What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-08 · 65 added, 56 removed, 112 unchanged (52% of the section changed)

11 unchanged sentences

We were the first company to integrate motion estimation / motion compensation technology ("MEMC") as a mobile-optimized solution for smartphones.

In 2019, we introduced our Hollywood award-winning TrueCut® video platform, the industry’s first motion grading technology that allows fine tuning of motion appearance in cinematic content.

As of June 30, 2023, we had an intellectual property portfolio of 280 patents related to the visual display of digital image data.

In 2019, we introduced our Hollywood award-winning TrueCut Motion TM® video platform, the industry’s first motion grading technology that allows fine tuning of motion appearance in cinematic content.

As of September 30, 2023, we had an intellectual property portfolio of 278 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.

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We believe that the Listing will have many benefits, including improved access to new capital markets and the funding of PWSH’s growth worldwide.

We presently intend to qualify PWSH to apply for the Listing in the second half of 2023.

The process of going public on the STAR Market is lengthy and includes several periods of review by various government agencies of the People’s Republic of China (“PRC”), such as the Shanghai Stock Exchange and the China Securities Regulatory Commission (“CSRC”).

The process of going public on the STAR Market is lengthy and includes several periods of review by various government agencies of the People’s Republic of China (“PRC”), such as the Shanghai Stock Exchange (“SSE”) and the China Securities Regulatory Commission (“CSRC”).

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

The listing of PWSH on the STAR Market will not change the status of PXLW as a U.S.

The CSRC and the SSE have recently tightened the standards for the STAR Market and are currently advising companies that are not yet profitable under China GAAP standards against filing an IPO application in the present environment.

The Company believes this is in large part due to the current economic conditions in China and the recent performance of companies already listed on the STAR Market that were not profitable at the time of their IPO.

PWSH is not currently profitable under China GAAP standards.

The CSRC and the SSE may relax the standards, but there is no guarantee that this will happen in any particular time frame.

The Company will continue to prepare our application so it is ready to file once the situation changes or PWSH achieves profitability under China GAAP standards.

Any listing of PWSH on the STAR Market will not change the status of PXLW as a U.S.

public company.

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Results of Operations

Net revenue for the three and six months ended June 30, 2023 and 2022, was as follows (dollars in thousands):

Three Months Ended Six Months Ended

June 30, June 30,

Net revenue for the three and nine months ended September 30, 2023 and 2022, was as follows (dollars in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 % Change 2023 2022 % Change

Revenue, net $ 16,032 $ 17,552 (9) % $ 39,603 $ 53,258 (26) %

Net revenue decreased $5.5 million, or 29%, in the second quarter of 2023 compared to the second quarter of 2022 and decreased $12.1 million, or 34%, in the first half of 2023 compared to the first half of 2022.

Revenue recorded in the second quarter of 2023 consisted of $13.5 million in revenue from the sale of integrated circuit ("IC") products and $0.1 million in revenue related to engineering services, license revenue and other.

Revenue recorded in the second quarter of 2022 consisted of $18.7 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 half of 2023 consisted of $23.2 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 half of 2022 consisted of $35.1 million in revenue from the sale of IC products and $0.6 million in revenue related to engineering services, license revenue and other.

The decrease in IC revenue in the second quarter of 2023 compared to the second quarter of 2022 is due to the following factors:

• Sales into the Mobile market decreased $0.4 million or 5%.

• Sales into the Home & Enterprise market decreased $4.8 million or 42%, primarily due to a decrease in customer demand as well as implementing an end-of-life in 2022 on some of our legacy products sold into what we previously referred to as the video delivery market.

The decrease in IC revenue in the first half of 2023 compared to the first half of 2022 is due to the following factors:

• Sales into the Mobile market decreased $2.8 million or 22%, primarily due to a decrease in customer demand.

• Sales into the Home & Enterprise market decreased $9.1 million or 41%, primarily due to a decrease in customer demand as well as implementing an end-of-life in 2022 on some of our legacy products sold into what we previously referenced as the video delivery market.

Net revenue decreased $1.5 million, or 9%, in the third quarter of 2023 compared to the third quarter of 2022 and decreased $13.7 million, or 26%, in the first nine months of 2023 compared to the first nine months of 2022.

Revenue recorded in the third quarter of 2023 consisted of $15.9 million in revenue from the sale of integrated circuit ("IC") products and $0.01 million in revenue related to engineering services, license revenue and other.

Revenue recorded in the third quarter of 2022 consisted of $17.2 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 2023 consisted of $39.2 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 2022 consisted of $52.3 million in revenue from the sale of IC products and $0.9 million in revenue related to engineering services, license revenue and other.

The decrease in IC revenue in the third quarter of 2023 compared to the third quarter of 2022 is due to the following factors:

• Sales into the Home & Enterprise market decreased approximately $3.7 million or 32%, primarily due to a decrease in customer demand as well as implementing an end-of-life in 2022 on some of our legacy products sold into what we previously referred to as the Video Delivery market.

These decreases were partially offset by a slight increase in revenue related to an approximately 13% average selling price ("ASP") increase on a product sold into the projector market.

• Sales into the Mobile market increased approximately $2.5 million or 44% due to increased units sold as customers adopt and transition to our next generation mobile product which also has higher ASPs.

The decrease in IC revenue in the first nine months of 2023 compared to the first nine months of 2022 is due to the following factors:

• Sales into the Home & Enterprise market decreased $12.8 million or 38%, primarily due to a decrease in customer demand resulting from customers absorbing inventory purchased with long lead times during the supply shortage in 2022, as well as implementing an end-of-life in 2022 on some of our legacy products sold into what we previously referred to as the Video Delivery market.

• Sales into the Mobile market decreased $0.4 million or 2%, primarily due to decreased unit sales in the first half of 2023 compared to the first half of 2022 which was almost fully offset by increased unit sales in the third quarter of 2023 compared to the third quarter of 2022 combined with increased ASPs as our customers adopt and transition to our next generation mobile product.

Cost of revenue and gross profit

Cost of revenue and gross profit for the three and six months ended June 30, 2023 and 2022, were as follows (dollars in thousands):

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

Cost of revenue and gross profit for the three and nine months ended September 30, 2023 and 2022, were as follows (dollars in thousands):

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

revenue 2022 % of

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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 decreased to 40% in the second quarter of 2023 compared to 49% in the second quarter of 2022, primarily due to product mix.

Gross profit margin decreased to 43% in the third quarter of 2023 compared to 50% in the third quarter of 2022, primarily due to product mix.

The decrease in sales into the Home & Enterprise market unfavorably impacted gross profit margin.

The decrease was also due to lower absorption of fixed overhead costs.

Gross profit margin decreased to 42% in the first half of 2023 compared to 51% in the first half of 2022, primarily due to product mix.

Gross profit margin decreased to 42% in the first nine months of 2023 compared to 51% in the first nine months of 2022, primarily due to product mix.

The decrease in sales into the Home & Enterprise market unfavorably impacted gross profit margin.

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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 $1.9 million and $0.9 million, during the three months ended June 30, 2023 and 2022, respectively and $1.9 million and $1.8 million during the six months ended June 30, 2023 and 2022, respectively.

During the remainder of 2023, we expect to record offsets to research and development expense of approximately $1.3 million for the remaining payment milestone.

Research and development expense for the three and six months ended June 30, 2023 and 2022, was as follows (dollars in thousands):

Three Months Ended Six Months Ended

June 30, June 30,

We recognized a negligible offset to research and development expense during the three months ended September 30, 2023.

We did not recognize an offset to research and development expense during the three months ended September 30, 2022.

We recognized offsets to research and development expense of $1.9 million and $1.8 million, during the nine months ended September 30, 2023 and 2022, respectively.

During the remainder of 2023, we expect to record an offset to research and development expense of approximately $1.3 million for the remaining payment milestone.

Research and development expense for the three and nine months ended September 30, 2023 and 2022, was as follows (dollars in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 % Change 2023 2022 % Change

Research and development $ 8,752 $ 8,445 4 % $ 23,925 $ 24,126 (1) %

Research and development expense decreased $2.0 million, or 24% in the second quarter of 2023 compared to the second quarter of 2022 due to the following factors:

• A $1.9 million benefit related to the co-development agreement was recognized in the second quarter of 2023 compared to a $0.9 million benefit recognized in the second quarter of 2022.

• Non-recurring engineering expense decreased $1.0 million primarily due to the timing of development activities.

Research and development expense decreased $0.5 million, or 3% in the first half of 2023 compared to the first half of 2022 due to the following factors:

Research and development expense increased $0.3 million, or 4% in the third quarter of 2023 compared to the third quarter of 2022 due to the following factors:

• Compensation expense increased $0.3 million primarily due to increased headcount and annual merit salary increases.

Research and development expense decreased $0.2 million, or 1% in the first nine months of 2023 compared to the first nine months of 2022 due to the following factors:

• Non-recurring engineering expense decreased $0.8 million primarily due to the timing of development activities.

• Stock-based compensation expense decreased $0.2 million primarily due to the change in our stock price.

• These decreases were partially offset by a $0.3 million increase in compensation expense primarily due to annual merit salary increases.

• This decrease was partially offset by a $0.6 million increase in compensation expense, primarily due to increased headcount and annual merit salary increases.

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 six months ended June 30, 2023 and 2022, was as follows (dollars in thousands):

Three Months Ended Six Months Ended

June 30, June 30,

Selling, general and administrative expense for the three and nine months ended September 30, 2023 and 2022, was as follows (dollars in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 % Change 2023 2022 % Change

Selling, general and administrative $ 5,776 $ 5,082 14 % $ 17,316 $ 16,590 4 %

Selling, general and administrative expense decreased $0.6 million, or 9% in the second quarter of 2023 compared to the second quarter of 2022 due to the following factors:

• Foreign currency gains and losses decreased $0.4 million primarily due to weakening in the CNY compared to USD.

Selling, general and administrative expense increased $0.7 million, or 14% in the third quarter of 2023 compared to the third quarter of 2022 due to the following factors:

• Accounting and other professional fees increased $0.6 million primarily due to fees incurred related to our strategic plan with our subsidiary, PWSH.

• Travel related expenses increased $0.1 million due to increased travel in Shanghai as COVID-19 restrictions have been lifted.

Selling, general and administrative expense increased $0.7 million, or 4% in the first nine months of 2023 compared to the first nine months of 2022 due to the following factors:

• Accounting and other professional fees increased $0.3 million primarily due to fees incurred related to our strategic plan with our subsidiary, PWSH.

• Travel related expenses increased $0.3 million due to increased travel in Shanghai as COVID-19 restrictions have been lifted.

• Compensation expense increased $0.3 million primarily due to increased headcount and annual merit salary increases.

• Stock-based compensation expense decreased $0.1 million primarily due to the change in our stock price.

• These decreases were partially offset by a $0.1 million increase in travel related expense due to increased travel in Shanghai as COVID-19 restrictions have been lifted.

Selling, general and administrative expense had a negligible increase in the first half of 2023 compared to the first half of 2022 due to the following factors:

• Compensation expense increased primarily due to an increased management bonus accrual due to the timing of achievement of corporate bonus objectives.

• This increase was partially offset by a foreign currency gain due to weakening in the CNY compared to USD.

• Foreign currency gains and losses decreased $0.1 million primarily due to weakening in the CNY compared to USD.

Provision for income taxes

The provision for income taxes during the 2023 and 2022 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 six months of 2023 and a benefit of $0.1 million for the reversal of previously recorded foreign tax contingencies during the first six months of 2022.

We recorded a negligible benefit for the reversal of previously recorded foreign tax contingencies during the first nine months of 2023 and a benefit of $0.1 million for the reversal of previously recorded foreign tax contingencies during the first nine months of 2022.

Liquidity and Capital Resources

Cash and cash equivalents

Total cash and cash equivalents decreased $2.3 million to $54.5 million at June 30, 2023 from $56.8 million at December 31, 2022.

The net decrease during the first six months of 2023 was the result of $13.8 million used in operating activities, $2.7 million used for purchases of property and equipment and $0.5 million used for payments on other asset financings.

Total cash and cash equivalents decreased $6.5 million to $50.3 million at September 30, 2023 from $56.8 million at December 31, 2022.

The net decrease during the first nine months of 2023 was the result of $17.0 million used in operating activities, $3.4 million used for purchases of property and equipment and $0.9 million used for payments on other asset financings.

These decreases were partially offset by increases of $14.6 million received in net proceeds from issuance of equity interest to non-controlling interest and $0.3 million in proceeds from the issuances of common stock under our employee equity incentive plans.

As of June 30, 2023, our cash and cash equivalents balance consisted of $39.8 million in cash, $11.0 million held in U.S.

As of September 30, 2023, our cash and cash equivalents balance consisted of $39.3 million in cash, $10.0 million held in U.S.

dollar denominated certificates of deposit and $1.0 million in cash equivalents held in U.S.

dollar denominated money market funds.

Although we did not hold short- or long-term investments as of June 30, 2023, our investment policy requires that our portfolio maintain a weighted average maturity of less than 12 months.

Although we did not hold short- or long-term investments as of September 30, 2023, our investment policy requires that our portfolio maintain a weighted average maturity of less than 12 months.

Additionally, no maturities can extend beyond 24 months and concentrations with individual securities are limited.

At the time of purchase, the short-term credit rating must be rated at least A-2 / P-2 / F-2 by at least two Nationally Recognized Statistical Rating Organizations ("NRSRO") and securities of issuers with a long-term credit rating must be rated at least A or A3 by at least two NRSRO.

At the time of purchase, the short-term credit rating must be rated at least A-2 / P-2 / F-2 by at least two Nationally Recognized Statistical Rating Organizations ("NRSRO") and securities

of issuers with a long-term credit rating must be rated at least A or A3 by at least two NRSRO.

Our investment policy is reviewed at least annually by our Audit Committee.

Accounts receivable, net

Accounts receivable, net decreased to $7.4 million as of June 30, 2023 from $10.0 million as of December 31, 2022.

The average number of days sales outstanding decreased to 52 days as of June 30, 2023 from 54 days as of December 31, 2022.

Inventories were $5.5 million as of June 30, 2023 compared to $1.8 million at December 31, 2022.

Inventory turnover decreased to 8.3 as of June 30, 2023 from to 13.7 as of December 31, 2022 primarily due to higher average inventory balances during the second quarter of 2023 compared to the fourth quarter of 2022.

Accounts receivable, net increased to $10.2 million as of September 30, 2023 from $10.0 million as of December 31, 2022.

The average number of days sales outstanding decreased to 42 days as of September 30, 2023 from 54 days as of December 31, 2022.

The decrease in days sales outstanding was due to normal fluctuations in the timing of sales and customer receipts within the third quarter of 2023, and the fourth quarter of 2022.

Inventories were $5.9 million as of September 30, 2023 compared to $1.8 million at December 31, 2022.

Inventory turnover decreased to 6.4 as of September 30, 2023 from to 13.7 as of December 31, 2022 primarily due to higher average inventory balances during the third quarter of 2023 compared to the fourth quarter of 2022.

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

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

There was no activity under this at the market offering during the six months ended June 30, 2023 or June 30, 2022.

There was no activity under this at the market offering during the nine months ended September 30, 2023 or September 30, 2022.

Capital Increase Agreements

9 unchanged sentences

Non-Controlling Interest", which is incorporated by reference into this section.

As of June 30, 2023, our cash and cash equivalents balance of $54.5 million was highly liquid.

As of September 30, 2023, our cash and cash equivalents balance of $50.3 million was highly liquid.

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

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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.

Other than as set forth above, there were no material changes to our liquidity and capital resources during the six month period ended June 30, 2023 from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 8, 2023.

Other than as set forth above, there were no material changes to our liquidity and capital resources during the nine month period ended September 30, 2023 from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 8, 2023.

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