. As of September 30, 2021, we have been in compliance with the entire
monetary and non-financial covenants.
As of September 30, 2021, we had $0.1 million of excellent principal steadiness,
internet of debt issuance prices, underneath the 2018 Time period Mortgage, of which nil was
categorized as long-term liabilities for each intervals introduced. As well as, we
didn't renew the revolving line of credit score which matured in November 2021.
In April 2020, the Firm entered right into a mortgage settlement underneath the Coronavirus
Help, Reduction, and Financial Safety Act referred to as the Paycheck Safety Program
with a Lender for the quantity of $1.6 million at an rate of interest of 1% per
annum, and repayable in two years. The Firm used proceeds of the PPP Mortgage to
fund qualifying payroll and different bills. In December 2020, the complete quantity of
the PPP Mortgage, together with principal and accrued curiosity, was forgiven.
In October, 2021, we accomplished our IPO, through which we issued and bought 5,750,000
shares of the widespread inventory on the public providing value of $14.00 per share,
together with 750,000 shares issued upon the complete train of the underwriters'
choice to buy extra shares. We acquired internet proceeds of $71.1 million
after deducting underwriting reductions and commissions and estimated providing
bills. In reference to the IPO, the entire shares of our excellent
redeemable convertible most popular inventory mechanically transformed into an combination
of 4,471,316 shares of the widespread inventory instantly previous to the closing of the
IPO.
We consider our money, obtainable borrowing capability and money anticipated to be
generated from operations will probably be ample to fulfill our anticipated working
capital wants, capital expenditures, monetary commitments and different liquidity
necessities related to our current operations for no less than the subsequent 12
months. If these assets aren't ample to fulfill our liquidity
necessities, we could also be required to hunt extra financing. If we elevate
extra funds by issuing fairness securities, our stockholders will expertise
dilution. Debt financing, if obtainable, might comprise covenants that considerably
prohibit our operations or our capability to acquire extra debt financing in
the longer term. Any extra financing that we elevate might comprise phrases which are
not favorable to us or our stockholders. We can not guarantee you that we'd be
capable of receive extra financing on phrases favorable to us or our current
stockholders, or in any respect. See "Danger Elements -Dangers Associated to Our Enterprise and
Business-Our capability to lift capital sooner or later could also be restricted and will
stop us from executing our progress technique" within the Remaining Prospectus for
extra data.
Money Flows
The next desk summarizes modifications in our money flows for the intervals
indicated:
                                                9 Months Ended
                                                  September 30,
                                                2021           2020
                                                 (in 1000's)

Web money utilized in working actions $ (4,006) (502) $
Web money utilized in investing actions $ (488) $ (523)
Web money movement generated by financing actions $ 3,991 $ 939

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Working Actions
Money flows from working actions might range considerably from interval to
interval relying on a wide range of components together with the timing of our receipts
and funds. Our ongoing money outflows from working actions primarily
relate to payroll-related prices, funds for skilled providers, obligations
underneath our property leases and design software licenses. Our main supply of money
inflows is receipts from our accounts receivable. The timing of receipts of
accounts receivable from prospects is predicated upon the completion of agreed
milestones or agreed dates as set forth within the contracts.
For the 9 months ended September 30, 2021, internet money utilized in working
actions was $4.0 million primarily as a result of our internet lack of $15.6 million,
adjusted for non-cash costs of $2.0 million and $9.3 million modifications in
working property and liabilities. The first drivers of the modifications in
working property and liabilities have been a $6.2 million lower in accounts
receivable, $5.1 million enhance in deferred income, $1.3 million enhance in
accrued bills and different present liabilities, partially offset by a $3.9
million enhance in pay as you go bills and different property.
For the 9 months ended September 30, 2020, internet money utilized in working
actions was $0.5 million primarily as a result of our internet lack of $10.8 million,
adjusted for non-cash costs of $1.3 million and $9.0 million supplied by
modifications in our working property and liabilities. Non-cash costs primarily
consisted of depreciation and amortization, and stock-based compensation. The
main drivers of the modifications in working property and liabilities have been a $4.1
million enhance in accrued bills and different present liabilities, $2.7 million
enhance in deferred income, $2.4 million lower in accounts receivable, $0.2
million enhance in accounts payable, partially offset by a $0.4 million
lower in working lease liabilities.
Investing Actions
Web money utilized in investing actions for each the 9 months ended September
30, 2021 and 2020 was $0.5 million, primarily attributable to purchases of
property and gear to assist our workplace amenities.
Financing Actions
Web money supplied by financing actions for the 9 months ended September
30, 2021 was $4.0 million, primarily attributable to proceeds from issuance of
widespread inventory of $5.4 million, partially offset by the principal funds of 2018
Time period Mortgage of $0.5 million and funds of deferred providing prices of $0.9
million.
Web money supplied by financing actions for the 9 months ended September
30, 2020 was $0.9 million, primarily attributable to proceeds from the PPP mortgage
of $1.6 million, offset by the principal funds of 2018 Time period Mortgage of $0.5
million.
Off-Stability Sheet Preparations
We didn't have throughout the intervals introduced, and we don't at the moment have, any
off-balance sheet financing preparations or any relationships with
unconsolidated entities or monetary partnerships, together with entities generally
known as structured finance or particular objective entities, that have been
established for the aim of facilitating off-balance sheet preparations or
different contractually slender or restricted functions.
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Essential Accounting Insurance policies and Estimates
Our unaudited condensed consolidated monetary statements and the associated notes
thereto included elsewhere on this Quarterly Report on Type 10-Q are ready in
accordance with GAAP. The preparation of those condensed consolidated monetary
statements requires us to make sure estimates and assumptions that have an effect on the
reported quantities of property, liabilities, income, prices and bills, and
associated disclosures. We base our estimates on historic expertise and on
varied different assumptions that we consider to be affordable underneath the
circumstances. Precise outcomes might differ considerably from the estimates made
by administration. To the extent that there are variations between our estimates
and precise outcomes, our monetary situation, outcomes of operations, and money
flows will probably be affected.
There have been no materials modifications to our crucial accounting insurance policies and
estimates as in comparison with these described in "Administration's Dialogue and
Evaluation of Monetary Situation and Outcomes of Operations" set forth in our
Remaining Prospectus.
Lately Issued and Adopted Accounting Pronouncements
For extra data relating to lately issued accounting pronouncements, see
Word 2 to our unaudited condensed consolidated monetary statements included
elsewhere on this Quarterly Report on Type 10-Q.
JOBS Act
We're an "rising progress firm," as outlined in Part 2(a) of the
Securities Act, as modified by the Jumpstart Our Enterprise Startups Act of 2012
(the "JOBS Act"). As an rising progress firm, we're eligible to take
benefit of sure exemptions from varied reporting necessities which are
relevant to different public corporations that aren't rising progress corporations
together with, however not restricted to, disclosing solely two years of audited monetary
statements and solely two years of associated chosen monetary knowledge and
administration's dialogue and evaluation of economic situation and outcomes of
operations disclosure; not being required to adjust to the auditor attestation
necessities of Part 404 of the Sarbanes-Oxley Act of 2002 (the
"Sarbanes-Oxley Act"), decreased disclosure obligations relating to govt
compensation, and exemptions from the necessities of holding a nonbinding
advisory vote on govt compensation and shareholder approval of any golden
parachute funds not beforehand authorised.
Additional, part 102(b)(1) of the JOBS Act exempts rising progress corporations
from being required to adjust to new or revised monetary accounting requirements
till non-public corporations (that's, people who haven't had a Securities Act
registration assertion declared efficient or should not have a category of securities
registered underneath the Securities Alternate Act of 1934, as amended (the "Alternate
Act")) are required to adjust to the brand new or revised monetary accounting
requirements. The JOBS Act supplies that an organization can elect to decide out of the
prolonged transition interval and adjust to the necessities that apply to
non-emerging progress corporations however any such election to decide out is irrevocable.
We'll proceed to be an rising progress till the earliest to happen of (i) the
final day of the fiscal yr throughout which we now have complete annual gross revenues of
no less than $1.07 billion (as listed for inflation); (ii) the final day of our
fiscal yr following the fifth anniversary of the date of our first sale of
widespread inventory underneath a registration assertion; (iii) the date on which we now have,
throughout the earlier three-year interval, issued greater than $1.0 billion in
non-convertible debt; or (iv) the date on which we're deemed to be a "massive
accelerated filer," as outlined underneath the Alternate Act.
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We elected to make the most of the prolonged transition interval to adjust to
new or revised accounting requirements and to undertake sure of the decreased
disclosure necessities obtainable to rising progress corporations. This may increasingly make
comparability of the Firm's monetary statements with one other public firm
which is neither an rising progress firm nor an rising progress firm which
has opted out of utilizing the prolonged transition interval tough or unattainable
due to the potential variations in accounting requirements used.
Merchandise 3. Quantitative and Qualitative Disclosures About Market Danger
Not required for the Firm as a smaller reporting firm.
Merchandise 4. Controls and Procedures
Analysis of Disclosure Controls and Procedures

Our administration, with the participation of our Chief Government Officer and Chief
Monetary Officer, has evaluated the effectiveness of our disclosure controls
and procedures as of the top of the interval lined by this Quarterly Report on
Type 10-Q. The time period "disclosure controls and procedures," as outlined in Guidelines
13a-15(e) and 15d-15(e) underneath the Securities Alternate Act of 1934, as amended
(the "Alternate Act"), means controls and different procedures of an organization which are
designed to make sure that data required to be disclosed by an organization within the
stories that it recordsdata or submits underneath the Alternate Act is recorded, processed,
summarized, and reported inside the time intervals specified within the SEC's guidelines
and varieties. Disclosure controls and procedures embody, with out limitation,
controls and procedures designed to offer affordable assurance that
data required to be disclosed by an organization within the stories that it recordsdata
or submits underneath the Alternate Act is accrued and communicated to the
firm's administration, together with its principal govt and principal monetary
officers, or individuals performing comparable features, as acceptable to permit
well timed selections relating to required disclosure. Primarily based on such analysis, our
Chief Government Officer and Chief Monetary Officer concluded that, as of the
finish of the interval lined by this Quarterly Report on Type 10-Q, our disclosure
controls and procedures have been efficient on the affordable assurance stage.

Adjustments in inner management over monetary reporting

There have been no modifications in our inner management over monetary reporting
recognized in reference to the analysis required by Rule 13a-15(d) and
15d-15(d) of the Alternate Act that occurred throughout the interval lined by this
Quarterly Report on Type 10-Q which have materially affected, or are fairly
prone to materially have an effect on, our inner management over monetary reporting.

Limitations inherent within the effectiveness of controls

Our administration, together with our Chief Government Officer and Chief Monetary
Officer, believes that our disclosure controls and procedures and inner
management over monetary reporting are designed to offer affordable assurance of
reaching their aims and are efficient on the affordable assurance stage.
Nevertheless, administration doesn't anticipate that our disclosure controls and procedures
or our inner management over monetary reporting will stop or detect all
errors and all fraud. A management system, regardless of how properly conceived and
operated, can present solely affordable, not absolute, assurance that the
aims of the management system are met. Due to the inherent limitations in
all management techniques, no analysis of controls can present absolute assurance
that every one management points and cases of fraud, if any, inside the firm have
been detected. The design of any system of controls additionally is predicated partially upon
sure assumptions concerning the chance of future occasions, and there could be no
assurance that any design will reach reaching its acknowledged objectives underneath all
potential future situations. Over time, controls might develop into insufficient as a result of
of modifications in situations, or the diploma of compliance with the insurance policies or
procedures might deteriorate. Due to the inherent limitations in a
cost-effective management system, misstatements as a result of error or fraud might happen and
not be detected.
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