PIXELWORKS, INC

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 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.

Current wording

Pixelworks has one remaining 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.

Previous wording

On June 6, 2025, the Company effected a one-for-twelve reverse stock split of the Company’s common stock (the "Reverse Stock Split"). As a result of the Reverse Stock Split, every twelve shares of the Company's Common Stock issued or outstanding were automatically reclassified into one new share of common stock. Proportionate adjustments were also made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, as well as to the number of shares issuable under the Company’s equity incentive plans and certain existing agreements. The Reverse Stock Split did not decrease the number of authorized shares of common stock or otherwise affect the par value of the common stock. No fractional shares were issued in connection with the Reverse Stock Split. Shareholders who would have otherwise been entitled to receive fractional shares were entitled to have their fractional shares rounded up to the next whole number share quantity. All shares of the Company’s common stock, per-share data and related information included in the accompanying condensed consolidated financial statements have been retroactively adjusted as though the Reverse Stock Split had been effected prior to all periods presented.

Current wording

On June 6, 2025, the Company effected a one-for-twelve reverse stock split of the Company’s common stock (the "Reverse Stock Split"). As a result of the Reverse Stock Split, every twelve shares of the Company's Common Stock issued or outstanding were automatically reclassified into one new share of common stock. Proportionate adjustments were also made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, as well as to the number of shares issuable under the Company’s equity incentive plans and certain existing agreements. The Reverse Stock Split did not decrease the number of authorized shares of common stock or otherwise affect the par value of the common stock. No fractional shares were issued in connection with the Reverse Stock Split. Shareholders who would have otherwise been entitled to receive fractional shares were entitled to have their fractional shares rounded up to the next whole number share quantity. All shares of the Company’s common stock, per-share data and related information included in the accompanying consolidated financial statements have been retroactively adjusted as though the Reverse Stock Split had been effected prior to all periods presented.

Previous wording

Net revenue for the three and nine months ended September 30, 2025 and 2024, was as follows (dollars in thousands):

Current wording

Net revenue for the three months ended March 31, 2026 and 2025, was as follows (dollars in thousands):

Previous wording

Cost of revenue and gross profit for the three and nine months ended September 30, 2025 and 2024, were as follows (dollars in thousands):

Current wording

Cost of revenue and gross profit for the three months ended March 31, 2026 and 2025, were as follows (dollars in thousands):

Previous wording

Research and development expense includes compensation and related costs for personnel, development-related expenses, including non-recurring engineering expenses and fees for outside services, depreciation and amortization, expensed equipment, facilities and information technology expense allocations and travel and related expenses.

Current wording

Research and development expense includes compensation and related costs for personnel, development-related expenses

Previous wording

Research and development expense for the three and nine months ended September 30, 2025 and 2024, was as follows (dollars in thousands):

Current wording

Research and development expense for the three months ended March 31, 2026 and 2025, was as follows (dollars in thousands):

Previous wording

Selling, general and administrative expense includes compensation and related costs for personnel, sales commissions, facilities and information technology expense allocations, travel, outside services and other general expenses incurred in our sales, marketing, customer support, management, legal and other professional and administrative support functions.

Current wording

Selling, general and administrative expense includes compensation and related costs for personnel, allocations for facilities and

Previous wording

Selling, general and administrative expense for the three and nine months ended September 30, 2025 and 2024, was as follows (dollars in thousands):

Current wording

Selling, general and administrative expense for the three months ended March 31, 2026 and 2025, was as follows (dollars in thousands):

Previous 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.

Current wording

In the first quarter of 2026, we executed a restructuring plan to eliminate several positions that would no longer be necessary after the Sale (the "2026 Plan"). The 2026 Plan included an approximately 43% reduction in workforce associated with our continuing operations, in the areas of operations, research and development, sales, marketing and administration.

Previous wording

Restructuring expense for the three and nine month periods ended September 30, 2025 and 2024, was as follows (dollars in thousands):

Current wording

Restructuring expense for the three month periods ended March 31, 2026 and 2025, was as follows (dollars in thousands):

Previous wording

During the three months ended September 30, 2025, we did not record any restructuring expense. During the three months ended September 30, 2024, we recorded $0.1 million in restructuring expense related to the 2024 Plan. During the nine months ended September 30, 2025, we recorded $0.6 million in restructuring expense related to the May 2025 Plan and $0.5 million in restructuring expense related to the February 2025 Plan. During the nine months ended September 30, 2024, we recorded $1.5 million in restructuring expense related to the 2024 Plan. We do not expect to incur additional restructuring charges related to the February 2025 Plan or the May 2025 Plan.

Current wording

During the three months ended March 31, 2026, we recorded $1.9 million in restructuring expense related to the 2026 Plan, which primarily consisted of costs associated with employee severance and benefits. During the three months ended March 31, 2025, we did not record any restructuring expense. We expect to incur $0.1 million in additional restructuring charges related to the 2026 Plan.

Previous 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 $0.5 million during the first nine months of 2025 and a negligible benefit during the first nine months of 2024.

Current wording

The provision for income taxes during the 2026 and 2025 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 $0.1 million and $0.3 million during the first three months of 2026 and 2025, respectively.

Previous wording

As of September 30, 2025, our cash and cash equivalents balance consisted of $13.7 million in cash, $0.8 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 September 30, 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 ("NRSROs") and securities of issuers with a long-term credit rating must be rated at least A or A3 by at least two NRSROs. Our investment policy is reviewed at least annually by our Audit Committee.

Current wording

As of March 31, 2026, our cash and cash equivalents balance consisted of $2.5 million in cash and $55.3 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, 2026, 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 ("NRSROs") and securities of issuers with a long-term credit rating must be rated at least A or A3 by at least two NRSROs. Our investment policy is reviewed at least annually by our Audit Committee.

Previous wording

As of September 30, 2025, our cash and cash equivalents balance of $14.6 million was highly liquid. We anticipate that our existing working capital, together with the cash proceeds from our registered direct offering and sale of patents and related rights and materials, each of which we entered into in October 2025, 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. For more information regarding the registered direct offering and patent sale, see “Note 16: Subsequent Events”.

Current wording

As of March 31, 2026, our cash and cash equivalents balance of $57.8 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.

Previous wording

From time to time, we evaluate acquisitions of businesses, products or technologies that complement our business. Any transactions, if consummated, may consume a material portion of our working capital or require the issuance of equity securities that may result in dilution to existing shareholders. Our ability to generate cash from operations is also subject to substantial risks described in Part II, Item 1A, "Risk Factors". If any of these risks occur, we may be unable to generate or sustain positive cash flow from operating activities. We would then be required to use existing cash and cash equivalents to support our working capital and other cash requirements. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through debt financing, equity financing or from other sources. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing shareholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur interest expense. 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.

Current wording

From time to time, we evaluate acquisitions of businesses, products or technologies that complement our business. Any transactions, if consummated, may consume a material portion of our working capital or require the issuance of equity securities that may result in dilution to existing shareholders. Our ability to generate cash from operations is also subject to substantial risks described in our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on March 12, 2026. If any of these risks occur, we may be unable to generate or sustain positive cash flow from operating activities. We would then be required to use existing cash and cash equivalents to support our working capital and other cash requirements. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through debt financing, equity financing or from other sources. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing shareholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur interest expense. 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.

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, 2025 from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2024, as amended.

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, 2026 from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2025.

Previous wording

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and judgments that affect the amounts reported. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, inventories, property and equipment, impairment of long-lived assets, valuation of goodwill, valuation of share-based payments, income taxes, litigation and other contingencies. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Current wording

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and judgments that affect the amounts reported. As of March 31, 2026, our significant estimates and judgments include those related to revenue recognition, useful lives and recoverability of equipment and other long-lived assets, valuation of share-based payments, income taxes, litigation and other contingencies. As of March 31, 2025, we also considered valuation of excess and obsolete inventory and valuation of goodwill to require significant estimates and judgments. The actual results experienced could differ materially from our estimates.

Previous wording

There have been no material changes to these estimates, or the policies related to them during the nine months ended September 30, 2025. For a full discussion of these estimates and policies, see “Critical Accounting Estimates” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024, as amended.

Current wording

There have been no material changes to these estimates, or the policies related to them during the three months ended March 31, 2026. For a full discussion of these estimates and policies, see “Critical Accounting Estimates” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2025.