1. www.sec.gov/Archives/edgar/data/1040161/000104016121000005/pxlw-20201231.htm
Factors which may cause actual results to vary materially from those
contained in the forward-looking statements include, without limitation:
our ability to deliver new products in a timely fashion; our new product
yield rates; changes in estimated product costs; product mix;
restructuring charges; the growth of the markets we serve; supply of
products from third-party foundries; failure or difficulty in achieving
design wins; timely customer transition to new product designs;
competitive factors, such as rival chip architectures, introduction or
traction by competing designs, or pricing pressures; litigation related
to our intellectual property rights; our limited financial resources;
economic and political challenges due to operations in Asia; exchange
rate fluctuations; failure to retain or attract qualified employees; the
sufficiency of our intellectual property and patent portfolio;
fluctuations in foreign currencies; natural disasters; the need for
additional income tax valuation allowances; limitations on net operating
losses, as well as other risks identified in the risk factors contained
in Part I, Item 1A of this Annual Report on Form 10-K. These
forward-looking statements speak only as of the date on which they are
made, and we do not undertake any obligation to update any
forward-looking statement to reflect events or circumstances after the
date of this Annual Report on Form 10-K. If we do update one or more
forward-looking statements, you should not conclude that we will make
additional updates with respect thereto or with respect to other
forward-looking statements. Except where the context otherwise requires,
in this Annual Report on Form 10-K, the terms "Pixelworks," the
"Company," "we," "us" and "our" mean Pixelworks, Inc., an Oregon
corporation, and its wholly-owned subsidiaries.
6
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PART I
Item 1.Business.
Overview
Pixelworks is a leading provider of high-performance and power-efficient
visual processing solutions that bridge the gap between video content
formats and rapidly advancing display capabilities. 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 March 5, 2021, there were 118 shareholders of record of our common
stock and the last per share sales price of the common stock on that
date was $3.35. The number of beneficial owners of our common stock is
substantially greater than the number of shareholders of record because
a significant portion of our outstanding common stock is held in broker
"street name" for the benefit of individual investors.
Item 6.Selected Financial Data.
Not applicable.
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Management’s Discussion and Analysis of Financial Condition and Results
of Operation.
COVID-19
In March 2020, the World Health Organization declared the COVID-19
outbreak a pandemic, and the virus continues to spread in areas where we
operate and sell our products and services. Several public health
organizations have recommended, and many local governments have
implemented, certain measures to slow and limit the transmission of the
virus, including shelter in place and social distancing ordinances,
which has resulted in a significant deterioration of economic conditions
in many of the countries in which we operate.
The spread of COVID-19 has caused us to modify our business practices,
including implementing work-from-home policies and restricting travel by
our employees. We also took certain actions in response to the pandemic,
which are set forth above in “Note Regarding COVID-19.”
The impact of the pandemic on the global economy and on our business, as
well as on the business of our suppliers and customers, and the
additional measures that may be needed in the future in response to it,
will depend on many factors beyond our control and knowledge. We will
continually monitor the situation to determine what actions may be
necessary or appropriate to address the impact of the pandemic, which
may include actions mandated or recommended by federal, state or local
authorities. While we expect the impacts of COVID-19 to be temporary,
the disruptions caused by the virus have negatively affected our revenue
and results of operations in 2020. For example, our revenues for fiscal
year 2020 were lower than initially anticipated at the beginning of the
year and travel restrictions and border closures have had a material
impact on our ability to achieve our business goals.
Overview
Pixelworks is a leading provider of high-performance and power-efficient
visual processing solutions that bridge the gap between video content
formats and rapidly advancing display capabilities. 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).
...
◦Inquired with the management team and evaluated the adequacy of
management’s sales forecasts by analyzing potential technological
changes in line with product life cycles and/or identified alternative
customer uses.
Assessed whether there were any potential sources of contrary
information, including historical forecast accuracy or history of
significant revisions to previously recorded inventory valuation
adjustments, and performed sensitivity analyses over significant
assumptions to evaluate the changes in inventory valuation that would
result from changes in the assumptions.
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| /s/ Armanino LLP | | |
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| | | |
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| We have served as the | | |
| Company’s auditor | | |
| since 2020. | | |
+-----------------------+-----------------------+-----------------------+
| | | |
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| San Ramon, California | | |
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| March 10, 2021 | | |
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Pixelworks, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of
Pixelworks, Inc. and subsidiaries (the Company) as of December 31, 2019,
the related consolidated statements of operations, comprehensive loss,
shareholders’ equity, and cash flows for the year ended December 31,
2019, and the related notes (collectively, the consolidated financial
statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the
Company as of December 31, 2019, and the results of its operations and
its cash flows for the year ended December 31, 2019, in conformity with
U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. We are a
public accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
...
As of December 31, 2020, we had an intellectual property portfolio of
338 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. We seek to expand our technology portfolio through
internal development and co-development with business partners, and we
continually evaluate acquisition opportunities and other ways to
leverage our technology into other high-value markets.
Pixelworks was founded in 1997 and is incorporated under the laws of the
state of Oregon. On August 2, 2017, we acquired ViXS Systems Inc., a
corporation organized in Canada ("ViXS").
38
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Historically, significant portions of our revenue have been generated by
sales to a relatively small number of end customers and distributors. We
sell our products worldwide through a direct sales force, distributors
and manufacturers’ representatives. We sell to distributors in China,
Europe, Japan, Korea, Southeast Asia, Taiwan and the U.S. Our
distributors often provide engineering support to our end customers and
often have valuable and established relationships with our end
customers. In certain countries in which we operate, it is customary to
sell to distributors. While distributor payment to us is not dependent
upon the distributor’s ability to resell the product or to collect from
the end customer, the distributors may provide longer payment terms to
end customers than those we would offer.
Significant portions of our products are sold overseas. Sales outside
the U.S. accounted for approximately 93% and 95% of revenue in 2020 and
2019, respectively. Our integrators, branded manufacturers and branded
suppliers incorporate our products into systems that are sold worldwide.
All of our revenue to date has been denominated in U.S. dollars.
Seasonality
Our business is subject to seasonality related to the markets we serve
and the location of our customers. For example, we have historically
experienced higher revenue from the digital projector market in the
third quarter of the year, and lower revenue in the first quarter of the
year, as our Japanese customers reduce inventories in anticipation of
their March 31 fiscal year end.
39
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Results of Operations
For the year ended December 31, 2020 compared with year ended
December 31, 2019.
...
Employees
As of December 31, 2020, we had a total of 197 employees, all of which
were full-time, compared to 229 employees as of December 31, 2019.
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Corporate Information
Pixelworks was founded in 1997 and is incorporated under the laws of the
state of Oregon. Our stock is traded on the Nasdaq Global Market under
the symbol "PXLW".
Availability of Securities and Exchange Commission Filings
We make available through our website our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports and any filings filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act of 1934, free of charge as
soon as reasonably practicable after we electronically file or furnish
such material with the Securities and Exchange Commission ("SEC"). Our
Internet address is www.pixelworks.com. The content on, or that can be
accessed through, our website is not incorporated by reference into this
filing. Our committee charters and code of ethics are also available
free of charge on our website.
The SEC maintains an Internet site at http://www.sec.gov that contains
our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports, if any, or other
filings filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, proxy and information statements.
16
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Item 1A.Risk Factors.
The following risks could materially and adversely affect our business,
financial condition, and results of operations, and the trading price of
our common stock could decline. These risk factors do not identify all
of the risks that we face. Our business operations could also be
affected by factors that we currently consider to be immaterial or that
are unknown to us at the present time. Investors should also refer to
the other information contained or incorporated by reference in this
Annual Report on Form 10-K for the year ended December 31, 2020,
including our consolidated financial statements and related notes, and
our other filings made from time to time with the Securities and
Exchange Commission ("SEC").
Risks Related to COVID-19
The ongoing effects of the COVID-19 pandemic could disrupt our business
or the business of our customers or suppliers, and as such, may
adversely affect our financial condition.
...
As of December 31, 2020, we had an intellectual property portfolio of
338 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. We seek to expand our technology portfolio through
internal development and co-development with business partners, and we
continually evaluate acquisition opportunities and other ways to
leverage our technology into other high-value markets.
Pixelworks was founded in 1997 and is incorporated under the laws of the
state of Oregon. On August 2, 2017, we acquired ViXS Systems, Inc., a
corporation organized in Canada ("ViXS") ("the Acquisition").
Our consolidated financial statements include the accounts of Pixelworks
and its wholly-owned subsidiaries. Intercompany accounts and
transactions have been eliminated. All foreign subsidiaries use the U.S.
dollar as the functional currency, and as a result, transaction gains
and losses are included in the consolidated statements of operations.
Transaction losses were $419 and $270 for the years ended December 31,
2020 and 2019, respectively.
Use of Estimates
The preparation of consolidated financial statements in conformity with
U.S. generally accepted accounting principles ("U.S. GAAP") requires us
to make estimates and judgments that affect amounts reported in the
financial statements and accompanying notes. Our significant estimates
and judgments include those related to revenue recognition, valuation of
excess and obsolete inventory, lives and recoverability of equipment and
other long-lived assets, valuation of goodwill, stock-based compensation
and income taxes. The actual results experienced could differ materially
from our estimates.
58
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
We classify all cash and highly liquid investments with original
maturities of three months or less at the date of purchase as cash and
cash equivalents. Cash equivalents, which as of December 31, 2020 and
2019 consisted of U.S. denominated money market funds, totaled $23,832
and $1,307 as of December 31, 2020 and 2019, respectively.
Marketable Securities
Our investments in marketable securities are classified as
available-for-sale. Available-for-sale securities are stated at fair
value based on quoted market prices with unrealized holding gains or
losses, net of tax, included in accumulated other comprehensive income,
a component of shareholders’ equity. The cost of securities sold is
based on the specific identification method.
...
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PIXELWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
--------------------------------------------------------- -- -- ------------------------- ---------- -- -- -- -- ---------- --------- -- -- -- -- -- -- --
Year Ended December 31,
2020 2019
Revenue, net $ 40,855 $ 68,755
Cost of revenue (1) 20,670 34,260
Gross profit 20,185 34,495
Operating expenses:
Research and development (2) 25,040 26,018
Selling, general and administrative (3) 19,840 21,202
Restructuring 2,041 398
Total operating expenses 46,921 47,618
Loss from operations (26,736) (13,123)
Interest income and other, net 9 594
Gain on loan extinguishment 796 —
Gain on sale of patents — 3,905
Total other income, net 805 4,499
Loss before income taxes (25,931) (8,624)
Provision for income taxes 598 453
Net loss $ (26,529) $ (9,077)
Net loss per share - basic and diluted $ (0.65) $ (0.24)
Weighted average shares outstanding - basic and diluted 40,712 37,851
(1) Includes:
Amortization of acquired intangible assets 1,192 1,192
Stock-based compensation 432 367
Restructuring 173 —
Inventory step-up and backlog amortization — 12
(2) Includes stock-based compensation 2,943 2,545
(3) Includes:
Stock-based compensation 4,296 3,737
Amortization of acquired intangible assets 304 312
--------------------------------------------------------- -- -- ------------------------- ---------- -- -- -- -- ---------- --------- -- -- -- -- -- -- --
See accompanying notes to consolidated financial statements.
...
Overview
Pixelworks is a leading provider of high-performance and power-efficient
visual processing solutions that bridge the gap between video content
formats and rapidly advancing display capabilities. 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).
We were one of the first companies to commercially launch a video System
on Chip ("SoC") capable of deinterlacing 1080i HDTV signals and one of
the first companies with a commercial dual-channel 1080i deinterlacer
integrated circuit. Our Topaz product line was one of the industry’s
first single-chip SoC for digital projection. We first introduced our
motion estimation / motion compensation technology ("MEMC") for TVs and
in recent years introduced a mobile-optimized MEMC solution for
smartphones, one of several unique features in the mobile-optimized Iris
visual processor. 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 for a
wide range of frame rates, shutter angles and display types.
Our solutions enable worldwide manufacturers to offer leading-edge
consumer electronics and professional display products, as well as video
delivery and streaming solutions for content service providers. Our core
visual display processing technology intelligently processes digital
images and video from a variety of sources and optimizes the content for
a superior viewing experience. Our video coding technology reduces
storage requirements, significantly reduces bandwidth constraint issues
and converts content between multiple formats to enable seamless
delivery of video, including OTA streaming, while also maintaining
end-to-end content security.
Rapid growth in video consumption, combined with the move towards high
frame rate / refresh rate displays, especially in mobile, is increasing
the demand for our visual processing and video delivery solutions. Our
technologies can be applied to a wide range of devices from large-screen
projectors to cinematic big screens, to low-power mobile tablets and
smartphones, to high-quality video infrastructure equipment and
streaming devices. Our products are architected and optimized for power,
cost, bandwidth, and overall system performance, according to the
requirements of the specific application. On occasion, we have also
licensed our technology.
...
Overview
Pixelworks is a leading provider of high-performance and power-efficient
visual processing solutions that bridge the gap between video content
formats and rapidly advancing display capabilities. 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).
We were one of the first companies to commercially launch a video System
on Chip ("SoC") capable of deinterlacing 1080i HDTV signals and one of
the first companies with a commercial dual-channel 1080i deinterlacer
integrated circuit. Our Topaz product line was one of the industry’s
first single-chip SoC for digital projection. We first introduced our
motion estimation / motion compensation technology ("MEMC") for TVs and
in recent years introduced a mobile-optimized MEMC solution for
smartphones, one of several unique features in our mobile-optimized X5
visual processor. 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 for a
wide range of frame rates, shutter angles and display types.
Our solutions enable worldwide manufacturers to offer leading-edge
consumer electronics and professional display products, as well as video
delivery and streaming solutions for content service providers. Our core
visual display processing technology intelligently processes digital
images and video from a variety of sources and optimizes the content for
a superior viewing experience. Our video coding technology reduces
storage requirements, significantly reduces bandwidth constraint issues
and converts content between multiple formats to enable seamless
delivery of video, including OTA streaming, while also maintaining
end-to-end content security.
Rapid growth in video and gaming consumption, combined with the move
towards high frame rate / refresh rate displays, especially in mobile,
is increasing the demand for our visual processing and video delivery
solutions. Our technologies can be applied to a wide range of devices
from large-screen projectors to cinematic big screens, to low-power
mobile tablets, smartphones, high-quality video infrastructure equipment
and streaming devices. Our products are architected and optimized for
power, cost, bandwidth, and overall system performance, according to the
requirements of the specific application. On occasion, we have also
licensed our technology.
...
Private Placement Investment
On December 7, 2020, we completed a private placement of 724,288 shares
of common stock to a certain accredited investor at a purchase price of
$2.071 per share. On December 15, 2020, we completed a private placement
of 2,475,712 shares of common stock to a certain accredited investor at
a purchase price of $2.071. Net proceeds to the Company, after deducting
commissions and other expenses, were approximately $6,210.
At the Market Offering
On June 5, 2020, we entered into a sales agreement (the "Sales
Agreement") with Cowen and Company, LLC ("Cowen"), pursuant to which we
may issue and sell shares of the Company's common stock, par value
$0.001 per share, having an aggregate offering price of up to $25,000,
from time to time, through an "at the market" equity offering program
under which Cowen will act as sales agent. Under the Sales Agreement,
Cowen may sell the shares by methods deemed to be an "at the market
offering" as defined in Rule 415(a)(4) promulgated under the Securities
Act of 1933, as amended, including sales made by means of ordinary
brokers’ transactions on the Nasdaq Global Market or on any other
existing trading market for the common stock or otherwise at market
prices prevailing at the time of sale, in block transactions, or as
otherwise directed by the Company. We pay Cowen a commission equal to
three percent (3.0%) of the gross sales proceeds of any common stock
sold through Cowen under the Sales Agreement. The Sales Agreement may be
terminated by us upon prior notice to Cowen or by Cowen upon prior
notice to us, or at any time under certain circumstances, including but
not limited to the occurrence of a material adverse change in the
Company. We are not obligated to sell any shares under the Sales
Agreement.
During the year ended December 31, 2020, we sold an aggregate of
1,747,466 shares of our common stock under this at the market offering,
resulting in aggregate net proceeds to us of approximately $4,429.
Employee Equity Incentive Plans
On May 23, 2006, our shareholders approved the adoption of the
Pixelworks, Inc. 2006 Stock Incentive Plan (the "2006 Plan"). The 2006
Plan has since been amended on certain occasions, most recently on May
15, 2020 when our shareholders approved an increase to the total number
of authorized shares to 19,683,333 shares. As of December 31, 2020,
1,566,811 shares were available for grant under the 2006 Plan.
[1] https://www.sec.gov/Archives/edgar/data/1040161/000104016121000005/pxlw-20201231.htm