XML 34 R20.htm IDEA: XBRL DOCUMENT v3.22.2.2
EQUITY METHOD INVESTMENT
9 Months Ended
Sep. 30, 2022
Equity Method Investments and Joint Ventures [Abstract]  
Equity Method Investment EQUITY METHOD INVESTMENT
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 certain investors and Ningbo Transchip Information Consulting Partnership (Limited Partnership) (Management Co). The transaction closed on June 20, 2022.
The Company, the investors and Management Co, pursuant to the SPA, subscribed to the registered capital of Transchip Technology (Nanjing) Co., Ltd. (Transchip), a formerly wholly-owned subsidiary of the Company. As a result, the registered capital of Transchip increased to $29.4 million. The Company subscribed for the registered capital of approximately $11.9 million, of which $11.6 million of the contribution was contributed in-kind by way of an interconnect solutions technology license by the Company pursuant to a five-year technology license and services agreement which can be extended automatically for another five-year term, and the remaining was paid in cash.

The license agreement provides Transchip the right to software licenses, services, software updates and technical support. On the closing date, the license agreement including the support and maintenance services to be provided to Transchip was valued to be $11.6 million, which was recorded as deferred income and will be recognized as interest and other income (expense), net over a period of ten years on a straight line basis after delivery of the license. The license was delivered to Transchip on September 2, 2022. For the three and nine months ended September 30, 2022, the Company recognized income of $0.1 million for the license agreement.
Deconsolidation of Transchip as a subsidiary

Before the closing of the transaction, Transchip was a wholly-owned subsidiary of the Company with limited operations. Upon closing of the transaction, the Company no longer has control, and therefore deconsolidated Transchip. Accordingly, upon closing of the transaction, the Company derecognized all the assets and liabilities of Transchip and recognized a disposal gain of $0.1 million, included in interest and other income (expense), net in the condensed consolidated statements of loss for the nine months ended September 30, 2022.

Upon deconsolidation, the Company also recorded a nine-month related party loan to Transchip of $0.3 million, in prepaid expenses and other current assets within its condensed consolidated balance sheet, which was previously eliminated as an intercompany loan in the Company’s consolidated financial statements. This loan carries an annual interest rate of 4% and expired on August 31, 2022. The Company received the payment of principal and interest of $0.3 million on September 2, 2022.
Investment of Transchip as an equity investee

Following the consummation of the foregoing transactions, the Company held 40.3% common stock of Transchip on a fully diluted basis. The Company accounts for its common stock investment in Transchip as an equity method investment as it does not control but has significant influence over operating and financing policies of Transchip. Transchip is the Company’s only equity method investment. The Company invested $12.2 million, including transaction costs of $0.3 million in Transchip.

On September 15, 2022, Transchip completed a second funding with additional investors. The Company did not provide additional investments in the second funding. As a result, the Company’s ownership interest in Transchip was diluted to 35.0% of the common stock of Transchip on a fully diluted basis. The impact to the Company’s condensed consolidated statements of loss was immaterial.

As of September 30, 2022, the carrying value of the investment in Transchip was $12.2 million. There was no significant difference between the Company’s carrying value of the investment in Transchip and its share of underlying equity in net assets of Transchip. During the three and nine months ended September 30, 2022, the Company’s loss from its proportionate share of its equity method investment in Transchip was immaterial. The Company concluded that there were no indicators of impairment related to the Company’s equity method investment in Transchip as of September 30, 2022.