What changed in this filing

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Item 1. Financial Statements

2021-08-11 compared with 2021-05-07 · 116 added, 51 removed, 413 unchanged (29% of the section changed)

39 unchanged sentences

(In thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Revenue, net $ 14,051 $ 9,253 $ 23,321 $ 23,027

7 unchanged sentences

Loss from operations ( 4,456 ) ( 6,421 ) ( 12,370 ) ( 11,698 )

Interest income and other, net 56 54

Total other income, net 56 54

Interest income (expense) and other, net 181 ( 24 ) 237 30

Total other income (expense), net 181 ( 24 ) 237 30

Loss before income taxes ( 4,275 ) ( 6,445 ) ( 12,133 ) ( 11,668 )

14 unchanged sentences

(In thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net loss $ ( 4,382 ) $ ( 6,552 ) $ ( 12,457 ) $ ( 11,951 )

Other comprehensive loss:

Unrealized loss on available-for-sale securities — ( 6 )

Unrealized gain on available-for-sale securities — 7 — 1

Total comprehensive loss $ ( 4,382 ) $ ( 6,545 ) $ ( 12,457 ) $ ( 11,950 )

3 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

17 unchanged sentences

Cash flows from investing activities:

Proceeds from sales and maturities of short-term marketable securities 250 5,998

Purchases of property and equipment ( 393 ) ( 612 )

Proceeds from sales and maturities of short-term marketable securities 250 7,498

Purchases of short-term marketable securities — ( 1,500 )

Net cash provided by investing activities 7 4,294

Net cash provided by (used in) investing activities ( 143 ) 5,386

Cash flows from financing activities:

Payments on asset financings ( 239 ) —

Proceeds from issuance of common stock under employee equity incentive plans 1,063 337

Payments on asset financings ( 506 ) ( 328 )

Proceeds from line of credit — 4,329

Net proceeds from "at the market" equity offering — 2,474

Proceeds from Paycheck Protection Program loan — 796

Net cash provided by financing activities 557 7,608

23 unchanged sentences

Balance as of March 31, 2021 52,212,421 $ 470,452 $ 47 $ ( 423,209 ) $ 47,290

Stock issued under employee equity incentive plans 140,143 — — — —

Stock-based compensation expense — 1,506 — — 1,506

Net loss — — — ( 4,382 ) ( 4,382 )

Balance as of June 30, 2021 52,352,564 $ 471,958 $ 47 $ ( 427,591 ) $ 44,414

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

4 unchanged sentences

Balance as of March 31, 2020 39,249,863 $ 438,269 $ 6 $ ( 394,004 ) $ 44,271

"At the market" equity offering 803,528 2,474 — — 2,474

Stock issued under employee equity incentive plans 167,100 12 — — 12

Stock-based compensation expense — 2,243 — — 2,243

Unrealized gain on available for sale securities — — 7 — 7

Net loss — — — ( 6,552 ) ( 6,552 )

Balance as of June 30, 2020 40,220,491 $ 442,998 $ 13 $ ( 400,556 ) $ 42,455

See accompanying notes to condensed consolidated financial statements.

7 unchanged sentences

Our primary target markets include Mobile (smartphone, gaming and tablet), Home Entertainment (TV, personal video recorder ("PVR"), over-the-air ("OTA") and projector), Content (creation, remastering and delivery), and Business & Education (projector).

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

As of June 30, 2021, we had an intellectual property portfolio of 335 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, bandwidth and increase overall system performance and device functionality.

2 unchanged sentences

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

The Company has engaged in a strategic plan to re-align its mobile, projector, and video delivery businesses to improve their focus on the Asia-centered customers and employee stakeholders of those businesses.

The global center of the mobile, projector, and video delivery businesses continues to be in Asia, and the steps taken by the Company to date and going forward are intended to improve its ability to access capital, customers, and talent.

The Company has operated its primary R&D center in Asia for over 15 years and feels that the time is right to take advantage of that existing footprint and develop its subsidiary, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd.

(or "PWSH") as a full profit-and-loss center underneath the Company for the mobile, projector, and video delivery businesses.

Most of these steps have been completed or will be completed before the end of 2021.

This plan will further enable PWSH to seek qualification to file an application for an initial public offering on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd, known as the STAR Market (the “Listing”).

The Company believes that the Listing will have many benefits, including improved access to new capital markets and the funding of its growth worldwide.

The Company presently intends to qualify PWSH to apply for the Listing so that the Listing is consummated in the first half of 2023.

The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process.

There is no guarantee that PWSH will be approved for a Listing at any point in the future.

Condensed Consolidated Financial Statements

The financial information included herein for the three month periods ended March 31, 2021 and 2020 is prepared in accordance with U.S.

The financial information included herein for the three and six month periods ended June 30, 2021 and 2020 is prepared in accordance with U.S.

generally accepted accounting principles ("U.S.

2 unchanged sentences

The financial information as of December 31, 2020 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2020, included in Item 8 of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 10, 2021, and should be read in conjunction with such consolidated financial statements.

The results of operations for the three month periods ended March 31, 2021 and 2020 are not necessarily indicative of the results expected for future periods or for the entire fiscal year ending December 31, 2021.

The results of operations for the three and six month periods ended June 30, 2021 and 2020 are not necessarily indicative of the results expected for future periods or for the entire fiscal year ending December 31, 2021.

Recent Accounting Pronouncements

18 unchanged sentences

Accounts Receivable, Net

Accounts receivable are contract assets that arise from the performance of our performance obligation pursuant to our contracts with our customers and represent our unconditional right to payment for the satisfaction of our performance obligations.

Accounts receivable are contract assets that arise from the performance of our obligation pursuant to our contracts with our customers and represent our unconditional right to payment for the satisfaction of our performance obligations.

They are recorded at invoiced amount and do not bear interest when recorded or accrue interest when past due.

6 unchanged sentences

The following is the change in our allowance for doubtful accounts:

Three Months Ended

Six Months Ended

Balance at beginning of period $ 41 $ 23

24 unchanged sentences

Backlog was fully amortized as of September 30, 2018 and tradename was fully amortized as of March 31, 2019.

Amortization expense for intangible assets was $ 305 for the three months ended March 31, 2021, $ 245 was included in cost of revenue and $ 60 was included in selling, general and administrative for the three months ended March 31, 2021, in the condensed consolidated statements of operations.

As of March 31, 2021, future estimated amortization expense is as follows:

Nine months ending December 31, 2021 $ 812

Amortization expense for intangible assets was $ 271 and $576 for the three and six months ended June 30, 2021, respectively, $ 218 and $463 were included in cost of revenue for the three and six months ended June 30, 2021, respectively, and $ 53 and $113 were included in selling, general and administrative for the three and six months ended June 30, 2021, respectively, in the condensed consolidated statements of operations.

As of June 30, 2021, future estimated amortization expense is as follows:

Six months ending December 31, 2021 $ 541

Year ending December 31, 2022 90

1 unchanged sentence

Conditions that would trigger an impairment assessment include, but are not limited to, past, current, or expected cash flow or operating losses associated with the asset.

There were no such triggering events requiring an impairment assessment of other intangible assets during the three months ended March 31, 2021.

There were no such triggering events requiring an impairment assessment of other intangible assets during the six months ended June 30, 2021.

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

2 unchanged sentences

Conditions that would trigger an impairment assessment include, but are not limited to, a significant adverse change in our business climate or a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continued losses or adverse changes in legal factors, regulation or business environment.

There were no such triggering events requiring a goodwill impairment assessment during the three months ended March 31, 2021.

There were no such triggering events requiring a goodwill impairment assessment during the six months ended June 30, 2021.

We perform our annual impairment assessment for goodwill on November 30 of each year.

15 unchanged sentences

The change in deferred revenue is as follows:

Three Months Ended

Six Months Ended

Deferred revenue:

Balance at beginning of period $ 179 $ 146

Revenue deferred 205 405

Revenue recognized ( 683 ) ( 655 )

Revenue deferred 572 585

Balance at end of period $ 68 $ 76

8 unchanged sentences

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.

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

MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

Marketable Securities

We had no marketable securities a s of March 31, 2021.

As of December 31, 2020, all of our marketable securities are classified as available-for-sale, have contractual maturities of one year or less and consist of the following:

We had no marketable securities a s of June 30, 2021.

As of December 31, 2020, all of our marketable securities were classified as available-for-sale, had contractual maturities of one year or less and consisted of the following:

Cost Unrealized Gain (Loss) Fair Value

3 unchanged sentences

$ 253 $ ( 3 ) $ 250

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

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

Fair Value Measurements

4 unchanged sentences

Valuations based on unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

The following table presents information about our assets measured at fair value on a recurring basis in the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020:

The following table presents information about our assets measured at fair value on a recurring basis in the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020:

Level 1 Level 2 Level 3 Total

As of March 31, 2021:

As of June 30, 2021:

Cash equivalents:

13 unchanged sentences

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

Total restructuring expense included in our condensed consolidated statements of operations for the three month periods ended March 31, 2021 and 2020 is comprised of the following:

Three Months Ended

Total restructuring expense included in our condensed consolidated statements of operations for the three and six month periods ended June 30, 2021 and 2020 is comprised of the following:

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Operating expenses — restructuring:

Employee severance and benefits

$ — $ — $ — $ 592

Total restructuring expense $ — $ — $ — $ 592

During the three months ended March 31, 2021, we did not record any restructuring expense.

During the three months ended March 31, 2020 we recorded $ 592 in restructuring expense related to the January 2020 Plan.

The following is a rollforward of the accrued liabilities related to restructuring for the three month period ended March 31, 2021:

During the three and six months ended June 30, 2021, we did not record any restructuring expense.

During the three months ended June 30, 2020, we did not record any restructuring expense.

During the six months ended June 30, 2020 we recorded $ 592 in restructuring expense related to the January 2020 Plan.

The following is a rollforward of the accrued liabilities related to restructuring for the six month period ended June 30, 2021:

Balance as of December 31, 2020 Expensed Payments

Balance as of

March 31, 2021

June 30, 2021

Employee severance and benefits

12 unchanged sentences

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Operating lease cost:

Three Months Ended

$ 586 $ 676 $ 1,286 $ 1,323

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

3 unchanged sentences

Weighted average discount rate 4.91 % 5.07 %

Future minimum lease payments under non-cancellable leases as of March 31, 2021 were as follows:

Future minimum lease payments under non-cancellable leases as of June 30, 2021 were as follows:

Operating Lease Payments

Nine months ending December 31, 2021 $ 1,934

Six months ending December 31, 2021 $ 1,252

Years ending December 31:

3 unchanged sentences

Total operating lease liabilities $ 6,580

As of March 31, 2021, the Company had no operating lease liabilities that had not commenced.

As of June 30, 2021, the Company had no operating lease liabilities that had not commenced.

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.

25 unchanged sentences

Historically, such arrangements have not been material to our operating results.

The following table provides information about disaggregated revenue based on the preceding categories for the three months ended March 31, 2021 and 2020:

Three Months Ended

The following table provides information about disaggregated revenue based on the preceding categories for the three and six months ended June 30, 2021 and 2020:

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

IC sales $ 13,055 $ 8,840 $ 21,692 $ 21,958

12 unchanged sentences

Interest income and other, consists of the following:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Other income $ 127 $ 37 $ 192 $ 81

3 unchanged sentences

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 benefit for the reversal of previously recorded foreign tax contingencies of $ 2 and $ 10 during the first three months of 2021 and 2020, respectively.

We recorded a benefit for the reversal of previously recorded foreign tax contingencies of $ 2 and $ 10 during the first six months of 2021 and 2020, respectively.

As we do not believe that it is more likely than not that we will realize a benefit from our U.S.

3 unchanged sentences

We have not recorded a valuation allowance against our other foreign net deferred tax assets, with the exception of Canada, as we believe that it is more likely than not that we will realize a benefit from those assets.

As of March 31, 2021 and December 31, 2020, the amount of our uncertain tax positions was a liability of $ 1,616 and $ 1,610 , respectively, as well as a contra deferred tax asset of $ 1,279 and $ 1,189 , respectively.

As of June 30, 2021 and December 31, 2020, the amount of our uncertain tax positions was a liability of $ 1,650 and $ 1,610 , respectively, as well as a contra deferred tax asset of $ 1,267 and $ 1,189 , respectively.

A number of years may elapse before an uncertain tax position is resolved by settlement or statute of limitation.

5 unchanged sentences

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

$ ( 4,382 ) $ ( 6,552 ) $ ( 12,457 ) $ ( 11,951 )

Weighted average shares outstanding - basic and diluted 52,283 39,444 51,980 39,156

1 unchanged sentence

The following shares were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive (in thousands):

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Employee equity incentive plans 4,039 4,023 3,958 3,979

6 unchanged sentences

Revenue by geographic region, is as follows:

Three Months Ended

China $ 4,277 $ 2,846

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Japan $ 7,415 $ 7,515 $ 10,959 $ 16,001

China 5,772 959 10,049 3,805

United States 417 433 1,183 2,099

Taiwan 376 161 1,042 899

Europe 71 185 71 190

Korea — — 17 33

$ 14,051 $ 9,253 $ 23,321 $ 23,027

1 unchanged sentence

The percentage of revenue attributable to our distributors, top five end customers, and individual distributors or end customers that represented 10% or more of revenue in at least one of the periods presented, is as follows:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Distributors:

2 unchanged sentences

Distributor B 12 % 54 % 11 % 29 %

Distributor C 7 % 10 %

End customers:

3 unchanged sentences

End customer C 6 % 11 % 4 % 6 %

End customer D 4 % 14 % 5 % 7 %

End customer E 1 % 13 % 1 % 5 %

End customer F — % 10 % — % 5 %

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

21 unchanged sentences

It is not possible for us to predict the maximum potential amount of future payments or indemnification costs under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.

We have not made any payments under these agreements in the past, and as of March 31, 2021, we have not incurred any material liabilities arising from these indemnification obligations.

We have not made any payments under these agreements in the past, and as of June 30, 2021, we have not incurred any material liabilities arising from these indemnification obligations.

In the future, however, such obligations could materially impact our results of operations.

7 unchanged sentences

The scheduled payments are made on a quarterly basis and end in January 2024.

As of March 31, 2021, $ 506 is included in accrued liabilities and current portion of long-term liabilities in our condensed consolidated balance sheets and $ 221 is included in long-term liabilities, net of current portion in our condensed consolidated balance sheets.

As of June 30, 2021, $ 516 is included in accrued liabilities and current portion of long-term liabilities in our condensed consolidated balance sheets and $ 171 is included in long-term liabilities, net of current portion in our condensed consolidated balance sheets.

SUBSEQUENT EVENTS

On July 26, 2021, we entered into an agreement with a customer to defray a portion of the research and development expenses expected to be incurred by us in connection with our development of an integrated circuit product.

Under the agreement, we will receive $ 5,800 from the customer within 60 days of the date of the agreement, and may receive up to an additional $ 4,800 upon completion of certain development milestones.

We currently believe that such amounts will be treated as a reduction to research and development expenses related to the product for accounting purposes.

Development work on the product is currently expected to be performed through 2022.

The specific dates and final amounts of our expenses and payments by the customer cannot be determined at this time, and there is no assurance that all amounts will be received by us.

In any event, we expect our research and development expenses will exceed the amounts received from the customer.

Upon the completion of the development, we expect to sell units of the product to the customer.

However, there is no commitment or agreement from the customer for such sales at this time or assurance that the development will be successful.

On August 6, 2021, the Company and its subsidiary, PWSH, entered into a Capital Increase Agreement with certain private equity and strategic investors based in China (collectively, the “Investors”) and certain entities which collectively are owned by approximately 75 % of the employees of PWSH and its subsidiaries (collectively, the “ESOP”) (none of the employees are a named executive officer of the Company) (See Exhibit 10.1a).

An affiliate of the MTM entities, MTM-Xinhe Investment Limited, purchased shares of common stock from the Company on December 15, 2020, pursuant to an Amended and Restated Securities Purchase Agreement.

Under this Capital Increase Agreement, the purchasers have agreed to pay to PWSH, subject to certain closing conditions, certain amounts in RMB in exchange for an equity position in PWSH.

More specifically:

(a) The ESOP have agreed to pay a total of RMB 79,700 ($ 12,300 USD) in exchange for an equity interest in PWSH of 5.95 %, based on a pre-money valuation of PWSH of RMB 1,120,000 ($ 172,700 USD), a discount of 30 % from the valuation paid by the Investors.

(b) The Investors have agreed to pay a total of RMB 200,000 ($ 30,800 USD) in exchange for an equity interest in PWSH of 10.45 %, based on a pre-money value of PWSH of RMB 1,600,000 ($ 246,800 USD).

The closing conditions include receipt of all required governmental approvals and the completion of certain elements of the PWSH realignment plan described above in Note 1.

Following the closing, which is expected in August of 2021, the Company would continue to hold 83.6 % of PWSH.

The total net proceeds raised by PWSH would be RMB 279,700 ($ 43,100 USD).

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 1. Financial Statements