Item 8. Financial Statements and Supplementary Data
Item 8.
Financial Statements and Supplementary Data
Set forth below, are the audited consolidated financial statements for our company accompanied by all reports thereon of Farber Hass Hurley LLP (PCAOB No. 223 ).
FINANCIAL STATEMENTS
Financial Statements Index
Page
Report of Farber Hass Hurley LLP, Independent Registered Public Accounting Firm
25
Consolidated Balance Sheets at December 31, 2025 and December 31, 2024
27
Consolidated Statements of Operations of VirnetX Holding Corporation for the years ended December 31, 2025 and 2024
28
Consolidated Statements of Comprehensive (Loss) of VirnetX Holding Corporation for the years ended December 31, 2025 and 2024
29
Consolidated Statements of Stockholders’ Equity of VirnetX Holding Corporation for the years ended December 31, 2025 and 2024
30
Consolidated Statements of Cash Flows of VirnetX Holding Corporation for the years ended December 31, 2025 and 2024
31
Notes to Consolidated Financial Statements of VirnetX Holding Corporation
32
24
Index
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of VirnetX Holding Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of VirnetX Holding Corporation (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations, comprehensive loss,
stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2025, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
25
Index
Description of the Matter
Other Investments
As discussed in Note 2 to the financial statements, in 2023 the Company purchased equity interests in two private entities. Given that the entities do not have a readily determinable fair market value, the
investments in the entities are measured at cost, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer and minus impairment, in accordance with
Financial Accounting Standards Board Accounting Standards Codification Topic 321: Investments - Equity Securities. Management must consider various factors, including the Company’s ability to apply significant influence to the overall
operations of the entities and evaluate the investments as of each reporting period to determine if there are any factors that would impact the recorded value of Other Investments reflected on the consolidated balance sheet.
Our determination that the classification and the valuation of Other Investments is a critical audit matter results from the significant judgment by management when assessing the recognition method, the limited
availability of public information related to the entities, and the subjectivity of the qualitative factors involved in the assessment. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures
relating to management’s assessment of the recognition method and valuation of Other Investments.
Audit Procedures
Our principal audit procedures related to the Company’s Other Investments included the following:
- We evaluated management’s analysis regarding their ability to apply significant influence in the operations of the entities by obtaining
information of the ownership percentage of the entities, composition of the respective boards, and any other relevant factors in determining their recognition method being recognized as cost in accordance with Accounting Standards
Codification 321.
- We also evaluated management’s assessment of impairment factors or any observable transactions of the entities through the year to determine
whether an adjustment in the recognized value was necessary. This includes testing management’s internal analysis as well as reviewing for any publicly available data regarding any factors or events that could impact the entities’ values.
/s/ Farber Hass Hurley LLP
We have served as the Company’s auditor since 2008.
Chatsworth, California
March 24, 2026
26
Index
VIRNETX HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
As of
December 31, 2025
As of
December 31, 2024
ASSETS
Current assets:
Cash and cash equivalents
$
15,548
$
23,296
Investments available for sale
5,979
14,786
Accounts receivables
19
—
Prepaid expenses and other current assets
120
122
Total current assets
21,666
38,204
Prepaid expenses and other assets
7,335
8,838
Property and equipment, net
61
67
Other investments
2,000
2,500
Total assets
$
31,062
$
49,609
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities
$
388
$
336
Accrued payroll and related expenses
255
257
Other liabilities, current
1,382
6,602
Total current liabilities
2,025
7,195
Other liabilities
6,563
2,791
Total liabilities
8,588
9,986
Commitments and contingencies (Note 4)
Stockholders’ equity:
Preferred stock, par value $ 0.0001 per share Authorized: 10,000,000 shares at December 31, 2025 and December 31, 2024, Issued and outstanding: 0 shares at December 31, 2025 and December 31, 2024
—
—
Common stock, par value $ 0.0001 per share
Authorized: 100,000,000 shares at December 31, 2025 and December 31, 2024, Issued and outstanding: 4,201,948 and 4,238,581 shares, at December 31, 2025 and December 31, 2024, respectively
—
—
Additional paid-in capital
245,390
244,293
Accumulated deficit
( 222,895
)
( 204,670
)
Accumulated other comprehensive loss
( 21
)
—
Total stockholders’ equity
22,474
39,623
Total liabilities and stockholders’ equity
$
31,062
$
49,609
See accompanying notes to consolidated financial statements.
27
Index
VIRNETX HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Year Ended
December 31, 2025
Year Ended
December 31, 2024
Revenue
$
162
$
5
Operating expense:
Research and development
5,654
6,038
Selling, general and administrative expenses
13,448
14,364
Impairment loss on investment
500
—
Total operating expense
19,602
20,402
(Loss) from operations
( 19,440
)
( 20,397
)
Interest and other income, net
1,213
2,225
(Loss) before taxes
( 18,227
)
( 18,172
)
Income tax (provision) benefit
2
( 3
)
Net (loss)
$
( 18,225
)
$
( 18,175
)
Basic (loss) per share
$
( 5.00
)
$
( 5.05
)
Diluted (loss) per share
$
( 5.00
)
$
( 5.05
)
Weighted average shares outstanding basic
3,647
3,596
Weighted average shares outstanding diluted
3,647
3,596
See accompanying notes to consolidated financial statements.
28
Index
VIRNETX HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(in thousands)
Year Ended
December 31, 2025
Year Ended
December 31, 2024
Net (loss)
$
( 18,225
)
$
( 18,175
)
Other comprehensive (loss) income, net of tax:
Change in unrealized gain on investments, net
( 20
)
15
Change in foreign currency translation, net
( 1
)
( 3
)
Total other comprehensive gain, net of tax
( 21
)
12
Comprehensive (loss)
$
( 18,246
)
$
( 18,163
)
See accompanying notes to consolidated financial statements.
29
Index
VIRNETX HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
Year Ended
December 31,
2025
2024
Total shareholders’ equity, beginning balances
$
39,623
$
56,013
Common stock and additional paid-in capital:
Beginning balances
244,293
242,520
Common stock issued for options/RSUs/RS, net
( 873
)
( 129
)
Stock-based compensation
1,970
1,902
Ending balances
245,390
244,293
Accumulated deficit
Beginning balances
( 204,670
)
( 186,495
)
Net (loss)
( 18,225
)
( 18,175
)
Dividends
—
—
Ending balances
( 222,895
)
( 204,670
)
Accumulated other comprehensive loss:
Beginning balances
—
( 12
)
Change in unrealized investment (loss) gain, net
( 20
)
15
Change in foreign currency translation, net
( 1
)
( 3
)
Ending balances
( 21
)
—
Total shareholders’ equity, ending balances
$
22,474
$
39,623
See accompanying notes to consolidated financial statements.
30
Index
VIRNETX HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
December 31, 2025
Year Ended
December 31, 2024
Cash flows from operating activities:
Net (loss)
$
( 18,225
)
$
( 18,175
)
Adjustments to reconcile net (loss) to net cash from operating activities:
Depreciation
23
21
Stock-based compensation
1,970
1,902
Impairment loss on investment
500
—
Bad debt
—
1
Changes in assets and liabilities:
Prepaid expenses and other current assets
1,008
848
Accounts payable and accrued liabilities
52
( 104
)
Other liabilities
( 951
)
238
Accrued payroll and related expenses
( 2
)
( 59
)
Accounts receivable
( 19
)
1
Net cash used in operating activities
( 15,644
)
( 15,327
)
Cash flows from investing activities:
Purchase of property and equipment
( 17
)
( 22
)
Purchase of investments
( 16,180
)
( 28,625
)
Proceeds from sale or maturity of investments
24,966
41,110
Net cash provided by investing activities
8,769
12,463
Cash flows from financing activities:
Proceeds from exercise of options
6
—
Withholding taxes paid on cashless exercise of restricted stock and restricted stock units
( 879
)
( 129
)
Net cash used in financing activities
( 873
)
( 129
)
Net (decrease) in cash and cash equivalents
( 7,748
)
( 2,993
)
Cash and cash equivalents, beginning of period
23,296
26,289
Cash and cash equivalents, end of period
$
15,548
$
23,296
Cash paid for income taxes
$
1
$
3
Non-cash transaction
ROU asset and lease liability
$
497
$
5,512
See accompanying notes to consolidated financial statements.
31
Index
VIRNETX HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share, per share and per device amounts)
Note 1 − Formation and Business of the Company
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 Defense (DoD) 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 Defense (DoD'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
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. The critical accounting policies we employ in
the preparation of our consolidated financial statements are those which involve impairment of long-lived assets, income taxes, fair value of financial instruments and stock-based compensation.
Use of Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP. In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities,
revenues, and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably
likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of
operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as
critical accounting policies and estimates, which we discuss further below. We have reviewed our critical accounting policies and estimates with the Audit Committee of our Board of Directors.
Basis of Consolidation
The consolidated financial statements include the accounts of VirnetX Holding Corporation and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
32
Index
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.
Licensing Costs
Licensing costs are included in operating expenses as incurred.
Contingent Gains
ASC Topic 450-30-25, Contingent Gains, prohibits recognition of contingent gains until realized. Accordingly, we do not record contingent gains ahead of such realization. Management generally
considers any such gains as realized only upon the collection of cash.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with maturities of three months or less at the date of purchase to be cash equivalents. Our cash and cash equivalents are not subject to
significant interest rate risk due to the short maturities of these investments.
Investments
Investments 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 (dba 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 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 .
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
The carrying amounts of our financial instruments, including cash equivalents, accounts payable, and accrued liabilities, approximate fair value because of their generally short maturities.
33
Index
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 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.
Intangible Assets
We record intangible assets at cost, less accumulated amortization. Amortization of intangible assets is provided over their estimated useful lives, which can range from 3 to 15 years, on either a straight-line basis or as revenue is generated by the assets.
Impairment of Long-Lived Assets
We identify and record impairment losses on long-lived assets used in operations when events and changes in circumstances indicate that the carrying amount of an asset might not be recoverable, but
not less than annually. Recoverability is measured by comparison of the anticipated future net undiscounted cash flows to the related assets’ carrying value. If such assets are 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.
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.
34
Index
A valuation allowance is provided for deferred income tax assets when, in our judgment, based upon currently available information and other factors, it is more likely than not that all or a
portion of such deferred income tax assets will not be realized. The determination of the need for a valuation allowance is based on an on-going evaluation of current information including, among other things, historical operating results, estimates
of future earnings in different taxing jurisdictions and the expected timing of the reversals of temporary differences. We believe the determination to record a valuation allowance to reduce a deferred income tax asset is a significant accounting
estimate because it is based, among other things, on an estimate of future taxable income in the United States and certain other jurisdictions, which is susceptible to change and may or may not occur, and because the impact of adjusting a valuation
allowance may be material. In determining when to release the valuation allowance established against our net deferred income tax assets, we consider all available evidence, both positive and negative. We continually assess our ability to generate
sufficient taxable income during future periods in which our deferred tax assets may be realized. If and when we believe it is more likely than not that we will recover our deferred tax assets, we will reverse the valuation allowance as an income tax
benefit in our statements of operations.
We account for our uncertain tax positions in accordance with U.S. GAAP, which utilizes a two-step approach to evaluate tax positions. Step one, recognition, requires evaluation of the tax position
to determine if based solely on technical merits it is more likely than not to be sustained upon examination. Step two, measurement, is addressed only if a position is more likely than not to be sustained. In step two, the tax benefit is measured as
the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement with tax authorities. If a position does not meet the more likely than not threshold for recognition in
step one, no benefit is recorded until the first subsequent period in which the more likely than not standard is met, the issue is resolved with the taxing authority, or the statute of limitations expires. Positions previously recognized are reversed
if and when we subsequently determine, the position no longer is more likely than not to be sustained. Evaluation of tax positions, their technical merits, and measurements using cumulative probability are highly subjective management estimates.
Actual results could differ materially from these estimates.
Stock-Based Compensation
We account for stock-based compensation using the fair value recognition method in accordance with U.S. GAAP. We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally a vesting term of 4 years. We recognize forfeitures, if any, when they occur. In addition, we record stock-based compensation expense for awards granted to non-employees at fair value of the consideration received or the fair value of the equity instruments issued, as they vest, over the performance period (See Note 6 - Stock-Based Compensation).
Earnings per Share
Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share
is computed by dividing net income by the weighted average number of shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had
been issued. 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 adopted the guidance prospectively in 2025. The
adoption had no impact on our consolidated financial statements but required 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 adopted the guidance in 2025 and it had no impact 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.
35
Index
Note 3 − Property and Equipment
Our major classes of property and equipment were as follows:
December 31
2025
2024
Office furniture
$
165
$
165
Computer equipment
109
92
Total
274
257
Less accumulated depreciation
( 213
)
( 190
)
Total property and equipment, net
$
61
$
67
Depreciation expense for 2025 and 2024 was $ 23 and $ 21 , respectively.
Note 4 − Commitments, Contingencies 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. Our Chief Executive Officer and Chief Administrative Officer are the managing partners and control the equity interests of the LLC. The agreement provided for the use of the plane at an initial rate of $ 8.1 per flight hour, which increased to $ 9.8 per flight hour in April 2024, includes no minimum usage requirement, contains other terms and conditions normal in such transactions and can be cancelled by either us or the LLC with 30 days’ notice. Neither party has exercised their termination rights. We incurred approximately $ 1,737 and $ 1,556 in rental fees and reimbursements to the LLC in 2025 and 2024, respectively. At December 31, 2025 we had an unpaid invoice from the LLC in the amount of $ 21 which is included in accounts payables and accrued liabilities on the Balance Sheet.
See Note 13 for further discussion of our lease commitments.
Note 5 − Stock Plan
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, and governs 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 periods. All options, RSUs and restricted stock are subject to forfeiture if service terminates prior to the shares vesting. At December 31, 2025, there were 106,914 shares available for grant under the A&R Plan.
36
Index
Note 6 − Stock-Based Compensation
The following tables summarize information and activity under the plan for the indicated periods.
Options Outstanding
Options Vested and Exercisable
Range of
Exercise Prices
Number
Outstanding
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
Number
Exercisable
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
$ 10.00 - 29.80
521,875
9.68
$
20.78
30,750
6.43
$
28.67
$ 47.00 - 138.40
204,093
2.96
$
88.62
204,093
2.96
$
88.62
725,968
7.79
$
39.85
234,842
3.42
$
80.77
Options
Number
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Outstanding, December 31, 2023
330,017
$
90.63
—
$
—
Options granted
—
—
—
—
Options exercised
—
—
—
—
Options cancelled
( 72,325
)
123.61
—
—
Outstanding, December 31, 2024
257,692
$
81.69
4.31
$
—
Options granted
488,000
20.22
—
—
Options exercised
( 625
)
10.00 —
—
Options cancelled
( 19,099
)
103.76
—
—
Outstanding, December 31, 2025
725,968
$
39.85
7.79
$
8
Options exercisable, December 31, 2025
234,842
$
80.77
3.42
$
8
RSUs
Number
Weighted
Average
Grant
Date
Fair Value
Aggregate
Intrinsic
Value
Outstanding, December 31, 2023
17,450
$
60.81
$
—
RSUs granted
—
—
—
RSUs vested
( 7,971
)
70.88
—
RSUs cancelled
( 3,376
)
58.91
—
Outstanding, December 31, 2024
6,103
$
49.20
$
—
RSUs granted
—
—
—
RSUs vested
( 4,020
)
59.67
—
RSUs cancelled
( 168
)
29.80
—
Outstanding, December 31, 2025
1,915
$
29.80
$
—
37
Index
Restricted Stock
Number
Weighted
Average
Grant Date
Fair Value
Aggregate
Intrinsic
Value
Outstanding, December 31, 2023
32,706
$
9.11
$
—
Restricted stock granted
649,000
5.91
—
Restricted stock vested
( 12,866
)
9.35
—
Restricted stock cancelled
( 36,025
)
7.97
—
Outstanding, December 31, 2024
632,815
$
5.95
$
1,215
Restricted stock granted
30,000
8.90
—
Restricted stock vested
( 131,459
)
5.83
—
Restricted stock cancelled
( 70,599
)
6.15
—
Outstanding, December 31, 2025
460,757
$
6.24
$
4,807
Intrinsic value is calculated as the difference between the per-share market price of our common stock on the last trading day of 2025, which was $ 16.69 and the grant price of the awards. For awards exercised, the intrinsic value is the difference between market price and the exercise price on the date of exercise.
Stock-based compensation expense is included in operating expense for each period as follows:
Stock-Based Compensation by Type of Award
Year Ended
December 31, 2025
Year Ended
December 31, 2024
Stock options
$
637
$
1,240
RSUs
134
333
Restricted stock
1,199
329
Total stock-based compensation expense
$
1,970
$
1,902
As of December 31, 2025, there was $ 9,836 of unrecognized stock-based compensation expense; $ 7,173 related to unvested stock options, $ 24 related to unvested RSUs, and $ 2,639 related to unvested restricted stock. These costs are expected to be recognized over a weighted-average period of 3.42 years for options, 0.43 years for RSUs, and 2.75 years for restricted stock.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:
Year Ended
December 31, 2025
Year Ended
December 31, 2024
Expected stock price volatility
83.26
%
—
%
Risk-free interest rate
3.78
%
—
%
Expected life term
6.25
—
Expected dividends
0
%
—
%
Based on the Black-Scholes option pricing model, the weighted average estimated fair value of employee stock options granted was $ 14.89 per share during 2025. The expected life was determined using the simplified method outlined in ASC 718, “ Compensation - Stock Compensation ”. Expected volatility of the stock options was based upon historical data and other relevant factors.
Note 7 − Earnings Per Share
Basic earnings per share are based on the weighted average number of shares outstanding for a period. Diluted earnings per share are based upon the weighted average number of shares and potentially
dilutive common shares outstanding. Potential common shares outstanding principally include stock options, RSUs and unvested restricted stock under our stock plan and warrants.
38
Index
The table below sets forth the basic and diluted loss per share calculations:
Year Ended December 31,
2025
2024
Net (loss)
$
( 18,225
)
$
( 18,175
)
Basic weighted average number of shares outstanding
3,647
3,596
Effect of dilutive securities
—
—
Diluted weighted average number of shares outstanding
3,647
3,596
Basic (loss) per share
$
( 5.00
)
$
( 5.05
)
Diluted (loss) per share
$
( 5.00
)
$
( 5.05
)
We incurred net losses for the years ended December 31, 2025 and 2024; therefore, all potentially dilutive securities representing shares of common stock 234,842 at December 31, 2025 and 258,432 at December 31, 2024) were excluded from the computation of diluted earnings per share, because their effect would have been antidilutive.
Note 8 − Common Stock
Each share of common stock has the right to one vote. The holders of common stock are entitled to receive dividends whenever funds are legally available and when declared by our Board of Directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. Our amended and restated certificate of incorporation authorize us to issue up to 100,000,000 shares of $ 0.0001 par value common stock.
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, expiring in April 2025 . These warrants expired unexercised on April 30, 2025.
Note 9 − Employee Benefit Plan
We sponsor a defined contribution 401(k) plan covering substantially all our employees. Our matching contribution to the plan was approximately $ 144 and $ 189 in 2025 and 2024, respectively.
Note 10 − Income Taxes
We adopted Topic 770 prospectively in 2025. Tax information shown for 2024 is prior to the adoption of Topic 770.
The income tax provision (benefit) is comprised of the following:
Year Ended
December 31, 2025
Year Ended
December 31, 2024
Current:
Federal
$
—
$
—
State
( 2
)
3
Foreign
—
—
( 2
)
3
Deferred:
Federal
—
—
State
—
—
—
—
Total income tax (benefit) provision
$
( 2
)
$
3
39
Index
A reconciliation of the United States federal statutory income tax to our effective income tax rate in 2025, after the adoption of Topic 770 is as follows:
Year Ended December 31, 2025
Tax at federal statutory rate
$
( 3,823
)
21.00
%
State and local income tax, net of federal income tax effect
( 3
)
0.01
%
Foreign tax effects
3
( 0.02
)%
R&D credits
( 363
)
1.99
%
Valuation allowance
3,694
( 20.27
)%
Nontaxable or nondeductible items:
Stock compensation
( 364
)
2.00
%
Other non-deductible items
241
( 1.33
)%
Other adjustments:
Cancelled stock compensation
304
( 1.67
)%
Other
309
( 1.70
)%
$
( 2
)
0.01
%
For year ended December 31, 2025, the Company has paid income taxes (net of refund) in the following jurisdictions:
California
1
Utah
—
Georgia
—
Arizona
—
North Carolina
—
Income taxes paid, net of refunds
1
A reconciliation of the United States federal statutory income tax to our effective income tax rate in 2024, prior to the adoption of Topic 770 is as follows:
Year Ended
December 31, 2024
United States federal statutory rate
21.00
%
State taxes, net of federal benefit
( 0.01
)%
Valuation allowance
( 20.50
)%
Stock based compensation
( 0.62
)%
Research and development credits
1.55
%
Other
( 1.41
)%
Effective income tax rate
0.01
%
Deferred tax assets (liabilities) consist of the following:
As of
December 31, 2025
As of
December 31, 2024
Deferred tax assets:
Reserves and accruals
$
1,752
$
2,066
Research and development credits and other credits
1,544
1,115
Net operating loss carry forward
22,876
17,907
Stock based compensation
3,098
3,451
Other
1,997
2,796
Total deferred tax assets
$
31,267
$
27,335
Valuation allowance
( 29,608
)
( 25,460
)
Deferred tax assets after valuation allowance
$
1,659
$
1,875
Total deferred tax liability:
ROU
$
( 1,548
)
( 1,870
)
Gain or loss on investments
( 111
)
—
Depreciation and amortization
—
( 5
)
Net deferred tax assets
$
—
$
—
40
Index
On July 4, 2025, the United States enacted tax legislation, often referred to as the “One Big Beautiful Bill” Act (OBBB). As of December 31, 2025, the OBBB includes several tax related provisions, including the ability to expense certain domestic research and development costs as incurred. Pursuant to IRC Section 174, we capitalized direct and indirect research and development costs for our tax return totaling $ 0 in 2025 and $ 5,251 in 2024, of which $ 3,798 will be amortized in our 2025 tax return and $ 3,273 was amortized in our 2024 tax return. Unamortized capitalized R&D expenditures as of December 31, 2025 total $ 9,517 .
At December 31, 2025, we had federal and state net operating loss carry forwards of approximately $ 107,136 and $ 114,532 , respectively. Federal net operating loss carryforwards do not expire. None of the state net operating loss carryforward is apportioned to a deferred tax asset, because currently we do not have operations in states where losses accumulated. The state net operating loss carryforward begins expiring in 2029 . We assess valuation allowances for our net deferred tax assets, including NOL carryforwards generated during the years, based on our evaluation of positive and negative evidence, including our history of operating losses and the uncertainty of generating future taxable income that would enable us to realize our deferred tax assets. Our tax years for 2021 and forward are subject to examination by the U.S. tax authority and various state tax authorities.
We are required to recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. At December 31 2025, we recorded an unrecognized tax benefit of $ 484 , none of which will result in change in the effective tax rate when recognized. We do not expect a significant change in uncertain tax positions in the next twelve months. Our policy is to recognize interest and penalties, if any, accrued on any unrecognized tax benefits, as a component of income tax expense. We had no interest or penalties accrued in 2025.
Unrecognized tax benefits consist of the following:
As of
December 31, 2025
Balance, December 31, 2024
$
—
Increases related to prior year tax positions
363
Increases related to current year tax positions
121
Balance, December 31, 2025
$
484
Note 11 − Fair Value Measurement
Fair value is the price that would result from an orderly transaction between market participants at the measurement date. A fair value hierarchy prioritizes the inputs used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 measurements utilize either
directly or indirectly observable inputs in markets other than quoted prices in active markets.
Our financial instruments are stated at amounts that equal, or approximate, fair value. When we estimate fair value, we utilize market data or assumptions that we believe market participants
would use in pricing the financial instrument, including assumptions about risk and inputs to the valuation technique. We use valuation techniques, primarily the income and market approach, which maximizes the use of observable inputs and minimize
the use of unobservable inputs for recurring fair value measurements.
Mutual funds: Valued at the quoted net asset value (NAV) of shares held.
U.S. agency and treasury securities: Fair value measured at the closing price reported on the active market on which the individual securities are traded.
41
Index
The following table shows the adjusted cost, gross unrealized gains, gross unrealized losses, and fair value of our financial assets as of December 31, 2025 and 2024 :
December 31, 2025
Adjusted
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Cash
and Cash
Equivalents
Investments
Available
for Sale
Cash
$
801
$
—
$
—
$
801
$
801
$
—
Level 1:
Mutual funds
14,747
—
—
14,747
14,747
—
U.S. agency and treasury securities
5,975
4
—
5,979
—
5,979
20,722
4
—
20,726
14,747
5,979
Total
$
21,523
$
4
$
—
$
21,527
$
15,548
$
5,979
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
The maturities of our investments generally range between one to two years . Actual maturities could differ from contractual maturities due to call or prepayment provisions.
Note 12 − 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 13 − Leases
In October 2025, we renewed our lease for office space in Nevada with a third party recording an ROU asset and lease liability of $ 103 . The lease requires monthly payments of $ 4.6 and expires in October 2027. At December 31, 2025 and 2024, our ROU asset and lease liability totaled $ 95 and $ 42 , respectively. Lease expense totaled $ 56 in both 2025 and 2024.
In October 2023, we executed a facility lease in Utah to be used for technical integration and as a training facility recording an ROU asset and a lease liability of $ 3,587 . This operating lease requires monthly payments starting at $ 72 , includes periodic increases, provides six months of free rent, and expires in April 2029. At December 31, 2025, our ROU asset and lease liability totaled $ 2,385 and $ 2,791 , respectively. At December 31, 2024, our ROU asset and lease liability totaled $ 2,963 and $ 3,430 , respectively. Lease expense totaled $ 838 in both 2025 and 2024.
42
Index
We also lease a facility for corporate promotional and marketing purposes in California which was prepaid at inception and expired in 2025. In March 2024, we renewed the lease recording an ROU asset and lease liability of $ 5,512 . The renewal period began in 2025, continues for 10 years through 2035, required either a single payment of $ 6,000 , or annual payments each March, beginning in 2025 starting at $ 600 and increasing annually for a total commitment of approximately $ 7,500 . In January 2025, the Company elected the 10 annual payments option which resulted in an adjustment to the carrying amount of the ROU asset and lease liability of just over $ 600 . At December 31, 2025, our ROU asset totaled $ 4,761 and lease liability totaled $ 5,058 . At December 31, 2024, our ROU asset totaled $ 5,739 and lease liability totaled $ 5,917 . Lease expense totaled $ 720 in 2025 and $ 527 in 2024.
The weighted average remaining life of the above leases is approximately 6 years, with required payments as follows:
Due in 2026
$
1,612
Due in 2027
$
1,662
Due in 2028
$
1,678
Due in 2029
$
1,065
Due in 2030
$
766
Thereafter
$
3,466
Total undiscounted lease liability
$
10,249
Less: imputed interest
$
( 2,304
)
Total lease liability
$
7,945
Lastly, 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 $ 1,737 and $ 1,556 in rental fees and reimbursements to the LLC in 2025 and 2024, respectively.
Note 14 - 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.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.