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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
FORM 10-Q
________________________________
(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2025
or

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .
Commission File Number: 000-30269
____________________________________
PIXELWORKS, INC.
(Exact name of registrant as specified in its charter)

Oregon |  | 91-1761992
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
16760 SW Upper Boones Ferry Rd., Ste. 101 |  |
Portland | , | Oregon |  | 97224
(Address of principal executive offices) |  | (Zip Code)

(503) 601-4545
(Registrant’s telephone number, including area code)
____________________________________
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, par value $0.001 per share | PXLW | The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer | ☐ |  | Accelerated Filer | ☐
Non-accelerated Filer | ☒ |  | Smaller Reporting Company | ☒
Emerging Growth Company | ☐ |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 6,293,545 as of November 7, 2025
1

Table of Contents
PIXELWORKS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2025
TABLE OF CONTENTS

| Note regarding Forward Looking Statements | 3
| Summary Risk Factors | 4
| PART I – FINANCIAL INFORMATION |
Item 1. | Financial Statements (Unaudited) | 6
| Condensed Consolidated Balance Sheets | 6
| Condensed Consolidated Statements of Operations | 7
| Condensed Consolidated Statements of Comprehensive Loss | 8
| Condensed Consolidated Statements of Cash Flows | 9
| Condensed Consolidated Statements of Shareholders' Equity | 10
| Notes to Condensed Consolidated Financial Statements | 11
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27
Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 37
Item 4. | Controls and Procedures | 38
| PART II – OTHER INFORMATION |
Item 1. | Legal Proceedings | 39
Item 1A. | Risk Factors | 39
Item 5. | Other Information | 60
Item 6. | Exhibits | 62
| SIGNATURE | 64

2

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NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements" that are based on current expectations, estimates, beliefs, assumptions and projections about our business. Words such as "may," "will," "appears," "predicts," "continue," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and the negative or other variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding: the closing of the sale of the shares of Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (“PWSH”) indirectly held by the Company pursuant to the Share Purchase Agreement dated October 15, 2025 (the “Purchase Agreement”) between the Company, PWSH, Pixelworks Semiconductor Technology Company LLC (“Pixelworks LLC”), all other shareholders of PWSH except VeriSilicon Microelectronics (Shanghai) Co., Ltd. (each, a “Selling Shareholder”), and Tiansui Xinyuan Technology (Shanghai) Co., Ltd. (the “Buyer”), under which each of the Company, Pixelworks LLC, and each Selling Shareholder has agreed to sell all of their shares in PWSH to the Buyer (the “Sale”), and the related termination of the redeemable non-controlling interests in PWSH; the anticipated focus of our business after the closing of the Sale on our Cinema market and TrueCut Motion platform and related technology; our strategy, including with respect to our intellectual property portfolio, research and development efforts and acquisition and investment opportunities; our gross profit margin; any future restructuring programs; our liquidity, capital resources and the sufficiency of our working capital and need for, or ability to secure, additional financing and the potential impact thereof; our exchange rate and interest rate risks; our income taxes, including our ability to realize the benefit of net deferred tax assets, our uncertain tax position liability; accounting policies and use of estimates and potential impact of changes thereto; our revenue; our operations in the People's Republic of China ("PRC"), including the risk of changes in the political, economic, legal or social conditions there; statements regarding the impacts of current or proposed tariffs; and statements regarding other risks that may impact our business, including the concentration of our suppliers, technological change, system security and data protection breaches, concentration of credit risk, changes in the markets in which we operate, and our indemnification obligations and litigation. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict and which may cause actual outcomes and results to differ materially from what is expressed or forecasted in such forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as information under the heading “Summary Risk Factors” below. These forward-looking statements speak only as of the date on which they are made, and we do not intend to update any forward-looking statement to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q unless required by law or regulation. If we do update or correct one or more forward-looking statements, you should not conclude that we will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, the "Company," "Pixelworks," "we," "us" and "our" refer to Pixelworks, Inc., an Oregon corporation, and its subsidiaries.
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SUMMARY RISK FACTORS
Our business is subject to varying degrees of risk and uncertainty. Investors should consider the risks and uncertainties summarized below, as well as the risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q. Investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2025, including our condensed consolidated financial statements and related notes, and our other filings made from time to time with the Securities and Exchange Commission. Our business operations could also be affected by factors that we currently consider to be immaterial or that are unknown to us at the present time. If any of these risks occur, our business, financial condition, and results of operations could be materially and adversely affected, and the trading price of our common stock could decline.
Our business is subject to the following principal risks and uncertainties:
•The continued uncertain global economic environment and volatility in global credit, banking and financial markets could materially and adversely affect our business and results of operations.
•If we fail to meet the evolving needs of our markets, identify new products, services or technologies, or successfully compete in our target markets, our revenue and financial results will be adversely impacted.
•Our product strategy may not address the demands of our target customers and may not lead to increased revenue in a timely manner or at all, which could materially adversely affect our results of operations and limit our ability to grow.
•Achieving design wins involves lengthy competitive selection processes that require us to incur significant expenditures prior to generating any revenue and without any guarantee of any revenue related to this business. If we fail to generate revenue after incurring substantial expenses to develop our products, our business and operating results would suffer.
•System security and data protection breaches, as well as cyber-attacks, could disrupt our operations, reduce our expected revenue and increase our expenses, which could adversely affect our share price and damage our reputation.
•If we fail to retain or attract the specialized technical and management personnel required to successfully operate our business, it could harm our business and may result in lost sales and diversion of management resources.
•We have significantly fewer financial resources than most of our competitors, which limits our ability to implement new products or enhancements to our current products, which in turn could adversely affect our future sales and financial condition.
•If we are not profitable in the future, we may be unable to continue our operations.
•A significant amount of our revenue comes from a limited number of customers and distributors exposing us to increased credit risk and subjecting our cash flow to the risk that any of our customers or distributors could decrease or cancel their orders.
•We generally do not have long-term purchase commitments from our customers and if our customers cancel or change their purchase commitments, our revenue and operating results could suffer.
•Our revenue and operating results can fluctuate from period to period, which could cause our share price to decline.
•If we are unable to generate sufficient cash from operations and are forced to seek additional financing, our working capital may be adversely affected and our shareholders may experience dilution or our operations may be impaired.
•We face a number of risks as a result of the concentration of our operations and customers in the PRC.
•Our operations in Asia expose us to heightened risks due to natural disasters, as well as geopolitical risks.
•Our international operations expose us to exchange rate risks resulting from the fluctuations of foreign currencies.
•If we are unable to maintain effective disclosure controls and internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and our share price may be materially and adversely affected.
•Our dependence on selling to distributors and integrators increases the complexity of managing our supply chain and may result in excess inventory or inventory shortages.
•We may be unable to successfully manage any future growth, including the integration of any acquisition or equity investment, which could disrupt our business and severely harm our financial condition.
•Continued compliance with regulatory and accounting requirements will be challenging and will require significant resources.
•Regulations related to conflict minerals may adversely impact our business.
•Dependence on a limited number of sole-source, third-party manufacturers for our products exposes us to possible shortages based on low manufacturing yield, errors in manufacturing, uncontrollable lead-times for manufacturing, capacity allocation, price increases with little notice, volatile inventory levels, and delays in product delivery, any of which could result in delays in satisfying customer demand, increased costs and loss of revenue.
•Shortages of materials used in the manufacturing of our products and other key components of our customers’ products may increase our costs, impair our ability to ship our products on time, and delay our ability to sell our products.
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•Our highly integrated products and high-speed mixed signal products are difficult to manufacture without defects and the existence of defects could result in increased costs, delays in the availability of our products, reduced sales of our products, or claims against us.
•The development of new products is extremely complex and we may be unable to develop our new products in a timely manner, which could result in a failure to obtain new design wins and/or maintain our current revenue levels.
•Intense competition in our markets may reduce sales of our products, reduce our market share, and decrease our gross profit, which may result in large losses.
•If we are not able to respond to the rapid technological changes and evolving industry standards in the markets in which we compete, or seek to compete, our products may become less desirable or obsolete.
•We depend on the manufacturers of our semiconductor products not only to respond to changes in technology and industry standards but also to continue the manufacturing processes on which we rely.
•Because of our long product development process and sales cycles, we may incur substantial costs before we earn associated revenue and ultimately may not sell as many units of our products as we originally anticipated.
•The competitiveness and viability of our products could be harmed if necessary licenses of third-party technology are not available to us on terms that are acceptable to us or at all.
•Our limited ability to protect our IP and proprietary rights could harm our competitive position by allowing our competitors to access our proprietary technology and to introduce similar products.
•Our products are characterized by average selling prices that can decline over relatively short periods of time, which will negatively affect our financial results unless we are able to reduce our product costs or introduce new products with higher average selling prices.
•The cyclical nature of the semiconductor industry may lead to significant variances in the demand for our products and could harm our operations.
•Risks associated with our operations in the PRC, including the risk of changes in China's political, economic or social conditions or changes in U.S.-China relations, as well as liquidity risks, may adversely and materially affect our results of operations, financial position and share price.
•Legal and operational risks related to the legal system and regulations in the PRC, including uncertainties regarding the enforcement of laws or sudden or unexpected changes in laws, required approvals and permissions, could adversely affect us and limit the legal protections available to the Company and its shareholders, as well as materially and adversely affecting our business and share price.
•PWSH's status as a private company in China that is controlled, but less than wholly owned, by Pixelworks could have an adverse effect on us.
•If we are unable to close on a transaction, such as the Sale, in which the various non-Pixelworks investors in PWSH sell their shares or otherwise waive their repurchase rights, or otherwise negotiate for an extension or cancellation of those rights, we may be required to re-purchase the shares of PWSH held by those investors who elect for repurchase under the provisions of the August 2021 Capital Increase Agreement or the agreements governing the employee-owned entities known as “ESOPs,” which would materially and adversely impact our cash position.
•The pendency of the Sale, whether or not consummated, may adversely affect our business and the trading price of our common stock.
•Failure to complete the Sale could cause our stock price to decline.
•If we fail to complete the Sale, our business and financial performance may be adversely affected.
•If the Sale is not approved by our shareholders or if we fail to complete the Sale, no other offer from a potential acquirer of PWSH may be available that our Board believes to be attractive.
•We will incur significant expenses in connection with the Sale, regardless of whether the Sale is completed and, in certain circumstances, will be required to pay a termination fee to the Buyer.
•In the event the Sale is completed, our shareholder will not receive any of the proceeds of the Sale. Further, our management will have broad discretion over the sale proceeds, and we may not achieve the positive financial results from such uses that we expect.
•We face additional risks associated with our operations in China, including the risk of changes in China’s political, economic or social conditions or changes in U.S.-China relations, as well as liquidity risks, any of which may have the effect of delaying or impeding the closing of the Sale.
•We will have fewer sources of revenue following the Sale, which may negatively impact the value of our common stock.
•We may be unable to maintain compliance with Nasdaq Listing Rules, which could cause our common stock to be delisted from Nasdaq. This could result in the lack of a liquid trading market for our common stock, cause a decrease in the value of our common stock, and adversely affect our business, financial condition and results of operations.
•The price of our common stock has and may continue to fluctuate substantially.
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PART I – FINANCIAL INFORMATION
Item 1.Financial Statements.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

| September 30, 2025 |  | December 31, 2024
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 14,611 |  |  | $ | 23,647 |
Accounts receivable, net | 5,683 |  |  | 5,804 |
Inventories | 3,148 |  |  | 4,210 |
Prepaid expenses and other current assets | 1,889 |  |  | 1,191 |
Total current assets | 25,331 |  |  | 34,852 |
Property and equipment, net | 4,220 |  |  | 6,500 |
Operating lease right-of-use assets | 1,911 |  |  | 3,368 |
Other assets, net | 652 |  |  | 945 |
Goodwill | 18,407 |  |  | 18,407 |
Total assets | $ | 50,521 |  |  | $ | 64,072 |
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND SHAREHOLDERS' EQUITY (DEFICIT) |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 1,683 |  |  | $ | 1,400 |
Accrued liabilities and current portion of long-term liabilities | 6,600 |  |  | 6,581 |
Short-term line of credit | 1,404 |  |  | — |
Current portion of income taxes payable | 81 |  |  | 365 |
Total current liabilities | 9,768 |  |  | 8,346 |
Long-term liabilities, net of current portion | — |  |  | 375 |
Deposit liability | 12,325 |  |  | 13,109 |
Operating lease liabilities, net of current portion | 670 |  |  | 1,450 |
Income taxes payable, net of current portion | 833 |  |  | 914 |
Total liabilities | 23,596 |  |  | 24,194 |
Commitments and contingencies (Note 12) |  |  |
Redeemable non-controlling interest | 28,077 |  |  | 27,396 |
Shareholders’ equity (deficit): |  |  |
Preferred stock | — |  |  | — |
Common stock | 497,204 |  |  | 490,619 |
Accumulated other comprehensive income | 3,644 |  |  | 4,693 |
Accumulated deficit | (524,780) |  |  | (505,880) |
Total Pixelworks, Inc. shareholders’ deficit | (23,932) |  |  | (10,568) |
Non-controlling interest | 22,780 |  |  | 23,050 |
Total shareholders' equity (deficit) | (1,152) |  |  | 12,482 |
Total liabilities, redeemable non-controlling interest and shareholders’ equity | $ | 50,521 |  |  | $ | 64,072 |

See accompanying notes to condensed consolidated financial statements.
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PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Revenue, net | $ | 8,771 |  |  | $ | 9,527 |  |  | $ | 24,115 |  |  | $ | 34,116 |
Cost of revenue (1) | 4,400 |  |  | 4,648 |  |  | 12,513 |  |  | 16,797 |
Gross profit | 4,371 |  |  | 4,879 |  |  | 11,602 |  |  | 17,319 |
Operating expenses: |  |  |  |  |  |  |
Research and development (2) | 5,720 |  |  | 8,405 |  |  | 18,241 |  |  | 24,421 |
Selling, general and administrative (3) | 4,273 |  |  | 5,016 |  |  | 13,347 |  |  | 16,272 |
Restructuring | — |  |  | 90 |  |  | 1,033 |  |  | 1,493 |
Total operating expenses | 9,993 |  |  | 13,511 |  |  | 32,621 |  |  | 42,186 |
Loss from operations | (5,622) |  |  | (8,632) |  |  | (21,019) |  |  | (24,867) |
Government subsidies received | 467 |  |  | — |  |  | 1,281 |  |  | — |
Interest income and other, net | 51 |  |  | 296 |  |  | 214 |  |  | 1,057 |
Total other income, net | 518 |  |  | 296 |  |  | 1,495 |  |  | 1,057 |
Loss before income taxes | (5,104) |  |  | (8,336) |  |  | (19,524) |  |  | (23,810) |
Provision (benefit) for income taxes | (511) |  |  | 125 |  |  | 14 |  |  | 262 |
Net loss | (4,593) |  |  | (8,461) |  |  | (19,538) |  |  | (24,072) |
Less: Net loss attributable to redeemable non-controlling interest and non-controlling interest | 161 |  |  | 320 |  |  | 638 |  |  | 716 |
Net loss attributable to Pixelworks, Inc. | $ | (4,432) |  |  | $ | (8,141) |  |  | $ | (18,900) |  |  | $ | (23,356) |
Net loss attributable to Pixelworks, Inc. per share - basic and diluted | $ | (0.81) |  |  | $ | (1.66) |  |  | $ | (3.59) |  |  | $ | (4.82) |
Weighted average shares outstanding - basic and diluted | 5,440 |  |  | 4,893 |  |  | 5,258 |  |  | 4,843 |

(1) Includes: |  |  |  |  |  |  |
Stock-based compensation | $ | 9 |  |  | $ | 13 |  |  | $ | 29 |  |  | $ | 41 |
Restructuring | — |  |  | — |  |  | 78 |  |  | 16 |

(2) Includes stock-based compensation | 174 |  |  | 327 |  |  | 637 |  |  | 973 |

(3) Includes stock-based compensation | 571 |  |  | 702 |  |  | 1,578 |  |  | 2,028 |

See accompanying notes to condensed consolidated financial statements.
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PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Net loss | $ | (4,593) |  |  | $ | (8,461) |  |  | $ | (19,538) |  |  | $ | (24,072) |
Other comprehensive loss, net of tax: |  |  |  |  |  |  |
Foreign currency translation adjustment | (231) |  |  | (996) |  |  | (1,049) |  |  | (299) |
Comprehensive loss | (4,824) |  |  | (9,457) |  |  | (20,587) |  |  | (24,371) |
Less: comprehensive loss attributable to redeemable non-controlling interest and non-controlling interest | 161 |  |  | 320 |  |  | 638 |  |  | 716 |
Total comprehensive loss attributable to Pixelworks, Inc. | $ | (4,663) |  |  | $ | (9,137) |  |  | $ | (19,949) |  |  | $ | (23,655) |

See accompanying notes to condensed consolidated financial statements.
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PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

| Nine Months Ended September 30,
| 2025 |  | 2024
Cash flows from operating activities: |  |  |
Net loss | $ | (19,538) |  |  | $ | (24,072) |
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |
Stock-based compensation | 2,245 |  |  | 3,042 |
Depreciation and amortization | 2,047 |  |  | 3,088 |
Reversal of uncertain tax positions | (261) |  |  | (3) |
Deferred income tax expense | (122) |  |  | (86) |
Loss on asset disposal | 34 |  |  | — |
Changes in operating assets and liabilities: |  |  |
Accounts receivable, net | 121 |  |  | 5,578 |
Inventories | 1,061 |  |  | (430) |
Prepaid expenses and other current and long-term assets, net | 1,230 |  |  | 3,287 |
Accounts payable | 283 |  |  | (475) |
Accrued current and long-term liabilities | (1,125) |  |  | (4,261) |
Income taxes payable | (103) |  |  | 126 |
Net cash used in operating activities | (14,128) |  |  | (14,206) |
Cash flows from investing activities: |  |  |
Asset related government subsidies received | 754 |  |  |
Purchases of property and equipment | (403) |  |  | (3,647) |
Net cash provided by (used in) investing activities | 351 |  |  | (3,647) |
Cash flows from financing activities: |  |  |
Net proceeds from "at the market" equity offering | 2,952 |  |  | — |
Proceeds from short-term line of credit | 1,404 |  |  | — |
Net proceeds from "registered direct offering" | 1,341 |  |  |
Payments on asset financings | (1,004) |  |  | (1,041) |
Proceeds from issuance of common stock under employee equity incentive plans | 48 |  |  | 180 |
Net cash provided by (used in) financing activities | 4,741 |  |  | (861) |
Net decrease in cash and cash equivalents | (9,036) |  |  | (18,714) |
Cash and cash equivalents, beginning of period | 23,647 |  |  | 47,544 |
Cash and cash equivalents, end of period | $ | 14,611 |  |  | $ | 28,830 |
Supplemental disclosure of cash flow information: |  |  |
Cash paid during the period for income taxes, net of refunds received | $ | 499 |  |  | $ | 225 |
Cash paid during the period for interest | 99 |  |  | 78 |
Non-cash investing and financing activities: |  |  |
Acquisitions of property and equipment and other assets, unpaid at period end. | $ | 6 |  |  | $ | 554 |

See accompanying notes to condensed consolidated financial statements.
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PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
(Unaudited)

| Common Stock |  | Accumulated Other Comprehensive Income (loss) |  | Accumulated Deficit |  | Non-Controlling Interest |  | Total Shareholders' Equity (Deficit)
2025 | Shares |  | Amount |  |
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 | 45,480 |  |  | 29 |  |  | — |  |  | — |  |  | — |  |  | 29 |
Stock-based compensation expense | — |  |  | 751 |  |  | — |  |  | — |  |  | — |  |  | 751 |
Foreign currency translation adjustment | — |  |  | — |  |  | (252) |  |  | — |  |  | 115 |  |  | (137) |
Registered direct offering | 164,176 |  |  | 1,341 |  |  | — |  |  | — |  |  | — |  |  | 1,341 |
"At the market" equity offering | 59,165 |  |  | 485 |  |  | — |  |  | — |  |  | — |  |  | 485 |
Net loss attributable to non-controlling interest | — |  |  | — |  |  | — |  |  | — |  |  | (259) |  |  | (259) |
Net loss attributable to Pixelworks, Inc. | — |  |  | — |  |  | — |  |  | (7,761) |  |  | $ | — |  |  | (7,761) |
Balance as of March 31, 2025 | 5,246,049 |  |  | $ | 493,225 |  |  | $ | 4,441 |  |  | $ | (513,641) |  |  | $ | 22,906 |  |  | $ | 6,931 |
Stock issued under employee equity incentive plans | 63,147 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Stock-based compensation expense | — |  |  | 739 |  |  | — |  |  | — |  |  | — |  |  | 739 |
Foreign currency translation adjustment | — |  |  | — |  |  | (566) |  |  | — |  |  | 180 |  |  | (386) |
"At the market" equity offering | 10,010 |  |  | 73 |  |  | — |  |  | — |  |  | — |  |  | 73 |
Net loss attributable to non-controlling interest | — |  |  | — |  |  | — |  |  | — |  |  | (218) |  |  | (218) |
Net loss attributable to Pixelworks, Inc. | — |  |  | — |  |  | — |  |  | (6,707) |  |  | — |  |  | (6,707) |
Fractional share adjustment due to reverse stock split | 157 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Balance as of June 30, 2025 | 5,319,363 |  |  | $ | 494,037 |  |  | $ | 3,875 |  |  | $ | (520,348) |  |  | $ | 22,868 |  |  | $ | 432 |
Stock issued under employee equity incentive plans | 29,131 |  |  | $ | 19 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 19 |
Stock-based compensation expense | — |  |  | 754 |  |  | — |  |  | — |  |  | — |  |  | 754 |
Foreign currency translation adjustment | — |  |  | — |  |  | (231) |  |  | — |  |  | 73 |  |  | (158) |
"At the market" equity offering | 278,384 |  |  | 2,394 |  |  | — |  |  | — |  |  | — |  |  | 2,394 |
Net loss attributable to non-controlling interest | — |  |  | — |  |  | — |  |  | — |  |  | (161) |  |  | (161) |
Net loss attributable to Pixelworks, Inc. | — |  |  | — |  |  | — |  |  | (4,432) |  |  | — |  |  | (4,432) |
Balance as of September 30, 2025 | 5,626,878 |  |  | $ | 497,204 |  |  | $ | 3,644 |  |  | $ | (524,780) |  |  | $ | 22,780 |  |  | $ | (1,152) |
2024 |  |  |  |  |  |  |  |  |  |  |
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 | 56,719 |  |  | 125 |  |  | — |  |  | — |  |  | — |  |  | 125 |
Stock-based compensation expense | — |  |  | 1,075 |  |  | — |  |  | — |  |  | — |  |  | 1,075 |
Foreign currency translation adjustment | — |  |  | — |  |  | 775 |  |  | — |  |  | (253) |  |  | 522 |
Net loss attributable to non-controlling interest | — |  |  | — |  |  | — |  |  | — |  |  | (98) |  |  | (98) |
Net loss attributable to Pixelworks, Inc. | — |  |  | — |  |  | — |  |  | (5,066) |  |  | — |  |  | (5,066) |
Balance as of March 31, 2024 | 4,817,276 |  |  | $ | 487,524 |  |  | $ | 4,153 |  |  | $ | (482,227) |  |  | $ | 23,906 |  |  | $ | 33,356 |
Stock issued under employee equity incentive plans | 55,499 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock-based compensation expense | — |  |  | 925 |  |  | — |  |  | — |  |  | — |  |  | 925 |
Foreign currency translation adjustment | — |  |  | — |  |  | 260 |  |  | — |  |  | (85) |  |  | 175 |
Net loss attributable to non-controlling interest | — |  |  | — |  |  | — |  |  | — |  |  | (298) |  |  | (298) |
Net loss attributable to Pixelworks, Inc. | — |  |  | — |  |  | — |  |  | (10,149) |  |  | — |  |  | (10,149) |
Balance as of June 30, 2024 | 4,872,775 |  |  | $ | 488,449 |  |  | $ | 4,413 |  |  | $ | (492,376) |  |  | $ | 23,523 |  |  | $ | 24,009 |
Stock issued under employee equity incentive plans | 38,760 |  |  | 55 |  |  | — |  |  | — |  |  | — |  |  | 55 |
Stock-based compensation expense | — |  |  | 1,042 |  |  | — |  |  | — |  |  | — |  |  | 1,042 |
Foreign currency translation adjustment | — |  |  | — |  |  | (1,471) |  |  | — |  |  | 475 |  |  | (996) |
Net loss attributable to non-controlling interest | — |  |  | — |  |  | — |  |  | — |  |  | (320) |  |  | (320) |
Net loss attributable to Pixelworks, Inc. | — |  |  | — |  |  | — |  |  | (8,141) |  |  | — |  |  | (8,141) |
Balance as of September 30, 2024 | 4,911,535 |  |  | $ | 489,546 |  |  | $ | 2,942 |  |  | $ | (500,517) |  |  | $ | 23,678 |  |  | $ | 15,649 |

See accompanying notes to condensed consolidated financial statements.
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PIXELWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
Nature of Business
Pixelworks is a leading provider of high-performance and power-efficient visual processing semiconductor and software solutions that enable consistently high-quality and authentic viewing experiences in a wide variety of applications. We define our primary target markets as Mobile (smartphone and tablet), Home & Enterprise (projectors, personal video recorders ("PVR"), and over-the-air ("OTA") streaming devices), and Cinema (creation, remastering, and delivery of digital video content). Previously we classified our primary target markets as Mobile, Projector, Video Delivery and Cinema, but have since aggregated the Projector and Video Delivery categories into one market called "Home & Enterprise".
During 2021, we engaged in a strategic plan to re-align our Mobile and Home & Enterprise businesses to improve their focus on their Asia-centered customers and employee stakeholders (the "Strategic Plan"). One of our Chinese subsidiaries, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. ("PWSH"), now operates these businesses as a full profit-and-loss center underneath Pixelworks. In connection with the strategic plan, the Company and PWSH closed three separate financing transactions in 2021 and 2022, which are further described in "Note 13: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees" and "Note 14: Non-Controlling Interest", below. PWSH has a branch office located in Shenzhen, China (Pixelworks Semiconductor Technology (Shanghai) Co. Ltd. Shenzhen Branch Office No. 1), which is primarily for sales and customer support for PWSH, and a subsidiary located in Hong Kong (Pixelworks Hong Kong Limited), which has no employees and is used for distribution of PWSH products. Pixelworks has an additional subsidiary in China (Frame Shadow Technology (Shanghai) Co., Ltd. (formerly called Mucheng Huai Management Consulting (Shanghai) Co., Ltd)) which is a research and development center for our TrueCut business. This subsidiary does not operate under PWSH, but rather is owned by Pixelworks through our Oregon limited liability company, Pixelworks Semiconductor Technology Company, LLC ("Pixelworks LLC"). More than a majority of our operations are in China, but our executive officers and all of our directors but one are located in the United States (and he resides in Singapore). We are neither a PRC operating company nor do we conduct our operations in China through the use of variable interest entities. Our auditor is Grant Thornton LLP, with headquarters in Chicago, Illinois. The Holding Foreign Companies Accountable Act, as amended by the Consolidated Appropriations Act, 2023, and related regulations, therefore do not apply to Pixelworks.
In the second half of 2024 we engaged with Morgan Stanley and initiated a formal review process after receiving inbound strategic interest in PWSH. In May of 2025, we received non-binding term sheets from three different potential buyers, and engaged in due diligence with each. On October 6, 2025, we announced that the Company was in discussions with a buyer relating to the sale of the shares of PWSH indirectly held by the Company, and on October 15, 2025, the Company, PWSH, Pixelworks LLC and all other shareholders of PWSH except VeriSilicon Microelectronics (Shanghai) Co., Ltd. (each, a “Selling Shareholder”), entered into a Share Purchase Agreement (the “Purchase Agreement") with Tiansui Xinyuan Technology (Shanghai) Co., Ltd. (the “Buyer”), a special purpose entity led by VeriSilicon Microelectronics (Shanghai) Co., Ltd. (“VeriSilicon”), pursuant to which each of the Company, Pixelworks LLC, and each Selling Shareholder agreed to sell all of their shares in PWSH to the Buyer (the “Sale”). The purchase price is calculated based on an equity value of 100% of PWSH of RMB 950 million (approximately $133 million USD as of September 30, 2025). Net of agreed-upon share transfers to other shareholders, transaction costs, and withholding taxes in China, the Company expects to receive cash in the range of approximately $50 million to $60 million upon closing of the Sale. The Sale may be deemed to represent the sale of substantially all of the assets of the Company, and therefore is being submitted to a vote of the Company’s shareholders; the affirmative vote of the holders of at least 67% of the outstanding shares of the Company’s common stock is required for approval. The Company has disseminated to its shareholders a proxy statement with respect to a special meeting of shareholders to approve the Sale. Assuming all closing conditions are met in a timely manner, the Company expects the closing of the Sale to take place by December 31, 2025. Following the Sale, the Company intends to focus on its remaining business in cinematic visualization solutions, including its flagship TrueCut Motion TM platform.
Pixelworks was founded in 1997 and is incorporated under the laws of the state of Oregon.
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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 condensed 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.
Condensed Consolidated Financial Statements
The financial information included herein for the nine months ended September 30, 2025 and 2024 is prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and is unaudited. Such information reflects all adjustments, consisting of only normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of our condensed consolidated financial statements for these interim periods. The financial information as of December 31, 2024 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2024, included in Item 8 of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 13, 2025, as amended, and should be read in conjunction with such consolidated financial statements.
The results of operations for the nine months ended September 30, 2025 and 2024 are not necessarily indicative of the results expected for future periods or for the entire fiscal year ending December 31, 2025.
Significant Accounting Policies
There have been no material changes to our significant accounting policies disclosed in "Note 2: Summary of Significant Accounting Policies", of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as amended.
Recent Accounting Pronouncements
On July 4, 2025, Public Law 119-21 or the One Big Beautiful Bill Act ("OBBBA") was enacted. The OBBBA includes a broad range of provisions, such as the permanent extension of otherwise expiring provisions, modifications to the international tax framework, and the reinstatement of certain business tax provisions. While most of the changes made by the OBBBA are effective in future years, some of its provisions are effective in 2025. We do not expect the impact of these tax law changes to have a material impact to our consolidated financial statements and are continuing to evaluate.
In December 2023, the Financial Standards Accounting Board (the "FASB") issued Accounting Standards Update ("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, 2025. We are evaluating the impact that the adoption of ASU 2023-09 will have on our financial position, results of operations and cash flows.
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.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect amounts reported in the financial statements and accompanying notes. Our significant estimates and judgments include those related to revenue recognition, valuation of excess and obsolete inventory, useful lives and recoverability of equipment and other long-lived assets, valuation of goodwill, valuation of share-based payments, income taxes, litigation and other contingencies. The actual results experienced could differ materially from our estimates.
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NOTE 2: BALANCE SHEET COMPONENTS
Inventories
Inventories consist of finished goods and work-in-process, and are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market (net realizable value).
Inventories consist of the following:

| September 30, 2025 |  | December 31, 2024
Finished goods | $ | 2,358 |  |  | $ | 2,748 |
Work-in-process | 790 |  |  | 1,462 |
Inventories | $ | 3,148 |  |  | $ | 4,210 |

Property and Equipment, Net
Property and equipment, net consists of the following:

| September 30, 2025 |  | December 31, 2024
Gross property and equipment | $ | 24,862 |  |  | $ | 25,982 |
Less: accumulated depreciation and amortization | (20,642) |  |  | (19,482) |
Property and equipment, net | $ | 4,220 |  |  | $ | 6,500 |

Goodwill
Goodwill resulted from the acquisition of ViXS Systems, Inc. (the "Acquisition"), in 2017, whereby we recorded goodwill of $18,407.
Goodwill is not amortized; however, we review goodwill for impairment annually and whenever events or changes in circumstances indicate that the fair value of the reporting unit may be less than its carrying value. Conditions that would trigger an impairment assessment include, but are not limited to, a significant adverse change in our business climate or a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continued losses or adverse changes in legal factors, regulation or business environment or a sustained decrease in stock price. We perform our annual impairment assessment for goodwill on November 30 of each year.
Accrued Liabilities and Current Portion of Long-Term Liabilities
Accrued liabilities and current portion of long-term liabilities consist of the following:

| September 30, 2025 |  | December 31, 2024
Accrued payroll and related liabilities | $ | 3,000 |  |  | $ | 1,937 |
Operating lease liabilities, current | 1,414 |  |  | 2,036 |
Current portion of accrued liabilities for asset financings | 515 |  |  | 1,156 |
Accrued costs related to restructuring | — |  |  | 191 |
Other | 1,671 |  |  | 1,261 |
Accrued liabilities and current portion of long-term liabilities | $ | 6,600 |  |  | $ | 6,581 |

Entry Into Loan Agreement
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 (the “Loan Agreement”), pursuant to which PWSH may borrow up to RMB 10,000 (approximately $1,400 as of September 30, 2025). As of September 30, 2025, PWSH borrowed RMB 10,000 under the Loan Agreement, which has a maturity date of August 25, 2026.
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NOTE 3: FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Three levels of inputs may be used to measure fair value:
Level 1:Valuations based on quoted prices in active markets for identical assets and liabilities.
Level 2:Valuations based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3:Valuations based on unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.
The following table presents information about our assets measured at fair value on a recurring basis in the condensed consolidated balance sheets as of September 30, 2025 and December 31, 2024:

| Level 1 |  | Level 2 |  | Level 3 |  | Total
As of September 30, 2025: |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |
Cash equivalents: |  |  |  |  |  |  |
Certificates of deposit | $ | 800 |  |  | $ | — |  |  | $ | — |  |  | $ | 800 |
Money market funds | 116 |  |  | — |  |  | — |  |  | 116 |
As of December 31, 2024: |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |
Cash equivalents: |  |  |  |  |  |  |
Certificates of deposit | $ | 5,029 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,029 |
Money market funds | 204 |  |  | — |  |  | — |  |  | 204 |

We primarily use the market approach to determine the fair value of our financial assets. The fair value of our current assets and liabilities, including accounts receivable and accounts payable approximates the carrying value due to the short-term nature of these balances. We have currently chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with U.S. GAAP.
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NOTE 4: 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 condensed consolidated statements of operations for the three and nine month periods ended September 30, 2025 and 2024 is comprised of the following:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Cost of revenue — restructuring: |  |  |  |  |  |  |
Employee severance and benefits | $ | — |  |  | $ | — |  |  | $ | 78 |  |  | $ | 16 |
| — |  |  | — |  |  | 78 |  |  | 16 |
Operating expenses — restructuring: |  |  |  |  |  |  |
Employee severance and benefits | $ | — |  |  | $ | 90 |  |  | $ | 1,033 |  |  | $ | 1,493 |
| — |  |  | 90 |  |  | 1,033 |  |  | 1,493 |
Total restructuring expense | $ | — |  |  | $ | 90 |  |  | $ | 1,111 |  |  | $ | 1,509 |

The following is a rollforward of the accrued liabilities related to restructuring for the nine month period ended September 30, 2025:

| Balance as of December 31, 2024 |  |  |  | Expensed |  | Payments |  | Balance as of September 30, 2025
Employee severance and benefits | $ | 191 |  |  |  |  | $ | 1,111 |  |  | $ | (1,302) |  |  | $ | — |
Total accrued costs related to restructuring | $ | 191 |  |  |  |  | $ | 1,111 |  |  | $ | (1,302) |  |  | $ | — |

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NOTE 5: LEASES
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued liabilities and current portion of long-term liabilities, and operating lease liabilities in our condensed consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating lease ROU assets also exclude lease incentives received. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
We have operating leases primarily for office buildings and spaces. Our leases have remaining lease terms of one year to three years. Supplemental information related to lease expense and valuation of the ROU assets and lease liabilities was as follows:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Operating lease cost: | $ | 557 |  |  | $ | 690 |  |  | $ | 1,686 |  |  | $ | 2,102 |

| Nine Months Ended
| September 30,
| 2025 |  | 2024
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
Operating cash flows from operating leases | $ | 1,492 |  | $ | 2,052
Supplemental non-cash information related to lease liabilities arising from obtaining right-of-use assets | 201 |  | 1,111
Weighted average remaining lease term (in years) | 1.61 |  | 2.03
Weighted average discount rate | 7.41 | % |  | 7.52 | %

Future minimum lease payments under non-cancellable leases as of September 30, 2025 were as follows:

Operating Lease Payments |
Three months ending December 31, 2025 | $ | 523 |
Years ending December 31: |
2026 | 1,195 |
2027 | 430 |
2028 | 76 |
Total operating lease payments | 2,224 |
Less imputed interest | (140) |
Total operating lease liabilities | $ | 2,084 |

As of September 30, 2025, we had no operating lease liabilities that had not commenced.
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NOTE 6: REVENUE
Revenue is recognized when control of the promised good or service is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our principal revenue generating activities consist of the following:
Product Sales - We sell integrated circuit products, also known as “chips” or “ICs”, based upon a customer purchase order, which includes a fixed price per unit. ICs are sold into two target end markets: Mobile and Home & Enterprise. We have elected to account for shipping and handling as activities to fulfill the promise to transfer the goods, and not evaluate whether these activities are promised services to the customer. We generally satisfy our single performance obligation upon shipment of the goods to the customer and recognize revenue at a point in time upon shipment of the underlying product.
Our shipments are subject to limited return rights subject to our limited warranty for our products sold. In addition, we may provide other credits to certain customers pursuant to price protection and stock rotation rights, all of which are considered variable consideration when estimating the amount of revenue to recognize. We use the “most likely amount” method to determine the amount of consideration to which we are entitled. Our estimate of variable consideration is reassessed at the end of each reporting period based on changes in facts and circumstances. Historically, returns and credits have not been material.
Engineering Services - We enter into contracts for professional engineering services that include software development and customization. We identify each performance obligation in our engineering services agreements (“ESAs”) at contract inception. The ESA generally includes project deliverables specified by the customer. The performance obligations in the ESA are generally combined into one deliverable, with the pricing for services stated at a fixed amount. Services provided under the ESA generally result in the transfer of control over time. We recognize revenue on ESAs based on the proportion of labor hours expended to the total hours expected to complete the contract performance obligation. ESAs could include substantive customer acceptance provisions. In ESAs that include substantive customer acceptance provisions, we recognize revenue upon customer acceptance.
License Revenue - On occasion, we derive revenue from the license of our internally developed intellectual property ("IP"). Additionally, for certain IP license agreements, royalties are collected as customers sell their own products that incorporate our IP. IP licensing agreements that we enter into generally provide licensees the right to incorporate our IP components in their products with terms and conditions that vary by licensee. Fees under these agreements generally include license fees or royalty fees relating to our IP and support service fees, resulting in two performance obligations. We evaluate each performance obligation, which generally results in the transfer of control at a point in time for the license fee and over time for support services. Royalties are recognized as revenue is earned, generally when the customer sells its products that incorporate our IP.
Other - From time-to-time, we enter into arrangements for other revenue generating activities, such as providing technical support services to customers through technical support agreements. In each circumstance, we evaluate such arrangements for our performance obligations which generally results in the transfer of control for such services over time. Historically, such arrangements have not been material to our operating results.
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The following table provides information about disaggregated revenue based on the preceding categories, with IC sales disaggregated further into net revenue from external customers for each group of similar products, for the three and nine months ended September 30, 2025 and 2024:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
IC sales | $ | 8,531 |  |  | $ | 9,470 |  |  | $ | 23,622 |  |  | $ | 33,273 |
Engineering services, license and other | 240 |  |  | 57 |  |  | 493 |  |  | 843 |
Total revenues | $ | 8,771 |  |  | $ | 9,527 |  |  | $ | 24,115 |  |  | $ | 34,116 |

IC sales by end market:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Home & Enterprise market | $ | 7,404 |  |  | $ | 7,504 |  |  | $ | 20,136 |  |  | $ | 20,080 |
Mobile market | 1,127 |  |  | 1,966 |  |  | 3,486 |  |  | 13,193 |
Total IC sales | $ | 8,531 |  |  | $ | 9,470 |  |  | $ | 23,622 |  |  | $ | 33,273 |

For segment information, including revenue by geographic region, see "Note 10: Segment Information".
Revenue related to the Cinema market was not material in the first nine months of 2025 or 2024 and was therefore included in the engineering services, license revenue and other category within the Mobile market.
Contract Balances
Our contract balances include accounts receivable, deferred revenue and our liability for warranty returns.
Payment terms and conditions for goods and services provided vary by contract; however, payment is generally required within 30 to 60 days of invoicing.
We have not identified any material costs incurred associated with obtaining a contract with a customer which would meet the criteria to be capitalized, therefore, these costs are expensed as incurred.
The Company has elected the practical expedient of not accounting for significant financing components if the period between revenue recognition and when the customer pays for the product or service is one year or less. The aggregate amount of the transaction price allocated to unsatisfied performance obligations with an original expected duration of greater than one year is zero.
The following table presents the contract assets and contract liabilities recorded on the condensed consolidated balance sheets as of September 30, 2025 and December 31, 2024:

| Balance Sheet Classification |  | September 30, 2025 |  | December 31, 2024 |  |  |  |
Accounts receivable | Accounts receivable, net |  | $ | 5,683 |  |  | $ | 5,804 |  |  |  |  |
Deferred revenue | Accrued liabilities and current portion of long-term liabilities |  | 187 |  |  | — |  |  |  |  |
Liability for Warranty returns | Accrued liabilities and current portion of long-term liabilities |  | 2 |  |  | 10 |  |  |  |  |

During the nine months ended September 30, 2025 and the year ended December 31, 2024, the Company recognized zero and $146 respectively, of revenue related to amounts that were previously included in deferred revenue at the beginning of the period. Deferred revenue fluctuates over time due to changes in the timing of payments received from customers and revenue recognized for services provided.
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NOTE 7: INTEREST INCOME AND OTHER, NET
Interest income and other, net, consists of the following:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Government subsidies received | $ | 467 |  |  | $ | — |  |  | $ | 1,281 |  |  | $ | — |
Interest income | 76 |  |  | 303 |  |  | 261 |  |  | 1,111 |
Interest expense | (25) |  |  | (7) |  |  | (47) |  |  | (54) |
Total interest income and other, net | $ | 518 |  |  | $ | 296 |  |  | $ | 1,495 |  |  | $ | 1,057 |

The increase in interest income and other in the 2025 periods compared to the 2024 periods 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 the 2025 periods compared to the 2024 periods. Additional information on the government subsidies received is provided in "Note 15: Government Grants".
NOTE 8: INCOME TAXES
The provision for income taxes during the 2025 and 2024 periods is primarily comprised of current and deferred tax expense in profitable cost-plus foreign jurisdictions, accruals for tax contingencies in foreign jurisdictions and benefits for the reversal of previously recorded foreign tax contingencies due to the expiration of the applicable statutes of limitation. We recorded a benefit for the reversal of previously recorded foreign tax contingencies of $261 and $3 during the first nine months of 2025 and 2024, respectively.
As we do not believe that it is more likely than not that we will realize a benefit from our U.S., Canada, or China net deferred tax assets, including net operating losses, we continue to provide a full valuation allowance against essentially all of those assets, therefore, we do not incur significant U.S., China, or Canada income tax expense or benefit. We have not recorded a valuation allowance against our other net deferred tax assets in cost-plus jurisdictions, as we believe that it is more likely than not that we will realize a benefit from those assets.
As of September 30, 2025 and December 31, 2024, the amount of our uncertain tax positions was a liability of $125 and $378, respectively, as well as a contra deferred tax asset of $1,491 and $1,385, respectively. A number of years may elapse before an uncertain tax position is resolved by settlement or statute of limitation. Settlement of any particular positions could require the use of cash. If the uncertain tax positions we have accrued for are sustained by the taxing authorities in our favor, the reduction of the liability will reduce our effective tax rate. We reasonably expect reductions in the amount of unrecognized tax benefits and associated interest and penalties of approximately $5 within the next 12 months due to the expiration of statutes of limitations.
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NOTE 9: LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Net loss | $ | (4,593) |  |  | $ | (8,461) |  |  | $ | (19,538) |  |  | $ | (24,072) |
Less: Net loss attributable to redeemable non-controlling interest and non-controlling interest | 161 |  |  | 320 |  |  | 638 |  |  | 716 |
Net loss attributable to Pixelworks, Inc. - for purposes of earnings per share calculation | $ | (4,432) |  |  | $ | (8,141) |  |  | $ | (18,900) |  |  | $ | (23,356) |
Weighted average shares outstanding - basic and diluted | 5,440 |  |  | 4,893 |  |  | 5,258 |  |  | 4,843 |
Net loss attributable to Pixelworks, Inc. per share - basic and diluted | $ | (0.81) |  |  | $ | (1.66) |  |  | $ | (3.59) |  |  | $ | (4.82) |

Basic and diluted earnings (loss) per share was computed by dividing the net loss by the weighted-average number of common shares outstanding for the period. The numerator adjustments include an allocation of PWSH income to the non-controlling interests, the redeemable non-controlling interests and the employee owned entities. The equity interest associated with the employee-owned entities are considered participating securities at PWSH and will be allocated income, however, they are not required to fund losses, and therefore, no allocations of losses will be made to the employee owned entities in periods of loss at PWSH. Potentially dilutive common shares from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding restricted stock units, and the assumed issuance of common stock under the employee stock purchase plan.
The following shares were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Employee equity incentive plans | 318 |  |  | 298 |  |  | 314 |  |  | 309 |

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NOTE 10: SEGMENT INFORMATION
We operate in one segment: the design, development, marketing and sale of IC solutions for use in electronic display devices. We generate our revenue from two broad product markets: the Mobile market and the Home & Enterprise market. The chief operating decision maker, or CODM, is our CEO. 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 condensed consolidated statements of operations.
The CODM regularly reviews the condensed 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 $13,285 and $16,373 for the nine months ending September 30, 2025 and 2024, 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 $19,336 and $25,813 for the nine months ending September 30, 2025 and 2024, respectively. 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, is as follows:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Japan | $ | 6,919 |  |  | $ | 7,062 |  |  | $ | 18,610 |  |  | $ | 17,741 |
China | 1,422 |  |  | 2,246 |  |  | 4,564 |  |  | 14,951 |
Taiwan | 191 |  |  | 192 |  |  | 543 |  |  | 708 |
United States | 239 |  |  | 27 |  |  | 398 |  |  | 716 |
| $ | 8,771 |  |  | $ | 9,527 |  |  | $ | 24,115 |  |  | $ | 34,116 |

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

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Distributors: |  |  |  |  |  |  |
All distributors | 22 | % |  | 36 | % |  | 25 | % |  | 52 | %
Distributor A | 10 | % |  | 19 | % |  | 12 | % |  | 37 | %
Distributor B | 3 | % |  | 11 | % |  | 4 | % |  | 6 | %
End customers: 1 |  |  |  |  |  |  |
Top five end customers | 95 | % |  | 93 | % |  | 93 | % |  | 88 | %
End customer A | 76 | % |  | 64 | % |  | 74 | % |  | 46 | %
End customer B | 10 | % |  | 12 | % |  | 7 | % |  | 24 | %
End customer C | — | % |  | 11 | % |  | — | % |  | 5 | %

1 End customers include customers who purchase directly from us, as well as customers who purchase our products indirectly through distributors.
The following accounts represented 10% or more of total accounts receivable in at least one of the periods presented:

| September 30, 2025 |  | December 31, 2024
Account X | 70 | % |  | 41 | %
Account Y | 15 | % |  | 17 | %
Account Z | 3 | % |  | 24 | %

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NOTE 11: 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 PRC increases our risk of supply disruption due to natural disasters, economic instability, political unrest or other regional disturbances.
Risk of Technological Change
The markets in which we compete, or seek to compete, are subject to rapid technological change, frequent new product introductions, changing customer requirements for new products and features, and evolving industry standards. The introduction of new technologies and the emergence of new industry standards could render our products less desirable or obsolete, which could harm our business.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash equivalents and accounts receivable. We limit our exposure to credit risk associated with cash equivalent balances by holding our funds in high quality, highly liquid money market accounts. We limit our exposure to credit risk associated with accounts receivable by carefully evaluating creditworthiness before offering terms to customers.
NOTE 12: COMMITMENTS AND CONTINGENCIES
Indemnifications
Certain of our agreements include indemnification provisions for claims from third parties relating to our intellectual property. It is not possible for us to predict the maximum potential amount of future payments or indemnification costs under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. We have not made any payments under these agreements in the past, and as of September 30, 2025, we have not incurred any material liabilities arising from these indemnification obligations. In the future, however, such obligations could materially impact our results of operations.
Legal Proceedings
We are subject to legal matters that arise from time to time in the ordinary course of our business. Although we currently believe that resolving such matters, individually or in the aggregate, will not have a material adverse effect on our financial position, our results of operations, or our cash flows, these matters are subject to inherent uncertainties and our view of these matters may change in the future.
Contract Manufacturers
In the normal course of business, we commit to purchase products from our contract manufacturers to be delivered within the next approximately 90 days. In certain situations, should we cancel an order, we could be required to pay cancellation fees. Such obligations could impact our immediate results of operations but would not materially affect our business.
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NOTE 13: REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY INTEREST OF PWSH SOLD TO EMPLOYEES
On August 9, 2021, Pixelworks and PWSH entered into a capital increase agreement (the "August 2021 Capital Increase Agreement") with certain private equity and strategic investors based in China (collectively, the “Investors”) and certain entities which collectively are owned by approximately 75% of the employees of PWSH and its subsidiaries (collectively, the “ESOP”) (together, the “Investors” and the “ESOP” are referred to below as the “Capital Contributors”). The ESOP entities do not qualify as Employee Share Ownership Programs under IRC 4975(e)(7), but do qualify as employee share ownership plans qualified under the laws of China, under which the employees hold a pro rata share of an ESOP partnership entity that then holds an equity ownership in trust for employees.
Under the August 2021 Capital Increase Agreement, during 2021, the Investors invested approximately $30,844 in exchange for a redeemable non-controlling equity interest of 10.45% of PWSH and the ESOP entities invested approximately $12,329 in exchange for a redeemable non-controlling equity interest representing 5.95% of PWSH, which includes a discount of 30% from the valuation paid by the Investors. The agreement further provided that the Capital Contributors have a liquidation preference in PWSH, a right to co-sell their interest in PWSH along with the Company on the same terms and conditions as the Company, a right to participate on a pro rata basis in any future financing rounds of PWSH, and the Company’s agreement while it remains an owner of PWSH and for two (2) years thereafter to not compete with the business of PWSH, nor solicit or otherwise cause any of PWSH’s core employees or customers to end their relationship with PWSH. These rights all expire upon the consummation of an initial public offering of PWSH shares on the STAR Market.
Prior to entering into a certain Supplemental Agreement (as defined below), each Investor had the right to require PWSH to redeem the entire equity interest held by such Investor, at the original purchase price paid plus 3% annual interest, if PWSH did not consummate an initial public offering on the STAR Market (the "Listing") on or before June 30, 2024. Based on this contingency, the initial carrying amount of the redeemable non-controlling interests was recorded at fair value on the date of issuance of PWSH equity interests, net of issuance costs and presented in temporary equity on the condensed consolidated balance sheets. Until the interest that was to accrue on the redeemable non-controlling interest was deleted with the Supplemental Agreement, the Company had elected to accrete changes in the redemption value of the redeemable non-controlling interests from the issuance date through the earliest redemption date of June 30, 2024 using the interest method (as the non-controlling interest was probable of becoming redeemable upon the passage of time for the original issuance price plus 3% annual interest).
On March 24, 2022, Pixelworks and PWSH entered into a supplemental agreement to the August 2021 Capital Increase Agreement (the “Supplemental Agreement”) with the Capital Contributors. The Supplemental Agreement, among other things, deletes the interest that was to accrue in connection with the redemption option, and adds a provision that will suspend the redemption option on the date PWSH files its initial public offering listing documents pending the approval of such documents by the applicable authorities. The suspension ends if PWSH withdraws the listing application or such application is finally rejected, at which point the redemption option would once again become effective with a deadline of the later of the date of the withdrawal/rejection and June 30, 2024.
In connection with the Supplemental Agreement, on March 24, 2022, Pixelworks and the Capital Contributors entered into a side letter to the August 2021 Capital Increase Agreement (the “Side Letter”) which provides that, in the event of a change in control of Pixelworks, Pixelworks shall ensure that the definitive agreement related to such transaction includes a post-closing repurchase covenant that requires the successor entity in such transaction to repurchase all of PWSH’s equity held by a Capital Contributor at the original subscription price plus 20% upon the request of the Capital Contributor within 60 days after (a) the change in control; or (b) if PWSH fails to consummate its initial public offering by June 30, 2024, because Pixelworks decides against pursuing the offering. If PWSH continues to diligently pursue the application but the initial public offering still fails to launch by June 30, 2024, the redemption obligation of the Supplemental Agreement would instead apply. The Side Letter terminates on the launch date of PWSH’s initial public offering.
After entering into the Supplemental Agreement, the redeemable non-controlling interest no longer accreted up to a redemption amount because the interest component has been removed. The Investors continue to hold PWSH equity and be considered as a redeemable non-controlling interest, however, the redeemable non-controlling interest is only probable of becoming redeemable upon the passage of time for its original issuance price. Therefore, until the redemption feature expires, or has been exercised, we will only allocate profits to the redeemable non-controlling interest and continue to recognize the non-controlling interest at an amount at least equal to its redemption value. Because the redeemable non-controlling interest is denominated in RMB, it will be revalued to USD at the end of each reporting period, with the changes in carrying value attributable to foreign currency being reflected within accumulated other comprehensive income on the condensed consolidated balance sheets.
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On December 26, 2024, a representative for one of the Investors (Qingdao Beyond Zhixin Venture Investment Partnership (Limited Partnership)) delivered to Pixelworks a written request for a redemption under the Supplemental Agreement. Pixelworks responded to this request on December 31, 2024, asserting that the redemption option is currently suspended due to the impact of the COVID-19 pandemic and the decision of the relevant Chinese authorities to prevent PWSH from completing the filing of its application for an IPO in late 2023 despite PWSH being qualified to do so. Per Articles 6.1 and 10.1 of the Capital Increase Agreement, the option is suspended until such time as PWSH is no longer prevented from pursuing its application, or the parties should negotiate some other economically equivalent adjustment to the agreement. Qingdao Beyond has not further responded and no other Investor has provided Pixelworks with a written notice of election. The process of enforcing and collecting on the proper exercise of the repurchase option by a Capital Contributor would be lengthy, ultimately requiring enforcement against a U.S.-based Pixelworks entity.
Under the agreements establishing each of the five ESOPs, each ESOP entity held a right to demand that Pixelworks repurchase the PWSH shares held by the ESOP at the original purchase price paid plus 5% annual interest if PWSH had not consummated a Listing on or before December 31, 2024 (the "ESOP Listing Deadline"). On August 1, 2025 Pixelworks completed a transaction with two of the five ESOP entities in which, in exchange for the transfer of approximately 0.11% of PWSH, which shares were transferred from Pixelworks and its affiliates, including treasury shares held by PWSH, the two ESOP entities agreed as follows: (a) the ESOP Listing Deadline is extended to December 31, 2026, (b) if PWSH has not consummated a Listing by this new ESOP Listing Deadline, the two ESOPs would each have a right to demand that Pixelworks repurchase the PWSH shares held by the ESOP at the original purchase price paid plus 5% annual interest accrued as of December 31, 2024, and (c) that in the event of a change of control of PWSH, each of the two ESOPs would be entitled to the greater of the price of the PWSH shares that it sells in the transaction or the original purchase price paid plus 5% annual interest accrued as of December 31, 2024. The other three ESOP entities continue to hold the original repurchase option, but none have begun the formal process of exercising such option. Because the ESOP entities are owned by employees of PWSH and its subsidiaries and employees are required to render service until either the initial public offering on the STAR Market or repurchase date, the equity interest owned by the ESOP entities is accounted for under ASC 718 (Compensation - Stock Compensation). The initial carrying amount of the investment has been recorded as a long-term deposit liability on the condensed consolidated balance sheets as the initial public offering cannot be considered probable at this time. We recognize the periodic interest component of the award as compensation expense and accrete the long-term deposit liability to its redemption value. Because the long-term deposit liability is denominated in RMB and is considered a monetary liability as defined in ASC 255 (Changing Prices), it is revalued to USD at the end of each reporting period, with the changes in carrying value recorded as foreign currency gain/loss in our condensed consolidated statements of operations.
On December 21, 2022, the Company and its subsidiary, PWSH, entered into a capital increase agreement (the “December 2022 Capital Increase Agreement”) with Jing Xin Ying (Shanghai) Management Consulting Partnership (Limited Partnership), an entity owned by certain of the employees of PWSH (the “2022 ESOP”). The 2022 ESOP invested approximately $1,407 in exchange for an equity interest in PWSH of 0.54%, based on a pre-money valuation of PWSH of RMB 1,750,000 ($251,256 USD), which includes a discount of 50%. The 2022 ESOP was one of the two ESOPs that agreed to modify its repurchase right, as described in the paragraph immediately above.
The December 2022 Capital Increase Agreement provides that if there is a change in control of PWSH that closes prior to its filing an application for the Listing, each capital contributor would be entitled to a minimum return of 10% on the price they paid for their respective equity interest, payable by the Company in cash at the close of the change in control transaction, with such right terminating automatically upon the filing by PWSH of the Listing.
In connection with the execution of the Purchase Agreement, on October 14, 2025, Pixelworks LLC entered into a Support Agreement (the “Support Agreements”) and the Company, Pixelworks LLC, and PWSH entered into a Termination and Release Agreement (the “Release Agreements”) with VeriSilicon and each Selling Shareholder (collectively, VeriSilicon and the Selling Shareholders are the “Minority Shareholders”), pursuant to which each Minority Shareholder has agreed to release the Company and its affiliates from all repurchase rights and preferences held by the Minority Shareholder in exchange for the transfer of a portion of the shares of PWSH held by Pixelworks LLC immediately prior to the closing of the Sale. If Pixelworks is unsuccessful in closing the Sale (and therefore the closing of the Support Agreements and Release Agreements) or otherwise negotiating for an extension or cancellation of the redemption rights described above, and the Investor or ESOP holding such a right elects for redemption, we may be required to seek additional capital and there would be no assurances that such capital would be available on terms acceptable to us, if at all. Any redemptions would have a material adverse effect on our business, financial condition and results of operations.
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The components of the change in redeemable non-controlling interests for the nine months ended September 30, 2025 are presented in the following table:

Carrying Value of Redeemable Non-Controlling Interest as of January 1, 2025 | $ | 27,396 |
Effect of foreign currency translation attributable to redeemable non-controlling interest | 681 |
Carrying Value of Redeemable Non-Controlling Interest as of September 30, 2025 | $ | 28,077 |

NOTE 14: NON-CONTROLLING INTEREST
On August 15, 2022, the Company entered into an Equity Transfer Agreement with certain private equity investors based in China (Hainan Qixin Investment Partnership (Limited Partnership) and Suzhou Saixiang Equity Investment Partnership (Limited Partnership)) (collectively, the “Purchasers”). Under this agreement, the Purchasers agreed to pay to the Company, subject to customary closing conditions, a total of 87,500 RMB, approximately $10,738 (net of issuance costs) at closing, in exchange for a 2.74% equity interest in PWSH. The Company incurred costs related to the sale of equity in PWSH of $275 paid to a third party for assisting in the transaction close as well as 8,408 RMB to fulfill Chinese withholding tax requirements. Both of these costs are direct and incremental and related to the sale of equity in PWSH and as such will be included as costs that reduce proceeds and carrying amount of the NCI in the Company’s balance sheet.
The Equity Transfer Agreement provides the Purchasers with some additional rights: (1) if there is a change in control of PWSH that closes prior to its filing an application for a listing on the STAR Board of the SSE (the “Listing Application”), each Purchaser would be entitled to a minimum return of 10% on the price they paid for their respective equity interest, payable by the Company in cash at the close of the change in control transaction, with such right terminating automatically upon the filing by PWSH of the Listing Application; and (2) the Company would cause PWSH to give each Purchaser a right to participate on a pro rata basis in any future financing rounds of PWSH, which right also would expire on the filing of a Listing Application.
On December 21, 2022, the Company and its subsidiary, PWSH, entered into a capital increase agreement (the “December 2022 Capital Increase Agreement”) with certain private equity investors based in China who have agreed to pay a total of 99,000 RMB, approximately $14,596 (net of issuance costs) at closing, in exchange for an equity interest in PWSH of 2.76%, based on a pre-money value of PWSH of 3,500,000 RMB, approximately $501,400. This transaction closed in February 2023.
The December 2022 Capital Increase Agreement provides that if there is a change in control of PWSH that closes prior to its filing an application for the Listing, each capital contributor would be entitled to a minimum return of 10% on the price they paid for their respective equity interest, payable by the Company in cash at the close of the change in control transaction, with such right terminating automatically upon the filing by PWSH of the Listing.
When the Company’s relative ownership interest in PWSH changes, adjustments to non-controlling interest and paid-in capital, tax effected, will occur. Because these changes in the ownership interest in PWSH do not result in a change of control, the transactions are accounted for as equity transactions under ASC 810 (Consolidations), which requires that any differences between the carrying value of the Company’s interest in PWSH and the fair value of the consideration received are recognized directly in equity and attributed to the controlling interest. Additionally, there are no substantive profit-sharing arrangements that would cause distributions to be other than pro rata. Therefore, profits and losses are attributed to the common shareholders of PWSH and non-controlling interest pro rata based on ownership interests in PWSH. The components of the change in non-controlling interests for the nine months ended September 30, 2025 are presented in the following table :

Carrying Value of Permanent Equity Non-Controlling Interest as of January 1, 2025 | $ | 23,050 |
Net loss attributable to non-controlling interest | (638) |
Effect of foreign currency translation attributable to non-controlling interest | 368 |
Carrying Value of Permanent Equity Non-Controlling Interest as of September 30, 2025 | $ | 22,780 |

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NOTE 15: GOVERNMENT GRANTS
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 $467 and $2,035 in the third quarter and first nine months of 2025, 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 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, a commitment from PWSH that R&D results, especially those related to patent application and conversion of patent results, shall only be attributed to PWSH, and the activities and results related to the proprietary intellectual property rights, including deliveries, payments and related tax and financial settlements, shall be completed by PWSH located in Zhangjiang Science City.
In the first nine months of 2025, 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 $1,281 was recognized as other income in the consolidated statements of operations for the nine months ended September 30, 2025.
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NOTE 16: SUBSEQUENT EVENTS
On October 6, 2025, the Company entered into a common stock purchase agreement with two purchasers pursuant to which the Company agreed to issue and sell, in a registered direct offering, an aggregate of 666,667 shares of the Company’s common stock at a purchase price of $10.50 per share, resulting in net proceeds of approximately $6,500.
On October 15 2025, the Company, PWSH, Pixelworks LLC, and each Selling Shareholder, entered into the Purchase Agreement with the Buyer, pursuant to which each of the Company, Pixelworks LLC, and each Selling Shareholder agreed to the Sale. The purchase price is calculated based on an equity value of 100% of PWSH of RMB 950,000 (approximately $133,000 USD as of September 30, 2025). The Sale may be deemed to represent the sale of substantially all of the assets of the Company, and therefore is being submitted to a vote of the Company’s shareholders; the affirmative vote of the holders of at least 67% of the outstanding shares of the Company’s common stock is required for approval. The Company has disseminated to its shareholders a proxy statement with respect to a special meeting of shareholders to approve the Sale. Assuming all closing conditions are met in a timely manner, the Company expects the closing of the Sale to take place by December 31, 2025.
In connection with the execution of the Purchase Agreement, on October 14, 2025, Pixelworks LLC entered the Support Agreements and the Company, Pixelworks LLC, and PWSH entered into the Release Agreements with the Minority Shareholders, pursuant to which each Minority Shareholder has agreed to release the Company and its affiliates from all repurchase rights and preferences held by the Minority Shareholder in exchange for the transfer of a portion of the shares of PWSH held by Pixelworks LLC immediately prior to the closing of the Sale. See "Note 13: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees" and "Note 14: Non-Controlling Interest" for further information about these various repurchase rights and preferences. Net of the shares of PWSH transferred under the Support Agreements with the Minority Shareholders, transaction costs, and withholding taxes in China, the Company expects to receive cash in the range of approximately $50,000 to $60,000 upon closing of the Sale.
On October 22, 2025, the Company entered into an agreement with an unrelated third party, pursuant to which we sold 37 patents and related rights and materials for $3,000. The technologies underlying the patents pertain to markets that the Company no longer pursues. The Company expects to record a gain of approximately $3,000 from the sale in the fourth quarter of 2025.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this document. In addition to historical information, the MD&A contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors,” and “Note Regarding Forward-Looking Statements.”
Overview
Pixelworks is a leading provider of high-performance and power-efficient visual processing semiconductor and software solutions that enable consistently high-quality and authentic viewing experiences in a wide variety of applications. We define our primary target markets as Mobile (smartphone and tablet), Home & Enterprise (projectors, personal video recorders ("PVR"), and over-the-air ("OTA") streaming devices), and Cinema (creation, remastering, and delivery of digital video content). Previously we classified our primary target markets as Mobile, Projector, Video Delivery and Cinema, but have since aggregated the Projector and Video Delivery categories into one market called "Home & Enterprise".
Pixelworks has been a pioneer in visual processing technology for over 20 years. We were one of the first companies to commercially launch a video System on Chip ("SoC") capable of deinterlacing 1080i HDTV signals and one of the first companies with a commercial dual-channel 1080i deinterlacer integrated circuit. We launched one of the industry’s first single-chip SoCs for digital projection. We were the first company to integrate motion estimation / motion compensation technology ("MEMC") as a mobile-optimized solution for smartphones. In 2019, we introduced our Hollywood award-winning TrueCut Motion TM video platform, the industry’s first motion grading technology that allows fine tuning of motion appearance in cinematic content.
Our core visual processing technology intelligently processes digital images and video from a variety of sources and optimizes the content for a superior viewing experience. Rapid growth in video and gaming consumption, combined with the move towards bright, high resolution, high frame rate and high refresh rate displays, especially in mobile, is increasing the demand for our solutions. Our technologies can be applied across a wide range of applications: cinema theaters, low-power mobile tablets, smartphones, streaming devices, and digital projectors for the home, school, or the workplace. Our products are designed and optimized for power, cost, bandwidth, viewer experience, and overall system performance, according to the requirements of the specific application. On occasion, we have also licensed our technology.
During 2021, we engaged in a strategic plan to re-align our Mobile and Home & Enterprise businesses to improve their focus on their Asia-centered customers and employee stakeholders (the “Strategic Plan”). One of our Chinese subsidiaries, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (or "PWSH"), now operates these businesses as a full profit-and-loss center underneath Pixelworks. In connection with this strategic plan, the Company and PWSH closed three separate financing transactions in 2021 and 2022, which are further described in "Note 13: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees" and "Note 1: Non-Controlling Interest". PWSH has a branch office located in Shenzhen, China (Pixelworks Semiconductor Technology (Shanghai) Co. Ltd. Shenzhen Branch Office No. 1), which is primarily for sales and customer support for PWSH, and a subsidiary located in Hong Kong (Pixelworks Hong Kong Limited), which has no employees and is used for distribution of PWSH products. Pixelworks has an additional subsidiary in China (Frame Shadow Technology (Shanghai) Co., Ltd. (formerly called Mucheng Huai Management Consulting (Shanghai) Co., Ltd)) which is a research and development center for our TrueCut business. This subsidiary does not operate under PWSH, but rather is owned by Pixelworks through our Oregon limited liability company, Pixelworks Semiconductor Technology Company, LLC. 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. Our auditor is Grant Thornton LLP, with headquarters in Chicago, Illinois. The Holding Foreign Companies Accountable Act, as amended by the Consolidated Appropriations Act, 2023, and related regulations, therefore do not apply to our Company.
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In the second half of 2024 we engaged with Morgan Stanley and initiated a formal review process after receiving inbound strategic interest in PWSH. In May of 2025, we received non-binding term sheets from three different potential buyers, and engaged in due diligence with each. On October 6, 2025, we announced that the Company was in discussions with a buyer relating to the sale of the shares of PWSH indirectly held by the Company, and on October 15, 2025, the Company, PWSH, Pixelworks Semiconductor Technology Company LLC (“Pixelworks LLC”) and all other shareholders of PWSH except VeriSilicon Microelectronics (Shanghai) Co., Ltd. (each, a “Selling Shareholder”), entered into a Share Purchase Agreement (the “Purchase Agreement’) with Tiansui Xinyuan Technology (Shanghai) Co., Ltd. (the “Buyer”), a special purpose entity led by VeriSilicon Microelectronics (Shanghai) Co., Ltd. (“VeriSilicon”), pursuant to which each of the Company, Pixelworks LLC, and each Selling Shareholder agreed to sell all of their shares in PWSH to the Buyer (the “Sale”). The purchase price is calculated based on an equity value of 100% of PWSH of RMB 950 million (approximately $133 million USD as of September 30, 2025). The Sale may be deemed to represent the sale of substantially all of the assets of the Company, and therefore is being submitted to a vote of the Company’s shareholders; the affirmative vote of the holders of at least 67% of the outstanding shares of the Company’s common stock is required for approval. The Company has disseminated to its shareholders a proxy statement with respect to a special meeting of shareholders to approve the Sale. Assuming all closing conditions are met in a timely manner, the Company expects the closing of the Sale to take place by December 31, 2025. Following the Sale, the Company intends to focus on its remaining business in cinematic visualization solutions, including its flagship TrueCut Motion TM platform.
As of October 22, 2025, we had an intellectual property portfolio of 201 patents related to the visual display of digital image data. We focus our research and development efforts on developing video algorithms that improve quality, and architectures that reduce system power, cost, bandwidth and increase overall system performance and device functionality. We seek to expand our technology portfolio through internal development and co-development with business partners, and we continually evaluate acquisition opportunities and other ways to leverage our technology into other high-value markets.
Pixelworks was founded in 1997 and is incorporated under the laws of the state of Oregon.
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 condensed consolidated financial statements have been retroactively adjusted as though the Reverse Stock Split had been effected prior to all periods presented.
Entry Into Loan Agreement
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 (the “Loan Agreement”), pursuant to which PWSH may borrow up to RMB 10 million (approximately $1.4 million as of September 30, 2025). As of September 30, 2025, PWSH borrowed RMB 10 million under the Loan Agreement, which has a maturity date of August 25, 2026.
Seasonality
Our business is subject to seasonality related to the markets we serve and the location of our customers. We have typically experienced higher revenue from the digital projector component of the Home & Enterprise market in the third quarter, and lower revenue in the first quarter, as our Japanese customers reduce inventories in anticipation of their March 31 fiscal year end. We have typically experienced higher revenue from the mobile market in the fourth quarter, and lower revenue in the first quarter, as mobile phone OEMs ramp production in advance of Chinese New Year.
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Results of Operations
Revenue, net
Net revenue for the three and nine months ended September 30, 2025 and 2024, was as follows (dollars in thousands):

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  |  |  | % Change |  | 2025 |  | 2024 |  | % Change
Revenue, net | $ | 8,771 |  |  | $ | 9,527 |  |  |  |  | (8) | % |  | $ | 24,115 |  |  | $ | 34,116 |  |  | (29) | %

Net revenue decreased $0.8 million, or 8%, in the third quarter of 2025 compared to the third quarter of 2024 and decreased $10.0 million, or 29%, in the first nine months of 2025 compared to the first nine months of 2024.
Revenue recorded in the third quarter of 2025 consisted of $8.5 million in revenue from the sale of integrated circuit ("IC") products and $0.2 million related to engineering services, license revenue and other. Revenue recorded in the third quarter of 2024 consisted of $9.5 million in revenue from the sale of IC products and $0.1 million in revenue related to engineering services, license revenue and other.
Revenue recorded in the first nine months of 2025 consisted of $23.6 million in revenue from the sale of IC products and $0.5 million in revenue related to engineering services, license revenue and other. Revenue recorded in the first nine months of 2024 consisted of $33.3 million in revenue from the sale of IC products and $0.8 million in revenue related to engineering services, license revenue and other.
The decrease in IC revenue in the 2025 periods compared to the 2024 periods is due to the following factors:
•Sales into the Mobile market decreased approximately $0.8 million or 43% in the third quarter of 2025 compared to the third quarter of 2024 and decreased approximately $9.7 million or 74% in the first nine months of 2025 compared to the first nine months of 2024, primarily due to decreased units sold associated with a delayed transition to our latest generation mobile products.
•Sales into the Home & Enterprise market decreased approximately $0.1 million or 1% in the third quarter of 2025 compared to the third quarter of 2024 and increased approximately $0.1 million or 1% in the first nine months of 2025 compared to the first nine months of 2024.
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Cost of revenue and gross profit
Cost of revenue and gross profit for the three and nine months ended September 30, 2025 and 2024, were as follows (dollars in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2025 |  | % of revenue |  | 2024 |  | % of revenue |  | 2025 |  | % of revenue |  | 2024 |  | % of revenue
Direct product costs and related overhead 1 | $ | 4,406 |  |  | 50 | % |  | $ | 4,525 |  |  | 47 | % |  | $ | 12,448 |  |  | 52 | % |  | $ | 16,385 |  |  | 48 | %
Inventory charges 2 | (15) |  |  | 0 |  |  | 110 |  |  | 1 |  |  | (42) |  |  | 0 |  |  | 355 |  |  | 1 |
Stock-based compensation | 9 |  |  | 0 |  |  | 13 |  |  | 0 |  |  | 29 |  |  | 0 |  |  | 41 |  |  | 0 |
Restructuring | — |  |  | 0 |  |  | — |  |  | 0 |  |  | 78 |  |  | 0 |  |  | 16 |  |  | 0 |
Total cost of revenue | $ | 4,400 |  |  | 50 | % |  | $ | 4,648 |  |  | 49 | % |  | $ | 12,513 |  |  | 52 | % |  | $ | 16,797 |  |  | 49 | %
Gross profit | $ | 4,371 |  |  | 50 | % |  | $ | 4,879 |  |  | 51 | % |  | $ | 11,602 |  |  | 48 | % |  | $ | 17,319 |  |  | 51 | %

1 Includes purchased materials, assembly, test, labor, employee benefits and royalties.
2 Includes charges to reduce inventory to lower of cost or market and a benefit for sales of previously written down inventory.
Gross profit margin decreased to 50% in the third quarter of 2025 compared to 51%, in the third quarter of 2024 and decreased to 48% in the first nine months of 2025 compared to 51% in the first nine months of 2024.
The decrease in gross profit margin in the third quarter of 2025 compared to the third quarter of 2024 is primarily due to product mix within the Home & Enterprise and Mobile markets, partially offset by reduced inventory charges recorded in the third quarter of 2025 compared to the third quarter of 2024.
The decrease in gross profit margin in the first nine months of 2025 compared to the first nine months of 2024 is primarily due to product mix within the Home & Enterprise market and reduced absorption due to reduced revenue, partially offset by reduced inventory charges recorded in the first nine months of 2025 compared to the first nine months of 2024.
Pixelworks’ gross profit margin is subject to variability based on changes in revenue levels, product mix, average selling prices, startup costs, amortization related to acquired intangible assets, and the timing and execution of manufacturing ramps, as well as other factors.
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Research and development
Research and development expense includes compensation and related costs for personnel, development-related expenses, including non-recurring engineering expenses and fees for outside services, depreciation and amortization, expensed equipment, facilities and information technology expense allocations and travel and related expenses.
Research and development expense for the three and nine months ended September 30, 2025 and 2024, was as follows (dollars in thousands):

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  |  |  | % Change |  | 2025 |  | 2024 |  | % Change
Research and development | $ | 5,720 |  |  | $ | 8,405 |  |  |  |  | (32) | % |  | $ | 18,241 |  |  | $ | 24,421 |  |  | (25) | %

Research and development expense decreased $2.7 million, or 32%, in the third quarter of 2025 compared to the third quarter of 2024 due to the following factors:
•Non-recurring engineering expense and depreciation and amortization expense decreased by $1.4 million due to the timing of development activities.
•Compensation expense decreased $0.7 million, primarily due to decreased headcount associated with our 2024 and 2025 restructuring plans.
•Stock based compensation expense decreased $0.2 million primarily due to the change in our stock price.
•A $0.4 million overall decrease across multiple expense categories, as we continue to implement cost control measures.
Research and development expense de creased $6.2 million, or 25%, in the first nine months of 2025 compared to the first nine months of 2024 due to the following factors:
•Compensation expense decreased $2.8 million primarily due to decreased headcount associated with our 2024 and 2025 restructuring plans.
•Non-recurring engineering expense and depreciation and amortization expense decreased by $2.1 million due to the timing of development activities.
•Stock based compensation expense decreased $0.3 million primarily due to the change in our stock price.
•A $1.0 million overall decrease across multiple expense categories, as we continue to implement cost control measures.
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Selling, general and administrative
Selling, general and administrative expense includes compensation and related costs for personnel, sales commissions, facilities and information technology expense allocations, travel, outside services and other general expenses incurred in our sales, marketing, customer support, management, legal and other professional and administrative support functions.
Selling, general and administrative expense for the three and nine months ended September 30, 2025 and 2024, was as follows (dollars in thousands):

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  |  |  | % Change |  | 2025 |  | 2024 |  | % Change
Selling, general and administrative | $ | 4,273 |  |  | $ | 5,016 |  |  |  |  | (15) | % |  | $ | 13,347 |  |  | $ | 16,272 |  |  | (18) | %

Selling, general and administrative expense decreased $0.7 million, or 15%, in the third quarter of 2025 compared to the third quarter of 2024 due to the following factors:
•Compensation expense decreased $0.4 million primarily due to decreased headcount associated with our 2024 and 2025 restructuring plans.
•Stock based compensation expense decreased $0.1 million primarily due to the change in our stock price.
•A $0.2 million overall decrease across multiple expense categories, as we continue to implement cost control measures.
Selling, general and administrative expense decreased $2.9 million, or 18%, in the first nine months of 2025 compared to the first nine months of 2024 due to the following factors:
•Compensation expense decreased $1.7 million primarily due to decreased headcount associated with our 2024 and 2025 restructuring plans.
•Stock based compensation expense decreased $0.4 million primarily due to the change in our stock price.
•A $0.8 million overall decrease across multiple expense categories, as we continue to implement cost control measures.
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Restructurings
In May 2025, we executed a restructuring plan to make the operation of the Company more efficient (the "May 2025 Plan"). The May 2025 Plan included an approximately 4% reduction in workforce, primarily in the area of research and development.
In February 2025, we executed a restructuring plan to make the operation of the Company more efficient (the "February 2025 Plan"). The February 2025 Plan included an approximately 6% reduction in workforce, primarily in the areas of operations, research and development, and marketing.
In June 2024, we executed a restructuring plan to make the operation of the Company more efficient (the "2024 Plan"). The 2024 Plan included an approximately 16% reduction in workforce, primarily in the areas of operations, research and development, sales, marketing and administration.
Restructuring expense for the three and nine month periods ended September 30, 2025 and 2024, was as follows (dollars in thousands):

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Employee severance and benefits | $ | — |  |  | $ | 90 |  |  | $ | 1,111 |  |  | $ | 1,509 |
Total restructuring expense | $ | — |  |  | $ | 90 |  |  | $ | 1,111 |  |  | $ | 1,509 |
Included in cost of revenue | $ | — |  |  | $ | — |  |  | $ | 78 |  |  | $ | 16 |
Included in operating expenses | — |  |  | 90 |  |  | 1,033 |  |  | 1,493 |

During the three months ended September 30, 2025, we did not record any restructuring expense. During the three months ended September 30, 2024, we recorded $0.1 million in restructuring expense related to the 2024 Plan. During the nine months ended September 30, 2025, we recorded $0.6 million in restructuring expense related to the May 2025 Plan and $0.5 million in restructuring expense related to the February 2025 Plan. During the nine months ended September 30, 2024, we recorded $1.5 million in restructuring expense related to the 2024 Plan. We do not expect to incur additional restructuring charges related to the February 2025 Plan or the May 2025 Plan.
Provision for income taxes
The provision for income taxes during the 2025 and 2024 periods is primarily comprised of current and deferred tax expense in profitable cost-plus foreign jurisdictions, accruals for tax contingencies in foreign jurisdictions and benefits for the reversal of previously recorded foreign tax contingencies due to the expiration of the applicable statutes of limitation. We recorded a benefit for the reversal of previously recorded foreign tax contingencies of $0.5 million during the first nine months of 2025 and a negligible benefit during the first nine months of 2024.
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Liquidity and Capital Resources
Cash and cash equivalents
Total cash and cash equivalents decreased $9.0 million to $14.6 million at September 30, 2025 from $23.6 million at December 31, 2024. The net decrease during the first nine months of 2025 was primarily the result of $14.1 million used in operating activities, $1.0 million used for payments on other asset financings and $0.4 million used for purchases of property and equipment, partially offset by $3.0 million in net proceeds from our at the market equity offering, $1.4 million in proceeds from our short-term line of credit, $1.3 million in net proceeds from our registered direct offering and $0.8 million in asset related government subsidies.
As of September 30, 2025, our cash and cash equivalents balance consisted of $13.7 million in cash, $0.8 million held in U.S. dollar denominated certificates of deposit and $0.1 million in cash equivalents held in U.S. dollar denominated money market funds. Although we did not hold short- or long-term investments as of September 30, 2025, our investment policy requires that our portfolio maintain a weighted average maturity of less than 12 months. Additionally, no maturities can extend beyond 24 months and concentrations with individual securities are limited. At the time of purchase, the short-term credit rating must be rated at least A-2 / P-2 / F-2 by at least two Nationally Recognized Statistical Rating Organizations ("NRSROs") and securities of issuers with a long-term credit rating must be rated at least A or A3 by at least two NRSROs. Our investment policy is reviewed at least annually by our Audit Committee.
Accounts receivable, net
Accounts receivable, net decreased to $5.7 million as of September 30, 2025 from $5.8 million as of December 31, 2024. The average number of days sales outstanding increased to 58 days as of September 30, 2025 from 48 days as of December 31, 2024. The decrease in accounts receivable was due to a decrease in revenue in the third quarter of 2025 compared to the fourth quarter of 2024 as well as the timing of revenue within the quarter.
Inventories
Inventories were $3.1 million as of September 30, 2025 compared to $4.2 million at December 31, 2024. Inventory turnover decreased to 4.8 as of September 30, 2025 from 5.1 as of December 31, 2024. Inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter.
Capital resources
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 $10.0 million, from time to time, through an “at the market” equity offering program under which Roth will act as sales agent (the "2024 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 nine months ended September 30, 2025, we sold an aggregate of 347,559 shares of our common stock under the 2024 ATM Program, resulting in aggregate net proceeds to us of approximately $3.0 million and gross proceeds of approximately $3.1 million. Roth commissions and fees and other expenses related to the 2024 ATM Program were $0.1 million in the first nine months of 2025.
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 $1.3 million.
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 $6.5 million.
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Capital Increase Agreements
We have entered into a Capital Increase Agreement pursuant to which PWSH, one of our Chinese subsidiaries, received net proceeds from the sale of its securities pursuant thereto in an amount of RMB 279.7 million ($42.3 million USD). Additional information is provided in "Note 13: Redeemable Non-Controlling Interest and Equity Interest of PWSH Sold to Employees", which is incorporated by reference into this section.
We have entered into a Capital Increase Agreement pursuant to which PWSH, one of our Chinese subsidiaries, received net proceeds from the sale of its securities pursuant thereto in an amount of 99.0 million RMB ($14.6 million USD). Additional information is provided in "Note 14: Non-Controlling Interest", which is incorporated by reference into this section.
Equity Transfer Agreement
We have entered into an Equity Transfer Agreement pursuant to which we received net proceeds of $10.7 million in exchange for a 2.73% equity interest in PWSH. Additional information is provided in "Note 14: Non-Controlling Interest", which is incorporated by reference into this section.
Entry Into Loan Agreement
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 (the “Loan Agreement”), pursuant to which PWSH may borrow up to RMB 10 million (approximately $1.4 million as of September 30, 2025). As of September 30, 2025, PWSH borrowed RMB 10 million under the Loan Agreement, which has a maturity date of August 25, 2026.
Liquidity
As of September 30, 2025, our cash and cash equivalents balance of $14.6 million was highly liquid. We anticipate that our existing working capital, together with the cash proceeds from our registered direct offering and sale of patents and related rights and materials, each of which we entered into in October 2025, will be adequate to fund our operating, investing and financing needs for at least the next twelve months. If our cash is insufficient to meet our needs, including in the longer term, we may seek to raise capital by pursuing financing arrangements, including the issuance of debt or equity securities, or reducing expenditures, or both, to meet our cash requirements. There is no assurance that, if required, we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity which, in turn, may have an adverse effect on our financial position, results of operations and cash flows. For more information regarding the registered direct offering and patent sale, see “Note 16: Subsequent Events”.
From time to time, we evaluate acquisitions of businesses, products or technologies that complement our business. Any transactions, if consummated, may consume a material portion of our working capital or require the issuance of equity securities that may result in dilution to existing shareholders. Our ability to generate cash from operations is also subject to substantial risks described in Part II, Item 1A, "Risk Factors". If any of these risks occur, we may be unable to generate or sustain positive cash flow from operating activities. We would then be required to use existing cash and cash equivalents to support our working capital and other cash requirements. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through debt financing, equity financing or from other sources. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing shareholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.
Other than as set forth above, there were no material changes to our liquidity and capital resources during the nine month period ended September 30, 2025 from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2024, as amended.
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Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and judgments that affect the amounts reported. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, inventories, property and equipment, impairment of long-lived assets, valuation of goodwill, valuation of share-based payments, income taxes, litigation and other contingencies. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to these estimates, or the policies related to them during the nine months ended September 30, 2025. For a full discussion of these estimates and policies, see “Critical Accounting Estimates” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024, as amended.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation (with the participation of our Chief Executive Officer (our Principal Executive Officer) and Chief Financial Officer (our Principal Financial Officer)), our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the "Exchange Act")) to determine if they provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is engaged in legal proceedings in the ordinary course of business, none of which are currently considered to have a material impact on the Company’s financial position or results of operations.
Item 1A.Risk Factors.
The following risks could materially and adversely affect our business, financial condition, and results of operations, and the trading price of our common stock could decline. These risk factors do not identify all of the risks that we face. Our business operations could also be affected by factors that we currently consider to be immaterial or that are unknown to us at the present time. Investors should also refer to the other information contained in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and related notes, and our other filings made from time to time with the Securities and Exchange Commission ("SEC").
Risks Related to the Global Economy
The continued uncertain global economic environment and volatility in global credit, banking and financial markets could materially and adversely affect our business and results of operations.
The state of the global economy continues to be uncertain, in part due to the ongoing and unpredictable trade negotiations and practices of the United States. Additionally, there continues to be general uncertainty and concern regarding the health of the economy of China, which is a major market for our products. As a result, we or our manufacturers, vendors and customers might experience deterioration of our or their businesses, cash flow shortages and difficulty obtaining financing, which could result in interruptions or delays in the performance of any contracts, reductions and delays in customer purchases, delays in or the inability of the Company or our customers to obtain financing or of our customers to purchase our products, and bankruptcy of customers. Furthermore, the constraints in the capital and credit markets may limit our ability to access the capital we need when we need it, on favorable terms or otherwise, or limit the ability of our customers to meet their liquidity needs, which could result in an impairment of their ability to make timely payments to us and reduce their demand for our products, adversely impacting our results of operations and cash flows. This environment has also made it difficult for us to accurately forecast and plan future business activities.
Company Specific Risks
If we fail to meet the evolving needs of our markets, identify new products, services or technologies, or successfully compete in our target markets, our revenue and financial results will be adversely impacted.
Pixelworks designs, develops and markets visual processing and advanced media processing solutions for the Mobile, Home & Enterprise and Cinema markets. Our success depends to a significant extent on our ability to meet the evolving needs of these markets and to enhance our existing products, solutions and technologies. In addition, our success depends on our ability to identify emerging industry trends and to develop new products, solutions and technologies. Our existing markets and products and new markets and products may require a considerable investment of technical, financial, compliance, sales and marketing resources. If the Sale of the shares we hold in PWSH is completed, we intend to focus on developing our remaining business in cinematic visualization solutions, including our flagship TrueCut Motion TM platform.
We cannot assure you that our strategic direction will result in innovative products and technologies that provide value to our customers and partners. If we fail to anticipate the changing needs of our target markets and emerging technology trends, or adapt that strategy as market conditions evolve, in a timely manner to exploit potential market opportunities our business will be harmed. In addition, if demand for products and solutions from these markets is below our expectations, if we fail to achieve consumer or market acceptance of them or if we are not able to develop these products and solutions in a cost effective or efficient manner, we may not realize benefits from our strategy.
Our target markets remain extremely competitive, and we expect competition to intensify as current competitors expand their product and/or service offerings, industry standards continue to evolve and new competitors enter these markets. If we are unable to successfully compete in our target markets, demand for our products, solutions and technologies could decrease, which would cause our revenue to decline and our financial results to suffer.
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Our product strategy, which is targeted at markets demanding superior video and digital image quality as well as efficient video delivery, may not address the demands of our target customers and may not lead to increased revenue in a timely manner or at all, which could materially adversely affect our results of operations and limit our ability to grow.
We have adopted a product strategy that focuses on our core competencies in visual display processing and delivering high levels of video and digital image quality. With this strategy, we continue to make further investments in the development of our image processor architecture for the projector market, with particular focus on adding increased performance and functionality. For the mobile device market, our strategy focuses on implementing our intellectual property ("IP") to improve the video performance of our customers’ image processors through the use of our MotionEngine® advanced video co-processor integrated circuits. This strategy is designed to address the needs of the high-resolution and high-quality segment of these markets. Such markets may not develop or may take longer to develop than we expect. We cannot assure you that the products we are developing will adequately address the demands of our target customers, or that we will be able to produce our new products at costs that enable us to price these products competitively.
Achieving design wins involves lengthy competitive selection processes that require us to incur significant expenditures prior to generating any revenue or without any guarantee of any revenue related to this business. If we fail to generate revenue after incurring substantial expenses to develop our products, our business and operating results would suffer.
We must achieve "design wins" that enable us to sell our semiconductor solutions for use in our customers’ products. These competitive selection processes typically are lengthy and can require us to incur significant research and development expenditures and dedicate scarce engineering resources in pursuit of a single customer opportunity. We may not achieve a design win and may never generate any revenue despite incurring significant research and development expenditures. This could cause us to lose revenue and require us to write off obsolete inventory and could weaken our position in future competitive selection processes. Even if our product strategy is properly targeted, we cannot assure you that the products we are developing will lead to an increase in revenue from new design wins. To achieve design wins, we must design and deliver cost-effective, innovative and integrated semiconductors that overcome the significant costs associated with qualifying a new supplier and which make developers reluctant to change component sources. Additionally, potential developers may be unwilling to select our products due to concerns over our financial strength. Further, design wins do not necessarily result in developers ordering large volumes of our products. Developers can choose at any time to discontinue using our products in their designs or product development efforts. A design win is not a binding commitment by a developer to purchase our products, but rather a decision by a developer to use our products in its design process. Even if our products are chosen to be incorporated into a developer’s products, we may still not realize significant revenue from the developer if its products are not commercially successful or it chooses to qualify, or incorporate the products, of a second source. Additionally, even if our product strategy is successful at achieving design wins and increasing our revenue, we may continue to incur operating losses due to the significant research and development costs that are required to develop competitive products for the projection market and mobile market.
System security and data protection breaches, as well as cyber-attacks, could disrupt our operations, reduce our expected revenue and increase our expenses, which could adversely affect our stock price and damage our reputation.
Security breaches, computer malware and cyber-attacks have become more prevalent and sophisticated in recent years. These attacks have occurred on our systems in the past and are expected to occur in the future. Experienced computer programmers, hackers and employees may be able to penetrate our security controls and misappropriate or compromise our confidential information, or that of our employees or third parties. These attacks may create system disruptions or cause shutdowns. For portions of our IT infrastructure, including business management and communication software products, we rely on products and services provided by third parties. These providers may also experience breaches and attacks to their products which may impact our systems. Data security breaches may also result from non-technical means, such as actions by an employee with access to our systems.
Actual or perceived breaches of our security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us, our partners, our customers or third parties could expose the parties affected to a risk of loss, or misuse of this information, resulting in litigation and potential liability, damage to our brand and reputation or other harm to our business. Our efforts to prevent and overcome these challenges could increase our expenses and may not be successful. We may experience interruptions, delays, cessation of service and loss of existing or potential customers. Such disruptions could adversely impact our ability to fulfill orders and interrupt other critical functions. Delayed sales, lower margins or lost customers as a result of these disruptions could adversely affect our financial results, stock price and reputation.
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If we fail to retain or attract the specialized technical and management personnel required to successfully operate our business, it could harm our business and may result in lost sales and diversion of management resources.
Our success depends on the continued services of our executive officers and other key management, engineering, and sales and marketing personnel and on our ability to continue to attract, retain and motivate qualified personnel. Competition for skilled engineers and management personnel is intense within our industry, and we may not be successful in hiring and retaining qualified individuals. For example, we have experienced, and may continue to experience, difficulty and increased compensation expense in order to hire and retain qualified engineering personnel in our Shanghai design center. The loss of, or inability to hire, key personnel could limit our ability to develop new products and adapt existing products to our customers’ requirements, and may result in lost sales and a diversion of management resources. Any transition in our senior management team may involve a diversion of resources and management attention, be disruptive to our daily operations or impact public or market perception, any of which could have a negative impact on our business or stock price.
We may not fully realize the estimated savings from our restructurings in a timely manner or at all, and our restructuring programs may result in business disruptions and decreased productivity. Any of the foregoing would negatively affect our financial condition and results of operations.
From time to time, we may have the need to execute restructuring plans to make the operation of the Company more efficient, such as the May 2025 and February 2025 restructuring plans. We may not be able to implement our restructuring programs as planned, and we may need to take additional measures to fulfill the objectives of our restructuring. The anticipated expenses associated with our restructuring programs may differ from or exceed our expectations, and we might not be able to realize the full amount of estimated savings from the restructuring programs in a timely manner or at all. Additionally, our restructuring plans may result in business disruptions or decreases in productivity. As a result, our restructuring plans could have an adverse impact on our financial condition or results of operations.
We have significantly fewer financial resources than most of our competitors, which limits our ability to implement new products or enhancements to our current products and may require us to implement additional future restructuring plans, which in turn could adversely affect our future sales and financial condition.
Financial resource constraints could limit our ability to execute our product strategy or require us to implement additional restructuring plans, particularly if we are unable to generate sufficient cash from operations or obtain additional sources of financing. Any future restructuring actions may slow our development of new or enhanced products by limiting our research and development and engineering activities. Our cash balances are also lower than those of our competitors, which may limit our ability to develop competitive new products on a timely basis or at all. If we are unable to successfully introduce new or enhanced products, our sales, operating results and financial condition will be adversely affected.
If we are not profitable in the future, we may be unable to continue our operations.
We have incurred operating losses each fiscal year since 2010 and have an accumulated deficit of $524.8 million as of September 30, 2025. If and when we achieve profitability depends upon a number of factors, including our ability to develop and market innovative products, accurately estimate inventory needs, contract effectively for manufacturing capacity and maintain sufficient funds to finance our activities. We cannot assure our investors that we will ever achieve annual profitability, or that we will be able to maintain profitability if achieved. If we are not profitable in the future, we may be unable to continue our operations.
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A significant amount of our revenue comes from a limited number of customers and distributors and from time to time we may enter into exclusive deals with customers, exposing us to increased credit risk and subjecting our cash flow to the risk that any of our customers or distributors could decrease or cancel their orders.
The display manufacturing market is highly concentrated and we are, and will continue to be, dependent on a limited number of customers and distributors for a substantial portion of our revenue. Sales to our top distributor represented 12%, 30% and 48% of revenue, the nine months ended September 30, 2025, and the years ended December 31, 2024 and 2023, respectively. If any of our distributors ceases to do business with us, it may be difficult for us to find adequate replacements, and even if we do, it may take some time. The loss of any of our top distributors could negatively affect our results of operations. Additionally, revenue attributable to our top five end customers represented 93%, 88% and 87% of revenue for the nine months ended September 30, 2025, and the years ended December 31, 2024 and 2023, respectively. As of September 30, 2025 we had two accounts that represented 10% or more of accounts receivable. As of December 31, 2024 we had three accounts that each represented 10% or more of accounts receivable. All of the orders included in our backlog are cancellable. A reduction, delay or cancellation of orders from one or more of our significant customers, or a decision by one or more of our significant customers to select products manufactured by a competitor or to use its own internally-developed semiconductors, would significantly and negatively impact our revenue. Further, the concentration of our accounts receivable with a limited number of customers increases our credit risk. The failure of these customers to pay their balances, or any customer to pay future outstanding balances, would result in an operating expense and reduce our cash flows.
We generally do not have long-term purchase commitments from our customers and if our customers cancel or change their purchase commitments, our revenue and operating results could suffer.
Substantially all of our sales to date have been made on a purchase order basis. We generally do not have long-term commitments with our customers. As a result, our customers may cancel, change or delay product purchase commitments, which could cause our revenue to decline and materially and adversely affect our results of operations.
Our revenue and operating results can fluctuate from period to period, which could cause our share price to decline.
Our revenue and operating results have fluctuated in the past and may fluctuate from period to period in the future due to a variety of factors, many of which are beyond our control. Factors that may contribute to these fluctuations include those described in this "Risk Factors" section of this report, such as the timing, changes in or cancellation of orders by customers, market acceptance of our products and our customers’ products and the timing and extent of product development costs. Additionally, our business is subject to seasonality related to the markets we serve and the location of our customers. For example, we have historically experienced higher revenue from the projector market in the third quarter of the year, and lower revenue in the first quarter of the year. As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indications of our future revenue or operating performance. Fluctuations in our revenue and operating results could cause our share price to decline.
If we are unable to generate sufficient cash from operations and are forced to seek additional financing alternatives, or in the event we acquire or make an investment in companies that complement our business, our working capital may be adversely affected and our shareholders may experience dilution or our operations may be impaired.
We may be unable to generate or sustain positive cash flow from operating activities and would then be required to use existing cash and cash equivalents to support our working capital and other cash requirements. Additionally, from time to time, we may evaluate acquisitions of, or investments in, businesses, products or technologies that complement our business. Any transactions, if consummated, may consume a material portion of our working capital or require the issuance of equity securities that may result in dilution to existing shareholders.
In addition, any proceeds received by PWSH, one of our Chinese subsidiaries, such as from the private placement of shares, are subject to certain PRC laws and regulations that may make it difficult, if not impossible, to use such proceeds to fund those operations of Pixelworks that are not part of PWSH. As a result, it is unlikely that funds raised or generated by PWSH, other than the proceeds of the Sale, if completed, will be readily distributable to Pixelworks.
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If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through debt and equity financing or from other sources. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing shareholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility, and would also require us to incur interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.
We license our intellectual property, which exposes us to risks of infringement or misappropriation, and may cause fluctuations in our operating results.
We have licensed certain intellectual property to third parties and may enter into additional license arrangements in the future. We cannot assure you, however, that others will be interested in licensing our intellectual property on commercially favorable terms or at all. We also cannot ensure that licensees will honor agreed-upon market restrictions, not infringe upon or misappropriate our intellectual property, or maintain the confidentiality of our proprietary information.
IP license agreements are complex and earning and recognizing revenue under these agreements depends upon many factors, including completion of milestones, allocation of values to delivered items and customer acceptances. Many of these factors require significant judgments. Also, generating revenue from these arrangements is a lengthy and complex process that may last beyond the period in which efforts begin and, once an agreement is in place, the timing of revenue recognition may depend on events such as customer acceptance of deliverables, achievement of milestones, our ability to track and report progress on contracts, customer commercialization of the licensed technology and other factors, any or all of which may or may not be achieved. The accounting rules associated with recognizing revenue from these transactions are complex and subject to interpretation. Due to these factors, the amount of licensing revenue, if any, recognized in any period, and our results of operations, may differ significantly from our expectations.
Finally, because licensing revenue typically has a higher margin compared to product sales, licensing revenue can have a disproportionate impact on our gross profit and results of operations. There is no assurance that we will be able to maintain a consistent level of licensing revenue or mix of licensing revenue and revenue from product sales, which could result in wide fluctuations in our results of operations from period to period, making it difficult to accurately measure the performance of our business.
Our net operating loss carryforwards may be limited or they may expire before utilization.
As of December 31, 2024, we had federal, state and foreign net operating loss carryforwards of approximately $155.6 million, $17.4 million, and $133.2 million, respectively, which began expiring in 2025. These net operating loss carryforwards may be used to offset future taxable income and thereby reduce our income taxes otherwise payable. However, we cannot assure you that we will have taxable income in the future before all or a portion of these net operating loss carryforwards expire. Additionally, our federal net operating losses may be limited by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), 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. In the event of certain changes in our shareholder base, we may at some time in the future experience an "ownership change" and the use of our federal net operating loss carryforwards may be limited. In addition, the limit on deductions for net operating loss carryforwards included in the Tax Cuts and Jobs Act to 80 percent of taxable income for losses arising in taxable years beginning after December 31, 2020, was continued in the One Big Beautiful Bill Act signed into law on July 4, 2025.
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We face a number of risks as a result of the concentration of our operations and customers in Asia.
Many of our customers are located in Japan, China, or Taiwan. Sales outside the U.S. accounted for approximately 98.3%, 98.3% and 99.7% of revenue for the nine months ended September 30, 2025 and the years ended December 31, 2024 and 2023, respectively. We anticipate that sales outside the U.S. will continue to account for a substantial portion of our revenue in future periods. In addition, customers who incorporate our products into their products sell a substantial portion of their products outside of the U.S. All of our products are also manufactured outside of the U.S. and most of our current manufacturers are located in Taiwan. Furthermore, most of our employees are located in China, Japan and Taiwan. Our Asian operations require significant management attention and resources, and we are subject to many risks associated with operations in Asia, including, but not limited to:
•the impact on the businesses of our suppliers and customers of the trade dispute and related negotiations between the United States and China, Japan, Taiwan, and other countries;
•the effect of any future health epidemics in China or other parts of Asia;
•difficulties in managing international distributors and manufacturers due to varying time zones, languages and business customs;
•compliance with U.S. laws affecting operations outside of the U.S., such as the Foreign Corrupt Practices Act;
•reduced or limited protection of our IP, particularly in software, which is more prone to design piracy;
•difficulties in collecting outstanding accounts receivable balances;
•changes in tax rates, tax laws and the interpretation of those laws;
•difficulties regarding timing and availability of export and import licenses;
•ensuring that we obtain complete and accurate information from our Asian operations to make proper disclosures in the United States;
•political and economic instability and tensions, including tensions between China and each of the U.S., Taiwan and Japan;
•difficulties in maintaining sales representatives outside of the U.S. that are knowledgeable about our industry and products;
•changes in the regulatory environment in China, Japan and Taiwan that may significantly impact purchases of our products by our customers or our customers’ sales of their own products;
•imposition of new tariffs, quotas, trade barriers and similar trade restrictions on our sales;
•varying employment and labor laws; and
•greater vulnerability to infrastructure and labor disruptions than in established markets.
Any of these factors could require a disproportionate share of management’s attention, result in increased costs or decreased revenues, and could materially affect our product sales, financial condition and results of operations.
Our operations in Asia expose us to heightened risks due to natural disasters.
The risk of natural disasters in the Pacific Rim region is significant. Natural disasters in countries where our manufacturers or customers are located could result in disruption of our manufacturers’ and customers’ operations, resulting in significant delays in shipment of, or significant reductions in orders for, our products. There can be no assurance that we can locate additional manufacturing capacity or markets on favorable terms, or find new customers, in a timely manner, if at all. Natural disasters in this region could also result in:
•reduced end user demand due to the economic impact of any natural disaster;
•a disruption to the global supply chain for products manufactured in areas affected by natural disasters that are included in products purchased either by us or by our customers;
•an increase in the cost of products that we purchase due to reduced supply; and
•other unforeseen impacts as a result of the uncertainty resulting from a natural disaster.
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Our international operations expose us to risks resulting from the fluctuations of foreign currencies.
We are exposed to risks resulting from the fluctuations of foreign currencies, primarily those of Japan, Taiwan, China and Canada. We sell our products to OEMs that incorporate our products into other products that they sell outside of the U.S. While sales of our products to OEMs are denominated in U.S. dollars, the products sold by OEMs are denominated in foreign currencies. Accordingly, any strengthening of the U.S. dollar against these foreign currencies will increase the foreign currency price equivalent of our products, which could lead to a change in the competitive nature of these products in the marketplace. This, in turn, could lead to a reduction in revenue.
In addition, a portion of our operating expenses, such as employee salaries and foreign income taxes, are denominated in foreign currencies. Accordingly, our operating results are affected by changes in the exchange rate between the U.S. dollar and those currencies. Any future strengthening of those currencies against the U.S. dollar will negatively impact our operating results by increasing our operating expenses as measured in U.S. dollars.
Our cash reserves (including those of PWSH) may be held in part in foreign currencies in amounts that could materially impact the value of those reserves if the U.S. dollar strengthens or weakens against such currencies. In such an event, the corresponding income or expense that is dictated by U.S. GAAP accounting may impact our financial results.
We may engage in financial hedging techniques in the future as part of a strategy to address potential foreign currency exchange rate fluctuations. These hedging techniques, however, may not be successful at reducing our exposure to foreign currency exchange rate fluctuations and may increase costs and administrative complexity.
Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences.
We are subject to the Foreign Corrupt Practices Act ("FCPA") and other anti-corruption, anti-bribery and anti-money laundering laws in various jurisdictions. From time to time, we may leverage third parties to help conduct our businesses abroad. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners, and agents, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with such laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of the FCPA or other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, our business, results of operations and financial condition.
Our reported financial results may be materially and adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could materially and adversely affect the transactions completed before the announcement of a change. Additionally, the adoption of new or revised accounting principles may require that we make significant changes to our systems, processes and controls.
If we are unable to maintain effective disclosure controls and internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock may be materially and adversely affected.
If we are unable to maintain effective disclosure controls and internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports. We have, in the past, and may, in the future, identify material weaknesses in our internal controls over financial reporting. Additionally, if any new internal control procedures which may be adopted or our existing internal control procedures are deemed inadequate, or if we identify additional material weaknesses in our disclosure controls or internal controls over financial reporting in the future, we will be unable to assert that our internal controls are effective. If we are unable to do so, or if our auditors are unable to attest to the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.
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As we have limited insurance coverage, any incurred liability resulting from uncovered claims could adversely affect our financial condition and results of operations.
Our insurance policies may not be adequate to fully offset losses from covered incidents, and we do not have coverage for certain losses. For example, we do not have earthquake insurance related to our Asian operations because adequate coverage is not offered at economically justifiable rates. If our insurance coverage is inadequate to protect us against catastrophic losses, any uncovered losses could adversely affect our financial condition and results of operations.
Our dependence on selling to distributors and integrators increases the complexity of managing our supply chain and may result in excess inventory or inventory shortages.
Selling to distributors and OEMs that build display devices based on specifications provided by branded suppliers, also referred to as integrators, reduces our ability to forecast sales accurately and increases the complexity of our business. Our sales are generally made on the basis of customer purchase orders rather than long-term purchase commitments. Our distributors, integrators and customers may cancel or defer purchase orders at any time, but we must order wafer inventory from our contract manufacturers three to four months in advance.
The estimates we use for our advance orders from contract manufacturers are based, in part, on reports of inventory levels and production forecasts from our distributors and integrators, which act as intermediaries between us and the companies using our products. This process requires us to make numerous assumptions concerning demand and to rely on the accuracy of the reports and forecasts of our distributors and integrators, each of which may introduce error into our estimates of inventory requirements. Our failure to manage this challenge could result in excess inventory or inventory shortages that could materially impact our operating results or limit the ability of companies using our semiconductors to deliver their products. If we overestimate demand for our products, it could lead to significant charges for obsolete inventory. On the other hand, if we underestimate demand, we could forego revenue opportunities, lose market share and damage our customer relationships.
We may be unable to successfully manage any future growth, including the integration of any acquisition or equity investment, which could disrupt our business and severely harm our financial condition.
If we fail to effectively manage any future internal growth, our operating expenses may increase more rapidly than our revenue, adversely affecting our financial condition and results of operations. To manage any future growth effectively in a rapidly evolving market, we must be able to maintain and improve our operational and financial systems, train and manage our employee base and attract and retain qualified personnel with relevant experience. We could spend substantial amounts of time and money in connection with expansion efforts for which we may not realize any profit. Our systems, procedures, controls or financial resources may not be adequate to support our operations and we may not be able to grow quickly enough to exploit potential market opportunities. In addition, we may not be able to successfully integrate the businesses, products, technologies or personnel of any entity that we might acquire in the future, or we may fail to realize the anticipated benefits of any such acquisition. The successful integration of any acquired business as well as the retention of personnel may require significant attention from our management and could divert resources from our existing business, which in turn could have an adverse effect on our business operations. Acquired assets or businesses may not achieve the anticipated benefits we expect due to a number of factors including: unanticipated costs or liabilities associated with such acquisition, including in the case of acquisitions we may make outside of the United States; difficulty in operating in foreign countries or complying with foreign regulatory requirements; incurrence of acquisition-related costs; harm to our relationships with existing customers as a result of such acquisition; harm to our brand and reputation; the loss of key employees in the acquired businesses; use of resources that are needed in other parts of our business; and use of substantial portions of our available cash to consummate any such acquisition. Any failure to successfully integrate any entity we may acquire or any failure to achieve the anticipated benefits of any such acquisition could disrupt our business and seriously harm our financial condition.
Continued compliance with regulatory and accounting requirements will be challenging and will require significant resources.
We spend a significant amount of management time and external resources to comply with changing laws, regulations and standards relating to corporate governance and public disclosure, including evolving SEC rules and regulations, Nasdaq rules, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes-Oxley Act of 2002, which requires management’s annual review and evaluation of internal control over financial reporting. Failure to comply with these laws and rules could lead to investigation by regulatory authorities, de-listing from Nasdaq, or penalties imposed on us.
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Regulations related to conflict minerals may adversely impact our business.
The SEC has adopted disclosure and reporting rules intended to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo ("DRC") and adjoining countries. These rules require us to conduct a reasonable inquiry to determine the origin of certain materials used in our products and disclose whether our products use any materials containing conflict minerals originating from the DRC and adjoining countries. Since we do not own or operate a semiconductor fabrication facility and do not manufacture our products internally, we are dependent on the information provided by third-party foundries and production facilities regarding the materials used and the supply chains for the materials. Further, there are costs associated with complying with these rules, including costs incurred to conduct inquiries to determine the sources of any materials containing conflict minerals used in our products, to fulfill our reporting requirements and to develop and implement potential changes to products, processes or sources of supply if it is determined that our products contain or use any conflict minerals from the DRC or adjoining countries. The implementation of these rules could also affect the sourcing, supply and pricing of materials used in our products. For example, there may only be a limited number of suppliers offering “conflict free” materials and we cannot be sure that we will be able to obtain necessary "conflict free" materials from such suppliers in sufficient quantities or at reasonable prices. In addition, we may face reputational challenges if we determine that any of our products contain minerals that are not conflict free or if we are unable to sufficiently verify the origins for all materials containing conflict minerals used in our products through the procedures we may implement.
Our effective income tax rate is subject to unanticipated changes in, or different interpretations of, tax rules and regulations, and forecasting our effective income tax rate is complex and subject to uncertainty.
As a global company, we are subject to taxation by a number of taxing authorities and as such, our tax rates vary among the jurisdictions in which we operate. Unanticipated changes in our tax rates could affect our future results of operations. Our effective tax rates could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in tax laws or the interpretation of tax laws either in the U.S. or abroad, or by changes in the valuation of our deferred tax assets and liabilities. The ultimate outcomes of any future tax audits are uncertain, and we can give no assurance as to whether an adverse result from one or more of them would have a material effect on our operating results and financial position.
The computation of income tax expense is complex as it is based on the laws of numerous tax jurisdictions and requires significant judgment on the application of complicated rules governing accounting for tax provisions under U.S. generally accepted accounting principles. Income tax expense for interim quarters is based on our forecasted tax rate for the year, which includes forward looking financial projections, including the expectations of profit and loss by jurisdiction, and contains numerous assumptions. For these reasons, our tax rate may be materially different than our forecast.
We rely upon certain critical information systems for the operation of our business, and the failure of any critical information system may result in serious harm to our business.
We maintain and rely upon certain critical information systems for the effective operation of our business. These information systems include telecommunications, the Internet, our corporate intranet, various computer hardware and software applications, network communications and e-mail. These information systems are subject to attacks, failures and access denials from a number of potential sources including viruses, destructive or inadequate code, power failures, and physical damage to computers, communication lines and networking equipment. To the extent that these information systems are under our control, we have implemented security procedures, such as virus protection software and firewall monitoring, to address the outlined risks. Security procedures for information systems cannot be guaranteed to be failsafe and our inability to use or access these information systems at critical times could compromise the timely and efficient operation of our business. Additionally, any compromise of our information security could result in the unauthorized publication of our confidential business or proprietary information, cause an interruption in our operations, result in the unauthorized release of customer or employee data, result in a violation of privacy or other laws, or expose us to litigation and reputational risk, any or all of which could harm our business and operating results.
Environmental laws and regulations may cause us to incur significant expenditures to comply with applicable laws and regulations, and we may be assessed considerable penalties for noncompliance.
We are subject to numerous environmental laws and regulations. Compliance with current or future environmental laws and regulations could require us to incur substantial expenses which could harm our business, financial condition and results of operations. We have worked, and will continue to work, with our suppliers and customers to ensure that our products are compliant with enacted laws and regulations. Failure by us or our contract manufacturers to comply with such legislation could result in customers refusing to purchase our products and could subject us to significant monetary penalties in connection with a violation, either of which would have a material adverse effect on our business, financial condition and results of operations.
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Company Risks Related to the Semiconductor Industry and Our Markets
Dependence on a limited number of sole-source, third-party manufacturers for our products exposes us to possible shortages based on low manufacturing yield, errors in manufacturing, uncontrollable lead-times for manufacturing, capacity allocation, price increases with little notice, volatile inventory levels and delays in product delivery, any of which could result in delays in satisfying customer demand, increased costs and loss of revenue.
We do not own or operate a semiconductor fabrication facility and do not have the resources to manufacture our products internally. Currently, 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. Our wafers are not fabricated at more than one foundry at any given time and our wafers typically are designed to be fabricated in a specific process at only one foundry. Sole sourcing each product increases our dependence on our suppliers. We have limited control over delivery schedules, quality assurance, manufacturing yields, potential errors in manufacturing and production costs. We do not have long-term supply contracts with our third-party manufacturers, so they are not obligated to supply us with products for any specific period of time, quantity or price, except as may be provided in a particular purchase order. Our suppliers can increase the prices of the products we purchase from them with little notice, which may cause us to increase the prices to our customers and harm our competitiveness. Because our requirements represent only a small portion of the total production capacity of our contract manufacturers, they could reallocate capacity to other customers during periods of high demand for our products, as they have done in the past. We expect this may occur again in the future.
Establishing a relationship with a new contract manufacturer in the event of delays or increased prices would be costly and burdensome. The lead time to make such a change would be at least nine months, and the estimated time for us to adapt a product’s design to a particular contract manufacturer’s process is at least four months. Additionally, we have chosen, and may continue to choose new foundries to manufacture our wafers which in turn, may require us to modify our design methodology flow for the process technology and intellectual property cores of the new foundry. If we have to qualify a new foundry or packaging, assembly and testing supplier for any of our products or if we are unable to obtain our products from our contract manufacturers on schedule, at costs that are acceptable to us, or at all, we could incur significant delays in shipping products, our ability to satisfy customer demand could be harmed, our revenue from the sale of products may be lost or delayed and our customer relationships and ability to obtain future design wins could be damaged.
If the Sale is completed, we will no longer be engaged in the semiconductor business.
Shortages of materials used in the manufacturing of our products and other key components of our customers’ products may increase our costs, impair our ability to ship our products on time and delay our ability to sell our products.
We have in the past and may from time-to-time face shortages of components and materials that are critical to the manufacture of our products and our customers’ products. Such critical components and materials may include semiconductor wafers and packages, double data rate memory die, display components, analog-to-digital converters, digital receivers, video decoders and voltage regulators. These shortages may result in additional costs to us and we may be unable to ship our products to our customers in a timely fashion, which could harm our business and adversely affect our results of operations.
If the Sale is completed, we will no longer be engaged in the semiconductor business.
Our highly integrated products and high-speed mixed signal products are difficult to manufacture without defects and the existence of defects could result in increased costs, delays in the availability of our products, reduced sales of products or claims against us.
The manufacture of semiconductors is a complex process and it is often difficult for semiconductor foundries to produce semiconductors free of defects. Because many of our products are more highly integrated than other semiconductors and incorporate mixed signal analog and digital signal processing, multi-chip modules and embedded memory technology, they are even more difficult to produce without defects. Defective products can be caused by design or manufacturing difficulties. Identifying quality problems can be performed only by analyzing and testing our semiconductors in a system after they have been manufactured. The difficulty in identifying defects is compounded because the process technology is unique to each of the multiple semiconductor foundries we contract with to manufacture our products. Despite testing by both our customers and us, errors or performance problems may be found in existing or new semiconductors. Failure to achieve defect-free products may result in increased costs and delays in the availability of our products. Defects may also divert the attention of our engineering personnel from our product development efforts to find and correct the issue, which would delay our product development efforts.
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Additionally, customers could seek damages from us for their losses, and shipments of defective products may harm our reputation with our customers. If a product liability claim is brought against us, the cost of defending the claim could be significant and would divert the efforts of our technical and management personnel and harm our business. Further, our business liability insurance may be inadequate or future coverage may be unavailable on acceptable terms, which could adversely impact our financial results.
We experience a small number of semiconductor field failures infrequently in certain customer applications that required us to institute additional testing. As a result of these field failures, we have incurred warranty costs due to customers returning potentially affected products and have experienced reductions in revenues due to delays in production. Our customers have also experienced delays in receiving product shipments from us that resulted in the loss of revenue and profits. Additionally, shipments of defective products could cause us to lose customers or to incur significant replacement costs, either of which would harm our reputation and our business. Any defects, errors or bugs could also interrupt or delay sales of our new products to our customers, which would adversely affect our financial results.
If the Sale is completed, we will no longer be engaged in the semiconductor business.
The development of new products is extremely complex and we may be unable to develop our new products in a timely manner, which could result in a failure to obtain new design wins and/or maintain our current revenue levels.
In addition to the inherent difficulty of designing complex integrated circuits, product development delays may result from:
•difficulties in hiring and retaining necessary technical personnel;
•difficulties in reallocating engineering resources and overcoming resource limitations;
•difficulties with contract manufacturers;
•changes to product specifications and customer requirements;
•changes to market or competitive product requirements; and
•unanticipated engineering complexities.
If we are not successful in the timely development of new products, we may fail to obtain new design wins and our financial results will be adversely affected.
If the Sale is completed, we will no longer be engaged in the semiconductor business.
Intense competition in our markets may reduce sales of our products, reduce our market share, decrease our gross profit and result in large losses.
We compete with specialized and diversified electronics and semiconductor companies that offer display processors or scaling components including: Actions Microelectronics Co., Ltd., ARM Holdings PLC, Dolby Laboratories, Inc., EGiS Technologies, Inc., HiSilicon Technologies Co., Ltd., i-Chips Technology Inc., Lattice Semiconductor Corporation, MediaTek Inc., Novatek Microelectronics Corp., NVIDIA Corporation, Qualcomm Incorporated, Realtek Semiconductor Corp., Socionext Inc., Solomon Systech (International) Ltd., STMicroelectronics N.V., Sunplus Technology Co., Ltd., Synaptics Incorporated, Texas Instruments Incorporated, Unisoc (Shanghai) Technologies Co., Ltd., and other companies. Potential and current competitors may include diversified semiconductor manufacturers and the semiconductor divisions or affiliates of some of our customers, including: Apple Inc., Broadcom Inc., LG Electronics, Inc., MegaChips Corporation, Mitsubishi Digital Electronics America, Inc., NEC Corporation, Panasonic Corporation, Samsung Electronics Co., Ltd., Socionext Inc., ON Semiconductor Corporation, Seiko Epson Corporation, Sharp Corporation, Sony Group Corporation, and Toshiba America, Inc. In addition, start-up companies may seek to compete in our markets.
Many of our competitors have longer operating histories and greater resources to support development and marketing efforts than we do. Some of our competitors operate their own fabrication facilities. These competitors may be able to react more quickly and devote more resources to efforts that compete directly with our own. Additionally, any consolidation in the semiconductor industry may impact our competitive position. Our current or potential customers have developed, and may continue to develop, their own proprietary technologies and become our competitors. Increased competition from both competitors and our customers’ internal development efforts could harm our business, financial condition and results of operations by, for example, increasing pressure on our profit margin or causing us to lose sales opportunities. For example, frame rate conversion technology similar to that used in our line of MotionEngine® advanced video co-processors continues to be integrated into the SoC and display timing controller products of our competitors. We cannot assure you that we can compete successfully against current or potential competitors.
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Although our TrueCut Motion product is the first motion grading solution for the cinematic market, competitive solutions could arise rapidly. These competitive solutions could come from several sources, including companies that provide solutions for other post-processing needs (such as Dolby Laboratories, Inc., Epic Games, Inc., Unity Technologies, Adobe Inc., Soluciones Gráficas por Ordenador S.L. (SGO), The Foundry Visionmongers Limited, and Autodesk, Inc.) as well as visual effects studios that use digital effects to reduce artifacts before they are created (such as Wētā FX, DNEG Plc, Pixar Animation Studios, Digital Domain, and Industrial Light & Magic (ILM)). If the Sale is completed, we intend to focus on our businesses apart from the semiconductor industry, including our TrueCut Motion TM platform.
If we are not able to respond to the rapid technological changes and evolving industry standards in the markets in which we compete, or seek to compete, our products may become less desirable or obsolete.
The markets in which we compete or seek to compete are subject to rapid technological change and miniaturization capabilities, frequent new product introductions, changing customer requirements for new products and features and evolving industry standards. The introduction of new technologies and emergence of new industry standards could render our products less desirable or obsolete, which could harm our business and significantly decrease our revenue. Examples include the increased adoption of artificial intelligence in visual processing systems, the growing use of broadband to deliver video content, increased display resolution and size, faster screen refresh rates, video capability such as High Dynamic Range, the proliferation of new display devices and the drive to network display devices together. Our failure to predict market needs accurately or to timely develop new competitively priced products or product enhancements that incorporate new industry standards and technologies, including integrated circuits with increasing levels of integration and new features, using smaller geometry process technologies, may harm market acceptance and sales of our products.
Our products are incorporated into our customers’ products, which have different parts and specifications and utilize multiple protocols that allow them to be compatible with specific computers, video standards and other devices. If our customers’ products are not compatible with these protocols and standards, consumers will return, or not purchase these products and the markets for our customers’ products could be significantly reduced. Additionally, if the technology used by our customers becomes less competitive due to cost, customer preferences or other factors relative to alternative technologies, sales of our products could decline.
We use a customer-owned tooling process for manufacturing most of our products, which exposes us to the possibility of poor yields and unacceptably high product costs.
We build most of our products on a customer-owned tooling basis, whereby we directly contract the manufacture of our products, including wafer production, assembly and testing. As a result, we are subject to increased risks arising from wafer manufacturing yields and risks associated with coordination of the manufacturing, assembly and testing process. Poor product yields result in higher product costs, which could make our products less competitive if we increase our prices to compensate for our higher costs or could result in lower gross profit margins if we do not increase our prices.
If the Sale is completed, we will no longer be engaged in the semiconductor business.
We depend on the manufacturers of our semiconductor products not only to respond to changes in technology and industry standards but also to continue the manufacturing processes on which we rely.
To respond effectively to changes in technology and industry standards, we depend on our contracted foundries to implement advanced semiconductor technologies and our operations could be adversely affected if those technologies are unavailable, delayed or inefficiently implemented. In order to increase performance and functionality and reduce the size of our products, we are continuously developing new products using advanced technologies that further miniaturize semiconductors and we are dependent on our foundries to develop and provide access to the advanced processes that enable such miniaturization. We cannot be certain that future advanced manufacturing processes will be implemented without difficulties, delays or increased expenses. Our business, financial condition and results of operations could be materially adversely affected if advanced manufacturing processes are unavailable to us, substantially delayed or inefficiently implemented.
Creating the capacity for new technological changes may cause manufacturers to discontinue older manufacturing processes in favor of newer ones. We must then either retire the affected part or port (develop) a new version of the part that can be manufactured with a newer process technology. In the event that a manufacturing process is discontinued, our current suppliers may be unwilling or unable to manufacture our current products. We may not be able to place last time buy orders for the old technology or find alternate manufacturers of our products to allow us to continue to produce products with the older technology while we expend the significant costs for research and development and time to migrate to new, more advanced processes.
If the Sale is completed, we will no longer be engaged in the semiconductor business.
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Because of our long product development process and sales cycles, we may incur substantial costs before we earn associated revenue and ultimately may not sell as many units of our products as we originally anticipated.
We develop products based on anticipated market and customer requirements and incur substantial product development expenditures, which can include the payment of large up-front, third-party license fees and royalties, prior to generating the associated revenue. Our work under these projects is technically challenging and places considerable demands on our limited resources, particularly on our most senior engineering talent. Additionally, the transition to smaller geometry process technologies continues to significantly increase the cost and complexity of new product development, particularly with regards to tooling, software tools, third party IP and engineering resources. Because the development of our products incorporates not only our complex and evolving technology, but also our customers’ specific requirements, a lengthy sales process is often required before potential customers begin the technical evaluation of our products. Our customers typically perform numerous tests and extensively evaluate our products before incorporating them into their systems. The time required for testing, evaluation and design of our products into a customer’s system can take nine months or more. It can take an additional nine months or longer before a customer commences volume shipments of systems that incorporate our products, if at all. Because of the lengthy development and sales cycles, we will experience delays between the time we incur expenditures for research and development, sales and marketing and inventory and the time we generate revenue, if any, from these expenditures.
Furthermore, we have entered into and may in the future enter into, co-development agreements that do not guarantee future sales volumes and limit our ability to sell the developed products to other customers. The exclusive nature of these development agreements increases our dependence on individual customers, particularly since we are limited in the number of products we are able to develop at any one time.
If actual sales volumes for a particular product are substantially less than originally anticipated, we may experience large write-offs of capitalized license fees, software development tools, product masks, inventories or other capitalized or deferred product-related costs, any of which would negatively affect our operating results.
If the Sale is completed, we will no longer be engaged in the semiconductor business.
Our developed software may be incompatible with industry standards and challenging and costly to implement, which could slow product development or cause us to lose customers and design wins.
We provide our customers with software development tools and with software that provides basic functionality for our integrated circuits and enables enhanced connectivity of our customers’ products. Software development is a complex process and we are dependent on software development languages and operating systems from vendors that may limit our ability to design software in a timely manner. Also, as software tools and interfaces change rapidly, new software languages introduced to the market may be incompatible with our existing systems and tools, requiring significant engineering efforts to migrate our existing systems in order to be compatible with those new languages. Software development disruptions could slow our product development or cause us to lose customers and design wins. The integration of software with our products adds complexity, may extend our internal development programs and could impact our customers’ development schedules. This complexity requires increased coordination between hardware and software development schedules and increases our operating expenses without a corresponding increase in product revenue. This additional level of complexity lengthens the sales cycle and may result in customers selecting competitive products requiring less software integration.
If the Sale is completed, we will no longer be engaged in the semiconductor business.
The competitiveness and viability of our products could be harmed if necessary licenses of third-party technology are not available to us on terms that are acceptable to us or at all.
We license technology from independent third parties that is incorporated into our products or product enhancements. Future products or product enhancements may require additional third-party licenses that may not be available to us on terms that are acceptable to us or at all. In addition, in the event of a change in control of one of our licensors, it may become difficult to maintain access to its licensed technology. If we are unable to obtain or maintain any third-party license required to develop new products and product enhancements, we may have to obtain substitute technology with lower quality or performance standards, or at greater cost, either of which could seriously harm the competitiveness of our products.
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Our limited ability to protect our IP and proprietary rights could harm our competitive position by allowing our competitors to access our proprietary technology and to introduce similar products.
Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology, including our semiconductor designs and software code. We provide the computer programming code for our software to customers in connection with their product development efforts, thereby increasing the risk that customers will misappropriate our proprietary software. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to help protect our proprietary technologies. As of October 22, 2025, we held 201 patents and had 13 patent applications pending for protection of our significant technologies. Competitors in both the U.S. and foreign countries, many of whom have substantially greater resources than we do, may apply for and obtain patents that will prevent, limit or interfere with our ability to make and sell our products, or they may develop similar technology independently or design around our patents. Effective patent, copyright, trademark and trade secret protection may be unavailable or limited in foreign countries and, thus, make the possibility of piracy of our technology and products more likely in these countries.
We cannot assure you that the degree of protection offered by patent or trade secret laws will be sufficient. Furthermore, we cannot assure you that any patents will be issued as a result of any pending applications or that any claims allowed under issued patents will be sufficiently broad to protect our technology. We may incur significant costs to stop others from infringing our patents. In addition, it is possible that existing or future patents may be invalidated, diluted, circumvented, challenged or licensed to others.
Others may bring infringement or indemnification actions against us that could be time-consuming and expensive to defend.
We may become subject to claims involving patents or other intellectual property rights. In recent years, there has been significant litigation in the U.S. and in other jurisdictions involving patents and other intellectual property rights. This litigation is particularly prevalent in the semiconductor industry, in which a number of companies aggressively use their patent portfolios to bring infringement claims. In recent years, there has been an increase in the filing of so-called "nuisance suits," alleging infringement of intellectual property rights. These claims may be asserted initially or as counterclaims in response to claims made by a company alleging infringement of intellectual property rights. These suits pressure defendants into entering settlement arrangements to quickly dispose of such suits, regardless of merit. We may also face claims brought by companies that are organized solely to hold and enforce patents. In addition, we may be required to indemnify our customers against IP claims related to their usage of our products as certain of our agreements include indemnification provisions from third parties relating to our intellectual property.
IP claims could subject us to significant liability for damages and invalidate our proprietary rights. Responding to such claims, regardless of their merit, can be time-consuming, result in costly litigation, divert management’s attention and resources and cause us to incur significant expenses. As each claim is evaluated, we may consider the desirability of entering into settlement or licensing agreements. No assurance can be given that settlements will occur or that licenses can be obtained on acceptable terms or that litigation will not occur. In the event there is a temporary or permanent injunction entered prohibiting us from marketing or selling certain of our products, or a successful claim of infringement against us requiring us to pay damages or royalties to a third-party and we fail to develop or license a substitute technology, our business, results of operations or financial condition could be materially adversely affected. Any IP litigation or claims also could force us to do one or more of the following:
•stop selling products using technology that contains the allegedly infringing IP;
•attempt to obtain a license to the relevant IP, which may not be available on terms that are acceptable to us or at all;
•attempt to redesign those products that contain the allegedly infringing IP; or
•pay damages for past infringement claims that are determined to be valid or which are arrived at in settlement of such litigation or threatened litigation.
If we are forced to take any of the foregoing actions, we may incur significant additional costs or be unable to manufacture and sell our products, which could seriously harm our business. In addition, we may not be able to develop, license or acquire non-infringing technology under reasonable terms. These developments could result in an inability to compete for customers or otherwise adversely affect our results of operations.
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Our products are characterized by average selling prices that can decline over relatively short periods of time, which will negatively affect our financial results unless we are able to reduce our product costs or introduce new products with higher average selling prices.
Average selling prices for our products can decline over relatively short periods of time, while many of our product costs are relatively fixed. When our average selling prices decline, our gross profit declines unless we are able to sell more units or reduce the cost to manufacture our products. We have experienced declines in our average selling prices and expect that we will continue to experience them in the future, although we cannot predict when they may occur or how severe they will be. Our financial results will suffer if we are unable to offset any reductions in our average selling prices by increasing our sales volumes, reducing our costs, adding new features to our existing products or developing new or enhanced products in a timely manner with higher selling prices or gross profits.
The cyclical nature of the semiconductor industry may lead to significant variances in the demand for our products and could harm our operations.
In the past, the semiconductor industry has been characterized by significant downturns and wide fluctuations in supply and demand. Also, the industry has experienced significant fluctuations in anticipation of changes in general economic conditions, including economic conditions in Asia, Europe and North America. The cyclical nature of the semiconductor industry has also led to significant variances in product demand and production capacity. We have experienced, and may continue to experience, periodic fluctuations in our financial results because of changes in industry-wide conditions.
If the Sale is completed, we will no longer be engaged in the semiconductor business.
Our business is subject to the risks of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by man-made problems such as acts of war and terrorism.
A significant natural disaster, such as an earthquake, fire, a flood, or significant power outage could have a material adverse impact on our business, operating results, and financial condition. Such events could result in physical damage to one or more facilities, the temporary closure of one or more facilities or those of our suppliers, a temporary lack of an adequate workforce in a market, a temporary or long-term disruption in the supply of products from local and overseas suppliers, which may impact quality assurance, product costs, and product supply and timing. In the event our or our suppliers’ information technology systems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could be delayed, resulting in missed financial targets, such as revenue and shipment targets, and our operations could be disrupted for the affected quarter or quarters. In addition, large-scale cybersecurity attacks, acts of war or terrorism, global pandemics such as the COVID-19 pandemic, or other geo-political unrest could cause disruptions in our business or the business of our supply chain, manufacturers, suppliers, partners, or customers or the economy as a whole. Any disruption in the business of our supply chain, manufacturers, suppliers, partners or customers that impacts sales at the end of a quarter could have a significant adverse impact on our quarterly results. All of the aforementioned risks may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate. To the extent that any of the above should result in delays or cancellations of customer orders, or the delay in the manufacture, deployment or shipment of our products, our business, financial condition and operating results would be adversely affected.
Risks Related to Our Operations in China
We face additional risks associated with our operations in China, including the risk of changes in China’s political, economic or social conditions or changes in U.S.-China relations, as well as liquidity risks, any of which may adversely and materially affect our results of operations, financial position and value of our securities.
We have, and, if the Sale is not completed, we may continue to have, more than a majority of our operations in China as PWSH, one of our Chinese subsidiaries, is a full profit-and-loss center underneath the Company for our Mobile and Home & Enterprise businesses. The economy of China differs from the economy of the United States in important respects such as structure, government involvement, level of development, growth rate, capital reinvestment, allocation of resources, self-sufficiency, rate of inflation, foreign currency flows and balance of payments position, among others. There can be no assurance that China’s economic policies will be consistent or effective and because more than a majority of our operations are in China, our results of operations, financial position and value of our securities may be materially harmed by changes in China’s political, economic or social conditions. Additionally, the political and economic relationship between the U.S. and China is uncertain, and any changes in policy as a result may adversely affect our business. For example, recent statements and actions by the United States regarding tariffs or the export of certain semiconductor technology, although not applicable to our technology or products, could result in responsive actions taken by China that could adversely impact our operations, financial position, or stock price.
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In addition, the Company faces certain liquidity risks from its operations in China. PWSH has, in the past, and may decide in the future, to sell shares of its stock, such as in a private placement, or otherwise. In addition, PWSH may, in the future, become profitable. Any proceeds raised or generated by PWSH are subject to certain PRC laws and regulations that may make it difficult, if not impossible, for the Company to use such proceeds to fund its operations outside of China. For example, China’s government imposes control over the convertibility of RMB into foreign currencies, which can cause difficulties converting cash held in RMB to other currencies. It is therefore unlikely that funds raised or generated by PWSH will be readily distributable to the Company or its U.S. shareholders. To date, no dividends or distributions have been made by PWSH to either the Company or its U.S. investors. Additionally, cash is transferred through the Company between entities through settling cash owed between one entity and another, for example, for services rendered, through intercompany agreements, and the Company intends to continue settling amounts owed in the ordinary course of business in this manner. During the fiscal years ended December 31, 2023 and December 31, 2024, an aggregate of $7.2 million in cash was transferred from the Company to PWSH, and $8.4 million from PWSH to the Company as part of such settlements. While currently the Company has been able to settle cash owed between PWSH and other entities within the Company, PRC laws and regulations could change so as to make it more difficult, if not impossible, to make such transfers in the future, which in turn would adversely affect our results of operations.
We face legal and operational risks related to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws, required approvals and permissions, and regulations in China, which could adversely affect us and limit the legal protections available to the Company and its shareholders, as well as materially and adversely affect our business and value of our securities.
While the overall effect of legislation over the past two decades has significantly enhanced the protections afforded to various foreign investments in China, China has not developed a fully integrated legal system based on the rule of law, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. Because the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections available to the Company. Uncertainties due to evolving laws and regulations could also impede the ability of an entity based in China, such as our Chinese subsidiaries, to obtain or maintain permits or licenses required to conduct business in China. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently applied by other PRC government authorities (including local government authorities), thus making strict compliance with all regulatory requirements impractical, or in some circumstances impossible. In addition, China's legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the violation occurs. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Further, since Chinese administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings. These uncertainties may also impede our ability to enforce the contracts entered into by our Chinese subsidiaries and could materially and adversely affect our business and results of operations.
The PRC government at times will exercise significant oversight and discretion over the conduct of business in the PRC and may intervene or influence business operations as the government deems appropriate to further regulatory, political and societal goals. Our Chinese subsidiaries are required to obtain certain permits and licenses from certain PRC government agencies to operate businesses in China, such as business licenses from the State Administration for Market Regulation ("SAMR"), registrations with PRC tax authorities, filings with PRC customs for carrying out export and import business activities and registrations with China’s State Administration of Foreign Exchange (SAFE) for the ability to receive funds from offshore entities and transfer funds to offshore entities. The Company has determined, in consultation with its general counsel, that we are not currently required to obtain permissions or approvals from the CAC. As of the date of this filing, our Chinese subsidiaries have obtained the required business licenses from the SAMR and complied with registration and filing requirements of other Chinese government agencies, and have not been denied such registrations or filings by any PRC authority, however, if we do not receive or maintain the necessary permissions or approvals, inadvertently conclude that such permissions or approvals are not required, or applicable laws, regulations or interpretations change and we become required to obtain such permissions or approvals in the future and we fail to do so, we may be subject to investigations, fines, penalties, suspensions in operations, or other punitive action which could result in a material adverse change in our PRC operations and our results of operation, which in turn could cause our stock price to be materially and adversely affected.
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Additionally, rules and regulations in China can change quickly and with little advance notice. For example, the PRC government has recently initiated a series of regulatory actions and made a number of public statements on the regulation of businesses in China with little advance notice, including enhancing supervision over China-based companies listed overseas, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. While we do not believe we are subject to these regulatory actions or statements, as we have not implemented the kind of monopolistic behavior that is the target of these rules, and our business does not involve large-scale collection of user data, implicate cybersecurity, or involve any other type of restricted industry, and therefore these regulatory actions and statements do not impact our ability to conduct our business, accept foreign investments into PWSH, there is no guarantee that the PRC government will refrain from releasing regulations or policies regarding the Company’s industry that could adversely affect our business, financial condition or results of operations.
If we are unable to close on a transaction, such as the Sale, in which the various non-Pixelworks investors in PWSH sell their shares or otherwise waive their repurchase rights, or otherwise negotiate for an extension or cancellation of those rights, we may be required to re-purchase the shares of PWSH held by those investors who elect for repurchase under the provisions of the August 2021 Capital Increase Agreement or the agreements governing the employee-owned entities known as “ESOPs,” which would materially and adversely impact our cash position.
Pursuant to the August 2021 Capital Increase Agreement and the agreements governing the five employee-owned entities that have invested in PWSH (each an “ESOP”), if PWSH has not consummated an initial public offering of its shares on a China financial market prior to a certain date (for the private equity and strategic investors (collectively, the "Investors"), June 30, 2024, and for three of the ESOPs, December 31, 2024, and for two other of the ESOPs, December 31, 2026), the Investors and the ESOPs each have an independent right to elect to have their shares repurchased for a price equal to the initial purchase price paid by the purchaser (and for the ESOP, plus annual simple interest at a rate of 5%). If we are unable to close on a transaction in which the Investors and the ESOPs sell their shares in PWSH or otherwise waive their repurchase rights, or are unable to negotiate an extension or cancellation of these provisions, following those deadlines one or more of the respective purchasers may elect to require a repurchase. We would be required to use cash to effect these repurchases, which in turn would negatively impact our cash position and plans for growth. On October 15, 2025, the Company entered into the Purchase Agreement and related Support Agreements and Termination Release Agreements pursuant to which the Investors and ESOPs agreed to waive their repurchase rights in connection with the sale of shares of PWSH to a third-party buyer. Assuming all closing conditions are met in a timely manner (including approval by holders of 67% of the outstanding shares of our common stock), the Company expects the closing of the Sale to take place by December 31, 2025. There can be no assurance that the Sale will close on time or at all, and therefore whether the Investors and ESOPs will ultimately waive their repurchase rights.
If we are unable to implement our strategy to expand our PRC operations, our ability to access capital, customers, and talent in China could suffer, which in turn may materially and adversely affect our worldwide growth and revenue potential.
In August 2021, we announced our Strategic Plan to transform PWSH into a profit center for our Mobile and Home & Enterprise businesses to improve our access to capital, customers, and talent in China. As part of this Strategic Plan, we may need to access the capital markets of China to fund the growth of PWSH. We may not be successful in the implementation of our Strategic Plan and we may not be able to obtain such capital for a number of reasons, including those related to the risks we face associated with our operations in China as detailed separately above, many of which are outside our control. Further, tensions between the United States and China, or other geopolitical forces, including war, could negatively impact our currently planned projects and investments in the PRC. We cannot give any assurance that capital will be available on terms acceptable to us. Any such inability to obtain funds may impair the ability of PWSH to grow its operations, which could have a material adverse effect on our consolidated operating results and on the price of our common stock.
If we are unable to successfully implement our Strategic Plan, we may not realize the advantages to our PRC operations contemplated by our business strategy, including improving our access to capital markets, customers, and talent in China. PRC companies are critical to the global semiconductor industry, and our current business is substantially concentrated in the PRC market. Our inability to build, or any delay in growing, our PRC-based operations over the next several years would materially and adversely limit our operations and operating results, including our revenue growth.
Following the closing of the Sale, the Company will focus on its remaining business, including our TrueCut Motion TM platform.
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PWSH’s status as a private company in China that is controlled, but less than wholly owned, by Pixelworks could have an adverse effect on us.
PWSH is not currently a wholly owned subsidiary of Pixelworks. The interests of PWSH may diverge from the interests of Pixelworks and its other subsidiaries in the future. We may face conflicts of interest in managing, financing, or engaging in transactions with PWSH, or allocating business opportunities between our subsidiaries, including future arrangements for operating subsidiaries other than PWSH to license and use our intellectual property.
Pixelworks retains majority ownership of PWSH, but PWSH is managed by a separate board of directors and officers and those directors and officers owe fiduciary duties to the various stakeholders of PWSH, including shareholders other than Pixelworks. In the operation of PWSH’s business, there may be situations that arise whereby the directors and officers of PWSH, in the exercise of their fiduciary duties, take actions that may be contrary to the best interests of Pixelworks or its shareholders. Additionally, because PWSH will be managed by a separate board of directors and officers, our organizational structure will become more complex, which may in turn require substantial financial, operational, and management resources.
In the future, PWSH may issue options, restricted shares, and other forms of share-based compensation to its directors, officers, and employees, which could dilute Pixelworks’ ownership in PWSH. In addition, PWSH may engage in capital raising activities in the future that could further dilute Pixelworks’ ownership interest.
Risks Related to the Sale
The pendency of the Sale, whether or not consummated, may adversely affect our business and the trading price of our common stock.
The pendency of the Sale, whether or not consummated, may adversely affect our business, our employees, our relationships with our customers or business partners, and the trading price of our common stock. In addition, pending the completion of the Sale, we may be unable to attract and retain key personnel, and the focus and attention of our management and employee resources may be diverted from operational matters.
Failure to complete the Sale could cause our stock price to decline.
The failure to complete the Sale may create doubt as to the value of our business and about our ability to effectively implement our current business strategies and/or a strategic transaction, which may result in a decline in the trading price of our common stock.
If we fail to complete the Sale, our business and financial performance may be adversely affected.
The completion of the Sale is subject to the satisfaction or waiver of various conditions, including the approval of the Sale by our shareholders, which may not be satisfied in a timely manner or at all.
If the Sale is not completed, we may have difficulty recouping the costs incurred in connection with negotiating the Sale. Our directors, executive officers, and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the Sale, and we will have incurred significant third-party transaction costs, in each case, without any commensurate benefit, which may have a material and adverse effect on our stock price and results of operations.
Furthermore, if the Sale is not completed, the announcement of the termination of the Purchase Agreement may adversely affect our relationships with our customers, business partners, and/or employees, which could have a material adverse impact on our ability to effectively operate our business. In addition, depending on the circumstances leading to termination of the Purchase Agreement, we may be required to pay a termination fee of $5,000,000, which could adversely affect our business, results of operations and the trading price of our common stock.
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If the Sale is not approved by our shareholders or if we fail to complete the Sale, no other offer from a potential acquiror of PWSH may be available that our Board believes to be attractive.
If we fail to complete the Sale, the Board, in discharging its fiduciary obligations to our shareholders, may evaluate other strategic alternatives including, but not limited to, continuing to operate the business of PWSH for the foreseeable future or an alternative transaction relating to PWSH. An alternative transaction, if available, may yield lower value to the Company than the proposed Sale, otherwise be on less favorable terms and conditions than those included in the Purchase Agreement, or involve significant delay. If PWSH is not sold, there is no assurance that we will realize value at least equivalent to the proceeds of the Sale from the operation of the business of PWSH on a present value basis. Additionally, if the Sale is not completed, we and PWSH will continue to be subject to risks related to the PWSH operations in China. See “Risks Related to Our Operations in China”.
We will incur significant expenses in connection with the Sale, regardless of whether the Sale is completed and, in certain circumstances, will be required to pay a termination fee to the Buyer.
We expect to incur significant expenses related to the Sale. These expenses include, but are not limited to, financial advisory and opinion fees and expenses, legal fees, accounting fees, employee compensation expenses, filing fees, and printing and mailing expenses. We will be obligated to pay many of these expenses regardless of whether the Sale is completed. In addition, if the Purchase Agreement is terminated in certain circumstances, we will be required to pay the Buyer a $5,000,000 termination fee. However, if the Purchase Agreement is terminated in certain other circumstances, we may be entitled to a $5,000,000 termination fee from the Buyer.
In the event the Sale is completed, our shareholders will not receive any of the proceeds of the Sale. Further, our management will have broad discretion over the use of the sale proceeds, and we may not achieve the positive financial results from such uses that we expect.
The proceeds from the sale of the shares of PWSH in the Sale will be paid directly to us and not to our shareholders. We do not intend to declare a special dividend to shareholders from all or a portion of the proceeds of the Sale, and we currently have no plans to dissolve the Company. Therefore, our shareholders will not receive any of the proceeds of the Sale. The Board plans to evaluate various alternatives regarding the use of proceeds from the Sale, including a focus on the expansion of our business in cinematic visualization solutions, including our flagship TrueCut Motion platform. There can be no assurance that any such uses will yield positive financial results for the Company.
We face additional risks associated with our operations in China, including the risk of changes in China’s political, economic or social conditions or changes in U.S.-China relations, as well as liquidity risks, any of which may have the effect of delaying or impeding the closing of the Sale.
The political and economic relationship between the U.S. and China is uncertain, and any changes in policy as a result may adversely affect our ability to consummate the Sale in a timely manner or at all. For example, recent statements and actions by the United States regarding tariffs and the export of certain semiconductor technology, although not applicable to our technology or products, could result in responsive actions taken by China, such as its recent default ban on the export of defense-sector rare earth minerals and related technologies, that could adversely impact the timing or consummation of the Sale.
In addition, the Company faces certain liquidity risks from its operations in China. The proceeds from the Sale are subject to certain laws and regulations of the PRC that may make it difficult, if not impossible, for the Company to transfer such proceeds outside of China. For example, China’s government controls the convertibility of RMB into foreign currencies, which can cause difficulties converting cash held in RMB to other currencies. It is therefore possible that funds generated by the Sale will be not readily distributable to the Company. While the Company has been able to settle cash owed between PWSH and other entities within the Company to date, PRC laws and regulations could change so as to make it more difficult, if not impossible, to make such transfers in the future, including the proceeds of the Sale.
We will have fewer sources of revenue following the Sale, which may negatively impact the value of our common stock.
If the Sale is completed, our operations will be smaller. A failure by us to secure additional sources of revenue following the closing of the Sale could negatively impact the value of our common stock.
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General Risks
The price of our common stock has and may continue to fluctuate substantially.
Our stock price and the stock prices of technology companies similar to Pixelworks have been highly volatile. The price of our common stock may decline and the value of our shareholders' investment may be reduced regardless of our performance.
The daily trading volume of our common stock has historically been relatively low, although, in the three most recent years, trading volume increased compared to historical levels. As a result of the historically low volume, our shareholders may be unable to sell significant quantities of common stock in the public trading markets without a significant reduction in the price of our common shares. Additionally, market fluctuations, as well as general economic and political conditions, including recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. Other factors that could negatively impact our stock price include:
•actual or anticipated fluctuations in our operating results;
•changes in or failure to meet expectations as to our future financial performance;
•changes in or failure to meet financial estimates of securities analysts;
•announcements by us or our competitors of technological innovations, design wins, contracts, standards, acquisitions or divestitures;
•the operating and stock price performance of other comparable companies;
•issuances or proposed issuances of equity, debt or other securities by us, or sales of securities by our security holders; and
•changes in market valuations of other technology companies.
Any inability or perceived inability of investors to realize a gain on an investment in our common stock could have an adverse effect on our business, financial condition and results of operations by potentially limiting our ability to retain our customers, to attract and retain qualified employees and to raise capital. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company's securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.
The interest of our current or potential significant shareholders may conflict with other shareholders and they may attempt to effect changes or acquire control, which could adversely affect our results of operations and financial condition.
Our shareholders may from time to time engage in proxy solicitations, advance shareholder proposals, acquire control or otherwise attempt to effect changes, including by directly voting their shares on shareholder proposals. Campaigns by shareholders to effect changes at publicly traded companies are sometimes led by investors seeking to increase short-term shareholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist shareholders can be costly and time-consuming, disrupting our operations and diverting the attention of our Board of Directors and senior management from the pursuit of business strategies. Additionally, uncertainty over our direction and leadership may negatively impact our relationship with our customers and make it more difficult to attract and retain qualified personnel and business partners. As a result, shareholder campaigns could adversely affect our results of operations and financial condition.
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Future sales of our equity could result in significant dilution to our existing shareholders and depress the market price of our common stock.
It is likely that we will need to seek additional capital in the future and from time to time. If this financing is obtained through the issuance of equity securities, debt convertible into equity securities, options or warrants to acquire equity securities or similar instruments or securities, our existing shareholders will experience dilution in their ownership percentage upon the issuance, conversion or exercise of such securities and such dilution could be significant. For example, as of September 30, 2025, pursuant to our 2024 ATM Program, we sold an aggregate of 347,559 shares of our common stock. In addition, on October 6, 2025 and March 24, 2025, we sold an aggregate of 666,667 and 164,176 shares of our common stock, respectively, in two registered direct offerings. The issuance and sale of additional shares of our common stock will have a dilutive impact on our existing shareholders. Additionally, any new equity securities issued by us could have rights, preferences or privileges senior to those of our common stock. Further, the issuance and sale of, or the perception that we may issue and sell, additional shares of common stock pursuant to an “at the market” equity offering program, a private placement or another offering could have the effect of depressing the market price of our common stock or increasing the volatility thereof.
Any issuance by us or sales of our securities by our security holders, including by any of our affiliates, or the perception that such issuances or sales could occur, could negatively impact the market price of our securities. For example, a number of shareholders own significant blocks of our common stock. If one or more of these large shareholders were to sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of our common stock could be negatively affected. This could result in further potential dilution to our existing shareholders and the impairment of our ability to raise capital through the sale of equity, debt or other securities.
We may be unable to maintain compliance with Nasdaq Listing Rules, which could cause our common stock to be delisted from Nasdaq. This could result in the lack of a market for our common stock, cause a decrease in the value of our common stock, and adversely affect our business, financial condition and results of operations.
Under the Nasdaq Listing Rules, we must maintain a minimum price of $1.00 per share for continued listing on the Nasdaq. Prior to the Reverse Stock Split on June 6, 2025, our common stock price was trading below the minimum bid price for continued listing on the Nasdaq. We effected the Reverse Stock Split in order to regain compliance with this requirement, and following the Reverse Stock Split our common stock has not traded below the minimum bid price for continued listing on the Nasdaq.
In addition to the minimum $1.00 per share continued listing requirement, the Nasdaq has other continued listing requirements, including the requirement that we have at least 300 total shareholders, and we must meet all of the criteria under at least one of the following three standards: (i) a minimum of $500,000 in net income from continuing operations (in the latest fiscal year or in two of the last three fiscal years), at least 500,000 publicly held shares, at least $1.0 million in market value of publicly held shares and at least two registered and active market makers (as such term is defined by the Nasdaq Listing Rules); (ii) a minimum of $35.0 million in market value of listed securities, at least 500,000 publicly held shares, at least $1.0 million in market value of publicly held shares and at least two registered and active market makers; or (iii) a minimum of $2.5 million in shareholders' equity, at least 500,000 publicly held shares, at least $1.0 million in market value of publicly held shares and at least two registered and active market makers.
Our stock price is volatile and, though our stock price has risen following the Reverse Stock Split, we believe that we continue to remain susceptible to the market value of our listed securities and/or the market value of our publicly held securities falling below $35.0 million and $1.0 million, respectively. Accordingly, we cannot assure you that we will continue to comply with the Nasdaq’s continued listing requirements. If our common stock is delisted, it would likely have an adverse effect on the liquidity of our common stock, decrease the market price of our common stock, result in the potential loss of confidence by investors, suppliers, customers, and employees, and fewer business development opportunities, and adversely affect our ability to obtain financing for our continuing operations.
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The anti-takeover provisions of Oregon law and in our articles of incorporation could adversely affect the rights of the holders of our common stock, including by preventing a sale or takeover of us at a price or prices favorable to the holders of our common stock.
Provisions of our articles of incorporation and bylaws and provisions of Oregon law may have the effect of delaying or preventing a merger or acquisition of us, making a merger or acquisition of us less desirable to a potential acquirer or preventing a change in our management, even if our shareholders consider the merger, acquisition or change in management favorable or if doing so would benefit our shareholders. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. The following are examples of such provisions:
•if the number of directors is fixed by the board at eight or more, our board of directors is divided into three classes serving staggered terms, which would make it more difficult for a group of shareholders to quickly replace a majority of directors;
•our board of directors is authorized, without prior shareholder approval, to create and issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us or to effect a change of control, commonly referred to as "blank check" preferred stock;
•members of our board of directors can be removed only for cause and at a meeting of shareholders called expressly for that purpose, by the vote of 75 percent of the votes then entitled to be cast for the election of directors;
•our board of directors may alter our bylaws without obtaining shareholder approval; and shareholders are required to provide advance notice for nominations for election to the board of directors or for proposing matters to be acted upon at a shareholder meeting;
•Oregon law permits our board to consider other factors beyond shareholder value in evaluating any acquisition offer (so-called "expanded constituency" provisions); and
•a supermajority (67%) vote of shareholders is required to approve certain fundamental transactions.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
Item 3. Defaults upon Senior Securities
(a) Not Applicable
(b) Not Applicable
Item 4. Mine Safety Disclosures
Not Applicable
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Item 5. Other Information.
(a) Not Applicable
(b) Not Applicable
(c) None
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Item 6.Exhibits.

3.1 |  | Sixth Amended and Restated Articles of Incorporation of Pixelworks, Inc., as amended (incorporated by reference to Exhibit 3.1(b) to the Company's Quarterly Report on Form 10-Q filed on August 13, 2025).
3.2 |  | Third Amended and Restated Bylaws of Pixelworks, Inc. (incorporated by reference to Exhibit 3(ii).1 to the Company's Current Report on Form 8-K filed on February 2, 2023).
10.1 |  | Form of Common Stock Purchase Agreement, dated as of October 6, 2025, between Pixelworks, Inc. and the Purchasers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 6, 2025).
10.2 |  | Form of Placement Agency Agreement, date d as of October 6, 2025, between P i xelworks, Inc. and Roth Pa rtners, LLC (incorporated by reference to Exhibit 10.2 to the Company's Current Report on F orm 8-K filed on October 6, 2025.
10.3*** |  | Share Purchase Agreement, date d as of October 15, 2025, among Pixelworks, Inc., PWSH, Pixelworks LLC, each Selling Shareholder and Buyer (incorporated by reference to Exhibit 10.1 to the Company's Current Report on F orm 8-K filed on October 1 6, 2025).
10.4 |  | Amendment Agreement to Exhibit 10.3, dated as of October 15, 2025, among Pixelworks, Inc., PWSH, Pixelworks LLC, and Buyer (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 16, 2025).
10.5 |  | Form of Support Agreement, dated as of October 14, 2025, by and between Pixelworks LLC, and each of the Minority Shareholders, together with form of Termination and Release Agreement, dated as of October 14, 2025, by and among Pixelworks LLC, PWSH, and each of the Minority Shareholders, attached to the form of Support Agreement as Exhibit A (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 16, 2025).
10.6+ |  | Transaction Bonus Agreement dated as of August 12, 2025 by and between Pixelworks, Inc. and Todd A. DeBonis (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 13, 2025).
10.7+ |  | Transaction Bonus Agreement dated as of October 10, 2025 by and between Pixelworks, Inc. and Haley F. Aman (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 16, 2025).
31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.1* |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2* |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101** |  | Inline XBRL Document Set for the financial statements and accompanying notes in Part I, Item 1, “Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q
101.SCH |  | XBRL Taxonomy Extension Schema Document
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document
101.LAB |  | XBRL Taxonomy Label Linkbase Document
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document
104** |  | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set

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* | Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be "filed" for under the Securities Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent specifically stated in such filing.
** | Filed herewith.
*** | Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish a copy any of the omitted exhibits or schedules upon request by the SEC.
+ | Indicates a management contract or compensation arrangement

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | PIXELWORKS, INC.
Dated: | November 12, 2025 | /s/ Haley F. Aman
|  | Haley F. Aman Chief Financial Officer, (Duly Authorized Officer and Principal Accounting and Principal Financial Officer)

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