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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 June 30, 2024
or
☐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)
Oregon91-1761992
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
16760 SW Upper Boones Ferry Rd., Ste. 101
Portland
,Oregon97224
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per sharePXLWThe 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 58,551,684 as of August 8, 2024
1
PIXELWORKS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2024
TABLE OF CONTENTS
 
2

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 redeemable non-controlling interests in our subsidiary, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (“PWSH”), including the possible redemption thereof and the impact thereof, and the possible renegotiation of such redemption and any changes in carrying value of such interests that are attributable to foreign currency, and the rights related thereto; our restructuring plan and restructuring charges related thereto; our strategic plan of re-aligning our Mobile and Home & Enterprise businesses and expectations related thereto, including the potential Listing and the timing and benefits thereof; 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, risks related to system security and data protection breaches, concentration of credit risk, changes in the markets in which we operate, our international operations, including in China and other parts of Asia and our exchange rate risks, our indemnification obligations and litigation risks; our operations in China, including the risk of changes in the political, economic, legal or social conditions there; 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 and offsets related thereto and our expectations with respect to sales and offsets 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 the global economy, risks related to our operations in China, 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.



3
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 I, 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 June 30, 2024, 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 continued uncertain global economic environment and volatility in global credit, banking 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.
•System security and data protection breaches, as well as cyber-attacks, could disrupt our operations, reduce our expected revenue and increase our expenses, which could adversely affect our stock price and damage our reputation.
•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 their 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.
•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.
4
•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.
•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 the 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.
•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.
•Risks associated with our operations in China, including the risk of changes in China's political, economic or social conditions or changes in U.S.-China relations, as well as liquidity risks, any of which may adversely and materially affect our results of operations, financial position and value of our securities.
•Legal and operational risks related to the People's Republic of China ("PRC") legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws, required approvals and permissions, and regulations in China, which could adversely affect us and limit the legal protections available to the Company and its shareholders, as well as materially and adversely affect our business and value of our securities.
•If we are unable to negotiate for an extension or cancellation, we may be required to repurchase the shares of PWSH held by those investors who elect for repurchase under the provisions of the August 2021 Capital Increase Agreement or the agreements governing the employee-owned entities known as “ESOPs,” which would materially and adversely impact our cash position.
•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 of PWSH 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.
•If the Listing is completed, PWSH status as a publicly traded company in China 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.
5
PART I – FINANCIAL INFORMATION
 
Item 1.Financial Statements.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
June 30,
2024		December 31,
2023
ASSETS
Current assets:
Cash and cash equivalents$37,824 $47,544 
Accounts receivable, net4,910 10,075 
Inventories5,021 3,968 
Prepaid expenses and other current assets2,222 3,138 
Total current assets49,977 64,725 
Property and equipment, net7,051 5,997 
Operating lease right-of-use assets4,547 4,725 
Other assets, net1,652 2,115 
Goodwill18,407 18,407 
Total assets$81,634 $95,969 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable$2,500 $2,416 
Accrued liabilities and current portion of long-term liabilities9,148 9,692 
Current portion of income taxes payable220 189 
Total current liabilities11,868 12,297 
Long-term liabilities, net of current portion673 1,373 
Deposit liability14,098 13,781 
Operating lease liabilities, net of current portion2,463 2,567 
Income taxes payable, net of current portion1,006 939 
Total liabilities30,108 30,957 
Commitments and contingencies (Note 13)
Redeemable non-controlling interest27,517 28,214 
Shareholders’ equity:
Preferred stock— — 
Common stock488,449 486,324 
Accumulated other comprehensive income4,413 3,378 
Accumulated deficit(492,376)(477,161)
Total Pixelworks, Inc. shareholders’ equity486 12,541 
Non-controlling interest23,523 24,257 
Total shareholders' equity24,009 36,798 
Total liabilities, redeemable non-controlling interest and shareholders’ equity$81,634 $95,969 
See accompanying notes to condensed consolidated financial statements.
6
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2024202320242023
Revenue, net$8,535 $13,605 $24,589 $23,571 
Cost of revenue (1)4,209 8,121 12,149 13,720 
Gross profit4,326 5,484 12,440 9,851 
Operating expenses:
Research and development (2)7,943 6,507 16,016 15,173 
Selling, general and administrative (3)5,722 5,468 11,256 11,540 
Restructuring1,403 — 1,403 — 
Total operating expenses15,068 11,975 28,675 26,713 
Loss from operations(10,742)(6,491)(16,235)(16,862)
Interest income and other, net327 473 761 1,144 
Total other income, net327 473 761 1,144 
Loss before income taxes(10,415)(6,018)(15,474)(15,718)
Provision for income taxes32 126 137 160 
Net loss(10,447)(6,144)(15,611)(15,878)
Less: Net loss attributable to redeemable non-controlling interest and non-controlling interest298 107 396 445 
Net loss attributable to Pixelworks, Inc.$(10,149)$(6,037)$(15,215)$(15,433)
Net loss attributable to Pixelworks, Inc. per share - basic and diluted$(0.17)$(0.11)$(0.26)$(0.28)
Weighted average shares outstanding - basic and diluted58,151 55,917 57,812 55,666 
(1) Includes:
Restructuring16 — 16 — 
Stock-based compensation10 22 28 46 
(2) Includes stock-based compensation316 527 646 1,018 
(3) Includes stock-based compensation599 710 1,326 1,361 
See accompanying notes to condensed consolidated financial statements.
7
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 Three Months Ended June 30,Six Months Ended June 30,
 2024202320242023
Net loss$(10,447)$(6,144)$(15,611)$(15,878)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment260 2,353 1,035 2,020 
Comprehensive loss(10,187)(3,791)(14,576)(13,858)
Less: comprehensive loss attributable to redeemable non-controlling interest and non-controlling interest298 107 396 445 
Total comprehensive loss attributable to Pixelworks, Inc.$(9,889)$(3,684)$(14,180)$(13,413)
See accompanying notes to condensed consolidated financial statements.

8
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
Six Months Ended June 30,
 20242023
Cash flows from operating activities:
Net loss$(15,611)$(15,878)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization2,168 2,158 
Stock-based compensation2,000 2,425 
Deferred income tax expense(84)— 
Reversal of uncertain tax positions(3)(2)
Changes in operating assets and liabilities:
Accounts receivable, net5,165 2,625 
Inventories(1,053)(3,770)
Prepaid expenses and other current and long-term assets, net2,781 3,474 
Accounts payable(346)(2,226)
Accrued current and long-term liabilities(1,510)(2,623)
Income taxes payable101 (29)
Net cash used in operating activities(6,392)(13,846)
Cash flows from investing activities:
Purchases of property and equipment(2,866)(2,704)
Net cash used in investing activities(2,866)(2,704)
Cash flows from financing activities:
Payments on asset financings(587)(546)
Proceeds from issuance of common stock under employee equity incentive plans125 156 
Net proceeds from issuance of equity interest to non-controlling interest— 14,596 
Net cash provided by (used in) financing activities(462)14,206 
Net decrease in cash and cash equivalents(9,720)(2,344)
Cash and cash equivalents, beginning of period47,544 56,821 
Cash and cash equivalents, end of period$37,824 $54,477 
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes, net of refunds received$124 $187 
Cash paid during the period for interest70 76 
Non-cash investing and financing activities:
Acquisitions of property and equipment and other
assets, unpaid at period end.		$419 $1,888 
See accompanying notes to condensed consolidated financial statements.
9
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited) 
 
 Common StockAccumulated
Other
Comprehensive
Income (loss)		Accumulated
Deficit		Non-Controlling InterestTotal
Shareholders'
Equity
2024SharesAmount
Balance as of December 31, 202357,126,680 $486,324 $3,378 $(477,161)$24,257 $36,798 
Stock issued under employee equity incentive plans680,623 125 — — — 125 
Stock-based compensation expense— 1,075 — — — 1,075 
Foreign currency translation adjustment— — 775 — (253)522 
Net loss attributable to non-controlling interest— — — — (98)(98)
Net loss attributable to Pixelworks, Inc.— — — (5,066)— (5,066)
Balance as of March 31, 202457,807,303 $487,524 $4,153 $(482,227)$23,906 $33,356 
Stock issued under employee equity incentive plans665,986 — — — — — 
Stock-based compensation expense— 925 — — — 925 
Foreign currency translation adjustment— — 260 — (85)175 
Net loss attributable to non-controlling interest— — — — (298)(298)
Net loss attributable to Pixelworks, Inc.— — — (10,149)— (10,149)
Balance as of June 30, 202458,473,289 $488,449 $4,413 $(492,376)$23,523 $24,009 
2023
Balance as of December 31, 202255,113,186 $481,229 $2,178 $(450,985)$10,909 $43,331 
Stock issued under employee equity incentive plans606,539 156 — — — 156 
Stock-based compensation expense— 1,166 — — — 1,166 
Foreign currency translation adjustment— — (333)— (33)(366)
Net proceeds from issuance of equity interest to non-controlling interest— — — — 14,596 14,596 
Net loss attributable to non-controlling interest— — — — (338)(338)
Net loss attributable to Pixelworks, Inc.— — — (9,396)— (9,396)
Balance as of March 31, 202355,719,725 $482,551 $1,845 $(460,381)$25,134 $49,149 
Stock issued under employee equity incentive plans396,703 — — — — — 
Stock-based compensation expense— 1,259 — — — 1,259 
Foreign currency translation adjustment— — 2,353 — (776)1,577 
Net loss attributable to non-controlling interest— — — — (107)(107)
Net loss attributable to Pixelworks, Inc.— — — (6,037)— (6,037)
Balance as of June 30, 202356,116,428 $483,810 $4,198 $(466,418)$24,251 $45,841 
01
See accompanying notes to condensed consolidated financial statements.

10

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 is a leading provider of high-performance and power-efficient visual processing semiconductor and software solutions that enable consistently high-quality and authentic viewing experiences in a wide variety of applications. We define our primary target markets as Mobile (smartphone and tablet), Home & Enterprise (projectors, personal video recorders ("PVR"), and over-the-air ("OTA") streaming devices), and Cinema (creation, remastering, and delivery of digital video content). Previously we classified our primary target markets as Mobile, Projector, Video Delivery and Cinema, but have since aggregated the Projector and Video Delivery categories into one market called "Home & Enterprise".
During 2021, we engaged in a strategic plan to re-align our Mobile and Home & Enterprise businesses to improve their focus on their Asia-centered customers and employee stakeholders (the "Strategic Plan"). One of our Chinese subsidiaries, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (or "PWSH"), now operates these businesses as a full profit-and-loss center underneath Pixelworks. In connection with this strategic plan, the Company and PWSH closed three separate financing transactions in 2021 and 2022, which are further described in "Note 14: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees" and "Note 15: Non-Controlling Interest", below. PWSH has a branch office located in Shenzhen, China (Pixelworks Semiconductor Technology (Shanghai) Co. Ltd. Shenzhen Branch Office No. 1), which is primarily for sales and customer support for PWSH, and a subsidiary located in Hong Kong (Pixelworks Hong Kong Limited), which has no employees and is used for distribution of PWSH products. Pixelworks has an additional subsidiary in China (Frame Shadow Technology (Shanghai) Co., Ltd. (formerly called Mucheng Huai Management Consulting (Shanghai) Co., Ltd)) which is a research and development center for our TrueCut business. This subsidiary does not operate under PWSH, but rather is owned by Pixelworks through our Oregon limited liability company, Pixelworks Semiconductor Technology Company, LLC. More than a majority of our operations are in China, but our executive officers and all of our directors but one are located in the United States (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.
As part of the Strategic Plan we have intended to qualify PWSH for an initial public offering on the Shanghai Stock Exchange’s Science Technology Innovation Board, known as the STAR Market (the “Listing”), a lengthy process that involves several reviews by various government agencies of China, such as the Shanghai Stock Exchange (“SSE”) and the China Securities Regulatory Commission (“CSRC”). The market conditions and regulatory requirements continue to not be conducive to a successful listing by PWSH. We continue to believe that the Listing could have many benefits, including improved access to new capital markets and the funding of PWSH’s growth worldwide, and thus remain prepared to re-engage with the various government agencies of China and our advisors involved in a Listing once those conditions and requirements sufficiently improve. There is no guarantee that PWSH will be approved for a Listing at any point in the future. The Listing of PWSH would not change the status of PXLW as a U.S. public company.
Pixelworks 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").
Condensed Consolidated Financial Statements
The financial information included herein for the three and six months ended June 30, 2024 and 2023 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, 2023 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2023, included in Item 8 of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 13, 2024, and should be read in conjunction with such consolidated financial statements.
The results of operations for the three and six months ended June 30, 2024 and 2023 are not necessarily indicative of the results expected for future periods or for the entire fiscal year ending December 31, 2024.
Significant Accounting Policies
11
There have been no material changes to our significant accounting policies disclosed in "Note 2: Summary of Significant Accounting Policies", of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update 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 Accounting Standards Codification ("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.
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, useful 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
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: 
June 30,
2024		December 31,
2023
Finished goods$2,943 $2,719 
Work-in-process2,078 1,249 
Inventories$5,021 $3,968 


Property and Equipment, Net
Property and equipment, net consists of the following:
June 30,
2024		December 31,
2023
Gross property and equipment$25,348 $22,519 
Less: accumulated depreciation and amortization(18,297)(16,522)
Property and equipment, net$7,051 $5,997 


12
Goodwill
Goodwill resulted from the acquisition of ViXS Systems, Inc. (the "Acquisition"), in 2017, 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 its 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 or a sustained decrease in stock price. Our stock price has declined recently, however, combined with our assessment of other events and circumstances, we do not believe this to be a current triggering event requiring a goodwill impairment assessment as of June 30, 2024. We perform our annual impairment assessment for goodwill on November 30 of each year.

Accrued Liabilities and Current Portion of Long-Term Liabilities
Accrued liabilities and current portion of long-term liabilities consist of the following:
June 30,
2024		December 31,
2023
Accrued payroll and related liabilities$2,909 $4,286 
Operating lease liabilities, current2,266 2,381 
Accrued costs related to restructuring1,419 — 
Current portion of accrued liabilities for asset financings1,104 1,124 
Other1,450 1,901 
Accrued liabilities and current portion of long-term liabilities$9,148 $9,692 

NOTE 3: FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Three levels of inputs may be used to measure fair value:
Level 1:Valuations based on quoted prices in active markets for identical assets and liabilities.
Level 2:Valuations based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3:Valuations based on unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.
The following table presents information about our assets measured at fair value on a recurring basis in the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023:  
Level 1Level 2Level 3Total
As of June 30, 2024:
Assets:
Cash equivalents:
Certificates of deposit$13,000 $— $— $13,000 
Money market funds469 — — 469 
As of December 31, 2023:
Assets:
Cash equivalents:
Certificates of deposit$10,000 $— $— $10,000 
Money market funds950 — — 950 
We primarily use the market approach to determine the fair value of our financial assets. The fair value of our current assets and liabilities, including accounts receivable and accounts payable approximates the carrying value due to the short-term nature of these balances. We have currently chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with U.S. GAAP.
13


NOTE 4: RESTRUCTURING
In June 2024, we executed a restructuring plan to make the operation of the Company more efficient (the "Plan"). The Plan included an approximately 16% reduction in workforce, primarily in the areas of operations, research and development, sales, marketing and administration.
Total restructuring expense included in our condensed consolidated statements of operations for the three and six month periods ended June 30, 2024 and 2023 is comprised of the following:
 Three Months EndedSix Months Ended
June 30,June 30,
 2024202320242023
Cost of revenue — restructuring:
Employee severance and benefits
$16 $— $16 $— 
16 — 16 — 
Operating expenses — restructuring:
Employee severance and benefits
$1,403 $— $1,403 $— 
1,403 — 1,403 — 
Total restructuring expense$1,419 $— $1,419 $— 


The following is a rollforward of the accrued liabilities related to restructuring for the six month period ended June 30, 2024:

Balance as of December 31, 2023		ExpensedPayments
Balance as of
June 30, 2024
Employee severance and benefits
$— $1,419 $— $1,419 
Accrued costs related to restructuring
$— $1,419 $— $1,419 




14
NOTE 5: LEASES
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued liabilities and current portion of long-term liabilities, and operating lease liabilities in our condensed consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating lease ROU assets also exclude lease incentives received. 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 primarily for office buildings and spaces. Our leases have remaining lease terms of one year to four years. Supplemental information related to lease expense and valuation of the ROU assets and lease liabilities was as follows:
Three Months EndedSix Months Ended
June 30,June 30,
2024202320242023
Operating lease cost:$700 $643 $1,412 $1,259 

Six Months Ended
June 30,
20242023
Cash paid for amounts included in the measurement of lease liabilities:
      Operating cash flows from operating leases$1,403$1,172
Supplemental non-cash information related to lease liabilities arising from obtaining right-of-use assets1,0773,422
Weighted average remaining lease term (in years)2.132.66
Weighted average discount rate7.44 %6.83 %


Future minimum lease payments under non-cancellable leases as of June 30, 2024 were as follows:
Operating Lease Payments
Six months ending December 31, 2024$1,336 
Years ending December 31:
20252,258 
20261,110 
2027374 
Thereafter49 
Total operating lease payments5,127 
Less imputed interest(398)
Total operating lease liabilities$4,729 

As of June 30, 2024, we had $1,077 in operating lease liabilities that had not commenced.

15
NOTE 6: REVENUE
Revenue is recognized when control of the promised good or service is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our principal revenue generating activities consist of the following:
Product Sales - We sell integrated circuit products, also known as “chips” or “ICs”, based upon a customer purchase order, which includes a fixed price per unit. ICs are sold into two target end markets: Mobile and Home & Enterprise. We have elected to account for shipping and handling as activities to fulfill the promise to transfer the goods, and not evaluate whether these activities are promised services to the customer. We generally satisfy our single performance obligation upon shipment of the goods to the customer and recognize revenue at a point in time upon shipment of the underlying product.
Our shipments are subject to limited return rights subject to our limited warranty for our products sold. In addition, we may provide other credits to certain customers pursuant to price protection and stock rotation rights, all of which are considered variable consideration when estimating the amount of revenue to recognize. We use the “most likely amount” method to determine the amount of consideration to which we are entitled. Our estimate of variable consideration is reassessed at the end of each reporting period based on changes in facts and circumstances. Historically, returns and credits have not been material.
Engineering Services - We enter into contracts for professional engineering services that include software development and customization. We identify each performance obligation in our engineering services agreements (“ESAs”) at contract inception. The ESA generally includes project deliverables specified by the customer. The performance obligations in the ESA are generally combined into one deliverable, with the pricing for services stated at a fixed amount. Services provided under the ESA generally result in the transfer of control over time. We recognize revenue on ESAs based on the proportion of labor hours expended to the total hours expected to complete the contract performance obligation. ESAs could include substantive customer acceptance provisions. In ESAs that include substantive customer acceptance provisions, we recognize revenue upon customer acceptance.
License Revenue - On occasion, we derive revenue from the license of our internally developed intellectual property ("IP"). Additionally, for certain IP license agreements, royalties are collected as customers sell their own products that incorporate our IP. IP licensing agreements that we enter into generally provide licensees the right to incorporate our IP components in their products with terms and conditions that vary by licensee. Fees under these agreements generally include license fees or royalty fees relating to our IP and support service fees, resulting in two performance obligations. We evaluate each performance obligation, which generally results in the transfer of control at a point in time for the license fee and over time for support services. Royalties are recognized as revenue is earned, generally when the customer sells its products that incorporate our IP.
Other - From time-to-time, we enter into arrangements for other revenue generating activities, such as providing technical support services to customers through technical support agreements. In each circumstance, we evaluate such arrangements for our performance obligations which generally results in the transfer of control for such services over time. Historically, such arrangements have not been material to our operating results.
16
The following table provides information about disaggregated revenue based on the preceding categories, with IC sales disaggregated further into net revenue from external customers for each group of similar products, for the three and six months ended June 30, 2024 and 2023:
Three Months EndedSix Months Ended
June 30,June 30,
2024202320242023
IC sales$8,405 $13,535 $23,803 $23,215 
Engineering services, license and other130 70 786 356 
Total revenues$8,535 $13,605 $24,589 $23,571 
IC sales by end market:
Three Months EndedSix Months Ended
June 30,June 30,
2024202320242023
Home & Enterprise market$6,379 $6,677 $12,577 $13,294 
Mobile market2,026 6,858 11,226 9,921 
Total IC sales$8,405 $13,535 $23,803 $23,215 
For segment information, including revenue by geographic region, see "Note 11: Segment Information".
Revenue related to the Cinema market was not material in the first six months of 2024 or 2023 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.
Payment terms and conditions for goods and services provided vary by contract; however, payment is generally required within 30 to 60 days of invoicing.
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.
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 $50, which we expect to recognize ratably over the next 5 months.
The following table presents the contract assets and contract liabilities recorded on the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023:
Balance Sheet ClassificationJune 30,
2024		December 31,
2023
Accounts receivableAccounts receivable, net$4,910 $10,075 
Deferred revenueAccrued liabilities and current portion of long-term liabilities130 146 
Liability for Warranty returnsAccrued liabilities and current portion of long-term liabilities16 13 
During the six months ended June 30, 2024 and the year ended December 31, 2023, the Company recognized $196 and $120, 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.



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NOTE 7: INTEREST INCOME AND OTHER, NET
Interest income and other, net, consists of the following:
 Three Months EndedSix Months Ended
June 30,June 30,
 2024202320242023
Interest income$349 $480 $808 $987 
Interest expense (22)(24)(47)32 
Other income— 17 — 125 
Total interest income and other, net$327 $473 $761 $1,144 


NOTE 8: 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 expected to incur in connection with our development of an integrated circuit product. Our development costs exceeded 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. Additionally, we retain ownership of any modifications or improvements to our pre-existing intellectual property and may use such improvements in products sold to other customers.
Under the co-development agreement, $5,800 was payable by the customer within 60 days of the date of the agreement and three additional payments of $2,500, $1,900 and $1,300 were each payable upon completion of certain development milestones. As amounts became due and payable, they were offset against research and development expense on a pro rata basis. We did not recognize any offsets to research and development expense during the three months ended June 30, 2024 and 2023 or during the six months ended June 30, 2024. We recognized an offset to research and development expense of $1,900 during the six months ended June 30, 2023. All milestones under the co-development agreement were completed as of December 31, 2023.

NOTE 9: INCOME TAXES
The provision for income taxes during the 2024 and 2023 periods is primarily comprised of current and deferred tax expense in profitable cost-plus foreign jurisdictions, accruals for tax contingencies in foreign jurisdictions and benefits for the reversal of previously recorded foreign tax contingencies due to the expiration of the applicable statutes of limitation. We recorded a benefit for the reversal of previously recorded foreign tax contingencies of $3 and $2 during the first six months of 2024 and 2023, respectively.
As we do not believe that it is more likely than not that we will realize a benefit from our U.S., Canada, or China net deferred tax assets, including net operating losses, we continue to provide a full valuation allowance against essentially all of those assets, therefore, we do not incur significant U.S., China, or Canada income tax expense or benefit. We have not recorded a valuation allowance against our other net deferred tax assets in cost-plus jurisdictions, as we believe that it is more likely than not that we will realize a benefit from those assets.
As of June 30, 2024 and December 31, 2023, the amount of our uncertain tax positions was a liability of $372 and $376, respectively, as well as a contra deferred tax asset of $1,454 and $1,370, respectively. A number of years may elapse before an uncertain tax position is resolved by settlement or statute of limitation. Settlement of any particular positions 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 amount of unrecognized tax benefits and associated interest and penalties of approximately $318 within the next 12 months due to the expiration of statutes of limitations. Of this amount, $241 is classified as a non-current liability, which will reduce our effective tax rate. We recognize interest and penalties related to uncertain tax positions in income tax expense in our consolidated statements of operations.


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NOTE 10: EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):
 Three Months EndedSix Months Ended
June 30,June 30,
2024202320242023
Net loss
$(10,447)$(6,144)$(15,611)$(15,878)
Less: Net loss attributable to redeemable non-controlling interest and non-controlling interest298 107 396 445 
Net loss attributable to Pixelworks, Inc. - for purposes of earnings per share calculation$(10,149)$(6,037)$(15,215)$(15,433)
Weighted average shares outstanding - basic and diluted58,151 55,917 57,812 55,666 
Net loss attributable to Pixelworks, Inc. per share - basic and diluted$(0.17)$(0.11)$(0.26)$(0.28)

Basic and diluted earnings (loss) per share was computed by dividing the net income (loss) by the weighted-average number of common shares outstanding for the period. The numerator adjustments include an allocation of PWSH income to the non-controlling interests, the redeemable non-controlling interests and the employee owned entities. The equity interest associated with the employee-owned entities are considered participating securities at PWSH and will be allocated income, however, they are not required to fund losses, and therefore, no allocations of losses will be made to the employee owned entities in periods of loss at PWSH. 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): 
 Three Months EndedSix Months Ended
June 30,June 30,
 2024202320242023
Employee equity incentive plans4,036 4,427 3,823 3,986 


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NOTE 11: SEGMENT INFORMATION
We operate in one segment: the design, development, marketing and sale of IC solutions for use in electronic display devices. We generate our revenue from two broad product markets: the Mobile market and the Home & Enterprise market. The chief operating decision maker, or CODM, is our CEO. Our CODM evaluates financial performance and allocates resources using financial information reported on a company-wide basis. The Cinema market does not contribute material revenue and is therefore being included in this one segment.
Geographic Information
Revenue by geographic region, is as follows:
 Three Months EndedSix Months Ended
June 30,June 30,
 2024202320242023
Japan$5,446 $5,122 $10,680 $10,681 
China2,859 8,203 12,705 12,129 
Taiwan130 231 515 652 
United States100 49 689 109 
$8,535 $13,605 $24,589 $23,571 

Significant Customers
The percentage of revenue attributable to our distributors, top five end customers, and individual distributors or end customers that represented 10% or more of revenue in at least one of the periods presented, is as follows:
 Three Months EndedSix Months Ended
June 30,June 30,
 2024202320242023
Distributors:
All distributors38 %71 %58 %64 %
Distributor A22 %49 %44 %41 %
Distributor B4 %9 %4 %11 %
End customers: 1
Top five end customers90 %87 %88 %85 %
End customer A60 %29 %39 %34 %
End customer B13 %— %9 %— %
End customer C8 %9 %6 %11 %
End customer D2 %29 %29 %24 %
End customer E— %11 %— %7 %

1End customers include customers who purchase directly from us, as well as customers who purchase our products indirectly through distributors.
The following accounts represented 10% or more of total accounts receivable in at least one of the periods presented:
June 30,
2024		December 31,
2023
Account X43 %46 %
Account Y21 %33 %
Account Z19 %6 %





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NOTE 12: RISKS AND UNCERTAINTIES
Concentration of Suppliers
We do not own or operate a semiconductor fabrication facility and do not have the resources to manufacture our products internally. We rely on a limited number of foundries and assembly and test vendors to produce all of our wafers and for completion of finished products. We do not have any long-term agreements with any of these suppliers. In light of these dependencies, it is reasonably possible that failure to perform by one of these suppliers could have a severe impact on our results of operations. Additionally, the concentration of these vendors within Taiwan and the People’s Republic of China increases our risk of supply disruption due to natural disasters, economic instability, political unrest or other regional disturbances.

Risk of Technological Change
The markets in which we compete, or seek to compete, are subject to rapid technological change, frequent new product introductions, changing customer requirements for new products and features, and evolving industry standards. The introduction of new technologies and the emergence of new industry standards could render our products less desirable or obsolete, which could harm our business.

Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash equivalents and accounts receivable. We limit our exposure to credit risk associated with cash equivalent balances by holding our funds in high quality, highly liquid money market accounts. We limit our exposure to credit risk associated with accounts receivable by carefully evaluating creditworthiness before offering terms to customers.

NOTE 13: COMMITMENTS AND CONTINGENCIES
Indemnifications
Certain of our agreements include indemnification provisions for claims from third parties relating to our intellectual property. It is not possible for us to predict the maximum potential amount of future payments or indemnification costs under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. We have not made any payments under these agreements in the past, and as of June 30, 2024, we have not incurred any material liabilities arising from these indemnification obligations. In the future, however, such obligations could materially impact our results of operations.
Legal Proceedings
We are subject to legal matters that arise from time to time in the ordinary course of our business. Although we currently believe that resolving such matters, individually or in the aggregate, will not have a material adverse effect on our financial position, our results of operations, or our cash flows, these matters are subject to inherent uncertainties and our view of these matters may change in the future.
Contract Manufacturers
In the normal course of business, we commit to purchase products from our contract manufacturers to be delivered within the next approximately 90 days. In certain situations, should we cancel an order, we could be required to pay cancellation fees. Such obligations could impact our immediate results of operations but would not materially affect our business.
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NOTE 14: REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY INTEREST OF PWSH SOLD TO EMPLOYEES
On August 9, 2021, Pixelworks and PWSH entered into a capital increase agreement (the "August 2021 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.
Under the August 2021 Capital Increase Agreement, during 2021, the Investors invested approximately $30,844 in exchange for a redeemable non-controlling equity interest of 10.45% of PWSH and the ESOP entities invested approximately $12,329 in exchange for a redeemable non-controlling equity interest representing 5.95% of PWSH, which includes a discount of 30% from the valuation paid by the Investors. The agreement further provided that the Capital Contributors have a liquidation preference in PWSH, a right to co-sell their interest in PWSH along with the Company on the same terms and conditions as the Company, a right to participate on a pro rata basis in any future financing rounds of PWSH, and the Company’s agreement while it remains an owner of PWSH and for two (2) years thereafter to not compete with the business of PWSH, nor solicit or otherwise cause any of PWSH’s core employees or customers to end their relationship with PWSH. 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 (the "Listing") 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. 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 PWSH entered into a supplemental agreement to the August 2021 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, we are engaged in and intend to continue discussions with the Capital Contributors 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 August 2021 Capital Increase Agreement (“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; or (b) if PWSH fails to consummate its initial public offering by June 30, 2024, because Pixelworks decides against pursuing the offering. If PWSH continues to diligently pursue the application but the initial public offering still fails to launch by June 30, 2024, the redemption obligation of the Supplemental Agreement would instead apply. The Side Letter terminates on the launch date of PWSH’s initial public offering.
After entering into the Supplemental Agreement, the redeemable non-controlling interest will no longer accrete up to a redemption amount because the interest component has been removed. The Investors will continue to hold PWSH equity and be considered as a redeemable non-controlling interest, however, the redeemable non-controlling interest is only probable of becoming redeemable upon the passage of time for its original issuance price. Therefore, until the redemption feature expires, or has been exercised, 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
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attributable to foreign currency being reflected within accumulated other comprehensive income on the condensed consolidated balance sheets.
If PWSH does not consummate a Listing on or before December 31, 2024, each of the five ESOP entities (including the 2022 ESOP) holds a right to have their PWSH shares repurchased at the original purchase price paid plus 5% annual interest. The Supplemental Agreement does not remove or amend this provision. 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. 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 consolidated statements of operations. Given the current uncertain economic environment of China and its impact on the suitability of seeking a Listing at this present time, we are engaged in and intend to continue discussions with the ESOP holders regarding an extension or removal of this redemption option.
On December 21, 2022, the Company and its subsidiary, PWSH, entered into a capital increase agreement (the “December 2022 Capital Increase Agreement”) with Jing Xin Ying (Shanghai) Management Consulting Partnership (Limited Partnership), an entity owned by certain of the employees of PWSH (the “2022 ESOP”). The 2022 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 2022 ESOP holds a redemption right that is identical to that held by the other ESOPs, as described in the paragraph immediately above.
The December 2022 Capital Increase Agreement 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 process of going public on the STAR Market includes several periods of review and is therefore a lengthy process. There can be no assurances that PWSH will ever be able to complete the Listing. If Pixelworks is unsuccessful in negotiating for an extension or cancellation of the redemption rights described above, and the Investor or ESOP holding such a right elects for redemption, we may be required to seek additional capital and there would be no assurances that such capital would be available on terms acceptable to us, if at all. Any redemptions would have a material adverse effect on our business, financial condition and results of operations. Any listing of PWSH on China's STAR Market would not change our status as a U.S. public company.
The components of the change in redeemable non-controlling interests for the six months ended June 30, 2024 are presented in the following table (in thousands):
Carrying Value of Redeemable Non-Controlling Interest as of January 1, 2024
$28,214 
Effect of foreign currency translation attributable to redeemable non-controlling interest(697)
Carrying Value of Redeemable Non-Controlling Interest as of June 30, 2024
$27,517 

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NOTE 15: NON-CONTROLLING INTEREST
On August 15, 2022, the Company entered into an Equity Transfer Agreement with certain private equity investors based in China (Hainan Qixin Investment Partnership (Limited Partnership) and Suzhou Saixiang Equity Investment Partnership (Limited Partnership)) (collectively, the “Purchasers”). Under this agreement, the Purchasers agreed to pay to the Company, subject to customary closing conditions, a total of 87,500 RMB, approximately $10,738 (net of issuance costs) at closing, in exchange for a 2.74% equity interest in PWSH. The Company incurred costs related to the sale of equity in PWSH of $275 paid to a third party for assisting in the transaction close as well as 8,408 RMB to fulfill Chinese withholding tax requirements. Both of these costs are direct and incremental and related to the sale of equity in PWSH and as such will be included as costs that reduce proceeds and carrying amount of the NCI in the Company’s balance sheet.
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 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 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 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 “December 2022 Capital Increase Agreement”) 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 December 2022 Capital Increase Agreement 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. Because these changes in the ownership interest in PWSH do not result in a change of control, the transactions are accounted for as equity transactions under ASC 810 (Consolidations), which requires that any differences between the carrying value of the Company’s interest in PWSH and the fair value of the consideration received are recognized directly in equity and attributed to the controlling interest. Additionally, there are no substantive profit-sharing arrangements that would cause distributions to be other than pro rata. Therefore, profits and losses are attributed to the common shareholders of PWSH and non-controlling interest pro rata based on ownership interests in PWSH. The following table reconciles the initial investment by the Purchasers and the carrying value of their non-controlling interest as of the Closing Date (as defined in the Equity Transfer Agreement):

Carrying Value of Permanent Equity Non-Controlling Interest as of January 1, 2024
$24,257 
Net loss attributable to non-controlling interest(396)
Effect of foreign currency translation attributable to non-controlling interest(338)
Carrying Value of Permanent Equity Non-Controlling Interest as of June 30, 2024
$23,523 


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Item 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this document. In addition to historical information, the MD&A contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors,” and “Note Regarding Forward-Looking Statements.”
Overview
Pixelworks is a leading provider of high-performance and power-efficient visual processing semiconductor and software solutions that enable consistently high-quality and authentic viewing experiences in a wide variety of applications. We define our primary target markets as Mobile (smartphone and tablet), Home & Enterprise (projectors, personal video recorders ("PVR"), and over-the-air ("OTA") streaming devices), and Cinema (creation, remastering, and delivery of digital video content). Previously we classified our primary target markets as Mobile, Projector, Video Delivery and Cinema, but have since aggregated the Projector and Video Delivery categories into one called "Home & Enterprise".
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 MotionTM video platform, the industry’s first motion grading technology that allows fine tuning of motion appearance in cinematic content.
As of June 30, 2024, we had an intellectual property portfolio of 265 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.
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 2021, we engaged in a strategic plan to re-align our Mobile and Home & Enterprise businesses to improve their focus on their Asia-centered customers and employee stakeholders (the “Strategic Plan”). One of our Chinese subsidiaries, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (or "PWSH"), now operates these businesses as a full profit-and-loss center underneath Pixelworks. In connection with this strategic plan, the Company and PWSH closed three separate financing transactions in 2021 and 2022, which are further described in "Note 14: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees" and "Note 15: Non-Controlling Interest". PWSH has a branch office located in Shenzhen, China (Pixelworks Semiconductor Technology (Shanghai) Co. Ltd. Shenzhen Branch Office No. 1), which is primarily for sales and customer support for PWSH, and a subsidiary located in Hong Kong (Pixelworks Hong Kong Limited), which has no employees and is used for distribution of PWSH products. Pixelworks has an additional subsidiary in China (Frame Shadow Technology (Shanghai) Co., Ltd. (formerly called Mucheng Huai Management Consulting (Shanghai) Co., Ltd)) which is a research and development center for our TrueCut business. This subsidiary does not operate under PWSH, but rather is owned by Pixelworks through our Oregon limited liability company, Pixelworks Semiconductor Technology Company, LLC.

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As part of the Strategic Plan we have intended to qualify PWSH for an initial public offering on the Shanghai Stock Exchange’s Science Technology Innovation Board, known as the STAR Market (the “Listing”), a lengthy process that involves several reviews by various government agencies of China, such as the Shanghai Stock Exchange (“SSE”) and the China Securities Regulatory Commission (“CSRC”). The market conditions and regulatory requirements continue to not be conducive to a successful listing by PWSH. We continue to believe that the Listing could have many benefits, including improved access to new capital markets and the funding of PWSH’s growth worldwide, and thus remain prepared to re-engage with the various government agencies of China and our advisors involved in a Listing once those conditions and requirements improve. There is no guarantee that PWSH will be approved for a Listing at any point in the future. The Listing would not change the status of PXLW as a U.S. public company. Additionally, if we do not proceed with the Listing and are unable to negotiate for an extension or cancellation, we may be required to repurchase the shares of PWSH held by those investors who elect for repurchase under the provisions of the August 2021 Capital Increase Agreement or the agreements governing the employee-owned entities known as “ESOPs,” which would materially and adversely impact our cash position. Additional information on these rights can be found in "Note 14: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees", which is incorporated by reference into this section. More than a majority of our operations are in China, but our executive officers and all of our directors but one are located in the United States (and he resides in Singapore). We are neither a PRC operating company nor do we conduct our operations in China through the use of variable interest entities. Our auditor is Grant Thornton LLP, with headquarters in Chicago, Illinois. The Holding Foreign Companies Accountable Act, as amended by the Consolidated Appropriations Act 2023, and related regulations, therefore do not apply to our Company.
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").
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Results of Operations
Revenue, net
Net revenue for the three and six months ended June 30, 2024 and 2023, was as follows (dollars in thousands):
 Three Months EndedSix Months Ended
 June 30,June 30,
 20242023% Change20242023% Change
Revenue, net$8,535 $13,605 (37)%$24,589 $23,571 4 %

Net revenue decreased $5.1 million, or 37%, in the second quarter of 2024 compared to the second quarter of 2023 and increased $1.0 million, or 4% in the first half of 2024 compared to the first half of 2023.
Revenue recorded in the second quarter of 2024 consisted of $8.4 million in revenue from the sale of integrated circuit ("IC") products and $0.1 million in revenue related to engineering services, license revenue and other. Revenue recorded in the second quarter of 2023 consisted of $13.5 million in revenue from the sale of IC products and $0.1 million in revenue related to engineering services, license revenue and other.
Revenue recorded in the first half of 2024 consisted of $23.8 million in revenue from the sale of IC products and $0.8 million in revenue related to engineering services, license revenue and other. Revenue recorded in the first half of 2023 consisted of $23.2 million in revenue from the sale of IC products and $0.4 million in revenue related to engineering services, license revenue and other.
The decrease in IC revenue in the second quarter of 2024 compared to the second quarter of 2023 is due to the following factors:
•Sales into the Mobile market decreased approximately $4.8 million or 70% due to decreased units sold.
•Sales into the Home & Enterprise market decreased approximately $0.3 million or 4%.
The increase in IC revenue in the first half of 2024 compared to the first half of 2023 is due to the following partially offsetting factors:
•Sales into the Mobile market increased $1.3 million or 13%, primarily due to increased units sold in the first quarter of 2024.
•Sales into the Home & Enterprise market decreased $0.7 million or 5%.


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Cost of revenue and gross profit
Cost of revenue and gross profit for the three and six months ended June 30, 2024 and 2023, were as follows (dollars in thousands): 
 Three Months Ended June 30,Six Months Ended June 30,
 2024% of
revenue		2023% of
revenue		2024% of
revenue		2023% of
revenue
Direct product costs and related overhead 1
$3,937 46 %$8,037 59 %$11,859 48 %$13,611 58 %
Restructuring16 0 — 0 16 0 — 0 
Stock-based compensation10 0 22 0 28 0 47 0 
Inventory charges 2
246 3 62 0 246 1 62 0 
Total cost of revenue$4,209 49 %$8,121 60 %$12,149 49 %$13,720 58 %
Gross profit$4,326 51 %$5,484 40 %$12,440 51 %$9,851 42 %
 
1Includes purchased materials, assembly, test, labor, employee benefits and royalties.
2Includes charges to reduce inventory to lower of cost or market and a benefit for sales of previously written down inventory.
Gross profit margin increased to 51% in the second quarter of 2024 compared to 40% in the second quarter of 2023 and increased to 51% in the first half of 2024 compared to 42% in the first half of 2023.
The increase in gross profit margin in the second quarter of 2024 compared to the second quarter of 2023 is primarily due to decreased unit sales into the Mobile market which generally have lower margins than products sold into the Home & Enterprise market, increased average selling prices ("ASP") on IC products sold into the Home & Enterprise market and decreased costs on Mobile products. These factors which positively impacted margin were partially offset by reduced absorption due to reduced revenue and inventory charges recorded in the second quarter of 2024.
The increase in gross profit margin in the first half of 2024 compared to the first half of 2023 is primarily due to increased ASPs on IC products sold into the Home & Enterprise market as well as decreased costs on Mobile products. These factors which positively impacted margin were partially offset by inventory charges recorded in the second quarter of 2024.
Pixelworks’ gross profit margin is subject to variability based on changes in revenue levels, product mix, average selling prices, startup costs, amortization related to acquired intangible assets, and the timing and execution of manufacturing ramps as well as other factors.
Research and development
Research and development expense includes compensation and related costs for personnel, development-related expenses, including non-recurring engineering expenses and fees for outside services, depreciation and amortization, expensed equipment, facilities and information technology expense allocations and travel and related expenses.
Co-development agreement
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 expected to incur in connection with our development of an integrated circuit product. Our development costs exceeded 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. Additionally, we retain ownership of any modifications or improvements to our pre-existing intellectual property and may use such improvements in products sold to other customers.
Under the co-development agreement, $5.8 million was payable by the customer within 60 days of the date of the agreement and three additional payments of $2.5 million, $1.9 million and $1.3 million were each payable upon completion of certain development milestones. As amounts became due and payable, they were offset against research and development expense on a pro rata basis. We did not recognize any offsets to research and development expense during the three months ended June 30, 2024 and 2023 or during the six months ended June 30, 2024. We recognized an offset to research and development expense of $1.9 million during the six months ended June 30, 2023. All milestones under the co-development agreement were completed as of December 31, 2023.

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Research and development expense for the three and six months ended June 30, 2024 and 2023, was as follows (dollars in thousands): 
 Three Months EndedSix Months Ended
 June 30,June 30,
 20242023% Change20242023% Change
Research and development$7,943 $6,507 22 %$16,016 $15,173 6 %

Research and development expense increased $1.4 million, or 22% in the second quarter of 2024 compared to the second quarter of 2023 due to the following factors:
•A $1.9 million benefit related to the co-development agreement was recognized in the second quarter of 2023 compared to no benefit recognized in the second quarter of 2024.
•Non-recurring engineering expense decreased $0.3 million primarily due to the timing of development activities.
•Stock based compensation expense decreased $0.2 million primarily due to the change in our stock price.
Research and development expense increased $0.8 million, or 6% in the first half of 2024 compared to the first half of 2023 due to the following factors:
•A $1.9 million benefit related to the co-development agreement was recognized in the second half of 2023 compared to no benefit recognized in the second half of 2024.
•Non-recurring engineering expense decreased $1.1 million primarily due to the timing of development activities.

Selling, general and administrative
Selling, general and administrative expense includes compensation and related costs for personnel, sales commissions, facilities and information technology expense allocations, travel, outside services and other general expenses incurred in our sales, marketing, customer support, management, legal and other professional and administrative support functions.
Selling, general and administrative expense for the three and six months ended June 30, 2024 and 2023, was as follows (dollars in thousands): 
 Three Months EndedSix Months Ended
 June 30,June 30,
 20242023% Change20242023% Change
Selling, general and administrative$5,722 $5,468 5 %$11,256 $11,540 (2)%

Selling, general and administrative expense increased $0.3 million, or 5% in the second quarter of 2024 compared to the second quarter of 2023 due to the following factors:
•Foreign currency gain of $0.1 million in the second quarter of 2023 compared to a foreign currency loss of $0.3 million in the second quarter of 2024, for an overall increase in foreign currency gains and losses of $0.4 million primarily due to strengthening in the CNY compared to USD.
•Stock-based compensation expense decreased $0.1 million primarily due to the change in our stock price.
Selling, general and administrative expense decreased $0.3 million, or 2% in the first half of 2024 compared to the first half of 2023 primarily due to a decrease in professional fees incurred related to our strategic plan with our subsidiary, PWSH.

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Restructurings
In June 2024, we executed a restructuring plan to make the operation of the Company more efficient (the "Plan"). The Plan included an approximately 16% reduction in workforce, primarily in the areas of operations, research and development, sales, marketing and administration.
Restructuring expense for the three and six months ended June 30, 2024 and 2023, was as follows (dollars in thousands): 
 Three Months EndedSix Months Ended
 June 30,June 30,
 2024202320242023
Employee severance and benefits
$1,419 $— $1,419 $— 
Total restructuring expense
$1,419 $— $1,419 $— 
Included in cost of revenue
$16 $— $16 $— 
Included in operating expenses
1,403 — 1,403 — 
During the three and six months ended June 30, 2024, we recorded $1.4 million in restructuring expense related to the Plan. During the three and six months ended June 30, 2023, we did not record any restructuring expense. As we continue to implement the Plan, we expect to incur additional restructuring charges of $0.2 million over the remainder of 2024.
Provision for income taxes
The provision for income taxes during the 2024 and 2023 periods is primarily comprised of current and deferred tax expense in profitable cost-plus foreign jurisdictions, accruals for tax contingencies in foreign jurisdictions and benefits for the reversal of previously recorded foreign tax contingencies due to the expiration of the applicable statutes of limitation. We recorded a negligible benefit for the reversal of previously recorded foreign tax contingencies during the first six months of 2024 and 2023.



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Liquidity and Capital Resources
Cash and cash equivalents
Total cash and cash equivalents decreased $9.7 million to $37.8 million at June 30, 2024 from $47.5 million at December 31, 2023. The net decrease during the first six months of 2024 was the result of $6.4 million used in operating activities, $2.9 million used for purchases of property and equipment and $0.5 million used for payments on other asset financings. These decreases were partially offset by $0.1 million in proceeds from the issuances of common stock under our employee equity incentive plans.
As of June 30, 2024, our cash and cash equivalents balance consisted of $24.3 million in cash, $13.0 million held in U.S. dollar denominated certificates of deposit and $0.5 million in cash equivalents held in U.S. dollar denominated money market funds. Although we did not hold short- or long-term investments as of June 30, 2024, our investment policy requires that our portfolio maintain a weighted average maturity of less than 12 months. Additionally, no maturities can extend beyond 24 months and concentrations with individual securities are limited. At the time of purchase, the short-term credit rating must be rated at least A-2 / P-2 / F-2 by at least two Nationally Recognized Statistical Rating Organizations ("NRSRO") and securities of issuers with a long-term credit rating must be rated at least A or A3 by at least two NRSRO. Our investment policy is reviewed at least annually by our Audit Committee.
Accounts receivable, net
Accounts receivable, net decreased to $4.9 million as of June 30, 2024 from $10.1 million as of December 31, 2023. The average number of days sales outstanding decreased to 52 days as of June 30, 2024 from 56 days as of December 31, 2023. The decrease in accounts receivable and days sales outstanding was due to normal fluctuations in the timing of sales and customer receipts within the second quarter of 2024, and the fourth quarter of 2023 as well as a decrease in revenue in the second quarter of 2024 compared to the fourth quarter of 2023.
Inventories
Inventories were $5.0 million as of June 30, 2024 compared to $4.0 million at December 31, 2023. Inventory turnover decreased to 4.0 as of June 30, 2024 from 8.6 as of December 31, 2023 primarily due to lower cost of goods sold as a result of lower revenue during the second quarter of 2024 compared to the fourth quarter of 2023. Inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter.
Capital resources
At the Market Offering
On June 5, 2020, we entered into a sales agreement (the "Sales Agreement") with Cowen and Company, LLC ("Cowen"), pursuant to which we may issue and sell shares of the Company's common stock, par value $0.001 per share, having an aggregate offering price of up to $25.0 million, from time to time, through an "at the market" equity offering program under which Cowen will act as sales agent. Under the Sales Agreement, Cowen may sell the shares by methods deemed to be an "at the market offering" as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions on the Nasdaq Global Market or on any other existing trading market for the common stock or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise directed by us. We pay Cowen a commission equal to three percent (3.0%) of the gross sales proceeds of any common stock sold through Cowen under the Sales Agreement. The Sales Agreement may be terminated by us upon prior notice to Cowen or by Cowen upon prior notice to us, or at any time under certain circumstances, including but not limited to the occurrence of a material adverse change in the Company. We are not obligated to sell any shares under the Sales Agreement.
There was no activity under this at the market offering during the six months ended June 30, 2024 or June 30, 2023.
Capital Increase Agreements
We have entered into a Capital Increase Agreement pursuant to which PWSH, one of our Chinese subsidiaries, received net proceeds from the sale of its securities pursuant thereto in an amount of RMB 279.7 million ($42.3 million USD). Additional information is provided in "Note 14: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees", which is incorporated by reference into this section.
We have entered into a Capital Increase Agreement pursuant to which PWSH, one of our Chinese subsidiaries, received net proceeds from the sale of its securities pursuant thereto in an amount of 99.0 million RMB ($14.6 million USD). Additional information is provided in "Note 15: Non-Controlling Interest", which is incorporated by reference into this section.

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Equity Transfer Agreement
We have entered into an Equity Transfer Agreement pursuant to which we received net proceeds of $10.7 million in exchange for a 2.73% equity interest in PWSH. Additional information is provided in "Note 15: Non-Controlling Interest", which is incorporated by reference into this section.
Liquidity
As of June 30, 2024, our cash and cash equivalents balance of $37.8 million was highly liquid. We anticipate that our existing working capital will be adequate to fund our operating, investing and financing needs for the next twelve months and beyond. We may pursue financing arrangements including the issuance of debt or equity securities or reduce expenditures, or both, to meet our cash requirements, including in the longer term. There is no assurance that, if required, we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity which, in turn, may have an adverse effect on our financial position, results of operations and cash flows.
From time to time, we evaluate acquisitions of businesses, products or technologies that complement our business. Any transactions, if consummated, may consume a material portion of our working capital or require the issuance of equity securities that may result in dilution to existing shareholders. Our ability to generate cash from operations is also subject to substantial risks described in Part II, Item 1A, "Risk Factors". If any of these risks occur, we may be unable to generate or sustain positive cash flow from operating activities. We would then be required to use existing cash and cash equivalents to support our working capital and other cash requirements. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through debt financing, equity financing or from other sources. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing shareholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.
Other than as set forth above, there were no material changes to our liquidity and capital resources during the six month period ended June 30, 2024 from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 13, 2024.

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Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation (with the participation of our Chief Executive Officer (our Principal Executive Officer) and Chief Financial Officer (our Principal Financial Officer)), our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the "Exchange Act")) to determine if they provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summa