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Share Name | Share Symbol | Market | Type |
---|---|---|---|
VirnetX Holding Corp | AMEX:VHC | AMEX | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 5.19 | 0 | 01:00:00 |
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
|
77-0390628
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
308 Dorla Court, Suite 206 Zephyr Cove, Nevada
|
|
89448
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
Common Stock, par value $0.0001 per share
|
VHC
|
NYSE
|
Large accelerated filer ☐
|
Accelerated filer ☒
|
Smaller reporting company ☐
|
Non-accelerated filer ☐
|
|
|
|
Emerging growth company ☐
|
• |
In the VirnetX Inc. v. Apple, Inc. (Case Nos. 6:11-cv-00563-RWS, 6:12-cv-00855-RWS) (“Apple II”) litigation, the United States Court of Appeals for the Federal
Circuit (the “Federal Circuit”) in November 2019, affirmed-in-part, and reversed-in-part the judgment issued by the United States District Court for the Eastern District of Texas (the “district court”) in the case awarding VirnetX damages
of $595.9 million. On October 30, 2020, after a trial in the district court, a jury returned a verdict in favor of VirnetX, awarding VirnetX over $502 million in damages. On January 15, 2021, the district court denied Apple’s motion for
judgment as a matter of law and affirmed the jury findings. This may imply that VirnetX may soon receive over $500 million in cash, however, Apple has appealed to the Federal Circuit with regards to the judgement from the district court and
this appeal is awaiting calendaring for oral arguments. In addition, the patents in this case are being challenged in the United States Patent and Trademark Office. If those challenges are successful, the award in the case may be reduced,
eliminated and/or delayed for a lengthy period. The continuation of this litigation is distracting to our management, expensive, and these distractions and expenses may continue.
|
|
|
Page
|
|
|
|
2
|
||
|
2
|
|
|
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
7
|
|
18
|
||
21
|
||
|
21
|
|
|
|
|
23
|
||
|
23
|
|
|
23
|
|
|
39
|
|
|
|
|
40
|
As of
March 31,
2022
|
As of
December 31, 2021
|
|||||||
ASSETS
|
(unaudited)
|
|||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
136,408
|
$
|
142,018
|
||||
Investments available for sale
|
28,728
|
27,254
|
||||||
Accounts receivables
|
12
|
17
|
||||||
Prepaid expenses and other current assets
|
660
|
203
|
||||||
Total current assets
|
165,808
|
169,492
|
||||||
Prepaid expenses and other assets
|
968
|
1,056
|
||||||
Property and equipment, net
|
16
|
18
|
||||||
Deferred tax assets
|
17,009
|
15,950
|
||||||
Total assets
|
$
|
183,801
|
$
|
186,516
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable and accrued liabilities
|
$
|
651
|
$
|
338
|
||||
Accrued payroll and related expenses
|
330
|
270
|
||||||
Accrued licensing costs
|
—
|
355
|
||||||
Income tax liability
|
3 | 6 | ||||||
Other liabilities, current
|
53
|
52
|
||||||
Total current liabilities
|
1,037
|
1,021
|
||||||
Other liabilities |
31 | 46 | ||||||
Total liabilities |
1,068 | 1,067 | ||||||
Commitments and contingencies (Note 4)
|
||||||||
Stockholders’ equity:
|
||||||||
Preferred stock, par value $0.0001 per share Authorized: 10,000,000 shares at March 31, 2022 and December 31,
2021; Issued and outstanding: 0
shares at March 31, 2022
and December 31, 2021
|
—
|
—
|
||||||
Common stock, par value $0.0001 per share Authorized: 100,000,000 shares at March 31, 2022 and December 31,
2021; Issued and outstanding: 71,232,856
shares at March 31, 2022
and December 31, 2021
|
7
|
7
|
||||||
Additional paid-in capital
|
237,223
|
236,445
|
||||||
Accumulated deficit
|
(54,255
|
)
|
(50,935
|
)
|
||||
Accumulated other comprehensive loss
|
(242
|
)
|
(68
|
)
|
||||
Total stockholders’ equity
|
182,733
|
185,449
|
||||||
Total liabilities and stockholders’ equity
|
$
|
183,801
|
$
|
186,516
|
Three Months Ended
|
||||||||
March 31, 2022
|
March 31, 2021
|
|||||||
Revenue
|
$
|
5
|
$
|
5
|
||||
Operating expense:
|
||||||||
Licensing costs
|
(4
|
)
|
(9,438
|
)
|
||||
Research and development
|
1,227
|
1,152
|
||||||
Selling, general and administrative
|
3,185
|
41,943
|
||||||
Total operating expense
|
4,408
|
33,657
|
||||||
Loss from operations
|
(4,403
|
)
|
(33,652
|
)
|
||||
Interest and other income, net
|
24
|
16
|
||||||
Loss before taxes
|
(4,379
|
)
|
(33,636
|
)
|
||||
Income tax benefit
|
1,059
|
7,193
|
||||||
Net Loss
|
$
|
(3,320
|
)
|
$
|
(26,443
|
)
|
||
Basic loss per share
|
$
|
(0.05
|
)
|
$
|
(0.37
|
)
|
||
Diluted loss per share
|
$
|
(0.05
|
)
|
$
|
(0.37
|
)
|
||
Weighted average shares outstanding - basic
|
71,233
|
71,059
|
||||||
Weighted average shares outstanding - diluted
|
71,233
|
71,059
|
|
Three Months Ended
|
|||||||
|
March 31, 2022
|
March 31, 2021
|
||||||
Net loss
|
$
|
(3,320
|
)
|
$
|
(26,443
|
)
|
||
Other comprehensive income (loss):
|
||||||||
Change in unrealized gain (loss) on investments, net of tax
|
(171
|
)
|
5
|
|||||
Change in foreign currency translation, net of tax
|
(3
|
)
|
(3
|
)
|
||||
Total other comprehensive income (loss)
|
(174
|
)
|
2
|
|||||
Comprehensive loss
|
$
|
(3,494
|
)
|
$
|
(26,441
|
)
|
Three Months Ended
March 31,
|
||||||||
2022
|
2021
|
|||||||
Total shareholders’ equity, beginning balances
|
$
|
185,449
|
$
|
224,437
|
||||
Common stock and additional paid-in capital:
|
||||||||
Beginning balances
|
236,452
|
232,464
|
||||||
Stock-based compensation
|
778
|
879
|
||||||
Ending balances
|
237,230
|
233,343
|
||||||
Accumulated deficit:
|
||||||||
Beginning balances
|
(50,935
|
)
|
(8,014
|
)
|
||||
Net loss
|
(3,320
|
)
|
(26,443
|
)
|
||||
Ending balances
|
(54,255
|
)
|
(34,457
|
)
|
||||
Accumulated other comprehensive loss:
|
||||||||
Beginning balances
|
(68
|
)
|
(13
|
)
|
||||
Change in unrealized investment gain (loss), net
|
(171
|
)
|
5
|
|||||
Change in foreign currency translation, net
|
(3
|
)
|
(3
|
)
|
||||
Ending balances
|
(242
|
)
|
(11
|
)
|
||||
Total shareholders’ equity, ending balances
|
$
|
182,733
|
$
|
198,875
|
Three Months Ended
March 31,
|
||||||||
2022
|
2021
|
|||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$
|
(3,320
|
)
|
$
|
(26,443
|
)
|
||
Adjustments to reconcile net loss to cash flows from operating activities:
|
||||||||
Depreciation
|
2
|
1
|
||||||
Deferred tax assets
|
(1,059
|
)
|
(7,196
|
)
|
||||
Amortization of warrant issuance costs
|
—
|
26
|
||||||
Stock-based compensation
|
778
|
879
|
||||||
Changes in assets and liabilities:
|
||||||||
Accounts receivables
|
5
|
2
|
||||||
Prepaid expenses and other assets
|
(369
|
)
|
(261
|
)
|
||||
Accounts payable
|
313
|
(122
|
)
|
|||||
Accrued payroll and related expenses
|
60
|
54
|
||||||
Accrued licensing costs
|
(355
|
)
|
(9,438
|
)
|
||||
Income tax payable
|
(3
|
)
|
2
|
|||||
Other liabilities
|
(14 | ) | (13 | ) | ||||
Accrued licensing
|
— | 38,284 | ||||||
Net cash (used in) operating activities
|
(3,962
|
)
|
(4,225
|
)
|
||||
Cash flows from investing activities:
|
||||||||
Purchase of investments
|
(4,060
|
)
|
(2,476
|
)
|
||||
Proceeds from sale or maturity of investments
|
2,412
|
10,991
|
||||||
Net cash provided by (used in) investing activities
|
(1,648
|
)
|
8,515
|
|||||
Net change in cash and cash equivalents
|
(5,610
|
)
|
4,290
|
|||||
Cash and cash equivalents, beginning of period
|
142,018
|
192,908
|
||||||
Cash and cash equivalents, end of period
|
$
|
136,408
|
$
|
197,198
|
||||
Cash paid for income taxes |
$ | 2 | $ | — |
March 31, 2022
|
||||||||||||||||||||||||
Adjusted Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value
|
Cash and Cash
Equivalents
|
Investments
Available for
Sale
|
|||||||||||||||||||
Cash
|
$
|
31,449
|
$
|
—
|
$
|
—
|
$
|
31,449
|
$
|
31,449
|
$
|
—
|
||||||||||||
Level 1:
|
||||||||||||||||||||||||
Mutual funds
|
77,587
|
—
|
—
|
77,587
|
77,587
|
—
|
||||||||||||||||||
U.S. agency
securities
|
24,163
|
—
|
(124
|
)
|
24,039
|
5,352
|
18,687
|
|||||||||||||||||
U.S. treasury
securities
|
32,157
|
1
|
(97
|
)
|
32,061
|
22,020
|
10,041
|
|||||||||||||||||
133,907
|
1
|
(221
|
)
|
133,687
|
104,959
|
28,728
|
||||||||||||||||||
Total
|
$
|
165,356
|
$
|
1
|
$ | (221 | ) |
$
|
165,136
|
$
|
136,408
|
$
|
28,728
|
December 31, 2021
|
||||||||||||||||||||||||
Adjusted Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value
|
Cash and Cash
Equivalents
|
Investments
Available for
Sale
|
|||||||||||||||||||
Cash
|
$
|
35,428
|
$
|
—
|
$
|
—
|
$
|
35,428
|
$
|
35,428
|
$
|
—
|
||||||||||||
Level 1:
|
||||||||||||||||||||||||
Mutual funds
|
106,590
|
—
|
—
|
106,590
|
106,590
|
—
|
||||||||||||||||||
U.S. agency
securities
|
16,658
|
—
|
(26
|
)
|
16,632
|
—
|
16,632
|
|||||||||||||||||
U.S. treasury
securities
|
10,646
|
—
|
(24
|
)
|
10,622
|
—
|
10,622
|
|||||||||||||||||
133,894
|
—
|
(50
|
)
|
133,844
|
106,590
|
27,254
|
||||||||||||||||||
Total
|
$
|
169,322
|
$
|
—
|
$
|
(50
|
)
|
$
|
169,272
|
$
|
142,018
|
$
|
27,254
|
Warrants Issued
|
Exercise Price
|
Outstanding and
Exercisable
December 31, 2021
|
Issued
|
Exercised
|
Terminated /
Cancelled
|
Outstanding and
Exercisable
March 31, 2022
|
Expiration Date
|
||||||||||||||||||||
25,000
|
$
|
5.75
|
25,000
|
—
|
—
|
—
|
25,000
|
April 30, 2025
|
Three Months Ended
March 31,
|
||||||||
2022
|
2021
|
|||||||
Numerator:
|
||||||||
Net loss
|
$
|
(3,320
|
)
|
$
|
(26,443
|
)
|
||
Denominator:
|
||||||||
Weighted-average basic shares outstanding
|
71,233
|
71,059
|
||||||
Effect of dilutive securities
|
—
|
—
|
||||||
Weighted-average diluted shares
|
71,233
|
71,059
|
||||||
Basic loss per share
|
$
|
(0.05
|
)
|
$
|
(0.37
|
)
|
||
Diluted loss per share
|
$
|
(0.05
|
)
|
$
|
(0.37
|
)
|
• |
We are involved and will continue to be involved in litigation defending our patent portfolio, which can be time-consuming and costly, and we cannot anticipate the results.
|
• |
We may not be able to capitalize on market opportunities related to our product strategy, our licensing strategy or our patent portfolio.
|
• |
If we are not able to adequately protect our patent rights, our business would be negatively impacted.
|
• |
Because our business is conducted or expected to be conducted in an environment that is subject to rapid change, we may be subject to various developments in regulation, law, and consumer preferences to which we may not be able to adapt
successfully.
|
• |
Our exposure to outside influences beyond our control, including new legislation, court rulings or actions by the USPTO could adversely affect our licensing and enforcement activities and results of operations.
|
• |
New legislation, regulations or court rulings related to enforcing patents could harm our business and operating results.
|
• |
Privacy and data security concerns, and data collection and transfer restrictions and related domestic or foreign regulations may limit the use and adoption of our solutions and adversely affect our business.
|
• |
If we are unable to expand our revenue sources or establish, sustain, grow, or replace relationships with a diversified customer base, our revenues may be limited.
|
• |
We have limited technical resources and are at an early stage in commercialization of our software products.
|
• |
Our international expansion will subject us to additional costs and risks, and our plans may not be successful.
|
• |
Third parties may challenge the validity of our patents;
|
• |
The pendency of our various litigations may cause potential licensees not to do business with us;
|
• |
Our patents may expire before we can make our business strategy successful;
|
• |
We face, and we expect to continue to face, intense competition from new and established competitors who may have superior products and services or better marketing, financial or other capacities than we do; and
|
• |
It is possible that one or more of our potential customers or licensees develops or otherwise sources products or technologies similar to, competitive with or superior to ours.
|
• |
New legislation, regulations or rules related to obtaining patents or enforcing patents could significantly increase our operating costs and decrease our revenue. For instance, the United States Supreme Court has modified some tests used
by the USPTO in granting patents during the past 20 years which may decrease the likelihood that we will be able to obtain patents and increase the likelihood of challenge of any patents we obtain or license. In addition, in 2012 the United
States enacted sweeping changes to the United States patent system under the Leahy-Smith America Invents Act, including changes that transition the United States from a “first-to-invent” system to a “first to file” system and alter the
processes for challenging issued patents;
|
• |
More patent applications are filed each year resulting in longer delays in getting patents issued by the USPTO;
|
• |
Federal courts are becoming more crowded, and as a result, patent enforcement litigation is taking longer; and
|
• |
As patent enforcement becomes more prevalent, it may become more difficult for us to voluntarily license our patents.
|
• |
The need to educate potential customers about our patent rights and our product and service capabilities;
|
• |
The impact of the COVID-19 pandemic on our potential customers and their business operations, including their budgetary constraints and resources devoted to adopting new products.
|
• |
Our customers’ willingness to invest potentially substantial resources and modify their network infrastructures to take advantage of our products;
|
• |
Our customers’ budgetary constraints;
|
• |
The timing of our customers’ budget cycles;
|
• |
Delays caused by customers’ internal review processes; and
|
• |
Long sales cycles that may increase the risk that our financial resources are exhausted before we are able to generate significant revenue.
|
• |
Generate revenues or profit from product sales;
|
• |
Drive adoption of our products;
|
• |
Attract and retain customers for our products;
|
• |
Provide appropriate levels of customer training and support for our products;
|
• |
Implement an effective marketing strategy to promote awareness of our products;
|
• |
Focus our research and development efforts in areas that generate returns on our efforts;
|
• |
Anticipate and adapt to changes in our market; or
|
• |
Protect our products from any system failures or other breaches.
|
• |
Power loss, transmission cable cuts and other telecommunications failures;
|
• |
Damage or interruption caused by fire, earthquake, and other natural disasters;
|
• |
Computer viruses or software defects; and
|
• |
Physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.
|
• |
A staggered Board of Directors: This means that only one or two directors (since we have a five-person Board of Directors) will be up for election at any given annual meeting. This has the effect of
delaying 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.
|
• |
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 has the ability to do so in the future, very rapidly
and without stockholder approval.
|
• |
Advance notice requirements for director nominations and for new business to be brought up at 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 in order to have the matter voted on at a stockholder meeting. This has the effect of giving our Board of Directors and management more
time to react to stockholder proposals generally and could also have the effect of disregarding a stockholder proposal or deferring it to a subsequent meeting to the extent such proposal is not raised properly.
|
• |
No stockholder actions by written consent: No stockholder or group of stockholders may take actions rapidly and without prior notice to our Board of Directors and management or to the minority
stockholders. 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.
|
• |
Super majority requirement for stockholder amendments to the bylaws: Stockholder proposals to alter or amend our 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.
|
• |
No ability of stockholders to call a special meeting of the stockholders: Only the Board of Directors or management can call special meetings of the stockholders. This could mean that 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.
|
• |
Developments or lack thereof in any then-outstanding litigation;
|
• |
Quarterly variations in our operating results;
|
• |
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 the significant volatility in the global financial markets, and impacts from the COVID-19 pandemic.
|
• |
Price and volume fluctuations in the overall stock market from time to time, including fluctuations due to general economic uncertainty or negative market sentiment;
|
• |
Volatility in the market prices and trading volumes of companies in our industry or companies that investors consider comparable;
|
• |
Changes in operating performance and stock market valuations of other companies generally, or those in our industry;
|
• |
Sales of shares of our common stock by us or our stockholders;
|
• |
Failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow us, or our failure to meet these estimates or the expectations of investors;
|
• |
The financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;
|
• |
Announcements by us or our competitors of new products or services;
|
• |
The public’s reaction to our press releases, other public announcements, and filings with the SEC;
|
• |
Rumors and market speculation involving us or other companies in our industry;
|
• |
Actual or anticipated changes in our results of operations;
|
• |
Actual or anticipated developments in our business, our competitors’ businesses, or the competitive landscape generally;
|
• |
Litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
|
• |
Announced or completed acquisitions of businesses or technologies by us or our competitors;
|
• |
New laws or regulations or new interpretations of existing laws or regulations applicable to our business;
|
• |
Changes in accounting standards, policies, guidelines, interpretations, or principles;
|
• |
Any significant change in our management; and
|
• |
General economic conditions and slow or negative growth of our markets, including any economic downturn from the COVID-19 pandemic.
|
• |
The outcome of actions to enforce our intellectual property rights currently in progress or that we may undertake in the future, and the timing thereof;
|
• |
The impact of the COVID-19 pandemic on our sales cycle and results;
|
• |
The amount and timing of receipt of license fees from potential infringers, licensees, or customers;
|
• |
The rate of adoption of our patented technologies;
|
• |
The number of new license arrangements we may execute, or that may expire, within a particular period and the scope of those licenses, including the number of our patents which are licensed, the extent of prior infringement of our patent
rights, royalty rates, timing of payment obligations, expiration date etc.;
|
• |
The success of a licensee in selling products that use our patented technologies; and
|
• |
The amount and timing of expenses related to our patent filings and enforcement proceedings, including litigation, related to our intellectual property rights.
|
Exhibit
Number
|
Description
|
Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
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.
|
|
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.
|
|
101
|
Interactive Data Files
|
*
|
Indicates management contract or compensatory plan.
|
**
|
This exhibit is furnished herewith, but not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that
section. Such certifications will not be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act, except to the extent that we explicitly incorporate them by reference.
|
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: May 13, 2022
|
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