Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2014 | Nov. 03, 2014 | |
Document and Entity Information [Abstract] | ' | ' |
Entity Registrant Name | 'VirnetX Holding Corp | ' |
Entity Central Index Key | '0001082324 | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Entity Well-known Seasoned Issuer | 'Yes | ' |
Entity Voluntary Filers | 'No | ' |
Entity Current Reporting Status | 'Yes | ' |
Entity Filer Category | 'Large Accelerated Filer | ' |
Entity Common Stock, Shares Outstanding | ' | 51,996,701 |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q3 | ' |
Document Type | '10-Q | ' |
Amendment Flag | 'false | ' |
Document Period End Date | 30-Sep-14 | ' |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
In Thousands, unless otherwise specified | ||
Current assets: | ' | ' |
Cash and cash equivalents | $8,498 | $19,173 |
Investments available for sale | 15,939 | 19,815 |
Prepaid expenses - current | 759 | 357 |
Total current assets | 25,196 | 39,345 |
Prepaid expenses - non-current | 3,240 | 0 |
Property and equipment, net | 52 | 53 |
Total assets | 28,488 | 39,398 |
Current liabilities: | ' | ' |
Accounts payable and accrued liabilities | 2,429 | 1,748 |
Income tax liability | 395 | 395 |
Deferred revenue, current portion | 1,375 | 667 |
Derivative liability | 431 | 2,564 |
Total current liabilities | 4,630 | 5,374 |
Deferred revenue, non-current portion | 1,000 | 0 |
Commitments and contingencies | ' | ' |
Stockholders' equity: | ' | ' |
Preferred stock, par value $0.0001 per share Authorized: 10,000,000 shares at September 30, 2014, and December 31, 2013, Issued and outstanding: 0 shares at September 30, 2014 and December 31, 2013 | 0 | 0 |
Common stock, par value $0.0001 per share Authorized: 100,000,000 shares at September 30, 2014 and December 31, 2013, Issued and outstanding: 51,573,476 shares at September 30, 2014, and 51,236,141 shares at December 31, 2013 | 5 | 5 |
Additional paid in capital | 130,625 | 124,589 |
Accumulated deficit | -107,760 | -90,533 |
Accumulated other comprehensive loss | -12 | -37 |
Total stockholders' equity | 22,858 | 34,024 |
Total liabilities and stockholders' equity | $28,488 | $39,398 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Stockholders' equity: | ' | ' |
Preferred stock, par value (in dollars per share) | $0.00 | $0.00 |
Preferred stock, authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock, issued (in shares) | 0 | 0 |
Preferred stock, outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $0.00 | $0.00 |
Common stock, authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock, issued (in shares) | 51,573,476 | 51,236,141 |
Common stock, outstanding (in shares) | 51,573,476 | 51,236,141 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
In Thousands, except Per Share data, unless otherwise specified | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) [Abstract] | ' | ' | ' | ' |
Revenue | $292 | $1,612 | $809 | $1,911 |
Operating expense: | ' | ' | ' | ' |
Research and development | 374 | 316 | 1,066 | 1,002 |
Selling, general and administrative expenses | 6,168 | 6,429 | 19,119 | 22,150 |
Total operating expense | 6,542 | 6,745 | 20,185 | 23,152 |
Loss from operations | -6,250 | -5,133 | -19,376 | -21,241 |
Gain (loss) on change in value of derivative liability | 1,817 | -48 | 2,126 | 1,438 |
Interest and other income (expense), net | -35 | 47 | 25 | 105 |
Loss before taxes | -4,468 | -5,134 | -17,225 | -19,698 |
Income tax expense | 0 | 0 | -2 | -356 |
Net loss | ($4,468) | ($5,134) | ($17,227) | ($20,054) |
Basic and diluted loss per share (in dollars per share) | ($0.09) | ($0.10) | ($0.33) | ($0.39) |
Weighted average shares outstanding basic and diluted (in shares) | 51,572 | 51,203 | 51,454 | 51,178 |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
In Thousands, unless otherwise specified | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) [Abstract] | ' | ' | ' | ' |
Net loss | ($4,468) | ($5,134) | ($17,227) | ($20,054) |
Other comprehensive loss, net of tax: | ' | ' | ' | ' |
Change in equity adjustment from foreign currency translation, net of tax | 0 | 0 | 0 | -12 |
Change in unrealized gain (loss) on investments, net of tax | 45 | -31 | 25 | -35 |
Total other comprehensive loss, net of tax | 45 | -31 | 25 | -47 |
Comprehensive loss | ($4,423) | ($5,165) | ($17,202) | ($20,101) |
CONDENSED_CONSOLIDATED_STATEME2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) | 9 Months Ended | |
In Thousands, unless otherwise specified | Sep. 30, 2014 | Sep. 30, 2013 |
Cash flows from operating activities: | ' | ' |
Net loss | ($17,227) | ($20,054) |
Adjustments to reconcile net loss to net cash used in operating activities: | ' | ' |
Depreciation and amortization | 18 | 30 |
Stock-based compensation | 5,952 | 5,454 |
Change in value of derivative liability | -2,126 | -1,438 |
Changes in assets and liabilities: | ' | ' |
Deferred revenues | 1,708 | 916 |
Prepaid taxes | 0 | 14,963 |
Prepaid expenses and other current assets | -402 | -369 |
Prepaid expenses non-current | -3,240 | 0 |
Accounts payable and accrued liabilities | 681 | -1,361 |
Net cash used in operating activities | -14,636 | -1,859 |
Cash flows from investing activities: | ' | ' |
Purchase of property and equipment | -17 | -7 |
Purchase of investments | -11,928 | -69,120 |
Proceeds from sale or maturity of investments | 15,829 | 72,244 |
Net cash provided by investing activities | 3,884 | 3,117 |
Cash flows from financing activities: | ' | ' |
Proceeds from exercise of options | 68 | 29 |
Proceeds from exercise of warrants | 9 | 0 |
Net cash provided by financing activities | 77 | 29 |
Net increase (decrease) in cash and cash equivalents | -10,675 | 1,287 |
Cash and cash equivalents, beginning of period | 19,173 | 19,661 |
Cash and cash equivalents, end of period | $8,498 | $20,948 |
Business_Description_and_Basis
Business Description and Basis of Presentation | 9 Months Ended | |
Sep. 30, 2014 | ||
Business Description and Basis of Presentation [Abstract] | ' | |
Business Description and Basis of Presentation | ' | |
Note 1 — | Business Description and Basis of Presentation | |
We develop software and technology solutions for securing real-time communications over the Internet. Our patented GABRIEL Connection Technology™ combines industry standard encryption protocols with our patented techniques for automated domain name system, or DNS, lookup mechanisms, and enables users to create a secure communication link using secure domain names over wired or wireless (4G/LTE) networks. We are currently beta testing our GABRIEL Connection Technology™ as part of our Secure Domain Name Initiative, or (SDNI), on various platforms including PCs, smart phones and tablets. We also intend to establish the exclusive secure domain name registry in the United States and other key markets around the world. | ||
Our portfolio of intellectual property is the foundation of our business model. We currently own approximately 36 U.S. and 66 foreign patents with approximately 75 pending patent applications worldwide. Our patent portfolio is primarily focused on securing real-time communications over the Internet, as well as related services such as the establishment and maintenance of a secure domain name registry. Our patented methods also have additional applications in the key areas of device operating systems and network security for Cloud services, Mobile-to-Mobile (M2M) communications in areas of Smart City, Connected Car and Connected Home. The subject matter of all our U.S. and foreign patents relates generally to securing communication over the internet. Given the subject matter and the relatedness of our various patents and pending applications, we generally disclose them as a collection rather than listing them separately. Our issued U.S. and foreign patents expire at various times during the period from 2019 to 2024. Some of our issued patents and pending patent applications were acquired by our principal operating subsidiary, VirnetX, Inc., from Science Applications International Corporation (now Leidos, Inc.) in 2006 and we are required to make payments to Leidos, Inc. based on cash or certain other values generated from those patents. The amount of such payments depends upon the type of value generated, and certain categories are subject to maximums and other limitations. | ||
We have submitted a declaration with the 3rd Generation Partnership Project, or 3GPP, identifying a group of our patents and patent applications that we believe are or may become essential to certain developing specifications in the 3GPP LTE, SAE project. We have agreed to make available a non-exclusive patent license under fair, reasonable and non-discriminatory terms and conditions, with compensation, or FRAND, to 3GPP members desiring to implement the technical specifications identified by us. We believe that we are positioned to license our essential security patents to 3GPP members as they move into 4G. | ||
We believe that the market opportunity for our software and technology solutions is large and expanding as secure domain names are now an integral part of securing the next generation 4G/LTE Advanced wireless networks and M2M communications in areas including Smart City, Connected Car and Connected Home. We also believe that all 4G/LTE Advanced mobile devices will require unique secure domain names and become part of a secure domain name registry. | ||
We intend to continue to license our patent portfolio, technology and software, including our secure domain name registry service, to domain infrastructure providers, communication service providers as well as to system integrators. We intend to seek further license of our technology, including our GABRIEL Connection Technology™ to enterprise customers, developers and original equipment manufacturers, or OEMs, of chips, servers, smart phones, tablets, e-Readers, laptops, net books and other devices, within the IP-telephony, mobility, fixed-mobile convergence and unified communications markets including 4G/LTE. We have published our royalty rates and guidelines on our website. All forward moving licenses have adhered to these guidelines and have met or exceeded these rates and we will continue to use these rates and guidelines in all future license negotiations. | ||
Our software and technology solutions provide the security platform required by next-generation Internet-based applications such as instant messaging, or IM, voice over Internet protocol, or VoIP, mobile services, streaming video, file transfer, remote desktop and M2M communications in areas including Smart City, Connected Car and Connected Home. Our technology generates secure connections on a “zero-click” or “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 employees include the core development team behind our patent portfolio, technology and software. This team has worked together for over ten years and is the same team that invented and developed this technology while working at Leidos. Leidos is a FORTUNE 500® scientific, engineering and technology applications company that uses its deep domain knowledge to solve problems of vital importance to the nation and the world, in national security, energy and the environment, critical infrastructure and health. The team has continued its research and development work started at Leidos and expanded the set of patents we acquired in 2006 from Leidos into a larger portfolio which now serves as the foundation of our licensing business and planned service offerings and is expected to generate the majority of our future revenue in license fees and royalties. We intend to continue our research and development efforts to further strengthen and expand our patent portfolio. | ||
We intend to continue using an outsourced and leveraged model to maintain efficiency and manage costs as we grow our licensing business by, for example, offering incentives to early licensing targets or asserting our rights for use of our patents. We also intend to expand our design pilot in participation with leading 4G/LTE companies (domain infrastructure providers, chipset manufacturers, service providers, and others) and build our secure domain name registry. |
Summary_of_Significant_Account
Summary of Significant Accounting Policies | 9 Months Ended | ||||||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||||||
Summary of Significant Accounting Policies [Abstract] | ' | ||||||||||||||||||||||||
Summary of Significant Accounting Policies | ' | ||||||||||||||||||||||||
Note 2 – | Summary of Significant Accounting Policies | ||||||||||||||||||||||||
Unaudited Interim Financial Information | |||||||||||||||||||||||||
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the SEC’s requirements for Form 10-Q and, in the opinion of management, contain all adjustments, of a normal and recurring nature, which are necessary for a fair statement of (i) the condensed consolidated statements of operations for the three and nine month periods ended September 30, 2014 and 2013; (ii) the condensed consolidated statements of comprehensive loss for the three and nine month periods ended September 30, 2014 and 2013; (iii) the condensed consolidated balance sheets at September 30, 2014 and December 31, 2013; and (iv) the condensed consolidated statements of cash flows for the nine month periods ended September 30, 2014 and 2013. However, the accompanying unaudited condensed consolidated financial statements do not include all information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). The condensed consolidated balance sheet, included in this report, as of December 31, 2013 was derived from our 2013 audited financial statements, but does not include all disclosures required by U.S. GAAP. | |||||||||||||||||||||||||
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. | |||||||||||||||||||||||||
Use of Estimates | |||||||||||||||||||||||||
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the fair values of financial instruments, fair values of stock-based awards, income taxes, and derivative liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. | |||||||||||||||||||||||||
Revenue Recognition | |||||||||||||||||||||||||
We derive our revenue from patent licensing. The timing and amount of revenue recognized from each licensee depends upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. Such agreements may be complex and include multiple elements. These agreements may include, without limitation, elements related to the settlement of past patent infringement liabilities, up-front and non-refundable license fees for the use of patents, patent licensing royalties on covered products sold by licensees, and the compensation structure and ownership of intellectual property rights associated with contractual technology development arrangements. Licensing agreements are accounted for under the Financial Accounting Standards Board (“FASB”) revenue recognition guidance, "Revenue Arrangements with Multiple Deliverables." This guidance requires consideration to be allocated to each element of an agreement that has stand-alone value using the relative fair value method. In other circumstances, such as those agreements involving consideration for past and expected future patent royalty obligations, after consideration of the particular facts and circumstances, the appropriate recording of revenue between periods may require the use of judgment. In all cases, revenue is only recognized after all of the following criteria are met: (1) written agreements have been executed; (2) delivery of technology or intellectual property rights has occurred or services have been rendered; (3) fees are fixed or determinable; and (4) collectability of fees is reasonably assured. | |||||||||||||||||||||||||
Patent License Agreements: Upon signing a patent license agreement, including licenses entered into upon settlement of litigation, we provide the licensee permission to use our patented technology in specific applications. We account for patent license agreements in accordance with the guidance for revenue recognition for arrangements with multiple deliverables, with amounts allocated to each element based on their fair values. We have elected to utilize the leased-based model for revenue recognition with revenue being recognized over the expected period of benefit to the licensee. Under our patent license agreements, we do or expect to typically receive one or a combination of the following forms of payment as consideration for permitting our licensees to use our patented inventions in specific applications and products: | |||||||||||||||||||||||||
● | Consideration for Past Sales: Consideration related to a licensee’s product sales from prior periods may result from a negotiated agreement with a licensee that utilized our patented technology prior to signing a patent license agreement with us or from the resolution of a litigation, disagreement or arbitration with a licensee over the specific terms of an existing license agreement. We may also receive royalty for past sales in connection with the settlement of patent litigation where there was no prior patent license agreement. These amounts are negotiated, typically based upon application of a royalty rate to historical sales prior to the execution of the license agreement. In each of these cases, since delivery has occurred, we record the consideration as revenue when we have obtained a signed agreement, identified a fixed or determinable price, and determined that collectability is reasonably assured. | ||||||||||||||||||||||||
● | Current Royalty Payments: Ongoing royalty payments cover a licensee’s obligations to us related to its sales of covered products in the current contractual reporting period. Licensees that owe these current royalty payments are obligated to provide us with quarterly or semi-annual royalty reports that summarize their sales of covered products and their related royalty obligations to us. We expect to receive these royalty reports subsequent to the period in which our licensees’ underlying sales occurred. As a result, it is impractical for us to recognize revenue in the period in which the underlying sales occur, and, in most cases, we will recognize revenue in the period in which the royalty report is received and other revenue recognition criteria are met due to the fact that without royalty reports from our licensees, our visibility into our licensees’ sales is limited. | ||||||||||||||||||||||||
● | Non-Refundable Up-Front Fees and Minimum Fee Contracts: For licenses that provide for non-refundable up-front or fixed minimum fees over their term, for which we have no future obligations or performance requirements, revenue is generally recognized over the license term. For licenses that provide for fees that are not fixed or determinable, including licenses that provide for extended payment terms and/or payment of a significant portion of the fee after expiration of the license or more than 12 months after delivery, the fees are generally presumed not to be fixed or determinable, and revenue is deferred and recognized as earned, but not in advance of collection. | ||||||||||||||||||||||||
● | Non-Royalty Elements: Elements that are not related to royalty revenue in nature, such as settlement fees, expense reimbursement, and damages, if any, are recorded as gain from settlement which is reflected as a separate line item within the operating expenses section in the consolidated statements of operations. | ||||||||||||||||||||||||
Deferred revenue | |||||||||||||||||||||||||
In August 2013 we began receiving annual payments on a contract with a total value over 5 years of $10,000. From the inception of that license to September 30, 2014, we received a total of $5,000 ("August 2013 Contract Settlement"), all of which is non-refundable. We recognized $292 and $792 of revenue related to these payments in the three and nine-month periods ended September 30, 2014, respectively. | |||||||||||||||||||||||||
During the three month period ended September 30, 2013, we recognized $1,500 of revenue for historical royalties under the August 2013 Contract Settlement, and $112 of revenue for royalties earned subsequent to the settlement and execution of this license agreement and other licenses. Revenues for historical royalties were estimated based on estimated past and future usage of our IP on our customer's products. No amounts were allocable to settlement fees, expense reimbursement, damages or any other amounts other than historical and future sales because such amounts were not requested or received. | |||||||||||||||||||||||||
For the nine months ended September 30, 2013, we recognized royalty revenue of $1,911. In addition to revenue recognized under the August 2013 Contract Settlement described above, we recognized royalty revenue as part of license agreements entered into with customers during the patent infringement actions (see Note 7 - Litigation). These revenues relate to both payment for use of our patented technology prior to the signing of a license agreements and royalty payments after the execution of the license agreement; no amounts were allocable to settlement fees, expense reimbursement, damages or any other amounts other than historical and future sales because such amounts were not requested or received. | |||||||||||||||||||||||||
During 2014, activity under the August 2013 Contract Settlement was as follows: | |||||||||||||||||||||||||
Deferred Revenue, December 31, 2013 | $ | 667 | |||||||||||||||||||||||
Payment received | 2,500 | ||||||||||||||||||||||||
Less: Amount amortized as revenue | (792 | ) | |||||||||||||||||||||||
Deferred Revenue, September 30, 2014 | $ | 2,375 | |||||||||||||||||||||||
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 are 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. | |||||||||||||||||||||||||
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. A portion of those balances are insured by the Federal Deposit Insurance Corporation. During the nine months ended September 30, 2014 we had funds which were uninsured. We do not believe that we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships with major financial institutions. We have not experienced any losses on our deposits of cash and cash equivalents. | |||||||||||||||||||||||||
Derivative Instruments | |||||||||||||||||||||||||
Our Series I Warrants are required to be accounted for as derivative liabilities and carried at fair value on our Condensed Consolidated Balance Sheets as a result of an anti-dilution provision which precludes them from being considered indexed to our stock. The warrant liabilities are marked-to-market each period and the change in the fair value is recorded as gain or loss on derivative liability in the accompanying Condensed Consolidated Statements of Operations. | |||||||||||||||||||||||||
Impairment of Long-Lived Assets | |||||||||||||||||||||||||
On an annual basis we identify and record impairment losses on long-lived assets when events and changes in circumstances indicate that the carrying amount of an asset might not be recoverable. Recoverability is measured by comparison of the anticipated future net undiscounted cash flows to the related assets’ carrying value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset. | |||||||||||||||||||||||||
Fair Value of Financial Instruments | |||||||||||||||||||||||||
Fair value is the price that would result from an orderly transaction between market participants at the measurement date. A fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 measurements utilize either directly or indirectly observable inputs in markets other than quoted prices in active markets. | |||||||||||||||||||||||||
Our financial instruments are stated at amounts that equal, or approximate, fair value. When we approximate 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 that maximize 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. | |||||||||||||||||||||||||
Corporate, Municipal and U.S. Agency Securities: Fair value measured at the closing price reported on the active market on which the individual securities are traded. | |||||||||||||||||||||||||
Series I Warrants: Fair value measured by using a binomial valuation model. The assumptions used to measure fair value of our outstanding Series I Warrants carried as derivative liabilities on our Condensed Consolidated Balance Sheet for September 30, 2014, included a warrant exercise price of $3.59 per share, a common share price of $6.00, discount rate of 1.78%, and a volatility of 90.28%. The assumptions used for December 31, 2013, were a warrant exercise price of $3.59 per share, a common share price of $19.41, a discount rate of 1.75%, and a volatility of 91.55%. The expiration date of the warrants is March 2015. | |||||||||||||||||||||||||
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, 2014 and December 31, 2013. | |||||||||||||||||||||||||
30-Sep-14 | |||||||||||||||||||||||||
Adjusted | Unrealized | Unrealized | Fair | Cash | Investments | ||||||||||||||||||||
Cost | Gains | Losses | Value | and Cash | Available | ||||||||||||||||||||
Equivalents | for Sale | ||||||||||||||||||||||||
Cash | $ | 4,119 | $ | - | $ | - | $ | 4,119 | $ | 4,119 | $ | - | |||||||||||||
Level 1: | |||||||||||||||||||||||||
Mutual funds | 112 | - | - | 112 | 112 | - | |||||||||||||||||||
Corporate securities | 8,607 | 2 | (3 | ) | 8,606 | - | 8,606 | ||||||||||||||||||
Municipal securities | 691 | - | - | 691 | - | 691 | |||||||||||||||||||
U.S agency securities | 10,908 | 2 | (1 | ) | 10,909 | 4,267 | 6,642 | ||||||||||||||||||
20,318 | 4 | (4 | ) | 20,318 | 4,379 | 15,939 | |||||||||||||||||||
Total | $ | 24,437 | $ | 4 | $ | (4 | ) | $ | 24,437 | $ | 8,498 | $ | 15,939 | ||||||||||||
31-Dec-13 | |||||||||||||||||||||||||
Adjusted | Unrealized | Unrealized | Fair | Cash | Investments | ||||||||||||||||||||
Cost | Gains | Losses | Value | and Cash | Available | ||||||||||||||||||||
Equivalents | for Sale | ||||||||||||||||||||||||
Cash | $ | 11,699 | $ | - | $ | - | $ | 11,699 | $ | 11,699 | $ | - | |||||||||||||
Level 1: | |||||||||||||||||||||||||
Mutual funds | 73 | - | - | 73 | 73 | - | |||||||||||||||||||
Corporate securities | 10,782 | - | - | 10,782 | 2,325 | 8,457 | |||||||||||||||||||
Municipal securities | 2,173 | - | - | 2,173 | 665 | 1,508 | |||||||||||||||||||
U.S agency securities | 14,287 | - | (25 | ) | 14,262 | 4,411 | 9,851 | ||||||||||||||||||
27,315 | - | (25 | ) | 27,289 | 7,474 | 19,815 | |||||||||||||||||||
Total | $ | 39,014 | $ | - | $ | (25 | ) | $ | 38,988 | $ | 19,173 | $ | 19,815 | ||||||||||||
The following tables set forth by level within the fair value hierarchy, our liabilities stated at fair value as of September 30, 2014 and December 31, 2013. | |||||||||||||||||||||||||
30-Sep-14 | |||||||||||||||||||||||||
Quoted | Significant | Significant | Total | ||||||||||||||||||||||
Prices in | Other | Unobservable | |||||||||||||||||||||||
Active | Observable | Inputs | |||||||||||||||||||||||
Markets for | Inputs | ||||||||||||||||||||||||
Identical | |||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
Series l Warrants | $ | — | $ | — | $ | 431 | 431 | ||||||||||||||||||
Total | $ | — | $ | — | $ | 431 | 431 | ||||||||||||||||||
31-Dec-13 | |||||||||||||||||||||||||
Quoted | Significant | Significant | |||||||||||||||||||||||
Prices in | Other | Unobservable | |||||||||||||||||||||||
Active | Observable | Inputs | |||||||||||||||||||||||
Markets for | Inputs | ||||||||||||||||||||||||
Identical | |||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||||||||||||
Series l Warrants | $ | — | $ | — | $ | 2,564 | $ | 2,564 | |||||||||||||||||
Total | $ | — | $ | — | $ | 2,564 | $ | 2,564 | |||||||||||||||||
The following table sets forth a summary of changes in the fair value of our Level 3 liability stated at fair value for the nine months ended September 30, 2014 and 2013. | |||||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||||
30-Sep-14 | 30-Sep-13 | ||||||||||||||||||||||||
Fair Value | Fair Value | ||||||||||||||||||||||||
Measurements | Measurements | ||||||||||||||||||||||||
Using | Using | ||||||||||||||||||||||||
Significant | Significant | ||||||||||||||||||||||||
Unobservable | Unobservable | ||||||||||||||||||||||||
Inputs (Level 3) | Inputs (Level 3) | ||||||||||||||||||||||||
Balance December 31, 2013 | $ | 2,564 | Balance December 31, 2012 | $ | 4,172 | ||||||||||||||||||||
Gain on derivative liability included in net loss | (2,126 | ) | Gain on derivative liability included in net loss | (1,438 | ) | ||||||||||||||||||||
Settlements | (7 | ) | Settlements | — | |||||||||||||||||||||
Balance September 30, 2014 | $ | 431 | Balance September 30, 2013 | $ | 2,734 | ||||||||||||||||||||
New Accounting Pronouncements | |||||||||||||||||||||||||
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15, “Presentation of Financial Statements – Going Concern, Subtopic 205-40, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The amendments in this Update apply to all entities and require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We are currently evaluating the impact this guidance will have on our financial position and results of operations. | |||||||||||||||||||||||||
In June 2014, the FASB issued (ASU) No. 2014-12, "Compensation - Stock Compensation (Topic 718)," which makes amendments to the codification topic 718, "Accounting for Share-Based Payments," when the terms of an award provide that a performance target could be achieved after the requisite service period. The new guidance becomes effective for annual reporting periods beginning after December 15, 2015, early adoption is permitted. We are currently evaluating the impact this guidance will have on our financial position and results of operations. | |||||||||||||||||||||||||
In May 2014, the FASB issued (ASU) No. 2014-09 "Revenue from Contracts with Customers" (Topic 606). Topic 606 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments create a new Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are currently evaluating the impact this guidance will have on our financial position and statement of operations. | |||||||||||||||||||||||||
In July 2013, the FASB issued (ASU) No. 2013-11 "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists." The guidance is a new accounting standard on the financial statement presentation of unrecognized tax benefits. The standard provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carry forward, a similar tax loss or a tax credit carry forward if such settlement is required or expected in the event the uncertain tax position is disallowed. The standard became effective for us on January 1, 2014 and had no material effect on our financial position or results of operations when implemented. |
Income_Taxes
Income Taxes | 9 Months Ended | |
Sep. 30, 2014 | ||
Income Taxes [Abstract] | ' | |
Income Taxes | ' | |
Note 3 - | Income Taxes | |
We had no income tax expense for the three months ended September 30, 2014. The income tax expense for the nine months ended September 30, 2014 was $2 related to minimum tax payments. During the three and nine month periods ended September 30, 2014, we had net operating losses (“NOLs”) which generated deferred tax assets for NOL carry-forwards. We provided valuation allowances against the net deferred tax assets including the deferred tax assets for NOL carry-forwards. Valuation allowances provided for our net deferred tax assets increased by approximately $2,100 and $6,200 for the three and nine months ended September 30, 2014, respectively. | ||
There was no income tax expense for the three months ended September 30, 2013. The income tax expense for the nine months ended September 30, 2013 was $356, which was a negative effective income tax rate of 2 percent. As a result of NOLs during the periods, the income tax expense for the nine months ended September 30, 2013 reflected only a prior year change in estimate of our taxable income. During the three and nine month periods ended September 30, 2013, we had NOLs which generated deferred tax assets for NOL carry-forwards. We provided valuation allowances against the net deferred tax assets including the deferred tax assets for NOL carry-forwards. Valuation allowances provided for our net deferred tax assets increased by approximately $1,700 and $6,100 for the three and nine months ended September 30, 2013, respectively. | ||
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of deferred assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based on the available objective evidence, including our history of operating losses and the uncertainty of generating future taxable income, management believes it is more likely than not that the net deferred tax assets at September 30, 2014 will not be fully realizable. Accordingly, management has maintained a valuation allowance against our net deferred tax assets at September 30, 2014. The valuation allowance provided against our net deferred tax assets was approximately $22,000 and $16,000 at September 30, 2014 and December 31, 2013, respectively. | ||
At September 30, 2014, we have federal and state net operating loss carry-forwards of approximately $38,000 each, expiring beginning in 2027 and 2016, respectively. | ||
Effective January 1, 2009, we adopted accounting guidance for income taxes, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. We are now required to recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. | ||
Our tax years for 2005 and forward are subject to examination by the U.S. tax authority and various state tax authorities. These years are open due to net operating losses and tax credits remaining unutilized from such years. | ||
Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of September 30, 2014, we had accrued immaterial amounts of interest and penalties related to uncertain tax positions. |
Commitments
Commitments | 9 Months Ended | |
Sep. 30, 2014 | ||
Commitments [Abstract] | ' | |
Commitments | ' | |
Note 4 — | Commitments | |
We lease our corporate headquarters for $5 per month. Our lease expires in October 2015. |
Stock_Based_Compensation
Stock Based Compensation | 9 Months Ended | |
Sep. 30, 2014 | ||
Stock Based Compensation [Abstract] | ' | |
Stock Based Compensation | ' | |
Note 5 — | Stock-Based Compensation | |
We have a stock incentive plan for employees and others called the VirnetX Holding Corporation 2013 Equity Incentive Plan (the "Plan"), which has been approved by our stockholders. The Plan provides for the granting of up to 14,124,469 shares of our common stock, including stock options and stock purchase rights (“RSUs”), and will expire in 2023. As of September 30, 2014, 1,816,217 shares remained available for grant under the Plan. | ||
During the three months ended September 30, 2014 we granted options for a total of 206,500 shares and none for the same period in 2013. The weighted average fair values per option issued at the grant dates during the three months ended September 30, 2014 was $11.47. | ||
During the nine months ended September 30, 2014 and 2013, we granted options for a total of 261,500 and 274,625 shares, respectively. The weighted average fair values of options issued during the nine months ended September 30, 2014 and 2013 were $11.23 and $19.24 per option, respectively. The fair values of options at the grant date were estimated utilizing the Black-Scholes valuation model with the following weighted average assumptions for the nine months ended September 30, 2014 and 2013, respectively: (i) dividend yield on our common stock of 0 percent for both periods (ii) expected stock price volatility of 87 percent and 93 percent; (iii) a risk-free interest rate of 2.56 percent and 2.06 percent; and (iv) an expected option term of 6 years respectively. | ||
During the three months ended September 30, 2014 we granted 137,666 RSUs, and none for the same period in 2013. The weighted average fair values at the grant dates for RSUs issued during the three months ended September 30, 2014 were $15.40 per RSU. During the nine months ended September 30, 2014 and 2013, we granted 154,332 and 156,415 RSUs, respectively. The weighted average fair values at the grant dates for RSUs issued during the nine months ended September 30, 2014 and 2013 were $15.30 and $23.72 per RSU, respectively. RSUs, which are subject to forfeiture if employment terminates prior to the shares vesting, are expensed ratably over the vesting period. | ||
Stock-based compensation expense included in general and administrative expense was $2,221 and $5,952 for the three and nine months ended September 30, 2014, respectively and $2,110 and $5,454 for the three and nine months ended September 30, 2013, respectively. | ||
As of September 30, 2014, the unrecognized stock-based compensation expense related to non-vested stock options and RSUs was $10,358 and $5,515, respectively, which will be amortized over an estimated weighted average period of approximately 2.52 and 2.83 years, respectively. | ||
During the nine month period ended September 30, 2014 we issued 337,335 new shares of common stock as a result of share-based awards. Options to purchase 256,096 shares were exercised and 78,739 RSUs vested and were paid out as well as 2,500 shares from warrant exercise. |
Warrants
Warrants | 9 Months Ended | |||||||||||||||||||||||||||||
Sep. 30, 2014 | ||||||||||||||||||||||||||||||
Warrants [Abstract] | ' | |||||||||||||||||||||||||||||
Warrants | ' | |||||||||||||||||||||||||||||
Note 6 — | Warrants | |||||||||||||||||||||||||||||
Information about warrants outstanding during the nine months ended September 30, 2014 follows: | ||||||||||||||||||||||||||||||
Original Number | Exercise | Exercisable at | Became | Exercised | Terminated / | Exercisable | Expiration | |||||||||||||||||||||||
of | Price per | December 31, | Exercisable | Cancelled / | at Sept 30, 2014 | Date | ||||||||||||||||||||||||
Warrants Issued | Common | 2013 | Expired | |||||||||||||||||||||||||||
Share | ||||||||||||||||||||||||||||||
2,619,036 | (1) | $ | 3.59 | 159,967 | — | 2,500 | — | 157,467 | Mar-15 | |||||||||||||||||||||
Total | 159,967 | — | 2,500 | — | 157,467 | |||||||||||||||||||||||||
-1 | Referred to as our Series I Warrants. |
Litigation
Litigation | 9 Months Ended | |
Sep. 30, 2014 | ||
Litigation [Abstract] | ' | |
Litigation | ' | |
Note 7 — | Litigation | |
We have four intellectual property infringement lawsuits pending against multiple parties in the United States District Court for the Eastern District of Texas, Tyler Division, pursuant to which we allege that these parties infringe on certain of our patents. We seek damages and injunctive relief in all the complaints. | ||
VirnetX Inc. et al., v. Microsoft Corporation (Case 6:13-CV-00351-LED) | ||
On April 22, 2013, we initiated a lawsuit by filing a complaint against Microsoft Corporation in the United States District Court for the Eastern District of Texas, Tyler Division, pursuant to which we allege that Microsoft has infringed U.S. Patent Nos. 6,502,135, 7,188,180, 7,418,504, 7,490,151, 7,921,211, and 7,987,274. We seek an unspecified amount of damages and injunctive relief. A hearing on claims construction and multiple motions by both parties was held on September 4, 2014. On September 10, 2014, the court issued an order granting in part and denying-in-part our sealed motion to compel interrogatory responses, denying Microsoft’s sealed motion to enter order focusing patent claims and prior art, denying Microsoft’s sealed motion to compel, denying Microsoft’s sealed motion to stay the case and granting our request for leave to file a Motion for Partial Summary Judgment. The jury trial in this case is scheduled for July 13, 2015. | ||
VirnetX Inc. v. Cisco Systems, Inc. et al (13-1489-LP VirnetX, Case 6:10-CV-00417-LED) | ||
On August 11, 2010, we initiated a lawsuit by filing a complaint against Aastra, Apple, Cisco, and NEC in the United States District Court for the Eastern District of Texas, Tyler Division, pursuant to which we alleged that these parties infringe on certain of our patents. We sought damages and injunctive relief. Subsequently, on February 4, 2011, we amended our original complaint, filed on August 11, 2010, against Aastra, Apple, Cisco and NEC, to assert U.S. Patent No. 7,418,504 against Apple and Aastra. On April 5, 2011, we further amended our complaint to include Apple’s iPad 2 in the list of Apple products that are accused of infringing our patents and to assert our newly-issued patent, U.S. Patent No. 7,921,211 against all of the defendants in that lawsuit. A claim construction hearing was held on January 5, 2012 and the court issued a Markman ruling on April 25, 2012. Aastra and NEC agreed to sign license agreements with us and we agreed to drop all the accusations of infringement against them. At the pre-trial hearing, the judge decided to conduct separate jury trial for each defendant, and just try the case against Apple on the scheduled trial date. The jury trial against Cisco was held on March 4, 2013. The jury against Cisco the jury came back with a verdict of non-infringement also determined that all our patents-in-suit patents are not invalid. Our motions for a new trial and Cisco’s infringement of certain VirnetX patents was denied and the case against Cisco was closed. | ||
The jury trial against Apple was held on October 31, 2012 and on November 6, 2012, a jury in the United States Court for the Eastern District of Texas, Tyler Division, awarded us over $368 million in a verdict against Apple Corporation for infringing four of our patents. On February 26, 2013, the court issued its Memorandum Opinion and Order regarding post-trial motions resulting from the prior jury verdict denying Apple’s motion to reduce the damages awarded by the jury for past infringement. The Court further denied Apple’s request for a new trial on the liability and damages portions of the verdict and granted our motions for pre-judgment interest, post-judgment interest, and post-verdict damages to date. The Court ordered that Apple pay $34 in daily interest up to final judgment and $330 in daily damages for infringement up to final judgment for certain Apple devices included in the verdict. The Court denied our request for a permanent injunction and severed the future infringement portion into its own separate proceedings under Case 6:13-CV-00211-LED. | ||
On July 3, 2013, Apple filed an appeal of the judgment dated February 27, 2013 and order dated June 4, 2013 denying Apple’s motion to alter or amend the judgment to the United States Court of Appeals for the Federal Circuit (USCAFC). On October 16, 2013 Apple filed its opening appeal brief to the USCAFC. Our response to the opening brief was filed on December 2, 2013, and on December 19, 2013, Apple filed its final response to complete the briefing of the court. A hearing was held on March 3, 2014 at the USCAFC. On September 16, 2014, USCAFC issued their opinion, affirming the jury’s finding that all 4 of our patents are valid, confirming the jury’s finding of infringement of VPN on Demand under many of the asserted claims of our ‘135 and ‘151 patents, and confirming the district’s court’s decision to allow evidence concerning our licenses and royalty rates in connection with the determination of damages. In its opinion, the USCAFC also vacated the jury’s damages award and the district court’s claim construction with respect to parts of our ‘504 and ‘211 patents and remanded the damages award and determination of infringement with respect to FaceTime –for further proceedings consistent with its opinion. On October 16, 2014, we filed a petition with the USCAFC, requesting a rehearing and rehearing en banc of the Federal Circuit’s September 14, 2014, decision concerning VirnetX’s litigation against Apple Inc. In our petition, we have asked the court to rehear its decision with respect to damages and affirm the district court’s damages award against Apple in full because the Federal Circuit’s decision is contrary to the patent statute and Supreme Court precedent. We are also asking the Federal Circuit to reinstate the jury’s award that Apple infringed the ’504 and ’211 patents on the basis that the district court correctly construed the claim term “secure communication link”. We are waiting for the Court’s ruling in this matter. | ||
VirnetX, Inc. v. Apple, Inc. (Case 6:13-CV-00211-LED) | ||
The Court ordered the parties to mediate over an ongoing license in the following 45 days for Apple’s future infringing use not covered by the Court’s Order, and ordered us to file an appropriate motion with the court if the parties fail to agree to a license. On March 28, 2013, Apple filed a motion to alter or amend the judgment entered by the Court. The mediation was held on April 9, 2013 and the parties did not come to an agreement on an ongoing royalty rate for infringing Apple products. We filed our opposition to this motion on April 10, 2013. As ordered by the Court, we filed a sealed motion with the Court on April 16, 2013, requesting the Court’s assistance in deciding an appropriate royalty rate for all infringing products shipped by Apple that are “not more than colorably different” with regards to the accused functionality. On August 1, 2013, a hearing was held in the United States District Court for the Eastern District of Texas, Tyler Division on our motion for an ongoing royalty. On March 6, 2014, the court issued a public version of the order previously issued under seal on March 3, 2014, awarding us an on-going royalty of 0.98% on adjudicated products and products “not colorably” different from those adjudicated at trial that incorporate any of the FaceTime or VPN on Demand features found to infringe at trial. On March 27, 2014, Apple filed its notice of appeal to the United States Court of Appeals for the Federal Circuit. On March 28, 2014 Apple also filed a motion for Entry of Final Judgment by Apple Inc. with the United States District Court for the Eastern District of Texas, Tyler Division. The Court stayed the proceedings in this matter while the Court’s ruling in the Case 6:10-CV-00417-LED is pending. | ||
VirnetX Inc. v. Apple, Inc. (Case 6:12-CV-00855-LED) | ||
On November 6, 2012, we filed a new complaint against Apple Inc., in the United States District Court for the Eastern District of Texas, Tyler Division for willfully infringing four of our patents, U.S. Patent Nos. 6,502,135, 7,418,504, 7,921,211 and 7,490,151, and seeking both an unspecified amount of damages and injunctive relief. The accused products include the iPhone 5, iPod Touch 5th Generation, iPad 4th Generation, iPad mini, and the latest Macintosh computers. Due to their release dates, these products were not included in the previous lawsuit that concluded with a Jury verdict on November 6, 2012 that was subsequently upheld by the United States District Court for the Eastern District of Texas, Tyler Division, on February 26, 2013. On July 1, 2013, we filed a consolidated and amended complaint to include U.S. Patent No. 8,051,181 and consolidate Civil Action No. 6:11-cv-00563-LED. On August 27, 2013, we filed an amended complaint including allegations of willful infringement related to U.S. Patent No. 8,504,697 seeking both damages and injunctive relief. The Markman hearing in this case was held on May 20, 2014 and on August 8, 2014, issued its Markman Order, denying Apple’s motion for summary judgment of indefiniteness, in which Apple alleged that some of the disputed claims terms in the patents asserted by us were invalid for indefiniteness. In a separate order, the court granted in part and denied in part our motion for partial summary judgment on Apple’s invalidity counterclaims, precluding Apple from asserting invalidity as a defense against infringement of the claims that were tried before a jury in our prior litigation against Apple (VirnetX vs. Cisco et. al., Case 6:10-CV-00417-LED). The jury trial in this case is scheduled for October 13, 2015. | ||
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 worth pursuing, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we will prevail on such potential claims. In addition, bringing a lawsuit may lead to potential counterclaims which may preclude our ability to commercialize our initial products, which are currently in development. Currently, we are not a party to any other pending legal proceedings, and are not aware of any proceeding threatened or contemplated against us by any governmental authority or other party. |
Subsequent_Events
Subsequent Events | 9 Months Ended | |
Sep. 30, 2014 | ||
Subsequent Events [Abstract] | ' | |
Subsequent Events | ' | |
Note 8 — | Subsequent Events | |
Subsequent to the quarter ended September 30, 2014, options to purchase 423,225 were exercised and the shares were issued. |
Summary_of_Significant_Account1
Summary of Significant Accounting Policies (Policies) | 9 Months Ended | ||||||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||||||
Summary of Significant Accounting Policies [Abstract] | ' | ||||||||||||||||||||||||
Unaudited Interim Financial Information | ' | ||||||||||||||||||||||||
Unaudited Interim Financial Information | |||||||||||||||||||||||||
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the SEC’s requirements for Form 10-Q and, in the opinion of management, contain all adjustments, of a normal and recurring nature, which are necessary for a fair statement of (i) the condensed consolidated statements of operations for the three and nine month periods ended September 30, 2014 and 2013; (ii) the condensed consolidated statements of comprehensive loss for the three and nine month periods ended September 30, 2014 and 2013; (iii) the condensed consolidated balance sheets at September 30, 2014 and December 31, 2013; and (iv) the condensed consolidated statements of cash flows for the nine month periods ended September 30, 2014 and 2013. However, the accompanying unaudited condensed consolidated financial statements do not include all information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). The condensed consolidated balance sheet, included in this report, as of December 31, 2013 was derived from our 2013 audited financial statements, but does not include all disclosures required by U.S. GAAP. | |||||||||||||||||||||||||
Basis of Consolidation | ' | ||||||||||||||||||||||||
Basis of Consolidation | |||||||||||||||||||||||||
The consolidated financial statements include the accounts of VirnetX Holding Corporation and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. | |||||||||||||||||||||||||
Use of Estimates | ' | ||||||||||||||||||||||||
Use of Estimates | |||||||||||||||||||||||||
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the fair values of financial instruments, fair values of stock-based awards, income taxes, and derivative liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. | |||||||||||||||||||||||||
Revenue Recognition | ' | ||||||||||||||||||||||||
Revenue Recognition | |||||||||||||||||||||||||
We derive our revenue from patent licensing. The timing and amount of revenue recognized from each licensee depends upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. Such agreements may be complex and include multiple elements. These agreements may include, without limitation, elements related to the settlement of past patent infringement liabilities, up-front and non-refundable license fees for the use of patents, patent licensing royalties on covered products sold by licensees, and the compensation structure and ownership of intellectual property rights associated with contractual technology development arrangements. Licensing agreements are accounted for under the Financial Accounting Standards Board (“FASB”) revenue recognition guidance, "Revenue Arrangements with Multiple Deliverables." This guidance requires consideration to be allocated to each element of an agreement that has stand-alone value using the relative fair value method. In other circumstances, such as those agreements involving consideration for past and expected future patent royalty obligations, after consideration of the particular facts and circumstances, the appropriate recording of revenue between periods may require the use of judgment. In all cases, revenue is only recognized after all of the following criteria are met: (1) written agreements have been executed; (2) delivery of technology or intellectual property rights has occurred or services have been rendered; (3) fees are fixed or determinable; and (4) collectability of fees is reasonably assured. | |||||||||||||||||||||||||
Patent License Agreements: Upon signing a patent license agreement, including licenses entered into upon settlement of litigation, we provide the licensee permission to use our patented technology in specific applications. We account for patent license agreements in accordance with the guidance for revenue recognition for arrangements with multiple deliverables, with amounts allocated to each element based on their fair values. We have elected to utilize the leased-based model for revenue recognition with revenue being recognized over the expected period of benefit to the licensee. Under our patent license agreements, we do or expect to typically receive one or a combination of the following forms of payment as consideration for permitting our licensees to use our patented inventions in specific applications and products: | |||||||||||||||||||||||||
● | Consideration for Past Sales: Consideration related to a licensee’s product sales from prior periods may result from a negotiated agreement with a licensee that utilized our patented technology prior to signing a patent license agreement with us or from the resolution of a litigation, disagreement or arbitration with a licensee over the specific terms of an existing license agreement. We may also receive royalty for past sales in connection with the settlement of patent litigation where there was no prior patent license agreement. These amounts are negotiated, typically based upon application of a royalty rate to historical sales prior to the execution of the license agreement. In each of these cases, since delivery has occurred, we record the consideration as revenue when we have obtained a signed agreement, identified a fixed or determinable price, and determined that collectability is reasonably assured. | ||||||||||||||||||||||||
● | Current Royalty Payments: Ongoing royalty payments cover a licensee’s obligations to us related to its sales of covered products in the current contractual reporting period. Licensees that owe these current royalty payments are obligated to provide us with quarterly or semi-annual royalty reports that summarize their sales of covered products and their related royalty obligations to us. We expect to receive these royalty reports subsequent to the period in which our licensees’ underlying sales occurred. As a result, it is impractical for us to recognize revenue in the period in which the underlying sales occur, and, in most cases, we will recognize revenue in the period in which the royalty report is received and other revenue recognition criteria are met due to the fact that without royalty reports from our licensees, our visibility into our licensees’ sales is limited. | ||||||||||||||||||||||||
● | Non-Refundable Up-Front Fees and Minimum Fee Contracts: For licenses that provide for non-refundable up-front or fixed minimum fees over their term, for which we have no future obligations or performance requirements, revenue is generally recognized over the license term. For licenses that provide for fees that are not fixed or determinable, including licenses that provide for extended payment terms and/or payment of a significant portion of the fee after expiration of the license or more than 12 months after delivery, the fees are generally presumed not to be fixed or determinable, and revenue is deferred and recognized as earned, but not in advance of collection. | ||||||||||||||||||||||||
● | Non-Royalty Elements: Elements that are not related to royalty revenue in nature, such as settlement fees, expense reimbursement, and damages, if any, are recorded as gain from settlement which is reflected as a separate line item within the operating expenses section in the consolidated statements of operations. | ||||||||||||||||||||||||
Deferred revenue | ' | ||||||||||||||||||||||||
Deferred revenue | |||||||||||||||||||||||||
In August 2013 we began receiving annual payments on a contract with a total value over 5 years of $10,000. From the inception of that license to September 30, 2014, we received a total of $5,000 ("August 2013 Contract Settlement"), all of which is non-refundable. We recognized $292 and $792 of revenue related to these payments in the three and nine-month periods ended September 30, 2014, respectively. | |||||||||||||||||||||||||
During the three month period ended September 30, 2013, we recognized $1,500 of revenue for historical royalties under the August 2013 Contract Settlement, and $112 of revenue for royalties earned subsequent to the settlement and execution of this license agreement and other licenses. Revenues for historical royalties were estimated based on estimated past and future usage of our IP on our customer's products. No amounts were allocable to settlement fees, expense reimbursement, damages or any other amounts other than historical and future sales because such amounts were not requested or received. | |||||||||||||||||||||||||
For the nine months ended September 30, 2013, we recognized royalty revenue of $1,911. In addition to revenue recognized under the August 2013 Contract Settlement described above, we recognized royalty revenue as part of license agreements entered into with customers during the patent infringement actions (see Note 7 - Litigation). These revenues relate to both payment for use of our patented technology prior to the signing of a license agreements and royalty payments after the execution of the license agreement; no amounts were allocable to settlement fees, expense reimbursement, damages or any other amounts other than historical and future sales because such amounts were not requested or received. | |||||||||||||||||||||||||
During 2014, activity under the August 2013 Contract Settlement was as follows: | |||||||||||||||||||||||||
Deferred Revenue, December 31, 2013 | $ | 667 | |||||||||||||||||||||||
Payment received | 2,500 | ||||||||||||||||||||||||
Less: Amount amortized as revenue | (792 | ) | |||||||||||||||||||||||
Deferred Revenue, September 30, 2014 | $ | 2,375 | |||||||||||||||||||||||
Earnings Per Share | ' | ||||||||||||||||||||||||
Earnings Per Share | |||||||||||||||||||||||||
Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share are 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. | |||||||||||||||||||||||||
Concentration of Credit Risk and Other Risks and Uncertainties | ' | ||||||||||||||||||||||||
Concentration of Credit Risk and Other Risks and Uncertainties | |||||||||||||||||||||||||
Our cash and cash equivalents are primarily maintained at two major financial institutions in the United States. A portion of those balances are insured by the Federal Deposit Insurance Corporation. During the nine months ended September 30, 2014 we had funds which were uninsured. We do not believe that we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships with major financial institutions. We have not experienced any losses on our deposits of cash and cash equivalents. | |||||||||||||||||||||||||
Derivative Instruments | ' | ||||||||||||||||||||||||
Derivative Instruments | |||||||||||||||||||||||||
Our Series I Warrants are required to be accounted for as derivative liabilities and carried at fair value on our Condensed Consolidated Balance Sheets as a result of an anti-dilution provision which precludes them from being considered indexed to our stock. The warrant liabilities are marked-to-market each period and the change in the fair value is recorded as gain or loss on derivative liability in the accompanying Condensed Consolidated Statements of Operations. | |||||||||||||||||||||||||
Impairment of Long-Lived Assets | ' | ||||||||||||||||||||||||
Impairment of Long-Lived Assets | |||||||||||||||||||||||||
On an annual basis we identify and record impairment losses on long-lived assets when events and changes in circumstances indicate that the carrying amount of an asset might not be recoverable. Recoverability is measured by comparison of the anticipated future net undiscounted cash flows to the related assets’ carrying value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset. | |||||||||||||||||||||||||
Fair Value of Financial Instruments | ' | ||||||||||||||||||||||||
Fair Value of Financial Instruments | |||||||||||||||||||||||||
Fair value is the price that would result from an orderly transaction between market participants at the measurement date. A fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 measurements utilize either directly or indirectly observable inputs in markets other than quoted prices in active markets. | |||||||||||||||||||||||||
Our financial instruments are stated at amounts that equal, or approximate, fair value. When we approximate 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 that maximize 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. | |||||||||||||||||||||||||
Corporate, Municipal and U.S. Agency Securities: Fair value measured at the closing price reported on the active market on which the individual securities are traded. | |||||||||||||||||||||||||
Series I Warrants: Fair value measured by using a binomial valuation model. The assumptions used to measure fair value of our outstanding Series I Warrants carried as derivative liabilities on our Condensed Consolidated Balance Sheet for September 30, 2014, included a warrant exercise price of $3.59 per share, a common share price of $6.00, discount rate of 1.78%, and a volatility of 90.28%. The assumptions used for December 31, 2013, were a warrant exercise price of $3.59 per share, a common share price of $19.41, a discount rate of 1.75%, and a volatility of 91.55%. The expiration date of the warrants is March 2015. | |||||||||||||||||||||||||
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, 2014 and December 31, 2013. | |||||||||||||||||||||||||
30-Sep-14 | |||||||||||||||||||||||||
Adjusted | Unrealized | Unrealized | Fair | Cash | Investments | ||||||||||||||||||||
Cost | Gains | Losses | Value | and Cash | Available | ||||||||||||||||||||
Equivalents | for Sale | ||||||||||||||||||||||||
Cash | $ | 4,119 | $ | - | $ | - | $ | 4,119 | $ | 4,119 | $ | - | |||||||||||||
Level 1: | |||||||||||||||||||||||||
Mutual funds | 112 | - | - | 112 | 112 | - | |||||||||||||||||||
Corporate securities | 8,607 | 2 | (3 | ) | 8,606 | - | 8,606 | ||||||||||||||||||
Municipal securities | 691 | - | - | 691 | - | 691 | |||||||||||||||||||
U.S agency securities | 10,908 | 2 | (1 | ) | 10,909 | 4,267 | 6,642 | ||||||||||||||||||
20,318 | 4 | (4 | ) | 20,318 | 4,379 | 15,939 | |||||||||||||||||||
Total | $ | 24,437 | $ | 4 | $ | (4 | ) | $ | 24,437 | $ | 8,498 | $ | 15,939 | ||||||||||||
31-Dec-13 | |||||||||||||||||||||||||
Adjusted | Unrealized | Unrealized | Fair | Cash | Investments | ||||||||||||||||||||
Cost | Gains | Losses | Value | and Cash | Available | ||||||||||||||||||||
Equivalents | for Sale | ||||||||||||||||||||||||
Cash | $ | 11,699 | $ | - | $ | - | $ | 11,699 | $ | 11,699 | $ | - | |||||||||||||
Level 1: | |||||||||||||||||||||||||
Mutual funds | 73 | - | - | 73 | 73 | - | |||||||||||||||||||
Corporate securities | 10,782 | - | - | 10,782 | 2,325 | 8,457 | |||||||||||||||||||
Municipal securities | 2,173 | - | - | 2,173 | 665 | 1,508 | |||||||||||||||||||
U.S agency securities | 14,287 | - | (25 | ) | 14,262 | 4,411 | 9,851 | ||||||||||||||||||
27,315 | - | (25 | ) | 27,289 | 7,474 | 19,815 | |||||||||||||||||||
Total | $ | 39,014 | $ | - | $ | (25 | ) | $ | 38,988 | $ | 19,173 | $ | 19,815 | ||||||||||||
The following tables set forth by level within the fair value hierarchy, our liabilities stated at fair value as of September 30, 2014 and December 31, 2013. | |||||||||||||||||||||||||
30-Sep-14 | |||||||||||||||||||||||||
Quoted | Significant | Significant | Total | ||||||||||||||||||||||
Prices in | Other | Unobservable | |||||||||||||||||||||||
Active | Observable | Inputs | |||||||||||||||||||||||
Markets for | Inputs | ||||||||||||||||||||||||
Identical | |||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
Series l Warrants | $ | — | $ | — | $ | 431 | 431 | ||||||||||||||||||
Total | $ | — | $ | — | $ | 431 | 431 | ||||||||||||||||||
31-Dec-13 | |||||||||||||||||||||||||
Quoted | Significant | Significant | |||||||||||||||||||||||
Prices in | Other | Unobservable | |||||||||||||||||||||||
Active | Observable | Inputs | |||||||||||||||||||||||
Markets for | Inputs | ||||||||||||||||||||||||
Identical | |||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||||||||||||
Series l Warrants | $ | — | $ | — | $ | 2,564 | $ | 2,564 | |||||||||||||||||
Total | $ | — | $ | — | $ | 2,564 | $ | 2,564 | |||||||||||||||||
The following table sets forth a summary of changes in the fair value of our Level 3 liability stated at fair value for the nine months ended September 30, 2014 and 2013. | |||||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||||
30-Sep-14 | 30-Sep-13 | ||||||||||||||||||||||||
Fair Value | Fair Value | ||||||||||||||||||||||||
Measurements | Measurements | ||||||||||||||||||||||||
Using | Using | ||||||||||||||||||||||||
Significant | Significant | ||||||||||||||||||||||||
Unobservable | Unobservable | ||||||||||||||||||||||||
Inputs (Level 3) | Inputs (Level 3) | ||||||||||||||||||||||||
Balance December 31, 2013 | $ | 2,564 | Balance December 31, 2012 | $ | 4,172 | ||||||||||||||||||||
Gain on derivative liability included in net loss | (2,126 | ) | Gain on derivative liability included in net loss | (1,438 | ) | ||||||||||||||||||||
Settlements | (7 | ) | Settlements | — | |||||||||||||||||||||
Balance September 30, 2014 | $ | 431 | Balance September 30, 2013 | $ | 2,734 | ||||||||||||||||||||
New Accounting Pronouncements | ' | ||||||||||||||||||||||||
New Accounting Pronouncements | |||||||||||||||||||||||||
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15, “Presentation of Financial Statements – Going Concern, Subtopic 205-40, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The amendments in this Update apply to all entities and require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We are currently evaluating the impact this guidance will have on our financial position and results of operations. | |||||||||||||||||||||||||
In June 2014, the FASB issued (ASU) No. 2014-12, "Compensation - Stock Compensation (Topic 718)," which makes amendments to the codification topic 718, "Accounting for Share-Based Payments," when the terms of an award provide that a performance target could be achieved after the requisite service period. The new guidance becomes effective for annual reporting periods beginning after December 15, 2015, early adoption is permitted. We are currently evaluating the impact this guidance will have on our financial position and results of operations. | |||||||||||||||||||||||||
In May 2014, the FASB issued (ASU) No. 2014-09 "Revenue from Contracts with Customers" (Topic 606). Topic 606 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments create a new Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are currently evaluating the impact this guidance will have on our financial position and statement of operations. | |||||||||||||||||||||||||
In July 2013, the FASB issued (ASU) No. 2013-11 "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists." The guidance is a new accounting standard on the financial statement presentation of unrecognized tax benefits. The standard provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carry forward, a similar tax loss or a tax credit carry forward if such settlement is required or expected in the event the uncertain tax position is disallowed. The standard became effective for us on January 1, 2014 and had no material effect on our financial position or results of operations when implemented. |
Summary_of_Significant_Account2
Summary of Significant Accounting Policies (Tables) | 9 Months Ended | ||||||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||||||
Summary of Significant Accounting Policies [Abstract] | ' | ||||||||||||||||||||||||
Schedule of deferred revenue | ' | ||||||||||||||||||||||||
During 2014, activity under the August 2013 Contract Settlement was as follows: | |||||||||||||||||||||||||
Deferred Revenue, December 31, 2013 | $ | 667 | |||||||||||||||||||||||
Payment received | 2,500 | ||||||||||||||||||||||||
Less: Amount amortized as revenue | (792 | ) | |||||||||||||||||||||||
Deferred Revenue, September 30, 2014 | $ | 2,375 | |||||||||||||||||||||||
Adjusted cost, gross unrealized gains, gross unrealized losses and fair value of securities by significant investment category | ' | ||||||||||||||||||||||||
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, 2014 and December 31, 2013. | |||||||||||||||||||||||||
30-Sep-14 | |||||||||||||||||||||||||
Adjusted | Unrealized | Unrealized | Fair | Cash | Investments | ||||||||||||||||||||
Cost | Gains | Losses | Value | and Cash | Available | ||||||||||||||||||||
Equivalents | for Sale | ||||||||||||||||||||||||
Cash | $ | 4,119 | $ | - | $ | - | $ | 4,119 | $ | 4,119 | $ | - | |||||||||||||
Level 1: | |||||||||||||||||||||||||
Mutual funds | 112 | - | - | 112 | 112 | - | |||||||||||||||||||
Corporate securities | 8,607 | 2 | (3 | ) | 8,606 | - | 8,606 | ||||||||||||||||||
Municipal securities | 691 | - | - | 691 | - | 691 | |||||||||||||||||||
U.S agency securities | 10,908 | 2 | (1 | ) | 10,909 | 4,267 | 6,642 | ||||||||||||||||||
20,318 | 4 | (4 | ) | 20,318 | 4,379 | 15,939 | |||||||||||||||||||
Total | $ | 24,437 | $ | 4 | $ | (4 | ) | $ | 24,437 | $ | 8,498 | $ | 15,939 | ||||||||||||
31-Dec-13 | |||||||||||||||||||||||||
Adjusted | Unrealized | Unrealized | Fair | Cash | Investments | ||||||||||||||||||||
Cost | Gains | Losses | Value | and Cash | Available | ||||||||||||||||||||
Equivalents | for Sale | ||||||||||||||||||||||||
Cash | $ | 11,699 | $ | - | $ | - | $ | 11,699 | $ | 11,699 | $ | - | |||||||||||||
Level 1: | |||||||||||||||||||||||||
Mutual funds | 73 | - | - | 73 | 73 | - | |||||||||||||||||||
Corporate securities | 10,782 | - | - | 10,782 | 2,325 | 8,457 | |||||||||||||||||||
Municipal securities | 2,173 | - | - | 2,173 | 665 | 1,508 | |||||||||||||||||||
U.S agency securities | 14,287 | - | (25 | ) | 14,262 | 4,411 | 9,851 | ||||||||||||||||||
27,315 | - | (25 | ) | 27,289 | 7,474 | 19,815 | |||||||||||||||||||
Total | $ | 39,014 | $ | - | $ | (25 | ) | $ | 38,988 | $ | 19,173 | $ | 19,815 | ||||||||||||
Liabilities stated at fair value | ' | ||||||||||||||||||||||||
The following tables set forth by level within the fair value hierarchy, our liabilities stated at fair value as of September 30, 2014 and December 31, 2013. | |||||||||||||||||||||||||
30-Sep-14 | |||||||||||||||||||||||||
Quoted | Significant | Significant | Total | ||||||||||||||||||||||
Prices in | Other | Unobservable | |||||||||||||||||||||||
Active | Observable | Inputs | |||||||||||||||||||||||
Markets for | Inputs | ||||||||||||||||||||||||
Identical | |||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
Series l Warrants | $ | — | $ | — | $ | 431 | 431 | ||||||||||||||||||
Total | $ | — | $ | — | $ | 431 | 431 | ||||||||||||||||||
31-Dec-13 | |||||||||||||||||||||||||
Quoted | Significant | Significant | |||||||||||||||||||||||
Prices in | Other | Unobservable | |||||||||||||||||||||||
Active | Observable | Inputs | |||||||||||||||||||||||
Markets for | Inputs | ||||||||||||||||||||||||
Identical | |||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||||||||||||
Series l Warrants | $ | — | $ | — | $ | 2,564 | $ | 2,564 | |||||||||||||||||
Total | $ | — | $ | — | $ | 2,564 | $ | 2,564 | |||||||||||||||||
Summary of changes in fair value of Level 3 Liabilities | ' | ||||||||||||||||||||||||
The following table sets forth a summary of changes in the fair value of our Level 3 liability stated at fair value for the nine months ended September 30, 2014 and 2013. | |||||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||||
30-Sep-14 | 30-Sep-13 | ||||||||||||||||||||||||
Fair Value | Fair Value | ||||||||||||||||||||||||
Measurements | Measurements | ||||||||||||||||||||||||
Using | Using | ||||||||||||||||||||||||
Significant | Significant | ||||||||||||||||||||||||
Unobservable | Unobservable | ||||||||||||||||||||||||
Inputs (Level 3) | Inputs (Level 3) | ||||||||||||||||||||||||
Balance December 31, 2013 | $ | 2,564 | Balance December 31, 2012 | $ | 4,172 | ||||||||||||||||||||
Gain on derivative liability included in net loss | (2,126 | ) | Gain on derivative liability included in net loss | (1,438 | ) | ||||||||||||||||||||
Settlements | (7 | ) | Settlements | — | |||||||||||||||||||||
Balance September 30, 2014 | $ | 431 | Balance September 30, 2013 | $ | 2,734 |
Warrants_Tables
Warrants (Tables) | 9 Months Ended | |||||||||||||||||||||||||||||
Sep. 30, 2014 | ||||||||||||||||||||||||||||||
Warrants [Abstract] | ' | |||||||||||||||||||||||||||||
Information about warrants outstanding | ' | |||||||||||||||||||||||||||||
Information about warrants outstanding during the nine months ended September 30, 2014 follows: | ||||||||||||||||||||||||||||||
Original Number | Exercise | Exercisable at | Became | Exercised | Terminated / | Exercisable | Expiration | |||||||||||||||||||||||
of | Price per | December 31, | Exercisable | Cancelled / | at Sept 30, 2014 | Date | ||||||||||||||||||||||||
Warrants Issued | Common | 2013 | Expired | |||||||||||||||||||||||||||
Share | ||||||||||||||||||||||||||||||
2,619,036 | (1) | $ | 3.59 | 159,967 | — | 2,500 | — | 157,467 | Mar-15 | |||||||||||||||||||||
Total | 159,967 | — | 2,500 | — | 157,467 | |||||||||||||||||||||||||
-1 | Referred to as our Series I Warrants. |
Business_Description_and_Basis1
Business Description and Basis of Presentation (Details) | 9 Months Ended |
Sep. 30, 2014 | |
Patent | |
Business Description and Basis of Presentation [Abstract] | ' |
Number of patents owned | 36 |
Foreign patents | 66 |
Pending patent | 75 |
Period for which core development team has worked together | '10 years |
Summary_of_Significant_Account3
Summary of Significant Accounting Policies (Details) (USD $) | 3 Months Ended | 9 Months Ended | 9 Months Ended | 12 Months Ended | 9 Months Ended | 3 Months Ended | ||||||||||||||||||||||||||
In Thousands, except Per Share data, unless otherwise specified | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2013 | Sep. 30, 2013 |
Institution | Cash [Member] | Cash [Member] | Series I Warrants [Member] | Series I Warrants [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Significant Other Observable Inputs (Level 2) [Member] | Significant Other Observable Inputs (Level 2) [Member] | Significant Other Observable Inputs (Level 2) [Member] | Significant Other Observable Inputs (Level 2) [Member] | Significant Unobservable Inputs (Level 3) [Member] | Significant Unobservable Inputs (Level 3) [Member] | Significant Unobservable Inputs (Level 3) [Member] | Significant Unobservable Inputs (Level 3) [Member] | Significant Unobservable Inputs (Level 3) [Member] | August 2013 Contract [Member] | Araya Contract [Member] | |||||
Mutual Funds [Member] | Mutual Funds [Member] | Corporate securities [Member] | Corporate securities [Member] | Municipal securities [Member] | Municipal securities [Member] | U.S agency securities [Member] | U.S agency securities [Member] | Series I Warrants [Member] | Series I Warrants [Member] | Series I Warrants [Member] | Series I Warrants [Member] | Series I Warrants [Member] | Series I Warrants [Member] | |||||||||||||||||||
Deferred Revenue [Abstract] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Term of contract | ' | ' | '5 years | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Contract amount | ' | ' | $10,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Annual payment on contract, received | ' | ' | 5,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Revenue from historical royalties | 292 | 1,612 | 809 | 1,911 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 1,500 | 112 |
Deferred Revenue, Beginning Balance | ' | ' | 667 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Payment received | ' | ' | 2,500 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Less: Amount amortized as revenue | 292 | ' | -792 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Deferred Revenue, Ending Balance | 2,375 | ' | 2,375 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Concentration of Credit Risk and Others Risks and Uncertainties [Abstract] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Number of financial institutions holding company's cash | ' | ' | 2 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Fair Value Assumptions [Abstract] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Warrant exercise price (in dollars per share) | ' | ' | ' | ' | ' | ' | ' | $3.59 | $3.59 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Common share price (in dollars per share) | ' | ' | ' | ' | ' | ' | ' | $6 | $19.41 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Discount rate (in hundredths) | ' | ' | ' | ' | ' | ' | ' | 1.78% | 1.75% | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Expected volatility rate (in hundredths) | ' | ' | ' | ' | ' | ' | ' | 90.28% | 91.55% | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Fair value of securities on the basis of investment category [Abstract] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Adjustment Cost | 24,437 | ' | 24,437 | ' | 39,014 | 4,119 | 11,699 | ' | ' | 20,318 | 27,315 | 112 | 73 | 8,607 | 10,782 | 691 | 2,173 | 10,908 | 14,287 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Unrealized Gains | 4 | ' | 4 | ' | 0 | 0 | 0 | ' | ' | 4 | 0 | 0 | 0 | 2 | 0 | 0 | 0 | 2 | 0 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Unrealized Losses | -4 | ' | -4 | ' | -25 | 0 | 0 | ' | ' | -4 | -25 | 0 | 0 | -3 | 0 | 0 | 0 | -1 | -25 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Fair value | 24,437 | ' | 24,437 | ' | 38,988 | 4,119 | 11,699 | ' | ' | 20,318 | 27,289 | 112 | 73 | 8,606 | 10,782 | 691 | 2,173 | 10,909 | 14,262 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Cash and cash equivalents | 8,498 | ' | 8,498 | ' | 19,173 | 4,119 | 11,699 | ' | ' | 4,379 | 7,474 | 112 | 73 | 0 | 2,325 | 0 | 665 | 4,267 | 4,411 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Investments Available for Sale | 15,939 | ' | 15,939 | ' | 19,815 | 0 | 0 | ' | ' | 15,939 | 19,815 | 0 | 0 | 8,606 | 8,457 | 691 | 1,508 | 6,642 | 9,851 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Fair value of liabilities [Abstract] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Series 1 Warrants | 431 | ' | 431 | ' | 2,564 | ' | ' | 431 | 2,564 | 0 | 0 | ' | ' | ' | ' | ' | ' | ' | ' | 0 | 0 | 0 | 0 | 0 | 0 | 431 | ' | 2,564 | 431 | 2,564 | ' | ' |
Changes in fair value of Level 3 liabilities [Roll Forward] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Beginning Balance | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 2,564 | 4,172 | ' | ' | ' | ' | ' |
Gain on derivative liability included in net loss | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | -2,126 | -1,438 | ' | ' | ' | ' | ' |
Settlements | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | -7 | 0 | ' | ' | ' | ' | ' |
Ending Balance | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | $431 | $2,734 | ' | ' | ' | ' | ' |
Income_Taxes_Details
Income Taxes (Details) (USD $) | 3 Months Ended | 9 Months Ended | |||
In Thousands, unless otherwise specified | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 |
Income Taxes [Abstract] | ' | ' | ' | ' | ' |
Income tax expense | $0 | $0 | $2 | $356 | ' |
Effective tax rate (in hundredths) | ' | ' | ' | 2.00% | ' |
Net change in valuation allowance | 2,100 | 1,700 | 6,200 | 6,100 | ' |
Valuation allowance carried against net deferred tax assets | 22,000 | ' | 22,000 | ' | 16,000 |
Federal [Member] | ' | ' | ' | ' | ' |
Operating Loss Carryforwards [Line Items] | ' | ' | ' | ' | ' |
Operating loss carryforwards | 38,000 | ' | 38,000 | ' | ' |
Operating loss carryforwards, expiration dates | ' | ' | 31-Dec-27 | ' | ' |
State [Member] | ' | ' | ' | ' | ' |
Operating Loss Carryforwards [Line Items] | ' | ' | ' | ' | ' |
Operating loss carryforwards | $38,000 | ' | $38,000 | ' | ' |
Operating loss carryforwards, expiration dates | ' | ' | 31-Dec-16 | ' | ' |
Commitments_Details
Commitments (Details) (USD $) | 9 Months Ended |
In Thousands, unless otherwise specified | Sep. 30, 2014 |
Commitments [Abstract] | ' |
Corporate headquarters, periodic monthly rental expenses | $5 |
Corporate headquarters, lease expiration date | 31-Oct-15 |
Stock_Based_Compensation_Detai
Stock Based Compensation (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
In Thousands, except Share data, unless otherwise specified | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' | ' | ' | ' |
Stock-based compensation expense | $2,221 | $2,110 | $5,952 | $5,454 |
New issue of shares of common stock (in shares) | ' | ' | 337,335 | ' |
Stock Options [Member] | ' | ' | ' | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' | ' | ' | ' |
Options granted (in shares) | 206,500 | 0 | 261,500 | 274,625 |
Options granted, weighted average fair values (in dollars per share) | $11.47 | ' | $11.23 | $19.24 |
Dividend yield (in hundredths) | ' | ' | 0.00% | 0.00% |
Expected stock price volatility (in hundredths) | ' | ' | 87.00% | 93.00% |
Risk-free interest rate (in hundredths) | ' | ' | 2.56% | 2.06% |
Expected option term | ' | ' | '6 years | '6 years |
Unrecognized stock based compensation expense | 10,358 | ' | 10,358 | ' |
Weighted average vesting amortization period | ' | ' | '2 years 6 months 7 days | ' |
Shares exercised (in shares) | ' | ' | 256,096 | ' |
Restricted Stock [Member] | ' | ' | ' | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' | ' | ' | ' |
RSUs granted (in shares) | 137,666 | 0 | 154,332 | 156,415 |
Weighted average grant date fair value of RSU's granted (in dollars per share) | $15.40 | ' | $15.30 | $23.72 |
Unrecognized stock based compensation expense | $5,515 | ' | $5,515 | ' |
Weighted average vesting amortization period | ' | ' | '2 years 9 months 29 days | ' |
Shares vested (in shares) | ' | ' | 78,739 | ' |
Warrants [Member] | ' | ' | ' | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' | ' | ' | ' |
Shares vested (in shares) | ' | ' | 0 | ' |
Warrants exercised (in shares) | ' | ' | 2,500 | ' |
2013 Plan [Member] | ' | ' | ' | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' | ' | ' | ' |
Shares authorized for issuance (in shares) | 14,124,469 | ' | 14,124,469 | ' |
Shares available for grant (in shares) | 1,816,217 | ' | 1,816,217 | ' |
Warrants_Details
Warrants (Details) (Warrants [Member], USD $) | 9 Months Ended | |
Sep. 30, 2014 | ||
Warrants [Line Items] | ' | |
Exercisable at Beginning of Year (in shares) | 159,967 | |
Became Exercisable (in shares) | 0 | |
Exercised (in shares) | 2,500 | |
Terminated / Cancelled / Expired (in shares) | 0 | |
Exercisable at End of Period (in shares) | 157,467 | |
Series I Warrants [Member] | ' | |
Warrants [Line Items] | ' | |
Original Number of Warrants Issued (in shares) | 2,619,036 | [1] |
Exercise Price per Common Share (in dollars per share) | 3.59 | |
Exercisable at Beginning of Year (in shares) | 159,967 | |
Became Exercisable (in shares) | 0 | |
Exercised (in shares) | 2,500 | |
Terminated / Cancelled / Expired (in shares) | 0 | |
Exercisable at End of Period (in shares) | 157,467 | |
Expiration Date | 'March 2015 | |
[1] | Referred to as our Series I Warrants. |
Litigation_Details
Litigation (Details) (USD $) | 0 Months Ended | 9 Months Ended | |
Nov. 06, 2012 | Nov. 06, 2012 | Sep. 30, 2014 | |
Patent | Lawsuit | ||
Litigation [Abstract] | ' | ' | ' |
Number of intellectual property infringement lawsuits pending | ' | ' | 4 |
Amount of damages awarded in patent infringement case | ' | $368,000,000 | ' |
Number of patents allegedly infringed upon by Apple, Inc. | 4 | ' | ' |
Amount of interest payment awarded up to final judgment, per day | ' | ' | 34,000 |
Amount of damage infringement payment awarded up to final judgment, per day | ' | ' | $330,000 |
On-going royalty awarded (in hundredths) | ' | ' | 0.98% |
Subsequent_Events_Details
Subsequent Events (Details) (Stock Options [Member]) | 9 Months Ended | 1 Months Ended |
Sep. 30, 2014 | Nov. 08, 2014 | |
Subsequent Event [Member] | ||
Subsequent Event [Line Items] | ' | ' |
Options exercised (in shares) | 256,096 | 423,225 |