Pixelworks designs, develops and markets visual display processing semiconductors, intellectual property cores, software and custom application specific integrated circuits ("ASIC") solutions for high-quality energy efficient video applications. In addition, we offer a suite of solutions for advanced media processing and the efficient delivery and streaming of video.

We enable worldwide manufacturers to offer leading-edge consumer electronics and professional display products, as well as video delivery and streaming solutions for content service providers. Our core visual display processing technology intelligently processes digital images and video from a variety of sources and optimizes the content for a superior viewing experience. Pixelworks’ video coding technology reduces storage requirements, significantly reduces bandwidth constraint issues and converts content between multiple formats to enable seamless delivery of video, including over-the-air (OTA) streaming, while also maintaining end-to-end content security.

The rapid growth in video-capable consumer devices, especially mobile, has increased the demand for visual display processing and video delivery technology in recent years. Our technologies can be applied to a wide range of devices from large-screen projectors to low-power mobile tablets, smartphones, high-quality video infrastructure equipment and streaming devices. Our products are architected and optimized for power, cost, bandwidth, and overall system performance, according to the requirements of the specific application. Our primary target markets include digital projection systems, tablets, smartphones, and OTA streaming devices.

As of June 30, 2019, we had an intellectual property portfolio of 349 patents related to the visual display of digital image data. We focus our research and development efforts on developing video algorithms that improve quality, and architectures that reduce system power, cost, bandwidth and increase overall system performance and device functionality. We seek to expand our technology portfolio through internal development and co-development with business partners, and we continually evaluate acquisition opportunities and other ways to leverage our technology into other high-value markets.

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

The financial information included herein for the three and six month periods ended June 30, 2019 and 2018 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, except as discussed below, that are, in the opinion of management, necessary for a fair presentation of the Company's condensed consolidated financial statements for these interim periods. The financial information as of December 31, 2018 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2018, included in Item 8 of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 13, 2019 and as amended on August 9, 2019, and should be read in conjunction with such consolidated financial statements.

The results of operations for the three and six month periods ended June 30, 2019 are not necessarily indicative of the results expected for future periods or for the entire fiscal year ending December 31, 2019.

During the second quarter of 2019, the Company determined that the statute of limitations had previously expired related to a portion of a liability that had been accrued in prior periods. Management evaluated the materiality of the error, both quantitatively and qualitatively, and concluded that it was not material to the financial statements of any period presented. The Company has revised beginning retained earnings and corrected the error in the accompanying prior period financial information in these condensed consolidated financial statements.

The following table sets forth the effect this immaterial error correction had on the Company’s unaudited condensed consolidated statements of operations for the three and six month periods ended June 30, 2018:



	Three Months Ended								Six Months Ended
	June 30, 2018								June 30, 2018
	Previously Reported			Correction		Revised			Previously Reported			Correction		Revised
Interest income (expense) and other, net	$	(131	)	$	171	$	40		$	841		$	336	$	1,177
Total other income (expense), net	(131		)	171		40			841			336		1,177
Income (loss) before income taxes	(2,581		)	171		(2,410		)	(2,903		)	336		(2,567		)
Net loss	(2,613		)	171		(2,442		)	(3,211		)	336		(2,875		)
Net loss per share - basic and diluted	$	(0.07	)	$	—	$	(0.07	)	$	(0.09	)	$	0.01	$	(0.08	)



	December 31, 2018
	Previously Reported			Correction			Revised
Accrued liabilities and current portion of long-term liabilities	$	14,823		$	(4,567	)	$	10,256
Total current liabilities	17,202			(4,567		)	12,635
Total liabilities	20,518			(4,567		)	15,951
Accumulated deficit	(384,095		)	4,567			(379,528		)
Total shareholders’ equity	44,823			4,567			49,390

The following table sets forth the effect this immaterial error correction had on the Company's unaudited condensed consolidated statement of cash flows for the six month period ended June 30, 2018:



	Six Months Ended June 30, 2018
	Previously Reported		Correction		Revised
Operating activities:
Net loss	(3,211	)	336		(2,875	)
Change in accrued current and long-term liabilities	(2,838	)	(336	)	(3,174	)
Net cash used in operating activities	(3,418	)	—		(3,418	)

In November 2018, the FASB issued Accounting Standards Update No. 2018-18, Collaborative Arrangements: Clarifying the Interaction Between Topic 808 and Topic 606 ("ASU 2018-18"). ASU 2018-18 requires transactions in collaborative arrangements to be accounted for under ASC 606 if the counter-party is a customer for a good or service (or bundle of goods and services) that is a distinct unit of account. The amendment also precludes entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers. ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods in those fiscal years. We are currently assessing the impact of this update on our financial position, results of operations and cash flows.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASC 842"), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

We adopted the new standard on January 1, 2019 and used the effective date as our date of initial application under the modified retrospective approach. Under the effective date method, financial information and disclosures prior to January 1, 2019 are not required to be restated.

We elected the “practical expedient package,” which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for all of our leases.

The adoption of this standard had the effect of increasing the assets and liabilities on our condensed consolidated balance sheet by $6,224 and $6,847, respectively, but did not have a material impact on our condensed consolidated statements of operations or cash flows. The most significant impact relates to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our office operating leases; and (2) providing significant new disclosures about our leasing activities.

Upon adoption, we recognized operating lease liabilities of $6,847 based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. We also recognized ROU assets of $6,224 which represents the operating lease liability adjusted for accrued rent and cease-use liabilities.