PIXELWORKS, INC 10-K

Item 8. Financial Statements and Supplementary Data. The following financial statements and reports are included in Item 8: Report of Independent Registered Public Accounting Firm (PCAOB ID: 248 ) Consolidated Balance Sheets as of December 31, 2025 and 2024 Consolidated Statements of Operations for the years ended December 31, 2025 and 2024 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2025 and 2024 Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2025 and 2024 Notes to Consolidated Financial Statements 27 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders Pixelworks, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Pixelworks, Inc. 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 These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Discontinued Operations - Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (“PWSH”) 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. 28 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; and • 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. San Francisco, California March 12, 2026 29 PIXELWORKS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 31, 2025 2024 ASSETS Current assets: Cash and cash equivalents $ 11,243 $ 5,482 Prepaid expenses and other current assets 568 600 Current assets held for sale 38,422 28,770 Total current assets 50,233 34,852 Property and equipment, net 205 348 Operating lease right-of-use assets 704 1,254 Other assets, net 121 176 Long-term assets held for sale — 27,469 Total assets $ 51,263 $ 64,099 LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ — $ 260 Accrued liabilities and current portion of long-term liabilities 1,972 2,009 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 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 Commitments and contingencies (Note 11) Redeemable non-controlling interest 28,600 27,396 Shareholders' equity (deficit): Preferred stock, $ 0.001 par value, 50,000,000 shares authorized, none issued — — Common stock, $ 0.001 par value; 250,000,000 shares authorized, 6,336,957 and 4,977,228 shares issued and outstanding as of December 31, 2025 and 2024, respectively. 504,405 490,619 Accumulated other comprehensive income 2,882 4,693 Accumulated deficit ( 528,379 ) ( 505,880 ) Total Pixelworks, Inc. shareholders’ deficit ( 21,092 ) ( 10,568 ) Non-controlling interest 22,898 23,050 Total shareholders' equity 1,806 12,482 Total liabilities, redeemable non-controlling interest and shareholders' equity $ 51,263 $ 64,099 See accompanying notes to consolidated financial statements. 30 PIXELWORKS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2025 2024 Revenue, net $ 693 $ 690 Cost of revenue 104 129 Gross profit 589 561 Operating expenses: Research and development (1) 3,695 4,437 Selling, general and administrative (2) 8,450 8,914 Restructuring — 174 Total operating expenses 12,145 13,525 Loss from operations ( 11,556 ) ( 12,964 ) 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 (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 ) Less: 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 ) Weighted average shares outstanding - basic and diluted 5,512 4,866 (1) Includes stock-based compensation $ 421 $ 585 (2) Includes: Stock-based compensation 1,288 1,222 Closing costs associated with sale of PWSH 1,012 — See accompanying notes to consolidated financial statements. 31 PIXELWORKS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) Year Ended December 31, 2025 2024 Net loss $ ( 23,258 ) $ ( 29,537 ) Other comprehensive loss: Foreign currency translation adjustment ( 1,811 ) 1,207 Foreign pension adjustment — 135 Tax effect of foreign pension adjustment — ( 27 ) Comprehensive loss ( 25,069 ) ( 28,222 ) Less: comprehensive loss attributable to non-controlling interest and redeemable non-controlling interests 759 818 Total comprehensive loss attributable to Pixelworks, Inc. $ ( 24,310 ) $ ( 27,404 ) See accompanying notes to consolidated financial statements. 32 PIXELWORKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (a) (In thousands) Year Ended December 31, 2025 2024 Cash flows from operating activities: Net loss $ ( 23,258 ) $ ( 29,537 ) 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 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: Accounts receivable, net 1,323 4,271 Inventories 726 ( 242 ) Prepaid expenses and other current and long-term assets, net 2,486 4,810 Accounts payable ( 680 ) ( 1,016 ) Accrued current and long-term liabilities ( 3,434 ) ( 6,081 ) Income taxes payable ( 6 ) 231 Net cash used in operating activities ( 20,606 ) ( 19,807 ) Cash flows from investing activities: Proceeds from sale of patents 3,000 — Asset related government subsidies received 754 641 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 cash provided by (used in) financing activities 11,720 ( 971 ) Net decrease in cash and cash equivalents ( 5,580 ) ( 23,897 ) Cash and cash equivalents, beginning of period 23,647 47,544 Cash and cash equivalents, end of period $ 18,067 $ 23,647 Supplemental disclosure of cash flow information: Cash paid for income taxes, net of refunds received $ 552 $ 227 Cash paid during the year for interest 127 97 Non-cash investing and financing activities: Purchases of property and equipment and other assets under extended payment terms $ 6 $ 517 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. 33 PIXELWORKS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except share data) Common Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non-Controlling Interest Total Shareholders' Equity Shares Amount Balance as of December 31, 2023 4,760,557 $ 486,324 $ 3,378 $ ( 477,161 ) $ 24,257 $ 36,798 Stock issued under employee equity incentive plans 186,815 180 — — — 180 Stock-based compensation expense — 3,958 — — — 3,958 Foreign currency translation adjustment — — 1,207 — ( 389 ) 818 "At the market" equity offering 29,856 157 — — — 157 Net loss attributable to non-controlling interest — — — — ( 818 ) ( 818 ) Net loss attributable to Pixelworks, Inc. — — — ( 28,719 ) — ( 28,719 ) 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 Stock issued under employee equity incentive plans 181,170 48 48 Stock-based compensation expense — 2,904 — — — 2,904 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 Net loss attributable to non-controlling interest — — — — ( 759 ) ( 759 ) Net loss attributable to Pixelworks, Inc. — — — ( 22,499 ) — ( 22,499 ) 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 See accompanying notes to consolidated financial statements. 34 PIXELWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) NOTE 1. BASIS OF PRESENTATION Nature of Business 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. dollars. 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. Our foreign subsidiary uses the U.S. dollar as the functional currency. 35 Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect amounts reported in the financial statements and accompanying notes. Our significant estimates and judgments include those related to revenue recognition, valuation of excess and obsolete inventory, useful lives and recoverability of equipment and other long-lived assets, valuation of goodwill, valuation of share-based payments, income taxes, litigation and other contingencies. The actual results experienced could differ materially from our estimates. 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. 36 NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents 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 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 Accounts receivable are recorded at invoiced amount and do not bear interest when recorded or accrue interest when past due. Accounts receivable are reduced by an allowance for credit losses, which is our best estimate of the expected credit losses in our existing accounts receivable. We determine the allowance based on historical experience and current economic conditions, among other factors. Allowances for credit losses were not material as of December 31, 2025 or December 31, 2024. Inventories Inventories consist of finished goods and work-in-process, and are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or net realizable value. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization is calculated on a straight-line basis over the estimated useful life of the assets which are generally as follows: Software Lesser of 3 years or contractual license term Equipment, furniture and fixtures 2 years Tooling 2 to 4 years Leasehold improvements Lesser of lease term or estimated useful life The cost of property and equipment repairs and maintenance is expensed as incurred. Licensed Technology We have capitalized licensed technology assets in other long-term assets. These assets are stated at cost and are amortized on a straight-line basis over the term of the license or the estimated life of the asset, if the license is not contractually limited, which is generally two to five years . Useful Lives and Recoverability of Equipment and Other Long-Lived Assets We evaluate the remaining useful life and recoverability of equipment and other assets, including identifiable intangible assets, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If there is an indicator of impairment, we prepare an estimate of future, undiscounted cash flows expected to result from the use of each asset and its eventual disposition. If these cash flows are less than the carrying value of the asset, we adjust the carrying amount of the asset to its estimated fair value. We have concluded that the carrying value of our long-lived assets is recoverable as of December 31, 2025. 37 Goodwill Goodwill is not amortized, rather it is tested, at least annually, for impairment at a reporting unit level. 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 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. We evaluate impairment using the guidance set forth in FASB Accounting Standards Update No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment which states that an entity may first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of goodwill impairment loss to be recognized. An entity has an unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative goodwill impairment test. Our Goodwill balance is classified under held for sale assets as of December 31, 2025. Stock-Based Compensation We currently sponsor a stock incentive plan that allows for issuance of employee stock options and restricted stock awards, including restricted stock units. We also have an employee stock purchase plan for all eligible employees. The fair value of share-based payment awards is expensed using the graded vesting method over the requisite service period, which is generally the vesting period, for each separately vesting tranche of the entire award. Additionally, any modification of an award that increases its fair value will require us to recognize additional expense. 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 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. Income Taxes We account for income taxes under the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between financial statement carrying amounts and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We establish a valuation allowance to reduce deferred tax assets if it is "more likely than not" that a portion or all of the asset will not be realized in future tax returns. An uncertain tax position represents treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. Until these positions are sustained by the taxing authorities, we do not recognize the tax benefits resulting from such positions and report the tax effects for uncertain tax positions in our consolidated balance sheets. 38 Risks and Uncertainties Risk of Technological Change The markets in which we compete, or seek to compete, are subject to rapid technological change, frequent new product introductions, changing customer requirements for new products and features, and evolving industry standards. The introduction of new technologies and the emergence of new industry standards could render our products less desirable or obsolete, which could harm our business. Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist of cash equivalents and accounts receivable. We limit our exposure to credit risk associated with cash equivalent balances by holding our funds in high quality, highly liquid money market accounts. We limit our exposure to credit risk associated with accounts receivable by carefully evaluating creditworthiness before offering terms to customers. To mitigate the risk of concentration associated with cash and cash equivalents, funds are held with creditworthy institutions and, at certain times, temporarily swept into insured programs overnight to reduce single firm concentration risk. Amounts on deposit may exceed federal deposit insurance limits. Recent Accounting Pronouncements In December 2023, the FASB issued ASU No. 2023-09, Improvements To Income Tax Disclosures ("ASU 2023-09"), which focuses on the rate reconciliation and income taxes paid. ASU No. 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. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures ("ASU 2024-03"), requiring disclosures of certain additional expense information on an annual and interim basis, including, among other items, the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included within each income statement expense caption, as applicable. ASU 2024-03 will become effective for us in the year ending December 31, 2027. We are evaluating the impact that the adoption of ASU 2024-03 will have on our financial position, results of operations and cash flows. NOTE 3. 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. 39 Summarized results from discontinued operations were as follows: Year Ended December 31, 2025 2024 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 1,563 1,100 Interest income and other, net 175 844 Loss before income taxes ( 14,582 ) ( 16,449 ) Provision for income taxes 427 434 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, 2025 2024 Assets: Cash and cash equivalents $ 6,824 $ 18,165 Accounts receivable, net 4,481 5,804 Inventories 3,484 4,210 Prepaid expenses and other current assets 1,136 591 Property and equipment, net 3,530 — Operating lease right-of-use assets 375 — 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 — 2,114 Other assets, net — 796 Goodwill — 18,407 Total long-term assets — 27,469 Total assets $ 38,422 $ 56,239 40 Year Ended December 31, 2025 2024 Liabilities: 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 12,672 — Current portion of income taxes payable 429 325 Operating lease liabilities, net of current portion 98 — Total current liabilities 18,005 6,037 Long-term liabilities, net of current portion — 335 Deposit liability — 13,109 Operating lease liabilities, net of current portion — 670 Income taxes payable, net of current portion — 182 Total long-term liabilities — 14,296 Total Liabilities $ 18,005 $ 20,333 The following table presents significant non-cash items and capital expenditures of discontinued operations for the periods presented: December 31, 2025 2024 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. 41 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. 42 NOTE 4. BALANCE SHEET COMPONENTS Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of current prepaid expenses, deposits, income taxes receivable and other receivables. Property and Equipment, Net Property and equipment consists of the following: December 31, 2025 2024 Equipment, furniture and fixtures $ 3,642 $ 3,521 Software 1,959 1,920 Leasehold improvements 634 635 6,235 6,076 Accumulated depreciation and amortization ( 6,030 ) ( 5,728 ) Property and equipment, net $ 205 $ 348 Software amortization was $ 46 and $ 189 for the years ended December 31, 2025 and 2024, 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 Other assets consist primarily of deposits, deferred tax assets and licensed technology. Amortization of licensed technology was $ 40 and $ 40 for the years ended December 31, 2025 and 2024, respectively. Goodwill Goodwill resulted from the acquisition of ViXS Systems, Inc. in 2017, whereby we recorded goodwill of $ 18,407 , which is classified as held for sale as of December 31, 2025. See Note 2: "Summary of Significant Accounting Policies" for information on our assessment of goodwill impairment. Accrued Liabilities and Current Portion of Long-Term Liabilities Accrued liabilities and current portion of long-term liabilities consist of the following: December 31, 2025 2024 Accrued payroll and related liabilities $ 608 $ 912 Operating lease liability, current 441 483 Other accrued expenses 923 614 Accrued liabilities and current portion of long-term liabilities $ 1,972 $ 2,009 43 NOTE 5. FAIR VALUE MEASUREMENTS Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Three levels of inputs may be used to measure fair value: Level 1: Valuations based on quoted prices in active markets for identical assets and liabilities. Level 2: Valuations based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Valuations based on unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions. The following table presents information about our assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets as of December 31, 2025 and 2024: Level 1 Level 2 Level 3 Total As of December 31, 2025: Assets: Cash equivalents: Money market funds 9,276 — — 9,276 As of December 31, 2024: Assets: Cash equivalents: Money market funds 2,054 — — 2,054 We primarily use the market approach to determine the fair value of our financial instruments. The fair value of our current assets and liabilities, including accounts receivable and accounts payable approximates the carrying value due to the short-term nature of these balances. We have currently chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with U.S. GAAP. 44 NOTE 6. 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 related to continuing operations for the years ended December 31, 2025 and 2024 is comprised of the following: Year ended December 31, 2025 2024 Employee severance and benefits $ — $ 174 Total restructuring expense $ — $ 174 Included in operating expenses $ — $ 174 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, 2025 2024 Employee severance and benefits $ 1,109 $ 1,451 Lease termination costs 153 — Total restructuring expense $ 1,262 $ 1,451 Included in cost of revenue $ 78 $ 16 Included in operating expenses 1,184 1,435 The following is a rollforward of the accrued liabilities related to restructuring for the year ended December 31, 2025: Balance as of December 31, 2024 Expensed Payments Balance as of December 31, 2025 Employee severance and benefits $ 191 $ 1,262 $ ( 1,453 ) $ — Total accrued costs related to restructuring $ 191 $ 1,262 $ ( 1,453 ) $ — 45 NOTE 7. LEASES We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating lease ROU assets also exclude lease incentives received. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. We have operating leases primarily for office buildings and spaces. Our leases have remaining lease terms of 1 year to 3 years. 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, 2025 2024 Operating lease cost $ 2,137 $ 2,747 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 2,042 2,702 Leased assets obtained in exchange for new operating lease liabilities 201 1,111 Weighted average remaining lease term (in years) 1.56 1.90 Weighted average discount rate 8.45 % 7.55 % Future minimum lease payments under non-cancellable leases as of December 31, 2025 were as follows: Operating Lease Payments Years ending December 31: 2026 $ 734 2027 342 2028 75 Total operating lease payments 1,151 Less imputed interest ( 83 ) Total operating lease liabilities $ 1,068 As of December 31, 2025, we had no operating lease liabilities that had not commenced. 46 NOTE 8. REVENUE Revenue is recognized when control of the promised good or service is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our principal revenue generating activities consist of the following: 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. 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". Contract Balances Our contract balances include accounts receivable and deferred revenue. Payment terms and conditions for goods and services provided vary by contract; however, payment is generally required within 30 to 60 days of invoicing. We have not identified any material costs incurred associated with obtaining a contract with a customer which would meet the criteria to be capitalized therefore, these costs are expensed as incurred. The Company has elected the practical expedient of not accounting for significant financing components if the period between revenue recognition and when the customer pays for the product or service is one year or less. The aggregate amount of the transaction price allocated to unsatisfied performance obligations with an original expected duration of greater than one year is zero . 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. 47 NOTE 9. OTHER INCOME, NET Interest income and other, net consists of the following: Year Ended December 31, 2025 2024 Interest income $ 123 $ 354 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. NOTE 10. INCOME TAXES Current and Deferred Income Tax Expense Domestic and foreign pre-tax loss from continuing operations is as follows: Year Ended December 31, 2025 2024 Domestic $ ( 8,128 ) $ ( 13,772 ) Foreign ( 305 ) 1,162 Domestic and foreign pre-tax loss $ ( 8,433 ) $ ( 12,610 ) 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, 2025 2024 Current: State $ 3 $ 5 Foreign ( 187 ) 24 Total current ( 184 ) 29 Deferred: Foreign — 15 Total deferred — 15 Provision for income taxes, net: State 3 5 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. 48 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 Amount Rate U.S. 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 ) Tax credits Research tax credits ( 71 ) 0.8 Changes in valuation allowance 1,305 ( 15.5 ) Nontaxable or nondeductible items Equity compensation 435 ( 5.2 ) Other 2 0.0 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 Amount Rate Federal statutory rate $ ( 2,648 ) 21.0 % Impact of foreign earnings ( 20 ) 0.2 Change in valuation allowance 330 ( 2.6 ) Expiration of tax attributes 1,962 ( 15.6 ) Research and development credits and deductions ( 178 ) 1.4 Stock-based compensation 276 ( 2.2 ) 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 State California $ 6 Other 1 Foreign China 5 Taiwan 28 Total income taxes paid $ 40 49 Deferred Tax Assets, Liabilities and Valuation Allowance Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows: December 31, 2025 2024 Deferred tax assets: Research and experimentation credit and deduction carryforwards $ 9,376 $ 10,532 Net operating loss carryforwards 34,206 33,648 Depreciation and amortization 199 494 Reserves and accrued expenses 243 67 Deferred stock-based compensation 318 631 Foreign tax credit carryforwards 53 82 Other 187 256 Total gross deferred tax assets 44,582 45,710 Deferred tax liabilities: Other ( 231 ) ( 303 ) Total gross deferred tax liabilities ( 231 ) ( 303 ) Less valuation allowance ( 44,382 ) ( 45,434 ) 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 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 and Taiwan and have accrued tax on the future repatriation of cash for jurisdictions where withholding taxes would apply . Uncertain Tax Positions We have recorded tax liabilities to address potential exposures involving positions that could be challenged by taxing authorities. As of December 31, 2025, the amount of our uncertain tax positions was a liability of $ 106 and a reduction to deferred tax assets of $ 1,320 . As of December 31, 2024, the amount of our uncertain tax positions was a liability of $ 361 and a reduction to deferred tax assets of $ 1,280 . 50 The following is a summary of the change in our liability for uncertain tax positions and interest and penalties: 2025 2024 Uncertain tax positions: Balance at beginning of year $ 1,536 $ 1,601 Reversal of accrual for positions taken in a prior year 44 14 Reversals due to lapse of statute of limitations ( 163 ) ( 79 ) Balance at end of year $ 1,417 $ 1,536 Interest and penalties: Balance at beginning of year $ 105 $ 97 Accrual for positions taken in prior year 1 10 Reversals due to lapse of statute of limitations ( 97 ) ( 2 ) Balance at end of year $ 9 $ 105 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. and various foreign jurisdictions. A number of years may elapse before an uncertain tax position is resolved by settlement or statutes of limitations. Settlement of any particular position could require the use of cash. If the uncertain tax positions we have accrued for are sustained by the taxing authorities in our favor, the reduction of the liability will reduce our effective tax rate. We are no longer subject to U.S. federal, state, and foreign examinations for years before 2022, 2021 and 2018, respectively. Our net operating loss and tax credit carryforwards from all years may be subject to adjustment for three years following the year in which utilized. We do not anticipate that any potential tax adjustments will have a significant impact on our financial position or results of operations. 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. NOTE 11. COMMITMENTS AND CONTINGENCIES Indemnifications Certain of our agreements include limited indemnification provisions for claims from third parties relating to our products and technology. It is not possible for us to predict the maximum potential amount of future payments or indemnification costs under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. We have not made any payments under these agreements in the past, and as of December 31, 2025, we have not incurred any material liabilities arising from these indemnification obligations. In the future, however, such obligations could immediately impact our results of operations but are not expected to materially affect our business. Legal Proceedings We are subject to legal matters that arise from time to time in the ordinary course of our business. Although we currently believe that resolving such matters, individually or in the aggregate, will not have a material adverse effect on our financial position, our results of operations, or our cash flows, these matters are subject to inherent uncertainties and our view of these matters may change in the future. 51 NOTE 12. 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. The following schedule reconciles the computation of basic and diluted net loss per share (in thousands, except per share data): Year Ended December 31, 2025 2024 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 ) Less: Net loss attributable to non-controlling interests and redeemable non-controlling interests 759 818 Net loss attributable to Pixelworks, Inc. $ ( 22,499 ) $ ( 28,719 ) Weighted average shares outstanding - basic and diluted 5,512 4,866 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 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 (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, 2025 2024 Employee equity incentive plans 308 298 52 NOTE 13. SHAREHOLDERS’ EQUITY Preferred Stock The Company is authorized to issue 50,000,000 shares of preferred stock with a par value of $ 0.001 per share. The Board of Directors is authorized to fix or alter the rights, preferences, privileges and restrictions granted to, or imposed on, each series of preferred stock. There were no shares of preferred stock issued as of December 31, 2025 and 2024. Common Stock The Company is authorized to issue 250,000,000 shares of common stock with a par value of $ 0.001 per share. Shareholders of common stock have unlimited voting rights and are entitled to receive the net assets of the Company upon dissolution, subject to the rights of the preferred shareholders, if any. At the Market Offering On November 14, 2024, we entered into a sales agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth”), pursuant to which we may issue and sell shares of the Company’s common stock, par value $ 0.001 per share, having an aggregate offering price of up to $ 10,000 , from time to time, through an “at the market” equity offering program under which Roth will act as sales agent (the "ATM Program"). Under the Sales Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the Sales Agreement, Roth may sell the shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made through Nasdaq or on any other existing trading market for our common stock. We pay Roth a commission equal to two and a half percent ( 2.5 %) of the gross sales proceeds of any common stock sold through Roth under the Sales Agreement. The Sales Agreement may be terminated by us upon prior notice to Roth or by Roth upon prior notice to us, or at any time under certain circumstances, including but not limited to the occurrence of a material adverse change in the Company. We are not obligated to sell any shares under the Sales Agreement. 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 On May 23, 2006, our shareholders approved the adoption of the Pixelworks, Inc. 2006 Stock Incentive Plan (the "2006 Plan"). 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. Stock Options The contractual life of newly issued stock option awards is six years . We did not grant any stock options in 2024 or 2025. 53 The following is a summary of stock option activity: Number of shares Weighted average exercise price Options outstanding as of December 31, 2024: 31,364 $ 25.93 Expired ( 2,790 ) 46.92 Options outstanding as of December 31, 2025: 28,574 $ 23.88 The following table summarizes information about options outstanding as of December 31, 2025: Options Outstanding Options Exercisable Range of exercise prices Number outstanding as of December 31, 2025 Weighted average remaining contractual life Weighted average exercise price Number exercisable as of December 31, 2025 Weighted average exercise price $ 22.32 - $ 22.32 4,395 0.28 $ 22.32 3,571 $ 22.32 24.00 - 24.00 19,500 0.85 24.00 19,500 24.00 24.84 - 24.84 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. As of December 31, 2025, options outstanding had a total intrinsic value of $ 0 . Options outstanding that have vested and are expected to vest as of December 31, 2025 are as follows: Number of shares Weighted average exercise price Weighted average remaining contractual term Aggregate intrinsic value Vested 27,263 $ 23.91 1.01 $ — Expected to vest 1,279 23.26 1.01 — Total 28,542 $ 23.88 1.01 $ — Restricted Stock The 2006 Plan provides for the issuance of restricted stock, including restricted stock units. During the years ended December 31, 2025 and 2024 we granted 239,439 and 169,190 shares, respectively, of restricted stock with a weighted average grant date fair value of $ 7.57 and $ 27.72 per share, respectively. The following is a summary of restricted stock activity: Number of shares Weighted average grant date fair value Unvested at December 31, 2024: 294,906 $ 24.70 Granted 239,439 7.57 Vested ( 175,835 ) 21.69 Canceled ( 38,548 ) 18.17 Unvested at December 31, 2025: 319,962 $ 13.95 Expected to vest after December 31, 2025 303,735 $ 14.05 54 Employee Stock Purchase Plans On May 18, 2010, our shareholders approved the adoption of the 2010 Pixelworks, Inc. Employee Stock Purchase Plan (the "ESPP") for U.S. employees and for certain foreign subsidiary employees. The ESPP provides for separate offering periods commencing on February 1 and August 1, with the first offering period beginning August 1, 2010. Each offering period continues for a period of 18 months with purchases every six months . Each eligible employee may purchase up to 250 shares of stock on each purchase date, with a maximum annual purchase amount of $ 25 . The purchase price is equal to 85 % of the lesser of the fair market value of the shares on the offering date or on the purchase date. On May 15, 2020, the ESPP was amended when our shareholders approved an increase to the total number of shares of common stock reserved for issuance to 275,000 . During the years ended December 31, 2025 and 2024, we issued 5,368 and 12,733 shares, respectively, for proceeds of $ 47 and $ 180 , respectively, under the ESPP. Stock-Based Compensation Expense The fair value of stock-based compensation was determined using the Black-Scholes option pricing model and the following weighted average assumptions: Year Ended December 31, 2025 2024 Employee Stock Purchase Plan: Risk free interest rate 4.30 % 4.80 % Expected dividend yield 0 % 0 % Expected term (in years) 1.14 0.96 Volatility 74 % 76 % There were no options granted during the years ended December 31, 2025 and December 31, 2024. The risk free interest rate is estimated using an average of treasury bill interest rates. The expected dividend yield is zero as we have not paid any dividends to date and do not expect to pay dividends in the future. Expected volatility is estimated based on the historical volatility of our common stock over the expected term as this represents our best estimate of future volatility. We recognize forfeitures as they occur. The contractual life of newly issued stock options is six years , and we have elected to use the "simplified method" to estimate expected term. Under the simplified method, an option's expected term is calculated as the average of its vesting period and original contractual life. The expected term of ESPP purchase rights is based on the estimated weighted average time to purchase. The vesting period for restricted stock units is approximately three years . As of December 31, 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. 55 NOTE 14. SEGMENT INFORMATION 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. The CODM assesses performance for the operating segment and decides how to allocate resources based on net income (loss) that is also reported on the Consolidated Statement of Operations. 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 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 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 We had two customers that represented 10 % or more of revenue in both the years ended December 31, 2025, and December 31, 2024. 56 NOTE 15. REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY INTEREST OF PWSH SOLD TO EMPLOYEES 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 $ 27,396 Effect of foreign currency translation attributable to redeemable non-controlling interest 1,204 Carrying Value of Redeemable NCI as of December 31, 2025 $ 28,600 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. 57 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"). 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. NOTE 16. 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 $ 23,050 Net loss attributable to non-controlling interest ( 759 ) Effect of foreign currency translation attributable to non-controlling interest 607 Carrying Value of Permanent Equity Non-Controlling Interest as of December 31, 2025 $ 22,898 58 NOTE 17. SUBSEQUENT EVENT 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 357,000 or approximately $ 51,000 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 $ 1,000 in U.S. dollars. 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. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.