QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Large accelerated filer ☐
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Accelerated filer ☐
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Emerging growth company
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Smaller reporting company
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Page
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2 |
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2 |
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2 |
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3 |
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4 |
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5 |
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6 |
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7 |
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15 |
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18 |
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18 |
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18 |
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18 |
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19 |
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30 |
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30 |
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31 |
As of
September 30,
2024
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As of
December 31,
2023
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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$
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Investments available for sale
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Accounts receivables
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Prepaid expenses and other current assets
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Total current assets
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Other investments at cost |
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Prepaid expenses and other assets
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Property and equipment, net
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Total assets
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$
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$
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable and accrued liabilities
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$
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$
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Accrued payroll and related expenses
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Other liabilities, current
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Total current liabilities
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Other liabilities |
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Total liabilities
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Commitments and contingencies (Note 4)
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Stockholders’ equity:
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Preferred stock, par value $
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Common stock, par value $
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Additional paid-in capital
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Accumulated deficit
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(
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)
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(
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)
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||||
Accumulated other comprehensive loss
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(
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)
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Total stockholders’ equity
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Total liabilities and stockholders’ equity
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$
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$
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Three Months Ended
September 30,
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Nine Months
Ended
September 30,
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2024
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2023
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2024
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2023
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|||||||||||||
Revenue
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$
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$
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$
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$
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||||||||
Operating expense:
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||||||||||||||||
Research and development
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||||||||||||
Selling, general and administrative
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Total operating expense
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||||||||||||
(Loss) from operations
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
Interest and other income, net
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||||||||||||
(Loss) before taxes
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
Income tax (expense) benefit
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|
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(
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)
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|||||||||||
Net (loss)
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$
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(
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)
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$
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(
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)
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$
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(
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)
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$
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(
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)
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||||
Basic (loss) per share
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$
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(
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)
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$
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(
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)
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$
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(
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)
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$
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(
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)
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||||
Diluted (loss) per share
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$
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(
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)
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$
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(
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)
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$
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(
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)
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$
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(
|
)
|
||||
Weighted average shares outstanding - basic
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|
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||||||||||||
Weighted average shares outstanding - diluted
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2024
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2023
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2024
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2023
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||||||||||||
Net (loss)
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$
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(
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)
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$
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(
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)
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$
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(
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)
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$
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(
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)
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||||
Other comprehensive income (loss):
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||||||||||||||||
Change in unrealized gain (loss) on investments, net of tax
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||||||||||||
Change in foreign currency translation, net of tax
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(
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)
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(
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)
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||||||||||
Total other comprehensive income (loss)
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Comprehensive (loss)
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$
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(
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)
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$
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(
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)
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$
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(
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)
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$
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(
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)
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Three Months Ended
September 30,
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Nine Months
Ended
September 30,
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|||||||||||||||
2024
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2023
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2024
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2023
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|||||||||||||
Total shareholders’ equity, beginning balances
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$
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$
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$
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$
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||||||||
Common stock and additional paid-in capital:
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||||||||||||||||
Beginning balances
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||||||||||||
Common stock issued for equity awards, net
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( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Stock-based compensation
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Ending balances
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||||||||||||
Accumulated deficit:
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||||||||||||||||
Beginning balances
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
Net (loss)
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(
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)
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(
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)
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(
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)
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(
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)
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Dividends
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( |
) | ||||||||||||||
Ending balances
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
Accumulated other comprehensive loss:
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||||||||||||||||
Beginning balances
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(
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)
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(
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)
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(
|
)
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(
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)
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||||||||
Change in unrealized investment gain/loss, net
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|
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||||||||||||
Change in foreign currency translation, net
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|
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(
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)
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(
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)
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||||||||||
Ending balances
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(
|
)
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(
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)
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||||||||||
Total shareholders’ equity, ending balances
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$
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$
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$
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$
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Dividends per share
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$ | $ | $ | $ |
Nine Months Ended
September 30,
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2024
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2023
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Cash flows from operating activities:
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||||||||
Net (loss)
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$
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(
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)
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$
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(
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)
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||
Adjustments to reconcile net loss to cash flows from operating activities:
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Depreciation
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Bad debt
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Stock-based compensation
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Changes in assets and liabilities:
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||||||||
Accounts receivables
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|
(
|
)
|
|||||
Prepaid expenses and other assets
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|
|
||||||
Accounts payable
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(
|
)
|
|
|||||
Accrued payroll and related expenses
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|
|
||||||
Other liabilities
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( |
) | ||||||
Net cash used in operating activities
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(
|
)
|
(
|
)
|
||||
Cash flows from investing activities:
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||||||||
Purchase of property and equipment
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( |
) | ||||||
Purchase of investments
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(
|
)
|
(
|
)
|
||||
Proceeds from sale or maturity of investments
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|
|
||||||
Net cash provided by investing activities
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Cash flows from financing activities:
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||||||||
Payment of dividends
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( |
) | ||||||
Payment of payroll taxes on equity awards
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( |
) | ( |
) | ||||
Net cash used in financing activities
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( |
) | ( |
) | ||||
Net change in cash and cash equivalents
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(
|
)
|
(
|
)
|
||||
Cash and cash equivalents, beginning of period
|
|
|
||||||
Cash and cash equivalents, end of period
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$
|
|
$
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|
||||
Non-cash transactions |
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ROU asset and lease liability at lease modification date (Note 8)
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$ | $ |
The 2017 U.S. Tax Cuts and Jobs Act changes IRC Section 174, regarding capitalization of book research and development (“R&D”) expenses for income tax purposes. Effective for tax years beginning in 2022, IRC Section 174 requires the capitalization of book R&D expenses which are capitalized and amortized over 5 years for domestic R&D expenses and over 15 years for foreign R&D expenses. To date there has been limited guidance from the IRS on how to quantify the amount of book R&D expenses subject to capitalization, including the indirect expenses supporting the R&D function. Due to the limited guidance, some assumptions were made in our estimates.
September 30, 2024
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Adjusted Cost
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Unrealized
Gains
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Unrealized
Losses
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Fair Value
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Cash and Cash
Equivalents
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Investments
Available for Sale
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|||||||||||||||||||
Cash
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$
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$
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—
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$
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—
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$
|
|
$
|
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$
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—
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Level 1:
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Mutual funds
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|
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|
|
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U.S. agency and
treasury securities
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|
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Total
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$
|
|
$
|
57
|
$ | — |
$
|
|
$
|
|
$
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|
December 31, 2023
|
||||||||||||||||||||||||
Adjusted Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value
|
Cash and Cash
Equivalents
|
Investments
Available for Sale
|
|||||||||||||||||||
Cash
|
$
|
|
$
|
—
|
$
|
—
|
$
|
|
$
|
|
$
|
—
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Level 1:
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||||||||||||||||||||||||
Mutual funds
|
|
|
|
|
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||||||||||||||||||
U.S. agency and treasury securities
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( |
) | ||||||||||||||||||||||
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|
(
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)
|
|
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Total
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$
|
|
$
|
27
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$
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(18
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)
|
$
|
|
$
|
|
$
|
|
Warrants
Issued
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Exercise
Price
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Outstanding
and
Exercisable
December 31, 2023
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Issued
|
Exercised
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Terminated /
Cancelled
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Outstanding
and
Exercisable
September 30, 2024
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Expiration
Date
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||||||||||||||||||||
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$
|
|
|
|
|
|
|
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Due in 2024
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$
|
|
||
Due in 2025
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|
|||
Due in 2026
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|
|||
Due in 2027
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|
|||
Due in 2028
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|
|||
Thereafter
|
|
|||
|
||||
Less imputed interest
|
(
|
)
|
||
Total
|
$
|
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30,
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September 30,
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2024
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2023
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2024
|
2023
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Numerator:
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||||||||||||||||
Net (loss)
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$
|
(
|
)
|
$
|
(
|
)
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$
|
(
|
)
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$
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(
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)
|
||||
Denominator:
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Weighted-average basic shares outstanding
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Effect of dilutive securities
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Weighted-average diluted shares
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Basic (loss) per
share
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$
|
(
|
)
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$
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(
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)
|
$
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(
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)
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$
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(
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)
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Diluted (loss)
per share
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$
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(
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)
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$
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(
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)
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$
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(
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)
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$
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(
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)
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•
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Time and resources required to accelerate transition to new product development and sales strategies targeting large enterprises and government customers;
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•
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Our success depends in part on establishing and maintaining relationships with other companies to integrate our family of cybersecurity products and services into their solutions and to
resell them to their current and future customers;
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•
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Customer adoption of our VirnetX One™ platform and software products and services;
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•
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The number of product license sales of VirnetX War Room™, VirnetX Matrix™ and associated services;
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•
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Adoption of VirnetX OneTM platform by third party application providers of secure communications;
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•
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Intensely competitive market with established brands that have larger customer bases, and greater resources than we do;
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•
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Prolonged economic uncertainties or downturns, globally or in certain regions or industries, could materially adversely affect our business; and
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•
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Government export and import control regulations on selling products with encryption technology in certain international markets.
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•
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The need to educate potential customers about our product and service capabilities;
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•
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Our customers’ budgetary constraints and timing of their budget cycles;
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•
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Delays caused by time-consuming internal review processes customary with potential customers including large governments agencies and institutions in the defense industry; and
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•
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Long sales cycles may increase the risk that our financial resources are exhausted before we are able to generate significant revenue.
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•
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Implement an effective marketing strategy to promote awareness of our products;
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•
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Attract and retain customers for our products;
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•
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Generate revenues or profit from product sales;
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•
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Provide appropriate levels of customer training and technical support for our products;
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•
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Rapidly anticipate and adapt to changes in the market and evolving customer requirements;
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•
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Protect our products from any system failures or other breaches.
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•
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Power loss, transmission cable cuts and other telecommunications failures;
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•
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Damage or interruption caused by fire, earthquake, and other natural disasters;
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•
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Computer viruses, electronic break-ins, sabotage, vandalism or software defects; and
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•
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Physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.
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•
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A staggered Board of Directors: Only one or two directors (of our five-person Board of Directors) will be up for election at any given annual meeting. This delays the ability of
stockholders to affect a change in control of us because it would take two annual meetings to effectively replace a majority of the Board of Directors.
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•
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Blank check preferred stock: Our Board of Directors has the authority to establish the rights, preferences, and privileges of our 10,000,000 authorized, but unissued, shares of preferred
stock. Therefore, this stock may be issued at the discretion of our Board of Directors with preferences over your shares of our common stock in a manner that is materially dilutive to you. In addition, blank check preferred stock can be
used to create a “poison pill” which is designed to deter a hostile bidder from buying a controlling interest in our stock without the approval of our Board of Directors. We have not adopted such a “poison pill;” but our Board of
Directors can do so in the future, very rapidly and without stockholder approval.
|
•
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Advance notice requirements for director nominations and for business to be brought before stockholder meetings: Stockholders wishing to submit director nominations or raise matters to a
vote of the stockholders must provide notice to us within very specific date windows and in very specific form to have the matter voted on at a stockholder meeting. This gives our Board of Directors and management more time to react to
stockholder proposals generally and could also permit us to disregard a stockholder proposal to the extent such proposal is not submitted in accordance with the Restated Bylaws.
|
•
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No stockholder actions by written consent: No stockholder or group of stockholders may take action by written consent. Along with the advance notice requirements described above, this
provision also gives our Board of Directors and management more time to react to proposed stockholder actions.
|
•
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Super majority requirement for stockholder amendments to the Restated Bylaws: Stockholder proposals to alter or amend our Restated Bylaws or to adopt new bylaws can only be approved by the
affirmative vote of at least 66 2/3% of the outstanding shares of our common stock.
|
•
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No ability of stockholders to call a special meeting of the stockholders: A special meeting of the stockholders, other than as required by statute, may be called at any time by the Board
of Directors, or by the chairman of the board, or by the president, and any power of stockholders to call a special meeting of stockholders is specifically denied. Accordingly, stockholders, even those who represent a significant
percentage of our shares of common stock, may need to wait for the annual meeting before nominating directors or raising other business proposals to be voted on by the stockholders.
|
•
|
Annual variations, actual or anticipated, in our operating results;
|
•
|
Significant changes in our management;
|
•
|
Large purchases or sales of common stock or derivative transactions related to our stock;
|
•
|
Actual or anticipated announcements of new products or services by us or competitors;
|
•
|
General conditions in the markets in which we compete; and
|
•
|
General social, political, economic, and financial conditions, including significant volatility in the global financial markets.
|
Incorporated by reference herein
|
||||||||||||
Exhibit
Number
|
Description
|
Form
|
Exhibit
No.
|
Filing
Date
|
File No.
|
Filed
Herewith
|
||||||
Certification of the President and Chief Executive Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
x
|
|||||||||||
Certification of the Chief Financial Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
x
|
|||||||||||
Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
x
|
|||||||||||
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
x
|
|||||||||||
101.INS
|
Inline XBRL Instance Document.
|
x
|
||||||||||
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document.
|
x
|
||||||||||
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
x
|
||||||||||
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
x
|
||||||||||
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
x
|
||||||||||
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
x
|
||||||||||
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
|
x
|
VIRNETX HOLDING CORPORATION
|
|||
By:
|
/s/ Kendall Larsen
|
||
Name:
|
Kendall Larsen
|
||
Chief Executive Officer (Principal Executive Officer)
|
|||
By:
|
/s/ Katherine Allanson
|
||
Name:
|
Katherine Allanson
|
||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|
|||
Date: November 13, 2024
|