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Item 7. Management’s Discussion and Analysis

2026-03-12 compared with 2025-03-13 · 117 added, 131 removed, 98 unchanged (72% of the section changed)

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

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 Motion TM video platform, the industry’s first motion grading technology that allows fine tuning of motion appearance in cinematic content.

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

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

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

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

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

On occasion, we have also licensed our technology.

During 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 15:

Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees" and "Note 16:

Non-Controlling Interest".

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

Shenzhen Branch Office No.

1), which is primarily for sales and customer support for PWSH, and a subsidiary located in Hong Kong (Pixelworks Hong Kong Limited), which has no employees and is used for distribution of PWSH products.

Pixelworks has an additional subsidiary in China (Frame Shadow Technology (Shanghai) Co., Ltd.

Pixelworks, Inc.

(the “Company” or “Pixelworks”) provides industry-leading content creation, video delivery and display processing solutions, and technology that enables highly authentic viewing experiences with superior visual quality across all screens, from cinema to smartphone and beyond.

Pixelworks has been delivering image processing innovations to leading providers of consumer electronics, professional displays, and video streaming services for more than 20 years.

On January 6, 2026 (the “Closing Date”), the Company completed the previously announced sale (the “Sale”) of all of the shares of common stock of Pixelworks Semiconductor Technology (Shanghai) Co., Ltd.

(“PWSH”) held by Pixelworks Semiconductor Technology Company, LLC, a wholly owned subsidiary of the Company (“Pixelworks LLC”), to Tiansui Xinyuan Technology (Shanghai) Co., Ltd.

(the “Buyer”).

The terms of the Sale were set forth in a Purchase Agreement dated as of October 15, 2025 (the “Purchase Agreement”), among the Company, PWSH, Pixelworks LLC, all other shareholders of PWSH except VeriSilicon Microelectronics (Shanghai) Co., Ltd.

(each, a “Selling Shareholder"), and the Buyer.

Each Selling Shareholder and VeriSilicon Microelectronics (Shanghai) Co., Ltd.

(collectively, the “Minority Shareholders”) and Pixelworks LLC also entered into Support Agreements (the “Support Agreements”), and Pixelworks LLC, PWSH and each of the Minority Shareholders entered into a Termination and Release Agreement (the “Release Agreement”), in each case dated October 14, 2025.

On the Closing Date:

(i) Pixelworks LLC transferred to the Minority Shareholders shares of PWSH capital stock representing a total of approximately 29% of the total outstanding shares of PWSH capital stock;

(ii) the Selling Shareholders sold and transferred all of their PWSH shares to the Buyer;

(iii) Pixelworks LLC sold and transferred its remaining shares of PWSH capital stock, representing approximately 49% of the total outstanding shares of PWSH capital stock, to the Buyer;

and (iv) the Buyer paid the Company approximately RMB 357 million, or approximately $51.0 million in U.S.

dollars, net of transaction costs and withholding taxes paid in China.

The remaining transaction expenses incurred by the Company in connection with the Sale, not including compensation that has been paid to the Company’s executive officers and other employees, totaled approximately $1.0 million in U.S.

Additionally, approximately RMB 8.7 million, or approximately $1.2 million in U.S.

dollars, is being held in an escrow account to be released upon the resolution of certain tax matters in China.

The foregoing references to certain provisions of the Purchase Agreement, the Support Agreements and the Release Agreement are not complete and are subject to and qualified in their entirety by reference to the Purchase Agreement filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 15, 2025 (the “October 15 8-K”), the Amendment Agreement filed as Exhibit 10.2 to the October 15 8-K, and the form of Support Agreement, together with the form of Termination and Release Agreement attached to the form of Support Agreement as Exhibit A, filed as Exhibit 10.3 to the October 15 8-K.

The Company’s definitive proxy statement filed with the SEC on October 27, 2025, includes additional information under the heading “Principal Terms and Conditions of the Purchase Agreement”, which description is incorporated herein by reference.

As a result of the Sale, Pixelworks no longer operates a semiconductor business, which included the businesses that it previously described as “Mobile” (smartphone and tablet) and “Home & Enterprise” (projectors, personal video recorders, and over-the-air streaming devices).

Following the Sale, the Company is focused on developing and licensing cinematic visualization solutions, including its flagship TrueCut Motion TM platform.

For more information regarding the events leading up to the Sale, and about the Mobile and Home & Enterprise business, see Item 1 under the heading “Overview” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 13, 2025 (the “ 2024 10-K ”).

Pixelworks has one remaining subsidiary in China, Frame Shadow Technology (Shanghai) Co., Ltd.

(formerly called Mucheng Huai Management Consulting (Shanghai) Co., Ltd), which is a research and development center for our TrueCut business.

This subsidiary does not operate under PWSH, but rather is owned by Pixelworks through our Oregon limited liability company, Pixelworks Semiconductor Technology Company, LLC.

We continue to believe that an initial public offering of PWSH shares on the Shanghai Stock Exchange’s Science Technology Innovation Board, known as the STAR Market (the “Listing”) will have many benefits, including improved access to new capital markets and the funding of PWSH’s growth worldwide.

The process of going public on the STAR Market is lengthy and includes several periods of review by various government agencies of the People’s Republic of China (“PRC”), such as the Shanghai Stock Exchange (“SSE”) and the China Securities Regulatory Commission (“CSRC”).

The CSRC and the SSE have recently tightened the standards for the STAR Market and are currently advising companies that are not yet profitable under China GAAP standards against filing an IPO application in the present environment.

The Company believes this is in large part due to the current economic conditions in China and the recent performance of companies already listed on the STAR Market that were not profitable at the time of their initial public offering.

PWSH is not currently profitable under China GAAP standards.

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

The listing of PWSH on the STAR Market will not change the status of PXLW as a U.S.

public company.

More than a majority of our operations are in China, but our executive officers and all of our directors but one are located in the United States (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.

Pixelworks continues to work with Morgan Stanley as financial advisor to assist with reviewing potential alternative strategic options specific to inbound interest in the Pixelworks Shanghai subsidiary.

As of December 31, 2024, we had an intellectual property portfolio of 261 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 executive officers and all of our directors are located in the United States.

Our auditor is Grant Thornton LLP, with headquarters in Chicago, Illinois.

Pixelworks was founded in 1997 and is incorporated under the laws of the state of Oregon.

Historically, significant portions of our revenue have been generated by sales to a relatively small number of end customers and distributors.

We sell our products worldwide through a direct sales force, distributors and manufacturers’ representatives.

We sell to distributors in China, Japan and Taiwan.

Our distributors often provide engineering support to our end customers and often have valuable and established relationships with our end customers.

In certain countries in which we operate, it is customary to sell to distributors.

While distributor payment to us is not dependent upon the distributor’s ability to resell the product or to collect from the end customer, the distributors may provide longer payment terms to end customers than those we would offer.

Significant portions of our products are sold overseas.

Sales outside the U.S.

accounted for approximately 98.3% and 99.7% of revenue in 2024 and 2023, respectively.

Our integrators, branded manufacturers and branded suppliers incorporate our products into systems that are sold worldwide.

The majority of our revenue to date has been denominated in U.S.

Our business is subject to seasonality related to the markets we serve and the location of our customers.

We have typically experienced higher revenue from the digital projector component of the Home & Enterprise market in the third quarter, and lower revenue in the first quarter, as our Japanese customers reduce inventories in anticipation of their March 31 fiscal year end.

We have typically experienced higher revenue from the mobile market in the fourth quarter, and lower revenue in the first quarter, as mobile phone OEMs ramp production in advance of Chinese New Year.

Reverse Stock Split

On June 6, 2025, the Company effected a one-for-twelve reverse stock split of the Company’s common stock (the "Reverse Stock Split").

As a result of the Reverse Stock Split, every twelve shares of the Company's Common Stock issued or outstanding were automatically reclassified into one new share of common stock.

Proportionate adjustments were also made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, as well as to the number of shares issuable under the Company’s equity incentive plans and certain existing agreements.

The Reverse Stock Split did not decrease the number of authorized shares of common stock or otherwise affect the par value of the common stock.

No fractional shares were issued in connection with the Reverse Stock Split.

Shareholders who would have otherwise been entitled to receive fractional shares were entitled to have their fractional shares rounded up to the next whole number share quantity.

All shares of the Company’s common stock, per-share data and related information included in the accompanying consolidated financial statements have been retroactively adjusted as though the Reverse Stock Split had been effected prior to all periods presented.

Results of Operations

For the year ended December 31, 2025 compared with year ended December 31, 2024.

Except as noted otherwise, all results exclude discontinued operations.

Net revenue was as follows (in thousands):

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Revenue, net $ 693 $ 690 $ 3 — %

Net revenue decreased $16.5 million, or 28%, from 2023 to 2024.

Revenue recorded in 2024 consisted of $42.3 million in revenue from the sale of integrated circuits ("IC") products and $0.9 million in revenue related to engineering services, license revenue and other.

Revenue recorded in 2023 consisted of $58.6 million in revenue from the sale of IC products and $1.1 million in revenue related to engineering services, license revenue and other.

The decrease in IC revenue from 2023 compared to 2024 is due to the following factors:

• Sales into the Mobile market decreased $15.7 million or 54%, primarily due to decreased units sold associated with a delayed transition to our latest generation mobile products.

• Sales into the Home & Enterprise market decreased $0.6 million or 2% .

Revenue related to the Cinema market was not material in 2024 or 2023 and was therefore included in the engineering services, license revenue and other category within the Mobile market.

Revenue of $0.7 million recorded in 2025 was consistent with revenue of $0.7 million recorded in 2024.

The majority of revenue in 2024 and 2025 related to the category of services.

Cost of revenue and gross profit

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revenue 2024 % of

Direct product costs and related overhead 1

$ 20,454 47.3 % $ 33,599 56.3 %

Inventory charges 2

414 1.0 280 0.5

Stock-based compensation 53 0.1 89 0.1

Total cost of revenue $ 104 15.0 % $ 129 18.7 %

Gross profit $ 589 85.0 % $ 561 81.3 %

1 Includes purchased materials, assembly, test, labor, employee benefits and royalties.

2 Includes charges to reduce inventory to lower of cost or net realizable value and a benefit for sales of previously written down inventory.

Gross profit margin increased to 52% in 2024 compared to 43% in 2023, 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 increased inventory charges.

Pixelworks’ gross profit margin is subject to variability based on changes in revenue levels, product mix, average selling prices, startup costs and the timing and execution of manufacturing ramps as well as other factors.

Cost of revenue of $0.1 million and gross profit of $0.6 million recorded in 2025 was consistent with cost of revenue of $0.1 million and gross profit of $0.6 million recorded in 2024.

Research and development

Research and development expense includes compensation and related costs for personnel, development-related expenses including non-recurring engineering 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 2021, we entered into a best-efforts co-development agreement with a customer to defray a portion of the research and development expenses we expect to incur in connection with our development of an integrated circuit product.

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

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 are 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 year ended December 31, 2024.

We recognized an offset to research and development expense of approximately $3.2 million during the year ended December 31, 2023.

All milestones under the co-development agreement were completed as of December 31, 2023.

Research and development expense includes compensation and related costs for personnel, development-related expenses including fees for outside services, depreciation and amortization, expensed equipment, facilities and information technology expense allocations and travel and related expenses.

Research and development expense was as follows (in thousands):

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Research and development $ 3,695 $ 4,437 $ (742) (17) %

Research and development expense increased $0.5 million, or 1%, from 2023 to 2024 due to the following factors:

• A $3.2 million benefit related to the co-development agreement was recognized in 2023 compared to no benefit recognized in 2024.

• Compensation expense decreased $1.6 million primarily due to decreased headcount associated with our June 2024 restructuring plan and a decreased management bonus accrual.

• Non-recurring engineering expense decreased $1.1 million due to the timing of development activities.

Research and development expense decreased $0.7 million, or 17%, from 2024 to 2025 due to the following factors:

• Stock based compensation expense decreased $0.2 million primarily due to the change in our stock price.

• A $0.5 million overall decrease across multiple expense categories, as we continued to implement cost control measures.

Selling, general and administrative

Selling, general and administrative expense includes compensation and related costs for personnel, sales commissions, allocations for facilities and information technology expenses, 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 includes compensation and related costs for personnel, allocations for facilities and information technology expenses, travel, outside services and other general expenses incurred in our sales, marketing, management, legal and other professional and administrative support functions.

Selling, general and administrative expense was as follows (in thousands):

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Selling, general and administrative $ 8,450 $ 8,914 $ (464) (5) %

Selling, general and administrative expense decreased $2.8 million, or 12%, from 2023 to 2024 due to the following factors:

• Compensation expense decreased $1.1 million primarily due to decreased headcount associated with our June 2024 restructuring plan and a decreased management bonus accrual.

• Accounting and other professional fees decreased $1.7 million primarily due to a decrease in fees incurred related to our strategic plan with our subsidiary, PWSH.

Selling, general and administrative expense decreased $0.5 million, or 5%, from 2024 to 2025 due to an overall decrease across multiple expense categories, as we continue to implement cost control measures.

Restructurings

In May 2025, we executed a restructuring plan to make the operation of the Company more efficient (the "May 2025 Plan").

The May 2025 Plan included an approximately 4% reduction in workforce, primarily in the area of research and development.

In February 2025, we executed a restructuring plan to make the operation of the Company more efficient (the "February 2025 Plan").

The February 2025 Plan included an approximately 6% reduction in workforce, primarily in the areas of operations, research and development, and marketing.

In June 2024, we executed a restructuring plan to make the operation of the Company more efficient (the "2024 Plan").

The 2024 Plan included an approximately 16% reduction in workforce, primarily in the areas of operations, research and development, sales, marketing and administration.

Restructuring expense was as follows (dollars in thousands):

Restructuring expense included in our consolidated statements of operations related to continuing operations was as follows (dollars in thousands):

Year ended December 31,

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Total restructuring expense

Included in operating expenses

Restructuring expense included in our consolidated statements of operations related to discontinued operations was as follows (dollars in thousands):

Year ended December 31,

Employee severance and benefits

$ 1,109 $ 1,451

Lease termination costs

Total restructuring expense

$ 1,262 $ 1,451

Included in cost of revenue

Included in operating expenses

During 2024, we recorded $1.6 million, in restructuring expense related to the Plan.

During 2023, we did not record any restructuring expense.

The Plan was complete in 2024 and we do not expect to incur any further expenses related to the Plan after 2024.

Interest income and other, net

Interest income and other, net, consisted of the following (in thousands):

Other income, net

Other income, net, consisted of the following (in thousands):

Year ended December 31,

Interest income $ 123 $ 354

Government subsidies received 1,100 —

Interest expense (69) (25)

Other income — 125

Total interest income and other, net $ 2,298 $ 2,050

The increase in interest income and other, net in 2024 compared to 2023 is due to an increase in government subsidies received, partially offset by a decrease in interest earned on our cash and cash equivalents balance due to the decrease in our cash and cash equivalents balance in 2024 compared to 2023.

Additional information on the government subsides received is provided in "Note 17:

Government Grants", which is incorporated by reference into this section.

Provision for income taxes

The benefit for income taxes was as follows (in thousands):

Gain on sale of patents 3,000 —

Total other income, net $ 3,123 $ 354

On October 22, 2025, the Company and an unrelated third party (the “Purchaser”) entered into an agreement under which the Company sold 37 patents and related rights and materials (the “Patents”) to the Purchaser for $3.0 million.

The Company became the indirect owner of the Patents when it acquired ViXS Systems, Inc.

in 2017, and became the sole owner of the Patents in 2021.

The technologies underlying the Patents pertain to markets that the Company no longer pursues.

Provision (benefit) for income taxes

As discussed in Item 8, "Note 1:

Basis of Presentation", as of December 31, 2025, the operations of PWSH and subsidiaries in Japan, Hong Kong, and Canada were classified as held-for-sale and the results reported within discontinued operations.

The expense (benefit) for income taxes related to continuing operations was as follows (in thousands):

Year ended December 31,

Provision for income taxes $ 478 $ 357

The income tax expense of $0.5 million recorded for the year ended December 31, 2024 is primarily composed of tax expense of $0.4 million for our profitable cost-plus jurisdictions and deferred tax expense of approximately $0.1 million.

The income tax expense of $0.4 million recorded for the year ended December 31, 2023 is primarily composed of tax expense of $0.1 million for our profitable cost-plus jurisdictions and deferred tax expense of approximately $0.3 million.

We continue to record a full valuation allowance against our U.S., Canada and China net deferred tax assets as of December 31, 2024 and 2023, as it is not more likely than not that we will realize a benefit from these assets in a future period.

During the fourth quarter of 2024, we established a valuation allowance against the carryforwards of our California LLC in connection with closing this entity.

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

The net valuation allowance increased $9.0 million and $11.0 million for the years ended December 31, 2024 and December 31, 2023, respectively.

As of December 31, 2024, we have federal, state and foreign net operating loss carryforwards of approximately $155.6 million, $17.4 million, and $133.2 million respectively, which will begin expiring in 2025.

As of December 31, 2024, we have available federal, state and foreign research and experimentation tax credit carryforwards of approximately $4.7 million, $5.5 million and $21.1 million respectively.

The federal tax credits will begin expiring in 2025 while the state and foreign tax credits have an indefinite life.

In addition, our Canadian subsidiary has unclaimed scientific and experimental expenditures to be carried forward and applied against future income in Canada of approximately $121.3 million.

Provision (benefit) for income taxes $ (184) $ 44

The income tax benefit of $0.2 million recorded for the year ended December 31, 2025 primarily relates to the reversal of unrecognized tax benefits due to the lapse of the statute of limitations.

Also included is the tax expense related to our profitable cost-plus operations in China and Taiwan.

The income tax expense of $0.01 million recorded for the year ended December 31, 2024 is primarily composed of current and deferred tax expense related to our profitable cost-plus operations in China and Taiwan.

We continue to record a full valuation allowance against our U.S.

federal and state net deferred tax assets at December 31, 2025 and 2024, as it is not more likely than not that we will realize a benefit from these assets in a future period.

The net valuation allowance decreased by $1.2 million for the year ended December 31, 2025 and decreased by $0.6 for the year ended December 31, 2024.

As of December 31, 2025, we have federal and state net operating loss carryforwards of approximately $157.9 million, and $18.3 million, respectively, which will begin expiring in 2026.

Approximately $44.6 million of our federal net operating losses carry forward indefinitely.

As of December 31, 2025, we have available federal and state research and experimentation tax credit carryforwards of approximately $3.5 million, $5.4 million, respectively.

The federal credits will begin expiring in 2026 while the state credits have an indefinite life.

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

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

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

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid.

2023-09 requires public business entities to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

In addition, ASU No.

2023-09 requires companies to disclose further information about income taxes paid.

The standard is effective for annual periods beginning after December 15, 2024, and may be applied prospectively or retrospectively.

We adopted the ASU prospectively for the period ending December 31, 2025, and it affects only our disclosures and does not impact our results of operations or financial condition.

Net loss from discontinued operations

Year ended December 31, 2025 v.

2025 2024 $ change % change

Net loss from discontinued operations, net of income taxes $ (15,009) $ (16,883) $ 1,874 (11) %

Net loss from discontinued operations decreased $1.8 million from 2024 to 2025.

The decrease was primarily driven by a $8.6 million reduction in operating expenses, partially offset by a $6.5 million decrease in gross profit.

The decrease in operating expenses was primarily attributable to lower compensation expense, reflecting actions taken under our 2024 and 2025 restructuring plans, as well general decreases across multiple expense categories as we continued to implement cost control measures.

These reductions reflect management’s efforts to streamline operations and reduce the cost structure of the discontinued business.

The decrease in gross profit was primarily driven by a $10.9 million decline in revenue from the sale of integrated circuits ("IC") products.

The decrease in IC revenue from 2024 to 2025 was attributable to the following factors:

• Mobile market revenue decreased by $9.5 million, or 69%, primarily due to lower unit sales resulting from a delayed transition to the Company’s latest generation mobile products.

• Home & Enterprise market revenue decreased by $1.4 million, or 5%, reflecting lower demand in those end markets.

Liquidity and Capital Resources

Cash and cash equivalents

Total cash and cash equivalents decreased $23.9 million from $47.5 million at December 31, 2023 to $23.6 million at December 31, 2024.

The net decrease was primarily the result of $19.8 million used in operating activities, $3.8 million used for purchases of property and equipment and $1.3 million used for payments on other asset financings.

Total cash and cash equivalents increased $5.7 million from $5.5 million at December 31, 2024 to $11.2 million at December 31, 2025.

The net increase was primarily the result of $7.9 million in net proceeds from our registered direct offerings, $3.0 million in net proceeds from the sale of patents and $3.0 million in net proceeds from our at the market equity offering, partially offset by $8.0 million used in operating activities, and $0.2 million used for purchases of property and equipment.

As of December 31, 2025, our cash and cash equivalents balance consisted of $1.9 million in cash and $9.3 million in cash equivalents held in U.S.

dollar denominated money market funds and $5.0 million held in U.S.

dollar denominated certificates of deposit.

dollar denominated money market funds.

Our investment policy requires that our portfolio maintains a weighted average maturity of less than 12 months.

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Our investment policy is reviewed at least annually by our Audit Committee.

Accounts receivable, net

Accounts receivable, net decreased to $5.8 million at December 31, 2024 from $10.1 million at December 31, 2023.

Average number of days sales outstanding decreased to 48 days at December 31, 2024 from 56 days at December 31, 2023.

The decrease in accounts receivable was primarily due to the decrease in revenue in 2024 compared to 2023.

Inventories increased to $4.2 million at December 31, 2024 from $4.0 million at December 31, 2023.

Inventory turnover decreased to 5.1 at December 31, 2024 from 8.6 at December 31, 2023 primarily due to lower cost of goods sold as a result of lower revenue in 2024 compared to 2023.

Inventory turnover is calculated based on annual operating results and average inventory balances during the year.

Capital resources

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

During the year ended December 31, 2024, we sold an aggregate of 358,272 shares of our common stock under the 2024 ATM Program, resulting in aggregate net proceeds to us of approximately $0.2 million.

During the year ended December 31, 2025, we sold an aggregate of 347,559 shares of our common stock under the ATM Program, resulting in aggregate net proceeds to us of approximately $3.0 million, and gross proceeds of approximately $3.1 million, and paid Roth commissions and fees and other expenses of approximately $0.1 million.

Effective March 11, 2026, the Company exercised its right to terminate the Sales Agreement and thus it is no longer in force.

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).

We 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 15:

Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees", which is incorporated by reference into this section.

Additional information is provided in "Note 16:

Non-Controlling Interest", which is incorporated by reference into this section.

Pursuant to the Sale, following the closing on January 6, 2026, these Capital Increase Agreements have been terminated and the Company has no further obligations under their terms and conditions.

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.

We 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 16:

Non-Controlling Interest", which is incorporated by reference into this section.

Pursuant to the Sale, following the closing on January 6, 2026, this Equity Transfer Agreement has been terminated and the Company has no further obligations under its terms and conditions.

As of December 31, 2025, our cash and cash equivalents balance of $11.2 million was highly liquid.

Following the Sale, at the beginning of January 2026, before payment of certain transaction expenses and severances, our cash and cash equivalents balance was approximately $62 million.

We anticipate that our existing working capital will be adequate to fund our operating, investing and financing needs for at least the next twelve months.

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Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements for the years ended December 31, 2024 and 2025, however as of December 31, 2025, both inventory and goodwill have been classified as held-for-sale assets:

Discontinued Operations.

We evaluate whether a disposal group qualifies as a discontinued operation under ASC 205-20 based on management’s planned exit strategy, whether the disposal represents a strategic shift with a major effect on the Company’s operations and financial results, and whether the disposal is probable and expected to occur within the required timeframe.

For qualifying disposals, we measure assets held for sale at the lower of carrying amount and fair value less costs to sell.

Inventory Valuation.

19 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis