VirnetX Holding Corp 10-Q

ITEM 1-FINANCIAL STATEMENTS. VIRNETX HOLDING CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) As of September 30, 2025 As of December 31, 2024 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 17,129 $ 23,296 Investments available for sale 11,064 14,786 Accounts receivable 19 — Prepaid expenses and other current assets 223 122 Total current assets 28,435 38,204 Prepaid expenses and other assets 7,480 8,838 Other investments at cost 2,000 2,500 Property and equipment, net 68 67 Total assets $ 37,983 $ 49,609 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 377 $ 336 Accrued payroll and related expenses 384 257 Other liabilities, current 1,311 6,602 Total current liabilities 2,072 7,195 Other liabilities 6,620 2,791 Total liabilities 8,692 9,986 Commitments and contingencies (Note 4) Stockholders’ equity: Preferred stock, par value $ 0.0001 per share Authorized: 10,000,000 shares at September 30, 2025, and December 31, 2024; Issued and outstanding: 0 shares at September 30, 2025, and December 31, 2024 — — Common stock, par value $ 0.0001 per share Authorized: 100,000,000 shares at September 30, 2025 and December 31, 2024; Issued and outstanding: 4,270,840 shares at September 30, 2025 and 4,238,581 at December 31, 2024 — — Additional paid-in capital 245,626 244,293 Accumulated deficit ( 216,318 ) ( 204,670 ) Accumulated other comprehensive loss ( 17 ) — Total stockholders’ equity 29,291 39,623 Total liabilities and stockholders’ equity $ 37,983 $ 49,609 See accompanying notes to condensed consolidated financial statements. 1 Index VIRNETX HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Revenue $ 58 $ 2 $ 106 $ 5 Operating expense: Research and development 1,143 1,176 3,617 3,667 Selling, general and administrative 3,059 3,213 8,624 10,066 Impairment loss on investment 500 - 500 - Total operating expense 4,702 4,389 12,741 13,733 (Loss) from operations ( 4,644 ) ( 4,387 ) ( 12,635 ) ( 13,728 ) Interest and other income, net 296 548 989 1,771 (Loss) before taxes ( 4,348 ) ( 3,839 ) ( 11,646 ) ( 11,957 ) Income tax (expense) benefit — — ( 2 ) ( 3 ) Net (loss) $ ( 4,348 ) $ ( 3,839 ) $ ( 11,648 ) $ ( 11,960 ) Basic (loss) per share $ ( 1.18 ) $ ( 1.07 ) $ ( 3.17 ) $ ( 3.32 ) Diluted (loss) per share $ ( 1.18 ) $ ( 1.07 ) $ ( 3.17 ) $ ( 3.32 ) Weighted average shares outstanding - basic 3,673 3,603 3,672 3,600 Weighted average shares outstanding - diluted 3,673 3,603 3,672 3,600 See accompanying notes to condensed consolidated financial statements. 2 Index VIRNETX HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (in thousands) Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Net (loss) $ ( 4,348 ) $ ( 3,839 ) $ ( 11,648 ) $ ( 11,960 ) Other comprehensive income (loss): Change in unrealized gain (loss) on investments, net of tax 1 68 ( 19 ) 46 Change in foreign currency translation, net of tax ( 1 ) 4 2 ( 2 ) Total other comprehensive income (loss) — 72 ( 17 ) 44 Comprehensive (loss) $ ( 4,348 ) $ ( 3,767 ) $ ( 11,665 ) $ ( 11,916 ) See accompanying notes to condensed consolidated financial statements. 3 Index VIRNETX HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Total shareholders’ equity, beginning balances $ 33,171 $ 48,809 $ 39,623 $ 56,013 Common stock and additional paid-in capital: Beginning balances 245,158 243,465 244,293 242,520 Common stock issued for equity awards, net ( 12 ) ( 6 ) ( 19 ) ( 9 ) Stock-based compensation 480 457 1,352 1,405 Ending balances 245,626 243,916 245,626 243,916 Accumulated deficit: Beginning balances ( 211,970 ) ( 194,616 ) ( 204,670 ) ( 186,495 ) Net (loss) ( 4,348 ) ( 3,839 ) ( 11,648 ) ( 11,960 ) Ending balances ( 216,318 ) ( 198,455 ) ( 216,318 ) ( 198,455 ) Accumulated other comprehensive loss: Beginning balances ( 17 ) ( 40 ) — ( 12 ) Change in unrealized investment gain/loss, net 1 68 ( 19 ) 46 Change in foreign currency translation, net ( 1 ) 4 2 ( 2 ) Ending balances ( 17 ) 32 ( 17 ) 32 Total shareholders’ equity, ending balances $ 29,291 $ 45,493 $ 29,291 $ 45,493 See accompanying notes to condensed consolidated financial statements. 4 Index VIRNETX HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 2025 2024 Cash flows from operating activities: Net (loss) $ ( 11,648 ) $ ( 11,960 ) Adjustments to reconcile net loss to cash flows from operating activities: Depreciation 16 16 Stock-based compensation 1,352 1,405 Impairment loss on investment 500 - Changes in assets and liabilities: Accounts receivables ( 19 ) 2 Prepaid expenses and other assets 657 537 Accounts payable 41 ( 160 ) Accrued payroll and related expenses 127 68 Other liabilities ( 862 ) 275 Net cash used in operating activities ( 9,836 ) ( 9,817 ) Cash flows from investing activities: Purchase of property and equipment ( 17 ) ( 11 ) Purchase of investments ( 16,180 ) ( 26,469 ) Proceeds from sale or maturity of investments 19,885 35,147 Net cash provided by investing activities 3,688 8,667 Cash flows from financing activities: Payment of payroll taxes on equity awards ( 19 ) ( 9 ) Net cash used in financing activities ( 19 ) ( 9 ) Net change in cash and cash equivalents ( 6,167 ) ( 1,159 ) Cash and cash equivalents, beginning of period 23,296 26,289 Cash and cash equivalents, end of period $ 17,129 $ 25,130 Non-cash transactions ROU asset and lease liability at lease modification date (Note 8) $ 600 $ 5,512 See accompanying notes to condensed consolidated financial statements. 5 Index VIRNETX HOLDING CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) (Unaudited) Note 1 — Business Description and Basis of Presentation VirnetX Holding Corporation (Company, we, us, or our) is an Internet security software and technology company. We develop patented cybersecurity solutions that ensure resilient, secure communications across any network or device. Built on Zero Trust Network Access (ZTNA) principles, our flagship platform, VirnetX One™, virtualizes on-demand private networks using patented Secure Domain Names and automatically establishes secure links regardless of location or endpoint. Our products, including War Room™ and VirnetX Matrix™, are designed to support the U.S. Department of War (DoW) with real-time, encrypted collaboration. War Room TM offers advanced visualization for situational awareness, while Matrix secures communications through robust encryption, even in contested environments. Our Digital Engineering (DE) services are designed to strengthen our current and evolving Model-Based Systems Engineering (MBSE) processes while also providing comprehensive Cyber Threat Assessment services seamlessly integrating into the US DoW’s Digital Engineering strategy. Additionally, our DE professional services include integration of our subject matter expertise in kinetic and non-kinetic secure, automated, command and control, battle management, and all-domain collection sensor orchestration. With embedded secure communication from research and development (R&D) to operational deployment, our Dynamic Trust Evaluation (DTE) methods continuously enforce real-time trust policies, ensuring resilient and adaptive network security. Our Cyber Threat Intelligence (CTE) and assessment services deliver context-aware insights, empowering defense leaders to anticipate and mitigate emerging cyber threats. 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 evolving cyberthreat landscape to data, operating systems, other infrastructure products and gateway security controllers. Note 2 — Summary of Significant Accounting Policies Unaudited Interim Financial Information The accompanying Condensed Consolidated Balance Sheet as of September 30, 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 and nine months ended September 30, 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. 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 September 30, 2025, our results of operations and our cash flows for the three and nine months ended September 30, 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. 6 Index 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 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. 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 less than two years . 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 operating expenses. Effective September 30, 2025 we identified an impairment in our investment in OP Media Inc., and as a result, we recognized an impairment loss totaling $ 500 . 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. Revenue Recognition We derive revenue from professional service contracts and licensing and royalty fees, which can span several years. We recognize revenue pursuant to 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 our service contracts, performance obligations are generally satisfied as the service is delivered. 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 service contract. Payment for services and licensing is collected within a short period following commencement of delivery of services or transfer of patent rights. 7 Index 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. 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 to seven years . Repair and maintenance costs are charged to expense as incurred. Leases 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 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 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 have not experienced any losses on our deposits of cash and cash equivalents. Fair Value 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 We record intangible assets at cost, less accumulated amortization. Amortization of intangible assets is provided over their estimated useful lives, which can range from three 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 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 are expensed as incurred. 8 Index 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. On July 4, 2025, the United States enacted tax legislation, often referred to as the “One Big Beautiful Bill” Act (OB3). Management is evaluating the impact of OB3 to the Company and cannot yet estimate what elections it will make related to accelerating pre-2025 IRC Section 174 domestic capitalized R&D costs or federal bonus depreciation elections for fixed assets placed in service on or after January 19, 2025. We will continue to monitor and assess options. 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. 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. New Accounting Pronouncements In December 2023, the FASB issued Accounting Standards Updated (ASU) 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. 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. 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. In addition, 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. Early 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. 9 Index Fair Value of Financial Instruments 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). Level 2 measurements utilize either directly or indirectly observable inputs in markets other than quoted prices in active markets. Mutual funds: Valued at the quoted net asset value of shares held. U.S. agency and treasury securities: 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 September 30, 2025 and December 31, 2024. September 30, 2025 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Investments Available for Sale Cash $ 1,185 $ — $ — $ 1,185 $ 1,185 $ — Level 1: Mutual funds 14,747 — — 14,747 14,747 — U.S. agency and treasury securities 12,256 6 ( 1 ) 12,261 1,197 11,064 27,003 6 ( 1 ) 27,008 15,944 11,064 Total $ 28,188 $ 6 $ ( 1 ) $ 28,193 $ 17,129 $ 11,064 December 31, 2024 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Investments Available for Sale Cash $ 1,777 $ — $ — $ 1,777 $ 1,777 $ — Level 1: Mutual funds 20,077 — — 20,077 20,077 — U.S. agency and treasury securities 16,204 25 ( 1 ) 16,228 1,442 14,786 36,281 25 ( 1 ) 36,305 21,519 14,786 Total $ 38,058 $ 25 $ ( 1 ) $ 38,082 $ 23,296 $ 14,786 Note 3 — Income Taxes For the three months ended September 30, 2025 and 2024, we recognized no income tax expense. For the nine months ended September 30, 2025 and 2024, we recognized income tax expense of $ 2 and $ 3 , on pretax losses of $ 11,646 , and $ 11,957 . Our effective tax rate is approximately 0 % for all 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 as of September 30, 2025. 10 Index 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. As of September 30, 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 Related Party Transactions We have a non-exclusive service agreement for the use of an aircraft from K2 Investment Fund LLC (LLC) for business travel for our employees. We incurred approximately $ 458 and $ 1,214 compared to $ 446 and $ 1,132 during the three and nine months ended September 30, 2025 and 2024, respectively. We pay for our use 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 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. See Note 8 – Leases for further discussion of our lease commitments. Note 5 — Stock-Based Compensation At September 30, 2025, there were 562,529 shares available for grant under the Amended and Restated 2013 Equity Incentive Plan. Stock-based compensation expense included in general and administrative expense was $ 314 and $ 309 , and in research and development expense was $ 166 and $ 149 , for the three months ended September 30, 2025 and 2024, respectively. Stock-based compensation expense included in general and administrative expense was $ 741 and $ 803 , and in research and development expense was $ 611 and $ 603 , for the nine months ended September 30, 2025 and 2024, respectively. No awards were granted during the three months ended September 30, 2025 and 2024. During the nine months ended September 30, 2025, we granted 30,000 shares of restricted stock with a weighted average grant date fair value of $ 8.90 per share. During nine months ended September 30, 2024, we granted 119,000 shares of restricted stock, with a weighted average grant date fair value $ 5.58 per share. During the nine months ended September 30, 2025 and 2024, we paid $ 19 and $ 9 , respectively for withholding taxes due on awards; these withholding taxes are reflected as financing costs in the accompanying statement of cash flows because the grantees surrendered shares equal to the value of withholding taxes due, and those surrendered shares were cancelled. As of September 30, 2025 and 2024, the unrecognized stock-based compensation expense related to unvested awards (including stock options, RSUs, and restricted stock) was $ 3,346 and $ 1,778 , respectively, which will be amortized over an estimated weighted average period of approximately 2.9 years and 2.2 years, respectively. During 2025, we returned 17,474 awards to the plan due to cancellation of unexercised options. Note 6 — Equity Common Stock During the nine months ended September 30, 2025, we issued 30,000 shares of restricted stock as well as 3,341 shares of common stock as a result of vesting RSUs; we also cancelled 1,082 shares used to cover withholding taxes on awards. 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 RSUs; we also cancelled 2,981 shares to cover withholding taxes on awards. 11 Index Warrants In 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 unexercised on April 30, 2025 . Note 7 — Litigation From time to time, we are subject to various legal proceedings, the outcomes of which are inherently uncertain. We record any potential gains related to legal proceedings only after cash is collected. We record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment. As additional information becomes available, we reassess our potential liability and may revise our estimates. Such resolutions could have a material impact on future quarterly or annual results of operations. 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. Note 8 — Leases We lease office space in Nevada. The operating lease requires monthly payments of $ 5 and expires in October 2027. At September 30, 2025, our ROU asset and lease liability totaled $ 4 . Lease expense totaled $ 14 and $ 42 for the three and nine months ended September 30, 2025 and 2024. 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 September 30, 2025, our ROU asset totaled $ 2,535 and lease liability totaled $ 2,959 . Lease expense totaled $ 210 for the three months ended September 30, 2025, and 2024, and totaled $ 629 for the nine months ended September 30, 2025 and 2024. 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 options: 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 September 30, 2025, our ROU asset totaled $ 4,848 and our lease liability totaled $ 4,964 . Lease expense totaled $ 181 and $ 538 for the three and nine months ended September 30, 2025, respectively. Lease expense totaled $ 143 and $ 384 for the three months and nine months ended September 30, 2024, respectively. Payments due under the above leases as of September 30, 2025, are as follows: Due in 2025 $ 233 Due in 2026 1,557 Due in 2027 1,616 Due in 2028 1,678 Due in 2029 1,065 Thereafter 4,231 10,380 Less imputed interest ( 2,453 ) Total $ 7,927 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 $ 458 and $ 1,214 compared to $ 446 and $ 1,132 during the three and nine months ended September 30, 2025 and 2024, respectively. 12 Index 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 ( 597,874 as of September 30, 2025 and 127,865 as of September 30, 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 and nine months ended September 30, 2025, and 2024 (in thousands, except per share amounts): Three Months Ended Nine Months Ended September 30 , September 30 , 2025 2024 2025 2024 Numerator: Net (loss) $ ( 4,348 ) $ ( 3,839 ) $ ( 11,648 ) $ ( 11,960 ) Denominator: Weighted-average basic shares outstanding 3,673 3,603 3,672 3,600 Effect of dilutive securities — — — — Weighted-average diluted shares 3,673 3,603 3,672 3,600 Basic (loss) per share $ ( 1.18 ) $ ( 1.07 ) $ ( 3.17 ) $ ( 3.32 ) Diluted (loss) per share $ ( 1.18 ) $ ( 1.07 ) $ ( 3.17 ) $ ( 3.32 ) We incurred a net loss for the three and nine months ended September 30, 2025 and 2024; therefore, all potentially dilutive securities representing shares of common stock ( 228,615 at September 30, 2025 and 287,908 at September 30, 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, 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. 13 Index