What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-06 · 70 added, 99 removed, 109 unchanged (61% of the section changed)

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our liquidity, capital resources and the sufficiency of our working capital and need for, or ability to secure, additional financing and the potential impact thereof;

the Private Placement;

our obtaining forgiveness of our PPP loan in whole or in part;

our contractual obligations, exchange rate and interest rate risks;

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These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict and which may cause actual outcomes and results to differ materially from what is expressed or forecasted in such forward-looking statements.

A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements, including risks related to COVID-19, risks related to our business, risks related to our industry, risks related to the Private Placement, including whether the Company will be able to close the Private Placement on the expected timeline or at all and whether the Company will be able to realize the full amount of estimated proceeds from the Private Placement or in the timeframe expected risks related to the Private Placement, including whether the Company will be able to close the Private Placement on the expected timeline or at all and whether the Company will be able to realize the full amount of estimated proceeds from the Private Placement or in the timeframe expected and risks related to our common stock, is included in Part II, Item 1A of this Quarterly Report on Form 10-Q.

These forward-looking statements speak only as of the date on which they are made, and we do not intend to update any forward-looking statement to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

If we do update or correct one or more forward-looking statements, you should not conclude that we will make additional updates or corrections with respect thereto or with respect to other forward-looking statements.

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The spread of COVID-19 has caused us to modify our business practices, including implementing work-from-home policies and restricting travel by our employees.

We also took certain actions in response to the pandemic, which are set forth above in “Note Regarding COVID-19.”

The impact of the pandemic on the global economy and on our business, as well as on the business of our suppliers and customers, and the additional measures that may be needed in the future in response to it, will depend on many factors beyond our control and knowledge.

The impact of the pandemic on the global economy and on our business, as well as on the business of our suppliers and customers, and the measures that may be needed in the future in response to it, will depend on many factors beyond our control and knowledge.

We will continually monitor the situation to determine what actions may be necessary or appropriate to address the impact of the pandemic, which may include actions mandated or recommended by federal, state or local authorities.

While we expect the impacts of COVID-19 to be temporary, the disruptions caused by the virus may negatively affect our revenue, results of operations, financial condition, liquidity capital investments and financing arrangements in 2020.

For example, we expect that our revenues for fiscal year 2020 will be lower than initially anticipated at the beginning of the year and travel restrictions and border closures could have a material impact on our ability to achieve our business goals.

While we expect the impacts of COVID-19 to be temporary, the disruptions caused by the virus have negatively affected our revenue and results of operations in 2020 and 2021.

For example, our revenues for fiscal year 2020 were lower than initially anticipated and we expect our revenues for 2021 to continue to be negatively impacted by COVID-19.

Pixelworks is a leading provider of high-performance and power-efficient visual processing solutions that bridge the gap between video content formats and rapidly advancing display capabilities.

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Rapid growth in video consumption, combined with the move towards high frame rate / refresh rate displays, especially in mobile, is increasing the demand for our visual processing and video delivery solutions.

Our technologies can be applied to a wide range of devices from large-screen projectors to cinematic big screens, to low-power mobile tablets, smartphones, high-quality video infrastructure equipment and streaming devices.

Our technologies can be applied to a wide range of devices from large-screen projectors to cinematic big screens, to low-power mobile tablets and smartphones, to high-quality video infrastructure equipment and streaming devices.

Our products are architected and optimized for power, cost, bandwidth, and overall system performance, according to the requirements of the specific application.

On occasion, we have also licensed our technology.

As of September 30, 2020, we had an intellectual property portfolio of 344 patents related to the visual display of digital image data.

As of March 31, 2021, we had an intellectual property portfolio of 336 patents related to the visual display of digital image data.

We focus our research and development efforts on developing video algorithms that improve quality, and architectures that reduce system power, cost and bandwidth and increase overall system performance and device functionality.

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Results of Operations

Net revenue for the three and nine month periods ended September 30, 2020 and 2019, was as follows (dollars in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

Net revenue for the three month periods ended March 31, 2021 and 2020, was as follows (dollars in thousands):

Three Months Ended

2021 2020 $ Change % Change

Revenue, net $ 9,270 $ 13,774 $ (4,504) (33) %

Net revenue decreased $9.9 million, or 55%, in the third quarter of 2020 compared to the third quarter of 2019 and decreased $21.5 million, or 41% in the first nine months of 2020 compared to the first nine months of 2019.

Revenue recorded in the third quarter of 2020 consisted of $8.0 million in revenue from the sale of integrated circuit ("IC") products and $0.2 million in revenue related to engineering services, license revenue and other.

Revenue recorded in the third quarter of 2019 consisted of $17.7 million in revenue from the sale of IC products and $0.4 million in revenue related to engineering services, license revenue and other.

Revenue recorded in the first nine months of 2020 consisted of $29.9 million in revenue from the sale of IC products and $1.3 million in revenue related to engineering services, license revenue and other.

Revenue recorded in the first nine months of 2019 consisted of $50.3 million in revenue from the sale of IC products and $2.4 million in revenue related to engineering services, license revenue and other.

The decrease in IC revenue in both periods presented is primarily due to decreased unit sales into the digital projector and video delivery markets as a result of customers continuing to correct their inventory levels and the disruptions caused by COVID-19 to our revenue.

The decrease in revenue related to engineering services, license revenue and other is primarily due to the recognition of license revenue during the first quarter of 2019.

We expect that the disruptions caused by COVID-19 to our revenue will continue into the fourth quarter of 2020.

Net revenue decreased $4.5 million, or 33%, in the first quarter of 2021 compared to the first quarter of 2020.

Revenue recorded in the first quarter of 2021 consisted of $8.6 million in revenue from the sale of integrated circuit ("IC") products and $0.6 million in revenue related to engineering services, license revenue and other.

Revenue recorded in the first quarter of 2020 consisted of $13.1 million in revenue from the sale of IC products and $0.7 million in revenue related to engineering services, license revenue and other.

Cost of revenue and gross profit

Cost of revenue and gross profit for the three and nine month periods ended September 30, 2020 and 2019, were as follows (dollars in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

revenue 2019 % of

revenue 2020 % of

Cost of revenue and gross profit for the three month periods ended March 31, 2021 and 2020, were as follows (dollars in thousands):

Three Months Ended March 31,

revenue 2020 % of

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Amortization of acquired intangible assets 245 3 298 2

Restructuring 166 2 — 0 166 1 — 0

Stock-based compensation 79 1 101 1

Inventory charges 2

(5) 0 6 0 80 0 102 0

Inventory step-up and backlog amortization — 0 — 0 — 0 12 0

Total cost of revenue $ 5,545 60 % $ 6,999 51 %

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2 Includes charges to reduce inventory to lower of cost or market and a benefit for sales of previously written down inventory.

Gross profit margin was 49% in the third quarter of 2020 compared to 52% in the third quarter of 2019 and was 51% in the first nine months of 2020 compared to 52% in the first nine months of 2019.

The decrease in gross profit margin in the third quarter of 2020 compared to the third quarter of 2019 was primarily due to less absorption of fixed overhead costs and one-time restructuring charges, partially offset by a more favorable mix of sales into the digital projector market.

The decrease in gross profit margin in the first nine months of 2020 compared to the first nine months of 2019 is primarily due to less absorption of fixed overhead costs and high margin license revenue recorded in the first nine months of 2019, partially offset by a more favorable mix of sales into the digital projector market.

Gross profit margin was 40% in the first quarter of 2021 compared to 49% in the first quarter of 2020.

The decrease in gross profit margin was primarily due to product mix, increased product costs and absorption of fixed overhead costs

Pixelworks’ gross profit margin is subject to variability based on changes in revenue levels, product mix, average selling prices, startup costs, restructuring charges, amortization related to acquired intangible assets, inventory step-up and backlog, and the timing and execution of manufacturing ramps as well as other factors.

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Research and development expense includes compensation and related costs for personnel, development-related expenses, including non-recurring engineering expenses and fees for outside services, depreciation and amortization, expensed equipment, facilities and information technology expense allocations and travel and related expenses.

Research and development expense for the three and nine month periods ended September 30, 2020 and 2019, was as follows (dollars in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

Research and development expense for the three month periods ended March 31, 2021 and 2020, was as follows (dollars in thousands):

Three Months Ended

2021 2020 $ Change % Change

Research and development $ 6,785 $ 6,267 $ 518 8 %

Research and development expense decreased $0.4 million, or 6% in the third quarter of 2020 compared to the third quarter of 2019 and decreased $0.7 million, or 3% in the first nine months of 2020 compared to the first nine months of 2019.

The decreases in the 2020 periods compared to the 2019 periods were primarily due to a general decrease across multiple expense categories as we focused on cost management in response to the effects of COVID-19.

These decreases were partially offset by an increase in non-recurring engineering expense due to the timing of development activities.

Research and development expense increased $0.5 million, or 8% in the first quarter of 2021 compared to the first quarter of 2020 primarily due to an increase in compensation expense due to a COVID-19 relief benefit received in China in 2020 that was not received in 2021, partially offset by a reduction in headcount.

The increase was also due to an increase in non-recurring engineering expense due to the timing of development activities.

Selling, general and administrative

Selling, general and administrative expense includes compensation and related costs for personnel, sales commissions, facilities and information technology expense allocations, travel, outside services and other general expenses incurred in our sales, marketing, customer support, management, legal and other professional and administrative support functions.

Selling, general and administrative expense for the three and nine month periods ended September 30, 2020 and 2019, was as follows (dollars in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

Selling, general and administrative expense for the three month periods ended March 31, 2021 and 2020, was as follows (dollars in thousands):

Three Months Ended

2021 2020 $ Change % Change

Selling, general and administrative $ 4,854 $ 5,193 $ (339) (7) %

Selling, general and administrative expense decreased $0.7 million, or 13%, in the third quarter of 2020 compared to the third quarter of 2019, which was primarily due to a general decrease across multiple expense categories as we focused on cost management in response to the effects of COVID-19 as well as due to severance expense associated with the resignation of our former Chief Financial Officer in the third quarter of 2019.

Selling, general and administrative expense decreased $0.8 million, or 5% in the first nine months of 2020 compared to the first nine months of 2019, which was primarily due to a general decrease across multiple expense categories as we focused on cost management in response to the effects of COVID-19 as well due to severance expense associated with the resignation of our former Chief Financial Officer in the third quarter of 2019.

These decreases were partially offset by an increase in stock-based compensation expense due to the timing of awards granted.

Selling, general and administrative expense decreased $0.3 million, or 7%, in the first quarter of 2021 compared to the first quarter of 2020 primarily due to a decrease in compensation expense due to a reduction in headcount and a decrease in stock-based compensation expense due to the timing of awards granted.

Restructurings

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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.

Restructuring expense for the three and nine month periods ended September 30, 2020 and 2019, was as follows and was included in operating expenses (dollars in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Restructuring expense for the three month periods ended March 31, 2021 and 2020, was as follows and was included in operating expenses (dollars in thousands):

Three Months Ended

Employee severance and benefits

$ 1,596 $ — $ 2,188 $ 398

Total restructuring expense

$ 1,596 $ — $ 2,188 $ 398

Included in cost of revenue

$ 166 $ — $ 166 $ —

Included in operating expenses

1,430 — 2,022 398

During the three months ended September 30, 2020, we recorded $1.6 million in restructuring expense related to the August 2020 Plan.

During the nine months ended September 30, 2020 we recorded $1.6 million in restructuring expense related to the August 2020 Plan and $0.6 million in restructuring expense related to the January 2020 Plan.

The January 2020 Plan was complete in the first quarter of 2020 and we do not expect to incur any further expenses related to the January 2020 Plan.

As we continue to implement the August 2020 Plan, we expect to incur $0.1 million additional restructuring charges over the remainder of 2020.

During the three months ended September 30, 2019, we did not record any restructuring expense.

During the nine months ended September 30, 2019, we recorded $0.4 million in restructuring expense related to the 2019 Plan.

The 2019 Plan was complete as of the second quarter of 2019.

During the first quarter of 2021, we did not incur any restructuring expense.

During the first quarter of 2020, we recorded $0.6 million in restructuring expense related to the January 2020 Plan.

The January 2020 Plan was complete in the first quarter of 2020 and we did not incur any further charges related to the January 2020 Plan after the first quarter of 2020.

Provision for income taxes

The provision for income taxes during the 2021 and 2020 periods is primarily comprised of current and deferred tax expense in profitable cost-plus foreign jurisdictions, accruals for tax contingencies in foreign jurisdictions and benefits for the reversal of previously recorded foreign tax contingencies due to the expiration of the applicable statutes of limitation.

We recorded a negligible benefit for the reversal of previously recorded foreign tax contingencies during the first nine months of 2020 and during the first nine months of 2019.

We recorded a negligible benefit for the reversal of previously recorded foreign tax contingencies during the first quarter of 2021 and during the first quarter of 2020.

Liquidity and Capital Resources

Cash, cash equivalents and short-term marketable securities

Total cash and cash equivalents increased $8.8 million to $16.1 million at September 30, 2020 from $7.3 million at December 31, 2019.

Short-term marketable securities decreased $6.2 million to $0.7 million at September 30, 2020 from $7.0 million at December 31, 2019.

The net increase in cash, cash equivalents and short-term marketable securities of $2.6 million during the first nine months of 2020 was the result of $4.0 million in proceeds from our short-term line of credit, $3.6 million in net proceeds from our "at the market" equity offering, $0.8 million in proceeds from a Paycheck Protection Program loan and $0.6 million in proceeds from the issuances of common stock under our employee equity incentive plans.

These increases were partially offset by $3.2 million used in operating activities, $2.5 million used for purchases of property and equipment and licensed technology and $0.7 million used for payments on other asset financings.

As of September 30, 2020, our cash, cash equivalents and short-term marketable securities balance consisted of $9.4 million in cash equivalents held in U.S.

dollar denominated money market funds, $6.7 million in cash and $0.7 million in corporate debt securities.

Total cash and cash equivalents decreased $5.8 million to $25.4 million at March 31, 2021 from $31.3 million at December 31, 2020.

Short-term marketable securities decreased $0.3 million to zero at March 31, 2021 from $0.3 million at December 31, 2020.

The net decrease in cash, cash equivalents and short-term marketable securities of $6.1 million during the first three months of 2021 was the result of $6.7 million used in operating activities, $0.2 million used for purchases of property and equipment and $0.2 million used for payments on other asset financings.

These decreases were partially offset by $1.1 million in proceeds from the issuances of common stock under our employee equity incentive plans.

As of March 31, 2021, our cash and cash equivalents balance consisted of $18.1 million in cash equivalents held in U.S.

dollar denominated money market funds and $7.3 million in cash.

Our investment policy requires that our portfolio maintain a weighted average maturity of less than 12 months.

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Accounts receivable, net

Accounts receivable, net decreased to $5.4 million as of September 30, 2020 from $10.9 million as of December 31, 2019.

The average number of days sales outstanding decreased to 60 days as of September 30, 2020 from 61 days as of December 31, 2019.

The decrease in accounts receivable was due to normal fluctuations in the timing of sales and customer receipts within the third quarter of 2020, and the fourth quarter of 2019.

Inventories were $3.9 million as of September 30, 2020 and $5.4 million at December 31, 2019.

Inventory turnover decreased to 3.3 as of September 30, 2020 from 7.9 as of December 31, 2019 primarily due to lower cost of goods sold during the third quarter of 2020 compared to the fourth quarter of 2019.

Accounts receivable, net increased to $5.5 million as of March 31, 2021 from $4.7 million as of December 31, 2020.

The average number of days sales outstanding increased to 54 days as of March 31, 2021 from 44 days as of December 31, 2020.

The increase in accounts receivable and days sales outstanding was due to normal fluctuations in the timing of sales and customer receipts within the first quarter of 2021, and the fourth quarter of 2020.

Inventories were $1.7 million as of March 31, 2021 compared to $2.4 million at December 31, 2020.

Inventory turnover increased to 10.1 as of March 31, 2021 from 6.0 as of December 31, 2020 primarily due to lower average inventory balances during the first quarter of 2021 compared to the fourth quarter of 2020.

Inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter.

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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, December 18, 2019 and April 17, 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 December 27, 2020.

In addition, the Revolving Loan Agreement provides for non-formula advances of up to $10.0 million which may be made solely during the last five business days of any fiscal month or quarter and which must be repaid by us on or before the fifth business day after the applicable fiscal month or quarter end.

Due to their repayment terms, non-formula advances do not provide us with usable liquidity.

The Revolving Loan Agreement contains customary affirmative and negative covenants as well as customary events of default.

The occurrence of an event of default could result in the acceleration of our obligations under the Revolving Loan Agreement, and an increase to the applicable interest rate, and would permit the Bank to exercise remedies with respect to its security interest.

As of September 30, 2020, we were in compliance with all of the terms of the Revolving Loan Agreement.

As of September 30, 2020, short-term borrowings outstanding under the Revolving Line consisted of $4.0 million.

As of December 31, 2019, we had no outstanding borrowings under the Revolving Line.

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 provided 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.

In addition, the Revolving Loan Agreement provided for non-formula advances of up to $10.0 million which may have been made solely during the last five business days of any fiscal month or quarter and which were required to be repaid by us on or before the fifth business day after the applicable fiscal month or quarter end.

Due to their repayment terms, non-formula advances did not provide us with usable liquidity.

The Revolving Loan Agreement contained customary affirmative and negative covenants as well as customary events of default.

The occurrence of an event of default could have resulted in the acceleration of our obligations under the Revolving Loan Agreement, and an increase to the applicable interest rate, and would have permitted the Bank to exercise remedies with respect to its security interest.

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

We did not renew the Revolving Loan Agreement upon its maturity.

As of March 31, 2021 and December 31, 2020, we had no outstanding borrowings under the Revolving Line.

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 $0.8 million (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 Loan was 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.

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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.

The Company has used the Loan amount for Qualifying Expenses and we have applied for forgiveness, however, no assurance is provided that the Company will obtain forgiveness of the Loan in whole or in part.

We used the Loan amount for Qualifying Expenses.

During the fourth quarter of 2020, we applied for and received full forgiveness and recorded a gain of $0.8 million within other income in our consolidated statements of operations.

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 $12.7 million.

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 $6.2 million.

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 million from time to time, through an "at the market" equity offering program under which Cowen will act as sales agent.

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.

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

During the nine months ended September 30, 2020, we sold an aggregate of 1,374,517 shares of our common stock under this at the market offering, resulting in aggregate net proceeds to us of approximately $3.6 million, and gross proceeds of approximately $4.1 million and paid Cowen commissions and fees of approximately $0.2 million, and other expenses of $0.3 million.

As of September 30, 2020, the remaining availability under the at the market offering is $20.9 million.

Private Placement

On October 19, 2020, we entered into a Securities Purchase Agreement with MTM-Xinhe Investment Limited, a British Virgin Islands company pursuant to which the we agreed to issue and sell in a private placement 3,200,000 shares of the our common stock at a purchase price of $2.071 per share, for gross proceeds to us of approximately $6.6 million (the “Private Placement”).

Subject to the fulfilment of certain closing conditions, the Private Placement is expected to close in November 2020.

As of September 30, 2020, our cash, cash equivalents and short-term marketable securities balance of $16.8 million was highly liquid.

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 $4.4 million, and gross proceeds of approximately $4.9 million and paid Cowen commissions and fees of approximately $0.2 million, and other expenses of $0.3 million.

As of March 31, 2021, our cash and cash equivalents balance of $25.4 million was highly liquid.

We anticipate that our existing working capital will be adequate to fund our operating, investing and financing needs for at least the next twelve months.

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There is no assurance that, if required, we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity which, in turn, may have an adverse effect on our financial position, results of operations and cash flows.

In addition, the impact of COVID-19 has affected our ability to pursue such financing arrangements and we are uncertain about when that will change.

From time to time, we evaluate acquisitions of businesses, products or technologies that complement our business.

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.

Our ability to generate cash from operations is also subject to substantial risks described in Part II, “Item 1A., Risk Factors.” If any of these risks occur, we may be unable to generate or sustain positive cash flow from operating activities.

Our ability to generate cash from operations is also subject to

substantial risks described in Part II, “Item 1A., Risk Factors.” If any of these risks occur, we may be unable to generate or sustain positive cash flow from operating activities.

We would then be required to use existing cash and cash equivalents to support our working capital and other cash requirements.

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

If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges

senior to those of existing shareholders.

If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur interest expense.

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Contractual Payment Obligations

Our contractual obligations for 2020 and beyond are included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the Securities and Exchange Commission on May 8, 2020.

Our obligations for 2020 and beyond have not changed materially as of September 30, 2020.

Our contractual obligations for 2021 and beyond are included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 10, 2021.

Our obligations for 2021 and beyond have not changed materially as of March 31, 2021.

Off-Balance Sheet Arrangements

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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-Q

Item 2. Management’s Discussion and Analysis