What changed in this filing

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Item 1A. Risk Factors

2021-03-10 compared with 2020-03-11 · 69 added, 62 removed, 461 unchanged (22% of the section changed)

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Investors should also refer to the other information contained or incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 2020, including our consolidated financial statements and related notes, and our other filings made from time to time with the Securities and Exchange Commission ("SEC").

Risks Related to COVID-19

The ongoing effects of the COVID-19 pandemic could disrupt our business or the business of our customers or suppliers, and as such, may adversely affect our financial condition.

Our business, the businesses of our customers, and the businesses of our suppliers could be materially and adversely affected by the effects of the COVID-19 pandemic and the related governmental, business and community responses to it.

Additionally, the economies and financial markets of many countries have been impacted by the pandemic, and the longevity and significance of the resulting economic impact is currently unknown.

A significant economic downturn could materially and adversely affect our end customers, and thus could negatively impact demand for our products and our operating results.

In response to the COVID-19 pandemic, many state governments in the U.S., issued restrictive orders, including “shelter in place” or “stay at home” orders, that restricted its residents from leaving their homes or returning to work.

At Pixelworks, our offices in Japan and North America are currently operating in office and remotely.

The potential future impact of any “stay at home” orders or other similar COVID-related restraints on movement, may adversely impact the efficiency and effectiveness of our organization, as well as the operations of our suppliers and customers.

We face additional risks and challenges related to having a portion of our workforce working from home, including added pressure on our IT systems and the security of our network, and new challenges as our team adjusts to online collaboration.

Additionally, our sales team may not be able to make sales calls to current and potential customers at the same volume as they did prior to the outbreak of the pandemic as they juggle varying competing interests.

Also, our ability to make in-person sales calls may be affected in areas with stay at home orders or other restrictions in place, which may, in turn, affect our revenues.

The outbreak of COVID-19 may put additional pressures on our supply chain, including temporary or long-term disruption or delays.

If the impact of an outbreak continues for an extended period, it could adversely impact our supply chain and the growth of our revenues.

COVID-19 may result in supply shortages of our products or our ability to import, export or sell product to customers in both the U.S.

and international markets.

Any decrease, limitations or delays on our ability to import, export, or sell our products would harm our business.

The continued uncertain global economic environment and volatility in global credit and financial markets could materially and adversely affect our business and results of operations.

The state of the global economy continues to be uncertain.

As a result of these conditions, our manufacturers, vendors and customers might experience deterioration of their businesses, cash flow shortages and difficulty obtaining financing, which could result in interruptions or delays in the performance of any contracts, reductions and delays in customer purchases, delays in or the inability of customers to obtain financing to purchase our products, and bankruptcy of customers.

Furthermore, the constraints in the capital and credit markets, may limit the ability of our customers to meet their liquidity needs, which could result in an impairment of their ability to make timely payments to us and reduce their demand for our products, adversely impacting our results of operations and cash flows.

This environment has also made it difficult for us to accurately forecast and plan future business activities.

Company Specific Risks

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Our existing markets and products and new markets and products may require a considerable investment of technical, financial, compliance, sales and marketing resources.

We are currently devoting significant resources to the development of technologies and business offerings in markets where our operating history is less extensive, such as the video delivery market where our acquisition of ViXS has allowed us to expand our market presence and product portfolio.

We cannot assure you that our strategic direction will result in innovative products and technologies that provide value to our customers and partners.

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In each of 2020 and 2019, we executed restructuring plans to make the operation of the Company more efficient.

While these restructuring plans were complete as of June 30, 2019, we may not be able to implement future restructuring programs as planned, and we may need to take additional measures to fulfill the objectives of our restructuring.

We may not be able to implement our restructuring programs as planned, and we may need to take additional measures to fulfill the objectives of our restructuring.

The anticipated expenses associated with our restructuring programs may differ from or exceed our expectations, and we might not be able to realize the full amount of estimated savings from the restructuring programs in a timely manner or at all.

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Additionally, revenue attributable to our top five end customers represented 58% and 77% of revenue for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2019 we had three accounts that each represented 10% or more of accounts receivable.

As of December 31, 2020, we had two accounts that each represented 10% or more of accounts receivable.

All of the orders included in our backlog are cancelable.

As of December 31, 2019, we had three accounts that each represented 10% or more of accounts receivable.

Orders included in our backlog may be fully or partially cancelable.

A reduction, delay or cancellation of orders from one or more of our significant customers, or a decision by one or more of our significant customers to select products manufactured by a competitor or to use its own internally-developed semiconductors, would significantly and negatively impact our revenue.

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We generally do not have long-term commitments with our customers.

As a result, our customers may cancel, change or delay product purchase commitments with little or no notice to us and without penalty.

This, in turn, could cause our revenue to decline and materially and adversely affect our results of operations.

As a result, our customers may cancel, change or delay product purchase commitments, which could cause our revenue to decline and materially and adversely affect our results of operations.

Our revenue and operating results can fluctuate from period to period, which could cause our share price to decline.

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We may not be able to borrow funds under our credit facility or secure future financing which could affect our ability to fund fluctuations in our working capital requirements.

In December 2010, we entered into a Loan and Security Agreement with Silicon Valley Bank, which was later amended on December 14, 2012, December 4, 2013, December 18, 2015, December 15, 2016, July 21, 2017, December 21, 2017, December 18, 2018 and December 18, 2019 (as amended, the "Revolving Loan Agreement").

The Revolving Line has a maturity date of December 27, 2020.

In December 2010, we entered into a Loan and Security Agreement with Silicon Valley Bank, which was later amended on December 14, 2012, December 4, 2013, December 18, 2015, December 15, 2016, July 21, 2017, December 21, 2017, December 18, 2018, December 18, 2019, April 17, 2020 and December 14, 2020 (as amended, the "Revolving Loan Agreement").

The Revolving Loan Agreement provides a secured working capital-based revolving line of credit (the "Revolving Line") in an aggregate amount of up to the lesser of (i) $10.0 million or (ii) $2.5 million plus 80% of eligible domestic accounts receivable and certain foreign accounts receivable of both Pixelworks and ViXS Systems, Inc., subject to certain limitations on the amount of accounts receivables attributable to ViXS.

The Revolving Line has a maturity date of March 26, 2021.

We view this line of credit as a source of available liquidity to fund fluctuations in our working capital requirements;

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This facility contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds.

We cannot assure you that we will be in compliance with these conditions, covenants and representations when we may need to borrow funds under this facility, nor can we assure you that the bank will consent to such borrowings, in which case we may need to seek alternative sources of funding, which may not be available quickly or which may be available only on less favorable terms.

We cannot assure you that we will be in compliance with these conditions, covenants and representations when we may need to borrow additional funds under this facility, nor can we assure you that the bank will consent to such borrowings, in which case we may need to seek alternative sources of funding, which may not be available quickly or which may be available only on less favorable terms.

Our inability to raise the necessary funding in the event we need it could negatively affect our business.

In addition, the amount available to us under this facility depends in part on our accounts receivable balance which could decrease due to a decrease in revenue.

This facility expires on December 27, 2020, after which time we may need to secure new financing to continue funding fluctuations in our working capital requirements.

This facility expires on March 26, 2021, after which time we may need to secure new financing to continue funding fluctuations in our working capital requirements.

We cannot assure you that we will be able to secure new financing in a timely manner or at all, or secure financing on terms that are acceptable to us.

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Additionally, from time to time, we may evaluate acquisitions of, or investments in, businesses, products or technologies that complement our business.

For example, on August 2, 2017 we completed the acquisition of ViXS and issued approximately 3.7 million shares of our common stock as consideration.

Any additional transactions, if consummated, may consume a material portion of our working capital or require the issuance of equity securities that may result in dilution to existing shareholders.

Any transactions, if consummated, may consume a material portion of our working capital or require the issuance of equity securities that may result in dilution to existing shareholders.

If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through debt and equity financing or from other sources.

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Sales outside the U.S.

accounted for approximately 95% , 98% and 98% of revenue for the years ended December 31, 2019, 2018 and 2017.

accounted for approximately 93% and 95% of revenue for the years ended December 31, 2020 and 2019, respectively.

We anticipate that sales outside the U.S.

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Our Asian operations require significant management attention and resources, and we are subject to many risks associated with operations in Asia, including, but not limited to:

• outbreaks of health epidemics in China or other parts of Asia, including COVID-19;

• difficulties in managing international distributors and manufacturers due to varying time zones, languages and business customs;

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• changes in the regulatory environment in China, Japan, Taiwan and Korea that may significantly impact purchases of our products by our customers or our customers’ sales of their own products;

outbreaks of health epidemics in China or other parts of Asia, including COVID-19;

• imposition of new tariffs, quotas, trade barriers and similar trade restrictions on our sales;

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Any of these factors could require a disproportionate share of management’s attention, result in increased costs or decreased revenues, and could materially affect our product sales, financial condition and results of operations.

Global health crises may adversely affect our financial condition.

Our business, the businesses of our customers, and the businesses of our suppliers could be materially and adversely affected by the risks, or the public perception of the risks, related to a pandemic or other health crisis, such as the recent outbreak of novel coronavirus (COVID-19).

A significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could materially and adversely affect demand for our products and our operating results.

Such events could result in the interruption of our distribution system, temporary or long-term disruption in our supply chains from our suppliers, or delays in the delivery of our product.

If the impact of an outbreak continues for an extended period, it could materially adversely impact our supply chain and the growth of our revenues.

Our operations in Asia expose us to heightened risks due to natural disasters.

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and China is uncertain, and any changes in policy as a result may adversely affect our business.

For example, if China were to take action against the United States in response to actual or perceived political or economic threats or changes in policy, such as the detainment of Americans traveling on business, our operations could be adversely affected.

Additionally, our Chinese subsidiary is considered a foreign-invested enterprise and is subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to foreign-invested enterprises.

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While the overall effect of legislation over the past two decades has significantly enhanced the protections afforded to various foreign investments in China, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China.

Because these laws and regulations are relatively new, and published court decisions are limited and nonbinding in nature, the interpretation and enforcement of these

laws and regulations involve uncertainties.

Because these laws and regulations are relatively new, and published court decisions are limited and nonbinding in nature, the interpretation and enforcement of these laws and regulations involve uncertainties.

In addition, China's legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, which may have a retroactive effect.

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Additionally, the adoption of new or revised accounting principles may require that we make significant changes to our systems, processes and controls.

In May 2014, the FASB issued Accounting Standards Codification 606, Revenue from Contracts with Customers , which we implemented on January 1, 2018.

The adoption of this new standard did not result in a cumulative-effect adjustment to retained earnings as of January 1, 2018, however we cannot guarantee that there will be no unforeseen effects of this new standard on our financial statements.

In February 2016, the FASB issued Accounting Standards Update No.

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In the second quarter of 2019, we identified a material weakness in our internal controls over financial reporting related to the review of aged liabilities for possible extinguishment due to the expiration of the statute of limitation, which was remediated as of December 31, 2019.

As a result, investors may lose confidence in the accuracy and completeness of our financial reports and effectiveness which would cause the price of our common stock to decline.

As a result, investors may have lost confidence in the accuracy and completeness of our financial reports and effectiveness which may cause the price of our common stock to decline.

Additionally, if any new internal control procedures which may be adopted or our existing internal control procedures are deemed inadequate, or if we identify additional material weaknesses in our disclosure controls or internal controls over financial reporting in the future, we will be unable to assert that our internal controls are effective.

If we are unable to do so, or if our auditors are unable to attest on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.

If we are unable to do so, or if our auditors are unable to attest to the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.

As we have limited insurance coverage, any incurred liability resulting from uncovered claims could adversely affect our financial condition and results of operations .

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The implementation of these rules could also affect the sourcing, supply and pricing of materials used in our products.

For example, there may only be a limited number of suppliers offering “conflict free” materials, we cannot be sure that we will be able to obtain necessary "conflict free" materials from such suppliers in sufficient quantities or at reasonable prices.

For example, there may only be a limited number of suppliers offering “conflict free” materials and we cannot be sure that we will be able to obtain necessary "conflict free" materials from such suppliers in sufficient quantities or at reasonable prices.

In addition, we may face reputational challenges if we determine that any of our products contain minerals that are not conflict free or if we are unable to sufficiently verify the origins for all materials containing conflict minerals used in our products through the procedures we may implement.

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For these reasons, our tax rate may be materially different than our forecast.

On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was signed into law.

The TCJA contains significant changes to U.S.

federal corporate income taxation, including reduction of the corporate tax rate from 35% to 21% for US taxable income, resulting in a one-time remeasurement of deferred taxes to reflect their value at a lower tax rate of 21%, limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, deemed repatriation, resulting in one-time U.S.

taxation of undistributed prior offshore earnings at reduced rates, elimination of U.S.

tax on future offshore earnings (subject to certain important exceptions), and immediate deductions for certain new investments instead of deductions for depreciation expense over time.

Effective January 1, 2018, the new legislation contained several key tax provisions that impacted us including the reduction of the corporate income tax rate to 21%.

ASC 740 required us to recognize the effect of the tax law change in the period of enactment.

The lower tax rate required us to remeasure our deferred tax assets and liabilities as of December 31, 2017.

We rely upon certain critical information systems for the operation of our business, and the failure of any critical information system may result in serious harm to our business.

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Company Risks Related to the Semiconductor Industry and Our Markets

Dependence on a limited number of sole-source, third-party manufacturers for our products exposes us to possible shortages based on low manufacturing yield, errors in manufacturing, uncontrollable lead-times for manufacturing, capacity allocation, price increases with little notice, volatile inventory levels and delays in product delivery, any of which could result in delays in satisfying customer demand, increased costs and loss of revenue.

We do not own or operate a semiconductor fabrication facility and do not have the resources to manufacture our products internally.

We rely on a limited number of foundries and assembly and test vendors to produce all of our wafers and for completion of finished products.

Our wafers are not fabricated at more than one foundry at any given time and our wafers typically are designed to be fabricated in a specific process at only one foundry.

Sole sourcing each product increases our dependence on our suppliers.

We have limited control over delivery schedules, quality assurance, manufacturing yields, potential errors in manufacturing and production costs.

We do not have long-term supply contracts with our third-party manufacturers, so they are not obligated to supply us with products for any specific period of time, quantity or price, except as may be provided in a particular purchase order.

Our suppliers can increase the prices of the products we purchase from them with little notice, which may cause us to increase the prices to our customers and harm our competitiveness.

Because our requirements represent only a small portion of the total production capacity of our contract manufacturers, they could reallocate capacity to other customers during periods of high demand for our products, as they have done in the past.

We expect this may occur again in the future.

Establishing a relationship with a new contract manufacturer in the event of delays or increased prices would be costly and burdensome.

The lead time to make such a change would be at least nine months, and the estimated time for us to adapt a product’s design to a particular contract manufacturer’s process is at least four months.

Additionally, we have chosen, and may continue to choose new foundries to manufacture our wafers which in turn, may require us to modify our design methodology flow for the process technology and intellectual property cores of the new foundry.

If we have to qualify a new foundry or packaging, assembly and testing supplier for any of our products or if we are unable to obtain our products from our contract manufacturers on schedule, at costs that are acceptable to us, or at all, we could incur significant delays in shipping products, our ability to satisfy customer demand could be harmed, our revenue from the sale of products may be lost or delayed and our customer relationships and ability to obtain future design wins could be damaged.

Our highly integrated products and high-speed mixed signal products are difficult to manufacture without defects and the existence of defects could result in increased costs, delays in the availability of our products, reduced sales of products or claims against us.

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Further, our business liability insurance may be inadequate or future coverage may be unavailable on acceptable terms, which could adversely impact our financial results.

We have experienced field failures of our semiconductors in certain customer applications that required us to institute additional testing.

We experience a small number of semiconductor field failures infrequently in certain customer applications that required us to institute additional testing.

As a result of these field failures, we have incurred warranty costs due to customers returning potentially affected products and have experienced reductions in revenues due to delays in production.

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We compete with specialized and diversified electronics and semiconductor companies that offer display processors or scaling components including:

Actions Microelectronics Co., Ltd., ARM Holdings PLC, Dolby Laboratories, Inc., Hisilicon Technologies Co., Ltd., i-Chips Technologies Inc., Lattice Semiconductor Corporation, MediaTek Inc., Novateck Microelectronics Corp., NVIDIA Corporation, Qualcomm Incorporated, Realtek Semiconductor Corp., Renesas Electronics America Inc., Solomon Systech (International) Ltd., STMicroelectronics N.V., Sunplus Technology Co., Ltd., Synaptics Incorporated, Texas Instruments Incorporated, Unisoc Communications, Inc., and other companies.

Actions Microelectronics Co., Ltd., ARM Holdings PLC, Dolby Laboratories, Inc., Egis Technology Inc., Hisilicon Technologies Co., Ltd., i-Chips Technology Inc., Lattice Semiconductor Corporation, MediaTek Inc., Novatek Microelectronics Corp., NVIDIA Corporation, Qualcomm Incorporated, Realtek Semiconductor Corp., Renesas Electronics America Inc., Socionext Inc., Solomon Systech (International) Ltd., STMicroelectronics N.V., Sunplus Technology Co., Ltd., Synaptics Incorporated, Texas Instruments Incorporated, Unisoc Communications, Inc., and other companies.

Potential and current competitors may include diversified semiconductor manufacturers and the semiconductor divisions or affiliates of some of our customers, including:

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Additionally, if the technology used by our customers becomes less competitive due to cost, customer preferences or other factors relative to alternative technologies, sales of our products could decline.

We do not own or operate a semiconductor fabrication facility and do not have the resources to manufacture our products internally.

We rely on a limited number of foundries and assembly and test vendors to produce all of our wafers and for completion of finished products.

Our wafers are not fabricated at more than one foundry at any given time and our wafers typically are designed to be fabricated in a specific process at only one foundry.

Sole sourcing each product increases our dependence on our suppliers.

We have limited control over delivery schedules, quality assurance, manufacturing yields, potential errors in manufacturing and production costs.

Our suppliers can increase the prices of the products we purchase from them with little notice, which may cause us to increase the prices to our customers and harm our competitiveness.

We expect this may occur again in the future.

Establishing a relationship with a new contract manufacturer in the event of delays or increased prices would be costly and burdensome.

We use a customer-owned tooling process for manufacturing most of our products, which exposes us to the possibility of poor yields and unacceptably high product costs.

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We may not be able to place last time buy orders for the old technology or find alternate manufacturers of our products to allow us to continue to produce products with the older technology while we expend the significant costs for research and development and time to migrate to new, more advanced processes.

For example, a portion of our products use 0.11um technology for memory die, which is being phased out in favor of 63nm technology to increase yields and decrease cost.

Because of this transition, our customers must re-qualify the affected parts.

Shortages of materials used in the manufacturing of our products and other key components of our customers ’ products may increase our costs, impair our ability to ship our products on time and delay our ability to sell our products.

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We have experienced, and may continue to experience, periodic fluctuations in our financial results because of changes in industry-wide conditions.

General Risks

The price of our common stock has and may continue to fluctuate substantially.

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If this financing is obtained through the issuance of equity securities, debt convertible into equity securities, options or warrants to acquire equity securities or similar instruments or securities, our existing shareholders will experience dilution in their ownership percentage upon the issuance, conversion or exercise of such securities and such dilution could be significant.

New equity securities issued by us could have rights, preferences or privileges senior to those of our common stock.

In addition, any such issuance by us or sales of our securities by our security holders, including by any of our affiliates, or the perception that such issuances or sales could occur, could negatively impact the market price of our securities.

For example, a number of shareholders own significant blocks of our common stock, and we have issued approximately 3.7 million shares of our common stock to the former holders of ViXS, such shares which were freely tradeable upon issuance.

If one or more of these large shareholders were to sell large portions of their holdings in a relatively short time, or if the former holders of ViXS were to collectively sell large portions of the stock issued as consideration in the Acquisition in a relatively short time, for liquidity or other reasons, the prevailing market price of our common stock could be negatively affected.

For example, on December 7, 2020, we completed a private placement of 724,288 shares of common stock to a certain accredited investor at a purchase price of $2.071 per share.

On December 15, 2020, we completed a private placement of 2,475,712 shares of common stock to a certain accredited investor at a purchase price of $2.071.

The issuance and sale of the shares in the private placement had a dilutive impact on our existing stockholders.

Additionally, on December 14, 2020, we completed the sale of 4,900,000 shares of common stock in an underwritten registered offering.

On December 16, 2020, an additional 735,000 shares were issued pursuant to the 30-day over-allotment option exercised by the underwriter.

With the over-allotment shares, a total of 5,635,000 shares of common stock were sold in the offering at a price to the public of $2.45 per share.

Additionally, pursuant to our “at the market” equity offering program, we may sell shares of our common stock having aggregate sales proceeds of up to $25 million from time to time through Cowen and Company, LLC, as our agent.

During the year ended December 31, 2020, we sold an aggregate of 1,747,466 shares of our common stock under this at the market offering.

The issuance and sale of additional shares of our common stock pursuant to our “at the market” equity offering program will have a dilutive impact on our existing stockholders.

Additionally, any new equity securities issued by us could have rights, preferences or privileges senior to those of our common stock.

Further, the issuance and sale of, or the perception that we may issue and sell, additional shares of common stock pursuant to our “at the market” equity offering program or an additional private placement could have the effect of depressing the market price of our common stock or increasing the volatility thereof.

Any issuance by us or sales of our securities by our security holders, including by any of our affiliates, or the perception that such issuances or sales could occur, could negatively impact the market price of our securities.

For example, a number of shareholders own significant blocks of our common stock.

If one or more of these large shareholders were to sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of our common stock could be negatively affected.

This could result in further potential dilution to our existing shareholders and the impairment of our ability to raise capital through the sale of equity, debt or other securities.

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For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our common stock, causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition and results of operations by limiting our ability to attract and retain qualified executives and employees and limiting our ability to raise capital.

The continued uncertain global economic environment and volatility in global credit and financial markets could materially and adversely affect our business and results of operations.

The state of the global economy continues to be uncertain.

As a result of these conditions, our manufacturers, vendors and customers might experience deterioration of their businesses, cash flow shortages and difficulty obtaining financing which could result in interruptions or delays in the performance of any contracts, reductions and delays in customer purchases, delays in or the inability of customers to obtain financing to purchase our products, and bankruptcy of customers.

This environment has also made it difficult for us to accurately forecast and plan future business activities.

The anti-takeover provisions of Oregon law and in our articles of incorporation could adversely affect the rights of the holders of our common stock, including by preventing a sale or takeover of us at a price or prices favorable to the holders of our common stock.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors