Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2023 | May 10, 2023 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Quarterly Report | true | |
Document Period End Date | Mar. 31, 2023 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2023 | |
Document Fiscal Period Focus | Q1 | |
Document Transition Report | false | |
Entity File Number | 001-33852 | |
Entity Registrant Name | VirnetX Holding Corp | |
Entity Central Index Key | 0001082324 | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 77-0390628 | |
Entity Address, Address Line One | 308 Dorla Court | |
Entity Address, Address Line Two | Suite 206 | |
Entity Address, City or Town | Zephyr Cove | |
Entity Address, State or Province | NV | |
Entity Address, Postal Zip Code | 89448 | |
City Area Code | 775 | |
Local Phone Number | 548-1785 | |
Title of 12(b) Security | Common Stock, par value $0.0001 per share | |
Trading Symbol | VHC | |
Security Exchange Name | NYSE | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 71,424,650 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands | Mar. 31, 2023 | Dec. 31, 2022 |
Current assets: | ||
Cash and cash equivalents | $ 97,050 | $ 86,561 |
Investments available for sale | 52,367 | 65,462 |
Accounts receivables | 4 | 14 |
Prepaid expenses and other current assets | 614 | 224 |
Total current assets | 150,035 | 152,261 |
Prepaid expenses and other assets | 614 | 703 |
Property and equipment, net | 10 | 11 |
Total assets | 150,659 | 152,975 |
Current liabilities: | ||
Accounts payable and accrued liabilities | 1,692 | 373 |
Accrued payroll and related expenses | 365 | 311 |
Accrued dividends | 71,429 | 0 |
Other liabilities, current | 37 | 47 |
Total current liabilities | 73,523 | 731 |
Other liabilities | 0 | 0 |
Total liabilities | 73,523 | 731 |
Commitments and contingencies (Note 4) | ||
Stockholders' equity: | ||
Preferred stock, par value $0.0001 per share Authorized: 10,000,000 shares at March 31, 2023 and December 31, 2022; Issued and outstanding: 0 shares at March 31, 2023 and December 31, 2022 | 0 | 0 |
Common stock, par value $0.0001 per share Authorized: 100,000,000 shares at March 31, 2023 and December 31, 2022; Issued and outstanding: 71,424,650 shares at March 31, 2023 and 71,424,650 at December 31, 2022 | 7 | 7 |
Additional paid-in capital | 240,428 | 239,746 |
Accumulated deficit | (163,091) | (87,195) |
Accumulated other comprehensive loss | (208) | (314) |
Total stockholders' equity | 77,136 | 152,244 |
Total liabilities and stockholders' equity | $ 150,659 | $ 152,975 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares | Mar. 31, 2023 | Dec. 31, 2022 |
Stockholders' equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock, shares issued (in shares) | 71,424,650 | 71,424,650 |
Common stock, shares outstanding (in shares) | 71,424,650 | 71,424,650 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) [Abstract] | ||
Revenue | $ 2 | $ 5 |
Operating expense: | ||
Licensing costs | 0 | (4) |
Research and development | 1,368 | 1,227 |
Selling, general and administrative | 4,548 | 3,185 |
Total operating expense | 5,916 | 4,408 |
Income (loss) from operations | (5,914) | (4,403) |
Interest and other income, net | 1,369 | 24 |
Income (loss) before taxes | (4,545) | (4,379) |
Income tax (expense) benefit | 78 | 1,059 |
Net income (loss) | $ (4,467) | $ (3,320) |
Basic income (loss) per share (in dollars per share) | $ (0.06) | $ (0.05) |
Diluted income (loss) per share (in dollars per share) | $ (0.06) | $ (0.05) |
Weighted average shares outstanding - basic (in shares) | 71,425 | 71,233 |
Weighted average shares outstanding - diluted (in shares) | 71,425 | 71,233 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) [Abstract] | ||
Net income (loss) | $ (4,467) | $ (3,320) |
Other comprehensive income (loss): | ||
Change in unrealized gain (loss) on investments, net of tax | 107 | (171) |
Change in foreign currency translation, net of tax | (1) | (3) |
Total other comprehensive income (loss) | 106 | (174) |
Comprehensive income (loss) | $ (4,361) | $ (3,494) |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands | Common Stock and Additional Paid-in Capital [Member] | Accumulated Deficit [Member] | Accumulated Other Comprehensive Loss [Member] | Total |
Balance at Dec. 31, 2021 | $ 236,452 | $ (50,935) | $ (68) | $ 185,449 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||
Stock-based compensation | 778 | |||
Net (loss) income | (3,320) | (3,320) | ||
Dividends | 0 | 0 | ||
Change in unrealized investment gain/loss, net | (171) | (171) | ||
Change in foreign currency translation, net | (3) | (3) | ||
Balance at Mar. 31, 2022 | 237,230 | (54,255) | (242) | 182,733 |
Balance at Dec. 31, 2022 | 239,753 | (87,195) | (314) | 152,244 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||
Stock-based compensation | 682 | |||
Net (loss) income | (4,467) | (4,467) | ||
Dividends | (71,429) | (71,429) | ||
Change in unrealized investment gain/loss, net | 107 | 107 | ||
Change in foreign currency translation, net | (1) | (1) | ||
Balance at Mar. 31, 2023 | $ 240,435 | $ (163,091) | $ (208) | $ 77,136 |
CONDENSED CONSOLIDATED STATEM_4
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Parenthetical) - $ / shares | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) [Abstract] | ||
Dividends per share (in dollars per share) | $ 1 | $ 0 |
CONDENSED CONSOLIDATED STATEM_5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Cash flows from operating activities: | ||
Net (loss) income | $ (4,467) | $ (3,320) |
Adjustments to reconcile net (loss) income to cash flows from operating activities: | ||
Depreciation | 1 | 2 |
Deferred tax assets | 0 | (1,059) |
Bad debt | 10 | 0 |
Stock-based compensation | 682 | 778 |
Changes in assets and liabilities: | ||
Accounts receivables | 0 | 5 |
Prepaid expenses and other assets | (301) | (369) |
Accounts payable | 1,320 | 313 |
Accrued payroll and related expenses | 54 | 60 |
Accrued licensing costs | 0 | (355) |
Other liabilities | (10) | (17) |
Net cash (used in) operating activities | (2,711) | (3,962) |
Cash flows from investing activities: | ||
Purchase of investments | (16,638) | (4,060) |
Proceeds from sale or maturity of investments | 29,838 | 2,412 |
Net cash provided by (used in) investing activities | 13,200 | (1,648) |
Net change in cash and cash equivalents | 10,489 | (5,610) |
Cash and cash equivalents, beginning of period | 86,561 | 142,018 |
Cash and cash equivalents, end of period | 97,050 | 136,408 |
Non-cash transactions | ||
Dividends approved and accrued on March 30, 2023, paid in April 2023 | $ 71,429 | $ 0 |
Business Description and Basis
Business Description and Basis of Presentation | 3 Months Ended |
Mar. 31, 2023 | |
Formation and Business of the Company [Abstract] | |
Business Description and Basis of Presentation | Note 1 — Business Description and Basis of Presentation VirnetX Holding Corporation (the “Company,” “we,” “us,” or “our”) is an Internet security software and technology company with patented technology for Zero Trust Network Access (“ZTNA”) based secure network communications. VirnetX’s software and technology solutions, including its Secure Domain Name Registry and Technology, VirnetX ™, War Room™, VirnetX Matrix™, and Gabriel Connection Technology™, are designed to be device- and location-independent, and enable a secure real-time communication environment for all types of enterprise applications, services, and critical infrastructures. Our technology generates secure connections on a “single-click” basis, significantly simplifying the deployment of secure real-time communication solutions by eliminating the need for end-users to enter any encryption information and related services, and is used in all our technology and products, some of which were acquired by our principal operating subsidiary; VirnetX, Inc., from Leidos, Inc., or Leidos, (f/k/a Science Applications International Corporation, or SAIC) in Our product portfolio includes sophisticated technologies, products and services that are available for sale worldwide. Our next-generation, VirnetX ™ platform builds upon our patented Secure Domain Names and GABRIEL Connection Technology™ to further enhance the security and efficiency of our patented secure communication links. VirnetX ™ is a security-as-a-service platform that protects enterprise applications, services, and infrastructure from cyber-attacks. Our platform allows businesses and other enterprises of all sizes to add a “security umbrella” as an added layer on top of their existing infrastructure to further reduce risk and bolster security against ever-growing cyberthreats to data, operating systems, other infrastructure products and gateway security controllers. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2023 | |
Summary of Significant Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Note 2 — Summary of Significant Accounting Policies Unaudited Interim Financial Information The accompanying Condensed Consolidated Balance Sheet as of March 31, 2023, the Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022, the Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2023 and 2022, and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In our opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of March 31, 2023, our results of operations for the three months ended March 31, 2023 and 2022, and our cash flows for the three months ended March 31, 2023 and 2022. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 31, 2023. Use of Estimates We prepare our consolidated financial statements in accordance with U.S. GAAP. In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below. We have reviewed our critical accounting policies and estimates with the audit committee of our Board of Directors. Basis of Consolidation The consolidated financial statements include the accounts of VirnetX Holding Corporation and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. Leases The Company determines if an arrangement is a lease at inception in accordance with Accounting Standards Codification (“ASC”) Topic 842. Operating lease right-of-use (“ROU”) assets are included in Prepaid expenses, and other assets on the Condensed Consolidated Balance Sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term (see Note 8 – Leases). Revenue Recognition The Company derives revenue from licensing and royalty fees from contracts with customers which can span several years. We account for this revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our revenue arrangements may consist of multiple-element arrangements, with revenue for each unit of accounting recognized as the product or service is delivered to the customer. With the licensing of our patents, performance obligations are generally satisfied at a point in time as work is complete when our patent rights are transferred to our customers. We generally have no further obligation to our customers regarding our technology. Certain contracts may require our customers to enter into a hosting arrangement with us and for these arrangements, revenue is recognized over time, generally over the life of the servicing contract. The Company actively monitors and enforces its intellectual property rights, including seeking appropriate compensation from third parties that utilize the Company’s intellectual property without a license. As a result, the Company may, from time to time, receive payments as part of a settlement or compensation for a patent infringement dispute. Proceeds received are allocated to each element identified in the settlement or compensation, based on the fair value of each element. Generally, settlements and compensation may include the following elements: the value of a license or royalty agreement, cost reimbursement, damages, and interest. Elements identified related to licensing and royalty are recognized as revenue. Elements identified as reimbursed costs are generally recorded as a reduction to the reported expenses. Elements identified as damages or interest are generally recorded in other income in the condensed consolidated statement of operations. Licensing Costs Included in operating expenses in 2022 is a refund of licensing costs we incurred in conjunction with a favorable court decision relating to a patent infringement case. Contingent Gains ASC Topic 450-30-25, Contingent Gains, prohibits recognition of contingent gains until realized. Accordingly, we do not record contingent gains ahead of such realization. Management generally considers any such gains as realized only upon the collection of cash. Cash and Cash Equivalents We consider all highly liquid investments purchased with maturities of three months or less at the date of purchase to be cash equivalents. Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these investments. Investments Investments are classified as available-for-sale and are recorded at fair market value. Unrealized gains and losses are reported as other comprehensive income. Realized gains and losses are recorded in income in the period they are realized using specific identification of each security’s cost basis. We invest our excess cash primarily in highly liquid debt instruments including corporate, government and federal agency securities, with contractual maturities less than two years. By policy, we limit the amount of credit exposure to any one issuer. Property and Equipment Property and equipment are stated at historical cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the accelerated and straight-line methods over the estimated useful lives of the assets, which range from five Concentration of Credit Risk and Other Risks and Uncertainties Our cash and cash equivalents are primarily maintained at two major financial institutions in the United States. Deposits held with these financial institutions may exceed the amount of insurance provided on such deposits. A portion of those balances are insured by the Federal Deposit Insurance Corporation, or FDIC. During the three months ended March 31, 2023, we had, at times, funds that were uninsured. We do not believe that we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. We have not experienced any losses on our deposits of cash and cash equivalents. Fair Value The carrying amounts of our financial instruments, including cash equivalents, accounts payable, and accrued liabilities, approximate fair value because of their generally short maturities. Intangible Assets We record intangible assets at cost, less accumulated amortization. Amortization of intangible assets is provided over their estimated useful lives, which can range from 3 to 15 years, on either a straight-line basis or as revenue is generated by the assets. Impairment of Long-Lived Assets We identify and record impairment losses on long-lived assets used in operations when events and changes in circumstances indicate that the carrying amount of an asset might not be recoverable, but not less than annually. Recoverability is measured by comparison of the anticipated future net undiscounted cash flows to the related assets’ carrying value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset. Research and Development Research and development costs include expenses paid to outside development consultants and compensation related expenses for our engineering staff. Research and development costs are expensed as incurred. Income Taxes We account for income taxes using the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of our assets and liabilities. We calculate current and deferred tax provisions based on estimates and assumptions that could differ from actual results reflected on the income tax returns filed during the following years. Adjustments based on filed returns are recorded when identified in the subsequent years. The effect on deferred taxes for a change in tax rates is recognized in income in the period that the tax rate change is enacted. In assessing our deferred tax assets, we consider whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. 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. A valuation allowance is provided for deferred income tax assets when, in our judgment, based upon currently available information and other factors, it is more likely than not that all or a portion of such deferred income tax assets will not be realized. The determination of the need for a valuation allowance is based on an on-going evaluation of current information including, among other things, historical operating results, estimates of future earnings in different taxing jurisdictions and the expected timing of the reversals of temporary differences. We believe the determination to record a valuation allowance to reduce a deferred income tax asset is a significant accounting estimate because it is based, among other things, on an estimate of future taxable income in the United States and certain other jurisdictions, which is susceptible to change and may or may not occur, and because the impact of adjusting a valuation allowance may be material. In determining when to release the valuation allowance established against our net deferred income tax assets, we consider all available evidence, both positive and negative. We continually assess our ability to generate sufficient taxable income during future periods in which our deferred tax assets may be realized. If and when we believe it is more likely than not that we will recover our deferred tax assets, we will reverse the valuation allowance as an income tax benefit in our statements of operations. We account for our uncertain tax positions in accordance with U.S. GAAP, which utilizes a two-step approach to evaluate tax positions. Step one, recognition, requires evaluation of the tax position to determine if based solely on technical merits it is more likely than not to be sustained upon examination. Step two, measurement, is addressed only if a position is more likely than not to be sustained. In step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement with tax authorities. If a position does not meet the more likely than not threshold for recognition in step one, no benefit is recorded until the first subsequent period in which the more likely than not standard is met, the issue is resolved with the taxing authority, or the statute of limitations expires. Positions previously recognized are reversed if and when we subsequently determine the position no longer is more likely than not to be sustained. Evaluation of tax positions, their technical merits, and measurements using cumulative probability are highly subjective management estimates. Actual results could differ materially from these estimates. Stock-Based Compensation We account for stock-based compensation using the fair value recognition method in accordance with U.S. GAAP. We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally a vesting term of 4 years. We recognize forfeitures, if any, when they occur. In addition, we record stock-based compensation expense for awards granted to non-employees at fair value of the consideration received or the fair value of the equity instruments issued, as they vest, over the performance period (See Note 5 - Stock-Based Compensation). Earnings per Share Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Fair Value of Financial Instruments Fair value is the price that would result from an orderly transaction between market participants at the measurement date. A fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 measurements utilize either directly or indirectly observable inputs in markets other than quoted prices in active markets. Our financial instruments are stated at amounts that equal, or approximate, fair value. When we estimate fair value, we utilize market data or assumptions that we believe market participants would use in pricing the financial instrument, including assumptions about risk and inputs to the valuation technique. We use valuation techniques, primarily the income and market approach, which maximizes the use of observable inputs and minimize the use of unobservable inputs for recurring fair value measurements. Mutual funds: U.S. agency and treasury securities : The following tables show the adjusted cost, gross unrealized gains, gross unrealized losses, and fair value of our securities by significant investment category as of March 31, 2023 and December 31, 2022. March 31, 2023 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Investments Available for Sale Cash $ 12,867 $ — $ — $ 12,867 $ 12,867 $ — Level 1: Mutual funds 67,667 — — 67,667 67,667 — U.S. agency and treasury securities 69,071 25 (213 ) 68,883 16,516 52,367 136,738 25 (213 ) 136,550 84,183 52,367 Total $ 149,605 $ 25 $ (213 ) $ 149,417 $ 97,050 $ 52,367 December 31, 2022 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Investments Available for Sale Cash $ 16,949 $ — $ — $ 16,949 $ 16,949 $ — Level 1: Mutual funds 66,493 — — 66,493 66,493 — U.S. agency and treasury securities 68,958 9 (386 ) 68,581 3,119 65,462 135,451 9 (386 ) 135,074 69,612 65,462 Total $ 152,400 $ 9 $ (386 ) $ 152,023 $ 86,561 $ 65,462 New Accounting Pronouncements In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“Update”) 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”, which requires entities to disclose the key terms of supplier finance programs used in connection with the purchase of goods and services along with information about their obligations under these programs. This Update does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The Update is effective for all entities for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, except for the rollforward requirement, which is effective for fiscal years beginning after December 15, 2023. We do not have a supplier finance program currently in place, and, therefore, there was no impact on our financial position or cash flows as a result. |
Income Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2023 | |
Income Taxes [Abstract] | |
Income Taxes | Note 3 — Income Taxes For the three months ended March 31, 2023, we recognized an income tax benefit of $78 on loss before taxes of $4,545, which is an effective tax rate of 1.71%. The effective rate is lower than the statutory federal rate primarily due to the change in valuation allowance. For the three months ended March 31, 2022, we recognized an income tax benefit of $1,059 on loss before taxes of $4,379, an effective tax rate of 24.45%. The effective rate is higher than the statutory federal rate primarily due to the effect of research and development tax credits. Management determined that a full valuation allowance should be provided against net deferred income tax assets at March 31, 2023. Our tax years for 2005 and forward are subject to examination by the U.S. tax authority and various state tax authorities because we utilized the NOLs and tax credits generated in those years in 2020. The statute of limitation for those years shall expire three years after the date of filing 2020 income tax returns. We are required to recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. At December 31, 2022 and March 31, 2023, we have no uncertain tax positions. Our policy is to recognize interest and penalties accrued on uncertain tax positions as a component of income tax expense. We had no accrued interest or penalties related to uncertain tax positions at March 31, 2023. |
Commitments and Related Party T
Commitments and Related Party Transactions | 3 Months Ended |
Mar. 31, 2023 | |
Commitments and Related Party Transactions [Abstract] | |
Commitments and Related Party Transactions | Note 4 — Commitments and Related Party Transactions We lease our office under an operating lease with a third party which expires on October 31, 2023 (see Note 8 - Leases). We entered into a service agreement for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for employees of the Company. We incurred approximately $287 compared to $265 in fees and reimbursements to the LLC during the three months ended March 31, 2023 and 2022, respectively. We pay for the Company’s usage of the aircraft and have no rights to purchase. Our Chief Executive Officer and Chief Administrative Officer are the managing partners of the LLC and control the equity interests of the LLC. We entered into a 12-month non-exclusive agreement with the LLC for use of the plane at a rate of $8 per flight hour, with no minimum usage requirement. The agreement contains other terms and conditions and can be cancelled by either us or the LLC with 30 days’ notice. The agreement renews on an annual basis unless terminated by either party. Neither party has exercised their termination rights. |
Stock Based Compensation
Stock Based Compensation | 3 Months Ended |
Mar. 31, 2023 | |
Stock Based Compensation [Abstract] | |
Stock Based Compensation | Note 5 — Stock Based Compensation Our stockholders are being asked to approve the Amended and Restated Equity Incentive Plan (the “Amended 2013 Plan”) at our annual shareholders’ meeting in June 2023. Our shareholder-approved 2013 Equity Incentive Plan (the “Prior Plan”) expired March 29, 2023; no further awards will be made under the Prior Plan, but the Amended 2013 Plan will govern awards granted under the Prior Plan. Stock-based compensation expense included in general and administrative expense was $371 and $466, and in research and development expense was $311 and $312, for the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023 and 2022, we did not grant any options or RSUs. As of March 31, 2023, the unrecognized stock-based compensation expense related to unvested stock options and RSUs was $3,484 and $1,256, respectively, which will be amortized over an estimated weighted average period of approximately 2.47 and 2.18 years, respectively. |
Equity
Equity | 3 Months Ended |
Mar. 31, 2023 | |
Equity [Abstract] | |
Equity | Note 6 — Equity Common Stock We issued no shares for options exercised during the three months ended March 31, 2023 or 2022, respectively. as a result of vesting RSUs during the three months ended March 31, 2023 or 2022. Warrants In 2020, we issued warrants for the purchase of 25,000 shares of common stock at an exercise price of $5.75 per share, exercisable on the date of grant, expiring in April 2025 Warrants Issued Exercise Price Outstanding and Exercisable December 31, 2022 Issued Exercised Terminated / Cancelled Outstanding and Exercisable March 31, 2023 Expiration Date 25,000 $ 5.75 25,000 — — — 25,000 April 30, 2025 |
Litigation
Litigation | 3 Months Ended |
Mar. 31, 2023 | |
Litigation [Abstract] | |
Litigation | Note 7 — Litigation (all dollar amounts in this section are expressed in thousands except for rates per device) We have several intellectual property infringement lawsuits pending in the United States Court of Appeals for the Federal Circuit (“USCAFC”). VirnetX Inc. v. Apple, Inc. (Case 6:12-CV-00855-LED) (“Apple II”) This case began on November 6, 2012, when we filed a complaint against Apple in United States District Court (“USDC”) in which we alleged that Apple infringed on certain of our patents, (U.S. Patent Nos. 6,502,135, 7,418,504, 7,921,211 and 7,490,151). We sought damages and injunctive relief. The accused products include the iPhone 5, iPod Touch 5th Generation, iPad 4th Generation, iPad mini, and the latest Macintosh computers. The USDC entered a Final Judgment and issued its Memorandum Opinion and Order regarding post-trial motions, affirming the jury’s verdict of $502,600 and granting VirnetX motions for supplemental damages, a sunset royalty, and the royalty rate of $1.20 per infringing iPhone, iPad and Mac products, pre-judgment and post-judgment interest and costs. Apple filed a notice of appeal with the United States Court of Appeals for the Federal Circuit (“USCAFC”) in the Apple II case. On October 9, 2018, USCAFC docketed the appeal as Case No. 19-1050 - VirnetX Inc. v. Apple Inc. On November 22, 2019, the USCAFC issued an opinion affirming the district court’s findings that Apple is precluded from making certain invalidity arguments and that Apple infringed the ‘135 and ‘151 patents; reversing the USDC’s finding that Apple infringed the ‘504 and ‘211 patents; and remanding the case for proceedings on damages. Apple sought panel and en banc rehearing, which the USCAFC denied on February 10, 2020. On February 22, 2020, the USDC issued a scheduling order for the parties to brief the court about the need for a new trial for recalculating the damages. We filed our motion for entry of judgment on February 28, 2020. The arguments on this matter were heard on April 14, 2020. In its order, unsealed on May 1, 2020, the USDC denied VirnetX’s motion for entry of a new judgment based on the prior jury verdict and ordered a new jury trial on damages. On August 10, 2020, the USDC granted Apple’s motion for continuance and reset the date to October 26, 2020. On October 30, 2020, a jury returned a $502,800 verdict in favor of VirnetX based on Apple’s infringement of two network security patents: VirnetX US Patents No. 6,502,135 and No. 7,490,151. The jury verdict called for damages of $0.84 per accused device since the 2013 launch of Apple’s iOS 7 operating system and represents 598,629,580 infringing units from US sales only. On January 15, 2021, the USDC denied Apple’s motion for judgment as a matter of law, and on February 4, 2021, Apple filed a notice of appeal to the USCAFC. On February 22, 2021, the USCAFC docketed the appeal as Case No. 19-1672. Apple’s opening brief was filed on June 2, 2021. VirnetX filed its responsive brief on July 26, 2021. Apple filed its reply brief on September 13, 2021. Oral arguments were held on September 8, 2022. On March 31, 2023, the USCAFC issued its decision vacating the USDC’s judgement in this matter and remanding it back to the USDC with instructions to dismiss the case as moot. On April 20, 2023, VirnetX filed a motion to extend the time to file a petition for rehearing from May 1, 2023, until June 5, 2023, and remains pending. VirnetX Inc. v. Mangrove Partners Master Fund, Ltd., Apple Inc. (USCAFC Case 20-2271) and VirnetX Inc. v. Mangrove Partners Master Fund, Ltd., Apple Inc., and Black Swamp, LLC (USCAFC Case 20-2272) On September 15, 2020, we filed with the USCAFC an appeal of the invalidity findings by the Patent Trial and Appeal Board (“PTAB”) in inter-partes review proceedings IPR2015-01046 and IPR2016-00062 involving our U.S. Patent No. 6,502,135, and an appeal of the invalidity findings by the PTAB in inter-partes review proceedings IPR2015-1047, IPR2016- 00063, and IPR2016-00167 involving our U.S. Patent No. 7,490,151. On September 25, 2020, the USCAFC issued an order consolidating the two appeals. On December 15, 2020, we filed a motion to vacate the PTAB decisions below and to remand these appeals to the PTAB. On March 16, 2021, the USCAFC denied the motion without prejudice to us raising the challenges made in the motion in our opening brief. Our opening brief was filed on June 7, 2021. On June 23, 2021, the USCAFC entered an order directing us (and parties in other appeals that raised Appointments Clause challenges) to file a brief explaining how they believe their cases should proceed in light of the Supreme Court’s decision in United States v. Arthrex, Inc., 141 S. Ct. 1970 (2021). On July 7, 2021, we filed a brief in response to the court’s order. Other parties, including the U.S. Patent and Trademark Office (“USPTO”) filed their responses on July 21, 2021. On August 19, 2021, USCAFC issued an order remanding these appeals for the limited purpose of allowing VirnetX the opportunity to request rehearing of the PTAB’s final written decisions by the Director of the USPTO. The USCAFC retained jurisdiction over the appeals in the meantime. On September 20, 2021, we filed our requests for Director rehearing with the USPTO. On October 29, 2021, our requests for Director rehearing were denied. We subsequently filed an amended opening brief to the USCAFC on December 10, 2021, the other parties filed response briefs on February 2, 2022, and we filed a reply brief on February 22, 2022. All the briefings have been completed. The oral arguments in this matter were held on September 8, 2022. On March 30, 2023, the USCAFC issued its decision affirming PTAB’s decisions finding certain claims of the ‘135 patent and the ‘151 patent to be unpatentable. On April 19, 2023, VirnetX filed a motion to extend the time to file a petition for rehearing from May 15, 2023, until June 5, 2023. That motion was granted on April 20, 2023. VirnetX Inc. v. Hirshfeld (USCAFC Case 17-2593, -2594) On September 22, 2017, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes review proceeding IPR2016-00693 involving our U.S. Patent No. 7,418,504, and an appeal of the invalidity findings by the PTAB in inter-partes review proceeding IPR2016-00957 involving our U.S. Patent No. 7,921,211. On September 16, 2021, USCAFC issued an order remanding these appeals for the limited purpose of allowing VirnetX the opportunity to request rehearing of the PTAB’s final written decisions by the Director of the USPTO. The USCAFC retained jurisdiction over the appeals in the meantime. On October 18, 2021, we filed our requests for Director rehearing with the USPTO. On January 7, 2022, our requests for Director rehearing were denied. On January 21, 2022, we informed the USCAFC about the denial of Director rehearing and requested that the court dismiss the appeal involving IPR2016-00957 as moot and vacate the PTAB’s underlying decision. On April 4, 2022, the USCAFC vacated the PTAB’s decision in IPR2016-00957 and remanded Appeal No. 17-2594 with instructions to dismiss. In the April 4, 2022 order, the USCAFC further set a briefing schedule, in Appeal No. 17-2593. VirnetX filed its opening brief on September 12, 2022. The USPTO filed its response brief on December 20, 2022. VirnetX filed its reply brief on February 14, 2023, and we currently await scheduling of oral arguments. VirnetX has filed a motion to hold this appeal in abeyance pending the disposition of any petition for rehearing in the No. 20-2271, -2272 appeal, and pending the Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc. v. Smith & Nephew, Inc. , No. 22-639. That motion, filed on April 18, 2023, and remains pending. VirnetX Inc. v. Cisco Systems, Inc. (USCAFC Case 19-1671) On March 18, 2019, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,679 involving our U.S. Patent No. 6,502,135. On October 5, 2021, USCAFC issued an order remanding these appeals for the limited purpose of allowing VirnetX the opportunity to request rehearing of the PTAB’s final written decisions by the Director of the PTO. The USCAFC retained jurisdiction over the appeals in the meantime. Our request for Director rehearing with the PTO was filed on November 5, 2021. On January 10, 2022, our request for Director rehearing was denied. We informed the USCAFC about the denial of Director rehearing. VirnetX’s opening brief was filed on June 23, 2022. The USPTO’s response brief was filed on August 2, 2022, and Cisco’s response brief was filed on September 2, 2022. VirnetX filed its reply brief on October 7, 2022, and we currently await scheduling of oral arguments. VirnetX Inc. v. Apple Inc. (USCAFC Case 22-1523) (“Apple Reexam I”) On March 10, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,682 involving our U.S. Patent No. 6,502,135. Our opening brief was filed on August 22, 2022. Apple and USPTO each filed a response brief on December 28, 2022. VirnetX filed its reply brief on February 8, 2023, and we currently await scheduling of oral arguments. VirnetX has, however, filed a motion to hold this appeal in abeyance pending the disposition of any petition for rehearing in the No. 20-2271, -2272 appeal, and pending the Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc. v. Smith & Nephew, Inc. VirnetX Inc. v. Apple Inc. (USCAFC C ase 22 - (“Apple Reexam II”) On July 6, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,697 involving our U.S. Patent No. 7,490,151. On October 17, 2022, we filed a motion to remand the appeal in light of the PTAB’s refusal to permit Director rehearing. On January 23, 2023, the USCAFC denied that motion without prejudice to the parties raising their arguments in the merits briefs. VirnetX’s opening brief was filed on May 10, 2023, and remains pending. VirnetX Inc. v. Cisco Systems, Inc. (USCAFC Case 22-2234) On September 16, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,851 involving our U.S. Patent No. 7,418,504. We filed our opening brief on February 28, 2023, and remains pending. VirnetX Inc. v. Cisco Systems, Inc. (USCAFC Case 23-1765) On April 7, 2023, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,714 involving our U.S. Patent No. 7,490,151. The certified list is due to be filed by the USPTO by May 30, 2023, and our opening brief will be due 60 days thereafter. In addition, on April 21, 2023, Cisco filed a cross-appeal. Cisco’s response brief was filed on May 10, 2023. Other Legal Matters One or more potential intellectual property infringement claims may also be available to us against certain other companies who have the resources to defend against any such claims. Although we believe these potential claims are likely valid, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we could prevail on such potential claims if we made them. In addition, bringing a lawsuit may lead to potential counterclaims which may distract our management and our other resources, including capital resources, from efforts to successfully commercialize our products. Currently, we are not a party to any other pending legal proceedings and are not aware of any proceeding threatened or contemplated against us. |
Leases
Leases | 3 Months Ended |
Mar. 31, 2023 | |
Leases [Abstract] | |
Leases | Note 8 — Leases We lease office space under an operating lease which expires on October 31, 2023. On March 31, 2023, the underlying ROU asset and lease liability totaled $31. On December 31, 2022, the underlying ROU asset and lease liability totaled $45. For the three months ended March 31, 2023 and 2022, lease expense totaled $14 and $13, respectively. We also lease a facility for corporate promotional and marketing purposes which was prepaid at inception and expires in 2025, as amended. On March 31, 2023 and December 31, 2022, the ROU asset totaled $573 and $648, respectively. For the three months ended March 31, 2023 and 2022, lease expense totaled $75 and $75, respectively. |
Earnings Per Share
Earnings Per Share | 3 Months Ended |
Mar. 31, 2023 | |
Earnings Per Share [Abstract] | |
Earnings Per Share | Note 9 — Earnings Per Share Basic earnings per share are based on the weighted average number of common shares outstanding for the period. Diluted earnings per share are based on the weighted average number of common shares and potentially dilutive common shares outstanding. Potential common shares outstanding principally include stock options, RSUs and warrants, excluding any potentially dilutive shares convertible at a price higher than the closing price of our stock at the end of each reporting period. The following table shows the computation of basic and diluted earnings per share for the three months ended March 31, 2023 and 2022 (in thousands, except per share amounts): Three Months Ended March 31, 2023 2022 Numerator: Net (loss) income $ (4,467 ) $ (3,320 ) Denominator: Weighted-average basic shares outstanding 71,425 71,233 Effect of dilutive securities — — Weighted-average diluted shares 71,425 71,233 Basic (loss) earnings per share $ (0.06 ) $ (0.05 ) Diluted (loss) earnings per share $ (0.06 ) $ (0.05 ) We incurred a net loss for the three months ended March 31, 2023 and 2022; |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2023 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 10 — Subsequent Events In April 2023, the Company paid $71,429 for a special dividend of $1 per share. Additionally in April 2023, the Company paid $7,245 for a special bonus to employees. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2023 | |
Summary of Significant Accounting Policies [Abstract] | |
Unaudited Interim Financial Information | Unaudited Interim Financial Information The accompanying Condensed Consolidated Balance Sheet as of March 31, 2023, the Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022, the Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2023 and 2022, and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In our opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of March 31, 2023, our results of operations for the three months ended March 31, 2023 and 2022, and our cash flows for the three months ended March 31, 2023 and 2022. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 31, 2023. |
Use of Estimates | Use of Estimates We prepare our consolidated financial statements in accordance with U.S. GAAP. In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below. We have reviewed our critical accounting policies and estimates with the audit committee of our Board of Directors. |
Basis of Consolidation | Basis of Consolidation The consolidated financial statements include the accounts of VirnetX Holding Corporation and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. |
Leases | Leases The Company determines if an arrangement is a lease at inception in accordance with Accounting Standards Codification (“ASC”) Topic 842. Operating lease right-of-use (“ROU”) assets are included in Prepaid expenses, and other assets on the Condensed Consolidated Balance Sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term (see Note 8 – Leases). |
Revenue Recognition | Revenue Recognition The Company derives revenue from licensing and royalty fees from contracts with customers which can span several years. We account for this revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our revenue arrangements may consist of multiple-element arrangements, with revenue for each unit of accounting recognized as the product or service is delivered to the customer. With the licensing of our patents, performance obligations are generally satisfied at a point in time as work is complete when our patent rights are transferred to our customers. We generally have no further obligation to our customers regarding our technology. Certain contracts may require our customers to enter into a hosting arrangement with us and for these arrangements, revenue is recognized over time, generally over the life of the servicing contract. The Company actively monitors and enforces its intellectual property rights, including seeking appropriate compensation from third parties that utilize the Company’s intellectual property without a license. As a result, the Company may, from time to time, receive payments as part of a settlement or compensation for a patent infringement dispute. Proceeds received are allocated to each element identified in the settlement or compensation, based on the fair value of each element. Generally, settlements and compensation may include the following elements: the value of a license or royalty agreement, cost reimbursement, damages, and interest. Elements identified related to licensing and royalty are recognized as revenue. Elements identified as reimbursed costs are generally recorded as a reduction to the reported expenses. Elements identified as damages or interest are generally recorded in other income in the condensed consolidated statement of operations. |
Licensing Costs | Licensing Costs Included in operating expenses in 2022 is a refund of licensing costs we incurred in conjunction with a favorable court decision relating to a patent infringement case. |
Contingent Gains | Contingent Gains ASC Topic 450-30-25, Contingent Gains, prohibits recognition of contingent gains until realized. Accordingly, we do not record contingent gains ahead of such realization. Management generally considers any such gains as realized only upon the collection of cash. |
Cash and Cash Equivalents | Cash and Cash Equivalents We consider all highly liquid investments purchased with maturities of three months or less at the date of purchase to be cash equivalents. Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these investments. |
Investments | Investments Investments are classified as available-for-sale and are recorded at fair market value. Unrealized gains and losses are reported as other comprehensive income. Realized gains and losses are recorded in income in the period they are realized using specific identification of each security’s cost basis. We invest our excess cash primarily in highly liquid debt instruments including corporate, government and federal agency securities, with contractual maturities less than two years. By policy, we limit the amount of credit exposure to any one issuer. |
Property and Equipment | Property and Equipment Property and equipment are stated at historical cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the accelerated and straight-line methods over the estimated useful lives of the assets, which range from five |
Concentration of Credit Risk and Other Risks and Uncertainties | Concentration of Credit Risk and Other Risks and Uncertainties Our cash and cash equivalents are primarily maintained at two major financial institutions in the United States. Deposits held with these financial institutions may exceed the amount of insurance provided on such deposits. A portion of those balances are insured by the Federal Deposit Insurance Corporation, or FDIC. During the three months ended March 31, 2023, we had, at times, funds that were uninsured. We do not believe that we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. We have not experienced any losses on our deposits of cash and cash equivalents. |
Fair Value | Fair Value The carrying amounts of our financial instruments, including cash equivalents, accounts payable, and accrued liabilities, approximate fair value because of their generally short maturities. |
Intangible Assets | Intangible Assets We record intangible assets at cost, less accumulated amortization. Amortization of intangible assets is provided over their estimated useful lives, which can range from 3 to 15 years, on either a straight-line basis or as revenue is generated by the assets. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets We identify and record impairment losses on long-lived assets used in operations when events and changes in circumstances indicate that the carrying amount of an asset might not be recoverable, but not less than annually. Recoverability is measured by comparison of the anticipated future net undiscounted cash flows to the related assets’ carrying value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset. |
Research and Development | Research and Development Research and development costs include expenses paid to outside development consultants and compensation related expenses for our engineering staff. Research and development costs are expensed as incurred. |
Income Taxes | Income Taxes We account for income taxes using the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of our assets and liabilities. We calculate current and deferred tax provisions based on estimates and assumptions that could differ from actual results reflected on the income tax returns filed during the following years. Adjustments based on filed returns are recorded when identified in the subsequent years. The effect on deferred taxes for a change in tax rates is recognized in income in the period that the tax rate change is enacted. In assessing our deferred tax assets, we consider whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. 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. A valuation allowance is provided for deferred income tax assets when, in our judgment, based upon currently available information and other factors, it is more likely than not that all or a portion of such deferred income tax assets will not be realized. The determination of the need for a valuation allowance is based on an on-going evaluation of current information including, among other things, historical operating results, estimates of future earnings in different taxing jurisdictions and the expected timing of the reversals of temporary differences. We believe the determination to record a valuation allowance to reduce a deferred income tax asset is a significant accounting estimate because it is based, among other things, on an estimate of future taxable income in the United States and certain other jurisdictions, which is susceptible to change and may or may not occur, and because the impact of adjusting a valuation allowance may be material. In determining when to release the valuation allowance established against our net deferred income tax assets, we consider all available evidence, both positive and negative. We continually assess our ability to generate sufficient taxable income during future periods in which our deferred tax assets may be realized. If and when we believe it is more likely than not that we will recover our deferred tax assets, we will reverse the valuation allowance as an income tax benefit in our statements of operations. We account for our uncertain tax positions in accordance with U.S. GAAP, which utilizes a two-step approach to evaluate tax positions. Step one, recognition, requires evaluation of the tax position to determine if based solely on technical merits it is more likely than not to be sustained upon examination. Step two, measurement, is addressed only if a position is more likely than not to be sustained. In step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement with tax authorities. If a position does not meet the more likely than not threshold for recognition in step one, no benefit is recorded until the first subsequent period in which the more likely than not standard is met, the issue is resolved with the taxing authority, or the statute of limitations expires. Positions previously recognized are reversed if and when we subsequently determine the position no longer is more likely than not to be sustained. Evaluation of tax positions, their technical merits, and measurements using cumulative probability are highly subjective management estimates. Actual results could differ materially from these estimates. |
Stock-Based Compensation | Stock-Based Compensation We account for stock-based compensation using the fair value recognition method in accordance with U.S. GAAP. We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally a vesting term of 4 years. We recognize forfeitures, if any, when they occur. In addition, we record stock-based compensation expense for awards granted to non-employees at fair value of the consideration received or the fair value of the equity instruments issued, as they vest, over the performance period (See Note 5 - Stock-Based Compensation). |
Earnings per Share | Earnings per Share Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments Fair value is the price that would result from an orderly transaction between market participants at the measurement date. A fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 measurements utilize either directly or indirectly observable inputs in markets other than quoted prices in active markets. Our financial instruments are stated at amounts that equal, or approximate, fair value. When we estimate fair value, we utilize market data or assumptions that we believe market participants would use in pricing the financial instrument, including assumptions about risk and inputs to the valuation technique. We use valuation techniques, primarily the income and market approach, which maximizes the use of observable inputs and minimize the use of unobservable inputs for recurring fair value measurements. Mutual funds: U.S. agency and treasury securities : The following tables show the adjusted cost, gross unrealized gains, gross unrealized losses, and fair value of our securities by significant investment category as of March 31, 2023 and December 31, 2022. March 31, 2023 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Investments Available for Sale Cash $ 12,867 $ — $ — $ 12,867 $ 12,867 $ — Level 1: Mutual funds 67,667 — — 67,667 67,667 — U.S. agency and treasury securities 69,071 25 (213 ) 68,883 16,516 52,367 136,738 25 (213 ) 136,550 84,183 52,367 Total $ 149,605 $ 25 $ (213 ) $ 149,417 $ 97,050 $ 52,367 December 31, 2022 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Investments Available for Sale Cash $ 16,949 $ — $ — $ 16,949 $ 16,949 $ — Level 1: Mutual funds 66,493 — — 66,493 66,493 — U.S. agency and treasury securities 68,958 9 (386 ) 68,581 3,119 65,462 135,451 9 (386 ) 135,074 69,612 65,462 Total $ 152,400 $ 9 $ (386 ) $ 152,023 $ 86,561 $ 65,462 |
New Accounting Pronouncements | New Accounting Pronouncements In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“Update”) 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”, which requires entities to disclose the key terms of supplier finance programs used in connection with the purchase of goods and services along with information about their obligations under these programs. This Update does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The Update is effective for all entities for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, except for the rollforward requirement, which is effective for fiscal years beginning after December 15, 2023. We do not have a supplier finance program currently in place, and, therefore, there was no impact on our financial position or cash flows as a result. |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
Summary of Significant Accounting Policies [Abstract] | |
Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses and Fair Value of Financial Assets | The following tables show the adjusted cost, gross unrealized gains, gross unrealized losses, and fair value of our securities by significant investment category as of March 31, 2023 and December 31, 2022. March 31, 2023 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Investments Available for Sale Cash $ 12,867 $ — $ — $ 12,867 $ 12,867 $ — Level 1: Mutual funds 67,667 — — 67,667 67,667 — U.S. agency and treasury securities 69,071 25 (213 ) 68,883 16,516 52,367 136,738 25 (213 ) 136,550 84,183 52,367 Total $ 149,605 $ 25 $ (213 ) $ 149,417 $ 97,050 $ 52,367 December 31, 2022 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Investments Available for Sale Cash $ 16,949 $ — $ — $ 16,949 $ 16,949 $ — Level 1: Mutual funds 66,493 — — 66,493 66,493 — U.S. agency and treasury securities 68,958 9 (386 ) 68,581 3,119 65,462 135,451 9 (386 ) 135,074 69,612 65,462 Total $ 152,400 $ 9 $ (386 ) $ 152,023 $ 86,561 $ 65,462 |
Equity (Tables)
Equity (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
Equity [Abstract] | |
Information about Warrants Outstanding | Warrants Issued Exercise Price Outstanding and Exercisable December 31, 2022 Issued Exercised Terminated / Cancelled Outstanding and Exercisable March 31, 2023 Expiration Date 25,000 $ 5.75 25,000 — — — 25,000 April 30, 2025 |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
Earnings Per Share [Abstract] | |
Computation of Basic and Diluted Earnings Per Share | The following table shows the computation of basic and diluted earnings per share for the three months ended March 31, 2023 and 2022 (in thousands, except per share amounts): Three Months Ended March 31, 2023 2022 Numerator: Net (loss) income $ (4,467 ) $ (3,320 ) Denominator: Weighted-average basic shares outstanding 71,425 71,233 Effect of dilutive securities — — Weighted-average diluted shares 71,425 71,233 Basic (loss) earnings per share $ (0.06 ) $ (0.05 ) Diluted (loss) earnings per share $ (0.06 ) $ (0.05 ) |
Business Description and Basi_2
Business Description and Basis of Presentation (Details) - Patents [Member] | Mar. 31, 2023 Patent |
Business Description [Abstract] | |
Number of patents and pending applications | 205 |
U.S. [Member] | |
Business Description [Abstract] | |
Number of patents and pending applications | 72 |
Foreign [Member] | |
Business Description [Abstract] | |
Number of patents and pending applications | 133 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies (Details) $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 USD ($) Institution | Dec. 31, 2022 USD ($) | |
Concentration of Credit Risk and Others Risks and Uncertainties [Abstract] | ||
Number of financial institutions holding company's cash | Institution | 2 | |
Stock-Based Compensation [Abstract] | ||
Option vesting term | 4 years | |
Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses and Fair Value of Financial Assets [Abstract] | ||
Adjusted Cost | $ 149,605 | $ 152,400 |
Fair Value | 149,417 | 152,023 |
Cash [Member] | ||
Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses and Fair Value of Financial Assets [Abstract] | ||
Adjusted Cost | 12,867 | 16,949 |
Fair Value | 12,867 | 16,949 |
Total Investment Securities [Member] | ||
Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses and Fair Value of Financial Assets [Abstract] | ||
Adjusted Cost | 136,738 | 135,451 |
Unrealized Gains | 25 | 9 |
Unrealized Losses | (213) | (386) |
Fair Value | 136,550 | 135,074 |
Mutual Funds [Member] | ||
Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses and Fair Value of Financial Assets [Abstract] | ||
Adjusted Cost | 67,667 | 66,493 |
Unrealized Gains | 0 | 0 |
Unrealized Losses | 0 | 0 |
Fair Value | 67,667 | 66,493 |
U.S. Agency and Treasury Securities [Member] | ||
Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses and Fair Value of Financial Assets [Abstract] | ||
Adjusted Cost | 69,071 | 68,958 |
Unrealized Gains | 25 | 9 |
Unrealized Losses | (213) | (386) |
Fair Value | $ 68,883 | 68,581 |
Minimum [Member] | ||
Property and Equipment [Abstract] | ||
Useful lives | 5 years | |
Intangible Assets [Abstract] | ||
Estimated useful lives | 3 years | |
Maximum [Member] | ||
Property and Equipment [Abstract] | ||
Useful lives | 7 years | |
Intangible Assets [Abstract] | ||
Estimated useful lives | 15 years | |
Recurring [Member] | ||
Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses and Fair Value of Financial Assets [Abstract] | ||
Cash and Cash Equivalents | $ 97,050 | 86,561 |
Investments Available for Sale | 52,367 | 65,462 |
Recurring [Member] | Cash [Member] | ||
Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses and Fair Value of Financial Assets [Abstract] | ||
Cash and Cash Equivalents | 12,867 | 16,949 |
Recurring [Member] | Level 1 [Member] | Total Investment Securities [Member] | ||
Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses and Fair Value of Financial Assets [Abstract] | ||
Cash and Cash Equivalents | 84,183 | 69,612 |
Investments Available for Sale | 52,367 | 65,462 |
Recurring [Member] | Level 1 [Member] | Mutual Funds [Member] | ||
Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses and Fair Value of Financial Assets [Abstract] | ||
Cash and Cash Equivalents | 67,667 | 66,493 |
Investments Available for Sale | 0 | 0 |
Recurring [Member] | Level 1 [Member] | U.S. Agency and Treasury Securities [Member] | ||
Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses and Fair Value of Financial Assets [Abstract] | ||
Cash and Cash Equivalents | 16,516 | 3,119 |
Investments Available for Sale | $ 52,367 | $ 65,462 |
Highly Liquid Debt Investments [Member] | Maximum [Member] | ||
Investments [Abstract] | ||
Contractual maturities of investment securities | 2 years |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2023 | Mar. 31, 2022 | Dec. 31, 2022 | |
Income Taxes [Abstract] | |||
Income tax benefit | $ (78) | $ (1,059) | |
Loss before income taxes | $ (4,545) | $ (4,379) | |
Effective tax rate | 1.71% | 24.45% | |
Uncertain tax positions | $ 0 | $ 0 | |
Accrued interest | 0 | ||
Accrued penalties | $ 0 |
Commitments and Related Party_2
Commitments and Related Party Transactions (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Office [Member] | ||
Commitments, Contingencies and Related Party Transactions [Abstract] | ||
Operating lease, expiration date | Oct. 31, 2023 | |
K2 Investment Fund LLC [Member] | Aircraft [Member] | ||
Commitments, Contingencies and Related Party Transactions [Abstract] | ||
Rental fees incurred for use of aircraft | $ 287 | $ 265 |
Term of lease | 12 months | |
Rate of aircraft lease (in dollars per flight hour) | $ 8 | |
Term of notice for cancellation of lease | 30 days |
Stock Based Compensation (Detai
Stock Based Compensation (Details) - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Share-based Compensation [Abstract] | ||
Stock-based compensation expense | $ 682 | $ 778 |
General and Administrative Expense [Member] | ||
Share-based Compensation [Abstract] | ||
Stock-based compensation expense | 371 | 466 |
R&D Expenses [Member] | ||
Share-based Compensation [Abstract] | ||
Stock-based compensation expense | $ 311 | $ 312 |
Stock Options [Member] | ||
Share-based Compensation [Abstract] | ||
Options granted (in shares) | 0 | 0 |
Unrecognized stock-based compensation expense expected to be recognized related to unvested stock options | $ 3,484 | |
Weighted average amortization period | 2 years 5 months 19 days | |
Restricted Stock Units (RSUs) [Member] | ||
Share-based Compensation [Abstract] | ||
RSUs granted (in shares) | 0 | 0 |
Unrecognized stock-based compensation expense expected to be recognized related to unvested RSUs | $ 1,256 | |
Weighted average amortization period | 2 years 2 months 4 days |
Equity, Common Stock (Details)
Equity, Common Stock (Details) - shares | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Restricted Stock Units (RSUs) [Member] | ||
Common Stock [Abstract] | ||
Common stock issued upon vesting RSUs (in shares) | 0 | 0 |
ATM Agreement [Member] | Common Stock [Member] | ||
Common Stock [Abstract] | ||
Number of shares of common stock issued for options (in shares) | 0 | 0 |
Equity, Warrants (Details)
Equity, Warrants (Details) - Warrants [Member] - Warrants Issued in 2020 [Member] - $ / shares | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2023 | Dec. 31, 2020 | Dec. 31, 2022 | |
Warrants [Abstract] | |||
Weighted average fair value of warrants at grant date (in dollars per share) | $ 4.16 | ||
Dividend yield | 0% | ||
Volatility | 97% | ||
Risk-free rate | 0.27% | ||
Expected option term | 5 years | ||
Warrants issued (in shares) | 25,000 | 25,000 | |
Exercise price (in dollars per share) | $ 5.75 | $ 5.75 | |
Outstanding and exercisable (in shares) | 25,000 | ||
Issued (in shares) | 0 | ||
Exercised (in shares) | 0 | ||
Terminated/ cancelled (in shares) | 0 | ||
Outstanding and exercisable (in shares) | 25,000 | ||
Expiration date | Apr. 30, 2025 |
Litigation (Details)
Litigation (Details) $ in Thousands | Apr. 07, 2023 | Oct. 30, 2020 USD ($) Infringment Patent $ / Device | Sep. 25, 2020 Appeal | Nov. 06, 2012 USD ($) $ / Device |
VirnetX Inc. v. Cisco Systems, Inc. (USCAFC Case 23-1765) [Member] | Subsequent Events [Member] | ||||
Litigation [Abstract] | ||||
Opening brief due period | 60 days | |||
Positive Outcome of Litigation [Member] | VirnetX Inc. v. Apple, Inc. (Case 6:12-CV-00855-LED) ("Apple II") [Member] | ||||
Litigation [Abstract] | ||||
Amount of damages awarded in patent infringement case | $ | $ 502,800 | $ 502,600 | ||
Royalty rate per device used in calculating infringement damages | 1.2 | |||
Number of patents allegedly infringed upon by Apple, Inc. | Patent | 2 | |||
Damages awarded per accused device | 0.84 | |||
Number of infringing units | Infringment | 598,629,580 | |||
Positive Outcome of Litigation [Member] | VirnetX Inc. v. The Mangrove Partners (Case 20-2271 and Case 20-2272) ("Consolidated Appeal") [Member] | ||||
Litigation [Abstract] | ||||
Number of appeals consolidated | Appeal | 2 |
Leases (Details)
Leases (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2023 | Mar. 31, 2022 | Dec. 31, 2022 | |
Office [Member] | |||
Leases [Abstract] | |||
Operating lease ROU assets | $ 31 | $ 45 | |
Lease liability | 31 | 45 | |
Lease expense | 14 | $ 13 | |
Corporate Promotional and Marketing Facility [Member] | |||
Leases [Abstract] | |||
Operating lease ROU assets | 573 | $ 648 | |
Lease expense | $ 75 | $ 75 |
Earnings Per Share (Details)
Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Numerator [Abstract] | ||
Net (loss) income | $ (4,467) | $ (3,320) |
Denominator [Abstract] | ||
Weighted-average basic shares outstanding (in shares) | 71,425,000 | 71,233,000 |
Effect of dilutive securities (in shares) | 0 | 0 |
Weighted-average diluted shares (in shares) | 71,425,000 | 71,233,000 |
Basic (loss) earnings per share (in dollars per share) | $ (0.06) | $ (0.05) |
Diluted (loss) earnings per share (in dollars per share) | $ (0.06) | $ (0.05) |
Antidilutive securities excluded from the computation of diluted earnings per share (in shares) | 7,353,129 | 6,931,592 |
Subsequent Events (Details)
Subsequent Events (Details) - USD ($) $ / shares in Units, $ in Thousands | 1 Months Ended | 3 Months Ended | |
Apr. 30, 2023 | Mar. 31, 2023 | Mar. 31, 2022 | |
Subsequent Events [Abstract] | |||
Special dividend paid per share (in dollars per share) | $ 1 | $ 0 | |
Subsequent Events [Member] | |||
Subsequent Events [Abstract] | |||
Payments for special dividend | $ 71,429 | ||
Special dividend paid per share (in dollars per share) | $ 1 | ||
Payments for special bonus to employees | $ 7,245 |