What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-08-10 · 115 added, 58 removed, 452 unchanged (28% of the section changed)

3 unchanged sentences

(In thousands)

September 30,

2022 December 31,

29 unchanged sentences

Accumulated deficit ( 449,051 ) ( 434,955 )

Total Pixelworks, Inc.

shareholders’ equity 33,723 40,221

Non-controlling interest 10,738 —

Total shareholders' equity 44,461 40,221

4 unchanged sentences

(In thousands, except per share data)

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

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

2022 2021 2022 2021

29 unchanged sentences

(In thousands)

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

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

2022 2021 2022 2021

10 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

20 unchanged sentences

Cash flows from financing activities:

Net proceeds from issuance of equity interest to non-controlling interest 10,738 —

Payments on asset financings ( 892 ) ( 926 )

Proceeds from issuance of common stock under employee equity incentive plans 387 1,282

Net cash provided by (used in) financing activities ( 408 ) 557

Net decrease in cash and cash equivalents ( 12,019 ) ( 7,633 )

Net proceeds from issuance of equity interest to redeemable non-controlling interest — 29,976

Net proceeds from issuance of equity interest to certain entities owned by employees — 9,670

Net proceeds from "at the market" equity offering — 333

Net cash provided by financing activities 10,233 40,335

Net increase (decrease) in cash and cash equivalents ( 3,972 ) 35,302

Cash and cash equivalents, beginning of period 61,587 31,257

1 unchanged sentence

Supplemental disclosure of cash flow information:

Cash paid for income taxes, net of refunds received $ 131 $ 177

Cash paid during the period for interest $ 153 $ 108

Cash paid for income taxes, net of refunds received 17 374

Non-cash investing and financing activities:

8 unchanged sentences

Income (loss) Accumulated

Deficit Total

Deficit Non-Controlling Interest Total

Shareholders'

13 unchanged sentences

Balance as of June 30, 2022 54,231,872 $ 478,605 $ 1,048 $ ( 444,555 ) $ — $ 35,098

Stock issued under employee equity incentive plans 604,167 170 — — — 170

Stock-based compensation expense — 1,294 — — — 1,294

Foreign currency translation adjustment — — 1,657 — — 1,657

Net proceeds from issuance of equity interest to non-controlling interest — — — — 10,738 10,738

Net loss attributable to Pixelworks, Inc.

— — — ( 4,496 ) — ( 4,496 )

Balance as of September 30, 2022 54,836,039 $ 480,069 $ 2,705 $ ( 449,051 ) $ 10,738 $ 44,461

Balance as of December 31, 2020 51,078,942 $ 467,957 $ 47 $ ( 415,134 ) $ — $ 52,870

9 unchanged sentences

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

Stock issued under employee equity incentive plans 813,914 219 — — — 219

"At the market" equity offering 61,018 333 — — — 333

Stock-based compensation expense — 1,557 — — — 1,557

Foreign currency translation adjustment — — ( 80 ) — — ( 80 )

Net loss attributable to Pixelworks, Inc.

— — — ( 4,073 ) — ( 4,073 )

Balance as of September 30, 2021 53,227,496 $ 474,067 $ ( 33 ) $ ( 431,664 ) $ — $ 42,370

See accompanying notes to condensed consolidated financial statements.

6 unchanged sentences

(together with our subsidiaries, the “Company”, "Pixelworks", “we”, “our” or “us”) 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.

We develop and market semiconductor and software solutions that enable consistently high-quality, authentic viewing experiences in a wide variety of applications from cinema to smartphones.

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 June 30, 2022, we had an intellectual property portfolio of 301 patents related to the visual display of digital image data.

We develop and market semiconductor and software solutions that enable consistently high-quality, authentic viewing experiences in a wide variety of applications.

Our primary target markets include mobile (smartphone and tablet), projector (business, education and home entertainment), video delivery (personal video recorder ("PVR") and over-the-air) and cinema (content creation, remastering and video streaming).

As of September 30, 2022, we had an intellectual property portfolio of 297 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.

7 unchanged sentences

for the mobile, projector, and video delivery businesses.

Most of these steps were completed in 2021.

The steps involved in this strategic re-alignment of our businesses have been completed.

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”).

4 unchanged sentences

Condensed Consolidated Financial Statements

The financial information included herein for the three and six months ended June 30, 2022 and 2021 is prepared in accordance with U.S.

The financial information included herein for the three and nine months ended September 30, 2022 and 2021 is prepared in accordance with U.S.

generally accepted accounting principles ("U.S.

2 unchanged sentences

The financial information as of December 31, 2021 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2021, included in Item 8 of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 9, 2022, and should be read in conjunction with such consolidated financial statements.

The results of operations for the three and six months ended June 30, 2022 and 2021 are not necessarily indicative of the results expected for future periods or for the entire fiscal year ending December 31, 2022.

The results of operations for the three and nine months ended September 30, 2022 and 2021 are not necessarily indicative of the results expected for future periods or for the entire fiscal year ending December 31, 2022.

Recent Accounting Pronouncements

15 unchanged sentences

Accounts receivable consist of the following:

September 30,

2022 December 31,

3 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

Balance at beginning of period $ 36 $ 41

Additions charged (reductions credited) 17 ( 18 )

Reductions credited ( 10 ) ( 15 )

Balance at end of period $ 26 $ 26

1 unchanged sentence

Inventories consist of the following:

September 30,

2022 December 31,

4 unchanged sentences

Property and equipment, net consists of the following:

September 30,

2022 December 31,

5 unchanged sentences

Acquired intangible assets resulting from this transaction were assigned to Pixelworks, Inc., and consist of the following:

September 30,

2022 December 31,

5 unchanged sentences

Developed technology and customer relationships were fully amortized as of March 31, 2022, tradename was fully amortized as of March 31, 2019 and backlog was fully amortized as of September 30, 2018.

Amortization expense for intangible assets was $ 0 and $ 90 for the three and six months ended June 30, 2022, respectively, $ 0 and $ 72 were included in cost of revenue for the three and six months ended June 30, 2022, respectively, and $ 0 and $ 18 were included in selling, general and administrative for the three and six months ended June 30, 2022, respectively, in the condensed consolidated statements of operations.

Amortization expense for intangible assets was $ 0 and $ 90 for the three and nine months ended September 30, 2022, respectively, $ 0 and $ 72 were included in cost of revenue for the three and nine months ended September 30, 2022, respectively, and $ 0 and $ 18 were included in selling, general and administrative for the three and nine months ended September 30, 2022, respectively, in the condensed consolidated statements of operations.

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 six months ended June 30, 2022.

There were no such triggering events requiring a goodwill impairment assessment during the nine months ended September 30, 2022.

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

1 unchanged sentence

Accrued liabilities and current portion of long-term liabilities consist of the following:

September 30,

2022 December 31,

3 unchanged sentences

Accrued interest payable 270 361

Accrued commissions and royalties 225 259

Deferred revenue 260 50

Accrued commissions and royalties 205 259

Deferred research and development reimbursement — 1,838

7 unchanged sentences

The change in deferred revenue is as follows:

Six Months Ended

Nine Months Ended

September 30,

Deferred revenue:

Balance at beginning of period $ 50 $ 179

Revenue recognized ( 255 ) ( 683 )

Revenue deferred 940 888

Revenue recognized ( 730 ) ( 1,047 )

Balance at end of period $ 260 $ 20

5 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 June 30, 2022 and December 31, 2021:

The following table presents information about our assets measured at fair value on a recurring basis in the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021:

Level 1 Level 2 Level 3 Total

As of June 30, 2022:

As of September 30, 2022:

Cash equivalents:

7 unchanged sentences

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 consolidated balance sheets.

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.

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.

6 unchanged sentences

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

1 unchanged sentence

$ 659 $ 657 $ 2,004 $ 1,943

Six Months Ended

Nine Months Ended

September 30,

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

3 unchanged sentences

Weighted average discount rate 4.18 % 4.93 %

Future minimum lease payments under non-cancellable leases as of June 30, 2022 were as follows:

Future minimum lease payments under non-cancellable leases as of September 30, 2022 were as follows:

Operating Lease Payments

Six months ending December 31, 2022 $ 1,421

Three months ending December 31, 2022 $ 488

Years ending December 31:

3 unchanged sentences

Total operating lease liabilities $ 3,843

As of June 30, 2022, we had no operating lease liabilities that had not commenced.

As of September 30, 2022, we had $707 in 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 and six months ended June 30, 2022 and 2021:

Three Months Ended Six Months Ended

June 30, June 30,

The following table provides information about disaggregated revenue based on the preceding categories for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

13 unchanged sentences

Interest income and other, consists of the following:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

9 unchanged sentences

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

We recognized offsets to research and development expense of $ 855 and $ 1,838 during the three and six months ended June 30, 2022, respectively.

We recognized offsets to research and development expense of $ 0 and $ 1,300 during the three months ended September 30, 2022 and 2021, respectively and $ 1,838 and $ 1,300 during the nine months ended September 30, 2022 and 2021, respectively.

The provision for income taxes during the 2022 and 2021 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 $ 121 and $ 2 during the first six months of 2022 and 2021, respectively.

We recorded a benefit for the reversal of previously recorded foreign tax contingencies of $ 121 and $ 2 during the first nine months of 2022 and 2021, 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 and China, as we believe that it is more likely than not that we will realize a benefit from those assets.

As of June 30, 2022 and December 31, 2021, the amount of our uncertain tax positions was a liability of $ 2,275 and $ 2,493 , respectively, as well as a contra deferred tax asset of $ 1,384 and $ 1,254 , respectively.

As of September 30, 2022 and December 31, 2021, the amount of our uncertain tax positions was a liability of $ 2,167 and $ 2,493 , respectively, as well as a contra deferred tax asset of $ 1,384 and $ 1,254 , 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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

1 unchanged sentence

Net income attributable to redeemable non-controlling interest — ( 232 ) ( 470 ) ( 232 )

Net income attributable to certain entities owned by employees — ( 104 ) — ( 104 )

Net loss attributable to Pixelworks, Inc.

$ ( 5,008 ) $ ( 4,382 ) $ ( 9,600 ) $ ( 12,457 )

- for purposes of earnings per share calculation $ ( 4,496 ) $ ( 4,177 ) $ ( 14,096 ) $ ( 16,634 )

Weighted average shares outstanding - basic and diluted 54,826 52,768 54,120 52,245

6 unchanged sentences

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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

1 unchanged sentence

SEGMENT INFORMATION

We function as a single operating segment:

the design and development of integrated circuits for use in electronic display devices.

The majority of our assets are located in the United States and China.

We operate in one segment:

the design, development, marketing and sale of IC solutions for use in electronic display devices.

We generate our revenue from three broad product markets:

the projector market, the mobile market and the video delivery market.

The chief operating decision maker, or CODM, is our CEO.

Our CODM evaluates financial performance and allocates resources using financial information reported on a company-wide basis.

Geographic Information

Revenue by geographic region, is as follows:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

1 unchanged sentence

China 5,482 6,670 21,371 16,719

Taiwan 793 376 1,957 1,042

United States 648 176 1,736 1,359

Europe — 71 77 71

Taiwan 464 582 2,421 1,625

Korea 50 50 50 66

Europe — — 76 71

$ 17,552 $ 15,196 $ 53,258 $ 38,516

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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

3 unchanged sentences

Distributor B 23 % 13 % 16 % 11 %

Distributor C 2 % 13 % 5 % 9 %

End customers:

3 unchanged sentences

End customer C 13 % 28 % 19 % 22 %

End customer D 12 % 4 % 6 % 4 %

End customer E 2 % 11 % 5 % 8 %

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

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

September 30,

2022 December 31,

Account W 40 % 27 %

Account X 40 % 27 %

19 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 June 30, 2022, 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 September 30, 2022, 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 June 30, 2022, $ 441 is included in accrued liabilities and current portion of long-term liabilities in our condensed consolidated balance sheets.

As of September 30, 2022, $ 361 is included in accrued liabilities and current portion of long-term liabilities in our condensed consolidated balance sheets.

REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY INTEREST OF PWSH SOLD TO EMPLOYEES

During the third quarter of 2021, Pixelworks and our 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”) (together, the “Investors” and the “ESOP” are referred to below as the “Capital Contributors”).

The ESOP entities do not qualify as Employee Share Ownership Programs under IRC 4975(e)(7), but function as a qualified ESOP and hold an equity ownership in trust for employees.

The ESOP entities do not qualify as Employee Share Ownership Programs under IRC 4975(e)(7), but do qualify as employee share ownership plans qualified under the laws of China, under which the employees hold a pro rata share of an ESOP partnership entity that then holds an equity ownership in trust for employees.

Under the Capital Increase Agreement, during 2021, the Investors invested approximately $ 30,844 in exchange for a redeemable non-controlling equity interest of 10.45 % of PWSH and the ESOP entities invested approximately $ 12,329 in exchange for a redeemable non-controlling equity interest representing 5.95 % of PWSH, which includes a discount of 30 % from the valuation paid by the Investors.

27 unchanged sentences

public company.

The components of the change in redeemable non-controlling interests for the six months ended June 30, 2022 are presented in the following table (in thousands):

Carrying Value of Redeemable NCI as of January 1, 2022

The components of the change in redeemable non-controlling interests for the nine months ended September 30, 2022 are presented in the following table (in thousands):

Carrying Value of Redeemable Non-Controlling Interest as of January 1, 2022

Net income attributable to redeemable non-controlling interest 470

Effect of foreign currency translation attributable to redeemable non-controlling interest ( 3,173 )

Carrying Value of Redeemable NCI as of June 30, 2022

Carrying Value of Redeemable Non-Controlling Interest as of September 30, 2022

NON-CONTROLLING INTEREST

On August 15, 2022, the Company entered into an Equity Transfer Agreement with certain private equity investors based in China (Hainan Qixin Investment Partnership (Limited Partnership) and Suzhou Saixiang Equity Investment Partnership (Limited Partnership)) (collectively, the “Purchasers”).

Under this agreement, the Purchasers agreed to pay to the Company, subject to customary closing conditions, a total of 87,500 RMB, approximately $ 10,738 (net of issuance costs) at closing, in exchange for a 2.74 % equity interest in PWSH.

Following the closing, the Company continues to hold 80.87 % of PWSH.

The Company incurred costs related to the sale of equity in PWSH of $ 275 paid to a third party for assisting in the transaction close as well as 8,408 RMB to fulfill Chinese withholding tax requirements.

Both of these costs are direct and incremental and related to the sale of equity in PWSH and as such will be included as costs that reduce proceeds and carrying amount of the NCI in the Company’s balance sheet.

The Equity Transfer Agreement provides the Purchasers with some additional rights:

(1) if there is a change in control of PWSH that closes prior to its filing an application for a listing on the STAR Board of the Shanghai Stock Exchange (the “Listing Application”), each Purchaser would be entitled to a minimum return of 10 % on the price they paid for their respective equity interest, payable by Company in cash at the close of the change in control transaction, with such right terminating automatically upon the filing by PWSH of the Listing Application;

and (2) the Company would cause PWSH to give each Purchaser a right to participate on a pro rata basis in any future financing rounds of PWSH, which right also would expire on the filing of a Listing Application.

The process of going public on the STAR Board is a lengthy process that involves several periods of review.

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

When the Company’s relative ownership interest in PWSH changes, adjustments to non-controlling interest and paid-in capital, tax effected, will occur.

Because these changes in the ownership interest in PWSH do not result in a change of control, the transactions are accounted for as equity transactions under ASC Topic 810, (-Consolidation), which requires that any differences between the carrying value of the Company’s interest in PWSH and the fair value of the consideration received are recognized directly in equity and attributed to the controlling interest.

Additionally, there are no substantive profit-sharing arrangements that would cause distributions to be other than pro rata.

Therefore, profits and losses are attributed to the common shareholders of PWSH and non-controlling interest pro rata based on ownership interests in PWSH.

The following table reconciles the initial investment by the Purchasers and the carrying value of their non-controlling interest as of the Closing Date (as defined in the Equity Transfer Agreement):

Carrying Value of Permanent Equity Non-Controlling Interest as of January 1, 2022

Increase in additional paid-in capital 12,184

Closing and direct costs incurred ( 1,446 )

Carrying Value of Permanent Equity Non-Controlling Interest as of September 30, 2022

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