What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-13 compared with 2023-03-08 · 176 added, 238 removed, 685 unchanged (38% of the section changed)

1 unchanged sentence

The following financial statements and reports are included in Item 8:

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Reports of Independent Registered Public Accounting Firms (PCAOB IDS:

Consolidated Balance Sheets as of December 31, 2023 and 2022

7 unchanged sentences

Pixelworks, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of Pixelworks, Inc.

and subsidiaries (the “Company”) as of December 31, 2023, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Net Realizable Value of Inventories - the Determination of Obsolete or Excess Inventories

As described further in Notes 2 and 3 to the consolidated financial statements, the Company writes down any obsolete, unmarketable, or otherwise impaired inventory to net realizable value.

The determination of obsolete or excess inventory requires management to estimate the future demand for the Company’s products.

The estimate of future demand is compared to inventory levels to determine the amount, if any, of obsolete or excess inventory.

We identified the net realizable value of inventories as a critical audit matter.

The principal considerations for our determination that the net realizable value of inventories is a critical audit matter are that significant judgement by management is needed when determining obsolete or excess inventories, including developing an estimate of future demand.

The estimate of future demand requires management to make subjective and complex assumptions related to market conditions, business strategies and technology trends.

Given this, significant auditor judgment and effort in performing procedures and evaluating management’s significant assumptions are required for this estimate.

Our audit procedures related to the net realizable value of inventories included the following, among others:

• We obtained management’s analysis for estimated excess or obsolete inventories.

We evaluated the appropriateness of management’s approach and tested the completeness and accuracy of the underlying data.

• We evaluated the reasonableness of management’s significant assumptions related to future demand and market conditions considering current and past results, industry reports, and inquiries with management and employees outside of accounting function.

• We assessed management’s ability to forecast by comparing the actual results with the respective forecast for the same period.

/s/ GRANT THORNTON LLP

We have served as the Company's auditor since 2023.

San Francisco, California

March 13, 2024

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

Pixelworks, Inc.

Portland, Oregon

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Pixelworks, Inc.

and its subsidiaries (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive loss, shareholders' equity, and cash flows for each of the two years ended December 31, 2022, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheet of Pixelworks, Inc.

and its subsidiaries (the "Company") as of December 31, 2022, and the related consolidated statements of operations, comprehensive loss, shareholders' equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The Company's management is responsible for these consolidated financial statements.

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's consolidated financial statements.

1 unchanged sentence

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

_____________________________________________________________________________________________

Revenue Recognition — Refer to Note 2 to the Consolidated Financial Statements

____________________________________________________________________________

Critical Audit Matter Description

The Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.

The Company's contract may contain one or more performance obligations, including hardware, professional engineering services, internally developed intellectual property ("IP") and technical support services.

Significant judgment is exercised by the Company in determining revenue recognition for these customer agreements, and includes the following:

• Determination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together.

• Determination of stand-alone selling prices for each distinct performance obligation (i.e., for IP license fee and support service fee that are sold together under IP licensing arrangements).

• The pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.

• Estimation of variable consideration when determining the amount of revenue to recognize, primarily on product sale arrangements (e.g., customer credits pursuant to price protection rights, stock rotation rights and limited return rights).

Given these factors, the related audit effort in evaluating management's judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.

____________________________________________________________________________

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company's revenue recognition for these customer agreements included the following:

• We selected a sample of customer agreements and performed the following procedures:

◦ Obtained and read contract source documents for each selection, including master agreements, and other documents that were part of the agreement to identify significant terms.

◦ Tested management's identification of significant terms for completeness, including the identification of distinct performance obligations and variable consideration.

◦ Assessed the terms in the customer agreement and evaluated the appropriateness of management's application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.

• We evaluated the reasonableness of management's estimate of stand-alone selling prices for products and services that are not sold separately.

• We evaluated the reasonableness and accuracy of management's judgements and estimates used in accounting for customer credits pursuant to price protection rights, stock rotation rights and limited return rights ("variable consideration").

This included testing management's estimate of calculating expected credits issued to customers and determining whether such credits were completely and accurately reserved as of December 31, 2022.

• We tested the mathematical accuracy of management's calculations of revenue and the associated timing of recognizing the related revenue subject to any constraints in the consolidated financial statements.

_____________________________________________________________________________________________

Inventory Valuation— Refer to Note 2 to the Financial Statements

____________________________________________________________________________

Critical Audit Matter Description

The Company computes inventory cost on a first-in-first out basis and applies judgment in determining the forecast for products and the valuation of inventories.

The Company assesses inventory at each reporting date in order to assert that it is recorded at net realizable value, giving consideration to, among other factors:

whether the product is valued at the lower of cost or net realizable value;

and the estimation of excess and obsolete inventory or that which is not of saleable quality.

Most of the Company's inventory provisions are based on the Company's inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions.

Significant judgment is exercised by the Company to determine inventory carrying value adjustments, specifically the provisions for excess or obsolete inventories, and includes the following:

• Developing assumptions such as forecasts of future sales quantities, which are sensitive to the competitiveness of product offerings, customer requirements, and product life cycles.

• Applying management judgment on not reserving certain inventory units (e.g.

in case they are items that can be used for Return Merchandise Authorization "RMA"/warranty purpose).

Given these factors and assumptions are forward-looking and could be affected by future economic and market conditions, the related audit effort to evaluate management's inventory valuation adjustments was extensive and required a high degree of auditor judgment.

____________________________________________________________________________

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company's inventory valuation methodology included the following:

• We selected a sample of inventory items and performed the following procedures:

◦ Tested the mathematical accuracy of the schedule by comparing the quantities and carrying value of on-hand inventories to related unit sales, both historical and forecasted.

◦ Assessed and tested the reasonableness of the significant assumptions (e.g., sales and marketing forecast, build plans, RMA requirements, usage and open sales-orders).

◦ Inquired with the management team and evaluated the adequacy of management's sales forecasts by analyzing potential technological changes in line with product life cycles and/or identified alternative customer uses.

◦ Assessed whether there were any potential sources of contrary information, including historical forecast accuracy or history of significant revisions to previously recorded inventory valuation adjustments, and performed sensitivity analyses over significant assumptions to evaluate the changes in inventory valuation that would result from changes in the assumptions.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Armanino LLP

We have served as the Company’s auditor since 2020.

San Ramon, California

March 8, 2023

We began serving as the Company's auditor in 2020.

In 2023, we became the predecessor auditor.

PIXELWORKS, INC.

10 unchanged sentences

Other assets, net 2,115 3,580

Acquired intangible assets, net — 90

Goodwill 18,407 18,407

18 unchanged sentences

486,324 481,229

Accumulated other comprehensive income (loss) 2,178 ( 468 )

Accumulated other comprehensive income 3,378 2,178

Accumulated deficit ( 477,161 ) ( 450,985 )

19 unchanged sentences

Loss before income taxes ( 26,586 ) ( 16,117 )

Benefit for income taxes ( 884 ) ( 133 )

Provision (benefit) for income taxes 357 ( 884 )

Net loss ( 26,943 ) ( 15,233 )

Net income attributable to non-controlling interests and redeemable non-controlling interests ( 797 ) ( 409 )

Net (income) loss attributable to non-controlling interests and redeemable non-controlling interests 767 ( 797 )

Net loss attributable to Pixelworks, Inc.

4 unchanged sentences

(1) Includes:

Amortization of acquired intangible assets 72 899

Stock-based compensation $ 89 $ 41

Amortization of acquired intangible assets — 72

(2) Includes stock-based compensation 1,866 2,351

10 unchanged sentences

Foreign currency translation adjustment

2,612 ( 520 )

Foreign pension adjustment

1 unchanged sentence

Comprehensive loss ( 25,743 ) ( 12,587 )

comprehensive income attributable to redeemable non-controlling interest ( 797 ) ( 409 )

comprehensive (income) loss attributable to non-controlling interest and redeemable non-controlling interests 767 ( 797 )

Total comprehensive loss attributable to Pixelworks, Inc.

10 unchanged sentences

Depreciation and amortization 4,287 4,657

Deferred income tax expense 301 428

Reversal of uncertain tax positions ( 2 ) ( 2,171 )

Deferred income tax expense (benefit) 428 ( 768 )

Amortization of acquired intangible assets — 90

10 unchanged sentences

Purchases of licensed technology ( 156 ) ( 1,415 )

Proceeds from sales and maturities of marketable securities — 250

Net cash used in investing activities ( 3,988 ) ( 3,007 )

2 unchanged sentences

Payments on asset financings ( 1,370 ) ( 1,457 )

Net proceeds from issuance of equity interest to certain entities owned by employees 1,407 12,329

Proceeds from issuances of common stock under employee equity incentive plans 299 387

Net proceeds from issuance of equity interest to redeemable non-controlling interest — 29,976

Net proceeds from "at the market" equity offering — 320

Net proceeds from issuance of equity interest to certain entities owned by employees — 1,407

Net cash provided by financing activities 13,525 11,075

Net increase (decrease) in cash and cash equivalents ( 4,766 ) 30,330

Net decrease in cash and cash equivalents ( 9,277 ) ( 4,766 )

Cash and cash equivalents, beginning of period 56,821 61,587

1 unchanged sentence

Supplemental disclosure of cash flow information:

Cash paid during the year for interest $ 196 $ 162

Cash paid for income taxes, net of refunds received $ 315 $ 188

Cash paid during the year for interest 161 196

Non-cash investing and financing activities:

Acquisitions of property and equipment and other assets under extended payment terms $ 1,674 $ 1,229

Purchases of property and equipment and other assets under extended payment terms $ 1,922 $ 1,674

See accompanying notes to consolidated financial statements.

10 unchanged sentences

Stock issued under employee equity incentive plans 1,746,050 387 — — — 387

"At the market" equity offering 61,018 321 — — — 321

Stock-based compensation expense — 5,198 — — — 5,198

Foreign currency translation adjustment — — 2,612 — — 2,612

Net proceeds from issuance of equity interest to non-controlling interest — — — — 10,738 10,738

Net income attributable to non-controlling interest — — — — 171 171

Net loss attributable to Pixelworks, Inc.

1 unchanged sentence

Foreign pension adjustment, net of tax of $ 19

— — 34 — — 34

Balance as of December 31, 2022 55,113,186 481,229 2,178 ( 450,985 ) 10,909 43,331

3 unchanged sentences

Net proceeds from issuance of equity interest to non-controlling interest — — — — 14,596 14,596

Net income attributable to non-controlling interest — — — — 171 171

Net loss attributable to non-controlling interest — — — — ( 624 ) ( 624 )

Other — — — — 6 6

Net loss attributable to Pixelworks, Inc.

1 unchanged sentence

Foreign pension adjustment, net of tax of $ 2

— — 34 — — 34

Balance as of December 31, 2023 57,126,680 $ 486,324 $ 3,378 $ ( 477,161 ) $ 24,257 $ 36,798

8 unchanged sentences

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.

We were one of the first companies to commercially launch a video System on Chip ("SoC") capable of deinterlacing 1080i HDTV signals and one of the first companies with a commercial dual-channel 1080i deinterlacer integrated circuit.

We launched one of the industry’s first single-chip SoCs for digital projection.

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.

Our core visual processing technology intelligently processes digital images and video from a variety of sources and optimizes the content for a superior viewing experience.

Rapid growth in video and gaming consumption, combined with the move towards bright, high resolution, high frame rate and high refresh rate displays, especially in mobile, is increasing the demand for our solutions.

Our technologies can be applied across a wide range of applications:

cinema theaters, low-power mobile tablets, smartphones, streaming devices, and digital projectors for the home, school, or the workplace.

Our products are designed and optimized for power, cost, bandwidth, viewer experience, and overall system performance, according to the requirements of the specific application.

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.

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.

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.

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”).

Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees" and "Note 15:

Non-Controlling Interest", below.

PWSH has a branch office located in Shenzhen, China (Pixelworks Semiconductor Technology (Shanghai) Co.

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.

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.

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 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”).

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.

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.

There is no guarantee that PWSH will be approved for a Listing at any point in the future.

1 unchanged sentence

public company.

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.

15 unchanged sentences

denominated money market funds and certificates of deposit.

Marketable Securities

Our investments in marketable securities are classified as available-for-sale.

Available-for-sale securities are stated at fair value based on quoted market prices with unrealized holding gains or losses, net of tax, included in accumulated other comprehensive income, a component of shareholders’ equity.

The cost of securities sold is based on the specific identification method.

Accounts Receivable

Accounts Receivable, Net

Accounts receivable are recorded at invoiced amount and do not bear interest when recorded or accrue interest when past due.

We maintain an allowance for doubtful accounts for estimated losses that may result from the inability of our customers to make required payments.

At the end of each reporting period, we estimate the allowance for doubtful accounts based on an account-by-account risk analysis of outstanding receivable balances.

The determination to write-off specific accounts receivable balances is made based on the likelihood of collection and past due status.

Past due status is based on invoice date and terms specific to each customer.

Accounts receivable are reduced by an allowance for credit losses, which is our best estimate of the expected credit losses in our existing accounts receivable.

We determine the allowance based on historical experience and current economic conditions, among other factors.

Allowances for doubtful accounts were not material as of December 31, 2023 or December 31, 2022.

We adopted ASC 326 using a modified retrospective approach which requires a cumulative effect adjustment as of the beginning of the reporting period in which the guidance is adopted.

We adopted Topic 326 effective January 1, 2023.

The adoption did not have a material impact on our consolidated financial statements.

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 net realizable value.

21 unchanged sentences

2017-04, Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment ("ASU 2017-04") which states that an entity may first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test.

Simplifying the Test for Goodwill Impairment which states that an entity may first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test.

If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of goodwill impairment loss to be recognized.

An entity has an unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative goodwill impairment test.

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 of 2022 and concluded that goodwill was not impaired.

Warranty Program

We warrant that our products will be free from defects in material and workmanship for a period of twelve months from delivery.

Warranty repairs are guaranteed for the remainder of the original warranty period.

Our warranty is limited to repairing or replacing products, or refunding the purchase price.

At the end of each reporting period, we estimate a reserve for warranty returns based on historical experience and knowledge of any applicable events or transactions.

The reserve for warranty returns is included in accrued liabilities in our consolidated balance sheets.

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.

Stock-Based Compensation

1 unchanged sentence

We also have an employee stock purchase plan for all eligible employees.

The fair value of share-based payment awards is expensed straight-line over the requisite service period, which is generally the vesting period, for the entire award.

The fair value of share-based payment awards is expensed using the graded vesting method over the requisite service period, which is generally the vesting period, for each separately-vesting tranche of the entire award.

Additionally, any modification of an award that increases its fair value will require us to recognize additional expense.

26 unchanged sentences

We limit our exposure to credit risk associated with accounts receivable by carefully evaluating creditworthiness before offering terms to customers.

To mitigate the risk of concentration associated with cash and cash equivalents, funds are held with creditworthy institutions and, at certain times, temporarily swept into insured programs overnight to reduce single firm concentration risk.

Amounts on deposit may exceed federal deposit insurance limits.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 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 year 2021, and early adoption is permitted.

The adoption of ASU 2019-12 did not have a material impact on our financial position, results of operations and cash flows.

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2023-07, Improvements to Reportable Segment Disclosures ("ASU 2023-07").

ASU 2023-07 expands the disclosures for reportable segments made by public entities.

The amendments retain the existing disclosure requirements in ASC 280 and expand upon them to require public entities to disclose significant expenses for reportable segments in both interim and annual reporting periods, as well as items that were previously disclosed only annually on an interim basis, including disclosures related to a reportable segment’s profit or loss and assets.

In addition, entities with a single reportable segment must now provide all segment disclosures required in ASC 280, including the new disclosures for reportable segments under the amendments in ASU 2023-07.

The amendments do not change the existing guidance on how a public entity identifies and determines its reportable segments.

ASU 2023-07 will become effective for us in the year ending December 31, 2024, and early adoption is permitted.

We are evaluating the impact that the adoption of ASU 2023-07 will have on our financial position, results of operations and cash flows.

BALANCE SHEET COMPONENTS

Accounts Receivable, Net

Accounts receivable consists of the following:

Accounts receivable, gross $ 10,124 $ 8,744

Allowance for doubtful accounts ( 77 ) ( 36 )

Accounts receivable, net $ 10,047 $ 8,708

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

Year Ended December 31,

Balance at beginning of year $ 36 $ 41

Additions charged (reductions credited) 41 ( 5 )

Balance at end of year $ 77 $ 36

Inventories consist of the following:

10 unchanged sentences

Equipment, furniture and fixtures $ 10,118 $ 9,637

Tooling 2,903 5,749

Software 5,613 6,739

Tooling 5,081 2,903

Leasehold improvements 1,707 1,513

7 unchanged sentences

Amortization of licensed technology was $ 615 and $ 532 for the years ended December 31, 2023 and 2022, respectively.

Acquired Intangible Assets, Net

In connection with the Acquisition, we recorded certain identifiable intangible assets.

Acquired intangible assets resulting from this transaction consist of the following:

Developed technology $ 5,050 $ 5,050

Customer relationships 1,270 1,270

Backlog and tradename 410 410

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 year ended December 31, 2022, $ 72 was included in cost of revenue and $ 18 was included in selling, general and administrative for the year ended December 31, 2022, in the condensed consolidated statements of operations.

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

Goodwill resulted from the Acquisition of ViXS Systems, Inc.

in 2017, whereby we recorded goodwill of $ 18,407 .

"Summary of Significant Accounting Policies" for information on our assessment of goodwill impairment.

4 unchanged sentences

Current portion of accrued liabilities for asset financings 1,124 876

Accrued interest payable 246 361

Deferred revenue 230 50

Accrued commissions and royalties 210 259

Liability for warranty returns 15 —

Deferred research and development reimbursement — 1,838

Other 2,249 4,049

Other accrued expenses 1,901 2,950

Accrued liabilities and current portion of long-term liabilities $ 9,692 $ 8,849

The following is a summary of the change in deferred revenue:

Year Ended December 31,

Deferred revenue:

Balance at beginning of period $ 50 $ 179

Revenue recognized ( 1,474 ) ( 1,127 )

Revenue deferred 1,654 998

Balance at end of period $ 230 $ 50

FAIR VALUE MEASUREMENTS

14 unchanged sentences

Money market funds $ 18,836 $ — $ — $ 18,836

Certificates of deposit 5,000 — — 5,000

We primarily use the market approach to determine the fair value of our financial instruments.

8 unchanged sentences

For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

We have operating leases for office buildings and one vehicle.

We have operating leases primarily for office buildings and spaces.

Our leases have remaining lease terms of 1 year to 3 years.

55 unchanged sentences

Segment Information".

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.

Contract Balances

Our contract balances include accounts receivable, deferred revenue and our liability for warranty returns.

For information concerning these contract balances, see "Note 3.

Balance Sheet Components".

Payment terms and conditions for goods and services provided vary by contract;

1 unchanged sentence

We have not identified any material costs incurred associated with obtaining a contract with a customer which would meet the criteria to be capitalized, therefore, these costs are expensed as incurred.

There is no amount of transaction price allocated to unsatisfied performance obligations with an original expected duration of greater than one year.

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.

The Company has elected the practical expedient of not accounting for significant financing components if the period between revenue recognition and when the customer pays for the product or service is one year or less.

The aggregate amount of the transaction price allocated to unsatisfied performance obligations with an original expected duration of greater than one year is $ 110 , which we expect to recognize ratably over the next 11 months.

The following table presents the contract assets and contract liabilities recorded on the consolidated balance sheets as of December 31, 2023, 2022 and 2021:

Year Ended December 31,

Balance Sheet Classification 2023 2022 2021

Accounts receivable Accounts receivable, net $ 10,075 $ 10,047 $ 8,708

Deferred revenue Accrued liabilities and current portion of long-term liabilities 146 230 50

Liability for Warranty returns Accrued liabilities and current portion of long-term liabilities 13 15 17

During the years ended December 31, 2023 and 2022, the Company recognized $ 120 and $ 50 , respectively, of revenue related to amounts that were previously included in deferred revenue at the beginning of the period.

Deferred revenue fluctuates over time due to changes in the timing of payments received from customers and revenue recognized for services provided.

INTEREST INCOME AND OTHER, NET

Interest income and other, consists of the following:

Interest income and other, net consists of the following:

Year Ended December 31,

Other income $ 80 $ 246

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 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.

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.

RESEARCH AND DEVELOPMENT

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.

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.

We expect our development costs to exceed the amounts received from the customer, and although we expect to sell units of the product to the customer, there is no commitment or agreement from the customer for such sales at this time.

17 unchanged sentences

Total deferred 301 428

Income tax benefit $ ( 884 ) $ ( 133 )

Income tax expense (benefit) $ 357 $ ( 884 )

The reconciliation of the U.S.

10 unchanged sentences

Stock-based compensation ( 3 ) ( 4 )

Adjustment to deferred balances 18 ( 4 )

Other 1 ( 1 )

19 unchanged sentences

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.

In the fourth quarter of 2021, we released a portion of the valuation allowance against our Canadian deferred tax assets in conjunction with forecasted income within our Canada subsidiary.

During the year ended December 31, 2022, our Canadian subsidiary generated taxable profits which were able to be offset by our Canadian deferred tax assets.

As of December 31, 2022, a valuation allowance against our remaining net Canadian deferred tax assets was established as future utilization is uncertain based upon updated projections of income within our Canada Subsidiary.

We have not provided a valuation allowance against our other foreign net deferred tax assets as we have concluded it is more likely than not that we will realize a benefit from these assets in a future period because our subsidiaries in these jurisdictions are cost-plus taxpayers.

The net valuation allowance decreased $ 4,431 for the year ended December 31, 2022 and decreased $ 4,609 for the year ended December 31, 2021.

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.

We have not provided a valuation allowance against our other net deferred tax assets as we have concluded it is more likely than not that we will realize a benefit from these assets in a future period because our subsidiaries in these jurisdictions are cost-plus taxpayers.

The net valuation allowance increased $ 11,034 for the year ended December 31, 2023 and decreased $ 4,431 for the year ended December 31, 2022.

As of December 31, 2023, we had federal, state and foreign net operating loss carryforwards of $ 154,456 , $ 16,324 and $ 89,001 respectively, which will begin to expire in 2024 with $ 31,705 of our federal net operating loss carryforward lasting indefinitely.

As of December 31, 2022, we had available federal, state and foreign research and experimentation tax credit carryforwards of

$ 6,747 , $ 5,173 , and $ 21,850 respectively.

The federal and state tax credits will begin expiring in 2023 while the foreign credits have an indefinite life.

As of December 31, 2023, we had available federal, state and foreign research and experimentation tax credit carryforwards of $ 5,734 , $ 5,357 , and $ 21,898 respectively.

The federal tax credits will begin expiring in 2024 while the state and foreign credits have an indefinite life.

In addition, our Canadian subsidiary has unclaimed scientific and experimental expenditures to be carried forward and applied against future income in Canada of approximately $ 120,458 .

We have a general foreign tax credit of $ 84 which will begin to expire in 2023.

Our ability to utilize our federal net operating losses may be limited by Section 382 of the Internal Revenue Code of 1986, as amended, which imposes an annual limit on the ability of a corporation that undergoes an "ownership change" to use its net operating loss carryforwards to reduce its tax liability.

An ownership change is generally defined as a greater than 50% increase in equity ownership by 5% shareholders in any three-year period.

We are not indefinitely reinvested in the earnings of our subsidiaries in Canada, Japan and Taiwan and have accrued tax on the future repatriation of cash for jurisdictions where withholding taxes would apply .

We are not indefinitely reinvested in the earnings of our subsidiaries in China TrueCut, Japan and Taiwan and have accrued tax on the future repatriation of cash for jurisdictions where withholding taxes would apply .

The Tax Cuts and Jobs Act ("TCJA") was enacted on December 22, 2017.

1 unchanged sentence

The required capitalization and amortization of these costs resulted in an increase to our taxable income before utilization of our operating loss carryforward.

The capitalization did not have a significant impact to our income tax benefit in the current year.

The capitalization did not have a significant impact to our income tax expense or benefit in the years ended December 31, 2023 and 2022.

Uncertain Tax Positions

5 unchanged sentences

Balance at beginning of year $ 1,643 $ 3,646

Accrual for positions taken in a prior year ( 214 ) 825

Reversal of accrual for positions taken in a prior year ( 23 ) ( 214 )

Accrual for positions taken in current year 112 117

8 unchanged sentences

Balance at end of year $ 98 $ 88

During the years ended December 31, 2022 and 2021 we recognized $ 11 and $ 16 , respectively, of interest and penalties in income tax expense in our consolidated statements of operations.

During the year ended December 31, 2022, our China subsidiary settled a portion of the outstanding intercompany debt with the US parent, Pixelworks, Inc.

During both the years ended December 31, 2023 and 2022, we recognized $ 11 of interest and penalties in income tax expense in our consolidated statements of operations.

During the year ended December 31, 2022, one of our Chinese subsidiaries, PWSH settled a portion of the outstanding intercompany debt with the US parent, Pixelworks, Inc.

The portion that was not able to be settled was forgiven and was recognized as taxable income in China.

3 unchanged sentences

and various foreign jurisdictions.

A number of years may elapse before an uncertain tax position is resolved by settlement or statute of limitations.

A number of years may elapse before an uncertain tax position is resolved by settlement or statutes of limitations.

Settlement of any particular position could require the use of cash.

If the uncertain tax positions we have accrued for are sustained by the taxing authorities in our favor, the reduction of the liability will reduce our effective tax rate.

We reasonably expect reductions in the liability for unrecognized tax benefits and interest and penalties of approximately $ 1 within the next twelve months due to the expiration of statutes of limitation in federal, state and foreign jurisdictions.

We reasonably expect reductions in unrecognized tax benefits of approximately $ 81 within the next twelve months due to the expiration of statutes of limitation in federal, state, and foreign jurisdictions, $ 3 of which is expected to impact our effective tax rate.

We are no longer subject to U.S.

2 unchanged sentences

We do not anticipate that any potential tax adjustments will have a significant impact on our financial position or results of operations.

We were not subject to, nor have we received any notice of, income tax examinations in any jurisdiction as of December 31, 2022.

In January 2024, we were notified that our 2019 and 2020 Canada income tax returns have been selected for audit by the Canadian tax authorities.

We have not received any proposed assessments associated with the audit and do not expect any material impacts to our financial statements as a result of the audit.

We were not subject to, nor have we received any notice of, income tax examinations in any other jurisdiction as of December 31, 2023.

COMMITMENTS AND CONTINGENCIES

20 unchanged sentences

$ 66 and $ 308 are included in accrued liabilities and current portion of long-term liabilities in our consolidated balance sheet as of December 31, 2023 and 2022, respectively.

$ 0 and $ 57 are included in long-term liabilities, net of current portion in our consolidated balance sheets as of December 31, 2022 and 2021, respectively.

Contract Manufacturers

16 unchanged sentences

Net loss $ ( 26,943 ) $ ( 15,233 )

Net income attributable to non-controlling interests and redeemable non-controlling interests ( 797 ) ( 409 )

Net (income) loss attributable to non-controlling interests and redeemable non-controlling interests 767 ( 797 )

Net income attributable to certain entities owned by employees — ( 89 )

8 unchanged sentences

Potentially dilutive common shares from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding restricted stock units, and the assumed issuance of common stock under the employee stock purchase plan.

The following shares were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive (in thousands):

The following shares were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive:

Year Ended December 31,

14 unchanged sentences

We are not obligated to sell any shares under the Sales Agreement.

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 $ 321 .

There was no activity under this at the market offering during the year ended December 31, 2022.

There was no activity under this at the market offering during the years ended December 31, 2023 and December 31, 2022.

Employee Equity Incentive Plans

11 unchanged sentences

400,000 $ 2.33

Granted 108,891 1.97

Exercised — —

17 unchanged sentences

391,000 3.08 $ 2.28 320,818 $ 2.35

During the years ended December 31, 2022 and 2021, the total intrinsic value of options exercised was $ 0 and $ 445 , respectively, for which no income tax benefit has been recorded because a full valuation allowance has been provided for our U.S.

deferred tax assets.

During the years ended December 31, 2023 and 2022, there were no options exercised.

As of December 31, 2023, options outstanding had a total intrinsic value of $ 0 .

42 unchanged sentences

Volatility 85 % 104 %

The weighted average fair value of options granted during the years ended December 31, 2022 and 2021 was $ 1.19 and $ 0.00 , respectively.

There were no options granted during the year ended December 31, 2023.

The weighted average fair value of options granted during the year ended December 31, 2022 was $ 1.19 .

The risk free interest rate is estimated using an average of treasury bill interest rates.

1 unchanged sentence

Expected volatility is estimated based on the historical volatility of our common stock over the expected term as this represents our best estimate of future volatility.

We recognize forfeitures as they occur.

The contractual life of newly issued stock options is six years , and we have elected to use the "simplified method" to estimate expected term.

1 unchanged sentence

The expected term of ESPP purchase rights is based on the estimated weighted average time to purchase.

The vesting period for restricted stock units is approximately three years.

As of December 31, 2023, unrecognized stock-based compensation expense is $ 3,373 , which is expected to be recognized as stock-based compensation expense over a weighted average period of 0.97 years.

10 unchanged sentences

Year Ended December 31,

Japan $ 37,675 $ 27,001

China $ 33,624 $ 25,570

Japan 24,083 37,675

Taiwan 1,813 3,032

Korea 277 116

Europe 150 242

$ 59,677 $ 70,146

18 unchanged sentences

REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY INTEREST OF PWSH SOLD TO EMPLOYEES

During the third quarter of 2021, Pixelworks and our subsidiary, PWSH, entered into a capital increase agreement (the "Capital Increase Agreement") with certain private equity and strategic investors based in China (collectively, the “Investors”) and certain entities which collectively are owned by approximately 75 % of the employees of PWSH and its subsidiaries (collectively, the “ESOP”) (together, the “Investors” and the “ESOP” are referred to below as the “Capital Contributors”).

During 2021, Pixelworks and PWSH entered into a capital increase agreement (the "Capital Increase Agreement") with certain private equity and strategic investors based in China (collectively, the “Investors”) and certain entities which collectively are owned by approximately 75 % of the employees of PWSH and its subsidiaries (collectively, the “ESOP”) (together, the “Investors” and the “ESOP” are referred to below as the “Capital Contributors”).

The ESOP entities do not qualify as Employee Share Ownership Programs under IRC 4975(e)(7), but do qualify as employee share ownership plans qualified under the laws of China, under which the employees hold a pro rata share of an ESOP partnership entity that then holds an equity ownership in trust for employees.

2 unchanged sentences

These rights all expire upon initial public offering on the STAR Market.

Prior to entering into a certain supplemental agreement, each Investor had the right to require PWSH to redeem the entire equity interest held by such Investor, at the original purchase price paid plus 3 % annual interest, if PWSH did not consummate an initial public offering on the STAR Market on or before June 30, 2024.

Based on this contingency, the initial carrying amount of the redeemable non-controlling interests was recorded at fair value on the date of issuance of PWSH equity interests, net of issuance costs and presented in temporary equity on the condensed consolidated balance sheets.

Prior to entering into a certain supplemental agreement, each Investor had the option to require PWSH to redeem the entire equity interest held by such Investor, at the original purchase price paid plus 3 % annual interest, if PWSH did not consummate an initial public offering on the STAR Market on or before June 30, 2024.

Until the interest that was to accrue on the redeemable non-controlling interest was deleted with the Supplemental Agreement, the Company had elected to accrete changes in the redemption value of the redeemable non-controlling interests from the issuance date through the earliest redemption date of June 30, 2024 using the interest method (as the non-controlling interest was probable of becoming redeemable upon the passage of time for the original issuance price plus 3 % annual interest).

On March 24, 2022, Pixelworks and our subsidiary, PWSH, entered into a supplemental agreement to the Capital Increase Agreement (the “Supplemental Agreement”) with the Capital Contributors.

The Supplemental Agreement, among other things, deletes the interest that was to accrue on the redemption obligation of affiliated entities of PWSH, and adds a provision that will suspend the redemption obligation on the date PWSH files its initial public offering listing documents pending the approval of such documents by the applicable authorities.

The suspension ends if PWSH withdraws the listing application or such application is finally rejected, at which point the redemption obligation will once again become effective with a deadline of the later of the date of the withdrawal/rejection and June 30, 2024.

On March 24, 2022, Pixelworks and PWSH entered into a supplemental agreement to the Capital Increase Agreement (the “Supplemental Agreement”) with the Capital Contributors.

The Supplemental Agreement, among other things, deletes the interest that was to accrue in connection with the redemption option, and adds a provision that will suspend the redemption option on the date PWSH files its initial public offering listing documents pending the approval of such documents by the applicable authorities.

The suspension ends if PWSH withdraws the listing application or such application is finally rejected, at which point the redemption option will once again become effective with a deadline of the later of the date of the withdrawal/rejection and June 30, 2024.

Given the current uncertain economic environment of China and its impact on the suitability of seeking a Listing at this present time, PWSH is engaged in and intends to continue discussions with the Investors regarding an extension or removal of this redemption option.

In connection with the Supplemental Agreement, on March 24, 2022, Pixelworks and the Capital Contributors entered into a side letter to the Capital Increase Agreement (the “Side Letter”) which provides that, in the event of a change in control of Pixelworks, Pixelworks shall ensure that the definitive agreement related to such transaction includes a post-closing repurchase covenant that requires the successor entity in such transaction to repurchase all of PWSH’s equity held by a Capital Contributor at the original subscription price plus 20 % upon the request of the Capital Contributor within 60 days after (a) the change in control;

5 unchanged sentences

Therefore, until the redemption feature expires, we will only allocate profits to the redeemable non-controlling interest and continue to recognize the non-controlling interest at an amount at least equal to its redemption value.

Because the redeemable non-controlling interest is denominated in RMB, it will be revalued to USD at the end of each reporting period, with the changes in carrying value attributable to foreign currency being reflected within accumulated other comprehensive income on the condensed consolidated balance sheets.

Each of the ESOP entities has the right to require PWSH to redeem the entire equity interest held by such ESOP entities at the original purchase price paid plus 5 % annual interest, if PWSH does not achieve its Listing on or before December 31, 2024.

Each of the ESOP entities has the option to require a repurchase of the entire equity interest held by such ESOP entities at the original purchase price paid plus 5 % annual interest, if PWSH does not achieve its Listing on or before December 31, 2024.

Because the ESOP entities are owned by employees of PWSH and its subsidiaries and employees are required to render service until either the initial public offering on the STAR Market or repurchase date, the equity interest owned by the ESOP entities will be accounted for under ASC 718 (Compensation - Stock Compensation).

The initial carrying amount of the investment has been recorded as a long-term deposit liability on the condensed consolidated balance sheets as the initial public offering cannot be considered probable at this time.

The initial carrying amount of the investment has been recorded as a long-term deposit liability on the consolidated balance sheets as the initial public offering cannot be considered probable at this time.

We will recognize the periodic interest component of the award as compensation expense and accrete the long-term deposit liability to its redemption value as of December 31, 2024.

Because the long-term deposit liability is denominated in RMB and is considered a monetary liability as defined in ASC 255 (Changing Prices), it will be revalued to USD at the end of each reporting period, with the changes in carrying value recorded as foreign currency gain/loss in our condensed consolidated statements of operations.

The Supplemental Agreement does not remove the obligation of PWSH to repurchase the ESOP interests if PWSH fails to consummate an initial public offering by December 31, 2024 along with the 5 % annual simple interest.

The Supplemental Agreement does not remove the obligation to repurchase the ESOP interests if PWSH fails to consummate an initial public offering by December 31, 2024 along with the 5 % annual simple interest.

On December 21, 2022, the Company and its subsidiary, PWSH, entered into a capital increase agreement (the “CIA”) with Jing Xin Ying (Shanghai) Management Consulting Partnership (Limited Partnership), an entity owned by certain of the employees of PWSH (the “ESOP”).

The ESOP invested approximately $ 1,407 in exchange for an equity interest in PWSH of 0.54 %, based on a pre-money valuation of PWSH of RMB 1,750,000 ($ 251,256 USD), which includes a discount of 50 %.

The CIA provides that if there is a change in control of PWSH that closes prior to its filing an application for the Listing, each capital contributor would be entitled to a minimum return of 10% on the price they paid for their respective equity interest, payable by Company in cash at the close of the change in control transaction, with such right terminating automatically upon the filing by PWSH of the Listing.

The CIA provides that if there is a change in control of PWSH that closes prior to its filing an application for the Listing, each capital contributor would be entitled to a minimum return of 10 % on the price they paid for their respective equity interest, payable by the Company in cash at the close of the change in control transaction, with such right terminating automatically upon the filing by PWSH of the Listing.

The ESOP has a redemption right that is identical to that held by the other ESOP investors from the financing round that closed in 2021:

6 unchanged sentences

public company.

The components of the change in redeemable non-controlling interests for the year ended December 31, 2022 are presented in the following table (in thousands):

The components of the change in redeemable non-controlling interests for the year ended December 31, 2023 are presented in the following table:

Carrying Value of Redeemable NCI as of January 1, 2023

Net income attributable to redeemable non-controlling interest 626

Net loss attributable to redeemable non-controlling interest ( 143 )

Effect of foreign currency translation attributable to redeemable non-controlling interest ( 562 )

6 unchanged sentences

The Equity Transfer Agreement provides the Purchasers with some additional rights:

(1) if there is a change in control of PWSH that closes prior to its filing an application for a listing on the STAR Board of the Shanghai Stock Exchange (the “Listing Application”), each Purchaser would be entitled to a minimum return of 10 % on the price they paid for their respective equity interest, payable by Company in cash at the close of the change in control transaction, with such right terminating automatically upon the filing by PWSH of the Listing Application;

(1) if there is a change in control of PWSH that closes prior to its filing an application for a listing on the STAR Board of the SSE (the “Listing Application”), each Purchaser would be entitled to a minimum return of 10 % on the price they paid for their respective equity interest, payable by Company in cash at the close of the change in control transaction, with such right terminating automatically upon the filing by PWSH of the Listing Application;

and (2) the Company would cause PWSH to give each Purchaser a right to participate on a pro rata basis in any future financing rounds of PWSH, which right also would expire on the filing of a Listing Application.

On December 21, 2022, the Company and its subsidiary, PWSH, entered into a capital increase agreement (the “CIA”) with certain private equity investors based in China who have agreed to pay a total of 99,000 RMB, approximately $ 14,596 (net of issuance costs) at closing, in exchange for an equity interest in PWSH of 2.76 %, based on a pre-money value of PWSH of 3,500,000 RMB, approximately $ 501,400 .

This transaction closed in February 2023.

The CIA provides that if there is a change in control of PWSH that closes prior to its filing an application for the Listing, each capital contributor would be entitled to a minimum return of 10 % on the price they paid for their respective equity interest, payable by the Company in cash at the close of the change in control transaction, with such right terminating automatically upon the filing by PWSH of the Listing.

When the Company’s relative ownership interest in PWSH changes, adjustments to non-controlling interest and paid-in capital, tax effected, will occur.

5 unchanged sentences

Increase in additional paid-in capital 14,742

Net loss attributable to non-controlling interest ( 624 )

Closing and direct costs incurred ( 146 )

Net income attributable to non-controlling interest 171

Effect of foreign currency translation attributable to non-controlling interest ( 630 )

Carrying Value of Permanent Equity Non-Controlling Interest as of December 31, 2023

QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly Period Ended

March 31 June 30 September 30 December 31

Revenue, net $ 16,628 $ 19,078 $ 17,552 $ 16,888

Gross profit 8,763 9,348 8,796 8,974

Loss from operations ( 3,881 ) ( 5,197 ) ( 4,731 ) ( 3,008 )

Loss before income taxes ( 3,719 ) ( 5,096 ) ( 4,566 ) ( 2,736 )

Net loss attributable to Pixelworks Inc.

( 4,592 ) ( 5,008 ) ( 4,496 ) ( 1,934 )

Net loss attributable to Pixelworks Inc.

per share - basic and diluted ( 0.09 ) ( 0.09 ) ( 0.08 ) ( 0.04 )

Revenue, net $ 9,270 $ 14,050 $ 15,196 $ 16,586

Gross profit 3,725 7,110 7,985 8,873

Loss from operations ( 7,914 ) ( 4,457 ) ( 3,904 ) ( 3,727 )

Loss before income taxes ( 7,858 ) ( 4,275 ) ( 3,850 ) ( 3,562 )

Net loss attributable to Pixelworks Inc.

( 8,075 ) ( 4,382 ) ( 4,073 ) ( 3,291 )

Net loss attributable to Pixelworks Inc.

per share - basic and diluted ( 0.16 ) ( 0.08 ) ( 0.08 ) ( 0.06 )

SUBSEQUENT EVENTS

On December 21, 2022, the Company and its subsidiary, PWSH, entered into a capital increase agreement (the “CIA”) with certain private equity investors based in China who have agreed to pay a total of RMB 100,000 ($ 14,300 USD) in exchange for an equity interest in PWSH of 2.76 %, based on a pre-money value of PWSH of RMB 3,500,000 ($ 501,400 USD).

This transaction closed in February 2023.

The CIA provides that if there is a change in control of PWSH that closes prior to its filing an application for the Listing, each capital contributor would be entitled to a minimum return of 10 % on the price they paid for their respective equity interest, payable by Company in cash at the close of the change in control transaction, with such right terminating automatically upon the filing by PWSH of the Listing.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data