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Redeemable Non-controlling Interest and Equity Interest of PWSH Sold to Employees | 9 Months Ended
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Sep. 30, 2025
Noncontrolling Interest [Abstract] |
Redeemable Non-controlling Interest and Equity Interest of PWSH Sold to Employees | 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 the consummation of an initial public offering of PWSH shares on the STAR Market. Prior to entering into a certain Supplemental Agreement (as defined below), 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 would once again become effective with a deadline of the later of the date of the withdrawal/rejection and June 30, 2024. 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 (the “Side Letter”) which provides that, in the event of a change in control of Pixelworks, Pixelworks shall ensure that the definitive agreement related to such transaction includes a post-closing repurchase covenant that requires the successor entity in such transaction to repurchase all of PWSH’s equity held by a Capital Contributor at the original subscription price plus 20% upon the request of the Capital Contributor within 60 days after (a) the change in control; 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 no longer accreted up to a redemption amount because the interest component has been removed. The Investors 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 attributable to foreign currency being reflected within accumulated other comprehensive income on the condensed consolidated balance sheets. On December 26, 2024, a representative for one of the Investors (Qingdao Beyond Zhixin Venture Investment Partnership (Limited Partnership)) delivered to Pixelworks a written request for a redemption under the Supplemental Agreement. Pixelworks responded to this request on December 31, 2024, asserting that the redemption option is currently suspended due to the impact of the COVID-19 pandemic and the decision of the relevant Chinese authorities to prevent PWSH from completing the filing of its application for an IPO in late 2023 despite PWSH being qualified to do so. Per Articles 6.1 and 10.1 of the Capital Increase Agreement, the option is suspended until such time as PWSH is no longer prevented from pursuing its application, or the parties should negotiate some other economically equivalent adjustment to the agreement. Qingdao Beyond has not further responded and no other Investor has provided Pixelworks with a written notice of election. The process of enforcing and collecting on the proper exercise of the repurchase option by a Capital Contributor would be lengthy, ultimately requiring enforcement against a U.S.-based Pixelworks entity. Under the agreements establishing each of the five ESOPs, each ESOP entity held a right to demand that Pixelworks repurchase the PWSH shares held by the ESOP at the original purchase price paid plus 5% annual interest if PWSH had not consummated a Listing on or before December 31, 2024 (the "ESOP Listing Deadline"). On August 1, 2025 Pixelworks completed a transaction with two of the five ESOP entities in which, in exchange for the transfer of approximately 0.11% of PWSH, which shares were transferred from Pixelworks and its affiliates, including treasury shares held by PWSH, the two ESOP entities agreed as follows: (a) the ESOP Listing Deadline is extended to December 31, 2026, (b) if PWSH has not consummated a Listing by this new ESOP Listing Deadline, the two ESOPs would each have a right to demand that Pixelworks repurchase the PWSH shares held by the ESOP at the original purchase price paid plus 5% annual interest accrued as of December 31, 2024, and (c) that in the event of a change of control of PWSH, each of the two ESOPs would be entitled to the greater of the price of the PWSH shares that it sells in the transaction or the original purchase price paid plus 5% annual interest accrued as of December 31, 2024. The other three ESOP entities continue to hold the original repurchase option, but none have begun the formal process of exercising such option. 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 is 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 recognize the periodic interest component of the award as compensation expense and accrete the long-term deposit liability to its redemption value. Because the long-term deposit liability is denominated in RMB and is considered a monetary liability as defined in ASC 255 (Changing Prices), it is revalued to USD at the end of each reporting period, with the changes in carrying value recorded as foreign currency gain/loss in our condensed consolidated statements of operations. 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 was one of the two ESOPs that agreed to modify its repurchase right, 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. In connection with the execution of the Purchase Agreement, on October 14, 2025, Pixelworks LLC entered into a Support Agreement (the “Support Agreements”) and the Company, Pixelworks LLC, and PWSH entered into a Termination and Release Agreement (the “Release Agreements”) with VeriSilicon and each Selling Shareholder (collectively, VeriSilicon and the Selling Shareholders are the “Minority Shareholders”), pursuant to which each Minority Shareholder has agreed to release the Company and its affiliates from all repurchase rights and preferences held by the Minority Shareholder in exchange for the transfer of a portion of the shares of PWSH held by Pixelworks LLC immediately prior to the closing of the Sale. If Pixelworks is unsuccessful in closing the Sale (and therefore the closing of the Support Agreements and Release Agreements) or otherwise 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. The components of the change in redeemable non-controlling interests for the nine months ended September 30, 2025 are presented in the following table:
Carrying Value of Redeemable Non-Controlling Interest as of January 1, 2025 | $ | 27,396 |
Effect of foreign currency translation attributable to redeemable non-controlling interest | 681 |
Carrying Value of Redeemable Non-Controlling Interest as of September 30, 2025 | $ | 28,077 |
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 components of the change in non-controlling interests for the nine months ended September 30, 2025 are presented in the following table :
Carrying Value of Permanent Equity Non-Controlling Interest as of January 1, 2025 | $ | 23,050 |
Net loss attributable to non-controlling interest | (638) |
Effect of foreign currency translation attributable to non-controlling interest | 368 |
Carrying Value of Permanent Equity Non-Controlling Interest as of September 30, 2025 | $ | 22,780 |

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- Definition The entire disclosure for noncontrolling interest in consolidated subsidiaries, which could include the name of the subsidiary, the ownership percentage held by the parent, the ownership percentage held by the noncontrolling owners, the amount of the noncontrolling interest, the location of this amount on the balance sheet (when not reported separately), an explanation of the increase or decrease in the amount of the noncontrolling interest, the noncontrolling interest share of the net Income or Loss of the subsidiary, the location of this amount on the income statement (when not reported separately), the nature of the noncontrolling interest such as background information and terms, the amount of the noncontrolling interest represented by preferred stock, a description of the preferred stock, and the dividend requirements of the preferred stock. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 810 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/810/tableOfContent + Details
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