What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-03-12 compared with 2025-03-13 · 357 added, 345 removed, 525 unchanged (57% of the section changed)

13 unchanged sentences

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

and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the two years ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

16 unchanged sentences

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

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

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

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

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

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

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

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

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

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

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

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

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

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

/s/ GRANT THORNTON LLP

Discontinued Operations - Pixelworks Semiconductor Technology (Shanghai) Co., Ltd.

As described further in Note 1 Basis of Presentation and Note 3 Discontinued Operations, to the consolidated financial statements, on December 20, 2025, the Company’s board of directors adopted resolutions by unanimous written consent directing management to take all necessary steps to complete the sale of PWSH, at which time all of the held for sale criteria for the businesses operated by PWSH were met.

Management determined that the related net assets should be presented as held-for-sale as of December 31, 2025 and 2024.

As the disposal represents a strategic shift that will have a major effect on the Company’s operation and financial results, management also determined that the results of operations of PWSH should be presented as discontinued operations for all periods presented.

We identified the nature of audit procedures related to the discontinued operations of PWSH as a critical audit matter.

The principal consideration for our determination that nature of audit procedures related to the discontinued operations of PWSH is a critical audit matter is a high degree of auditor effort in performing procedures and evaluating audit evidence related to management’s assessment, classification, and disclosure of the discontinued operations.

Our audit procedures related to the discontinued operations included the following, among others:

• evaluating management’s assessment that the PWSH sale was a discontinued operation;

• testing the classification of amounts included in discontinued operations, including agreeing such amounts to the Company’s historical accounting records;

• evaluating the sufficiency of the disclosures in the consolidated financial statements.

/s/ GRANT THORNTON LLP (signed manually) or

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

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Cash and cash equivalents $ 11,243 $ 5,482

Accounts receivable, net 5,804 10,075

Inventories 4,210 3,968

Prepaid expenses and other current assets 568 600

Current assets held for sale 38,422 28,770

Total current assets 50,233 34,852

2 unchanged sentences

Other assets, net 121 176

Goodwill 18,407 18,407

Long-term assets held for sale — 27,469

Total assets $ 51,263 $ 64,099

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Current portion of income taxes payable 43 40

Current liabilities held for sale 18,005 6,037

Total current liabilities 20,020 8,346

Long-term liabilities, net of current portion — 40

Deposit liability 13,109 13,781

Operating lease liabilities, net of current portion 298 780

Income taxes payable, net of current portion 508 732

Deferred tax liability 31 27

Long-term liabilities held for sale — 14,296

Total liabilities 20,857 24,221

1 unchanged sentence

Redeemable non-controlling interest 28,600 27,396

Shareholders' equity:

Shareholders' equity (deficit):

Preferred stock, $ 0.001 par value, 50,000,000 shares authorized, none issued

5 unchanged sentences

Total Pixelworks, Inc.

shareholders’ equity ( 10,568 ) 12,541

shareholders’ deficit ( 21,092 ) ( 10,568 )

Non-controlling interest 22,898 23,050

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Loss from operations ( 11,556 ) ( 12,964 )

Government subsidies received 1,100 —

Interest income and other, net 123 354

Gain on sale of patents 3,000 —

Total other income, net 3,123 354

Loss before income taxes ( 8,433 ) ( 12,610 )

Provision for income taxes 478 357

Provision (benefit) for income taxes ( 184 ) 44

Net loss from continuing operations ( 8,249 ) ( 12,654 )

Net loss from discontinued operations, net of income taxes ( 15,009 ) ( 16,883 )

Net loss ( 23,258 ) ( 29,537 )

Net loss attributable to non-controlling interests and redeemable non-controlling interests 818 767

Net loss attributable to non-controlling interest and redeemable non-controlling interest 759 818

Net loss attributable to Pixelworks, Inc $ ( 22,499 ) $ ( 28,719 )

Net loss from continuing operations per share - basic and diluted $ ( 1.50 ) $ ( 2.60 )

Net loss from discontinued operations per share - basic and diluted ( 2.72 ) ( 3.47 )

Net loss attributable to shareholders of Pixelworks Inc.

$ ( 4.08 ) $ ( 5.90 )

Net loss attributable to Pixelworks, Inc.

per share - basic and diluted $ ( 0.49 ) $ ( 0.47 )

Weighted average shares outstanding - basic and diluted 5,512 4,866

(1) Includes:

Stock-based compensation $ 53 $ 89

Restructuring 16 —

(1) Includes stock-based compensation $ 421 $ 585

1 unchanged sentence

Stock-based compensation 1,288 1,222

Closing costs associated with sale of PWSH 1,012 —

See accompanying notes to consolidated financial statements.

6 unchanged sentences

Foreign currency translation adjustment

( 1,811 ) 1,207

Foreign pension adjustment

6 unchanged sentences

PIXELWORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS (a)

(In thousands)

3 unchanged sentences

Adjustments to reconcile net loss to net cash used in operating activities:

Gain on sale of patents ( 3,000 ) —

Stock-based compensation 2,904 3,958

Depreciation and amortization 2,596 3,779

Deferred income tax expense 101 301

Reversal of uncertain tax positions ( 261 ) ( 81 )

Deferred income tax expense (benefit) ( 38 ) 101

Loss on asset disposal 36 —

Changes in operating assets and liabilities:

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Cash flows from investing activities:

Purchases of property and equipment ( 3,760 ) ( 3,832 )

Proceeds from sale of patents 3,000 —

Asset related government subsidies received 754 641

Purchases of licensed technology — ( 156 )

Net cash used in investing activities ( 3,119 ) ( 3,988 )

Purchases of property and equipment ( 448 ) ( 3,760 )

Net cash provided by (used in) investing activities 3,306 ( 3,119 )

Cash flows from financing activities:

Net proceeds from registered direct offering 7,882 —

Net proceeds from "at the market" equity offering 2,952 157

Proceeds from line of credit 2,145 —

Payments on asset financings ( 1,307 ) ( 1,308 )

Proceeds from issuances of common stock under employee equity incentive plans 48 180

Net proceeds from "at the market" equity offering 157 —

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

Net cash provided by (used in) financing activities 11,720 ( 971 )

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See accompanying notes to consolidated financial statements.

(a) The cash flows related to discontinued operations have not been segregated.

Accordingly, the Consolidated Statement of Cash Flows include results of continuing and discontinued operations.

PIXELWORKS, INC.

11 unchanged sentences

Foreign currency translation adjustment — — 1,207 — ( 389 ) 818

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

"At the market" equity offering 29,856 157 — — — 157

Net loss attributable to non-controlling interest — — — — ( 818 ) ( 818 )

Other — — — — 6 6

Net loss attributable to Pixelworks, Inc.

1 unchanged sentence

Foreign pension adjustment, net of tax of $ 27

— — 108 — — 108

Balance as of December 31, 2024 4,977,228 $ 490,619 $ 4,693 $ ( 505,880 ) $ 23,050 $ 12,482

2 unchanged sentences

Foreign currency translation adjustment — — ( 1,811 ) — 607 ( 1,204 )

Registered direct offering 830,843 7,882 — — — 7,882

"At the market" equity offering 347,559 2,952 — — — 2,952

2 unchanged sentences

— — — ( 22,499 ) — ( 22,499 )

Foreign pension adjustment, net of tax of $ 27

— — 108 — — 108

Fractional share adjustment due to reverse stock split 157 — — — — —

Balance as of December 31, 2025 6,336,957 $ 504,405 $ 2,882 $ ( 528,379 ) $ 22,898 $ 1,806

5 unchanged sentences

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 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 15:

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

Non-Controlling Interest", below.

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

Shenzhen Branch Office No.

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

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

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

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

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.

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.

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.

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, including 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.

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.

Our executive officers and all of our directors are located in the United States.

Our consolidated financial statements include the accounts of Pixelworks and its subsidiaries.

Intercompany accounts and transactions have been eliminated.

All foreign subsidiaries use the U.S.

dollar as the functional currency, and as a result, transaction gains and losses are included in the consolidated statements of operations.

Transaction (gains) and losses were $ 204 and $ 429 for the years ended December 31, 2024 and 2023, respectively.

Our foreign subsidiary uses the U.S.

dollar as the functional currency.

Use of Estimates

3 unchanged sentences

The actual results experienced could differ materially from our estimates.

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 and the accompanying notes have been retroactively adjusted as though the Reverse Stock Split had been effected prior to all periods presented.

Discontinued Operations

On December 20, 2025, our board of directors adopted resolutions by unanimous written consent directing the Company’s management to take all necessary steps to complete the sale of PWSH, at which time all of the held-for-sale criteria of the businesses operated by PWSH (the Mobile and the Home & Enterprise businesses) were met.

The results of operations of the PWSH businesses have been presented as discontinued operations, as the planned sale represents a strategic shift that will have a major effect on our operations and financial results.

Throughout this report, the consolidated statement of operations for all periods presented has been adjusted to reflect the presentation of the PWSH businesses as discontinued operations, which we discuss further in "Note 3:

Discontinued Operations".

The Notes below relate only to our continuing operations unless otherwise noted.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1 unchanged sentence

We classify all cash and highly liquid investments with original maturities of three months or less at the date of purchase as cash and cash equivalents.

Cash equivalents totaled $ 5,232 and $ 10,950 as of December 31, 2024 and 2023, respectively and consisted of U.S.

denominated money market funds and certificates of deposit.

Cash equivalents attributable to continuing operations totaled $ 9,276 and $ 2,054 as of December 31, 2025 and 2024, respectively and consisted of U.S.

denominated money market funds.

Accounts Receivable, Net

3 unchanged sentences

Allowances for credit losses were not material as of December 31, 2025 or December 31, 2024.

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

We adopted Topic 326 effective January 1, 2023.

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

Inventories consist of finished goods and work-in-process, and are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or net realizable value.

17 unchanged sentences

Impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value.

A goodwill impairment loss is recognized for the amount that the carrying amount of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.

A goodwill impairment loss is recognized for the amount by which the carrying amount of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.

If the fair value of a reporting unit exceeds the carrying amount, goodwill of the reporting unit is not considered impaired.

4 unchanged sentences

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

We performed a qualitative assessment as of November 30, 2024 and concluded that it was not more likely than not that the fair value of the reporting unit was less than its carrying amount.

As a result, we concluded that a quantitative impairment test was not required and that goodwill was not impaired.

Our Goodwill balance is classified under held for sale assets as of December 31, 2025.

Stock-Based Compensation

4 unchanged sentences

The fair value of our stock option grants and purchase rights under our employee stock purchase plan are estimated as of the grant date using the Black-Scholes option pricing model, which is affected by our estimates of the risk free interest rate, our expected dividend yield, expected term and the expected share price volatility of our common shares over the expected term.

The fair value of our restricted stock awards are based on the market value of our stock on the date of grant.

The fair value of our restricted stock awards is based on the market value of our stock on the date of grant.

Research and Development

Costs associated with research and development activities are expensed as incurred, except for items with alternate future uses, which are capitalized and depreciated over their estimated useful lives.

On occasion, we enter into co-development arrangements with current or prospective customers to defray a portion of the research and development expenses we expect to incur in connection with our development of an IC product.

As amounts become due and payable, they are offset against research and development expense on a pro-rata basis.

We account for income taxes under the asset and liability method.

6 unchanged sentences

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

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Recent Accounting Pronouncements

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

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

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

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

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

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

The Company adopted ASU 2023-07 during the year ended December 31, 2024.

The requirements of this ASU are disclosure-related and did not have an impact on the Company’s consolidated financial position and results of operations.

See "Note 14.

Segment Information", for the updated segment disclosures as a result of adopting this ASU.

In December 2023, the FASB issued ASU No.

2023-09, Improvements To Income Tax Disclosures ("ASU 2023-09"), which includes new and updated income tax disclosures, including disaggregation of information in the rate reconciliation and income taxes paid.

ASU 2023-09 will become effective for us in the year ending December 31, 2026.

We are evaluating the impact that the adoption of ASU 2023-09 will have on our financial position, results of operations and cash flows.

2023-09, Improvements To Income Tax Disclosures ("ASU 2023-09"), 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 ended December 31, 2025 it affects only our disclosures and does not impact our results of operations or financial condition.

In November 2024, the FASB issued ASU No.

2 unchanged sentences

We are evaluating the impact that the adoption of ASU 2024-03 will have on our financial position, results of operations and cash flows.

DISCONTINUED OPERATIONS

As disclosed in "Note 1:

Basis of Presentation", we completed the disposition of PWSH on January 6, 2026 and determined that the related net assets should be presented as held-for-sale as of the December 31, 2025 consolidated balance sheet and that the results of operations of PWSH should be presented as discontinued operations for all periods presented, as the disposal completed shortly after December 31, 2025, represents a strategic shift that will have a major effect on our operations and financial results.

The measurement of assets held for sale to fair value less costs to sell resulted in a gain which will not be recognized until realized on the date of sale.

Summarized results from discontinued operations were as follows:

Year Ended December 31,

Revenue, net $ 31,587 $ 42,516

Cost of revenue:

16,370 20,792

Gross profit 15,217 21,724

Operating expenses

31,537 40,117

Government subsidies received

Interest income and other, net 175 844

Loss before income taxes ( 14,582 ) ( 16,449 )

Provision for income taxes

Net loss from discontinued operations ( 15,009 ) ( 16,883 )

Net loss attributable to non-controlling interests and redeemable non-controlling interest 759 818

Net loss from discontinued operations attributable to Pixelworks, Inc.

$ ( 14,250 ) $ ( 16,065 )

The following table summarizes the carrying amounts of the major classes of assets and related liabilities classified as held for sale in discontinued operations:

Year Ended December 31,

Cash and cash equivalents $ 6,824 $ 18,165

Accounts receivable, net 4,481 5,804

Prepaid expenses and other current assets

Property and equipment, net 3,530 —

Operating lease right-of-use assets

Other assets, net 185 —

Goodwill 18,407 —

Total current assets

38,422 28,770

Property and equipment, net — 6,152

Operating lease right-of-use assets

Other assets, net — 796

Goodwill — 18,407

Total long-term assets

Total assets $ 38,422 $ 56,239

Year Ended December 31,

Accounts payable $ 720 $ 1,140

Accrued liabilities and current portion of long-term liabilities 1,941 4,572

Short-term line of credit 2,145 —

Deposit liability

Current portion of income taxes payable

Operating lease liabilities, net of current portion 98 —

Total current liabilities

Long-term liabilities, net of current portion — 335

Deposit liability

Operating lease liabilities, net of current portion — 670

Income taxes payable, net of current portion — 182

Total long-term liabilities

Total Liabilities $ 18,005 $ 20,333

The following table presents significant non-cash items and capital expenditures of discontinued operations for the periods presented:

Depreciation and amortization $ 2,215 $ 3,114

Stock-based compensation 1,194 2,151

Deferred income tax expense (benefit) ( 8 ) 21

Purchases of property and equipment ( 248 ) ( 3,496 )

Asset related government subsidies received ( 754 ) ( 641 )

Government Subsidies

We account for government assistance that is not subject to the scope of ASC 740 using a grant accounting model, by analogy to International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance, and recognize such grants when we have reasonable assurance that we will comply with the grant’s conditions and that the grant will be received.

Government grants whose primary condition is the purchase, construction, or acquisition of a long-lived asset are considered asset-based grants and are recognized as a reduction to such asset’s cost basis, which reduces future amortization or depreciation.

In the circumstances when the reasonable assurance of receiving the government grants is reached after the related long-lived assets are fully or partially amortized, the asset grant is pro-ratably allocated to the used life of the long-lived assets and recorded as a cumulative catch up to reduce the amortization or depreciation expense.

Other government grants not related to long-lived assets are considered income-based grants, which are recognized when the grant becomes receivable and are recognized as other income.

We recognize grants expected to be received directly from a government entity at their stated value.

Proceeds received from asset-based grants are presented as cash inflows from investing activities on the consolidated statements of cash flows, whereas proceeds received from income-based grants are presented as cash inflows from operating activities.

PWSH received approximately $ 2,317 and $ 1,754 in the years ended December 31, 2025 and December 31, 2024, respectively, in cash subsidies from the Shanghai government to compensate the purchase of certain IPs, Electronic Design Automation (“EDA”) tools, as well as the incurred expenses in R&D and sales in accordance with the local government’s policy to support strategic emerging industry.

Under the terms and conditions of the funding policies, PWSH commits to operate the business in Zhangjiang Science City in Shanghai, and the place of registration and tax registration will not be moved out of Zhangjiang Science City within ten years from the date of signing the commitment letter.

Additionally, PWSH promises that the independent intellectual property rights shall belong to PWSH which is operated in Zhangjiang Science City, and sales settlements are in Zhangjiang Science City.

The Company deferred $ 624 of subsidies as a reduction to related fixed assets’ cost basis, which reduces future depreciation and amortization.

$ 130 of subsidies was recognized as a reduction to depreciation and amortization expense.

The remaining cash subsidies of approximately $ 1,563 was recognized as net loss from discontinued operations, net of income taxes in the consolidated statements of operations for the year ended December 31, 2025.

The Company deferred $ 437 of subsidies as a reduction to related fixed assets’ cost basis, which reduces future depreciation and amortization.

$ 217 of subsidies was recognized as a reduction to depreciation and amortization expense.

The remaining cash subsidies of approximately $ 1,100 was recognized as net loss from discontinued operations, net of income taxes in the consolidated statements of operations for the year ended December 31, 2024.

Entry Into Loan Agreements

On August 25, 2025, PWSH entered into an Industrial and Commercial Bank of China Business Quick Loan Borrowing Contract with Industrial and Commercial Bank of China Limited, pursuant to which PWSH may borrow up to RMB 10,000 (approximately $ 1,406 as of December 31, 2025).

As of December 31, 2025, PWSH borrowed RMB 10,000 under the Loan Agreement, which has a maturity date of August 25, 2026.

On November 28, 2025, PWSH entered into a China Merchants Bank Business Quick Loan Borrowing Contract with China Merchants Bank Business, pursuant to which PWSH may borrow up to RMB 5,000 (approximately $ 739 as of December 31, 2025).

As of December 31, 2025, PWSH borrowed RMB 5,000 under the Loan Agreement, which has a maturity date of May 28, 2026.

BALANCE SHEET COMPONENTS

Inventories consist of the following:

Finished goods $ 2,748 $ 2,719

Work-in-process 1,462 1,249

Inventories $ 4,210 $ 3,968

We recorded inventory write-downs of $ 506 and $ 280 for the years ended December 31, 2024 and 2023, respectively.

The inventory write-downs were for lower of cost or net realizable value and excess and obsolescence exposure.

The inventory write-downs were offset by sales of previously written-down inventory of $ 92 and $ 0 for the years ended December 31, 2024 and 2023, respectively.

Prepaid Expenses and Other Current Assets

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Equipment, furniture and fixtures $ 3,642 $ 3,521

Tooling 7,335 5,081

Software 1,959 1,920

Leasehold improvements 634 635

25,982 22,519

Accumulated depreciation and amortization ( 6,030 ) ( 5,728 )

1 unchanged sentence

Software amortization was $ 46 and $ 189 for the years ended December 31, 2025 and 2024, respectively.

Depreciation and amortization expense for equipment, furniture, fixtures, tooling and leasehold improvements was $ 1,752 and $ 2,253 for the years ended December 31, 2024 and 2023, respectively.

Depreciation and amortization expense for equipment, furniture, fixtures and leasehold improvements was $ 295 and $ 436 for the years ended December 31, 2025 and 2024, respectively.

Other Assets, Net

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Goodwill resulted from the acquisition of ViXS Systems, Inc.

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

in 2017, whereby we recorded goodwill of $ 18,407 , which is classified as held for sale as of December 31, 2025.

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

1 unchanged sentence

Accrued liabilities and current portion of long-term liabilities consist of the following:

Operating lease liability, current $ 2,036 $ 2,381

Accrued payroll and related liabilities $ 608 $ 912

Current portion of accrued liabilities for asset financings 1,156 1,124

Accrued costs related to restructuring 191 —

Operating lease liability, current 441 483

Other accrued expenses 923 614

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Cash equivalents:

Certificates of deposit $ 5,029 $ — $ — $ 5,029

Money market funds 9,276 — — 9,276

1 unchanged sentence

Cash equivalents:

Certificates of deposit $ 10,000 $ — $ — 10,000

Money market funds 2,054 — — 2,054

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RESTRUCTURING

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.

Total restructuring expense included in our consolidated statements of operations for the years ended December 31, 2024 and 2023 is comprised of the following:

Total restructuring expense included in our consolidated statements of operations related to continuing operations for the years ended December 31, 2025 and 2024 is comprised of the following:

Year ended December 31,

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Total restructuring expense

Included in operating expenses

Total restructuring expense included in our consolidated statements of operations related to discontinued operations for the years ended December 31, 2025 and 2024 is comprised of the following:

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

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

Supplemental information related to lease expense and valuation of the ROU assets and lease liabilities was as follows:

Supplemental information, for continuing operations and discontinued operations, related to lease expense and valuation of the ROU assets and lease liabilities was as follows:

Year Ended December 31,

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Total operating lease liabilities $ 1,068

As of December 31, 2024, we had $ 234 in operating lease liabilities that had not commenced.

As of December 31, 2025, we had no operating lease liabilities that had not commenced.

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.

Services - We enter into contracts for professional services to use our technology to produce TrueCut Motion versions of cinematic titles.

We identify each performance obligation at contract inception.

The professional services contract generally includes project deliverables specified by the customer and the performance obligations are generally combined into one deliverable, with the pricing for services stated at a fixed amount.

Services provided under these agreements generally result in the transfer of control over time therefore, we recognize revenue based on the proportion of labor hours expended to the total hours expected to complete the contract performance obligation.

License Revenue - We enter into license agreements related to the distribution and display of TrueCut Motion content, and on occasion related to the use of our TrueCut Motion software by a customer or a third party.

Licensing agreements that we enter into generally provide licensees the right to incorporate our intellectual property (“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.

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.

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 years ended December 31, 2024 and 2023:

Year ended December 31,

IC sales $ 42,291 $ 58,603

Engineering services, license and other 915 1,074

Total revenues $ 43,206 $ 59,677

IC sales by end market:

Year ended December 31,

Home & Enterprise market $ 28,624 $ 29,187

Mobile market 13,667 29,416

Total IC sales $ 42,291 $ 58,603

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

For segment information, including revenue by geographic region, see "Note 14.

Segment Information".

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.

Contract Balances

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

Our contract balances include accounts receivable and deferred revenue.

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

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The aggregate amount of the transaction price allocated to unsatisfied performance obligations with an original expected duration of greater than one year is zero .

The following table presents the contract assets and contract liabilities recorded on the consolidated balance sheets as of December 31, 2024, 2023 and 2022:

Year Ended December 31,

Balance Sheet Classification 2024 2023 2022

Accounts receivable Accounts receivable, net $ 5,804 $ 10,075 $ 10,047

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

Liability for Warranty returns Accrued liabilities and current portion of long-term liabilities 10 13 15

During the years ended December 31, 2024 and 2023, the Company recognized $ 146 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.

INTEREST INCOME AND OTHER, NET

Contract assets and contract liabilities recorded on the consolidated balance sheets related to continuing operations were immaterial as of December 31, 2025, 2024 and 2023.

OTHER INCOME, NET

Interest income and other, net consists of the following:

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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.

RESEARCH AND DEVELOPMENT

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, $ 5,800 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 are each payable upon completion of certain development milestones.

As amounts become due and payable, they are offset against research and development expense on a pro rata basis.

We recognized offsets to research and development expense of $ 3,243 during the year ended December 31, 2023.

There were no reductions to research and development expense related to co-development arrangements for the year ended December 31, 2024.

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 $ 3,000 .

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.

Current and Deferred Income Tax Expense

Domestic and foreign pre-tax loss is as follows:

Domestic and foreign pre-tax loss from continuing operations is as follows:

Year Ended December 31,

2 unchanged sentences

Domestic and foreign pre-tax loss $ ( 8,433 ) $ ( 12,610 )

Income tax expense (benefit) attributable to operations is comprised of the following:

Income Tax Provision

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 were reported within discontinued operations.

Income tax expense (benefit) attributable to continuing operations is comprised of the following:

Year Ended December 31,

Federal $ 61 $ ( 325 )

State $ 3 $ 5

Foreign ( 187 ) 24

Total current ( 184 ) 29

Federal 72 292

Total deferred — 15

Income tax expense (benefit) $ 478 $ 357

The reconciliation of the U.S.

federal statutory income tax rate to our effective income tax rate is as follows:

Provision for income taxes, net:

Foreign ( 187 ) 39

Provision for income taxes, net:

$ ( 184 ) $ 44

Income tax expense allocated to discontinued operations was $ 427 and $ 434 for the periods ended December 31, 2025 and December 31, 2024, respectively.

The reconciliation from the U.S.

federal statutory income tax rate to our effective income tax rate, applying ASU 2023-09 prospectively, is as follows:

Year Ended December 31, 2025

statutory federal tax rate $ ( 1,771 ) 21.0 %

State taxes and credits, net of federal benefit 3 0.0

Foreign tax effects 127 ( 1.5 )

Research tax credits ( 71 ) 0.8

Changes in valuation allowance 1,305 ( 15.5 )

Nontaxable or nondeductible items

Equity compensation 435 ( 5.2 )

Changes in unrecognized tax benefits ( 221 ) 2.7

Other adjustments 7 ( 0.1 )

Total $ ( 184 ) 2.2 %

The reconciliation from the U.S.

federal statutory income tax rate to our effective income tax rate, applying ASC 740, prior to the adoption of ASU 2023-09, is as follows:

Year Ended December 31, 2024

Federal statutory rate $ ( 2,648 ) 21.0 %

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Stock-based compensation 276 ( 2.2 )

Adjustment to deferred balances ( 2 ) 18

Other 322 ( 2.6 )

Effective income tax rate $ 44 ( 0.4 ) %

The effective tax rate for continuing operations for the year ended December 31, 2025 was 2.2 %.

The effective tax rate differs from the statutory rate of 21% primarily due to the valuation allowance against the Company's U.S.

federal and state deferred tax assets.

State income tax expense is made up of state minimum taxes, the majority of which relates to the state of California.

The tax effects of discontinued operations are excluded from the rate reconciliations above and are presented separately within discontinued operations.

Income Tax Paid

Cash paid for income taxes (net of refunds) consisted of the following:

Year Ended December 31, 2025

California $ 6

Total income taxes paid $ 40

Deferred Tax Assets, Liabilities and Valuation Allowance

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Deferred tax liabilities:

Foreign earnings ( 339 ) ( 248 )

Other ( 231 ) ( 303 )

1 unchanged sentence

Less valuation allowance ( 44,382 ) ( 45,434 )

Net deferred tax assets $ 12 $ 140

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.

Net deferred tax liabilities $ ( 31 ) $ ( 27 )

As a result of meeting the discontinued operations criteria for PWSH, net deferred tax assets of $ 46 associated with PWSH were classified as a part of assets held-for-sale as of December 31, 2025.

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

federal and state net deferred tax assets as of 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.

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

The net valuation allowance increased $ 8,946 and $ 11,034 for the years ended December 31, 2024 and December 31, 2023, respectively.

As of December 31, 2024, we had federal, state and foreign net operating loss carryforwards of $ 155,630 , $ 17,402 and $ 133,215 respectively, which will begin to expire in 2025 with $ 31,705 of our federal net operating loss carryforward lasting indefinitely.

As of December 31, 2024, we had available federal, state and foreign research and experimentation tax credit carryforwards of $ 4,707 , $ 5,533 , and $ 21,144 respectively.

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

In addition, our Canadian subsidiary has unclaimed scientific and experimental expenditures to be carried forward and applied against future income in Canada of approximately $ 121,313 .

The net valuation allowance decreased $( 1,052 ) for the year ended December 31, 2025 and decreased $( 585 ) for the year ended December 31, 2024.

As of December 31, 2025, we had federal and state net operating loss carryforwards of $ 157,902 and $ 18,298 respectively, which will begin to expire in 2026 with $ 44,637 of our federal net operating loss carryforward lasting indefinitely.

As of December 31, 2025, we had available federal and state research and experimentation tax credit carryforwards of $ 3,478 and $ 5,392 , respectively.

The federal tax 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.

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

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

Uncertain Tax Positions

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Reversal of accrual for positions taken in a prior year 44 14

Accrual for positions taken in current year 86 112

Reversals due to lapse of statute of limitations ( 163 ) ( 79 )

Reversals due to positions taken in the current year — —

Balance at end of year $ 1,417 $ 1,536

2 unchanged sentences

Accrual for positions taken in prior year 1 10

Accrual for positions taken in current year — —

Reversals due to lapse of statute of limitations ( 97 ) ( 2 )

Balance at end of year $ 9 $ 105

During both the years ended December 31, 2024 and 2023, we recognized $ 11 of interest and penalties in income tax expense in our consolidated statements of operations.

During the years ended December 31, 2025 and 2024, we recognized $ 1 and $ 10 , respectively of interest and penalties in income tax expense in our consolidated statements of operations.

We file income tax returns in the U.S.

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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 unrecognized tax benefits of approximately $ 260 within the next twelve months due to the expiration of statutes of limitation in federal, state, and foreign jurisdictions.

We are no longer subject to U.S.

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

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

Our 2022 US income tax returns were also selected for audit by the Internal Revenue Service.

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

Our 2022 U.S.

income tax return was selected for audit by the Internal Revenue Service and the audit was closed without adjustment.

We were not subject to, nor have we received any notice of, income tax examinations in any other jurisdiction as of December 31, 2025.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S.

The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the 2021 Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions.

Key provisions include modifications to depreciation allowances and the treatment of research and development expenditures.

The legislation has multiple effective dates, with certain provisions effective for the 2025 tax year and others being implemented through 2027.

COMMITMENTS AND CONTINGENCIES

We license technology from third parties and have agreed to pay certain suppliers a royalty based on the number of chips sold or manufactured, the net sales price of the chips containing the licensed technology or a fixed non-cancelable fee.

Royalty expense is recognized based on our estimated average unit cost for royalty contracts with non-cancelable prepayments and the stated contractual per unit rate for all other agreements.

Royalty expense was $ 179 and $ 145 for the years ended December 31, 2024 and 2023, respectively, which is included in cost of revenue in our consolidated statements of operations.

We sponsor a 401(k) plan for eligible employees.

Participants may defer a percentage of their annual compensation on a pre-tax basis, not to exceed the dollar limit that is set by law.

A discretionary matching contribution by the Company is allowed and is equal to a uniform percentage of the amount of salary reduction elected to be deferred, which percentage will be determined each year by the Company.

We made contributions of $ 48 and $ 50 to the 401(k) plan during the years ended December 31, 2024 and 2023, respectively.

Software licenses

We acquire rights to use certain software engineer design tools under software licenses.

As of December 31, 2024, future minimum payments under non-cancelable software licenses are as follows:

Year Ending December 31, Software licenses

Interest component ( 121 )

Present value of minimum software license payments 1,519

Current portion ( 1,156 )

Long-term portion of obligations $ 363

Other Contractual Obligation

As part of the acquisition of ViXS Systems, Inc.

("ViXS") in 2017, we acquired debt associated with an agreement with the Government of Canada called Technology Partnerships Canada ("TPC").

As part of the TPC agreement, ViXS was provided funding to assist in research and development expenses of which a portion was later required to be repaid because the conditions for repayment were met.

The scheduled payments were made on a quarterly basis and ended in January 2024.

Contract Manufacturers

In the normal course of business, we commit to purchase products from our contract manufacturers to be delivered within the next 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.

Indemnifications

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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.

EARNINGS PER SHARE

Basic earnings per share amounts are computed based on the weighted average number of common shares outstanding.

LOSS PER SHARE

Basic earnings (loss) per share amounts are computed based on the weighted average number of common shares outstanding.

Diluted weighted average shares outstanding include the weighted average number of common shares outstanding plus potentially dilutive common shares outstanding during the period.

1 unchanged sentence

Year Ended December 31,

Net loss from continuing operations $ ( 8,249 ) $ ( 12,654 )

Net loss from discontinued operations, net of income taxes ( 15,009 ) ( 16,883 )

Net loss ( 23,258 ) ( 29,537 )

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Net loss attributable to Pixelworks, Inc.

- for purposes of earnings per share calculation $ ( 28,719 ) $ ( 26,176 )

$ ( 22,499 ) $ ( 28,719 )

Weighted average shares outstanding - basic and diluted 5,512 4,866

Net loss attributable to Pixelworks, Inc.

per share - basic and diluted $ ( 0.49 ) $ ( 0.47 )

Net loss from continuing operations per share - basic and diluted ( 1.50 ) ( 2.60 )

Net loss from discontinued operations per share - basic and diluted ( 2.72 ) ( 3.47 )

Net loss attributable to shareholders of Pixelworks, Inc.

$ ( 4.08 ) $ ( 5.90 )

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.

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 have been 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:

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

Year Ended December 31,

Employee equity incentive plans 308 298

SHAREHOLDERS’ EQUITY

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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 $ 2,952 , and gross proceeds of approximately $ 3,079 , and paid Roth commissions and fees and other expenses of approximately $ 127 .

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

Registered Direct Offerings

On March 24, 2025, we entered into a common stock purchase agreement with several purchasers pursuant to which we agreed to issue and sell, in a registered direct offering, an aggregate of 164,176 shares of our common stock, par value $ 0.001 per share, at a purchase price of $ 8.832 per share, resulting in net proceeds of approximately $ 1,341 .

On October 6, 2025, we entered into a common stock purchase agreement with two purchasers pursuant to which we agreed to issue and sell, in a registered direct offering, an aggregate of 666,667 shares of our common stock at a purchase price of $ 10.50 per share, resulting in net proceeds of approximately $ 6,541 .

Employee Equity Incentive Plans

1 unchanged sentence

2006 Stock Incentive Plan (the "2006 Plan").

The 2006 Plan has since been amended and restated on certain occasions, most recently on May 13, 2024 when our shareholders approved an increase to the total number of authorized shares to 29,183,333 shares.

The 2006 Plan has since been amended and restated on certain occasions, most recently on May 23, 2025, when our shareholders approved an increase in the total number of authorized shares to 2,640,278 shares.

As of December 31, 2025, 234,145 shares were available for grant under the 2006 Plan.

1 unchanged sentence

The contractual life of newly issued stock option awards is six years .

Our new hire vesting schedule provides that each option becomes exercisable at a rate of 25 % on the first anniversary date of the grant and 2.083 % on the last day of every month thereafter for a total of 36 additional increments.

Our merit vesting schedule provides that merit-type awards become exercisable monthly over a period of three years .

We did not grant any stock options in 2024 or 2025.

The following is a summary of stock option activity:

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4,679 2.36 24.84 4,192 24.84

$ 22.32 - $ 24.84

28,574 1.01 $ 23.88 27,263 $ 23.91

During the years ended December 31, 2025 and 2024, there were no options exercised.

47 unchanged sentences

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

As of December 31, 2024, unrecognized stock-based compensation expense is $ 3,197 , which is expected to be recognized as stock-based compensation expense over a weighted average period of 0.72 years.

As of December 31, 2025, unrecognized stock-based compensation expense related to continuing operations is $ 1,246 , which is expected to be recognized as stock-based compensation expense over a weighted average period of 0.78 years.

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.

Following the sale of PWSH, we continue to operate in one segment consisting of licensing and services for content creation, remastering and video streaming, and display of cinematic video.

We generate our revenue primarily from services provided for remastering content and from licensing.

The chief operating decision maker, or CODM, is our CEO.

1 unchanged sentence

The CODM regularly reviews the Consolidated Statements of Operations and a disaggregation of operating expenses, of which the significant expenses are related to employee base compensation.

Employee base compensation included in operating expenses was $ 21,292 and $ 21,646 for the years ending December 31, 2024 and December 31, 2023, respectively.

Other segment items include outside services, depreciation and amortization, non-recurring engineering expense, accounting and legal fees, and other expenses.

Other segment items included in operating expenses was $ 32,350 and $ 32,699 for the years ending December 31, 2024 and December 31, 2023.

Employee base compensation included in operating expenses associated with continuing operations was $ 4,750 and $ 4,518 for the years ended December 31, 2025 and December 31, 2024, respectively.

Other segment items include outside services, depreciation and amortization, accounting and legal fees, and other expenses.

Other segment items included in operating expenses associated with continuing operations was $ 7,395 and $ 9,007 for the years ended December 31, 2025 and December 31, 2024.

The CODM does not regularly review segment assets to make decisions regarding the allocation of resources, and as such the Company has not included assets.

Geographic Information

Revenue by geographic region, was as follows:

Year Ended December 31,

Japan $ 25,821 $ 24,083

China 15,937 33,624

Taiwan 729 1,813

$ 43,206 $ 59,677

Revenue attributable to continuing operations all originated in the geographic region of the United States.

Substantially all of the Company’s long‑lived assets are located in the United States.

Significant Customers

The percentage of revenue attributable to our distributors, top five end customers, and individual distributors or end customers that represented more than 10% of revenue in at least one of the periods presented, is as follows:

Year Ended December 31,

Distributors:

All distributors 47 % 66 %

Distributor A 30 % 48 %

End Customers:

Top five end customers 88 % 87 %

End customer A 51 % 32 %

End customer B 19 % 34 %

1 End customers include customers who purchase directly from us, as well as customers who purchase our products indirectly through distributors.

Each of the following accounts represented 10% or more of total accounts receivable in at least one of the periods presented:

Account X 41 % 46 %

Account Y 24 % 8 %

Account Z 17 % 33 %

We had two customers that represented 10 % or more of revenue in both the years ended December 31, 2025, and December 31, 2024.

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 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 Pixelworks on the same terms and conditions as Pixelworks, a right to participate on a pro rata basis in any future financing rounds of PWSH, and Pixelworks’ 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 consumation 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 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 (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 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 attributable to foreign currency being reflected within accumulated other comprehensive income on the 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.

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 US-based Pixelworks entity.

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 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 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 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 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 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 year ended December 31, 2024 are presented in the following table:

Redeemable Non-Controlling Interest ("RNCI")

On August 9, 2021, Pixelworks and PWSH entered into a 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 “2021 ESOP”, together with the “Investors”, the “Capital Contributors”).

Pursuant to the capital increase agreement, the Investors invested approximately $ 30,844 in exchange for a redeemable non-controlling equity interest of 10.45 % of PWSH and the 2021 ESOP invested approximately $ 12,329 in exchange for a redeemable non-controlling equity interest representing 5.95 % of PWSH (the “2021 ESOP Interests”).

Each Investor had the right to require PWSH to redeem its entire equity interest at the original purchase price 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.

Pursuant to this provision and as the RNCI was redeemable upon an event outside of the Company’s control based on solely passage of time, the RNCI is classified as temporary equity in the consolidated balance sheets.

The RNCI was initially recorded at fair value, net of issuance costs, and subsequently remeasured to its redemption value.

The Company elected to accrete changes in the redemption value from the issuance date through the earliest redemption date of June 30, 2024 using the interest method.

In addition, as the RNCI is denominated in RMB, it is revalued to USD at each reporting period with changes in the carrying value attributable to foreign currency recorded in accumulated other comprehensive income in the consolidated balance sheets.

On March 24, 2022, Pixelworks and PWSH entered into a supplemental agreement to capital increase agreement with the Capital Contributors, which deleted the 3 % annual interest previously provided in connection with the redemption option.

In addition, the parties entered into a side letter, pursuant to which, in the event of a change in control of Pixelworks or PWSH, Pixelworks would ensure that the definitive agreement includes a post-closing repurchase covenant that requires the successor entity to repurchase, upon the request of a Capital Contributor, all of PWSH equity held by such Capital Contributor at the original purchase price plus 20 % premium.

Following the supplemental agreement, the RNCI continued to be classified as temporary equity;

however, it was no longer subject to accretion as the interest is removed.

The Company continues to measure the RNCI at an amount at least equal to its redemption value, which equals to original purchase price, and allocate profits to the RNCI based on its ownership in PWSH.

None of the RNCI had been redeemed as of December 31, 2025 and no remeasurement adjustment was recorded to increase the carrying value to redemption value for the years ended December 31, 2024 and December 31, 2025.

The change in RNCI for the year ended December 31, 2025 are presented in the following table:

Carrying Value of Redeemable NCI as of January 1, 2025

1 unchanged sentence

Carrying Value of Redeemable NCI as of December 31, 2025

Equity Interest of PWSH Sold to Employees

On December 21, 2022, Pixelworks and PWSH entered into another capital increase agreement with an entity owned by certain of the employees of PWSH (the “2022 ESOP”, together with the 2021 ESOP, the “ESOP”).

The 2022 ESOP invested approximately $ 1,407 in exchange for a redeemable non-controlling equity interest representing 0.54 %, of PWSH (the “2022 ESOP Interests”, together with the 2021 ESOP Interests, the “ESOP Interests”).

Each holder of ESOP Interests had the right to require PWSH to redeem its entire equity interest at the original purchase price plus 5 % annual interest if PWSH did not consummate a Listing on or before December 31, 2024.

The Supplemental Agreement did not remove or amend this provision.

In addition, the December 2022 capital increase agreement provides that, in the event of a change in control of PWSH prior to the filing of its application for the Listing, each capital contributor would be entitled to a minimum return of 10 % on its original purchase price, payable by Pixelworks in cash from the proceeds of such change in control following its closing.

Because the ESOP Interests are owned by employees of PWSH and its subsidiaries and employees are required to render service until either the Listing or repurchase date, the ESOP Interests are classified as a long-term deposit liability under ASC 718.

The Company accretes the long-term deposit liability to its redemption value and records the periodic interests as compensation expense.

As the ESOP Interests are denominated in RMB and considered a monetary liability under ASC 255, they are revalued to USD at each reporting period with changes in the carrying value attributable to foreign currency recorded as foreign currency gain or loss in consolidated statements of operations.

Support Agreement and Modification

In connection with the Sale of PWSH, Pixelworks, PWSH and the Minority Shareholders, including the Investors, ESOP, and NCI holder (see "Note 16:

Non-Controlling Interest"), entered into the Support Agreement on October 14, 2025.

Pursuant to the Support Agreement and contingent upon the closing of the Sale, Pixelworks agreed to transfer to the Minority Shareholders shares of PWSH capital stock representing a total of approximately 29 % of the total outstanding shares of PWSH immediately prior to the Sale.

In exchange, the Minority Shareholders agreed to release Pixelworks from all existing rights, including the rights to receive a minimum 10 % or 20 % return in connection with a change of control of Pixelworks or PWSH, as described above.

The contingent share transfer and right release is considered a modification to the redeemable non-controlling equity interest and NCI (see "Note 16:

Non-Controlling Interest"), which reflects a negotiated settlement between Pixelworks and the Minority Shareholders in connection with the Sale.

The additional shares to be transferred were intended to provide adequate compensation to the Minority Shareholders for the forfeiture of their existing contractual rights.

Accordingly, the modification did not result in a material change to the fair value of RNCI or NCI (see "Note 16:

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 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):

See "Note 1 Basis of Presentation” and "Note 17 Subsequent Event” for the details of the Sale of PWSH.

Upon the completion of the Sale, the RNCI, ESOP Interests and NCI (see "Note 16:

Non-Controlling Interest") were derecognized as a result of the deconsolidation of PWSH.

NON-CONTROLLING INTEREST

On August 15, 2022, Pixelworks and PWSH entered into an equity transfer agreement with certain private equity investors based in China.

Pursuant to the equity transfer agreement, the Purchasers paid approximately $ 10,738 net of issuance costs, in exchange for a 2.74 % equity interest in PWSH (the “August 2022 NCI”).

In addition, as part of the capital increase agreement entered into on December 21, 2022, as described in "Note 15:

Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees", certain private equity investors paid approximately $ 14,596 , net of issuance costs, in exchange for a 2.76 %, equity interest in PWSH (the “December 2022 NCI”, and together with the August 2022 NCI, the “NCI”).

The equity transfer agreement provides a right consistent with that set forth in the December 2022 capital increase agreement, as described in "Note 15:

Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees", pursuant to which, in the event of a change in control of PWSH prior to the filing of its application for the Listing, each NCI holder would be entitled to a minimum return of 10 % on its original purchase price, payable by Pixelworks in cash from the proceeds of such change in control following its closing.

The Company allocates profits and losses between common shareholders and NCI holders based on their relative ownership interests.

In addition, as the NCI is denominated in RMB, it is revalued to USD at each reporting period with changes in the carrying value attributable to foreign currency recorded in accumulated other comprehensive income in the consolidated balance sheets.

See "Note 15:

Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees" for a discussion of the Support Agreement entered into among Pixelworks, PWSH and the Minority Shareholders in connection with the Sale of PWSH.

Upon the completion of the Sale, the RNCI, ESOP Interests and NCI were derecognized as a result of the deconsolidation of PWSH.

The change in NCI for the year ended December 31, 2025 is presented in the following table:

Carrying Value of Permanent Equity Non-Controlling Interest as of January 1, 2025

2 unchanged sentences

Carrying Value of Permanent Equity Non-Controlling Interest as of December 31, 2025

GOVERNMENT GRANTS

Other government grants not related to long-lived assets are considered income-based grants, which are recognized when the grant becomes receivable and are recognized as other income.

We recognize grants expected to be received directly from a government entity at their stated value.

In December 2024, PWSH received approximately $ 1,754 cash subsidies from the Shanghai government to compensate the purchase of certain IPs, Electronic Design Automation (“EDA”) tools, as well as the incurred expenses in R&D and sales in accordance with the local government’s policy to support strategic emerging industry.

Additionally, PWSH promises that the independent intellectual property rights shall belong to PWSH which is operated in Zhangjiang Science City, and sales settlements are in Zhangjiang Science City.

The Company deferred $ 437 of subsidies as a reduction to related fixed assets’ cost basis, which reduces future depreciation and amortization.

$ 217 of subsidies was recognized as a reduction to depreciation and amortization expense.

The remaining cash subsidies of approximately $ 1,100 was recognized as other income in the consolidated statements of operations for the year ended December 31, 2024.

SUBSEQUENT EVENT

On February 25, 2025, the Board of Directors (the “Board”) of Pixelworks, Inc.

(the “Company”) approved a restructuring plan to make the operation of the Company more efficient and which would result in an approximately 6 % reduction in workforce, in the areas of operations, research and development, and marketing.

The Company expects the restructuring to be substantially complete by the end of the first quarter ending March 31, 2025 and expects to incur total estimated restructuring charges of approximately $ 400 related to employee severance and benefits.

The Company expects that these charges will largely be recorded in the first quarter of 2025.

(“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”).

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

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

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 357,000 or approximately $ 51,000 in U.S.

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

Additionally, approximately RMB 8,700 , or approximately $ 1,200 in U.S.

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

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

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data