What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-06 compared with 2021-05-10 · 143 added, 129 removed, 367 unchanged (43% of the section changed)

19 unchanged sentences

Accrued licensing costs

Accrued legal expenses (Note 7)

Other liabilities, current

3 unchanged sentences

Preferred stock, par value $ 0.0001 per share Authorized:

10,000,000 shares at March 31 , 2021 and December 31, 2020 , Issued and outstanding:

0 shares at March 31 , 2021 and December 31, 2020

10,000,000 shares at June 30 , 2021 and December 31, 2020 , Issued and outstanding:

0 shares at June 30 , 2021 and December 31, 2020

Common stock, par value $ 0.0001 per share Authorized:

100,000,000 shares at March 31 , 2021 and December 31, 2020 , Issued and outstanding:

71,058,570 shares and 71,058,570 shares, at March 31 , 2021 and December 31, 2020 , respectively

100,000,000 shares at June 30 , 2021 and December 31, 2020 , Issued and outstanding:

71,232,856 shares and 71,058,570 shares, at June 30 , 2021 and December 31, 2020 , respectively

Additional paid-in capital

7 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30 , 2021

June 30 , 2020

Operating expense:

3 unchanged sentences

Total operating expense

(Loss) income from operations

Gain on settlement

Income (loss) from operations

Realized gain

Interest and other income, net

(Loss) income before taxes

Income tax benefit (expense)

Net (Loss) income

Basic (loss) income per share

Diluted (loss) income per share

Income (loss) before taxes

Income tax (expense) benefit

Net income (loss)

Basic income (loss) per share

Diluted income (loss) per share

Weighted average shares outstanding - basic

4 unchanged sentences

(in thousands)

Three Months Ended March 31,

Net (loss) income

Other comprehensive income (loss), net of tax:

Change in unrealized gain, net of tax

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30 , 2021

June 30 , 2020

Net income (loss)

Other comprehensive income (loss):

Change in unrealized gain (loss) on investments, net of tax

Change in foreign currency translation, net of tax

Total other comprehensive income (loss), net of tax

Comprehensive (loss) income

Total other comprehensive income (loss)

Comprehensive income (loss)

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30 ,

Total shareholders’ equity, beginning balances

3 unchanged sentences

Common stock issued for options/RSUs, net

Warrants issued for services

Stock-based compensation

14 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

12 unchanged sentences

Income tax payable

Accrued legal expenses

Net cash (used in) provided by operating activities

2 unchanged sentences

Proceeds from sale or maturity of investments

Net cash provided by investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

1 unchanged sentence

Proceeds from sale of common stock

Net cash provided by financing activities

Net increase in cash and cash equivalents

Dividend paid

Pay ment of payroll taxes on vested restricted stock units

Net cash used in financing activities

Net change in cash and cash equivalents

Cash and cash equivalents, beginning of period

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except litigation, patent, share and per share amounts)

(in thousands, except per share amounts)

Note 1 — Business Description and Basis of Presentation

VirnetX Holding Corporation, which we refer to as “we”, “us”, “our”, “the Company” or “VirnetX”, is engaged in the business of commercializing a portfolio of patents.

We seek to license our technology, including GABRIEL Connection Technology™, to various original equipment manufacturers, or OEMs, that use our technologies in the development and manufacturing of their own products within the IP-telephony, mobility, fixed-mobile convergence, and unified communications markets.

Prior to 2012, our revenue was limited to an insignificant amount of software royalties pursuant to the terms of a single license agreement.

During 2012, 2013 and 2020 we had revenues from settlements of patent infringement disputes whereby we received consideration for past sales of licensees that utilized our technology, where there was no prior patent license agreement (see “Revenue Recognition”).

We derive revenue licensing technology, including GABRIEL Connection Technology™, to various original equipment manufacturers (“OEMs”), that use our technologies in the development and manufacturing of their own products within the IP-telephony, mobility, fixed-mobile convergence, and unified communications markets.

During 2020, we had revenues from settlement of a patent infringement dispute whereby we received consideration for past sales of licensee that utilized our technology, where there was no prior patent license agreement (see “Revenue Recognition”).

Our portfolio of intellectual property is the foundation of our business model.

8 unchanged sentences

Unaudited Interim Financial Information

The accompanying Condensed Consolidated Balance Sheet as of March 31, 2021, the Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020, the Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2021 and 2020, and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 are unaudited.

The accompanying Condensed Consolidated Balance Sheet as of June 30, 2021, the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2021 and 2020, the Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2021 and 2020, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 are unaudited.

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

In our opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of March 31, 2021, our results of operations for the three months ended March 31, 2021 and 2020, and our cash flows for the three months ended March 31, 2021 and 2020.

In our opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of June 30, 2021, our results of operations for the three and six months ended June 30, 2021 and 2020, and our cash flows for the six months ended June 30, 2021 and 2020.

The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.

26 unchanged sentences

Certain contracts may require our customers to enter into a hosting arrangement with us and for these arrangements, revenue is recognized over time, generally over the life of the servicing contract.

The Company actively monitors and enforces its intellectual property (“IP”) rights, including seeking appropriate compensation from third parties that utilize the Company’s IP without a license.

The Company actively monitors and enforces its intellectual property rights, including seeking appropriate compensation from third parties that utilize the Company’s intellectual property without a license.

As a result, the Company may, from time to time, receive payments as part of a settlement or compensation for a patent infringement dispute.

6 unchanged sentences

Licensing Costs

Included in operating expenses licensing are costs we incurred in conjunction with the proceeds received from Apple Inc., pursuant to a favorable court decision relating to a patent infringement case.

Included in operating expenses are licensing costs we incurred in conjunction with the proceeds received from Apple Inc., pursuant to a favorable court decision relating to a patent infringement case.

Contingent Gains

18 unchanged sentences

A portion of those balances are insured by the Federal Deposit Insurance Corporation, or FDIC.

During the three months ended March 31, 2021 and 2020, we had, at times, funds that were uninsured.

During the six months ended June 30, 2021, we had, at times, funds that were uninsured.

We do not believe that we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships.

24 unchanged sentences

We account for our uncertain tax positions in accordance with U.S.

GAAP method of accounting for uncertain tax positions utilizes a two-step approach to evaluate tax positions.

GAAP, which utilizes a two-step approach to evaluate tax positions.

Step one, recognition, requires evaluation of the tax position to determine if based solely on technical merits it is more likely than not to be sustained upon examination.

7 unchanged sentences

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

We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of 4 years.

We do not estimate the forfeiture rate and recognize forfeitures, if any, when they occur.

See Note 5 - Stock-Based Compensation below for additional information concerning our share-based compensation awards.

In addition, as required we record stock-based compensation expense for awards granted to non-employees at fair value of the consideration received or the fair value of the equity instruments issued as they vest over the performance period.

We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally a vesting term of 4 years.

We recognize forfeitures, if any, when they occur.

In addition, we record stock-based compensation expense for awards granted to non-employees at fair value of the consideration received or the fair value of the equity instruments issued, as they vest, over the performance period.

See Note 5 - Stock-Based Compensation for additional information concerning our share-based compensation awards.

Earnings per Share

1 unchanged sentence

Diluted earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued.

During the three months ended March 31, 2021 we incurred losses;

therefore, the effect of any common stock equivalent would be anti-dilutive.

Fair Value of Financial Instruments

10 unchanged sentences

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

The following tables show the adjusted cost, gross unrealized gains, gross unrealized losses and fair value of our securities by significant investment category as of March 31, 2021 and December 31, 2020.

March 31, 2021

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 June 30, 2021 and December 31, 2020.

June 30, 2021

Adjusted Cost

12 unchanged sentences

The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The amendments also improve consistent application of and simplify U.

GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

1 unchanged sentence

Note 3 — Income Taxes

For the three months ended March 31, 2021, we recognized income tax benefit of $ 7,193 on a loss before income taxes of $ 33,636 , which is an effective tax rate of 21.38 % .

For the three months ended June 30, 2021, we recognized income tax benefit of $ 609 on loss before income taxes of $ 4,132 , which is an effective tax rate of 14.78 % ;

the effective tax rate was favorably impacted by the net operating loss (“NOL”).

For the six months ended June 30, 2021, we recognized income tax benefit of $ 7,802 on loss before income taxes of $ 37,768 which is an effective tax rate of 20.66 % ;

the effective tax rate was higher than the statutory federal income tax rate primarily due to the effect of research and development tax credits.

During the three-month period ended March 31, 2021 we had net operating losses (“NOLs”) which increased our deferred tax assets by $ 7,196 to $ 16,245 for NOL carryforwards.

We continue to provide a partial allowance against California net operating loss and research credit carryovers due to the fact that we have no income in California.

For the three months ended March 31, 2020, income tax expense was $ 32,759 on income before taxes of $ 332,704 and an effective tax rate of 9.9 %.

The effective tax rate for the three month period ended March 31, 2020 was favorably impacted by the reversal of valuation allowance reserves totaling $ 38,112 which were established in prior years on our deferred tax assets primarily associated with net operating loss (“NOL”) carryforwards.

For the three and six months ended June 30, 2020, we had an income tax benefit of $ 2,430 and an income tax expense of $ 30,329 , respectively.

As of June 30, 2020, we had deferred tax assets of $ 8,536 .

As of June 30, 2021, we had net deferred tax assets of $ 16,854 after applying a partial valuation allowance.

A valuation allowance is provided for deferred tax assets when, in our judgment, based upon currently available information and other factors, it is more likely than not that all or a portion of such deferred income tax assets will not be realized.

2 unchanged sentences

In determining when to release the valuation allowance established against our net deferred income tax assets, we consider all available evidence, both positive and negative.

Internal Revenue Code Section 382 places a limitation on the amount of net operating loss carryforwards that can be used to offset taxable income after a change in control (generally greater than 50% change in ownership) of a loss corporation.

Due to the 2020 income, we have released the valuation allowance against federal net deferred tax assets, and we maintain a partial valuation allowance against the state NOL and credit carryovers due to there was no income in California.

Internal Revenue Code Section 382 places a limitation on the amount of NOL carryforwards that can be used to offset taxable income after a change in control (generally greater than 50% change in ownership) of a loss corporation.

California, the state in which our headquarters was once located, has similar rules.

Since the Company did not have a greater than 50% change of control as defined under the Internal Revenue Code, no limitation applies to the Company’s Net Operating Losses.

Since the Company did not have a greater than 50% change of control as defined under the Internal Revenue Code, no limitation applies to the Company’s NOLs.

Our tax years for 2005 and forward are subject to examination by the U.S.

4 unchanged sentences

In 2019, we released all ASC 740-10 uncertain tax positions due to the expiring of the statute of limitation.

At December 31, 2020 and March 31, 2021, we have no uncertain tax positions.

At December 31, 2020 and June 30, 2021, we have no uncertain tax positions.

Our policy is to recognize interest and penalties accrued on uncertain tax positions as a component of income tax expense.

At December 31, 2020 and March 31, 2021, we had no accrued interest or penalties related to the uncertain tax positions.

As of December 31, 2020 and June 30, 2021, we had no accrued interest or penalties related to the uncertain tax positions.

Note 4 — Commitments and Related Party Transactions

1 unchanged sentence

We entered into a service agreement for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for employees of the Company.

We incurred approximately $ 79 and $ 76 in fees and reimbursements to the LLC during the three months ended March 31, 2021 and 2020, respectively.

We incurred approximately $ 95 and $ 174 compared to $ 13 and $ 89 in fees and reimbursements to the LLC during the three and six months ended June 30, 2021 and 2020, respectively.

We pay for the Company’s usage of the aircraft and have no rights to purchase.

5 unchanged sentences

Note 5 — Stock Based Compensation

We have a stock incentive plan for employees and others called the “VirnetX Holding Corporation 2013 Equity Incentive Plan”, or the Plan, which has been approved by our stockholders.

The Plan generally provides for the granting of up to 16,624,469 shares of our common stock, including stock options and stock purchase rights (“RSUs”), and will expire in 2024.

As of March 31, 2021, 545,210 shares remained available for grant under the Plan.

Stock-based compensation expense included in general and administrative expense was $ 383 and $ 348 , and in research and development expense was $ 496 and $ 430 , for the three months ended March 31, 2021 and 2020, respectively.

We did no t grant options during the three months ended March 31, 2021.

During the three months ended March 31, 2020, we granted options for a total of 240,000 shares with a weighted average grant date fair value of $ 4.30 per option.

We have a stock incentive plan for employees and others called the VirnetX Holding Corporation 2013 Equity Incentive Plan (the “2013 Plan”), which has been approved by our stockholders.

To the extent that any award should expire, become un-exercisable or is otherwise forfeited, the shares subject to such award will again become available for issuance under the 2013 Plan.

The 2013 Plan provides for the granting of stock options and restricted stock units purchase rights (“RSUs”) to our employees and consultants.

Stock options granted under the 2013 Plan may be incentive stock options or nonqualified stock options.

Incentive stock options (“ISOs”) may only be granted to our employees (including officers and directors).

Nonqualified stock options (“NSOs”) and stock purchase rights may be granted to our employees and consultants.

The 2013 Plan expires in 2023.

In April 2021, the Board approved an amendment and restatement of the 2013 Plan to, among other things, increase the shares reserved under the Plan by 2,500,000 shares (the “Plan Amendment”).

Our stockholders approved the Plan Amendment at the 2021 Annual Meeting of the Stockholders held on June 3, 2021.

The 2013 Plan generally provides for the granting of shares of our common stock, including stock options and stock purchase rights (“RSUs”).

Options may be granted under the 2013 Plan with an exercise price determined by our Board of Directors, or a duly appointed committee thereof, provided, however, that the exercise price of an option granted to any employee shall be not less than 100 % of the fair market value at the date of grant in the case of ISOs or 85 % of the fair market value at the date of grant in the case of an NSO.

The exercise price of an ISO or NSO granted to one of our Named Executive Officers shall not be less than 100 % fair market value of the shares at the date of grant and the exercise price of an ISO granted to a 10% shareholder shall not be less than 110 % of the fair market value of the shares on the date of grant.

Stock options granted under the 2013 Plan typically vest over four years and have a 10 -year term.

All RSUs are considered to be granted at the fair value of our stock on the date of grant because they have no exercise price.

RSUs typically vest over four years .

As of June 30, 2021, there were 2,419,049 shares available for grant under the 2013 Plan.

Stock-based compensation expense included in general and administrative expense was $ 463 and $ 475 , and in research and development expense was $ 511 and $ 478 , for the three months ended June 30, 2021 and 2020, respectively.

Stock-based compensation expense included in general and administrative expense was $ 846 and $ 823 , and in research and development expense was $ 1,007 and $ 908 , for the six months ended June 30, 2021 and 2020, respectively.

During the three months ended June 30, 2021, we granted options for a total of 779,500 shares with a weighted average grant date fair value of $ 3.45 per option.

During the three months ended June 30, 2020, we granted options for a total of 377,500 shares with a weighted average grant date fair value of $ 5.07 per option.

During the six months ended June 30, 2021, we granted options for a total of 779,500 shares with a weighted average grant date fair value of $ 3.45 per option.

We estimated the fair value of the options on the date of grant utilizing the Black-Scholes valuation model with the following assumptions:

(i) 0 percent dividend yield, (ii) 91 percent volatility, (iii) 1 percent risk free rate and (iv) 6 years expected term.

We did no t grant RSU’s during the three months ended March 31, 2021 or 2020.

As of March 31, 2021, the unrecognized stock-based compensation expense related to non-vested stock options and RSUs was $ 4,602 and $ 1,983 , respectively, which will be amortized over an estimated weighted average period of approximately 2.17 and 2.08 years, respectively.

During the six months ended June 30, 2020, we granted options for a total of 617,500 shares with a weighted average grant date fair value of $ 4.77 per option.

We estimated the fair value of the options on the date of grant utilizing the Black-Scholes valuation model with the following assumptions:

(i) 0 percent dividend yield, (ii) 94 percent volatility, (iii) 0.65 percent risk free rate and (iv) 6 years expected term.

During the three months ended June 30, 2021 and 2020, we granted 236,661 and 218,329 RSUs respectively, with weighted average fair values at the date of grant of $ 4.61 and $ 6.89 , respectively.

RSUs, which are subject to forfeiture if service terminates prior to the shares vesting, are expensed ratably over the vesting period.

During the three months ended June 30, 2021 and 2020, we paid $ 196 and $ 356 in withholding taxes on shares issued upon conversion of RSUs, respectively.

The underlying shares were cancelled.

The amounts are reflected as financing costs in the accompanying statement of cash flows.

No RSUs were granted during the first three months of 2021 or 2020.

As of June 30, 2021, the unrecognized stock-based compensation expense related to non-vested stock options and RSUs was $ 6,588 and $ 2,802 , respectively, which will be amortized over an estimated weighted average period of approximately 2.91 and 2.88 years, respectively.

During the three and six months ended June 30, 2021, no options were exercised.

During the three months ended June 30, 2020, we issued 60,000 shares as a result of the exercise of options.

During the six months ended June 30, 2020, we issued 262,031 shares as a result of the exercise of options.

During the three months ended June 30, 2021 and 2020, we issued 174,285 and 160,393 shares as a result of vesting RSUs, respectively.

No shares were issued during the first there months of 2021 or 2020 as a result of vesting RSUs.

Note 6 — Equity

2 unchanged sentences

We use the ATM proceeds for GABRIEL product development, marketing, and general corporate purposes, which may include working capital, capital expenditures, other corporate expenses, and acquisitions of complementary products, technologies, or businesses.

As of March 31, 2021, common stock with an aggregate value of up to $ 21,964 remained available for offer and sale under the ATM agreement.

We sold no shares under the ATM during the three months ended March 31, 2021.

We sold 1,049,382 shares under the ATM during the three months ended March 31, 2020, with an average sales price per common share of $ 4.41 and the aggregate proceeds from the sales totaled $ 4,627 .

As of June 30, 2021, common stock with an aggregate value of up to $ 21,964 remained available for offer and sale under the ATM agreement.

We sold no shares under the ATM during the three and six months ended June 30, 2021.

We sold no shares under the ATM during the three months ended June 30, 2020.

We sold 1,049,382 shares under the ATM during the six months ended June 30, 2020, with an average sales price per common share of $ 4.41 and the aggregate proceeds from the sales totaled $ 4,627 .

Sales commissions, fees and other costs associated with the ATM totaled $ 139 .

We issued no shares for options during the three months ended March 31, 2021.

We issued 202,031 shares of common stock for options during the three months ended March 31, 2020.

We issued no shares for options during the three and six months ended June 30, 2021.

We issued 202,031 and 262,031 shares of common stock for options during the three and six months ended June 30, 2020 , respectively .

We issued 174,285 and 160,393 shares as a result of vesting RSUs during the three months ended June 30, 2020 and 2021 , respectively .

No shares were issued as a result of vesting RSUs during the first three months of 2021 or 2020.

In 2020, we issued warrants for the purchase of 25,000 shares of common stock at an exercise price of $ 5.75 per share, exercisable on the date of grant expiring in April 2025 .

6 unchanged sentences

Outstanding and

March 31, 2021

June 30, 2021

Expiration Date

2 unchanged sentences

We have several intellectual property infringement lawsuits pending in the United States District Court for the Eastern District of Texas, Tyler Division (“USDC”), and United States Court of Appeals for the Federal Circuit (“USCAFC”) and the Supreme Court of the United States (“SCOTUS”).

Cisco Systems, Inc.

(Case 6:10-CV-00417-LED) (“Apple I”)

On August 11, 2010, we filed a complaint against Aastra USA.

(“Aastra”), Apple Inc.

(“Apple”), Cisco Systems, Inc.

(“Cisco”), and NEC Corporation (“NEC”) the USDC in which we alleged that these parties infringe on certain of our patents (U.S.

6,502,135, 7,418,504, 7,921,211 and 7,490,151).

We sought damages and injunctive relief.

The cases against each defendant were separated by the judge.

Aastra and NEC agreed to sign license agreements with us, and we dropped all accusations of infringement against them.

A jury in USDC decided that our patents were not invalid and rendered a verdict of non-infringement by Cisco on March 4, 2013.

Our motion for a new Cisco trial was denied and the case against Cisco was closed.

On November 6, 2012, a jury in the USDC awarded us over $ 368,000 for Apple’s infringement of four of our patents, plus daily interest up to the final judgment.

Apple filed an appeal of the judgment to the USCAFC.

On September 16, 2014, USCAFC affirmed the USDC jury’s finding that all four of our patents at issue are valid and confirmed the USDC jury’s finding of infringement of VPN on Demand under many of the asserted claims of our ‘135 and ‘151 patents, and the USDC’s decision to allow evidence about our license and royalty rates regarding the determination of damages.

However, the USCAFC vacated the USDC jury’s damages award and some of the USDC’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 back to the USDC for further proceedings.

On September 30, 2016, pursuant to the 2014 remand from the USCAFC, a jury in the USDC awarded us $ 302,400 for Apple’s infringement of four of our patents.

On September 29, 2017, the USDC entered its final judgment, denied all of Apple’s post-trial motions, granted all our post-trial motions, including our motion for willful infringement and enhanced the royalty rate during the willfulness period from $ 1.20 to $ 1.80 per device, and awarded us costs, certain attorneys’ fees, and prejudgment interest.

The total amount in the final judgment was $ 439,700 , including $ 302,400 (jury verdict), $ 41,300 (enhanced damages) and $ 96,000 (costs, fees and interest).

On October 27, 2017 Apple appealed the final judgment entered on September 29, 2017 to the USCAFC.

Oral arguments in this case were held on January 8, 2019.

On January 15, 2019, the Court issued a Rule 36 order affirming the district court’s final judgment.

Apple filed a petition for panel rehearing and rehearing en-banc in this matter on February 21, 2019.

On October 1, 2019, USCAFC issued an order denying Apple’s petition.

Apple filed a petition for a writ of certiorari with the SCOTUS, which was denied on February 24, 2020.

Prior to the SCOTUS decision denying Apple’s petition for a writ of certiorari, on February 20, 2020, Apple filed a Rule 60(b) motion for relief from judgment with the USDC, seeking relief from the district court’s September 29, 2017 final judgment.

VirnetX filed a responsive brief in opposition on March 5, 2020.

On March 13, 2020, the Company received payment of $ 454,034 from Apple, representing the previously announced final judgment with interest in this case.

Apple sought payment relief by filing a motion under rule 60(b).

On September 1, 2020 USDC issued an order denying Apple’s motion for relief of judgement.

This case is now closed.

(Case 6:12-CV-00855-LED) (“Apple II”)

27 unchanged sentences

On January 15, 2021, the district court denied Apple’s motion for judgment as a matter of law, and on February 4, 2021, Apple filed a notice of appeal to the USCAFC.

Apple’s opening brief is due on June 2, 2021.

Apple’s opening brief was filed on June 2, 2021.

VirnetX filed its responsive brief on July 26, 2021.

On July 29, 2021 Apple filed an unopposed motion for 28-day extension of time to file its reply brief, upon which the Court has not yet made a ruling.

Mangrove Partners Master Fund, Ltd., Apple Inc.

6 unchanged sentences

On March 16, 2021, the USCAFC denied the motion without prejudice to us raising the challenges made in the motion in our opening brief.

Our opening brief is currently due on June 7, 2021.

Our opening brief was filed on June 7, 2021.

On June 23, 2021, the USCAFC entered an order directing us (and parties in other appeals that raised Appointments Clause challenges) to file a brief explaining how they believe their cases should proceed in light of the Supreme Court’s decision in United States v.

Arthrex, Inc.

On July 7, 2021, we filed a brief in response to the court’s order.

Other parties, including the USPTO have filed their responses.

The USCAFC has stayed all deadlines and proceedings, in this case, until this matter is resolved.

We are waiting for USCAFC to issue their decision in this matter.

Luoma (SCOTUS Case 20-74)

On July 23, 2020, the United States and the USPTO (collectively, “the United States”) filed a petition for a writ of certiorari from several decisions by the USAFC, including decisions in VirnetX Inc.

On July 23, 2020, the United States and the USPTO (collectively, “the United States”) filed a petition for a writ of certiorari from several decisions by the USCAFC, including decisions in VirnetX Inc.

Cisco Systems, Inc.

1 unchanged sentence

2017-2593, -2594.

In those cases, the USAFC granted VirnetX’s motions to vacate the underlying decisions of the PTAB on the basis of Arthrex, Inc.

In those cases, the USCAFC granted VirnetX’s motions to vacate the underlying decisions of the PTAB on the basis of Arthrex, Inc.

Smith & Nephew, Inc.

8 unchanged sentences

On October 13, 2020, SCOTUS granted the United States’ petition for a writ of certiorari in No.

19-1434 as to USAFC Case No.

19-1434 as to USCAFC Case No.

2018-2140, and the petitions for writs of certiorari in Nos.

3 unchanged sentences

and, whether the remedy imposed by USCAFC that federal laws that place restrictions on when officials can be removed from office cannot apply to APJ, was the appropriate one.

SCOTUS heard oral argument in these consolidated cases on March 1, 2021.

We are waiting for SCOTUS to rule in this matter.

SCOTUS heard oral argument in these consolidated cases on March 1, 2021 , and issued a decision on June 21, 2021.

In that decision, the Supreme Court ruled that the unreviewable authority wielded by APJs during inter partes review is incompatible with the manner of their appointment, and held that the proper remedy is to enable the Director of the USPTO to review and rehear final decisions issued by APJs.

On June 28, 2021, following its decision in Arthrex , the Supreme Court granted the United States’ certiorari petition in lancu v.

20-74, vacated all the USCAFC’s underlying remand orders, and remanded to the USCAFC for further consideration in light of Arthrex .

The Supreme Court issued its judgment on July 30, 2021, and the case is now closed.

McKool Smith P.C.

11 unchanged sentences

This matter is now closed.

Neal Hurwitz v.

Kendall Larsen et al.

(Case 2020-0425-JRS)

On June 2, 2020, stockholder Neal Hurwitz filed a verified derivative complaint in the Delaware Court of Chancery against Kendall Larsen, Robert D.

Short Ill, Gary Feiner, Michael F.

Angelo, and Thomas M.

O’Brien and naming the Company as nominal defendant.

The lawsuit alleges breaches of fiduciary duty, corporate waste, and unjust enrichment arising out of a series of previously-disclosed transactions and compensation awards and seeks an award of monetary damages and equitable relief.

On July 1, 2020, the defendants filed a motion to dismiss the complaint based on a failure to plead demand futility and a failure to state a claim on which relief can be granted and, on August 19, 2020, the defendants filed an opening brief in support of their motion to dismiss.

On October 16, 2020, plaintiff amended his complaint rather than respond to the arguments in the defendants’ opening brief.

On October 23, 2020, the defendants filed a renewed motion to dismiss plaintiff’s amended complaint based on a failure to plead demand futility and a failure to state a claim on which relief can be granted.

On January 12, 2021, Hurwitz voluntarily dismissed his suit without prejudice.

Other Legal Matters

5 unchanged sentences

We lease office space under an operating lease which expires on October 31, 2021.

On March 31, 2021, the underlying ROU asset and lease liability totaled $ 31 .

On June 30, 2021, the underlying ROU asset and lease liability totaled $ 18 .

On December 31, 2020, the underlying ROU asset and lease liability totaled $ 44 .

For the three months ended March 31, 2021 and 2020, lease expense totaled $ 14 and $ 13 , respectively.

For the three and six months ended June 30, 2021, lease expense totaled $ 14 and $ 28 , respectively.

For the three and six months ended June 30, 2020, the lease expense totaled $ 13 and $ 26 , respectively.

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

On March 31, 2021 and December 31, 2020, the ROU asset totaled $ 1,173 and $ 1,248 , respectively;

lease expense totaled $ 75 and $ 96 , for the three months ended March 31, 2021 and 2020, respectively.

On June 30, 2021 and December 31, 2020, the ROU asset totaled $ 1,098 and $ 1,248 , respectively.

For the three and six months ended June 30, 2021, lease expense totaled $ 75 and $ 150 , respectively.

For the three and six months ended June 30, 2020, lease expense totaled $ 96 and $ 193 , respectively.

Note 9 — Earnings Per Share

2 unchanged sentences

Potential common shares outstanding principally include stock options, RSUs and warrants, excluding any potentially dilutive shares convertible at a price higher than the closing price of our stock at the end of each reporting period.

The following table shows the computation of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020 (in thousands, except per share amounts):

Three Months Ended March 31,

The following table shows the computation of basic and diluted earnings per share for the three and six months ended June 30, 2021 and 2020 (in thousands, except per share amounts):

Three Months Ended June 30,

Six Months Ended June 30 ,

Net (loss) income

4 unchanged sentences

Diluted (loss) earnings per share

We incurred a net loss for the three months ended March 31, 2021;

We incurred a net loss for the three and six months ended June 30, 2021;

therefore, all 6,752,839 potentially dilutive securities representing shares of common stock were excluded from the computation of diluted earnings per share, because their effect would have been antidilutive.

For the three months ended March 31, 2020, potentially dilutive securities representing 2,161,955 shares of common stock were excluded from the computation of diluted earnings per share, because their effect would have been antidilutive.

We incurred a net loss for the three months ended June 30, 2020;

therefore, all 6,211,844 potentially dilutive securities representing shares of common stock were excluded from the computation of diluted earnings per share, because their effect would have been antidilutive.

For the six months ended June 30, 2020, potentially dilutive securities representing 1,824,454 shares of common stock were excluded from the computation of diluted earnings per share, because their effect would have been antidilutive.

Note 10 — Subsequent Events

See Note 7 - Litigation McKool Smith P.C.

VirnetX, Inc., AAA Case No.

01-20-0003-7975 .

On August 2, 2021, we granted 50,000 options under the 2013 Plan to a new employee.

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

What changed 10-Q

Item 1. Financial Statements