pxlw-20220331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________

FORM 10-Q

________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 000-30269

____________________________________

PIXELWORKS, INC.

(Exact name of registrant as specified in its charter)

Oregon

91-1761992

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

16760 SW Upper Boones Ferry Rd., Ste. 101

Portland

Oregon

97224

(Address of principal executive offices)

(Zip Code)

(503) 601-4545

(Registrant’s telephone number, including area code)

____________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	PXLW	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☐

Non-accelerated Filer

☒

Smaller Reporting Company

☒

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 53,998,012 as of May 6, 2022

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PIXELWORKS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

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	Note regarding Forward Looking Statements	3
	Summary Risk Factors	4
	Note regarding COVID-19	6

	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	7

	Condensed Consolidated Balance Sheets	7
	Condensed Consolidated Statements of Operations	8
	Condensed Consolidated Statements of Comprehensive Loss	9
	Condensed Consolidated Statements of Cash Flows	10
	Consolidated Statements of Shareholders' Equity	11
	Notes to Condensed Consolidated Financial Statements	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 4.	Controls and Procedures	31

	PART II – OTHER INFORMATION

Item 1A.	Risk Factors	32

Item 6.	Exhibits	52

	SIGNATURE	53

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NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains "forward-looking statements" that are based on current expectations, estimates, beliefs, assumptions and projections about our business. Words such as "may," "will," "appears," "predicts," "continue," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and the negative or other variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding: the impact of the COVID-19 pandemic (including any changes in laws or regulations in reaction to same) on Company personnel, on revenue, on Company suppliers, and on Company customers and their respective end markets; the redeemable non-controlling interests in our subsidiary, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (“PWSH”), including the possible redemption thereof and the impact thereof, and any changes in carrying value of such interests that are attributable to foreign currency; our strategic plan of re-aligning our mobile, projector, and video delivery businesses and timing and expectations related thereto, including the Listing and timing and benefits thereof, including improved access to new capital markets and the funding of our growth worldwide; our international operations; our strategy, including with respect to our intellectual property portfolio, research and development efforts and acquisition and investment opportunities; our gross profit margin; any future restructuring programs; our liquidity, capital resources and the sufficiency of our working capital and need for, or ability to secure, additional financing and the potential impact thereof; our contractual obligations, exchange rate and interest rate risks; our income taxes, including our ability to realize the benefit of net deferred tax assets, our uncertain tax position liability; accounting policies and use of estimates and potential impact of changes thereto; our revenue, the potential impact on our business of certain risks, including the concentration of our suppliers, risks of technological change, concentration of credit risk, changes in the markets in which we operate, our international operations, including in Asia and our exchange rate risks, our indemnification obligations and litigation risks and statements relating to our customer agreement that defrays R&D expenses, including amounts to be received thereunder, the accounting treatment thereof, the timing of the work thereunder, expenses related thereto and our expectations with respect to sales related thereto. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict and which may cause actual outcomes and results to differ materially from what is expressed or forecasted in such forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements, including risks related to COVID-19, risks related to our business, risks related to our industry, and risks related to our strategic plan and STAR Market listing is included in Part II, Item 1A of this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date on which they are made, and we do not intend to update any forward-looking statement to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q unless required by law or regulation. If we do update or correct one or more forward-looking statements, you should not conclude that we will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, the "Company," "Pixelworks," "we," "us" and "our" refer to Pixelworks, Inc., an Oregon corporation, and its subsidiaries.

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SUMMARY RISK FACTORS

Our business is subject to varying degrees of risk and uncertainty. Investors should consider the risks and uncertainties summarized below, as well as the risks and uncertainties discussed in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q. Investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, including our condensed consolidated financial statements and related notes, and our other filings made from time to time with the Securities and Exchange Commission. Our business operations could also be affected by factors that we currently consider to be immaterial or that are unknown to us at the present time. If any of these risks occur, our business, financial condition, and results of operations could be materially and adversely affected, and the trading price of our common stock could decline.

Our business is subject to the following principal risks and uncertainties:

•The ongoing effects of the COVID-19 pandemic has and could further disrupt our business or the business of our customers or suppliers, and as such, may adversely affect our financial condition.

•The continued uncertain global economic environment and volatility in global credit and financial markets could materially and adversely affect our business and results of operations.

•If we fail to meet the evolving needs of our markets, identify new products, services or technologies, or successfully compete in our target markets, our revenue and financial results will be adversely impacted.

•Our product strategy 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.

•Achieving design wins involves lengthy competitive selection processes that require us to incur significant expenditures prior to generating any revenue or without any guarantee of any revenue related to this business. If we fail to generate revenue after incurring substantial expenses to develop our products, our business and operating results would suffer.

•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.

•We have significantly fewer financial resources than most of our competitors, which limits our ability to implement new products or enhancements to our current products, which in turn could adversely affect our future sales and financial condition.

•If we are not profitable in the future, we may be unable to continue our operations.

•A significant amount of our revenue comes from a limited number of customers and distributors 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.

•We generally do not have long-term purchase commitments from our customers and if our customers cancel or change their purchase commitments, our revenue and operating results could suffer.

•Our revenue and operating results can fluctuate from period to period, which could cause our share price to decline.

•If we are unable to generate sufficient cash from operations and are forced to seek additional financing alternatives our working capital may be adversely affected and our shareholders may experience dilution or our operations may be impaired.

•We license our intellectual property, which exposes us to risks of infringement or misappropriation, and may cause fluctuations in our operating results.

•We face a number of risks as a result of the concentration of our operations and customers in Asia.

•Our operations in Asia expose us to heightened risks due to natural disasters.

•We face additional risks associated with our operations in China and our results of operations and financial position may be harmed by changes in China's political, economic or social conditions or changes in U.S.-China relations.

•Our international operations expose us to risks resulting from the fluctuations of foreign currencies.

•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.

•Our dependence on selling to distributors and integrators increases the complexity of managing our supply chain and may result in excess inventory or inventory shortages.

•We may be unable to successfully manage any future growth, including the integration of any acquisition or equity investment, which could disrupt our business and severely harm our financial condition.

•Continued compliance with regulatory and accounting requirements will be challenging and will require significant resources.

•Regulations related to conflict minerals may adversely impact our business.

•Dependence on a limited number of sole-source, third-party manufacturers for our products exposes us to possible shortages based on low manufacturing yield, errors in manufacturing, uncontrollable lead-times for manufacturing, capacity allocation, price increases with little notice, volatile inventory levels and delays in product delivery, any of which could result in delays in satisfying customer demand, increased costs and loss of revenue.

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•Our highly integrated products and high-speed mixed signal products are difficult to manufacture without defects and the existence of defects could result in increased costs, delays in the availability of our products, reduced sales of products or claims against us.

•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.

•Intense competition in our markets may reduce sales of our products, reduce our market share, decrease our gross profit and result in large losses.

•If we are not able to respond to the rapid technological changes and evolving industry standards in the markets in which we compete, or seek to compete, our products may become less desirable or obsolete.

•We use a customer-owned tooling process for manufacturing most of our products, which exposes us to the possibility of poor yields and unacceptably high product costs.

•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.

•Shortages of materials used in the manufacturing of our products and other key components of our customers’ products may increase our costs, impair our ability to ship our products on time and delay our ability to sell our products.

•Because of our long product development process and sales cycles, we may incur substantial costs before we earn associated revenue and ultimately may not sell as many units of our products as we originally anticipated.

•Our developed software may be incompatible with industry standards and challenging and costly to implement, which could slow product development or cause us to lose customers and design wins.

•The competitiveness and viability of our products could be harmed if necessary licenses of third-party technology are not available to us on terms that are acceptable to us or at all.

•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.

•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.

•The cyclical nature of the semiconductor industry may lead to significant variances in the demand for our products and could harm our operations.

•If we are unable to implement our strategy to expand our PRC operations, 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.

•Even if we complete a listing on The Shanghai Exchange’s Science and Technology Innovation Board, known as the STAR Market (the “Listing”), we may not achieve the results contemplated by our business strategy and our strategy for growth in the PRC may not result in increases in the price of our common stock.

•Pixelworks Semiconductor Technology (Shanghai) Co., Ltd’s (“PWSH”) status as a publicly traded company that is controlled, but less than wholly owned, by Pixelworks could have an adverse effect on us.

•The STAR Market is relatively new, and as a result, it is difficult to predict the effect of the proposed Listing, which may in turn negatively affect the price of our common stock on the Nasdaq Global Market.

•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 price of our common stock has and may continue to fluctuate substantially.

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NOTE REGARDING COVID-19

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the virus continues to exist in areas where we operate and sell our products and services. Several public health organizations have recommended, and many local governments have implemented, certain measures to slow and limit the transmission of the virus, including various social distancing ordinances, which has resulted in a significant deterioration of economic conditions in many of the countries in which we operate.

The spread of COVID-19 has caused us to modify our business practices, including implementing work-from-home policies and restricting travel by our employees. Our Shanghai and Shenzhen offices have been alternating between full in-person staffing and remote staffing as local ordinances continue to change in response to new outbreaks. Currently, our Shanghai office is completely remote due to lockdowns imposed there, but our Shenzhen office is operating with in-office staffing. Our offices and supply chain partners in Taiwan are fully functional, and our offices in Japan and North America are fully operational, working both in-office and remotely.

COVID-19 may also affect the operations of our suppliers and customers, as their own workforces and operations are disrupted by the pandemic, which could result in the interruption of our distribution system, temporary or long-term disruption in our supply chains, or delays in the delivery of our product. While we expect the impacts of COVID-19 to be temporary, the disruptions caused by the virus negatively affected our revenue and results of operations in 2020 and 2021 , and we anticipate it will continue to do so in 2022.

The impact of the pandemic on our business, as well as the business of our suppliers and customers, and the additional measures that may be needed in the future in response to it, including cost-saving measures, will depend on many factors beyond our control and knowledge. We will continually monitor the situation to determine what actions may be necessary or appropriate to address the impact of the pandemic, which may include actions mandated or recommended by federal, state or local authorities.

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PART I – FINANCIAL INFORMATION

Item 1.Financial Statements.

PIXELWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	March 31, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	55,162	$	61,587

Accounts receivable, net	8,564		8,708
Inventories	1,794		1,469
Prepaid expenses and other current assets	3,158		2,732
Total current assets	68,678		74,496
Property and equipment, net	5,375		5,656
Operating lease right-of-use assets	4,177		4,789
Other assets, net	3,715		3,162
Acquired intangible assets, net	—		90
Goodwill	18,407		18,407
Total assets	$	100,352	$	106,600
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	3,702	$	2,747
Accrued liabilities and current portion of long-term liabilities	9,771		13,563

Current portion of income taxes payable	190		128
Total current liabilities	13,663		16,438
Long-term liabilities, net of current portion	366		519
Deposit liability	12,902		12,716
Operating lease liabilities, net of current portion	2,335		2,853

Income taxes payable, net of current portion	2,816		2,948
Total liabilities	32,082		35,474
Commitments and contingencies (Note 12)
Redeemable non-controlling interest	31,527		30,905
Shareholders’ equity:
Preferred stock	—		—
Common stock	476,910		475,644
Accumulated other comprehensive loss	(620)		(468)
Accumulated deficit	(439,547)		(434,955)
Total shareholders’ equity	36,743		40,221
Total liabilities, redeemable non-controlling interest and shareholders’ equity	$	100,352	$	106,600

See accompanying notes to condensed consolidated financial statements.

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PIXELWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Revenue, net	$	16,628	$	9,270
Cost of revenue (1)	7,865		5,545
Gross profit	8,763		3,725
Operating expenses:
Research and development (2)	7,160		6,785
Selling, general and administrative (3)	5,484		4,854

Total operating expenses	12,644		11,639
Loss from operations	(3,881)		(7,914)
Interest income and other, net	162		56

Total other income, net	162		56
Loss before income taxes	(3,719)		(7,858)
Provision for income taxes	403		217
Net loss	(4,122)		(8,075)
Less: Net income attributable to redeemable non-controlling interest	(470)		—
Net loss attributable to Pixelworks Inc.	$	(4,592)	$	(8,075)
Net loss attributable to Pixelworks Inc. per share - basic and diluted	$	(0.09)	$	(0.16)


Weighted average shares outstanding - basic and diluted	53,680		51,673


(1) Includes:
Amortization of acquired intangible assets	72	245
Stock-based compensation	8	79

(2) Includes stock-based compensation

583

581


(3) Includes:
Stock-based compensation	458	772
Amortization of acquired intangible assets	18	60

See accompanying notes to condensed consolidated financial statements.

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PIXELWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Net loss	$	(4,122)	$	(8,075)
Other comprehensive loss:
Foreign currency translation adjustment	(152)		—

Comprehensive loss	(4,274)		(8,075)
Less: comprehensive income attributable to redeemable non-controlling interest	(470)		—
Total comprehensive loss attributable to Pixelworks, Inc.	$	(4,744)	$	(8,075)

See accompanying notes to condensed consolidated financial statements.

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PIXELWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(4,122)	$	(8,075)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	1,049		1,432
Depreciation and amortization	1,040		1,016
Deferred income tax expense (benefit)	364		(10)
Reversal of uncertain tax positions	(121)		(2)
Amortization of acquired intangible assets	90		305










Changes in operating assets and liabilities:
Accounts receivable, net	144		(850)
Inventories	(325)		775
Prepaid expenses and other current and long-term assets, net	230		(267)
Accounts payable	407		721
Accrued current and long-term liabilities	(4,026)		(1,827)
Income taxes payable	52		131
Net cash used in operating activities	(5,218)		(6,651)
Cash flows from investing activities:
Purchases of property and equipment	(540)		(243)
Purchases of licensed technology	(517)		—
Proceeds from sales and maturities of short-term marketable securities	—		250





Net cash provided by (used in) investing activities	(1,057)		7
Cash flows from financing activities:


Payments on asset financings	(367)		(239)
Proceeds from issuance of common stock under employee equity incentive plans	217		1,063






Net cash provided by (used in) financing activities	(150)		824
Net decrease in cash and cash equivalents	(6,425)		(5,820)
Cash and cash equivalents, beginning of period	61,587		31,257
Cash and cash equivalents, end of period	$	55,162	$	25,437

Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds received	$	108	$	90
Cash paid during the period for interest	41		32

See accompanying notes to condensed consolidated financial statements.

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PIXELWORKS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands, except share data)

(Unaudited)


	Common Stock			Accumulated Other Comprehensive Income (loss)		Accumulated Deficit		Total Shareholders' Equity
2022	Shares	Amount
Balance as of December 31, 2021	53,367,136	$	475,644	$	(468)	$	(434,955)	$	40,221
Stock issued under employee equity incentive plans	630,876	217		—		—		217

Stock-based compensation expense	—	1,049		—		—		1,049
Foreign currency translation adjustment	—	—		(152)		—		(152)
Net loss attributable to Pixelworks, Inc.	—	—		—		(4,592)		(4,592)
Balance as of March 31, 2022	53,998,012	$	476,910	$	(620)	$	(439,547)	$	36,743

2021
Balance as of December 31, 2020	51,078,942	$	467,957	$	47	$	(415,134)	$	52,870
Stock issued under employee equity incentive plans	1,133,479	1,063		—		—		1,063
Stock-based compensation expense	—	1,432		—		—		1,432

Net loss attributable to Pixelworks, Inc.	—	—		—		(8,075)		(8,075)
Balance as of March 31, 2021	52,212,421	$	470,452	$	47	$	(423,209)	$	47,290

See accompanying notes to condensed consolidated financial statements.

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PIXELWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

(Unaudited)

NOTE 1: BASIS OF PRESENTATION

Nature of Business

Pixelworks, Inc. (together with our subsidiaries, the “Company”, “we”, “our” or “us”) is a leading provider of high-performance and power-efficient visual processing solutions that bridge the gap between video content formats and rapidly advancing display capabilities. We develop and market semiconductor and software solutions that enable consistently high-quality, authentic viewing experiences in a wide variety of applications from cinema to smartphones. Our primary target markets include Mobile (smartphone, gaming and tablet), Home Entertainment (TV, personal video recorder ("PVR"), over-the-air ("OTA") and projector), Content (creation, remastering and delivery), and Business & Education (projector).

As of March 31, 2022, we had an intellectual property portfolio of 334 patents related to the visual display of digital image data. We focus our research and development efforts on developing video algorithms that improve quality, and architectures that reduce system power, cost, bandwidth and increase overall system performance and device functionality. We seek to expand our technology portfolio through internal development and co-development with business partners, and we continually evaluate acquisition opportunities and other ways to leverage our technology into other high-value markets.

Pixelworks was founded in 1997 and is incorporated under the laws of the state of Oregon. On August 2, 2017, we acquired ViXS Systems, Inc., a corporation organized in Canada ("ViXS").

During the third quarter of 2021, we engaged in a strategic plan to re-align our mobile, projector, and video delivery businesses to improve their focus on the Asia-centered customers and employee stakeholders of those businesses. The global center of the mobile, projector, and video delivery businesses continues to be in Asia, and the steps we have taken to date and going forward are intended to improve our ability to access capital, customers, and talent. We have operated our primary R&D center in Asia for over 15 years and feel that the time is right to take advantage of that existing footprint and develop our subsidiary, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (or "PWSH") as a full profit-and-loss center underneath Pixelworks, Inc. for the mobile, projector, and video delivery businesses. Most of these steps were completed in 2021.

This plan will further enable PWSH to seek qualification to file an application for an initial public offering on the Shanghai Stock Exchange’s Sci-Tech 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 its growth worldwide. We presently intend to qualify PWSH to apply for the Listing so that the Listing is consummated in 2023. The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. There is no guarantee that PWSH will be approved for a Listing at any point in the future.

Condensed Consolidated Financial Statements

The financial information included herein for the three months ended March 31, 2022 and 2021 is prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and is unaudited. Such information reflects all adjustments, consisting of only normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of our condensed consolidated financial statements for these interim periods. The financial information as of December 31, 2021 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2021, included in Item 8 of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 9, 2022, and should be read in conjunction with such consolidated financial statements.

The results of operations for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the results expected for future periods or for the entire fiscal year ending December 31, 2022.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 removes certain exceptions to the general principles in Accounting Standards Codification ("ASC") 740 and also clarifies and amends existing guidance to provide for more consistent application. ASU 2019-12 became effective for us in the first quarter of fiscal 2021, and early adoption was permitted. The adoption of ASU 2019-12 did not have a material impact on our financial position, results of operations and cash flows.

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Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect amounts reported in the financial statements and accompanying notes. Our significant estimates and judgments include those related to revenue recognition, valuation of excess and obsolete inventory, lives and recoverability of equipment and other long-lived assets, valuation of goodwill, valuation of share-based payments, income taxes, litigation and other contingencies. The actual results experienced could differ materially from our estimates.

NOTE 2: BALANCE SHEET COMPONENTS

Accounts Receivable, Net

Accounts receivable are contract assets that arise from the performance of our obligation pursuant to our contracts with our customers and represent our unconditional right to payment for the satisfaction of our performance obligations. They are recorded at invoiced amount and do not bear interest when recorded or accrue interest when past due. Accounts receivable are stated net of an allowance for doubtful accounts, which is maintained for estimated losses that may result from the inability of our customers to make required payments.

Accounts receivable consist of the following:


	March 31, 2022		December 31, 2021
Accounts receivable, gross	$	8,627	$	8,744
Less: allowance for doubtful accounts	(63)		(36)
Accounts receivable, net	$	8,564	$	8,708

The following is the change in our allowance for doubtful accounts:


	Three Months Ended
	March 31,
	2022		2021
Balance at beginning of period	$	36	$	41
Additions charged (reductions credited)	27		(6)

Balance at end of period	$	63	$	35

Inventories

Inventories consist of finished goods and work-in-process, and are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market (net realizable value).

Inventories consist of the following:


	March 31, 2022		December 31, 2021
Finished goods	$	477	$	461
Work-in-process	1,317		1,008
Inventories	$	1,794	$	1,469

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Property and Equipment, Net

Property and equipment, net consists of the following:


	March 31, 2022		December 31, 2021
Gross carrying amount	$	21,955	$	21,817
Less: accumulated depreciation and amortization	(16,580)		(16,161)
Property and equipment, net	$	5,375	$	5,656

Acquired Intangible Assets, Net

In connection with the acquisition of ViXS (the "Acquisition"), we recorded certain identifiable intangible assets. Acquired intangible assets resulting from this transaction were assigned to Pixelworks, Inc., and consist of the following:


	March 31, 2022		December 31, 2021
Developed technology	$	5,050	$	5,050
Customer relationships	1,270		1,270
Backlog and tradename	410		410
	6,730		6,730
Less: accumulated amortization	(6,730)		(6,640)
Acquired intangible assets, net	$	—	$	90

Developed technology and customer relationships were fully amortized as of March 31, 2022, tradename was fully amortized as of March 31, 2019 and backlog was fully amortized as of September 30, 2018.

Amortization expense for intangible assets was $90 for the three months ended March 31, 2022, $72 was included in cost of revenue and $18 was included in selling, general and administrative for the three months ended March 31, 2022, in the condensed consolidated statements of operations.

Goodwill

Goodwill resulted from the Acquisition, whereby we recorded goodwill of $18,407.

Goodwill is not amortized; however, we review goodwill for impairment annually and whenever events or changes in circumstances indicate that the fair value of the reporting unit may be less than it's carrying value. Conditions that would trigger an impairment assessment include, but are not limited to, a significant adverse change in our business climate or a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continued losses or adverse changes in legal factors, regulation or business environment. There were no such triggering events requiring a goodwill impairment assessment during the three months ended March 31, 2022. We perform our annual impairment assessment for goodwill on November 30 of each year.

Table of Contents

Accrued Liabilities and Current Portion of Long-Term Liabilities

Accrued liabilities and current portion of long-term liabilities consist of the following:


	March 31, 2022		December 31, 2021
Accrued payroll and related liabilities	$	2,501	$	3,490
Operating lease liabilities, current	2,330		2,439
Deferred research and development reimbursement	855		1,838
Current portion of accrued liabilities for asset financings	799

SEC Form 10-Q filed by Pixelworks Inc.