What changed in this filing

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Item 1. Financial Statements

2025-05-14 compared with 2024-11-13 · 247 added, 265 removed, 226 unchanged (69% of the section changed)

4 unchanged sentences

(in thousands, except share amounts)

September 30,

Current assets:

1 unchanged sentence

Investments available for sale

Accounts receivables

Prepaid expenses and other current assets

Total current assets

Other investments at cost

Prepaid expenses and other assets

Other investments at cost

Property and equipment, net

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Preferred stock, par value $ 0.0001 per share Authorized:

10,000,000 shares at September 30 , 2024 and

December 31, 2023 ;

10,000,000 shares at March 31 , 2025 and December

Issued and outstanding:

0 shares at September 30 , 2024 and December 31, 2023

0 shares at March 31 , 2025 and December 31, 2024

Common stock, par value $ 0.0001

per share Authorized:

100,000,000 shares at September 30 , 2024 and December 31, 2023 ;

100,000,000 shares at March 31 , 2025 and December 31, 2024 ;

Issued and outstanding:

shares at September 30 , 2024

and 3,618,431 at December 31, 2023

4,238,581 shares at March 31 , 2025 and 4,238,581 at December 31, 2024

Additional paid-in capital

6 unchanged sentences

CONDENSED CONSOLIDATED

STATEMENTS OF

OPERATIONS (Unaudited)

STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share amounts)

Three Months Ended

September 30,

September 30 ,

Operating expense:

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Other comprehensive income (loss):

5 unchanged sentences

VIRNETX HOLDING CORPORATION

CONDENSED CONSOLIDATED

STATEMENTS OF

CONDENSED CONSOLIDATED STATEMENTS OF

SHAREHOLDERS’ EQUITY (Unaudited)

1 unchanged sentence

Three Months Ended

September 30,

September 30 ,

Total shareholders’ equity, beginning balances

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Total shareholders’ equity, ending balances

Dividends per share

See accompanying notes to condensed consolidated financial statements.

4 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

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Cash flows from investing activities:

Purchase of property and equipment

Purchase of investments

2 unchanged sentences

Cash flows from financing activities:

Payment of dividends

Payment of payroll taxes on equity awards

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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.

software and technology solutions, including Secure Domain Name Registry and Technology, VirnetX One™, War Room™, and VirnetX Matrix™ 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 platform allows government agencies, businesses and other enterprises of all sizes to add a “security umbrella” as an added layer on top of their existing

We are an Internet security software and technology company with patented technology for Zero Trust Network Access (“ZTNA”) based secure network communications.

Our software and

technology solutions, including its Secure Domain Name Registry and Technology, VirnetX One™, War Room™, and VirnetX Matrix™ 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.

Our product portfolio includes sophisticated technologies, products and services that are available for sale worldwide.

Our next-generation,

VirnetX One™ platform builds upon our patented Secure Domain Name Registry and Technology to further enhance the security and efficiency of our patented secure communication links.

VirnetX One™ is a security-as-a-service platform that protects

enterprise applications, services, and infrastructure from cyber-attacks.

Our platform allows government organizations, 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.

Note 2 — Summary of Significant Accounting Policies

Unaudited Interim Financial

The accompanying Condensed Consolidated Balance Sheet as of September 30, 2024, the Condensed Consolidated Statements of Operations for the three and

nine months ended September 30, 2024 and 2023, the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2024 and 2023, the Condensed Consolidated Statements of Shareholders’ Equity for the three

and nine months ended September 30, 2024 and 2023, and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 are unaudited.

These unaudited interim consolidated financial statements have been

prepared in accordance with generally accepted accounting principles in the United States (“U.S.

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 September 30, 2024, our results of operations for the three and nine months ended September 30, 2024 and 2023, and our cash flows for the nine months ended September 30, 2024 and 2023.

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, 2023, filed with the SEC on March 15, 2024.

Unaudited Interim Financial Information

The accompanying Condensed Consolidated Balance Sheet as of

March 31, 2025, the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, Condensed Consolidated Statements of Shareholders’ Equity, and Condensed Consolidated Statements of Cash Flows for the three

months ended March 31, 2025 and 2024 are unaudited.

These unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S.

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, 2025, our results of operations and our cash flows for the three

months ended March 31, 2025 and 2024.

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, 2024, filed with the SEC on March 17, 2025.

Use of Estimates

We prepare our consolidated financial statements in accordance

We prepare our consolidated financial statements in

accordance with U.S.

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, 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.

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.

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.

We have reviewed our critical

accounting policies and estimates with the audit committee of our Board of Directors.

Investments classified as available-for-sale 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.

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.

We have elected the investment measurement alternative

for other investments without readily determinable fair values.

During 2023, we invested $ 2,000 in L2 Holdings LLC and $ 500 in OP Media Inc.

These investments are carried at our initial cost less any impairment because we do not have the ability to exercise

significant influence over operating and financial matters.

For these investments, we adjust the carrying value for any purchases or sales of our ownership interests.

Periodically, we evaluate these investments for impairment.

If we identify an

impairment, we reduce the carrying value for the impairment loss with a charge to earnings.

We have no t identified any impairment as

of March 31, 2025.

Basis of Consolidation

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Revenue Recognition

We derive revenue from licensing and royalty fees from contracts with customers which often span several years.

We account for this revenue in

accordance with Accounting Standards Codification (“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.

generally have no further obligation to our customers regarding our technology.

We derive revenue from licensing and royalty fees from

contracts with customers which often span several years.

We account for this revenue in accordance with Accounting Standards Codification (“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

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Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these investments.

Investments classified as available-for-sale 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 of less than two years .

By policy, we limit the amount of credit exposure to any one issuer.

We have elected the investment measurement alternative for

other investments without readily determinable fair values.

During 2023, we invested $ 2,000 in L2 Holdings, LLC (“Omniteq”) and $ 500 in OP Media, Inc.

These investments are carried at our initial cost less any impairment because we do not have the ability to exercise significant

influence over operating and financial matters.

For these investments, we adjust the carrying value for any purchases or sales of our ownership interests.

Periodically, we evaluate these investments for impairment.

If we identify an impairment, we

reduce the carrying value for the impairment loss with a charge to earnings.

We have no t identified any impairment as of September 30,

Property and Equipment

4 unchanged sentences

expense as incurred.

The Company determines if an arrangement is a lease at inception in accordance 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, using the risk-free rate.

Concentration of Credit

Risk and Other Risks and Uncertainties

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.

We determine if an arrangement is a lease at inception in accordance ASC Topic 842.

Operating lease right-of-use (“ROU”) assets are included in prepaid expenses and other assets and lease liabilities

are included in other liabilities on the Condensed Consolidated Balance Sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the

ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, using the incremental borrowing rate, U.S.

prime rate of 7.5 % in 2025 and 8.5 % in 2024.

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.

At times, we had 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 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.

The carrying amounts of our financial instruments, including

cash equivalents, accounts payable, and accrued liabilities, approximate fair value because of their generally short maturities.

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.

Intangible Assets

7 unchanged sentences

flows to the related assets’ carrying value.

If such assets are deemed 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

If such assets are deemed 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 include expenses paid to

outside development consultants and compensation related expenses for our engineering staff.

Research and development costs are expensed as incurred.

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The 2017 U.S.

Tax Cuts and Jobs Act changes IRC Section 174, regarding capitalization of book research and development (“R&D”) expenses

for income tax purposes.

Effective for tax years beginning in 2022, IRC Section 174 requires the capitalization of book R&D expenses which are capitalized and amortized over 5 years for domestic R&D expenses and over 15 years for foreign

R&D expenses.

To date there has been limited guidance from the IRS on how to quantify the amount of book R&D expenses subject to capitalization, including the indirect expenses supporting the R&D function.

Due to the limited guidance,

some assumptions were made in our estimates.

Tax Cuts and Jobs Act changes IRC Section 174, regarding capitalization of book research and development (“R&D”) expenses for income tax purposes.

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

8 unchanged sentences

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

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.

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.

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

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.

of tax positions, their technical merits, and measurements using cumulative probability are highly subjective management estimates.

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.

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 four 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).

We account for stock-based compensation using the fair value recognition method in accordance with U.S.

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.

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 common shares outstanding 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.

Additionally, weighted average shares

outstanding for both basic and diluted earnings per share include all vested restricted shares issued and outstanding.

Basic earnings per share are computed by dividing earnings

available to common stockholders by the weighted average number of common shares outstanding 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.

Additionally, weighted average shares outstanding for both basic and diluted earnings per

share include all vested restricted shares issued and outstanding.

New Accounting Pronouncements

In December 2023, the FASB issued Accounting

Standards Updated (“ASU”) No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires disaggregated information about an entity’s effective tax rate reconciliation as well as information on income tax paid.

guidance in this ASU is effective for public companies with annual periods beginning after December 15, 2024.

We plan to adopt the guidance for the fiscal year ending December 31, 2025.

We are currently evaluating the effect adoption of this

ASU will have on our consolidated financial statements.

In March 2024, the FASB issued ASU No.

2024-01, Compensation—Stock Compensation (Topic 718):

Scope Application of Profits Interest

and Similar Awards.

Standards Update d (“ASU”) 2 023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires disaggregated information about

an entity’s effective tax rate reconciliation as well as information on income tax paid.

The guidance in this ASU is effective for public companies with annual periods beginning after December 15, 2024.

We plan to adopt the guidance for the

fiscal year ending December 31, 2025.

We do not expect the adoption of this accounting standard to have an impact on our consolidated financial statements but will require certain additional disclosures.

In March 2024, the FASB issued ASU 2024-01, Compensation—Stock Compensation (Topic 718):

Scope Application of Profits Interest and

Similar Awards.

The guidance in this ASU is effective for public companies with annual periods beginning after December 15, 2024.

We plan to adopt the guidance for the fiscal year ending December 31, 2025.

We are currently evaluating the

effect adoption of this ASU will have on our consolidated financial statements.

We are currently evaluating the effect

adoption of this ASU will have on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive

Income—Expense Disaggregation (Subtopic 220-40):

Disaggregation of Income Statement Expenses, that requires disclosure of the amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization included in

each relevant expense line item on the income statement.

The standard also requires a qualitative description of other amounts included in each relevant expense line item on the income statement that are not separately disclosed.

entities are required to disclose the nature and amount of selling expenses.

The new standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

adoption is permitted.

We do not expect the adoption of this accounting standard to have an impact on our consolidated financial statements but will require certain additional disclosures.

Fair Value of Financial Instruments

Fair value is the price that would result from an orderly

transaction between market participants at the measurement date.

The carrying amounts of our financial instruments, including cash equivalents, accounts payable, and accrued

liabilities, approximate fair value because of their generally short maturities.

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).

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.

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.

Valued at the quoted net asset value of shares held.

Mutual funds:

at the quoted net asset value of shares held.

agency and treasury securities :

at the closing price reported on the active market on which the individual securities are traded.

following tables show the adjusted cost, gross unrealized gains, gross unrealized losses, and fair value of our securities by significant investment category as of September 30, 2024 and December 31, 2023.

September 30, 2024

Valued at the closing price reported on the active market on which the individual securities are traded.

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, 2025 and December 31, 2024.

March 31, 2025

Adjusted Cost

Cash and Cash

Available for Sale

treasury securities

Available for

agency and treasury securities

December 31, 2024

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Cash and Cash

Available for Sale

Available for

agency and treasury securities

Note 3 — Income Taxes

For the three and nine months ended September 30, 2024, we recognized income tax expense of $ 0

and $ 3 , an effective income tax rate of approximately 0.0 %

for both periods.

For the three and nine months ended September 30, 2023, we recognized an income tax benefit of $ 1 and $ 79 , an effective income tax rate of 0.0 %

The effective tax rate was lower than the statutory federal income tax rate during 2023 and 2024 primarily due to the

change in valuation allowance.

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 limitations for those years

expires three years after October 2021, the date we filed our 2020 income tax returns.

The California Franchise Tax Board is currently conducting an audit on the Company's 2019, 2020 and 2021 California tax returns;

the outcome of the audit is yet to be determined.

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 September 30, 2024, 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 September 30, 2024.

For the three months ended March 31, 2025 and 2024, we recognized income tax espense of $ 2 and $ 0 , on pretax losses of $ 3,677 and $ 4,291 , representing an effective tax rate

approximately 0 % for both periods.

Our effective tax rate differed from the federal statutory rate of 21 %, primarily due to the valuation allowance placed against our net deferred tax assets.

We have a full valuation allowance on all federal and state deferred tax assets based

current and projected full year losses, as of March 31, 2025.

Our tax years for 2007 and forward are subject to examination by the U.S.

tax authority and our tax years for 2021 and forward are open for various state tax authorities because we utilized

the net operating loss and tax credits generated in those years in 2020.

The California Franchise Tax Board is currently conducting an audit on our 2019, 2020 and 2021 California tax years;

the outcome of the examination is yet to be

We believe we have adequately provided for any reasonably foreseeable outcomes related to any tax audits and that any settlement will not have a material adverse effect on the consolidated financial position or results of

As of March 31, 2025, we have no t identified or accrued amounts for uncertain tax positions or interest and

penalties related to uncertain tax positions and do not expect significant changes to the estimate in the coming twelve months.

Note 4 — Commitments and

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We have a non-exclusive service agreement for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business

travel for employees of the Company.

We incurred fees and reimbursemen ts to the LLC of approximately $ 446 and $ 1,132 during the three and nine months ended September 30, 2024, and $ 314 and $ 713 during the three and nine months ended September 30, 2023.

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.

The agreement with the LLC

provides for use of the plane at an initial rate of $ 8 per flight hour which increased to $ 9.8 per flight hour in April 2024.

travel for our employees.

We incurred fees and reimbursemen ts to the LLC of approximately $ 377 and $ 372 during the three months ended March 31, 2025 and 2024 respectively.

We pay for our use of the aircraft and have no rights to purchase.

Executive Officer and Chief Administrative Officer are the managing partners of the LLC and control the equity interests of the LLC.

The agreement with the LLC provides for use of the plane at a rate of $ 9.8 per flight hour.

The agreement contains no minimum usage requirement and includes other terms and conditions.

The agreement can be cancelled by either us or

the LLC with 30 days’ notice and renews on an annual basis unless terminated by either party.

Neither party has exercised their

termination rights.

The agreement can be cancelled by either us or the LLC with

30 days’ notice and renews on an annual basis unless terminated by either party.

Neither party has exercised their termination rights.

– Leases for further discussion of our lease commitments.

Note 5 — Stock-Based

Our stockholders approved an amendment to the Amended and

Restated 2013 Equity Incentive Plan (the “Plan”) at our annual shareholders’ meeting in June 2024, which among other things, added 1,000,000

shares to the plan.

The Plan provides for the granting of equity awards including stock options, restricted stock units (“RSUs”) and restricted stock.

Options granted under the Plan are granted with an exercise price equal to the fair value of

our stock on the date of grant.

Our stockholders approved the Amended and Restated Equity

Incentive Plan (the “A&R Plan”) at our annual shareholders’ meeting in June 2024, which added 1,000,000 shares to the plan.

prior plan expired March 29, 2023;

no further awards will be made under the prior plan, and the A&R Plan will govern awards granted under the prior plan.

The A&R Plan provides for the granting of stock options, restricted stock units (“RSUs”) and restricted stock.

Options granted

under the A&R Plan are granted with an

exercise price equal to the fair value of the of our stock on the date of grant.

RSUs and restricted stock are granted at the fair value of our stock on the date of grant because they have no exercise price.

The fair value of options, RSUs and restricted stock are expensed over the vesting

The fair value of options, RSUs and

restricted stock are expensed over the vesting periods.

All options, RSUs and restricted stock are subject to forfeiture if service terminates prior to the shares vesting.

At September 30, 2024, there were 1,081,278 shares available for grant under the Plan.

compensation expense included in general and administrative expense was $ 309 and $ 449 , and in research and development expense was $ 149 and $ 257 , for the three months ended September 30, 2024 and 2023, respectively.

Stock-based compensation expense included in general and administrative

expense was $ 802 and $ 1,213 ,

and in research and development expense was $ 603 and $ 857 , for the nine months ended September 30, 2024 and 2023, respectively.

No restricted stock awards were

granted during the three months ended September 30, 2024.

During the nine months ended September 30, 2024, we granted 119,000 shares

of restricted stock with a weighted average grant date fair value of $ 5.58 .

We paid $ 6 in withholding taxes on shares of restricted stock, which is reflected as financing costs in the accompanying statement of cash flows;

the grantees surrendered shares of

equal value, and those surrendered shares were cancelled.

During the three and nine months ended September 30, 2023, we granted 36,927

shares of restricted stock with a weighted average grant date fair value of $ 9.12 .

We paid $ 6 in withholding taxes on shares of restricted stock, which is reflected as financing costs in the accompanying statement of cash flows;

grantees surrendered shares of equal value, and those surrendered shares were cancelled.

No options were granted during the three and nine months ended September 30, 2024.

During the three and nine months ended September 30, 2023, we

granted 1,875 options with a weighted average grant date fair value of $ 7 per share.

No options were exercised during the

three and nine months ended September 30, 2024 or 2023.

No RSUs were granted during the three and nine months ended September 30, 2024.

No RSUs were granted during the three months ended September 30, 2023.

During the nine months ended September 30, 2023, we granted 1,248 RSUs with a grant date fair value of $ 10 per share.

During the nine months ended September 30, 2024 and 2023, we issued 7,166 and 10,763 shares of common stock as a result of vesting RSUs, for which we paid $ 3

and $ 5 , respectively, in withholding taxes, which is reflected as financing costs in the accompanying statement of cash flows;

grantees surrendered shares of equal value, and those surrendered shares were cancelled.

As of September 30,

At March 31, 2025, there were 576,305 shares available for grant under the A&R Plan.

compensation expense included in general and administrative expense was $ 190 and $ 230 , and in research and development expense was $ 242 and $ 258 , for the three months ended March 31, 2025 and 2024, respectively.

No awards were granted during

the three months ended March 31, 2025.

During the three months ended March 31, 2024, we granted 71,000 shares of restricted stock

with a weighted average grant date fair value of $ 6.80 per share, and paid $ 3 in withholding taxes, which is reflected as financing costs in the accompanying statement of cash flows;

the grantees surrendered shares equal to the value of witholding

taxes due, and those surrendered shares were cancelled.

As of March 31, 2025

and 2024, the unrecognized stock-based compensation expense related to unvested awards (including stock options, RSUs, and restricted stock) was $ 3,999

1 unchanged sentence

respectively.

During the nine

months ended September 30, 2024, we returned 49,937 options, 2,897 RSUs and 12,494 shares of restricted stock to the plan

due to termination of employees and the expiration of unexercised options.

During the three

months ended March 31, 2025, we returned 1,250 options to the plan due to cancellation of unexercised options.

Note 6 — Equity

During the nine months ended September 30, 2024, we issued 119,000 shares of restricted stock, as well as 7,166 shares of common stock as a result of vesting

During the nine months ended September 30, 2023, we issued 36,927 shares of restricted stock, as well as 10,763 shares of common stock as a result of vesting RSUs.

2020, we issued warrants for the purchase of 1,250 shares of common stock at an exercise price of $ 115 per share, exercisable on the date of grant, expiring in April 2025 .

The weighted average fair value at the grant date was $ 83.20 per

The fair value at the grant date was estimated utilizing the Black-Scholes valuation model with the following weighted average assumptions (i) dividend yield on our common stock of 0 percent (ii) expected stock price volatility of 97 percent (iii) a risk-free

interest rate of 0.27 percent and (iv) and expected option term of 5 years.

No shares of common stock were issued during the three months ended March 31, 2025.

During the three months ended March 31, 2024, we issued 71,000 shares of restricted stock.

2020, we issued warrants for the purchase of 1,250 shares of common stock at an exercise price of $ 115 per share, exercisable on the date of grant;

these warrants expired April 30, 2025 .

The weighted average fair value at the grant date was $ 83.20

(iii) a risk-free interest rate of 0.27 percent and (iv) and expected option term of 5 years.

December 31, 2024

September 30, 2024

March 31, 2025

April 30, 2025

13 unchanged sentences

The operating lease requires monthly payments of $ 5 and expires in October 2025.

September 30, 2024, our ROU asset and lease liability totaled $ 55 .

Lease expense totaled $ 14 and $ 42 for the three and nine months ended September 30,

Lease expense totaled $ 13 and $ 41

for the three and nine months ended September 30, 2023.

We lease a facility in Utah to be used for technical integration and as a training facility.

This operating lease requires monthly payments starting at $ 72 , includes periodic increases, provides nine months

of free rent, and expires in April 2029.

At September 30, 2024, our ROU asset and lease liability totaled $ 3,099 and $ 3,578 , respectively.

Lease expense totaled $ 210

and $ 629 for the three and nine months ended September 30, 2024.

We also lease a facility in California for corporate promotional and marketing purposes which was prepaid at inception and expires in 2025.

In March 2024, we

renewed the lease recording an ROU asset and lease liability of $ 5,512 .

The renewal period begins in 2025, continues through

2035, and requires either a single payment of $ 6,000 or annual payments each March beginning at $ 600 , increasing annually, for a total commitment of approximately $ 7,500 .

At September 30, 2024, our ROU asset totaled $ 5,757 and our lease

liability totaled $ 5,792 .

Lease expense totaled $ 143 and $ 384 for the three and nine months ended September 30, 2024, and $ 75 and $ 225 for the three and nine

months ended September 30, 2023.

Payments due under the above leases as of September 30, 2024 are as follows:

At March 31, 2025, our ROU asset and lease liability totaled $ 30 .

Lease expense totaled $ 14 and $ 13 for the three months ended March 31, 2025 and 2024, respectively.

We lease a facility in

Utah used for technical integration and training.

This operating lease requires monthly payments of $ 75 , includes periodic increases, and expires in April 2029.

At March 31, 2025, our ROU asset and lease liability totaled $ 2,824 and $ 3,276 , respectively.

Lease expense totaled $ 210 for the three months ended March 31, 2025 and 2024, respectively.

We also lease a facility in California for corporate

promotional and marketing through 2035.

In March 2024, we renewed the lease for another 10 years recording an ROU asset and lease

liability of $ 5,512 .

The lease offered two payment

either a single payment of $ 6,000 or annual payments each March for a total commitment of approximately $ 7,500 .

Initially, we

selected the single payment option;

on January 13, 2025, we changed to the annual payment option, adjusting our ROU asset and

lease liability approximately $ 600 for the modification.

At March 31, 2025,

our ROU asset totaled $ 5,028 and our lease liability totaled $ 4,781 .

Lease expense totaled $ 176 and $ 98 for the three months ended March 31, 2025 and March 31, 2024, respectively.

Payments due under the above leases as of March 31, 2025 are as follows:

Less imputed interest

We have a service agreement for the use of an aircraft from a related party discussed in more detail in Note 4 – Commitments and Related Party

Transactions.

We incurred rental fees and reimbursements to the entity of approximately $ 446 and $ 1,132 during the three and nine months ended September 30, 2024 compared to $ 314 and $ 713 incurred during the three and nine months ended September 30,

We have a service agreement for the use of an aircraft from a related party discussed in more detail in Note 4.

We incurred approximately $ 377 compared to $ 372 in

rental fees and reimbursements to the entity during the three months ended March 31, 2025 and 2024, respectively.

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.

Unvested restricted shares ( 127,865 in 2024 and 34,990 in 2023)

are excluded from weighted average 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 and nine months ended September 30, 2024 and 2023 (in thousands, except per share amounts):

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.

Unvested restricted shares ( 611,259 as of

March 31,2025 and 92,317 as of March 31, 2024) are excluded from weighted average 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, 2025 and 2024 (in thousands, except per share amounts):

Three Months Ended

Nine Months Ended

September 30,

September 30 ,

Weighted-average basic shares outstanding

1 unchanged sentence

Weighted-average diluted shares

Basic (loss) per

Diluted (loss)

We incurred a net

loss for the three and nine months ended September 30, 2024 and 2023;

therefore, all potentially dilutive securities representing shares of common stock ( 287,908

at September 30, 2024 and 348,729 at September 30, 2023) were excluded from the computation of diluted earnings per share, because

their effect would have been antidilutive.

Note 10 — Subsequent Events

On November 12, 2024 we issued 507,000

shares of restricted stock, with a weighted average fair values at the date of grant of $ 6.08 .

Restricted stock is subject to forfeiture if

service terminates prior to the shares vesting and is expensed ratably over the vesting period.

Basic (loss) per share

Diluted (loss) per

We incurred a net loss for the three months ended March

31, 2025 and 2024;

therefore, all potentially dilutive securities representing shares of common stock ( 263,790 at March 31, 2025

and 322,215 at March 31, 2024) were excluded from the computation of diluted earnings per share, because their effect would have been

antidilutive.

Note 10 — Segment Reporting

We view our operations and make decisions regarding how to allocate resources and manage our business as one reportable segment and one reporting unit.

Our Chief Executive Officer, who

is the chief operating decision maker (“CODM”), is regularly provided with expense information at a level consistent with that disclosed in our consolidated financial statements, and regularly assesses performance of the aggregated single operating

and reporting segment and decides how to allocate resources based on net income calculated on the same basis as net income reported in our consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements