Shares of VirnetX Holding Corporation (NYSEMKT:VHC) were down 14% as of 3:15 p.m. EDT Monday after the patent-litigation and software-technology company disclosed additional delays with its stock-purchase agreement with a Japanese investor.
VirnetX initially announced a five-year strategic alliance early last month with Japanese private equity and strategic consulting group Public Intelligence Technology Associates KK (PITA). The alliance included a revenue-share agreement on all sales of VirnetX's Gabriel Collaboration Suite and other Gabriel products sold in Japan, as well as an agreement by PITA to purchase $20 million of shares in VirnetX common stock at $3.64 per share no later than June 19, 2017.
At the time, VirnetX CEO Kendall Larsen lauded the alliance as "a massive opportunity for Gabriel to be the leading provider of secure communications to the Japanese market." Larsen also stated the revenue-sharing agreement had the "potential to be very profitable for the company and our shareholders."
But on June 28, 2017, VirnetX disclosed that it had agreed to extend the closing date of the transaction to today (July 17, 2017) "due to unforeseen circumstances on the part of the investor." Then this morning, VirnetX announced that PITA recently informed the company that the closing of its share purchase will not occur today, as its "financing sources have not yet completed their diligence" of PITA.
Rather than set a hard date this time for the actual closing, VirnetX went on to insist it "believes that the closing of the share purchase will occur in the future," as it is "continuing discussions" with PITA and assisting in the due-diligence process to help facilitate the transaction. But because the purchase isn't subject to any conditions, VirnetX also warned it can't guarantee its investor will be able to obtain the required financing to push this deal forward.
"In the event that the Investor is unable to complete the share purchase," VirnetX elaborated, "the company will evaluate alternatives available to it; however, the company cannot be certain it will be able to recover the consideration due to it under the purchase agreement."
In the end, this is undeniably disappointing news for VirnetX shareholders, and it's no surprise to see the stock dropping, as a result.