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What changed in PIXELWORKS, INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PIXELWORKS, INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+244 added−257 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-08)

Top changes in PIXELWORKS, INC's 2023 10-K

244 paragraphs added · 257 removed · 197 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeNo other distributor accounted for more than 10% of revenue in 2022 and 2021 or represented more than 10% of accounts receivable as of December 31, 2022 or 2021. Direct Distribution Channels We have direct distributor relationships in Japan, China, Europe and Taiwan. • We have established direct relationships with companies that manufacture high-end display systems.
Biggest changeDirect Distribution Channels We have direct distributor relationships in Japan, China and Taiwan. • We have established direct relationships with companies that manufacture high-end display systems. Revenue through direct relationships accounted for 34% and 43% of total revenue in 2023 and 2022, respectively. We have direct relationships with companies falling into the following three classifications: • Integrators .
This is primarily because the projector is a sharing and collaboration device while the TV is designed for direct consumption of content. 8 The digital projection market serves several different areas such as business, education, and home theater. Business users employ multimedia projectors to display both still and video presentation materials from PCs and other sources.
This is primarily because the projector is a sharing and collaboration device while the TV is designed for direct consumption of content. The digital projection market serves several different areas such as business, education, and home theater. Business users employ multimedia projectors to display both still and video presentation materials from PCs and other sources.
Marketing efforts are focused on building market-leading brand awareness and preference for our solutions. We utilize direct sales and marketing resources in Japan, China, Europe and Taiwan. In addition to sales and marketing representatives, we have field application engineers who provide technical expertise and assistance to manufacturing customers on final product development.
Marketing efforts are focused on building market-leading brand awareness and preference for our solutions. We utilize direct sales and marketing resources in Japan, China and Taiwan. In addition to sales and marketing representatives, we have field application engineers who provide technical expertise and assistance to manufacturing customers on final product development.
Potential and current competitors may include diversified semiconductor manufacturers and the semiconductor divisions or affiliates of some of our customers, including: Apple Inc., Broadcom Inc., LG Electronics, Inc., MegaChips Corporation, Mitsubishi Digital Electronics America, Inc., NEC Corporation, Panasonic Corporation, Samsung Electronics Co., Ltd., Socionext Inc., ON Semiconductor Corporation, Seiko Epson Corporation, Sharp Electronics Corporation, Sony Corporation, and Toshiba America, Inc.
Potential and current competitors may include diversified semiconductor manufacturers and the semiconductor divisions or affiliates of some of our customers, including: Apple Inc., Broadcom Inc., LG Electronics, Inc., MegaChips Corporation, Mitsubishi Digital Electronics America, Inc., NEC Corporation, Panasonic Corporation, Samsung Electronics Co., Ltd., Socionext Inc., ON Semiconductor Corporation, Seiko Epson Corporation, Sharp Corporation, Sony Group Corporation, and Toshiba America, Inc.
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.
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 Motion TM® video platform, the industry’s first motion grading technology that allows fine tuning of motion appearance in cinematic content.
As prices for this capability inevitably come down, and further competition emerges, we believe this new category, along with the rollout of 5G networks, can strengthen the Mobile device market. Home & Enterprise Our Home & Enterprise market category is composed of digital projection and video delivery devices and applications.
As prices for this capability inevitably come down, and further competition emerges, we believe this new category, along with the rollout of 5G networks, can strengthen the Mobile device market. 7 Home & Enterprise Our Home & Enterprise market category is composed of digital projection and video delivery devices and applications.
Previously we classified our primary target markets as Mobile, Projector, Video Delivery and Cinema, but have since aggregated the Projector and Video Delivery categories into one called "Home & Enterprise". Pixelworks has been a pioneer in visual processing technology for over 20 years.
Previously we classified our primary target markets as Mobile, Projector, Video Delivery and Cinema, but have since aggregated the Projector and Video Delivery categories into one market called "Home & Enterprise". Pixelworks has been a pioneer in visual processing technology for over 20 years.
Our HDR conversion technology can not only convert between SDR (Standard Dynamic Range) and HDR10, it can also convert among HDR10, HLG and HDR10+, solving an interconnectivity problem between content formatted in one HDR format and display devices that support a different HDR format. • Rendering Accelerator.
Our HDR conversion technology can not only convert between SDR (Standard Dynamic Range) and HDR10, it can also convert among HDR10, HLG and HDR10+, solving an interconnectivity problem between content formatted in one HDR format and display devices that support a different HDR format. • Rendering Accelerator (IRX).
TrueCut technology preserves artistic intent across screens, from theaters to TVs to smartphones. 9 Core Products and Technology Core Products Our products include the following: Semiconductor Hardware (integrated circuits or “ICs”) • Visual Processor ICs for mobile devices • ImageProcessor SoCs for digital projectors • Transcoder ICs for media players, set-top-box recorders Software and Platform Licensing • Pixelworks Pro display processing software for smartphones • TrueCut Motion grading, content creation and distribution tools and device certification Currently the vast majority of our revenue is generated from the sale of the following ICs. • ImageProcessor ICs.
TrueCut technology preserves artistic intent across screens, from theaters to TVs to smartphones. 8 Core Products and Technology Core Products Our products include the following: Semiconductor Hardware (integrated circuits or “ICs”) • Visual Processor ICs for mobile devices • ImageProcessor SoCs for digital projectors • Transcoder ICs for media players, set-top-box recorders Software and Platform Licensing • Pixelworks Pro display processing software for smartphones • TrueCut Motion grading, content creation and distribution tools and device certification Currently the vast majority of our revenue is generated from the sale of the following ICs. • ImageProcessor ICs.
We also compete with specialized and diversified electronics and semiconductor companies that offer display processors or scaling components including: Actions Microelectronics Co., Ltd., ARM Holdings PLC, Dolby Laboratories, Inc., Egis Technology Inc., Hisilicon Technologies Co., Ltd., i-Chips Technology Inc., Lattice Semiconductor Corporation, MediaTek Inc., Novatek Microelectronics Corp., NVIDIA Corporation, Qualcomm Incorporated, Realtek Semiconductor Corp., Renesas Electronics America Inc., Socionext Inc., Solomon Systech (International) Ltd., STMicroelectronics N.V., Sunplus Technology Co., Ltd., Synaptics Incorporated, Texas Instruments Incorporated, Unisoc Communications, Inc., and other companies.
We also compete with specialized and diversified electronics and semiconductor companies that offer display processors or scaling components including: Actions Microelectronics Co., Ltd., ARM Holdings PLC, Dolby Laboratories, Inc., EGiS Technology Inc., HiSilicon Technologies Co., Ltd., i-Chips Technology Inc., Lattice Semiconductor Corporation, MediaTek Inc., Novatek Microelectronics Corp., NVIDIA Corporation, Qualcomm Incorporated, Realtek Semiconductor Corp., Socionext Inc., Solomon Systech (International) Ltd., STMicroelectronics N.V., Sunplus Technology Co., Ltd., Synaptics Incorporated, Texas Instruments Incorporated, Unisoc Communications, Inc., and other companies.
Furthermore, the laws of certain foreign countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products or intellectual property rights in the same manner and to the same extent as do the laws of the U.S. and, thus, make the possibility of piracy of our technology and products more likely in these countries. 16 The semiconductor industry is characterized by vigorous protection of intellectual property rights, which have resulted in significant and often protracted and expensive litigation.
Furthermore, the laws of certain foreign countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products or intellectual property rights in the same manner and to the same extent as do the laws of the U.S. and, thus, make the possibility of piracy of our technology and products more likely in these countries. 15 The semiconductor industry is characterized by vigorous protection of intellectual property rights, which have resulted in significant and often protracted and expensive litigation.
Some of the gaming smartphones now have displays that run at up to 144 Hz. • Resolution: TVs have achieved 4k resolutions (3840x2160) and mobile devices today can achieve up to 1440x3240 resolution, and while some content is available in 4k resolution, most movies are only available in FHD or HD resolutions, which is typically 1920x1080 and 1280x720, respectively. 11 Content formats are evolving to take advantage of these display improvements.
Some of the gaming smartphones now have displays that run at up to 144 Hz. • Resolution: TVs have achieved 4k resolutions (3840x2160) and mobile devices today can achieve up to 1440x3240 resolution, and while some content is available in 4k resolution, most movies are only available in FHD or HD resolutions, which is typically 1920x1080 and 1280x720, respectively. 10 Content formats are evolving to take advantage of these display improvements.
This format defines brightness levels up to around 100 "nits" (a standard measure of brightness), whereas HDR TVs are five to ten times brighter, from 540 nits upwards.
This format defines brightness levels up to around 100 “nits” (a standard measure of brightness), whereas HDR TVs are five to ten times brighter, from 540 nits upwards.
The industry standards body Society of Motion Picture & Television Engineers released a format specification known as "HDR10" that similarly bridges the gap in contrast and color between content and devices. The Ultra-HD Blu-ray disk format and streaming services such as Netflix and Amazon Video now support 4k HDR, aided by improved compression standards such as H.265.
The industry standards body Society of Motion Picture & Television Engineers released a format specification known as “HDR10” that similarly bridges the gap in contrast and color between content and devices. The Ultra-HD Blu-ray disk format and streaming services such as Netflix and Amazon Video now support 4k HDR, aided by improved compression standards such as H.265.
This "hold" effect is perceived by the brain as motion blur. There are numerous causes of motion blur. The materials used in constructing pixels on the display take a finite amount of time to transition from one state to another. If this time is too long, the image does not update swiftly and motion sequences seem to smear or blur.
This “hold” effect is perceived by the brain as motion blur. There are numerous causes of motion blur. The materials used in constructing pixels on the display take a finite amount of time to transition from one state to another. If this time is too long, the image does not update swiftly and motion sequences seem to smear or blur.
This approach provides a closer relationship between the filmmaker and the viewer than has been previously possible. 13 Customers, Sales and Marketing IC Products The key focus of our global sales and marketing strategy for our IC products is to achieve design wins with industry leading branded manufacturers in our target markets and to continue building strong customer relationships.
This approach provides a closer relationship between the filmmaker and the viewer than has been previously possible. 12 Customers, Sales and Marketing IC Products The key focus of our global sales and marketing strategy for our IC products is to achieve design wins with industry leading branded manufacturers in our target markets and to continue building strong customer relationships.
The SEC maintains an Internet site at www.sec.gov that contains our annual reports 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, and proxy and information statements. 17
The SEC maintains an Internet site at www.sec.gov that contains our annual reports 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, and proxy and information statements. 16
In mobile devices, Apple Inc. ("Apple") has brought wide color gamut to many of their devices, including the iPhone, iPad Pro, MacBook Pro and iMac. These devices deliver the same color gamut used in digital cinema theaters ("DCI-P3"). Meanwhile, TV manufacturers including Samsung Electronics Co., Ltd. ("Samsung"), TCL Technology, Sony Corporation ("Sony"), and LG Electronics, Inc.
In mobile devices, Apple Inc. ("Apple") has brought wide color gamut to many of their devices, including the iPhone, iPad Pro, MacBook Pro and iMac. These devices deliver the same color gamut used in digital cinema theaters ("DCI-P3"). Meanwhile, TV manufacturers including Samsung Electronics Co., Ltd. ("Samsung"), TCL Technology, Sony Group Corporation (“Sony”), and LG Electronics, Inc.
The majority of our products include one or more of our technologies to provide optimal high-quality visual processing solutions to our customers, regardless of screen size. 12 Our core visual processing technologies include: • MotionEngine® MEMC . Our proprietary MEMC technology significantly improves the performance and viewing experience of any screen by addressing problems such as judder and motion blur.
The majority of our products include one or more of our technologies to provide optimal high-quality visual processing solutions to our customers, regardless of screen size. 11 Our core visual processing technologies include: • MotionEngine® MEMC . Our proprietary MEMC technology significantly improves the performance and viewing experience of any screen by addressing problems such as judder and motion blur.
For display makers and brands, we provide the certification services, support, and IP licensing necessary to play back TrueCut Motion processed content, and the right to use the TrueCut Motion brand. 10 For clarity, in the table below we describe the relationship between our products and the markets and applications that each serves.
For display makers and brands, we provide the certification services, support, and IP licensing necessary to play back TrueCut Motion processed content, and the right to use the TrueCut Motion brand. 9 For clarity, in the table below we describe the relationship between our products and the markets and applications that each serves.
In addition, start-up companies may seek to compete in our markets. 15 Although TrueCut Motion is the first motion grading solution for the cinematic market, competitive solutions could arise rapidly.
In addition, start-up companies may seek to compete in our markets. 14 Although TrueCut Motion is the first motion grading solution for the cinematic market, competitive solutions could arise rapidly.
In connection with this strategic plan, the Company and PWSH closed three separate financing transactions in 2021 and 2022, which are further described in "Note 14: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees", "Note 15: Non-Controlling Interest" and "Note 17: Subsequent Events", which are incorporated by reference into this section.
In connection with this strategic plan, the Company and PWSH closed three separate financing transactions in 2021 and 2022, which are further described in "Note 14: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees" and "Note 15: Non-Controlling Interest", which are incorporated by reference into this section.
This stop-start motion is perceived by the brain as judder, jitter or strobing, reducing the visible clarity and fidelity of objects in motion and distracting from the main subject of the content. Most TVs today include frame-rate conversion chips, but many reviewers complain about artifacts such as halos, breakup in the image and the so-called "soap opera effect".
This stop-start motion is perceived by the brain as judder, jitter or strobing, reducing the visible clarity and fidelity of objects in motion and distracting from the main subject of the content. Most TVs today include frame-rate conversion chips, but many reviewers complain about artifacts such as halos, breakup in the image and the so-called “soap opera effect”.
Hardware improvements in color and contrast are of little value without content that can take advantage of them. In fact, a significant gap now exists between the vast majority of video content available to consumers and these emerging display devices. • Contrast and Brightness: Almost all movies available to consumers today use the "Rec.709" ITU standard format.
Hardware improvements in color and contrast are of little value without content that can take advantage of them. In fact, a significant gap now exists between the vast majority of video content available to consumers and these emerging display devices. • Contrast and Brightness: Almost all movies available to consumers today use the “Rec.709” ITU standard format.
All premium tier mobile displays were launched in 2020 with 120 Hz screens, which are quickly cascading down to lower price points.
All premium tier mobile displays were launched in 2023 with 120 Hz screens, which are quickly cascading down to lower price points.
While a distributor's payment to us is not dependent upon the distributor’s ability to resell the product or to collect from the end customer, our distributors may provide longer payment terms to end customers than those we would offer. Sales to distributors accounted for 57% and 56% of revenue in 2022 and 2021 respectively.
While a distributor's payment to us is not dependent upon the distributor’s ability to resell the product or to collect from the end customer, our distributors may provide longer payment terms to end customers than those we would offer. Sales to distributors accounted for 66% and 57% of revenue in 2023 and 2022 respectively.
See "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K for information on various environmental risks. Employees As of December 31, 2022, we had a total of 222 employees, the majority of which were full-time, compared to 217 employees as of December 31, 2021.
See "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K for information on various environmental risks. Employees As of December 31, 2023, we had a total of 239 employees, the majority of which were full-time, compared to 222 employees as of December 31, 2022.
("LG") are bringing high contrast, high brightness, or HDR TVs based on organic light emitting diodes ("OLED") and local-dimming liquid crystal display ("LCD") panels to the living room. Furthermore, most premium and high-tier smartphones and tablets from Apple, Samsung, Sony, LG, and Huawei Technologies Co., Ltd now include HDR as a standard feature.
(“LG”) are bringing high contrast, high brightness, or HDR TVs based on organic light emitting diodes (“OLED”) and local-dimming liquid crystal display (“LCD”) panels to the living room. Furthermore, most premium and high-tier smartphones and tablets from Apple, Samsung, Sony, LG, and Huawei Technologies Co., Ltd now include HDR as a standard feature.
For example, we have historically experienced higher revenue from the digital projector component of the Home & Enterprise 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.
We have typically experienced higher revenue from the digital projector component of the Home & Enterprise market in the third quarter, and lower revenue in the first quarter, as our Japanese customers reduce inventories in anticipation of their March 31 fiscal year end.
No other end customer accounted for more than 10% of revenue in 2022 or 2021 or represented more than 10% of accounts receivable as of December 31, 2022 or 2021. 14 TrueCut Products The sales and marketing of our TrueCut products differs in approach from that of our IC products.
No other end customer accounted for more than 10% of revenue in 2023 or 2022 or represented more than 10% of accounts receivable as of December 31, 2023 or 2022. 13 TrueCut Products The sales and marketing of our TrueCut products differs in approach from that of our IC products.
Our research and development expenses were $30.5 million and $27.3 million in 2022 and 2021, respectively. During 2022 and 2021, we received reimbursements related to a co-development arrangement with a customer for costs incurred in connection with our development of an IC product.
Our research and development expenses were $30.9 million and $30.5 million in 2023 and 2022, respectively. During 2023 and 2022, we received reimbursements related to a co-development arrangement with a customer for costs incurred in connection with our development of an IC product.
Our Visual Processor ICs can be used with many popular mobile application processors (such as from Qualcomm Incorporated and MediaTek Inc.) to help OEMs enhance their smartphone or tablet products.
Our Visual Processor ICs can be used with many popular mobile application processors (such as from Qualcomm Incorporated and MediaTek Inc.) to help original equipment manufacturers (“OEMs”) enhance their smartphone or tablet products.
As a result of the reimbursements, our overall research and development expense was reduced by $4.3 million and $4.0 million in 2022 and 2021 respectively.
As a result of the reimbursements, our overall research and development expense was reduced by $3.2 million and $4.3 million in 2023 and 2022, respectively.
For example, Dolby Labrotories, Inc. ("Dolby") introduced the "Dolby Vision™" format for movies and devices, in order to allow consumers to realize the benefits of HDR and wide color gamut.
For example, Dolby Laboratories, Inc. (“Dolby”) introduced the “Dolby Vision™” format for movies and devices, in order to allow consumers to realize the benefits of HDR and wide color gamut.
As these systems have added more functionality, new features have had to compete for battery life, internal bandwidth, and space. The addition of high-resolution and high refresh rate displays has further increased the burden on these resources.
Power is of primary importance, impacting form factor, cost, and performance. As these systems have added more functionality, new features have had to compete for battery life, internal bandwidth, and space. The addition of high-resolution and high refresh rate displays has further increased the burden on these resources.
The user experience with mobile video and gaming is a key driver of growth in the smartphone and tablet market. Smartphones and tablets pose a number of unique challenges as mobile display systems. Digital video content is available in a wide range of resolutions and frame rates. Power is of primary importance, impacting form factor, cost, and performance.
Mobile Our Mobile market category is composed of smartphones and tablets. The user experience with mobile video and gaming is a key driver of growth in the smartphone and tablet market. Smartphones and tablets pose a number of unique challenges as mobile display systems. Digital video content is available in a wide range of resolutions and frame rates.
As of December 31, 2022, we held 291 patents and have 17 patent applications pending, compared to 335 patents and 9 patent applications pending as of December 31, 2021.
As of December 31, 2023, we held 280 patents and have 18 patent applications pending, compared to 291 patents and 17 patent applications pending as of December 31, 2022.
Sales to Seiko Epson Corporation represented more than 10% of revenue in each of 2022 and 2021, and accounted for more than 10% of accounts receivable as of December 31, 2022 and 2021. Sales to vivo Communication Technology Co. Ltd. represented more than 10% of revenue in each of 2022 and 2021.
Sales to Guangdong OPPO Mobile Telecommunications Corporation, Ltd. accounted for more than 10% of revenue in each of 2023 and 2022. Sales to Vivo Communication Technology Co. Ltd. represented more than 10% of revenue in 2022. Vecima Networks represented more than 10% of accounts receivable as of December 31, 2022.
One of our distributors, Tokyo Electron Device Ltd. represented more than 10% of revenue in each of 2022 and 2021, and accounted for more than 10% of accounts receivable as of December 31, 2022.
One of our distributors, Upstar Technology Limited represented more than 10% of revenue in each of 2023 and 2022, and accounted for more than 10% of accounts receivable as of December 31, 2023 and December 31, 2022.
On occasion, we have also licensed our technology. During the third quarter of 2021, we engaged in a strategic plan to re-align our Mobile and Home & Enterprise businesses to improve their focus on their Asia-centered customers and employee stakeholders. Our subsidiary, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd.
On occasion, we have also licensed our technology. During 2021, we engaged in a strategic plan to re-align our Mobile and Home & Enterprise businesses to improve their focus on their Asia-centered customers and employee stakeholders. One of our Chinese subsidiaries, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (or "PWSH"), now operates these businesses as a full profit-and-loss center underneath Pixelworks.
Branded manufacturers are globally recognized manufacturers who develop display device specifications and manufacture, market and distribute display devices either directly or through resellers to end-users. • Branded Suppliers . Branded suppliers are globally recognized suppliers who develop display device specifications and then source them from integrators, typically in Asia, and distribute them either directly or through resellers to end-users.
Integrators are OEMs who build display devices based on specifications provided by branded suppliers. • Branded Manufacturers . Branded manufacturers are globally recognized manufacturers who develop display device specifications and manufacture, market and distribute display devices either directly or through resellers to end-users. • Branded Suppliers .
We presently intend to qualify PWSH to apply for the Listing in 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.
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. public company.
The CSRC and the SSE may relax the standards, but there is no guarantee that this will happen in any particular time frame. Any listing of PWSH on the STAR Market will not change the status of PXLW as a U.S. public company.
Another distributor, Upstar Technology Limited accounted for more than 10% of revenue in 2022 and 2021 and accounted for more than 10% of accounts receivable as of December 31, 2022 and 2021.
Another distributor, Tokyo Electron Device Ltd. accounted for more than 10% of revenue in 2022 and more than 10% of accounts receivable as of December 31, 2022. No other distributor accounted for more than 10% of revenue in 2023 and 2022 or represented more than 10% of accounts receivable as of December 31, 2023 or 2022.
Geographic Distribution of Sales Sales outside the U.S. accounted for approximately 95% and 97% of revenue in 2022 and 2021 respectively. Financial information regarding our domestic and foreign operations is presented in "Note 13. Segment Information" in Part II, Item 8 of this Annual Report on Form 10-K.
Financial information regarding our domestic and foreign operations is presented in "Note 13. Segment Information" in Part II, Item 8 of this Annual Report on Form 10-K. Backlog Our sales are made pursuant to customer purchase orders for delivery of standard products.
Backlog Our sales are made pursuant to customer purchase orders for delivery of standard products. The volume of product actually purchased by our customers, as well as shipment schedules, are subject to frequent revisions that reflect changes in both the customers’ needs and product availability.
The volume of product actually purchased by our customers, as well as shipment schedules, are subject to frequent revisions that reflect changes in both the customers’ needs and product availability. In light of industry practice and our own experience, we do not believe that backlog as of any particular date is indicative of future results.
In light of industry practice and our own experience, we do not believe that backlog as of any particular date is indicative of future results. Competition The vast majority of our revenue is derived from sales of integrated circuits within the intensely competitive semiconductor industry.
Competition The vast majority of our revenue is derived from sales of integrated circuits within the intensely competitive semiconductor industry.
End Customers Revenue attributable to our top five end customers together represented 76% of revenue in both 2022 and 2021. End customers include customers who purchase directly from us as well as customers who purchase products indirectly through distributors.
End customers include customers who purchase directly from us as well as customers who purchase products indirectly through distributors. Sales to Seiko Epson Corporation represented more than 10% of revenue in each of 2023 and 2022, and accounted for more than 10% of accounts receivable as of December 31, 2023 and 2022.
PWSH is in the process of preparing to file an application for an initial public offering of PWSH shares on the Shanghai Stock Exchange’s Science Technology Innovation Board, known as the STAR Market (the “Listing”). 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 believe that the Listing will have many benefits, including improved access to new capital markets and the funding of PWSH’s growth worldwide.
We are neither a PRC operating company nor do we conduct our operations in China through the use of variable interest entities. 7 Key Markets We target three key markets with our products and services: Mobile, Home & Enterprise, and Cinema. Mobile Our Mobile market category is composed of smartphones and tablets.
More than a majority of our operations are in China, but our executive officers and all of our directors but one are located in the United States (and he resides in Singapore). We are neither a PRC operating company nor do we conduct our operations in China through the use of variable interest entities.
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(or "PWSH"), now operates these businesses as a full profit-and-loss center underneath Pixelworks.
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PWSH has a branch office located in Shenzhen, China (Pixelworks Semiconductor Technology (Shanghai) Co. Ltd. Shenzhen Branch Office No. 1), which is primarily for sales and customer support for PWSH, and a subsidiary located in Hong Kong (Pixelworks Hong Kong Limited), which has no employees and is used for distribution of PWSH products.
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Revenue through direct relationships accounted for 43% and 44% of total revenue in 2022 and 2021, respectively. We have direct relationships with companies falling into the following three classifications: • Integrators . Integrators are OEMs who build display devices based on specifications provided by branded suppliers. • Branded Manufacturers .
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Pixelworks has an additional subsidiary in China (Frame Shadow Technology (Shanghai) Co., Ltd. (formerly called Mucheng Huai Management Consulting (Shanghai) Co., Ltd)) which is a research and development center for our TrueCut business.
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Sales to Guangdong OPPO Mobile Telecommunications Corporation, Ltd. accounted for more than 10% of revenue in 2022.
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This subsidiary does not operate under PWSH, but rather is owned by Pixelworks through our Oregon limited liability company, Pixelworks Semiconductor Technology Company, LLC. 6 We continue to prepare PWSH to file an application for an initial public offering of PWSH shares on the Shanghai Stock Exchange’s Science Technology Innovation Board, known as the STAR Market (the “Listing”) once market conditions in China are supportive.
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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.
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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.
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Our auditor is Grant Thornton LLP, with headquarters in Chicago, Illinois. The Holding Foreign Companies Accountable Act, as amended by the Consolidated Appropriations Act, 2023, and related regulations, therefore do not apply to our Company. Key Markets We target three key markets with our products and services: Mobile, Home & Enterprise, and Cinema.
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Branded suppliers are globally recognized suppliers who develop display device specifications and then source them from integrators, typically in Asia, and distribute them either directly or through resellers to end-users. End Customers Revenue attributable to our top five end customers together represented 87% and 76% of revenue in 2023 and 2022, respectively.
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We have typically experienced higher revenue from the mobile market in the fourth quarter, and lower revenue in the first quarter, as mobile phone OEMs ramp production in advance of Chinese New Year. Geographic Distribution of Sales Sales outside the U.S. accounted for approximately 99.7% and 95.1% of revenue in 2023 and 2022 respectively.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

105 edited+27 added−25 removed204 unchanged
Biggest changeIncreasing attention on environmental, social and governance (ESG) matters may have a negative impact on our business, impose additional costs on us, and expose us to additional risks. Companies are facing increasing attention from investors, customers, partners, consumers and other stakeholders relating to ESG matters, including environmental stewardship, social responsibility, diversity and inclusion, racial justice and workplace conduct.
Biggest changeCompanies are facing increasing attention from investors, customers, partners, consumers and other stakeholders relating to ESG matters, including environmental stewardship, social responsibility, diversity and inclusion, racial justice and workplace conduct. In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters.
We depend on manufacturers of our semiconductor products not only to respond to changes in technology and industry standards but also to continue the manufacturing processes on which we rely.
We depend on the manufacturers of our semiconductor products not only to respond to changes in technology and industry standards but also to continue the manufacturing processes on which we rely.
The following are examples of such provisions: • if the number of directors is fixed by the board at eight or more, our board of directors is divided into three classes serving staggered terms, which would make it more difficult for a group of shareholders to quickly replace a majority of directors; • our board of directors is authorized, without prior shareholder approval, to create and issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us or to effect a change of control, commonly referred to as "blank check" preferred stock; • members of our board of directors can be removed only for cause and at a meeting of shareholders called expressly for that purpose, by the vote of 75 percent of the votes then entitled to be cast for the election of directors; • our board of directors may alter our bylaws without obtaining shareholder approval; and shareholders are required to provide advance notice for nominations for election to the board of directors or for proposing matters to be acted upon at a shareholder meeting; • Oregon law permits our board to consider other factors beyond stockholder value in evaluating any acquisition offer (so-called "expanded constituency" provisions); and • a supermajority (67%) vote of shareholders is required to approve certain fundamental transactions.
The following are examples of such provisions: • if the number of directors is fixed by the board at eight or more, our board of directors is divided into three classes serving staggered terms, which would make it more difficult for a group of shareholders to quickly replace a majority of directors; • our board of directors is authorized, without prior shareholder approval, to create and issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us or to effect a change of control, commonly referred to as "blank check" preferred stock; • members of our board of directors can be removed only for cause and at a meeting of shareholders called expressly for that purpose, by the vote of 75 percent of the votes then entitled to be cast for the election of directors; • our board of directors may alter our bylaws without obtaining shareholder approval; and shareholders are required to provide advance notice for nominations for election to the board of directors or for proposing matters to be acted upon at a shareholder meeting; • Oregon law permits our board to consider other factors beyond shareholder value in evaluating any acquisition offer (so-called "expanded constituency" provisions); and • a supermajority (67%) vote of shareholders is required to approve certain fundamental transactions.
Our Asian operations require significant management attention and resources, and we are subject to many risks associated with operations in Asia, including, but not limited to: • outbreaks of health epidemics in China or other parts of Asia, including COVID-19; • difficulties in managing international distributors and manufacturers due to varying time zones, languages and business customs; • compliance with U.S. laws affecting operations outside of the U.S., such as the Foreign Corrupt Practices Act; • reduced or limited protection of our IP, particularly in software, which is more prone to design piracy; • difficulties in collecting outstanding accounts receivable balances; • changes in tax rates, tax laws and the interpretation of those laws; • difficulties regarding timing and availability of export and import licenses; • ensuring that we obtain complete and accurate information from our Asian operations to make proper disclosures in the United States; • political and economic instability, including tensions between China and each of the U.S., Taiwan and Japan; • difficulties in maintaining sales representatives outside of the U.S. that are knowledgeable about our industry and products; • changes in the regulatory environment in China, Japan and Taiwan that may significantly impact purchases of our products by our customers or our customers’ sales of their own products; • imposition of new tariffs, quotas, trade barriers and similar trade restrictions on our sales; • varying employment and labor laws; and • greater vulnerability to infrastructure and labor disruptions than in established markets.
Our Asian operations require significant management attention and resources, and we are subject to many risks associated with operations in Asia, including, but not limited to: • outbreaks of health epidemics in China or other parts of Asia, such as the recent COVID-19 pandemic; • difficulties in managing international distributors and manufacturers due to varying time zones, languages and business customs; • compliance with U.S. laws affecting operations outside of the U.S., such as the Foreign Corrupt Practices Act; • reduced or limited protection of our IP, particularly in software, which is more prone to design piracy; • difficulties in collecting outstanding accounts receivable balances; • changes in tax rates, tax laws and the interpretation of those laws; • difficulties regarding timing and availability of export and import licenses; • ensuring that we obtain complete and accurate information from our Asian operations to make proper disclosures in the United States; • political and economic instability and tensions, including tensions between China and each of the U.S., Taiwan and Japan; • difficulties in maintaining sales representatives outside of the U.S. that are knowledgeable about our industry and products; • changes in the regulatory environment in China, Japan and Taiwan that may significantly impact purchases of our products by our customers or our customers’ sales of their own products; • imposition of new tariffs, quotas, trade barriers and similar trade restrictions on our sales; • varying employment and labor laws; and • greater vulnerability to infrastructure and labor disruptions than in established markets.
Acquired assets or businesses may not achieve the anticipated benefits we expect due to a number of factors including: unanticipated costs or liabilities associated with such acquisition, including in the case of acquisitions we may make outside of the United States, difficulty in operating in foreign countries or complying with foreign regulatory requirements, incurrence of acquisition-related costs, harm to our relationships with existing customers as a result of such acquisition, harm to our brand and reputation, the loss of key employees in the acquired businesses, use of resources that are needed in other parts of our business, and use of substantial portions of our available cash to consummate any such 25 acquisition.
Acquired assets or businesses may not achieve the anticipated benefits we expect due to a number of factors including: unanticipated costs or liabilities associated with such acquisition, including in the case of acquisitions we may make outside of the United States, difficulty in operating in foreign countries or complying with foreign regulatory requirements, incurrence of acquisition-related costs, harm to our relationships with existing customers as a result of such acquisition, harm to our brand and reputation, the loss of key employees in the acquired businesses, use of resources that are needed in other parts of our business, and use of substantial portions of our available cash to consummate any such acquisition.
Additionally, pursuant to our August 2021 Capital Increase Agreement and the agreements for the employee-owned entities that have invested in PWSH (the “ESOP”), PWSH agreed to attempt to complete all requirements to qualify for a Listing such that the Listing is consummated prior to a certain date (for the private equity and strategic investors ("Investors"), June 30, 2024, and for the employee-owned entities (“ESOP”), December 31, 2024).
Additionally, pursuant to our August 2021 Capital Increase Agreement and the agreements for the employee-owned entities that have invested in PWSH (“ESOP”), PWSH agreed to attempt to complete all requirements to qualify for a Listing such that the Listing is consummated prior to a certain date (for the private equity and strategic investors ("Investors"), June 30, 2024, and for the ESOP, December 31, 2024).
Delayed sales, lower margins or lost customers as a result of these disruptions could adversely affect our financial results, stock price and reputation. If we fail to retain or attract the specialized technical and management personnel required to successfully operate our business, it could harm our business and may result in lost sales and diversion of management resources.
Delayed sales, lower margins or lost customers as a result of these disruptions could adversely affect our financial results, stock price and reputation. 18 If we fail to retain or attract the specialized technical and management personnel required to successfully operate our business, it could harm our business and may result in lost sales and diversion of management resources.
Any of these factors could require a disproportionate share of management’s attention, result in increased costs or decreased revenues, and could materially affect our product sales, financial condition and results of operations. 23 Our operations in Asia expose us to heightened risks due to natural disasters. The risk of natural disasters in the Pacific Rim region is significant.
Any of these factors could require a disproportionate share of management’s attention, result in increased costs or decreased revenues, and could materially affect our product sales, financial condition and results of operations. Our operations in Asia expose us to heightened risks due to natural disasters. The risk of natural disasters in the Pacific Rim region is significant.
For example, recent statements and actions by the United States regarding the export of certain semiconductor technology, although not applicable to our technology or products, could result in responsive actions taken by China that could adversely impact our operations, financial position, or the value of our securities. In addition, the Company faces certain liquidity risks from its operations in China.
For example, recent statements and actions by the United States regarding the export of certain semiconductor technology, although not applicable to our technology or products, could result in responsive actions taken by China that could adversely impact our operations, financial position, or the value of our securities. 31 In addition, the Company faces certain liquidity risks from its operations in China.
Additionally, any compromise of our information security could result in the unauthorized publication of our confidential business or proprietary 26 information, cause an interruption in our operations, result in the unauthorized release of customer or employee data, result in a violation of privacy or other laws, or expose us to a risk of litigation or damage our reputation, any or all of which could harm our business and operating results.
Additionally, any compromise of our information security could result in the unauthorized publication of our confidential business or proprietary information, cause an interruption in our operations, result in the unauthorized release of customer or employee data, result in a violation of privacy or other laws, or expose us to a risk of litigation or damage our reputation, any or all of which could harm our business and operating results.
In addition, the Tax Cuts and Jobs Act (the "TCJA"), limits the deduction for net operating loss carryforwards to 80 percent of taxable income for losses arising in taxable years beginning after December 31, 2020. We face a number of risks as a result of the concentration of our operations and customers in Asia.
In addition, the Tax Cuts and Jobs Act (the "TCJA"), limits the deduction for net operating loss carryforwards to 80 percent of taxable income for losses arising in taxable years beginning after December 31, 2020. 21 We face a number of risks as a result of the concentration of our operations and customers in Asia.
If the price again drops below $1.00 per share, our stock could become subject to delisting, and we may seek shareholder approval for a reverse stock split, which in turn could produce adverse effects and may not result in a long-term or permanent increase in the price of our common stock.
If the price drops below $1.00 per share, our stock could become subject to delisting, and we may seek shareholder approval for a reverse stock split, which in turn could produce adverse effects and may not result in a long-term or permanent increase in the price of our common stock.
We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us. We license our intellectual property, which exposes us to risks of infringement or misappropriation, and may cause fluctuations in our operating results.
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. 20 We license our intellectual property, which exposes us to risks of infringement or misappropriation, and may cause fluctuations in our operating results.
Potential and current competitors may include diversified semiconductor manufacturers and the semiconductor divisions or affiliates of some of our customers, including: Apple Inc., Broadcom Inc., LG Electronics, Inc., MegaChips Corporation, Mitsubishi Digital Electronics America, Inc., NEC Corporation, Panasonic Corporation, Samsung Electronics Co., Ltd., Socionext Inc., ON Semiconductor Corporation, Seiko Epson Corporation, Sharp Electronics Corporation, Sony Corporation, and Toshiba America, Inc.
Potential and current competitors may include diversified semiconductor manufacturers and the semiconductor divisions or affiliates of some of our customers, including: Apple Inc., Broadcom Inc., LG Electronics, Inc., MegaChips Corporation, Mitsubishi Digital Electronics America, Inc., NEC Corporation, Panasonic Corporation, Samsung Electronics Co., Ltd., Socionext Inc., ON Semiconductor Corporation, Seiko Epson Corporation, Sharp Corporation, Sony Group Corporation, and Toshiba America, Inc.
In addition, it is possible that existing or future patents may be invalidated, diluted, circumvented, challenged or licensed to others. 31 Others may bring infringement or indemnification actions against us that could be time-consuming and expensive to defend. We may become subject to claims involving patents or other intellectual property rights.
In addition, it is possible that existing or future patents may be invalidated, diluted, circumvented, challenged or licensed to others. Others may bring infringement or indemnification actions against us that could be time-consuming and expensive to defend. We may become subject to claims involving patents or other intellectual property rights.
Further, for continued listing on the Nasdaq Global Market we must have at least 400 total shareholders. 37 In addition to the minimum $1.00 per share and 400 total shareholders requirements, the Nasdaq Global Market has other continued listing requirements, and we must meet all of the criteria under at least one of the following three standards: (i) a minimum of $50.0 million in total asset value and $50.0 million in revenues in the latest fiscal year or in two of the last three fiscal years, at least 1.1 million publicly held shares, at least $15.0 million in market value of publicly held shares and at least four registered and active market makers (as such term is defined by the Nasdaq Marketplace Rules); (ii) a minimum of $50.0 million in market value of listed securities, at least 1.1 million publicly held shares, at least $15.0 million in market value of publicly held shares and at least four registered and active market makers; or (iii) a minimum of $10.0 million in shareholders' equity, at least 750,000 publicly held shares, at least $5.0 million in market value of publicly held shares and at least two registered and active market makers.
Further, for continued listing on the Nasdaq Global Market we must have at least 400 total shareholders. 36 In addition to the minimum $1.00 per share and 400 total shareholders requirements, the Nasdaq Global Market has other continued listing requirements, and we must meet all of the criteria under at least one of the following three standards: (i) a minimum of $50.0 million in total asset value and $50.0 million in revenues in the latest fiscal year or in two of the last three fiscal years, at least 1.1 million publicly held shares, at least $15.0 million in market value of publicly held shares and at least four registered and active market makers (as such term is defined by the Nasdaq Marketplace Rules); (ii) a minimum of $50.0 million in market value of listed securities, at least 1.1 million publicly held shares, at least $15.0 million in market value of publicly held shares and at least four registered and active market makers; or (iii) a minimum of $10.0 million in shareholders' equity, at least 750,000 publicly held shares, at least $5.0 million in market value of publicly held shares and at least two registered and active market makers.
Failure to comply with these laws and rules could lead to investigation by regulatory authorities, de-listing from the Nasdaq Global Market, or penalties imposed on us. Regulations related to conflict minerals may adversely impact our business.
Failure to comply with these laws and rules could lead to investigation by regulatory authorities, de-listing from the Nasdaq Global Market, or penalties imposed on us. 24 Regulations related to conflict minerals may adversely impact our business.
In addition, start-up companies may seek to compete in our markets. Many of our competitors have longer operating histories and greater resources to support development and marketing efforts than we do. Some of our competitors operate their own fabrication facilities.
In addition, start-up companies may seek to compete in our markets. 27 Many of our competitors have longer operating histories and greater resources to support development and marketing efforts than we do. Some of our competitors operate their own fabrication facilities.
As a result, our customers may cancel, change or delay product purchase commitments, which could cause our revenue to decline and materially and adversely affect our results of operations. 21 Our revenue and operating results can fluctuate from period to period, which could cause our share price to decline.
As a result, our customers may cancel, change or delay product purchase commitments, which could cause our revenue to decline and materially and adversely affect our results of operations. Our revenue and operating results can fluctuate from period to period, which could cause our share price to decline.
The market price of the PWSH shares and Pixelworks common stock may be volatile or may decline for reasons other than the risk and uncertainties described above, as the result of investor negativity or uncertainty with respect to the proposed Listing. 35 If the Listing is completed, Pixelworks and PWSH both will be public reporting companies, but each will be subject to separate, and potentially inconsistent, accounting and disclosure requirements, which may lead to investor confusion or uncertainty that could cause decreased demand for, or fluctuations in the price of, one or both of the companies’ publicly traded shares.
The market price of the PWSH shares and Pixelworks common stock may be volatile or may decline for reasons other than the risk and uncertainties described above, as the result of investor negativity or uncertainty with respect to the proposed Listing. 34 If the Listing is completed, Pixelworks and PWSH both will be public reporting companies, but each will be subject to separate, and potentially inconsistent, accounting and disclosure requirements, which may lead to investor confusion or uncertainty that could cause decreased demand for, or fluctuations in the price of, one or both of the companies’ publicly traded shares.
Our target markets remain extremely competitive, and we expect competition to intensify as current competitors expand their product and service offerings, industry standards continue to evolve and new competitors enter these markets.
Our target markets remain extremely competitive, and we expect competition to intensify as current competitors expand their product and/or service offerings, industry standards continue to evolve and new competitors enter these markets.
We face legal and operational risks related to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws, required approvals and permissions, and regulations in China, which could adversely affect us and limit the legal protections available to the Company and its stockholders, as well as materially and adversely affect our business and value of our securities.
We face legal and operational risks related to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws, required approvals and permissions, and regulations in China, which could adversely affect us and limit the legal protections available to the Company and its shareholders, as well as materially and adversely affect our business and value of our securities.
If we are unable to implement our strategy to expand our PRC operations, including the positioning of our subsidiary to qualify and seek an initial public offering on the STAR Market, our ability to access capital, customers, and talent in China could suffer, which in turn may materially and adversely affect our worldwide growth and revenue potential.
If we are unable to implement our strategy to expand our PRC operations, including the positioning of PWSH to qualify and seek an initial public offering on the STAR Market, our ability to access capital, customers, and talent in China could suffer, which in turn may materially and adversely affect our worldwide growth and revenue potential.
This litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources. 36 The interest of our current or potential significant shareholders may conflict with other shareholders and they may attempt to effect changes or acquire control, which could adversely affect our results of operations and financial condition.
This litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources. 35 The interest of our current or potential significant shareholders may conflict with other shareholders and they may attempt to effect changes or acquire control, which could adversely affect our results of operations and financial condition.
Because it may be several years before we know whether the Listing will be completed, we may, in the interim, forego or postpone other alternative actions to strengthen our market position and operations in the PRC. 34 PRC companies are critical to the global semiconductor industry, and our current business is substantially concentrated in the PRC market.
Because it may be several years before we know whether the Listing will be completed, we may, in the interim, forego or postpone other alternative actions to strengthen our market position and operations in the PRC. 33 PRC companies are critical to the global semiconductor industry, and our current business is substantially concentrated in the PRC market.
The issuance and sale of additional shares of our common stock pursuant to our “at the market” equity offering program or otherwise will have a dilutive impact on our existing stockholders. Additionally, any new equity securities issued by us could have rights, preferences or privileges senior to those of our common stock.
The issuance and sale of additional shares of our common stock pursuant to our “at the market” equity offering program or otherwise will have a dilutive impact on our existing shareholders. Additionally, any new equity securities issued by us could have rights, preferences or privileges senior to those of our common stock.
As of December 31, 2022, we were in compliance with these listing requirements. Our stock price is volatile and we believe that we continue to remain susceptible to the market value of our listed securities and/or the market value of our publicly held securities falling below $50.0 million and $5.0 million, respectively.
As of December 31, 2023, we were in compliance with these listing requirements. Our stock price is volatile and we believe that we continue to remain susceptible to the market value of our listed securities and/or the market value of our publicly held securities falling below $50.0 million and $5.0 million, respectively.
For example, in December 2020, we completed a private placement of 3,200,000 shares of common stock to certain accredited investors at a purchase price of $2.071 per share. The issuance and sale of the shares in the private placement had a dilutive impact on our existing stockholders.
For example, in December 2020, we completed a private placement of 3,200,000 shares of common stock to certain accredited investors at a purchase price of $2.071 per share. The issuance and sale of the shares in the private placement had a dilutive impact on our existing shareholders.
Pixelworks designs, develops and markets visual processing and advanced media processing solutions in the Mobile, Home & Enterprise and Cinema markets. Our success depends to a significant extent on our ability to meet the evolving needs of these markets and to enhance our existing products, solutions and technologies.
Pixelworks designs, develops and markets visual processing and advanced media processing solutions for the Mobile, Home & Enterprise and Cinema markets. Our success depends to a significant extent on our ability to meet the evolving needs of these markets and to enhance our existing products, solutions and technologies.
Additionally, pursuant to our “at the market” equity offering program, we may sell shares of our common stock having aggregate sales proceeds of up to $25 million from time to time through Cowen and Company, LLC, as our agent. Through December 31, 2022, we sold an aggregate of 1,808,484 shares of our common stock under this at the market offering.
Additionally, pursuant to our “at the market” equity offering program, we may sell shares of our common stock having aggregate sales proceeds of up to $25.0 million from time to time through Cowen and Company, LLC, as our agent. Through December 31, 2023, we sold an aggregate of 1,808,484 shares of our common stock under this at the market offering.
In the interim, PWSH may require additional funding from Pixelworks to augment its PRC operations, and we cannot give any assurance that such capital will be available from Pixelworks on terms acceptable to us.
In the interim, PWSH may require additional funding to augment its PRC operations, and we cannot give any assurance that such capital will be available on terms acceptable to us.
We compete with specialized and diversified electronics and semiconductor companies that offer display processors or scaling components including: Actions Microelectronics Co., Ltd., ARM Holdings PLC, Dolby Laboratories, Inc., Egis Technology Inc., Hisilicon Technologies Co., Ltd., i-Chips Technology Inc., Lattice Semiconductor Corporation, MediaTek Inc., Novatek Microelectronics Corp., NVIDIA Corporation, Qualcomm Incorporated, Realtek Semiconductor Corp., Renesas Electronics America Inc., Socionext Inc., Solomon Systech (International) Ltd., STMicroelectronics N.V., Sunplus Technology Co., Ltd., Synaptics Incorporated, Texas Instruments Incorporated, Unisoc Communications, Inc., and other companies.
We compete with specialized and diversified electronics and semiconductor companies that offer display processors or scaling components including: Actions Microelectronics Co., Ltd., ARM Holdings PLC, Dolby Laboratories, Inc., EGiS Technologies, Inc., HiSilicon Technologies Co., Ltd., i-Chips Technology Inc., Lattice Semiconductor Corporation, MediaTek Inc., Novatek Microelectronics Corp., NVIDIA Corporation, Qualcomm Incorporated, Realtek Semiconductor Corp., Socionext Inc., Solomon Systech (International) Ltd., STMicroelectronics N.V., Sunplus Technology Co., Ltd., Synaptics Incorporated, Texas Instruments Incorporated, Unisoc (Shanghai) Technologies Co., Ltd., and other companies.
As a result of these conditions, our manufacturers, vendors and customers might experience deterioration of their businesses, cash flow shortages and difficulty obtaining financing, which could result in interruptions or delays in the performance of any contracts, reductions and delays in customer purchases, delays in or the inability of customers to obtain financing to purchase our products, and bankruptcy of customers.
As a result, we or our manufacturers, vendors and customers might experience deterioration of our or their businesses, cash flow shortages and difficulty obtaining financing, which could result in interruptions or delays in the performance of any contracts, reductions and delays in customer purchases, delays in or the inability of the Company or our customers to obtain financing or of our customers to purchase our products, and bankruptcy of customers.
PWSH’s status as a publicly traded company that is controlled, but less than wholly owned, by Pixelworks could have an adverse effect on us. PWSH is not currently a wholly owned subsidiary of Pixelworks, and following the Listing, other holders may hold as much as 30% of the subsidiary.
If the Listing is completed, PWSH’s status as a publicly traded company in China that is controlled, but less than wholly owned, by Pixelworks could have an adverse effect on us. PWSH is not currently a wholly owned subsidiary of Pixelworks, and following the Listing, other holders may hold as much as 30% of the subsidiary.
The display manufacturing market is highly concentrated and we are, and will continue to be, dependent on a limited number of customers and distributors for a substantial portion of our revenue. Sales to our top distributor represented 29% and 27% of revenue for the years ended December 31, 2022 and 2021, respectively.
The display manufacturing market is highly concentrated and we are, and will continue to be, dependent on a limited number of customers and distributors for a substantial portion of our revenue. Sales to our top distributor represented 48% and 29% of revenue for the years ended December 31, 2023 and 2022, respectively.
We have in the past faced shortages of components and materials that are critical to the manufacture of our products and our customers’ products. Such critical components and materials may include semiconductor wafers and packages, double data rate memory die, display components, analog-to-digital converters, digital receivers, video decoders and voltage regulators.
We have in the past and may from time-to-time face shortages of components and materials that are critical to the manufacture of our products and our customers’ products. Such critical components and materials may include semiconductor wafers and packages, double data rate memory die, display components, analog-to-digital converters, digital receivers, video decoders and voltage regulators.
PWSH has, in the past, and may decide in the future, to sell shares of its stock, such as in a private placement similar to that which closed in August 2021, in an initial public offering on a stock exchange located in China, such as the STAR Market in Shanghai, or otherwise.
PWSH has, in the past, and may decide in the future, to sell shares of its stock, such as in a private placement similar to that which closed in August 2021, in an initial public offering on a stock exchange located in China, such as the STAR Market, or otherwise. In addition, PWSH may, in the future, become profitable.
Similarly, the Listing application may be denied or delayed by the Shanghai Stock Exchange in its discretion. Further, the COVID‑19 outbreak, the tensions between the United States and China, or other geopolitical forces, including war, could negatively impact our currently planned projects and investments in the PRC, including the Listing.
Similarly, the Listing application may be denied or delayed by the SSE in its discretion. Further, the COVID‑19 outbreak, the tensions between the United States and China, or other geopolitical forces, including war, could negatively impact our currently planned projects and investments in the PRC, including the Listing.
Additionally, even if our product strategy is successful at achieving design wins and increasing our revenue, we may continue to incur operating losses due to the significant research and development costs that are required to develop competitive products.
Additionally, even if our product strategy is successful at achieving design wins and increasing our revenue, we may continue to incur operating losses due to the significant research and development costs that are required to develop competitive products for the projection market and mobile market.
If we are not profitable in the future, we may be unable to continue our operations. We have incurred operating losses each fiscal year since 2010 and have an accumulated deficit of $451.0 million as of December 31, 2022.
If we are not profitable in the future, we may be unable to continue our operations. We have incurred operating losses each fiscal year since 2010 and have an accumulated deficit of $477.0 million as of December 31, 2023.
The China Securities Regulatory Commission, or the CSRC, initially launched the STAR Market in June 2019 and trading on that market began in July 2019. No assurance can be given regarding the effect of the Listing on the market price of PWSH shares or on the price of our common stock on the Nasdaq Global Market.
The CSRC initially launched the STAR Market in June 2019 and trading on that market began in July 2019. No assurance can be given regarding the effect of the Listing on the market price of PWSH shares or on the price of our common stock on the Nasdaq Global Market.
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, 2022, including our consolidated financial statements and related notes, and our other filings made from time to time with the Securities and Exchange Commission ("SEC").
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, 2023, including our consolidated financial statements and related notes, and our other filings made from time to time with the SEC.
Additionally, 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 component of the Home & Enterprise market in the third quarter of the year, and lower revenue in the first quarter of the year.
Additionally, 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 projector market in the third quarter of the year, and lower revenue in the first quarter of the year.
Our international operations expose us to risks resulting from the fluctuations of foreign currencies. We are exposed to risks resulting from the fluctuations of foreign currencies, primarily those of Japan, Taiwan, China and Canada. We sell our products to OEMs that incorporate our products into other products that they sell outside of the U.S.
We are exposed to risks resulting from the fluctuations of foreign currencies, primarily those of Japan, Taiwan, China and Canada. We sell our products to OEMs that incorporate our products into other products that they sell outside of the U.S.
These uncertainties may also impede our ability to enforce the contracts entered into by PWSH and could materially and adversely affect our business and results of operations.
These uncertainties may also impede our ability to enforce the contracts entered into by our Chinese subsidiaries and could materially and adversely affect our business and results of operations.
There can be no assurance that China’s economic policies will be consistent or effective and because a significant portion of our operations are in China, our results of operations, financial position and value of our securities may be materially harmed by changes in China’s political, economic or social conditions.
There can be no assurance that China’s economic policies will be consistent or effective and because more than a majority of our operations are in China, our results of operations, financial position and value of our securities may be materially harmed by changes in China’s political, economic or social conditions.
Uncertainties due to evolving laws and regulations could also impede the ability of an entity based in China, such as PWSH, to obtain or maintain permits or licenses required to conduct business in China.
Uncertainties due to evolving laws and regulations could also impede the ability of an entity based in China, such as our Chinese subsidiaries, to obtain or maintain permits or licenses required to conduct business in China.
In addition, PWSH may, in the future, become profitable. Any proceeds raised or generated by PWSH are subject to certain PRC laws and regulations that may make it difficult, if not impossible, for the Company to use such proceeds to fund its operations outside of China.
Any proceeds raised or generated by PWSH are subject to certain PRC laws and regulations that may make it difficult, if not impossible, for the Company to use such proceeds to fund its operations outside of China.
Many of our customers are located in Japan, China, or Taiwan. Sales outside the U.S. accounted for approximately 95% and 97% of revenue for the years ended December 31, 2022 and 2021, respectively. We anticipate that sales outside the U.S. will continue to account for a substantial portion of our revenue in future periods.
Many of our customers are located in Japan, China, or Taiwan. Sales outside the U.S. accounted for approximately 99.7% and 95.1% of revenue for the years ended December 31, 2023 and 2022, respectively. We anticipate that sales outside the U.S. will continue to account for a substantial portion of our revenue in future periods.
Natural disasters in this region could also result in: • reduced end user demand due to the economic impact of any natural disaster; • a disruption to the global supply chain for products manufactured in areas affected by natural disasters that are included in products purchased either by us or by our customers; • an increase in the cost of products that we purchase due to reduced supply; and • other unforeseen impacts as a result of the uncertainty resulting from a natural disaster.
Natural disasters in this region could also result in: • reduced end user demand due to the economic impact of any natural disaster; • a disruption to the global supply chain for products manufactured in areas affected by natural disasters that are included in products purchased either by us or by our customers; • an increase in the cost of products that we purchase due to reduced supply; and • other unforeseen impacts as a result of the uncertainty resulting from a natural disaster. 22 Our international operations expose us to risks resulting from the fluctuations of foreign currencies.
Any such inability to obtain funds from Pixelworks or other sources may impair the ability of PWSH to grow its operations, which could have a material adverse effect on our consolidated operating results and on the price of our common stock.
Any such inability to obtain funds may impair the ability of PWSH to grow its operations, which could have a material adverse effect on our consolidated operating results and on the price of our common stock.
As of the date of this report, PWSH has obtained the required business licenses from the SAMR and complied with registration and filing requirements of other Chinese government agencies, and has not been denied such registrations or filings by any PRC authority, however, if we do not receive or maintain the necessary permissions or approvals, inadvertently conclude that such permissions or approvals are not required, or applicable laws, regulations or interpretations change and we become required to obtain such permissions or approvals in the future and we fail to do so, we may be subject to investigations, fines, penalties, suspensions in operations, or other punitive action which could result in a material adverse change in our PRC operations and our results of operation, which in turn could cause our stock price to be materially and adversely affected.
As of the date of this filing, our Chinese subsidiaries have obtained the required business licenses from the SAMR and complied with registration and filing requirements of other Chinese government agencies, and have not been denied such registrations or filings by any PRC authority, however, if we do not receive or maintain the necessary permissions or approvals, inadvertently conclude that such permissions or approvals are not required, or applicable laws, regulations or interpretations change and we become required to obtain such permissions or approvals in the future and we fail to do so, we may be subject to investigations, fines, penalties, suspensions in operations, or other punitive action which could result in a material adverse change in our PRC operations and our results of operation, which in turn could cause our stock price to be materially and adversely affected. 32 Additionally, rules and regulations in China can change quickly and with little advance notice.
Because our requirements represent only a small portion of the total production capacity of our contract manufacturers, they could reallocate capacity to other customers during periods of high demand for our products, as they have done in the past.
Because our requirements represent only a small portion of the total production capacity of our contract manufacturers, they could reallocate capacity to other customers during periods of high demand for our products, as they have done in the past. We expect this may occur again in the future.
The manufacture of semiconductors is a complex process and it is often difficult for semiconductor foundries to produce semiconductors free of defects. Some of our products can be more highly integrated than other semiconductors and can incorporate mixed signal analog and digital signal processing, multi-chip modules and embedded memory technology, making them even more difficult to produce without defects.
The manufacture of semiconductors is a complex process and it is often difficult for semiconductor foundries to produce semiconductors free of defects. Because many of our products are more highly integrated than other semiconductors and incorporate mixed signal analog and digital signal processing, multi-chip modules and embedded memory technology, they are even more difficult to produce without defects.
We have experienced, and may continue to experience, periodic fluctuations in our financial results because of changes in industry-wide conditions. 32 Risks Related to Our Operations in China We face additional risks associated with our operations in China, including the risk of changes in China's political, economic or social conditions or changes in U.S.-China relations, as well as liquidity risks, any of which may adversely and materially affect our results of operations, financial position and value of our securities.
Risks Related to Our Operations in China We face additional risks associated with our operations in China, including the risk of changes in China’s political, economic or social conditions or changes in U.S.-China relations, as well as liquidity risks, any of which may adversely and materially affect our results of operations, financial position and value of our securities.
Orders included in our backlog may be fully or partially cancellable. A reduction, delay or cancellation of orders from one or more of our significant customers, or a decision by one or more of our significant customers to select products manufactured by a competitor or to use its own internally-developed semiconductors, would significantly and negatively impact our revenue.
A reduction, delay or cancellation of orders from one or more of our significant customers, or a decision by one or more of our significant customers to select products manufactured by a competitor or to use its own internally-developed semiconductors, would significantly and negatively impact our revenue.
We are subject to the Foreign Corrupt Practices Act ("FCPA") and other anti-corruption, anti-bribery and anti-money laundering laws in various jurisdictions. From time to time, we may leverage third parties to help conduct our businesses abroad.
Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences. We are subject to the Foreign Corrupt Practices Act ("FCPA") and other anti-corruption, anti-bribery and anti-money laundering laws in various jurisdictions. From time to time, we may leverage third parties to help conduct our businesses abroad.
PWSH is required to obtain certain permits and licenses from certain PRC government agencies to operate businesses in China, such as business licenses from the State Administration for Market Regulation (“SAMR”), registrations with PRC tax authorities, filings with PRC customs for carrying out export and import business activities and registrations with China’s State 33 Administration of Foreign Exchange (SAFE) for the ability to receive funds from offshore entities and transfer funds to offshore entities.
Our Chinese subsidiaries are required to obtain certain permits and licenses from certain PRC government agencies to operate businesses in China, such as business licenses from the SAMR, registrations with PRC tax authorities, filings with PRC customs for carrying out export and import business activities and registrations with China’s State Administration of Foreign Exchange (SAFE) for the ability to receive funds from offshore entities and transfer funds to offshore entities.
Additionally, revenue attributable to our top five end customers represented 76% of revenue for both the years ended December 31, 2022 and 2021. As of December 31, 2022, we had four accounts that each represented 10% or more of accounts receivable. As of December 31, 2021, we had three accounts that each represented 10% or more of accounts receivable.
Additionally, revenue attributable to our top five end customers represented 87% and 76% of revenue for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had two accounts that each represented 10% or more of accounts receivable.
There is no assurance that we will be able to maintain a consistent level of licensing revenue or mix of licensing revenue and revenue from product sales, which could result in wide fluctuations in our results of operations from period to period, making it difficult to accurately measure the performance of our business. 22 Our net operating loss carryforwards may be limited or they may expire before utilization.
There is no assurance that we will be able to maintain a consistent level of licensing revenue or mix of licensing revenue and revenue from product sales, which could result in wide fluctuations in our results of operations from period to period, making it difficult to accurately measure the performance of our business.
Furthermore, the constraints in the capital and credit markets, may limit the ability of our customers to meet their liquidity needs, which could result in an impairment of their ability to make timely payments to us and reduce their demand for our products, adversely 18 impacting our results of operations and cash flows.
Furthermore, the constraints in the capital and credit markets, may limit our ability to access the capital we need when we need it, on favorable terms or otherwise, or limit the ability of our customers to meet their liquidity needs, which could result in an impairment of their ability to make timely payments to us and reduce their demand for our products, adversely impacting our results of operations and cash flows.
Unfavorable ESG ratings may lead to negative investor sentiment toward the Company, which could have a negative impact on our stock price and our access to and costs of capital. We have established corporate social responsibility programs aligned with sound environmental, social and governance principles.
Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings may lead to negative investor sentiment toward the Company, which could have a negative impact on our stock price and our access to and costs of capital. We have established corporate social responsibility programs aligned with sound environmental, social and governance principles.
As part of this strategic plan, we intend to qualify PWSH to file an application for an initial public offering on the Shanghai Stock Exchange’s Science Technology Innovation Board, known as the STAR Market (the “Listing”) to further improve our access to capital markets and to fund growth.
As part of this strategic plan, we intend to qualify PWSH to file an application for an initial public offering on the STAR Market to further improve our access to capital markets and to fund growth.
We cannot assure you that the products we are developing will adequately address the demands of our target customers, or that we will be able to produce our new products at costs that enable us to price these products competitively.
Such markets may not develop or may take longer to develop than we expect. We cannot assure you that the products we are developing will adequately address the demands of our target customers, or that we will be able to produce our new products at costs that enable us to price these products competitively.
Examples of changing industry standards include the growing use of broadband to deliver video content, increased display resolution and size, faster screen refresh rates, video capability such as High Dynamic Range, the proliferation of new display devices and the drive to network display devices together.
Examples include the increased adoption of artificial intelligence in visual processing systems, the growing use of broadband to deliver video content, increased display resolution and size, faster screen refresh rates, video capability such as High Dynamic Range, the proliferation of new display devices and the drive to network display devices together.
A significant amount of our revenue comes from a limited number of customers and distributors and from time to time we may enter into exclusive deals with customers, exposing us to increased credit risk and subjecting our cash flow to the risk that any of our customers or distributors could decrease or cancel its orders.
If we are not profitable in the future, we may be unable to continue our operations. 19 A significant amount of our revenue comes from a limited number of customers and distributors and from time to time we may enter into exclusive deals with customers, exposing us to increased credit risk and subjecting our cash flow to the risk that any of our customers or distributors could decrease or cancel their orders.
If we are unable to obtain or maintain any third-party license required to develop new products and product enhancements, we may have to obtain substitute technology with lower quality or performance standards, or at greater cost, either of which could seriously harm the competitiveness of our products.
If we are unable to obtain or maintain any third-party license required to develop new products and product enhancements, we may have to obtain substitute technology with lower quality or performance standards, or at greater cost, either of which could seriously harm the competitiveness of our products. 29 Our limited ability to protect our IP and proprietary rights could harm our competitive position by allowing our competitors to access our proprietary technology and to introduce similar products.
Failure by us or our contract manufacturers to comply with such legislation could result in customers refusing to purchase our products and could subject us to significant monetary penalties in connection with a violation, either of which would have a material adverse effect on our business, financial condition and results of operations.
Failure by us or our contract manufacturers to comply with such legislation could result in customers refusing to purchase our products and could subject us to significant monetary penalties in connection with a violation, either of which would have a material adverse effect on our business, financial condition and results of operations. 25 Increasing attention on environmental, social and governance ("ESG") matters may have a negative impact on our business, impose additional costs on us, and expose us to additional risks.
Our product strategy, which is targeted at markets demanding superior video and digital image quality as well as efficient video delivery, may not address the demands of our target customers and may not lead to increased revenue in a timely manner or at all, which could materially adversely affect our results of operations and limit our ability to grow.
If we are unable to successfully compete in our target markets, demand for our products, solutions and technologies could decrease, which would cause our revenue to decline and our financial results to suffer. 17 Our product strategy, which is targeted at markets demanding superior video and digital image quality as well as efficient video delivery, may not address the demands of our target customers and may not lead to increased revenue in a timely manner or at all, which could materially adversely affect our results of operations and limit our ability to grow.
Our products are characterized by average selling prices that can decline over relatively short periods of time, which will negatively affect our financial results unless we are able to reduce our product costs or introduce new products with higher average selling prices.
These developments could result in an inability to compete for customers or otherwise adversely affect our results of operations. 30 Our products are characterized by average selling prices that can decline over relatively short periods of time, which will negatively affect our financial results unless we are able to reduce our product costs or introduce new products with higher average selling prices.
There may only be a limited number of suppliers offering “conflict free” materials and we cannot be sure that we will be able to obtain necessary "conflict free" materials from such suppliers in sufficient quantities or at reasonable prices.
The implementation of these rules could also affect the sourcing, supply and pricing of materials used in our products. For example, there may only be a limited number of suppliers offering “conflict free” materials and we cannot be sure that we will be able to obtain necessary "conflict free" materials from such suppliers in sufficient quantities or at reasonable prices.
If PWSH completes the Listing, it will be subject to accounting, disclosure, and other regulatory requirements of the STAR Market. At the same time, Pixelworks will remain subject to accounting, disclosure, and other regulatory requirements of the SEC and the Nasdaq Global Market. As a result, Pixelworks and PWSH periodically will disclose information simultaneously pursuant to differing laws and regulations.
If PWSH completes the Listing, it will be subject to accounting, disclosure, and other regulatory requirements of the CSRC and the STAR Market. At the same time, Pixelworks will remain subject to accounting, disclosure, and other regulatory requirements of the SEC and the Nasdaq Global Market.
Additionally, the adoption of new or revised accounting principles may require that we make significant changes to our systems, processes and controls. 24 If we are unable to maintain effective disclosure controls and internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock may be materially and adversely affected.
If we are unable to maintain effective disclosure controls and internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock may be materially and adversely affected.
Any defects, errors or bugs could also interrupt or delay sales of our new products to our customers, which would adversely affect our financial results. 28 The development of new products is extremely complex and we may be unable to develop our new products in a timely manner, which could result in a failure to obtain new design wins and/or maintain our current revenue levels.
The development of new products is extremely complex and we may be unable to develop our new products in a timely manner, which could result in a failure to obtain new design wins and/or maintain our current revenue levels.
We may not be able to implement our restructuring programs as planned, and we may need to take additional measures to fulfill the objectives of our restructuring.
From time to time, we may have the need to execute restructuring plans to make the operation of the Company more efficient. We may not be able to implement our restructuring programs as planned, and we may need to take additional measures to fulfill the objectives of our restructuring.
However, we cannot assure you that we will have taxable income in the future before all or a portion of these net operating loss carryforwards expire.
These net operating loss carryforwards may be used to offset future taxable income and thereby reduce our income taxes otherwise payable. However, we cannot assure you that we will have taxable income in the future before all or a portion of these net operating loss carryforwards expire.
Our sales are generally made on the basis of customer purchase orders rather than long-term purchase commitments. Our distributors, integrators and customers may cancel or defer purchase orders at any time, but we must order wafer inventory from our contract manufacturers three to four months in advance.
Our distributors, integrators and customers may cancel or defer purchase orders at any time, but we must order wafer inventory from our contract manufacturers three to four months in advance.
The lead time to make such a change would be at least nine months, and the estimated time for us to adapt a product’s design to a particular contract manufacturer’s process is at least four months.
Establishing a relationship with a new contract manufacturer in the event of delays or increased prices would be costly and burdensome. The lead time to make such a change would be at least nine months, and the estimated time for us to adapt a product’s design to a particular contract manufacturer’s process is at least four months.
Additionally, cash is transferred through the Company between entities through settling cash owed between one entity and another, for example for services rendered, through intercompany agreements.
Additionally, cash is transferred through the Company between entities through settling cash owed between one entity and another, for example for services rendered, through intercompany agreements, and the Company intends to continue settling amounts owed in the ordinary course of business in this manner.
If we are unable to do so, or if our auditors are unable to attest to the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.
If we are unable to do so, or if our auditors are unable to attest to the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline. 23 As we have limited insurance coverage, any incurred liability resulting from uncovered claims could adversely affect our financial condition and results of operations .

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, our major facilities consisted of the following: Location Function(s) Square Feet Utilized Lease Expiration China Engineering; sales; customer support; administration 36,000 Various dates through December 2025 Toronto Engineering; administration 12,000 March 2027 California Administration; engineering; sales 10,000 September 2024 Taiwan Customer support; sales; operations; engineering 16,000 Various dates through November 2024 Oregon Administration 5,000 December 2024 Japan Sales; customer support 3,000 January 2023
Biggest changeAs of December 31, 2023, our major facilities consisted of the following: Location Function(s) Square Feet Utilized Lease Expiration China Engineering; sales; customer support; administration 46,000 Various dates through August 2026 Toronto Engineering; administration 12,000 March 2027 California Administration; engineering; sales 10,000 September 2024 Taiwan Customer support; sales; operations; engineering 16,000 Various dates through May 2025 Oregon Administration 5,000 December 2024 Japan Sales; customer support 3,000 January 2025

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of March 3, 2023, there were 114 shareholders of record of our common stock and the last per share sales price of the common stock on that date was $1.63.
Biggest changeAs of March 8, 2024, there were 115 shareholders of record of our common stock and the last per share sales price of the common stock on that date was $2.80.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSelling, general and administrative expense was as follows (in thousands): Year ended December 31, 2022 v. 2021 2022 2021 $ change % change Selling, general and administrative $ 22,177 $ 20,445 $ 1,732 8 % Selling, general and administrative expense increased $1.7 million, or 8%, from 2021 to 2022 due to the following factors: • Compensation expense increased $1.0 million due to an increase in headcount and annual merit salary increases. • Foreign currency gains and losses increased $0.7 million primarily due to the change in the CNY exchange rate. • Various professional fees increased $0.7 million as a result of our strategic plan with our PWSH subsidiary. • Marketing expenses increased $0.2 million due to increased focus on marketing to expand our gaming eco-system. • These increases were partially offset by a $0.9 million decrease in stock based compensation expense due the timing of awards granted and due to the resignation of our former Chief Financial Officer in January 2022. 44 Interest income and other, net Interest income and other, net, consisted of the following (in thousands): Year ended December 31, 2022 2021 Other income $ 80 $ 246 Interest income 670 211 Interest expense (50) — Total interest income and other, net $ 700 $ 457 The increase in interest income in 2022 compared to 2021 is due to increased interest earned on our cash and cash equivalents balance due to our increased average cash balance throughout the year in 2022 compared to 2021.
Biggest changeSelling, general and administrative expense was as follows (in thousands): Year ended December 31, 2023 v. 2022 2023 2022 $ change % change Selling, general and administrative $ 23,467 $ 22,177 $ 1,290 6 % Selling, general and administrative expense increased $1.3 million, or 6%, from 2022 to 2023 due to the following factors: • Compensation expense increased $0.8 million due to an increased management bonus accrual and one time reversal of a payroll tax accrual in 2022. • Accounting and other professional fees increased $0.5 million primarily due to fees incurred related to our strategic plan with our subsidiary, PWSH. 44 Interest income and other, net Interest income and other, net, consisted of the following (in thousands): Year ended December 31, 2023 2022 Interest income $ 1,950 $ 670 Other income 125 80 Interest expense (25) (50) Total interest income and other, net $ 2,050 $ 700 The increase in interest income in 2023 compared to 2022 is due to increased interest earned on our cash and cash equivalents balance due to the increase in the interest rate available throughout the full year in 2023 compared to the full year in 2022.
On August 2, 2017, we acquired ViXS Systems Inc., a corporation organized in Canada ("ViXS"). 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 and Taiwan.
On August 2, 2017, we acquired ViXS Systems Inc., a corporation organized in Canada ("ViXS"). 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, Japan and Taiwan.
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 41 customary to sell to distributors.
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.
Co-Development Agreement During the third quarter of 2021, we entered into a best-efforts co-development agreement with a customer to defray a portion of the research and development expenses we expect to incur in connection with our development of an integrated circuit product.
Co-Development Agreement During 2021, we entered into a best-efforts co-development agreement with a customer to defray a portion of the research and development expenses we expect to incur in connection with our development of an integrated circuit product.
In connection with this strategic plan, the Company and PWSH closed three separate financing transactions in 2021 and 2022, which are further described in "Note 14: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees", "Note 15: Non-Controlling Interest" and "Note 17: Subsequent Events", which are incorporated by reference into this section.
In connection with this strategic plan, the Company and PWSH closed three separate financing transactions in 2021 and 2022, which are further described in "Note 14: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees" and "Note 15: Non-Controlling Interest", which are incorporated by reference into this section.
We continue to record a full valuation allowance against our U.S. and China net deferred tax assets as of December 31, 2022 and 2021, as it is not more likely than not that we will realize a benefit from these assets in a future period.
We continue to record a full valuation allowance against our U.S., Canada and China net deferred tax assets as of December 31, 2023 and 2022, as it is not more likely than not that we will realize a benefit from these assets in a future period.
As of December 31, 2022, we have available federal, state and foreign research and experimentation tax credit carryforwards of approximately $6.7 million, $5.2 million and $21.9 million respectively. The federal and state tax credits will begin expiring in 2023 while the foreign tax credits have an indefinite life.
As of December 31, 2023, we have available federal, state and foreign research and experimentation tax credit carryforwards of approximately $5.7 million, $5.4 million and $21.9 million respectively. The federal tax credits will begin expiring in 2024 while the state and foreign tax credits have an indefinite life.
Liquidity As of December 31, 2022, our cash and cash equivalents balance of $56.8 million was highly liquid. We currently anticipate that our existing working capital will be adequate to fund our operating, investing and financing needs for the twelve months following our 2022 fiscal year end and beyond.
Liquidity As of December 31, 2023, our cash and cash equivalents balance of $47.5 million was highly liquid. We currently anticipate that our existing working capital will be adequate to fund our operating, investing and financing needs for the twelve months following our 2023 fiscal year end and beyond.
There was no activity under this at the market offering during the year ended December 31, 2022. 46 Capital Increase Agreements We have entered into a Capital Increase Agreement pursuant to which our subsidiary PWSH, received net proceeds from the sale of its securities pursuant thereto in an amount of RMB 279.7 million ($42.3 million USD).
There was no activity under this at the market offering during the years ended December 31, 2023 and December 31, 2022. 46 Capital Increase Agreements We have entered into a Capital Increase Agreement pursuant to which PWSH, one of our Chinese subsidiaries, received net proceeds from the sale of its securities pursuant thereto in an amount of RMB 279.7 million ($42.3 million USD).
Sales outside the U.S. accounted for approximately 95% and 97% of revenue in 2022 and 2021, respectively. Our integrators, branded manufacturers and branded suppliers incorporate our products into systems that are sold worldwide. The majority of our revenue to date has been denominated in U.S. dollars.
Sales outside the U.S. accounted for approximately 99.7% and 95.1% of revenue in 2023 and 2022, respectively. Our integrators, branded manufacturers and branded suppliers incorporate our products into systems that are sold worldwide. The majority of our revenue to date has been denominated in U.S. dollars.
These decreases were partially offset by increases of $12.1 million received in net proceeds from our non-controlling interest and certain entities owned by employees and $0.4 million in proceeds from the issuances of common stock under our employee equity incentive plans.
These decreases were partially offset by increases of $14.6 million received in net proceeds from our non-controlling interest and certain entities owned by employees and $0.3 million in proceeds from the issuances of common stock under our employee equity incentive plans.
We recognized offsets to research and development expense of approximately $4.3 and $4.0 million during the years ended December 31, 2022 and 2021, respectively.
We recognized offsets to research and development expense of approximately $3.2 and $4.3 million during the years ended December 31, 2023 and 2022, respectively.
The net decrease was the result of $12.8 million used in operating activities, $3.0 million used for purchases of property and equipment and licensed technology and $1.5 million used for payments on other asset financings.
The net decrease was the result of $18.8 million used in operating activities, $4.0 million used for purchases of property and equipment and licensed technology and $1.4 million used for payments on other asset financings.
Provision (benefit) for income taxes The benefit for income taxes was as follows (in thousands): Year ended December 31, 2022 2021 Benefit for income taxes $ (884) $ (133) The income tax benefit of $0.9 million recorded for the year ended December 31, 2022 is primarily composed of $1.8 million of tax benefit for the reversal of tax contingencies in foreign jurisdictions, partially offset by tax expense of $0.3 million for our profitable cost-plus jurisdictions and deferred tax expense of approximately $0.6 million related to a change in the realizability of our Canadian deferred tax assets.
The income tax benefit of $0.9 million recorded for the year ended December 31, 2022 is primarily composed of $1.8 million of tax benefit for the reversal of tax contingencies in foreign jurisdictions, partially offset by tax expense of $0.3 million for our profitable cost-plus jurisdictions and deferred tax expense of approximately $0.6 million related to a change in the realizability of our Canadian deferred tax assets.
An ownership change is generally defined as a greater than 50% increase in equity ownership by 5% shareholders in any three-year period. 45 Liquidity and Capital Resources Cash and cash equivalents Total cash and cash equivalents decreased $4.8 million from $61.6 million at December 31, 2021 to $56.8 million at December 31, 2022.
An ownership change is generally defined as a greater than 50% increase in equity ownership by 5% shareholders in any three-year period. 45 Liquidity and Capital Resources Cash and cash equivalents Total cash and cash equivalents decreased $9.3 million from $56.8 million at December 31, 2022 to $47.5 million at December 31, 2023.
As of December 31, 2022, our cash and cash equivalents balance consisted of $33.0 million in cash and $18.8 million in cash equivalents held in U.S. dollar denominated money market funds and $5.0 million held in U.S. dollar denominated certificates of deposit. Our investment policy requires that our portfolio maintains a weighted average maturity of less than 12 months.
As of December 31, 2023, our cash and cash equivalents balance consisted of $36.5 million in cash and $1.0 million in cash equivalents held in U.S. dollar denominated money market funds and $10.0 million held in U.S. dollar denominated certificates of deposit. Our investment policy requires that our portfolio maintains a weighted average maturity of less than 12 months.
Our investment policy is reviewed at least annually by our Audit Committee. Accounts receivable, net Accounts receivable, net increased to $10.0 million at December 31, 2022 from $8.7 million at December 31, 2021. Average number of days sales outstanding increased to 54 days at December 31, 2022 from 47 days at December 31, 2021.
Our investment policy is reviewed at least annually by our Audit Committee. Accounts receivable, net Accounts receivable, net increased to $10.1 million at December 31, 2023 from $10.0 million at December 31, 2022. Average number of days sales outstanding increased to 56 days at December 31, 2023 from 54 days at December 31, 2022.
Revenue related to engineering services, license revenue and other decreased $2.4 million or 54% primarily due to a decrease in licensing revenue in the Mobile market. Revenue related to the Cinema market was not material in 2022 or 2021 and was therefore included in the engineering services, license revenue and other category within the Mobile market.
Revenue related to engineering services, license revenue and other decreased $0.9 million or 46% primarily due to a decrease in licensing revenue in the Mobile market. Revenue related to the Cinema market was not material in 2023 or 2022 and was therefore included in the engineering services, license revenue and other category within the Mobile market.
A goodwill impairment loss is recognized for the amount that the carrying amount of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. If the fair value of a reporting unit exceeds the carrying amount, goodwill of the reporting unit is not considered impaired.
Impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value. A goodwill impairment loss is recognized for the amount that the carrying amount of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.
Cost of revenue and gross profit Cost of revenue and gross profit were as follows (in thousands): Year ended December 31, 2022 % of revenue 2021 % of revenue Direct product costs and related overhead 1 $ 34,070 49 % $ 25,987 47 % Amortization of acquired developed technology 72 0 899 2 Inventory charges 2 82 0 480 1 Stock-based compensation 41 0 43 0 Total cost of revenue $ 34,265 49 % $ 27,409 50 % Gross profit $ 35,881 51 % $ 27,693 50 % 1 Includes purchased materials, assembly, test, labor, employee benefits and royalties. 2 Includes charges to reduce inventory to lower of cost or net realizable value and a benefit for sales of previously written down inventory.
Cost of revenue and gross profit Cost of revenue and gross profit were as follows (in thousands): Year ended December 31, 2023 % of revenue 2022 % of revenue Direct product costs and related overhead 1 $ 33,599 56.3 % $ 34,070 48.6 % Inventory charges 2 280 0.5 82 0.1 Stock-based compensation 89 0.1 41 0.1 Amortization of acquired developed technology — 0.0 72 0.1 Total cost of revenue $ 33,968 56.9 % $ 34,265 48.8 % Gross profit $ 25,709 43.1 % $ 35,881 51.2 % 1 Includes purchased materials, assembly, test, labor, employee benefits and royalties. 2 Includes charges to reduce inventory to lower of cost or net realizable value and a benefit for sales of previously written down inventory.
Inventory Valuation. We value inventory at the lower of cost or net realizable value. In addition, we write down any obsolete, unmarketable or otherwise impaired inventory to net realizable value. The determination of obsolete or excess inventory requires us to estimate the future demand for our products.
In addition, we write down any obsolete, unmarketable or otherwise impaired inventory to net realizable value. The determination of obsolete or excess inventory requires us to estimate the future demand for our products. The estimate of future demand is compared to inventory levels to determine the amount, if any, of obsolete or excess inventory.
We presently intend to qualify PWSH to apply for the Listing in 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”).
For example, we have historically experienced higher revenue from the digital projector component of the Home & Enterprise 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. 42 Results of Operations For the year ended December 31, 2022 compared with year ended December 31, 2021.
We have typically experienced higher revenue from the digital projector component of the Home & Enterprise market in the third quarter, and lower revenue in the first quarter, as our Japanese customers reduce inventories in anticipation of their March 31 fiscal year end.
The net valuation allowance decreased $4.4 million for the year ended December 31, 2022 and decreased $4.6 million for the year ended December 31, 2021. As of December 31, 2022, we have federal, state and foreign net operating loss carryforwards of approximately $155.0 million, $9.6 million, and $42.7 million respectively, which will begin expiring in 2024.
The net valuation allowance decreased $11.0 million for the year ended December 31, 2023 and decreased $4.4 million for the year ended December 31, 2022. As of December 31, 2023, we have federal, state and foreign net operating loss carryforwards of approximately $154.5 million, $16.3 million, and $89.0 million respectively, which will begin expiring in 2024.
Research and development expense was as follows (in thousands): Year ended December 31, 2022 v. 2021 2022 2021 $ change % change Research and development $ 30,521 $ 27,250 $ 3,271 12 % Research and development expense increased $3.3 million, or 12%, from 2021 to 2022 due to the following factors: • Compensation expense increased $2.8 million due to an increase in headcount and annual merit salary increases. • Depreciation and amortization increased $0.9 million due to the timing of development activities. • These increases were partially offset by a $0.4 million increase in the credit recognized related to the co-development agreement in 2022, compared to the credit recognized in 2021.
Research and development expense was as follows (in thousands): Year ended December 31, 2023 v. 2022 2023 2022 $ change % change Research and development $ 30,878 $ 30,521 $ 357 1 % Research and development expense increased $0.4 million, or 1%, from 2022 to 2023 due to the following factors: • Compensation expense increased $1.0 million due to an increase in headcount and annual merit salary increases. • The credit recognized related to the co-development agreement decreased by $1.1 million in 2023 compared to the credit recognized in 2022. • These increases were partially offset by a $1.7 million decrease in non-recurring engineering expense due to the timing of development activities.
Revenue recorded in 2022 consisted of $68.2 million in revenue from the sale of IC products and $1.9 million in revenue related to engineering services, license revenue and other. Revenue recorded in 2021 consisted of $50.8 million in revenue from the sale of IC products and $4.3 million in revenue related to engineering services, license revenue and other.
Revenue recorded in 2023 consisted of $58.6 million in revenue from the sale of integrated circuits ("IC") products and $1.1 million in revenue related to engineering services, license revenue and other. Revenue recorded in 2022 consisted of $68.2 million in revenue from the sale of IC products and $1.9 million in revenue related to engineering services, license revenue and other.
In the fourth quarter of 2021, we recognized $0.6 million of our Canadian net deferred tax assets. As of December 31, 2022, we are no longer more-likely-than-not to realize our remaining Canadian deferred tax assets and have recorded a full valuation allowance.
As of December 31, 2022, we were no longer more-likely-than-not to realize our remaining Canadian deferred tax assets and have recorded a full valuation allowance.
On occasion, we have also licensed our technology. During the third quarter of 2021, we engaged in a strategic plan to re-align our Mobile and Home & Enterprise businesses to improve their focus on their Asia-centered customers and employee stakeholders. Our subsidiary, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd.
On occasion, we have also licensed our technology. During 2021, we engaged in a strategic plan to re-align our Mobile and Home & Enterprise businesses to improve their focus on their Asia-centered customers and employee stakeholders. One of our Chinese subsidiaries, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (or "PWSH"), now operates these businesses as a full profit-and-loss center underneath Pixelworks.
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. public company. We are neither a PRC operating company nor do we conduct our operations in China through the use of variable interest entities.
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. public company.
Revenue, net Net revenue was as follows (in thousands): Year ended December 31, 2022 v. 2021 2022 2021 $ change % change Revenue, net $ 70,146 $ 55,102 $ 15,044 27 % Net revenue increased $15 million, or 27%, from 2021 to 2022.
Revenue, net Net revenue was as follows (in thousands): Year ended December 31, 2023 v. 2022 2023 2022 $ change % change Revenue, net $ 59,677 $ 70,146 $ (10,469) (15) % Net revenue decreased $10.5 million, or 15%, from 2022 to 2023.
In addition, our Canadian subsidiary has unclaimed scientific and experimental expenditures to be carried forward and applied against future income in Canada of approximately $120.3 million. We have a general foreign tax credit of $0.1 million, which will begin expiring in 2023.
In addition, our Canadian subsidiary has unclaimed scientific and experimental expenditures to be carried forward and applied against future income in Canada of approximately $120.5 million.
As of December 31, 2022, we had an intellectual property portfolio of 291 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 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.
The estimate of future demand is compared to inventory levels to determine the amount, if any, of obsolete or excess inventory. If actual market conditions are less favorable than those we projected at the time the inventory was written down, additional inventory write-downs may be required. Inventory valuation is re-evaluated on a quarterly basis.
If actual market conditions are less favorable than those we projected at the time the inventory was written down, additional inventory write-downs may be required. Inventory valuation is re-evaluated on a quarterly basis. 47 Goodwill. Goodwill is not amortized, rather tested, at least annually, for impairment at a reporting unit level.
Inventory turnover decreased to 13.7 at December 31, 2022 from 19.5 at December 31, 2021 primarily due to higher average inventory balances in the fourth quarter of 2022 compared to the fourth quarter of 2021. Inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter.
Inventories Inventories increased to $4.0 million at December 31, 2023 from $1.8 million at December 31, 2022. Inventory turnover decreased to 8.6 at December 31, 2023 from 16.6 at December 31, 2022 primarily due to higher average inventory balances in 2023 compared to 2022. Inventory turnover is calculated based on annual operating results and average inventory balances during the year.
Gross profit margin increased to 51% in 2022 compared to 50% in 2021, primarily due to product mix. The increase in sales into the Home & Enterprise market favorably impacted gross profit margin, while the increase in sales into the Mobile market unfavorably impacted gross profit margin.
Gross profit margin decreased to 43% in 2023 compared to 51% in 2022, primarily due to product mix. The decrease in sales into the Home & Enterprise market as well as the increase in sales into the Mobile market both unfavorably impacted gross profit margin. The decrease was also due to lower absorption of fixed overhead costs.
The increase in IC revenue from 2021 compared to 2022 is due to the following factors: • Sales into the Mobile market increased $5.0 million or 31%, primarily due to a change in product mix as customers transitioned to newer generation product offerings. • Sales into the Home & Enterprise market (previously referred to as the projector and video delivery market) increased $12.4 million or 35%, primarily due to an increase in units sold driven by increased customer demand as well as implementing an end-of-life on some of our legacy products sold into the video delivery market.
The decrease in IC revenue from 2022 compared to 2023 is due to the following factors: • Sales into the Home & Enterprise market decreased $17.8 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 increased $8.3 million or 39%, primarily due to i ncreased average selling prices as our customers adopt and transition to our next generation mobile product.
PWSH is in the process of preparing to file an application for an initial public offering of PWSH shares on the Shanghai Stock Exchange’s Science Technology Innovation Board, known as the STAR Market (the “Listing”). 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 continue to prepare PWSH to file an application for an initial public offering of PWSH shares on the Shanghai Stock Exchange’s Science Technology Innovation Board, known as the STAR Market (the “Listing”) once market conditions in China are supportive.
For additional information regarding how the COVID-19 pandemic has affected us, please see “NOTE REGARDING COVID-19” above. Seasonality Our business is subject to seasonality related to the markets we serve and the location of our customers.
Seasonality Our business is subject to seasonality related to the markets we serve and the location of our customers.
The income tax benefit of $0.1 million recorded for the year ended December 31, 2021 is primarily comprised of current tax expense of approximately $0.6 million for our profitable cost-plus foreign jurisdictions and accruals for tax contingencies in foreign jurisdictions offset by a deferred tax benefit of approximately $0.7 million primarily associated with recognition of Canadian deferred tax assets.
Provision (benefit) for income taxes The benefit for income taxes was as follows (in thousands): Year ended December 31, 2023 2022 Provision (benefit) for income taxes $ 357 $ (884) The income tax expense of $0.4 million recorded for the year ended December 31, 2023 is primarily composed of tax expense of $0.1 million for our profitable cost-plus jurisdictions and deferred tax expense of approximately $0.3 million.
On December 21, 2022, the Company and its subsidiary, PWSH, entered into a Capital Increase Agreement with certain private equity investors based in China who have agreed to pay a total of RMB 100.0 million ($14.3 million USD). Additional information is provided in "Note 17: Subsequent Events", which is incorporated by reference into this section.
We have entered into a Capital Increase Agreement pursuant to which PWSH, one of our Chinese subsidiaries, received net proceeds from the sale of its securities pursuant thereto in an amount of 99.0 million RMB ($14.6 million USD). Additional information is provided in "Note 15: Non-Controlling Interest", which is incorporated by reference into this section.
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(or "PWSH"), now operates these businesses as a full profit-and-loss center underneath Pixelworks.
Added
PWSH has a branch office located in Shenzhen, China (Pixelworks Semiconductor Technology (Shanghai) Co. Ltd. Shenzhen Branch Office No. 1), which is primarily for sales and customer support for PWSH, and a subsidiary located in Hong Kong (Pixelworks Hong Kong Limited), which has no employees and is used for distribution of PWSH products.
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The increase in revenue was also due to a change in product mix, resulting in higher overall average selling prices. Average selling prices also increased partially due to passing on increased supplier costs to our customers.
Added
Pixelworks has an additional subsidiary in China (Frame Shadow Technology (Shanghai) Co., Ltd. (formerly called Mucheng Huai Management Consulting (Shanghai) Co., Ltd)) which is a research and development center for our TrueCut business. This subsidiary does not operate under PWSH, but rather is owned by Pixelworks through our Oregon limited liability company, Pixelworks Semiconductor Technology Company, LLC.
Removed
The increase was also due to decreased amortization of acquired developed technology, largely offset by a decrease in high margin license revenue.
Added
We believe that the Listing will have many benefits, including improved access to new capital markets and the funding of PWSH’s growth worldwide.
Removed
Included in current tax expense is a tax benefit of $0.6 million associated with the reversal of withholding taxes on our China earnings as we now plan to reinvest these earnings indefinitely, which resulted from the changes made in the third quarter of 2021 related to our strategic plan with our PWSH subsidiary.
Added
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.
Removed
Also included in current tax expense is $0.8 million of expense resulting from the revaluation of our uncertain tax position in China to the statutory tax rate as we no longer qualify for the tax holiday we were under.
Added
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.
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The increase in accounts receivable and days sales outstanding was due to normal fluctuations in the timing of sales and customer receipts within the fourth quarter of 2022, and the fourth quarter of 2021. Inventories Inventories increased to $1.8 million at December 31, 2022 from $1.5 million at December 31, 2021.
Added
More than a majority of our operations are in China, but our executive officers and all of our directors but one are located in the United States (and he resides in Singapore).
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During the year ended December 31, 2021, we sold an aggregate of 61,018 shares of our common stock under this at the market offering, resulting in aggregate net proceeds to us of approximately $0.3 million, and gross proceeds of approximately $0.4 million, and paid Cowen commissions and fees and other expenses of approximately $0.1 million.
Added
We are neither a PRC operating company nor do we conduct our operations in China through the use of variable interest entities. 41 As of December 31, 2023, we had an intellectual property portfolio of 280 patents related to the visual display of digital image data.
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Actual results may differ from these estimates under different assumptions or conditions.
Added
We have typically experienced higher revenue from the mobile market in the fourth quarter, and lower revenue in the first quarter, as mobile phone OEMs ramp production in advance of Chinese New Year. 42 Results of Operations For the year ended December 31, 2023 compared with year ended December 31, 2022.
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We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: Revenue Recognition - 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.
Added
Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: Inventory Valuation. We value inventory at the lower of cost or net realizable value.
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Our principal revenue generating activities consist of the following: Product Sales - We sell integrated circuit products, also known as "chips" or "ICs", based upon a customer purchase order, which includes a fixed price per unit. ICs are sold into two target markets: Mobile and Home & Enterprise.
Added
If the fair value of a reporting unit exceeds the carrying amount, goodwill of the reporting unit is not considered impaired.
Removed
We have elected to account for shipping and handling as activities to fulfill the promise to transfer the goods, and not evaluate whether these activities are promised services to the customer.
Added
We performed a qualitative assessment during the fourth quarter of 2023 and concluded that it was not more likely than not that the fair value of the reporting unit was less than its carrying amount. As a result, we concluded that a quantitative impairment test was not required and that goodwill was not impaired. Item 7A.
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We generally satisfy our single performance obligation upon shipment of the goods to the customer and recognize revenue at a point in time upon shipment of the underlying product. 47 Our shipments are subject to limited return rights subject to our limited warranty for our products sold.
Added
Quantitative and Qualitative Disclosures about Market Risk. Not applicable.
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In addition, we may provide other credits to certain customers pursuant to price protection and stock rotation rights, all of which are considered variable consideration when estimating the amount of revenue to recognize. We use the “most likely amount” method to determine the amount of consideration to which we are entitled.
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Our estimate of variable consideration is reassessed at the end of each reporting period based on changes in facts and circumstances. Historically, returns and credits have not been material. Engineering Services - We enter into contracts for professional engineering services that include software development and customization. We identify each performance obligation in our engineering services agreements ("ESAs") at contract inception.
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The ESA generally includes project deliverables specified by the customer. The performance obligations in the ESA are generally combined into one deliverable, with the pricing for services stated at a fixed amount. Services provided under the ESA generally result in the transfer of control over time.
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We recognize revenue on ESAs based on the proportion of labor hours expended to the total hours expected to complete the contract performance obligation. ESAs could include substantive customer acceptance provisions. In ESAs that include substantive customer acceptance provisions, we recognize revenue upon customer acceptance.
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License Revenue - On occasion, we derive revenue from the license of our internally developed intellectual property ("IP"). Additionally, for certain IP license agreements, royalties are collected as customers sell their own products that incorporate our IP.
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IP licensing agreements that we enter into generally provide licensees the right to incorporate our IP components in their products with terms and conditions that vary by licensee. Fees under these agreements generally include license fees or royalty fees relating to our IP and support service fees, resulting in two performance obligations.
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We evaluate each performance obligation, which generally results in the transfer of control at a point in time for the license fee and over time for support services. Royalties are recognized as revenue is earned, generally when the customer sells its products that incorporate our IP.
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Other - From time-to-time, we enter into arrangements for other revenue generating activities, such as providing technical support services to customers through technical support agreements. In each circumstance, we evaluate such arrangements for our performance obligations which generally results in the transfer of control for such services over time. Historically, such arrangements have not been material to our operating results.
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Useful Lives and Recoverability of Equipment and Other Long-Lived Assets. We evaluate the recoverability of equipment and other assets, including identifiable intangible assets, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
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If there is an indicator of impairment, we prepare an estimate of future, undiscounted cash flows expected to result from the use of each asset and its eventual disposition. If these cash flows are less than the carrying value of the asset, we adjust the carrying amount of the asset to its estimated fair value.
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We have concluded that the carrying value of our long-lived assets is recoverable as of December 31, 2022. Goodwill. Goodwill is not amortized, rather tested, at least annually, for impairment at a reporting unit level. Impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value.
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Accordingly, we have elected to bypass the qualitative assessment and proceed directly to the quantitative goodwill impairment test. We tested goodwill for impairment under the quantitative goodwill impairment test during the fourth quarter and concluded that goodwill was not impaired. 48 Stock-Based Compensation .
Removed
Stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award using the Black-Scholes option pricing model for stock options and market price for restricted stock units.
Removed
The use of the Black-Scholes option pricing model, requires certain estimates, including expected term of options granted, the method of calculating expected volatilities and the risk-free interest rate used in the option-pricing model. The resulting calculated fair value of stock options is recognized as compensation expense over the requisite service period, which is generally the vesting period.
Removed
When there are changes to the assumptions used in the option-pricing model, including fluctuations in the market price of our common stock, there will be variations in the calculated fair value of our future stock option awards, which results in variation in the stock-based compensation expensed recognized.
Removed
Additionally, any modification of an award that increases its fair value will require us to recognize additional expense. Income Taxes.

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