PIXELWORKS, INC

Previous wording

Pixelworks is a leading provider of high-performance and power-efficient visual processing semiconductor and software solutions that enable consistently high-quality and authentic viewing experiences in a wide variety of applications. We define our primary target markets as Mobile (smartphone and tablet), Home & Enterprise (projectors, personal video recorders ("PVR"), and over-the-air ("OTA") streaming devices), and Cinema (creation, remastering, and delivery of digital video content). 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".

Current wording

Pixelworks is a leading provider of high-performance and power-efficient visual processing semiconductor and software solutions that enable consistently high-quality and authentic viewing experiences in a wide variety of applications. We define our primary target markets as Mobile (smartphone and tablet), Home & Enterprise (projectors, personal video recorders ("PVR"), and over-the-air ("OTA") streaming devices), and Cinema (creation, remastering, and delivery of digital video content). 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".

Previous wording

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 (the “Strategic Plan”). 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. 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". 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. 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.

Current wording

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 (the “Strategic Plan”). 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. 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 13: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees" and "Note 1: Non-Controlling Interest". 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. 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. 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 (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. 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.

Previous wording

As part of the Strategic Plan we have intended to qualify PWSH for an initial public offering on the Shanghai Stock Exchange’s Science Technology Innovation Board, known as the STAR Market (the “Listing”), a lengthy process that involves several reviews by various government agencies of China, such as the Shanghai Stock Exchange (“SSE”) and the China Securities Regulatory Commission (“CSRC”). The market conditions and regulatory requirements continue to not be conducive to a successful listing by PWSH. We continue to believe that the Listing could have many benefits, including improved access to new capital markets and the funding of PWSH’s growth worldwide, and thus remain prepared to re-engage with the various government agencies of China and our advisors involved in a Listing once those conditions and requirements improve. There is no guarantee that PWSH will be approved for a Listing at any point in the future. The Listing would not change the status of PXLW as a U.S. public company. Additionally, if we do not proceed with the Listing and are unable to negotiate for an extension or cancellation, we may be required to repurchase the shares of PWSH held by those investors who elect for repurchase under the provisions of the August 2021 Capital Increase Agreement or the agreements governing the employee-owned entities known as “ESOPs,” which would materially and adversely impact our cash position. Additional information on these rights can be found in "Note 14: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees", which is incorporated by reference into this section. 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. 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.

Current wording

As part of the Strategic Plan we intended 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 (such initial public offering on the STAR Market, the “Listing,” and such application, an "IPO application"), a lengthy process that involves several reviews by various government agencies of China, such as the Shanghai Stock Exchange (“SSE”) and the China Securities Regulatory Commission (“CSRC”). The market conditions and regulatory requirements continue to not be conducive to a successful listing by PWSH. We continue to believe that the Listing could have many benefits, including improved access to new capital markets and the funding of PWSH’s growth worldwide, and thus remain prepared to re-engage with the various government agencies of China and our advisors involved in a Listing once those conditions and requirements sufficiently improve. There is no guarantee that PWSH will be approved for a Listing at any point in the future. The Listing of PWSH would not change the status of PXLW as a U.S. public company. Pixelworks continues to work with Morgan Stanley as financial advisor to assist with reviewing potential alternative strategic options specific to inbound interest in the Pixelworks Shanghai subsidiary.

Previous wording

As of September 30, 2024, we had an intellectual property portfolio of 263 patents related to the visual display of digital image data. We focus our research and development efforts on developing video algorithms that improve quality, and architectures that reduce system power, cost, bandwidth and increase overall system performance and device functionality. We seek to expand our technology portfolio through internal development and co-development with business partners, and we continually evaluate acquisition opportunities and other ways to leverage our technology into other high-value markets.

Current wording

As of March 31, 2025, we had an intellectual property portfolio of 255 patents related to the visual display of digital image data. We focus our research and development efforts on developing video algorithms that improve quality, and architectures that reduce system power, cost, bandwidth and increase overall system performance and device functionality. We seek to expand our technology portfolio through internal development and co-development with business partners, and we continually evaluate acquisition opportunities and other ways to leverage our technology into other high-value markets.

Previous wording

Net revenue for the three and nine months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

Current wording

Net revenue for the three months ended March 31, 2025 and 2024, was as follows (dollars in thousands):

Previous wording

Revenue recorded in the third quarter of 2024 consisted of $9.5 million in revenue from the sale of integrated circuit ("IC") products and negligible revenue related to engineering services, license revenue and other. Revenue recorded in the third quarter of 2023 consisted of $16.0 million in revenue from the sale of IC products and negligible revenue related to engineering services, license revenue and other.

Current wording

Revenue recorded in the first three months of 2025 consisted of $7.1 million in revenue from the sale of integrated circuit ("IC") products and negligible revenue related to engineering services, license revenue and other.

Previous wording

Revenue recorded in the first nine months of 2024 consisted of $33.3 million in revenue from the sale of IC products and $0.8 million in revenue related to engineering services, license revenue and other. Revenue recorded in the first nine months of 2023 consisted of $39.2 million in revenue from the sale of IC products and $0.4 million in revenue related to engineering services, license revenue and other.

Current wording

Revenue recorded in the first three months of 2024 consisted of $15.4 million in revenue from the sale of IC products and $0.7 million in revenue related to engineering services, license revenue and other.

Previous wording

The decrease in IC revenue in the third quarter of 2024 compared to the third quarter of 2023 is due to the following factors:

Current wording

The decrease in IC revenue in the first quarter of 2025 compared to the first quarter of 2024 is due to the following factors:

Previous wording

•Sales into the Mobile market decreased approximately $6.3 million or 76% due to decreased units sold.

Current wording

•Sales into the Mobile market decreased approximately $7.9 million or 86% primarily due to decreased units sold associated with a delayed transition to our latest generation mobile products.

Previous wording

•Sales into the Home & Enterprise market decreased approximately $0.2 million or 3%.

Current wording

•Sales into the Home & Enterprise market decreased approximately $0.4 million or 7%.

Previous wording

Cost of revenue and gross profit for the three and nine months ended September 30, 2024 and 2023, were as follows (dollars in thousands):

Current wording

Cost of revenue and gross profit for the three months ended March 31, 2025 and 2024, were as follows (dollars in thousands):

Previous wording

Research and development expense for the three and nine months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

Current wording

Research and development expense for the three months ended March 31, 2025 and 2024, was as follows (dollars in thousands):

Previous wording

•A $0.1 million overall decrease across multiple expense categories, as we continue to implement cost control measures.

Current wording

•A $0.2 million overall decrease across multiple expense categories, as we continue to implement cost control measures.

Previous wording

Selling, general and administrative expense for the three and nine months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

Current wording

Selling, general and administrative expense for the three months ended March 31, 2025 and 2024, was as follows (dollars in thousands):

Previous wording

•Sales into the Home & Enterprise market decreased $0.9 million or 5%.

Current wording

Selling, general and administrative expense decreased $0.9 million, or 16% in the first three months of 2025 compared to the first three months of 2024 due to the following factors:

Previous wording

•Stock based compensation expense decreased $0.5 million primarily due to the change in our stock price.

Current wording

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

Previous wording

•Accounting and other professional fees decreased $0.5 million primarily due to a decrease in fees incurred related to our strategic plan with our subsidiary, PWSH.

Current wording

•Professional fees decreased $0.2 million primarily due to a decrease in fees incurred related to our Strategic Plan with our subsidiary, PWSH.

Previous wording

In June 2024, we executed a restructuring plan to make the operation of the Company more efficient (the "Plan"). The Plan included an approximately 16% reduction in workforce, primarily in the areas of operations, research and development, sales, marketing and administration.

Current wording

In June 2024, we executed a restructuring plan to make the operation of the Company more efficient (the "2024 Plan"). The 2024 Plan included an approximately 16% reduction in workforce, primarily in the areas of operations, research and development, sales, marketing and administration.

Previous wording

During the three and nine months ended September 30, 2024, we recorded $0.1 million and $1.5 million, respectively, in restructuring expense related to the Plan. During the three and nine months ended September 30, 2023, we did not record any restructuring expense. As we continue to implement the Plan, we expect to incur additional restructuring charges of $0.1 million over the remainder of 2024.

Current wording

During the three months ended March 31, 2025, we recorded $0.5 million in restructuring expense related to the 2025 Plan. During the three months ended March 31, 2024, we did not record any restructuring expense. We do not expect to incur additional restructuring charges related to the 2025 Plan.

Previous wording

The provision for income taxes during the 2024 and 2023 periods is primarily comprised of current and deferred tax expense in profitable cost-plus foreign jurisdictions, accruals for tax contingencies in foreign jurisdictions and benefits for the reversal of previously recorded foreign tax contingencies due to the expiration of the applicable statutes of limitation. We recorded a negligible benefit for the reversal of previously recorded foreign tax contingencies during the first nine months of 2024 and 2023.

Current wording

The provision for income taxes during the 2025 and 2024 periods is primarily comprised of current and deferred tax expense in profitable cost-plus foreign jurisdictions, accruals for tax contingencies in foreign jurisdictions and benefits for the reversal of previously recorded foreign tax contingencies due to the expiration of the applicable statutes of limitation. We recorded a benefit for the reversal of previously recorded foreign tax contingencies of $0.3 million during the first three months of 2025 and a negligible benefit during the first three months of 2024.

Previous wording

Total cash and cash equivalents decreased $18.7 million to $28.8 million at September 30, 2024 from $47.5 million at December 31, 2023. The net decrease during the first nine months of 2024 was the result of $14.2 million used in operating activities, $3.7 million used for purchases of property and equipment and $1.0 million used for payments on other asset financings. These decreases were partially offset by $0.2 million in proceeds from the issuances of common stock under our employee equity incentive plans.

Current wording

Total cash and cash equivalents decreased $5.1 million to $18.5 million at March 31, 2025 from $23.6 million at December 31, 2024. The net decrease during the first three months of 2025 was primarily the result of $6.7 million used in operating activities, partially offset by $1.3 million in net proceeds from our registered direct offering and $0.5 million in net proceeds from our at the market equity offering.

Previous wording

As of September 30, 2024, our cash and cash equivalents balance consisted of $20.3 million in cash, $8.0 million held in U.S. dollar denominated certificates of deposit and $0.5 million in cash equivalents held in U.S. dollar denominated money market funds. Although we did not hold short- or long-term investments as of September 30, 2024, our investment policy requires that our portfolio maintain a weighted average maturity of less than 12 months. Additionally, no maturities can extend beyond 24 months and concentrations with individual securities are limited. At the time of purchase, the short-term credit rating must be rated at least A-2 / P-2 / F-2 by at least two Nationally Recognized Statistical Rating Organizations ("NRSRO") and securities of issuers with a long-term credit rating must be rated at least A or A3 by at least two NRSRO. Our investment policy is reviewed at least annually by our Audit Committee.

Current wording

As of March 31, 2025, our cash and cash equivalents balance consisted of $14.4 million in cash, $4.0 million held in U.S. dollar denominated certificates of deposit and $0.1 million in cash equivalents held in U.S. dollar denominated money market funds. Although we did not hold short- or long-term investments as of March 31, 2025, our investment policy requires that our portfolio maintain a weighted average maturity of less than 12 months. Additionally, no maturities can extend beyond 24 months and concentrations with individual securities are limited. At the time of purchase, the short-term credit rating must be rated at least A-2 / P-2 / F-2 by at least two Nationally Recognized Statistical Rating Organizations ("NRSRO") and securities of issuers with a long-term credit rating must be rated at least A or A3 by at least two NRSRO. Our investment policy is reviewed at least annually by our Audit Committee.

Previous wording

Accounts receivable, net decreased to $4.5 million as of September 30, 2024 from $10.1 million as of December 31, 2023. The average number of days sales outstanding decreased to 42 days as of September 30, 2024 from 56 days as of December 31, 2023. The decrease in accounts receivable and days sales outstanding was due to normal fluctuations in the timing of sales and customer receipts within the third quarter of 2024, and the fourth quarter of 2023 as well as a decrease in revenue in the third quarter of 2024 compared to the fourth quarter of 2023.

Current wording

Accounts receivable, net decreased to $5.4 million as of March 31, 2025 from $5.8 million as of December 31, 2024. The average number of days sales outstanding increased to 68 days as of March 31, 2025 from 48 days as of December 31, 2024. The decrease in accounts receivable and increase in days sales outstanding were due to a decrease in revenue in the first quarter of 2025 compared to the fourth quarter of 2024 as well as the timing of revenue within the quarter.

Previous wording

Inventories were $4.4 million as of September 30, 2024 compared to $4.0 million at December 31, 2023. Inventory turnover decreased to 3.9 as of September 30, 2024 from 8.6 as of December 31, 2023 primarily due to lower cost of goods sold as a result of lower revenue during the third quarter of 2024 compared to the fourth quarter of 2023. Inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter.

Current wording

Inventories were $5.0 million as of March 31, 2025 compared to $4.2 million at December 31, 2024. Inventory turnover decreased to 3.1 as of March 31, 2025 from 5.1 as of December 31, 2024 primarily due to lower cost of goods sold as a result of lower revenue during the first quarter of 2025 compared to the fourth quarter of 2024. Inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter.

Previous wording

On June 5, 2020, we entered into a sales agreement (the "Sales Agreement") with Cowen and Company, LLC ("Cowen"), pursuant to which we could issue and sell shares of the Company's common stock, par value $0.001 per share, having an aggregate offering price of up to $25.0 million, from time to time, through an "at the market" equity offering program under which Cowen acted as sales agent (the "2020 ATM Program"). On November 6, 2024, we notified Cowan that we were terminating the Sales Agreement and the underlying 2020 ATM Program, pursuant to which we sold an aggregate of 1,808,484 shares of common stock.

Current wording

On November 14, 2024, we entered into a sales agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth”), pursuant to which we may issue and sell shares of the Company’s common stock, par value $0.001 per share, having an aggregate offering price of up to $10.0 million, from time to time, through an “at the market” equity offering program under which Roth will act as sales agent (the "2024 ATM Program"). Under the Sales Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the Sales Agreement, Roth may sell the shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made through Nasdaq or on any other existing trading market for our common stock. We pay Roth a commission equal to two and a half percent (2.5%) of the gross sales proceeds of any common stock sold through Roth under the Sales Agreement. The Sales Agreement may be terminated by us upon prior notice to Roth or by Roth upon prior notice to us, or at any time under certain circumstances, including but not limited to the occurrence of a material adverse change in the Company. We are not obligated to sell any shares under the Sales Agreement.

Previous wording

As of September 30, 2024, our cash and cash equivalents balance of $28.8 million was highly liquid. We anticipate that our existing working capital will be adequate to fund our operating, investing and financing needs for at least the next twelve months. If our cash is insufficient to meet our needs, including in the longer term, we may seek to raise capital by pursuing financing arrangements, including the issuance of debt or equity securities, or reducing expenditures, or both, to meet our cash requirements. There is no assurance that, if required, we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity which, in turn, may have an adverse effect on our financial position, results of operations and cash flows.

Current wording

As of March 31, 2025, our cash and cash equivalents balance of $18.5 million was highly liquid. We anticipate that our existing working capital will be adequate to fund our operating, investing and financing needs for at least the next twelve months. If our cash is insufficient to meet our needs, including in the longer term, we may seek to raise capital by pursuing financing arrangements, including the issuance of debt or equity securities, or reducing expenditures, or both, to meet our cash requirements. There is no assurance that, if required, we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity which, in turn, may have an adverse effect on our financial position, results of operations and cash flows.

Previous wording

Other than as set forth above, there were no material changes to our liquidity and capital resources during the nine month period ended September 30, 2024 from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 13, 2024.

Current wording

Other than as set forth above, there were no material changes to our liquidity and capital resources during the three month period ended March 31, 2025 from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2024, as amended.