What changed in this filing

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Item 1A. Risk Factors

2021-05-07 compared with 2020-11-06 · 36 added, 62 removed, 504 unchanged (16% of the section changed)

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

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

In response to the COVID-19 pandemic, many state governments in the U.S.

issued restrictive orders, including “shelter in place” or “stay at home” orders, that restricted its residents from leaving their homes or returning to work.

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

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

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

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

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The display manufacturing market is highly concentrated and we are, and will continue to be, dependent on a limited number of customers and distributors for a substantial portion of our revenue.

Sales to our top distributor represented 28%, 28% and 34% of revenue for the nine months ended September 30, 2020 and the years ended December 31, 2019 and 2018, respectively.

Sales to our top distributor for the first three months of 2021 represented 34% of revenue.

Sales to our top distributor for the years ended December 31, 2020 and 2019 represented 23% and 28% of revenue, respectively.

If any of our distributors ceases to do business with us, it may be difficult for us to find adequate replacements, and even if we do, it may take some time.

The loss of any of our top distributors could negatively affect our results of operations.

Additionally, revenue attributable to our top five end customers represented 61%, 77% and 82% of revenue for the nine months ended September 30, 2020 and the years ended December 31, 2019 and 2018, respectively.

As of September 30, 2020 we had two accounts that each represented 10% or more of accounts receivable.

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

Additionally, revenue attributable to our top five end customers represented 76%, 58% and 77% of revenue for the three months ended March 31, 2021 and the years ended December 31, 2020 and 2019, respectively.

As of March 31, 2021 and December 31, 2020, we had two accounts that each represented 10% or more of accounts receivable.

All of the orders included in our backlog are cancelable.

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

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

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

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

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

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Fluctuations in our revenue and operating results could cause our share price to decline.

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

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

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

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

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

however, all credit extensions are subject to the bank’s sole discretion.

If we experience an increase in order activity from our customers, our cash balance may decrease due to the need to purchase inventories to fulfill those orders.

If this occurs, we may need to draw on this facility in order to maintain our liquidity.

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

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

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

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

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

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

If we are unable to generate sufficient cash from operations and are forced to seek additional financing alternatives, or in the event we acquire or make an investment in companies that complement our business, our working capital may be adversely affected and our shareholders may experience dilution or our operations may be impaired.

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

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

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

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

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

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We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.

We face risks related to the Paycheck Protection Program loan, which could negatively impact our financial position.

On April 25, 2020, the Company entered into a loan with Silicon Valley Bank as the lender in an aggregate principal amount of $796,242 (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.

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.

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

If forgiveness is not granted, the PPP Loan, in whole or in part, will need to be repaid by the Company, which could have an adverse effect on our future cash flows and financial position.

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

In the event of the occurrence of an event of default, the Lender may require immediate repayment of all amounts outstanding under the Note, which may have an adverse effect on our future cash flows and financial position.

We license our intellectual property, which exposes us to risks of infringement or misappropriation, and may cause fluctuations in our operating results.

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Sales outside the U.S.

accounted for approximately 92%, 95% and 98% of revenue for the nine months ended September 30, 2020 and the years ended December 31, 2019 and 2018, respectively.

accounted for approximately 92%, 93% and 95% of revenue for the three months ended March 31, 2021 and the years ended December 31, 2020 and 2019, respectively.

We anticipate that sales outside the U.S.

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Company Risks Related to the Semiconductor Industry and Our Markets

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

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

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

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

Sole sourcing each product increases our dependence on our suppliers.

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

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

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

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

We expect this may occur again in the future.

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

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

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

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

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

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

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

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

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

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

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

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

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

Sole sourcing each product increases our dependence on our suppliers.

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

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

We expect this may occur again in the future.

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

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

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We rely on a combination of patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to help protect our proprietary technologies.

As of September 30, 2020, we held 344 patents and had 12 patent applications pending for protection of our significant technologies.

As of March 31, 2021, we held 336 patents and had 9 patent applications pending for protection of our significant technologies.

Competitors in both the U.S.

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

General Risks

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

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

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

The issuance and sale of the shares in the Private Placement will have a dilutive impact on our existing stockholders.

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

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

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

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

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

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

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

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

As of September 30, 2020, we had issued and sold 1,374,517 shares of our common stock pursuant to our “at the market” equity offering program, resulting in net proceeds to us of approximately $3.6 million.

Shares of our common stock having a value of approximately $20.9 million remain available for sale under this program.

Through March 31, 2021, we sold an aggregate of 1,747,466 shares of our common stock under this at the market offering.

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

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

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

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or (iii) a minimum of $10.0 million in shareholders' equity, at least 750,000 publicly held shares and at least $5 million in market value of publicly held shares.

As of September 20, 2020, we were in compliance with these listing requirements.

As of March 31, 2021, we were in compliance with these listing requirements.

However, as recently as June 30, 2017, our total asset value was less than $50.0 million.

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(incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K filed on March 10, 2010).

10.1 Securities Purchase Agreement dated October 19, 2020, between the Company and the investor named therein (incorporated by reference to Exhibit 10.1 to the Company's Current Report on form 8-K filed on October 22, 2020).

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.

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PIXELWORKS, INC.

November 6, 2020 /s/ Elias N.

May 7, 2021 /s/ Elias N.

Vice President and Chief Financial Officer,

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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 1A. Risk Factors