What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-10 compared with 2020-03-11 · 281 added, 276 removed, 626 unchanged (47% of the section changed)

1 unchanged sentence

The following financial statements and reports are included in Item 8:

Report of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets as of December 31, 2020 and 2019

5 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Pixelworks, Inc.

San Jose, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Pixelworks, Inc.

and its subsidiaries (the Company) as of December 31, 2020, and the related consolidated statements of operations, comprehensive loss, shareholders' equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The Company's management is responsible for these consolidated financial statements.

Our responsibility is to express an opinion on the Company's consolidated financial statements.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

_____________________________________________________________________________________________

Revenue Recognition — Refer to Note 2 to the Consolidated Financial Statements

____________________________________________________________________________

Critical Audit Matter Description

The Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.

The Company’s contract may contain one or more performance obligations, including hardware, professional engineering services, internally developed intellectual property (“IP”) and technical support services.

Significant judgment is exercised by the Company in determining revenue recognition for these customer agreements, and includes the following:

• Determination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together.

• Determination of stand-alone selling prices for each distinct performance obligation (i.e.

for IP license fee and support service fee that are sold together under IP licensing arrangements).

• The pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.

• Estimation of variable consideration when determining the amount of revenue to recognize, primarily on product sale arrangements (e.g., customer credits pursuant to price protection rights, stock rotation rights and limited return rights).

Given these factors, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.

____________________________________________________________________________

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company’s revenue recognition for these customer agreements included the following:

• We selected a sample of customer agreements and performed the following procedures:

◦ Obtained and read contract source documents for each selection, including master agreements, and other documents that were part of the agreement to identify significant terms.

◦ Tested management’s identification of significant terms for completeness, including the identification of distinct performance obligations and variable consideration.

◦ Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.

• We evaluated the reasonableness of management’s estimate of stand-alone selling prices for products and services that are not sold separately.

• We evaluated the reasonableness and accuracy of management’s judgements and estimates used in accounting for customer credits pursuant to price protection rights, stock rotation rights and limited return rights (“variable consideration”).

This included testing management’s estimate of calculating expected credits issued to customers and determining whether such credits were completely and accurately reserved as of December 31, 2020.

We tested the mathematical accuracy of management’s calculations of revenue and the associated timing of recognizing the related revenue subject to any constraints in the consolidated financial statements.

_____________________________________________________________________________________________

Inventory Valuation— Refer to Note 2 to the Financial Statements

____________________________________________________________________________

Critical Audit Matter Description

The Company computes inventory cost on a first-in-first out basis and applies judgment in determining the forecast for products and the valuation of inventories.

The Company assesses inventory at each reporting date in order to assert that it is recorded at net realizable value, giving consideration to, among other factors:

whether the product is valued at the lower of cost or net realizable value;

and the estimation of excess and obsolete inventory or that which is not of saleable quality.

Most of the Company’s inventory provisions are based on the Company’s inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions.

Significant judgment is exercised by the Company to determine inventory carrying value adjustments, specifically the provisions for excess or obsolete inventories, and includes the following:

• Developing assumptions such as forecasts of future sales quantities, which are sensitive to the competitiveness of product offerings, customer requirements, and product life cycles.

• Applying management judgment on not reserving certain inventory units (e.g.

in case they are items that can be used for Return Merchandise Authorization "RMA"/warranty purpose)

Given these factors and assumptions are forward-looking and could be affected by future economic and market conditions, the related audit effort to evaluate management’s inventory valuation adjustments was extensive and required a high degree of auditor judgment.

____________________________________________________________________________

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company’s inventory valuation methodology included the following:

• We selected a sample of inventory items and performed the following procedures:

◦ Tested the mathematical accuracy of the schedule by comparing the quantities and carrying value of on-hand inventories to related unit sales, both historical and forecasted.

◦ Assessed and tested the reasonableness of the significant assumptions (e.g.

sales and marketing forecast, build plans, RMA requirements, usage and open sales-orders).

◦ Inquired with the management team and evaluated the adequacy of management’s sales forecasts by analyzing potential technological changes in line with product life cycles and/or identified alternative customer uses.

Assessed whether there were any potential sources of contrary information, including historical forecast accuracy or history of significant revisions to previously recorded inventory valuation adjustments, and performed sensitivity analyses over significant assumptions to evaluate the changes in inventory valuation that would result from changes in the assumptions.

/s/ Armanino LLP

We have served as the Company’s auditor since 2020.

San Ramon, California

March 10, 2021

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Pixelworks, Inc.

and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2019, in conformity with U.S.

We have audited the accompanying consolidated balance sheet of Pixelworks, Inc.

and subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the year ended December 31, 2019, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 11, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Changes in Accounting Principles

The Company has changed its method of accounting for leases as of January 1, 2019, due to the adoption of Accounting Standards Codification 842, Leases , and its method of accounting for revenue as of January 1, 2018, due to the Adoption of Accounting Standard Codification 606, Revenue from Contracts with Customers, as discussed in Note 2 and Note 10, respectively, to the consolidated financial statements.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 1997.

We believe that our audit provides a reasonable basis for our opinion.

We served as the Company’s auditor from 1997 to 2020.

Portland, Oregon

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Accounts receivable, net 4,672 10,915

Inventories 2,445 5,401

Prepaid expenses and other current assets 1,010 1,689

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Acquired intangible assets, net 1,207 2,704

Goodwill 18,407 18,407

Total assets $ 72,038 $ 64,657

LIABILITIES AND SHAREHOLDERS' EQUITY

13 unchanged sentences

250,000,000 shares authorized, 51,078,942 and 38,434,488 shares issued and outstanding as of December 31, 2020 and 2019, respectively.

467,957 436,122

Accumulated other comprehensive income 47 12

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Cost of revenue (1) 20,670 34,260

Gross profit 20,185 34,495

Operating expenses:

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Loss from operations ( 26,736 ) ( 13,123 )

Interest income (expense) and other, net (5)

Interest income and other, net 9 594

Gain on loan extinguishment 796 —

Gain on sale of patents — 3,905

Total other income (expense), net

Total other income, net 805 4,499

Loss before income taxes ( 25,931 ) ( 8,624 )

Provision for income taxes 598 453

Net loss $ ( 26,529 ) $ ( 9,077 )

Net loss per share - basic and diluted $ ( 0.65 ) $ ( 0.24 )

Weighted average shares outstanding - basic and diluted 40,712 37,851

(1) Includes deferred revenue fair value adjustment

(1) Includes:

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Stock-based compensation 432 367

Restructuring 173 —

Inventory step-up and backlog amortization — 12

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Amortization of acquired intangible assets 304 312

Acquisition and integration

(5) Includes:

Gain on debt extinguishment

Discount accretion on convertible debt fair value

Fair value adjustment on convertible debt conversion option

(6) Includes benefit related to tax reform

See accompanying notes to consolidated financial statements.

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Year Ended December 31,

Net loss $ ( 26,529 ) $ ( 9,077 )

Other comprehensive income (loss):

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Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Net loss $ ( 26,529 ) $ ( 9,077 )

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation 7,853 6,649

Gain on sale of patents

Depreciation and amortization 3,737 3,837

Amortization of acquired intangible assets 1,496 1,504

Gain on loan extinguishment ( 796 ) —

Reversal of uncertain tax positions ( 88 ) ( 124 )

Deferred income tax expense 26 45

Accretion on short-term marketable securities ( 4 ) ( 94 )

Deferred income tax (benefit) expense

Gain on sale of marketable securities ( 4 ) —

Gain on sale of patents — ( 3,905 )

Inventory step-up and backlog amortization — 12

Gain on debt extinguishment

Discount accretion on convertible debt fair value

Fair value adjustment on convertible debt conversion option

Other 9 ( 3 )

Changes in operating assets and liabilities:

Accounts receivable, net 6,243 ( 3,933 )

Inventories 2,956 ( 2,459 )

Prepaid expenses and other current and long-term assets, net 3,295 2,172

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Income taxes payable 290 ( 14 )

Net cash provided by (used in) operating activities

Net cash used in operating activities ( 3,711 ) ( 10,380 )

Cash flows from investing activities:

Purchases of available-for-sale marketable securities

Proceeds from sales and maturities of marketable securities 8,229 10,050

Proceeds from sale of patents

Purchases of property and equipment ( 2,637 ) ( 2,629 )

Purchases of available-for-sale marketable securities ( 1,500 ) ( 10,856 )

Purchases of licensed technology ( 152 ) ( 521 )

Proceeds from sale of patents — 4,250

Payment associated with sale of patents — ( 345 )

Cash received in connection with acquisition of business

Net cash used in investing activities

Net cash used in (provided by) investing activities 3,940 ( 51 )

Cash flows from financing activities:

Net proceeds from equity offering 12,743 —

Net proceeds from private placement investment 6,210 —

Net proceeds from "at the market" equity offering 4,429 —

Payments on asset financings ( 1,007 ) ( 826 )

Proceeds from Paycheck Protection Program loan 796 —

Proceeds from issuances of common stock under employee equity incentive plans 600 570

Payments on convertible debt

Payments on line of credit related to acquisition

Net cash used in financing activities

Net cash provided by (used in) financing activities 23,771 ( 256 )

Net increase (decrease) in cash and cash equivalents 24,000 ( 10,687 )

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Non-cash investing and financing activities:

Acquisitions of property and equipment and other

assets under extended payment terms

Value of debt converted into shares

Value of shares issued in acquisition

Gain on loan extinguishment $ ( 796 ) $ —

Acquisitions of property and equipment and other assets under extended payment terms 1,495 934

See accompanying notes to consolidated financial statements.

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(In thousands, except share data)

Common Stock Accumulated

Comprehensive

Income (Loss)

Income (Loss) Accumulated

Deficit Total

Shareholders'

Shares Amount

Balance as of December 31, 2018 36,937,458 428,903 15 ( 379,528 ) 49,390

1 unchanged sentence

Stock-based compensation expense — 6,649 — — 6,649

Issuance of stock for acquisition

Debt conversion

Unrealized gain on available-for-sale securities — — 3 — 3

Net loss — — — ( 9,077 ) ( 9,077 )

Foreign pension adjustment, net of tax of $( 1 )

— — ( 6 ) — ( 6 )

Balance as of December 31, 2019 38,434,488 436,122 12 ( 388,605 ) 47,529

Stock issued under employee equity incentive plans 2,061,988 600 — — 600

Equity offering 5,635,000 12,743 — — 12,743

Private placement investment 3,200,000 6,210 — — 6,210

"At the market" equity offering 1,747,466 4,429 — — 4,429

Stock-based compensation expense — 7,853 — — 7,853

Unrealized loss on available-for-sale securities — — ( 3 ) — ( 3 )

Debt conversion

Foreign pension adjustment, net of tax of ($3)

Balance as of December 31, 2018

Stock issued under employee equity incentive plans

Stock-based compensation expense

Unrealized gain on available-for-sale securities

Net loss — — — ( 26,529 ) ( 26,529 )

Foreign pension adjustment, net of tax of $ 10

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Pixelworks was founded in 1997 and is incorporated under the laws of the state of Oregon.

On August 2, 2017, we acquired ViXS Systems, Inc., a corporation organized in Canada ("ViXS").

On August 2, 2017, we acquired ViXS Systems, Inc., a corporation organized in Canada ("ViXS") ("the Acquisition").

Our consolidated financial statements include the accounts of Pixelworks and its wholly-owned subsidiaries.

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Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S.

The preparation of consolidated financial statements in conformity with U.S.

generally accepted accounting principles ("U.S.

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The actual results experienced could differ materially from our estimates.

Immaterial Error Correction

During the second quarter of 2019, the Company determined that the statute of limitations had previously expired related to a portion of a liability that had been accrued in prior periods.

Management evaluated the materiality of the error, both quantitatively and qualitatively, and concluded that it was not material to the financial statements of any period presented.

The Company has revised beginning retained earnings and corrected the error in the accompanying prior period financial information in these condensed consolidated financial statements.

The following table sets forth the effect this immaterial error correction had on the Company’s condensed consolidated statements of operations for the years ended December 31, 2018 and 2017:

December 31, 2018

December 31, 2017

Previously Reported

Interest income (expense) and other, net

Total other income (expense), net

Loss before income taxes

Net loss per share - basic and diluted

The following table sets forth the effect this immaterial error correction had on the Company's condensed consolidated balance sheet as of December 31, 2018:

December 31, 2018

Previously Reported

Accrued liabilities and current portion of long-term liabilities

Total current liabilities

Total liabilities

Accumulated deficit

Total shareholders’ equity

The following table sets forth the effect this immaterial error correction had on the Company's condensed consolidated statement of cash flows for the years ended December 31, 2018 and 2017:

December 31, 2018

December 31, 2017

Previously Reported

Operating activities:

Change in accrued current and long-term liabilities

Net cash provided by operating activities

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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We classify all cash and highly liquid investments with original maturities of three months or less at the date of purchase as cash and cash equivalents.

Cash equivalents, which as of December 31, 2019 consisted of U.S.

denominated money market funds and as of December 31, 2018 consisted of U.S.

denominated money market funds, commercial paper and corporate debt securities totaled $ 1,307 and $ 13,887 as of December 31, 2019 and 2018 , respectively.

Cash equivalents, which as of December 31, 2020 and 2019 consisted of U.S.

denominated money market funds, totaled $ 23,832 and $ 1,307 as of December 31, 2020 and 2019, respectively.

Marketable Securities

Our investments in marketable securities are classified as available-for-sale.

Available-for-sale securities are stated at fair value based on quoted market prices with unrealized holding gains or losses, net of tax, included in accumulated other comprehensive income (loss), a component of shareholders’ equity.

The cost of securities sold is based on the specific identification method.

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Depreciation and amortization is calculated on a straight-line basis over the estimated useful life of the assets which are generally as follows:

Lesser of 3 years or contractual license term

Equipment, furniture and fixtures

Leasehold improvements

Lesser of lease term or estimated useful life

Software Lesser of 3 years or contractual license term

Equipment, furniture and fixtures 2 years

Tooling 2 to 4 years

Leasehold improvements Lesser of lease term or estimated useful life

The cost of property and equipment repairs and maintenance is expensed as incurred.

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We have concluded that the carrying value of our long-lived assets is recoverable as of December 31, 2020.

Goodwill is not amortized, rather tested, at least annually, for impairment at a reporting unit level.

Goodwill is not amortized, rather it is tested, at least annually, for impairment at a reporting unit level.

Impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value.

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Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No.

2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12").

ASU 2019-12 removes certain exceptions to the general principles in Accounting Standards Codification ("ASC") 740 and also clarifies and amends existing guidance to provide for more consistent application.

ASU 2019-12 will become effective for us in the first quarter of fiscal 2021, and early adoption is permitted.

We are evaluating the impact that the adoption of ASU 2019-12 will have on our financial position, results of operations and cash flows, but don't estimate the impact to be significant.

In November 2018, the FASB issued Accounting Standards Update No.

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The amendment also precludes entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers.

ASU 2018-18 is effective for us on January 1, 2020.

We are currently assessing the impact of this update on our financial position, results of operations and cash flows.

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

2016-02, Leases (Topic 842) ("ASC 842"), which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements.

Topic 842 was subsequently amended by ASU No.

2018-01, Land Easement Practical Expedient for Transition to Topic 842 ;

2018-10, Codification Improvements to Topic 842 ;

2018-11, Targeted Improvements .

The new standard establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

We adopted the new standard on January 1, 2019 and used the effective date as our date of initial application under the modified retrospective approach.

Under the effective date method, financial information and disclosures prior to January 1, 2019 are not required to be restated.

We elected the “practical expedient package,” which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

We did not elect the use-of-hindsight or the practical expedient pertaining to land easements;

the latter not being applicable to us.

We elected the short-term lease recognition exemption for all leases that qualify.

This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.

We also elected the practical expedient to not separate lease and non-lease components for all of our leases.

Upon adoption, we recognized operating lease liabilities of $ 6,847 based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

We also recognized ROU assets of $ 6,224 which represents the operating lease liability adjusted for accrued rent and cease-use liabilities.

The adoption did not have a material impact on our condensed consolidated statements of operations or cash flows.

The most significant impact relates to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our office operating leases;

and (2) providing significant new disclosures about our leasing activities.

On August 2, 2017, we acquired 100 % of the outstanding shares of ViXS (the "Acquisition").

We issued 0.04836 of a share of our common stock in exchange for each share of ViXS common stock outstanding and for certain ViXS restricted stock units which were vested simultaneously with closing.

ViXS designs and develops advanced video processing semiconductor solutions.

The Acquisition added families of video processor components for consumer applications and cloud, video delivery and infrastructure markets, along with a companion family of networking components to our solutions.

These factors contributed to establishing the purchase price and supported the premium paid over the fair value of the tangible and intangible assets acquired.

The aggregate purchase price for ViXS was $ 16,975 and consisted of $ 16,316 related to the issuance of 3,586,020 shares of our common stock plus $ 659 related to:

(i) the issuance of 202,043 unvested restricted stock units, in exchange for ViXS’ unvested restricted stock units, plus (ii) the issuance of 122,242 shares to a holder of ViXS restricted stock units which were vested simultaneously with closing.

The purchase price calculations were based on the closing price of our common stock on the day the transaction closed.

The ViXS chief executive officer (the "CEO") was terminated in connection with the closing of the transaction.

As a result, we recognized expense of $ 1,115 , which consisted of $ 800 related to a severance agreement, payable over 24 months, and $ 315 related to accelerated vesting of the CEO’s ViXS restricted stock units which were exchanged for Pixelworks common stock at closing.

Such amount was included within selling, general and administrative within our consolidated statement of operations for the year ended December 31, 2017.

The purchase price was allocated to the assets and liabilities based on fair values as follows:

Purchase price

Less net liabilities assumed:

Assets acquired:

Cash and cash equivalents

Accounts receivable

Property and equipment

Identifiable intangible assets

Liabilities assumed:

Accounts payable

Accrued liabilities and other current liabilities

Revolving bank loan

Convertible debt

Other noncurrent liabilities

The allocation of the purchase price was based upon various estimates and assumptions.

Below are the significant valuations that were performed in connection with the Acquisition:

We performed a valuation of the convertible debt.

We assigned $ 4,762 of the purchase price to convertible debt, consisting of the contractual amount of $ 6,068 offset by a debt discount of $ 1,306 , and $ 1,723 to the embedded conversion feature.

No other features of the debt were assigned value at the Acquisition date.

We performed a valuation of acquired intangible assets.

We assigned $ 5,050 of the purchase price to acquired developed technology with estimated lives of 5 years or less, $ 1,270 to customer relationships with estimated lives of 3 years or less, and $ 410 to backlog and trademark with estimated lives of 2 years or less.

ViXS had no in-process research and development.

We recorded an inventory step-up of $ 2,191 to record inventory at fair value.

We recognized $ 12 in 2019, $ 424 in 2018 and $ 1,755 in 2017 within cost of goods sold as the inventory was sold.

The inventory step-up was fully recognized as of December 31, 2019.

We recorded gross deferred tax assets of $ 62,992 , subject to a valuation allowance of $ 62,972 to recognize book basis and tax basis differences of various balance sheet assets and liabilities and corporate tax attributes acquired.

The goodwill resulting from this transaction is not deductible for tax purposes.

The results of ViXS’ operations are included in our consolidated statement of operations beginning on the date of acquisition.

ViXS revenue of $ 4,489 and net loss of $( 6,729 ) , which included $ 1,920 in restructuring charges, (see Note 7:

"Restructurings") and $ 3,633 of non-cash amortization of acquisition and debt related items are included in our consolidated statement of operations for the year ended December 31, 2017.

ASU 2018-18 became effective for us on January 1, 2020.

The adoption of ASU 2018-18 did not have a material impact on our financial position, results of operations and cash flows.

BALANCE SHEET COMPONENTS

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Balance at beginning of year $ 23 $ 21

Additions charged (reductions credited)

Additions charged 18 2

Balance at end of year $ 41 $ 23

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Work-in-process 670 3,771

Inventories $ 2,445 $ 5,401

We recorded inventory write-downs of $ 95 and $ 137 for the years ended December 31, 2020 and 2019, respectively.

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Equipment, furniture and fixtures $ 8,889 $ 8,494

Tooling 6,298 6,552

Software 5,711 6,428

Leasehold improvements 1,393 1,392

22,291 22,866

Accumulated depreciation and amortization ( 17,188 ) ( 18,258 )

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Other assets consist primarily of deposits, deferred tax assets and licensed technology.

Amortization of licensed technology was $ 217 for the year ended December 31, 2019 and $ 0 for each of the years ended December 31, 2018 and 2017.

Amortization of licensed technology was $ 336 and $ 217 for the years ended December 31, 2020 and 2019, respectively.

Acquired Intangible Assets, Net

In connection with the Acquisition, we recorded certain identifiable intangible assets.

“Acquisition” for additional information.

Acquired intangible assets resulting from this transaction consist of the following:

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Backlog was fully amortized as of December 31, 2018 and tradename was fully amortized as of December 31, 2019.

Amortization expense for intangible assets was $ 1,504 for the year ended December 31, 2019, with $ 1,192 included in cost of revenue and $ 312 included in selling, general and administrative on the consolidated statement of operations.

Amortization expense for intangible assets was $ 1,496 for the year ended December 31, 2020, with $ 1,192 included in cost of revenue and $ 304 included in selling, general and administrative on the consolidated statements of operations.

As of December 31, 2020, future estimated amortization expense is as follows:

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Goodwill resulted from the Acquisition, whereby we recorded goodwill of $ 18,407 .

"Acquisition" for information concerning the acquisition.

"Summary of Significant Accounting Policies" for information on our assessment of goodwill impairment.

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Operating lease liability, current 2,039 1,545

Accrued commissions and royalties

Current portion of accrued liabilities for asset financings 786 483

Accrued costs related to restructuring 630 66

Accrued commissions and royalties 474 663

Accrued interest payable 429 397

Deferred revenue 179 146

Accrued costs related to restructuring

Liability for warranty returns

Other 2,048 1,952

Accrued liabilities and current portion of long-term liabilities $ 9,452 $ 8,692

The following is a summary of the change in deferred revenue and our liability for warranty returns:

The following is a summary of the change in deferred revenue:

Year Ended December 31,

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Balance at end of period $ 179 $ 146

Liability for warranty returns:

Balance at beginning of year

Balance at end of year

Short-Term Line of Credit

On December 21, 2010, we entered into a Loan and Security Agreement with Silicon Valley Bank (the "Bank"), which was 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").

On December 21, 2010, we entered into a Loan and Security Agreement with Silicon Valley Bank (the "Bank"), which was 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) $ 10,000 , or (ii) $ 2,500 plus 80 % of eligible domestic accounts receivable and certain foreign accounts receivable.

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

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

In addition, the Revolving Loan Agreement provides for non-formula advances of up to $ 10,000 which may be made solely during the last five business days of any fiscal month or quarter and which must be repaid by the Company on or before the fifth business day after the applicable fiscal month or quarter end.

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The Revolving Loan Agreement, as amended also provides an option for LIBOR advances that bear interest based on the LIBOR rate, subject to the availability of a LIBOR rate.

Interest on the Revolving Line is due monthly, with the balance due on December 27, 2020, which is the scheduled maturity date for the Revolving Line.

Interest on the Revolving Line is due monthly, with the balance due on March 26, 2021, which is the scheduled maturity date for the Revolving Line.

The Revolving Loan Agreement, as amended contains customary affirmative and negative covenants, including with respect to the following:

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As of December 31, 2020 and December 31, 2019, we had no outstanding borrowings on the Revolving Line.

CONVERTIBLE DEBT

As part of the Acquisition, we assumed secured convertible debt and as a result of the change in control of ViXS, the convertible debt holders had a right to put the debt to the Company.

A majority of the holders agreed to waive their right to accelerate and to accept 0.04836 share of our common stock for each share of ViXS common stock the holder would have been entitled to receive upon the exercise of the conversion option.

On January 12, 2018, the Company provided notice to the holders of the convertible debt of its election to redeem the convertible debt in full as of March 13, 2018.

Subsequently, certain holders of the convertible debt elected to convert their convertible debt into shares of common stock of Pixelworks pursuant to the terms of the convertible debt.

This resulted in the issuance of 435,353 shares of our common stock which was valued at an aggregate of $ 2,646 .

We paid an aggregate of CAD $ 2,875 (equivalent to $ 2,220 USD) to redeem the convertible debt of those holders who did not elect to convert their convertible debt.

The extinguishment of the debt during the first quarter of 2018 resulted in a gain of $ 1,272 which is recorded in interest income (expense) and other, net within our condensed consolidated statement of operations.

For the year ended December 31, 2018, interest expense consisted of $ 66 related to the contractual rate of interest and $ 69 related to accretion of the discount.

During the year ended December 31, 2018, we recorded net foreign currency losses of approximately $ 15 in other expense.

For the year ended December 31, 2017, interest expense consisted of $ 227 related to the contractual rate of interest and $ 196 related to accretion of the discount.

During the year ended December 31, 2017, we recorded net foreign currency gains of approximately $( 4 ) in other expense.

Paycheck Protection Program Loan

On April 25, 2020, we entered into a loan with Silicon Valley Bank as the lender in an aggregate principal amount of $ 796 (the “Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The Loan is evidenced by a promissory note (the “Note”) dated April 25, 2020, and matures 2 years from the disbursement date.

The Note bears interest at a rate of 1.000 % per annum, with the first six months of interest deferred.

Principal and interest are payable monthly commencing 6 months after the disbursement date and may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

The Note contains customary events of default relating to, among other things, payment defaults or breaches of the terms of the Note.

Upon the occurrence of an event of default, the Lender may require immediate repayment of all amounts outstanding under the Note.

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP.

The Loan is subject to forgiveness to the extent proceeds are used for payroll costs, including payments required to continue group health care benefits, and certain rent, utility, and mortgage interest expenses (collectively, “Qualifying Expenses”), pursuant to the terms and limitations of the PPP.

We used the Loan amount for Qualifying Expenses.

During the fourth quarter of 2020, we applied for and received full forgiveness and have recorded a gain of $ 796 within other income in our consolidated statements of operations.

MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

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As of December 31, 2020 and December 31, 2019, all of our marketable securities are classified as available-for-sale and consist of the following:

Unrealized Gain (Loss)

Cost Unrealized Gain (Loss) Fair Value

Short-term marketable securities:

As of December 31, 2020:

Commercial paper

government treasury bills

Corporate debt securities $ 253 $ ( 3 ) $ 250

$ 253 $ ( 3 ) $ 250

As of December 31, 2019:

Corporate debt securities

government treasury bills

Commercial paper $ 2,487 $ — $ 2,487

Unrealized holding gains and losses are recorded in accumulated other comprehensive income, a component of shareholders’ equity, in the condensed consolidated balance sheets.

government treasury bills 2,249 1 2,250

Corporate debt securities 2,236 2 2,238

$ 6,972 $ 3 $ 6,975

Unrealized holding gains and losses are recorded in accumulated other comprehensive income, a component of shareholders’ equity, in the consolidated balance sheets.

Fair Value Measurements

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The following table presents information about our assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets as of December 31, 2020 and 2019:

Level 1 Level 2 Level 3 Total

As of December 31, 2020:

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Short-term marketable securities:

government treasury bills

Commercial paper

Corporate debt securities — 250 — 250

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Money market funds $ 1,307 $ — $ — 1,307

Commercial paper

Corporate debt securities

Short-term marketable securities:

government treasury bills 2,250 — — 2,250

Corporate debt securities

Commercial paper — 2,487 — 2,487

Corporate debt securities — 2,238 — 2,238

We primarily use the market approach to determine the fair value of our financial instruments.

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RESTRUCTURINGS

In June 2019, we executed a restructuring plan to make the operation of the Company more efficient.

In August 2020, we executed a restructuring plan to make the operation of the Company more efficient (the "August 2020 Plan").

The August 2020 Plan included an approximately 14 % reduction in workforce, primarily in the areas of operations, research and development, sales and marketing.

In January 2020, we executed a restructuring plan to make the operation of the Company more efficient (the "January 2020 Plan").

The January 2020 Plan included an approximately 4 % reduction in workforce, primarily in the areas of research and development and sales.

In June 2019, we executed a restructuring plan to make the operation of the Company more efficient (the "2019 Plan").

The 2019 plan included an approximately 2 % reduction in workforce, primarily in the areas of sales and operations.

In April 2018, we executed a restructuring plan to make the operation of the Company more efficient.

The plan included an approximately 5 % reduction in workforce, primarily in the areas of development, marketing and administration.

The plan also included closing the Hong Kong office and reducing the size of the Toronto office.

In September 2017, in connection with the Acquisition, we executed a restructuring plan to secure significant synergies between ViXS and Pixelworks.

The plan included an approximately 15 % reduction in workforce, primarily in the area of development, however, it also impacted administration and sales.

Total restructuring expense included in our statement of operations for the years ended December 31, 2020 and 2019 is comprised of the following:

Year Ended December 31,

Cost of revenue — restructuring:

Employee severance and benefits

Operating expenses — restructuring:

Employee severance and benefits

Facility closure and consolidations

Total included in operating expenses

$ 2,041 $ 398

Total restructuring expense $ 2,214 $ 398

The following is a rollforward of the accrued liabilities related to restructuring for the year ended December 31, 2020:

Balance as of December 31, 2018

Balance as of December 31, 2019 Expensed Payments

Balance as of December 31, 2020

Facility closure and consolidations

Employee severance and benefits

$ 66 $ 2,214 $ ( 1,650 ) $ 630

Accrued costs related to restructuring

The adjustment to accrued costs related to restructuring was due to adjusting the right-of-use asset associated with cease-use liabilities upon the adoption of ASC 842 and did not result in an adjustment to restructuring expense.

RESEARCH AND DEVELOPMEN T

During the first quarter of 2017, we entered into a best efforts co-development agreement (the "Co-development Agreement") with a customer to defray a portion of the research and development expenses we incurred in connection with our development of an integrated circuit product to be sold exclusively to the customer.

Our development costs exceeded the amounts received from the customer and we retain ownership of any modifications or improvements to our pre-existing intellectual property and may use such improvements in products sold to other customers.

Under the co-development agreement, $ 4,000 was payable by the customer within 60 days of the date of the agreement and two additional payments of $ 2,000 were each payable upon completion of certain development milestones.

As amounts became due and payable, they were offset against research and development expense on a pro rata basis.

We recognized offsets to research and development expense of $ 4,000 related to the Co-development Agreement during each of the years ended December 31, 2018 and 2017.

All milestones under the Co-development Agreement were completed as of December 31, 2018.

$ 66 $ 2,214 $ ( 1,650 ) $ 630

On January 1, 2019, we adopted the new requirements of ASC 842, under the modified retrospective approach, using the effective date method.

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We determine if an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our condensed consolidated balance sheets.

Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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Supplemental information related to lease expense and valuation of the ROU assets and lease liabilities was as follows:

December 31, 2019

Year Ended Year Ended

December 31, 2020 December 31, 2019

Operating lease cost $ 2,721 $ 2,496

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Years ending December 31:

Thereafter 91

Total operating lease payments 7,866

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As of December 31, 2020, the Company had no operating lease liabilities that had not commenced.

As required, the following disclosure is provided for periods prior to adoption of ASC 842.

Minimum lease commitments as of December 31, 2018 that had initial or remaining lease terms in excess of one year were as follows:

Operating Leases

On January 1, 2018 we adopted the new requirements of Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"), under the modified retrospective approach.

Therefore, the requirements of ASC 606 have only been applied to existing contracts (those for which the entity has remaining performance obligations) as of, and new contracts after, the date of initial application, or January 1, 2018.

ASC 606 is not applied to contracts that were completed before the effective date.

The adoption of this new standard did not result in an adjustment to our consolidated financial statements but we have included additional disclosures in our periodic reports.

Revenue is recognized when control of the promised good or service is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

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Year ended December 31,

IC sales $ 39,205 $ 66,250

Engineering services, license and other 1,650 2,505

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The aggregate amount of the transaction price allocated to unsatisfied performance obligations with an original expected duration of greater than one year is $ 150 , which we expect to recognize ratably over the next 15 months.

INTEREST INCOME (EXPENSE) AND OTHER, NET

Interest income (expense) and other, consists of the following:

INTEREST INCOME AND OTHER, NET

Interest income and other, consists of the following:

Year Ended December 31,

Other income $ 161 $ 425

Interest income 87 327

Interest expense ( 239 ) ( 158 )

Gain on debt extinguishment

Discount accretion on convertible debt fair value

Fair value adjustment on convertible debt conversion option

Total interest income (expense) and other, net

Total interest income and other, net $ 9 $ 594

Current and Deferred Income Tax Expense

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Year Ended December 31,

Domestic $ ( 25,590 ) $ ( 16,072 )

Foreign ( 341 ) 7,448

Domestic and foreign pre-tax loss $ ( 25,931 ) $ ( 8,624 )

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Year Ended December 31,

Federal $ ( 74 ) $ ( 103 )

Foreign 643 509

Total current 572 408

Foreign 26 45

Total deferred 26 45

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Expiration of tax attributes ( 14 ) ( 38 )

Change in valuation allowance

Impact of foreign earnings ( 7 ) ( 25 )

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Stock-based compensation ( 2 ) ( 5 )

Change in valuation allowance — 31

Tax contingencies, net of reversals — 1

Tax law change

Effective income tax rate ( 2 ) % ( 5 ) %

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Depreciation and amortization 2,282 1,956

Reserves and accrued expenses

Deferred stock-based compensation 1,158 1,134

Foreign tax credit carryforwards 275 719

Reserves and accrued expenses 145 1,785

Other 2,074 1,434

Total gross deferred tax assets 122,623 122,455

Deferred tax liabilities:

Other ( 1,526 ) ( 1,300 )

Total gross deferred tax liabilities ( 1,526 ) ( 1,300 )

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Net deferred tax assets $ 116 $ 150

The Company adopted ASU 2016-09 in the first quarter of 2017.

The Company had excess tax benefits for which a benefit could not be previously recognized of approximately $ 485 .

Upon adoption the balance of the unrecognized excess tax benefits was reversed with the impact recorded to retained earnings including the change to the valuation allowance as a result of the adoption.

The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017.

The Act reduced the U.S.

federal corporate tax rate from 35% to 21%, and required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.

Due to a net operating loss position for U.S.

tax purposes, the impact from the repatriation of our foreign earnings was not significant.

Additionally, a tax on certain foreign earnings in excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or "GILTI") became effective in 2018.

The calculation of GILTI resulted in an inclusion of $ 8,054 for the current year.

We previously elected to treat the GILTI as a period cost or period expense.

As of December 31, 2017 we recorded a receivable for our AMT tax credit carryforwards of $ 343 which is refundable under the Act and we expect to receive this $ 343 during 2020.

On December 22, 2017, Staff Accounting Bulletin No.

118 was issued to address the application of U.S.

GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act.

In accordance with SAB 118, we used provisional amounts and reasonable estimates at December 31, 2017 to estimate the impact of the Act.

The accounting related to the Act was completed in the fourth quarter of 2018 and we determined that there was no impact due to a full valuation allowance in the U.S.

and the utilization of prior year net operating loss carryforwards against additional taxable income.

We continue to record a full valuation allowance against our U.S.

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We have not provided a valuation allowance against any of our foreign net deferred tax assets as we have concluded it is more likely than not that we will realize a benefit from these assets in a future period because our subsidiaries in these jurisdictions are cost-plus taxpayers.

The net valuation allowance decreased $ 2,667 and decreased $ 2,531 for the years ended December 31, 2019 and 2018, respectively, and increased $ 30,867 for the year ended December 31, 2017.

The net valuation allowance decreased $ 24 for the year ended December 31, 2020 and decreased $ 2,667 for the year ended December 31, 2019.

As of December 31, 2020, we had federal, state and foreign net operating loss carryforwards of $ 195,856 , $ 8,610 and $ 34,309 respectively, which will begin to expire in 2021 with $ 32,258 of our federal net operating loss carryforward lasting indefinitely.

As of December 31, 2020, we had available federal, state and foreign research and experimentation tax credit carryforwards of $ 8,631 , $ 4,761 , and $ 26,869 respectively.

The federal and state tax credits began expiring in 2020 while the foreign credits have an indefinite life.

The federal and state tax credits will begin expiring in 2021 while the foreign credits have an indefinite life.

In addition, our Canadian subsidiary has unclaimed scientific and experimental expenditures to be carried forward and applied against future income in Canada of approximately $ 121,076 .

We have a general foreign tax credit of $ 610 which began expiring in 2020.

We have a general foreign tax credit of $ 163 which will begin to expire in 2021.

Our ability to utilize our federal net operating losses may be limited by Section 382 of the Internal Revenue Code of 1986, as amended, which imposes an annual limit on the ability of a corporation that undergoes an "ownership change" to use its net operating loss carryforwards to reduce its tax liability.

An ownership change is generally defined as a greater than 50% increase in equity ownership by 5% shareholders in any three-year period.

We recognized all of the earnings of our foreign subsidiaries as part of the transition tax of the Act.

As of December 31, 2019, we do not have a liability for unremitted foreign earnings.

We are not indefinitely reinvested in the earnings of our subsidiaries and have accrued tax on the future repatriation of cash for jurisdictions where withholding taxes would apply .

Our Chinese subsidiary is designated as an Advanced Technology Service Enterprise, allowing it to benefit from a Chinese tax holiday resulting in a reduction of its tax rate to 15% through 2021.

The tax rate will return to 25% in 2022 upon expiration of the tax holiday.

The impact from the extension of the tax holiday was recognized during the fourth quarter of 2019, the quarter in which the extension was approved by the tax authorities.

Uncertain Tax Positions

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A discretionary matching contribution by the Company is allowed and is equal to a uniform percentage of the amount of salary reduction elected to be deferred, which percentage will be determined each year by the Company.

We made contributions of $ 62 to the 401(k) plan during the year ended December 31, 2019 and no contributions to the 401(k) plan during 2018 or 2017.

We made contributions of $ 48 and $ 62 to the 401(k) plan during the years ended December 31, 2020 and 2019, respectively.

Software licenses

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As of December 31, 2020, future minimum payments under non-cancelable software licenses are as follows:

Year Ending December 31,

Software licenses

Year Ending December 31, Software licenses

Interest component ( 107 )

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Other Contractual Obligation

As part of the Acquisition discussed in "Note 3:

Acquisition", we acquired debt associated with an agreement with the Government of Canada called Technology Partnerships Canada ("TPC").

As part of the Acquisition, we acquired debt associated with an agreement with the Government of Canada called Technology Partnerships Canada ("TPC").

As part of the TPC agreement, ViXS Systems Inc.

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Year Ended December 31,

Net loss $ ( 26,529 ) $ ( 9,077 )

Weighted average shares outstanding - basic and diluted 40,712 37,851

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Employee equity incentive plans 4,148 3,419

Convertible debt

Potentially dilutive common shares from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding restricted stock units, and the assumed issuance of common stock under the employee stock purchase plan.

Potentially dilutive common shares from the convertible debt were determined by applying the if-converted method to the assumed conversion of the outstanding convertible debt.

SHAREHOLDERS’ EQUITY

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Shareholders of common stock have unlimited voting rights and are entitled to receive the net assets of the Company upon dissolution, subject to the rights of the preferred shareholders, if any.

Equity Offering

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.

Net proceeds to the Company, after deducting underwriting discounts, commissions, and other expenses, were approximately $ 12,743 .

Private Placement Investment

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 .

Net proceeds to the Company, after deducting commissions and other expenses, were approximately $ 6,210 .

At the Market Offering

On June 5, 2020, we entered into a sales agreement (the "Sales Agreement") with Cowen and Company, LLC ("Cowen"), pursuant to which we may issue and sell shares of the Company's common stock, par value $ 0.001 per share, having an aggregate offering price of up to $ 25,000 , from time to time, through an "at the market" equity offering program under which Cowen will act as sales agent.

Under the Sales Agreement, Cowen may sell the shares by methods deemed to be an "at the market offering" as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions on the Nasdaq Global Market or on any other existing trading market for the common stock or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise directed by the Company.

We pay Cowen a commission equal to three percent ( 3.0 %) of the gross sales proceeds of any common stock sold through Cowen under the Sales Agreement.

The Sales Agreement may be terminated by us upon prior notice to Cowen or by Cowen upon prior notice to us, or at any time under certain circumstances, including but not limited to the occurrence of a material adverse change in the Company.

We are not obligated to sell any shares under the Sales Agreement.

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, resulting in aggregate net proceeds to us of approximately $ 4,429 .

Employee Equity Incentive Plans

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The following is a summary of stock option activity:

shares Weighted

Options outstanding as of December 31, 2019:

533,484 $ 2.87

Granted 234,000 2.00

Exercised ( 25,563 ) 2.74

Canceled and forfeited ( 4,896 ) 3.98

Expired ( 17,958 ) 5.16

Options outstanding as of December 31, 2020:

719,067 $ 2.53

The following table summarizes information about options outstanding as of December 31, 2020:

Options Outstanding

Options Exercisable

Range of exercise prices

Options Outstanding Options Exercisable

Range of exercise prices Number

outstanding as of

2020 Weighted

life Weighted

exercisable as of

2020 Weighted

$ 2.00 - $ 2.00

237,500 5.79 $ 2.00 3,500 $ 2.00

350,000 1.01 2.46 350,000 2.46

131,567 2.59 3.67 105,150 3.54

$ 2.00 - $ 6.05

719,067 2.88 $ 2.53 458,650 $ 2.70

During the years ended December 31, 2020 and 2019 the total intrinsic value of options exercised was $ 28 and $ 256 , respectively, for which no income tax benefit has been recorded because a full valuation allowance has been provided for our U.S.

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Options outstanding that have vested and are expected to vest as of December 31, 2020 are as follows:

shares Weighted

price Weighted

term Aggregate

Vested 458,650 $ 2.70 1.30 $ 131

Expected to vest 244,024 2.22 5.64 180

Total 702,674 $ 2.54 2.81 $ 311

Restricted Stock

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The following is a summary of restricted stock activity:

Weighted average grant date fair value

shares Weighted average grant date fair value

Unvested at December 31, 2019:

3,112,426 $ 4.06

Granted 2,137,817 3.42

Vested ( 1,834,406 ) 3.93

Canceled ( 239,232 ) 4.28

Unvested at December 31, 2020:

3,176,605 $ 3.68

Expected to vest after December 31, 2020 2,947,031 $ 3.68

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The purchase price is equal to 85 % of the lesser of the fair market value of the shares on the offering date or on the purchase date.

A total of 1,300,000 shares of common stock have been reserved for issuance under the ESPP.

On May 15, 2020 the ESPP was amended when our shareholders approved an increase to the total number of shares of common stock reserved for issuance to 3,300,000 .

During the years ended December 31, 2020 and 2019, we issued 202,019 and 194,361 shares, respectively for proceeds of $ 529 and $ 519 , respectively, under the ESPP.

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Expected term (in years) 3.75 5.00

Volatility 64 % 66 %

Employee Stock Purchase Plan:

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Expected term (in years) 1.05 1.05

Volatility 65 % 65 %

The weighted average fair value of options granted during the years ended December 31, 2020 and 2019 was $ 0.93 and $ 2.23 , respectively.

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Year Ended December 31,

Japan $ 26,554 $ 53,628

China 8,935 10,213

Taiwan 1,668 1,597

Europe 333 104

Korea 308 108

$ 40,855 $ 68,755

Significant Customers

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End customer B 5 % 12 %

End customer C

1 End customers include customers who purchase directly from us, as well as customers who purchase our products indirectly through distributors.

Each of the following accounts represented 10% or more of total accounts receivable in at least one of the periods presented:

Account X 39 % 42 %

Account Y 20 % 26 %

Account Z 7 % 24 %

QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly Period Ended

December 31 1

March 31 June 30 September 30 December 31

Revenue, net $ 13,774 $ 9,253 $ 8,190 $ 9,638

Gross profit 6,775 5,049 3,976 4,385

Loss from operations ( 5,277 ) ( 6,421 ) ( 8,137 ) ( 6,901 )

Income (loss) before income taxes

Net income (loss)

Net income (loss) per share:

Income (loss) from operations

Loss before income taxes ( 5,223 ) ( 6,445 ) ( 8,165 ) ( 6,098 )

Net loss ( 5,399 ) ( 6,552 ) ( 8,139 ) ( 6,439 )

Net loss per share - basic and diluted ( 0.14 ) ( 0.17 ) ( 0.20 ) ( 0.15 )

Revenue, net $ 16,648 $ 18,027 $ 18,057 $ 16,023

Gross profit 8,472 9,376 9,347 7,300

Loss from operations ( 3,460 ) ( 2,321 ) ( 2,444 ) ( 4,898 )

Income (loss) before income taxes 541 ( 2,217 ) ( 2,374 ) ( 4,574 )

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Net income (loss) per share:

1 The three months ended December 31, 2018 includes $ 424 in restructuring expenses.

SUBSEQUENT EVENTS

On January 2, 2020, the Board of Directors (the “Board”) of the Company approved a restructuring plan to make the operation of the Company more efficient and which would result in an approximately 4 % reduction in workforce, primarily in the areas of research and development and sales.

The Board believes adoption of this restructuring plan will help streamline the Company’s operations and workforce, and more appropriately align the Company’s operating expenses with current revenue levels.

The Company expects the restructuring to be substantially completed by the end of the first quarter ending March 31, 2020 and expects to incur total estimated restructuring charges of approximately $ 0.6 million related to employee severance and benefits.

The Company expects that these charges will largely be recorded in the first quarter of 2020.

Basic 0.00 ( 0.06 ) ( 0.06 ) ( 0.12 )

Diluted 0.00 ( 0.06 ) ( 0.06 ) ( 0.12 )

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data