What changed in this filing

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Item 1. Financial Statements

2022-08-09 compared with 2022-05-13 · 244 added, 193 removed, 386 unchanged (53% of the section changed)

18 unchanged sentences

Accrued licensing costs

Income tax liability

Other liabilities, current

5 unchanged sentences

Preferred stock, par value $ 0.0001 per share Authorized:

10,000,000 shares at March 31 , 2022 and December 31,

10,000,000 shares at June 30 , 2022 and December 31,

Issued and outstanding:

shares at March 31 , 2022

shares at June 30 , 2022

and December 31, 2021

Common stock, par value $ 0.0001 per share Authorized:

100,000,000 shares at March 31 , 2022 and December 31,

Common stock, par value $ 0.0001

per share Authorized:

100,000,000 shares at June 30 , 2022 and December 31, 2021 ;

Issued and outstanding:

shares at March 31 , 2022

and December 31, 2021

71,424,650 shares at June 30 , 2022 and 71,232,856 at December 31, 2021

Additional paid-in capital

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VIRNETX HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share amounts)

Three Months Ended

March 31, 2022

March 31, 2021

Operating expense:

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Total operating expense

Loss from operations

Income (loss) from operations

Interest and other income, net

Loss before taxes

Income tax benefit

Basic loss per share

Diluted loss 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

2 unchanged sentences

VIRNETX HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE

INCOME (LOSS) (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(in thousands)

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

Net income (loss)

Other comprehensive income (loss):

2 unchanged sentences

Total other comprehensive income (loss)

Comprehensive loss

Comprehensive income (loss)

See accompanying notes to condensed consolidated financial statements.

VIRNETX HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

EQUITY (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY (Unaudited)

(in thousands)

3 unchanged sentences

Beginning balances

Common stock issued for options/RSUs, net

Stock-based compensation

Ending balances

Accumulated deficit:

Accumulated deficit (retained earnings):

Beginning balances

Net (loss) income

Ending balances

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(in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to cash flows from operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to cash flows from operating activities:

Deferred tax assets

7 unchanged sentences

Accrued licensing costs

Income tax payable

Other liabilities

Accrued licensing

Net cash (used in) operating activities

2 unchanged sentences

Proceeds from sale or maturity of investments

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Payment of payroll taxes on vested restricted stock units

Net cash used in financing activities

Net change in cash and cash equivalents

27 unchanged sentences

Note 2 — Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying Condensed Consolidated Balance Sheet as of March

31, 2022, the Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021, the Condensed

Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2022 and 2021, and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 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, 2022, our results of operations for the three months ended March 31, 2022 and 2021, and our cash flows for the three months ended March 31, 2022 and

Unaudited Interim Financial

The accompanying Condensed Consolidated Balance Sheet as of

June 30, 2022, the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2022 and

2021, the Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2022 and 2021, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 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 June 30, 2022, our results of operations for the three and six months ended June 30, 2022 and 2021, and our cash flows for the

six months ended June 30, 2022 and 2021.

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

These unaudited interim consolidated financial statements should

be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2021, filed with the SEC on May 13, 2022.

These unaudited interim consolidated financial statements

should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2021, filed with the SEC on May 13, 2022.

Use of Estimates

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inception in accordance with Accounting Standards Codification (“ASC”) Topic 842.

Operating lease right-of-use (“ROU”) assets are included in Prepaid expenses, and other assets on the

Condensed Consolidated Balance Sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

ROU assets and lease

liabilities are recognized at the commencement date based on the present value of lease payments over the lease term (see Note 8 – Leases).

Operating lease right-of-use (“ROU”) assets are included in Prepaid expenses, and other assets on the Condensed Consolidated Balance Sheets.

ROU assets represent the

Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at the commencement date based on

the present value of lease payments over the lease term (see Note 8 – Leases).

Revenue Recognition

The Company derives revenue from licensing and royalty fees from

contracts with customers which often span several years.

The Company derives revenue from licensing and royalty fees

from contracts with customers which often span several years.

We account for this revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.

A performance obligation is a promise in a contract to transfer a distinct good or service to

the customer.

A performance obligation is a promise in a contract to transfer a distinct good or

service to the customer.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Our revenue arrangements may consist of multiple-element arrangements,

with revenue for each unit of accounting recognized as the product or service is delivered to the customer.

Our revenue arrangements may consist of multiple-element

arrangements, with revenue for each unit of accounting recognized as the product or service is delivered to the customer.

With the licensing of our patents, performance obligations are

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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.

As a result, the Company may, from time to time, receive payments as part of a settlement or

compensation for a patent infringement dispute.

Proceeds received are allocated to each element identified in the settlement or compensation, based on the fair value of each element.

Generally, settlements and compensation may include the following elements:

value of a license or royalty agreement, cost reimbursement, damages, and interest.

Generally, settlements and compensation may include the following

the value of a license or royalty agreement, cost reimbursement, damages, and interest.

Elements identified related to licensing and royalty are recognized as revenue.

Elements identified as reimbursed costs are generally recorded as a reduction to the

reported expenses.

Elements identified as reimbursed costs are generally recorded as a

reduction to the reported expenses.

Elements identified as damages or interest are generally recorded in other income in the condensed consolidated statement of operations.

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expense as incurred.

Concentration of Credit Risk and Other Risks and Uncertainties

Our cash and cash equivalents are primarily maintained at two major financial institutions in the United States.

Deposits held with these financial institutions may exceed the amount of insurance provided on such

Concentration of Credit

Risk and Other Risks and Uncertainties

cash and cash equivalents are primarily maintained at two major financial institutions in the United States.

Deposits held with these

financial institutions may exceed the amount of insurance provided on such deposits.

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

During the three months ended March 31, 2022, 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.

During the six months ended June 30, 2022, 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.

We have not experienced any losses on our deposits of cash and cash equivalents.

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We calculate current and deferred tax provisions based on estimates and assumptions that could differ from actual results reflected on the income tax returns filed during the following years.

Adjustments based on filed returns

are recorded when identified in the subsequent years.

Adjustments based on filed

returns are recorded when identified in the subsequent years.

The effect on deferred taxes for a change in tax rates is recognized in income in the period that the tax rate change is enacted.

In assessing our deferred tax assets, we consider whether it is

more likely than not that all or some portion of the deferred tax assets will not be realized.

In assessing our deferred tax assets, we consider

whether it is more likely than not that all or some portion of the deferred tax assets will not be realized.

A valuation allowance is provided for deferred income tax

2 unchanged sentences

allowance is based on an on-going evaluation of current information including, among other things, historical operating results, estimates of future earnings in different taxing jurisdictions and the expected timing of the reversals of temporary

We believe the determination to record a valuation allowance to reduce a deferred income tax asset is a significant accounting estimate because it is based, among other things, on an estimate of future taxable income in the United States

and certain other jurisdictions, which is susceptible to change and may or may not occur, and because the impact of adjusting a valuation allowance may be material.

In determining when to release the valuation allowance established against our net

deferred income tax assets, we consider all available evidence, both positive and negative.

States and certain other jurisdictions, which is susceptible to change and may or may not occur, and because the impact of adjusting a valuation allowance may be material.

In determining when to release the valuation allowance established against

our net deferred income tax assets, we consider all available evidence, both positive and negative.

We continually assess our ability to generate sufficient taxable income during future periods in which our deferred tax assets may be realized.

If and when we

believe it is more likely than not that we will recover our deferred tax assets, we will reverse the valuation allowance as an income tax benefit in our statements of operations.

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

and when we believe it is more likely than not that we will recover our deferred tax assets, we will reverse the valuation allowance as an income tax benefit in our statements of operations.

We account for our uncertain tax positions in accordance with

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

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

Step two, measurement, is addressed only if a position is more likely than

not to be sustained.

In step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement with tax authorities.

If a position

does not meet the more likely than not threshold for recognition in step one, no benefit is recorded until the first subsequent period in which the more likely than not standard is met, the issue is resolved with the taxing authority, or the statute

of limitations expires.

two, measurement, is addressed only if a position is more likely than not to be sustained.

In step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be

realized upon ultimate settlement with tax authorities.

If a position does not meet the more likely than not threshold for recognition in step one, no benefit is recorded until the first subsequent period in which the more likely than not standard is

met, the issue is resolved with the taxing authority, or the statute of limitations expires.

Positions previously recognized are derecognized when we subsequently determine the position no longer is more likely than not to be sustained.

Evaluation of tax positions, their technical merits, and measurements using

cumulative probability are highly subjective management estimates.

Evaluation of

tax positions, their technical merits, and measurements using cumulative probability are highly subjective management estimates.

Actual results could differ materially from these estimates.

Stock-Based Compensation

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

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

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 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).

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).

Earnings per Share

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increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued.

Fair Value of Financial Instruments

Fair Value of Financial

Fair value is the price that would result from an orderly

8 unchanged sentences

use valuation techniques, primarily the income and market approach, which maximizes the use of observable inputs and minimize the use of unobservable inputs for recurring fair value measurements.

Mutual funds:

at the quoted net asset value of shares held.

Valued at the quoted net asset value of shares held.

agency and treasury securities :

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, 2022 and December 31, 2021.

March 31, 2022

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

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, 2022 and December 31, 2021.

June 30, 2022

Adjusted Cost

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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 U.

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.

The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning

after December 15, 2020.

We adopted this ASU on January 1, 2021 and there was no material impact on our financial position or cash flows as a result.

Note 3 — Income Taxes

For the three months ended March 31, 2022, we recognized income tax benefit of $ 1,059 on loss before taxes of $ 4,379 , which is an effective tax

For the three months ended June 30, 2022, we recognized income tax expense of $ 373 on loss before taxes of $ 4,064 , which is an effective tax

rate of 9.18 %.

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

development tax credits.

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

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 months ended March 31, 2022, our deferred tax asset increased by $ 1,059 to $ 17,009 .

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.

The determination of the need for a valuation allowance is based on an on-going evaluation of current information including, among

other things, historical operating results, estimates of future earnings in different taxing jurisdictions and the expected timing of the reversals of temporary differences.

For the six months ended June 30, 2022, we recognized an income tax benefit of $ 684 on loss before taxes of $ 8,441 ,

which is an effective rate of 8.10 %.

The effective tax rate was lower than the statutory federal income tax rate primarily due to the

effect of stock-based compensation and expiring options, requiring us to reduce our deferred tax asset.

During the six months ended June 30, 2022, our deferred tax asset increased by $ 685 to $ 16,635 .

On May 13, 2022, the Company notified the public of the restatement via Form 8-K stating the Company's previously issued 2021 Financials because of an error in our deferred tax assets affecting the annual period covered by the financial statements.

The Company determined that the three and six months ended June 30, 2021 interim statements should be revised as the 2021 restatement related primarily to options expiring in second quarter 2021.

The accompanying Deferred tax asset previously

reported as $ 16,854 has now been reduced to $ 13,526

as of June 30, 2021.

The income tax benefit for the three months ended June 30, 2021, previously reported as $ 609 has been corrected to

income tax expense of $ 2,719 .

The income tax benefit for the six months ended June 30, 2021, previously reported as $ 7,802 has been reduced to $ 4,474 .

For the three months ended June 30, 2021, we recognized an income tax expense of $ 2,719 on loss before taxes of $ 4,132 .

Income tax for the three months was

primarily affected by expiring options and net operating loss.

For the six months ended June 30, 2021, we recognized an income tax benefit of $ 4,474

on loss before income taxes of $ 37,768 .

Income tax for the six months was primarily affected by expiring options and research and

development credits.

During the six months ended June 30, 2021 , our deferred tax asset increased by $ 4,477 to $ 13,526 .

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.

The determination of the need for a valuation allowance is based on an on-going evaluation of current information including, among other

things, historical operating results, estimates of future earnings in different taxing jurisdictions and the expected timing of the reversals of temporary differences.

We believe the determination to record, or reduce, a valuation allowance

1 unchanged sentence

and may or may not occur, and because the impact of adjusting a valuation allowance may be material.

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

both positive and negative.

We accumulated a net operating loss (“NOL”) carryforward in the state in which we were once headquartered, which will begin to expire in 2029 ;

none of the NOL carryforward is included in our deferred tax asset because we currently have no operations in the state where such accumulated.

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.

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 NOLs, and tax credits generated in these years were utilized in 2020.

These years are open

due to NOLs, and tax credits generated in these years were utilized in 2020.

The statute of limitation for these years shall expire three years after the date of filing 2020 income tax returns.

1 unchanged sentence

recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination.

At December 31, 2021 and March 31, 2022, we have no uncertain tax positions.

At December 31, 2021 and June 30, 2022, 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

We had no accrued interest or penalties related to uncertain tax positions at March 31, 2022.

We had no accrued interest or penalties related to uncertain tax positions at June 30, 2022.

Note 4 — Commitments and

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We incurred approximately $ 249

and $ 79 in fees and reimbursements to the LLC during the three months ended March 31, 2022 and 2021, respectively.

We pay for the Company’s

usage of the aircraft and have no rights to purchase.

and $ 514 compared to $ 95 and

$ 174 in fees and reimbursements to the LLC during the three and six months ended June 30, 2022 and 2021, respectively.

We pay for the

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

Our Chief Executive Officer and Chief Administrative Officer are the managing partners of the LLC and control the equity interests of the LLC.

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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 % of the 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

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.

The exercise price of an ISO or NSO granted to one of our Named Executive Officers shall not be less than 100 % of the 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.

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 March 31, 2022, there were 2,240,296 shares available for grant under the 2013 Plan.

Stock-based compensation

expense included in general and administrative expense was $ 466 and $ 383 , and in research and development expense was $ 312 and $ 496 , for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, the

unrecognized stock-based compensation expense related to non-vested stock options and RSUs was $ 4,865 and $ 1,858 , respectively, which will be amortized over an estimated weighted average period of approximately 2.71 and 2.13 years, respectively.

As of June 30, 2022, there were 1,435,929 shares available for grant under the 2013 Plan.

compensation expense included in general and administrative expense was $ 487 and $ 463 , and in research and development expense was $ 325 and $ 511 , for the three months ended June 30, 2022 and 2021, respectively.

Stock-based compensation expense included in general and administrative expense

was $ 953 and $ 846 , and

in research and development expense was $ 637 and $ 1,007 , for the six months ended June 30, 2022 and 2021, respectively.

During the three months ended June 30, 2022, we granted options for a total of 801,004 shares with a weighted average grant date fair value of $ 1.18

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 six months ended June 30, 2022, we granted options for a total of 801,004 shares with a weighted average grant date fair value of $ 1.18

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) 86 percent volatility, (iii) 3 percent risk free rate and (iv) 6 years expected term.

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

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

During the three months ended June 30, 2022 and 2021, we granted 258,363 and 236,661 RSUs respectively, with weighted average

fair values at the date of grant of $ 1.46 and $ 4.61 , 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, 2022 and 2021, we

paid $ 29 and $ 196 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 2022 or 2021.

As of June 30, 2022, the unrecognized stock-based compensation expense related to non-vested stock

options and RSUs was $ 5,242 and $ 1,988 ,

respectively, which will be amortized over an estimated weighted average period of approximately 3.02 and 2.93 years, respectively.

During the three and six months ended June 30, 2022, and 2021 no options were exercised.

During the three months ended June 30, 2022 and 2021, we issued 191,795 and 174,285 shares as a result of vesting RSUs,

respectively.

No shares were issued during the first three months of 2022 or 2021 as a result of vesting RSUs.

During the three and six months ended June 30, 2022 and 2021, there were 255,000 and 390,000 options

returned to the plan due to the 10 -year expiration for unexercised options respectively.

Note 6 — Equity

We issued no shares for options exercised during the three months ended March 31, 2022 or 2021, respectively.

We issued no shares as a result of vesting RSUs during the three months ended March 31, 2022 or 2021, respectively.

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 .

The weighted average fair value at the grant date was $ 4.16 per warrant.

The fair value at

the grant date was estimated utilizing the Black-Scholes valuation model with the following weighted average assumptions (i) dividend yield on our common stock of 0 percent (ii) expected stock price volatility of 97 percent (iii) a risk-free interest rate of 0.27 percent and (iv) and expected option term of 5

Warrants Issued

Exercise Price

We issued no shares for options exercised during the three and six months ended June 30, 2022 or 2021, respectively.

We issued 191,795 and 174,285 shares as a result of vesting RSUs during the three months

ended June 30, 2022 and 2021, respectively.

No shares were issued during the first three months of 2022 or 2021 as a result of vesting

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 .

The weighted average fair value at the grant date was $ 4.16 per

The fair value at the grant date was estimated utilizing the Black-Scholes valuation model with the following weighted average assumptions (i) dividend yield on our common stock of 0 percent (ii) expected stock price volatility of 97 percent (iii) a risk-free

interest rate of 0.27 percent and (iv) and expected option term of 5 years.

Outstanding and

December 31, 2021

Outstanding and

March 31, 2022

June 30, 2022

Expiration Date

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This case began on

November 6, 2012, when we had filed a complaint against Apple in United States District Court (“USDC”) in which we alleged that Apple infringed on certain of our patents, (U.S.

November 6, 2012, when we filed a complaint against Apple in United States District Court (“USDC”) in which we alleged that Apple infringed on certain of our patents, (U.S.

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

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Mac products, pre-judgment and post-judgment interest and costs.

Apple filed a notice of appeal with the USCAFC in the Apple II case.

Apple filed a notice of appeal with the United States Court of Appeals for the Federal Circuit (“USCAFC”) in the Apple II case.

On October 9, 2018,

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

VirnetX filed

its responsive brief on July 26, 2021.

VirnetX filed its

responsive brief on July 26, 2021.

Apple filed its reply brief on September 13, 2021.

The briefing is complete, and we are awaiting the court order with the schedule for oral arguments in this matter.

The briefing is complete, and the oral arguments have been scheduled on September 8 , 2022 in this matter.

Partners Master Fund, Ltd., Apple Inc.

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Mangrove Partners Master Fund, Ltd., Apple Inc., and Black Swamp, LLC (USCAFC Case 20-2272)

On September 15, 2020, we filed with the USCAFC an appeal of the invalidity findings by the Patent Trial and Appeal Board (“PTAB”) in inter-partes review proceedings IPR2015-01046 and

IPR2016-00062 involving our U.S.

On September 15, 2020, we filed with the USCAFC an appeal of the invalidity findings by the Patent Trial and Appeal Board (“PTAB”) in inter-partes review proceedings IPR2015-01046 and IPR2016-00062

involving our U.S.

6,502,135, and an appeal of the invalidity findings by the PTAB in inter-partes review proceedings IPR2015-1047, IPR2016- 00063, and IPR2016-00167 involving our U.S.

25, 2020, the USCAFC issued an order consolidating the two appeals.

On December 15, 2020, we filed a motion to vacate the PTAB

decisions below and to remand these appeals to the PTAB.

On September 25, 2020, the

USCAFC issued an order consolidating the two appeals.

On December 15, 2020, we filed a motion to vacate the PTAB decisions below and

to remand these appeals to the PTAB.

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 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.

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., 141 S.

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

parties, including the U.S.

Other parties,

including the U.S.

Patent and Trademark Office (“USPTO”) filed their responses on July 21, 2021.

On August 19, 2021, USCAFC issued an order remanding these appeals for the limited purpose of allowing VirnetX the opportunity to request

rehearing of the PTAB’s final written decisions by the Director of the USPTO.

On August 19, 2021, USCAFC issued an order remanding these appeals for the limited purpose of allowing VirnetX the opportunity to request rehearing

of the PTAB’s final written decisions by the Director of the USPTO.

The USCAFC retained jurisdiction over the appeals in the meantime.

On September 20, 2021, we filed our requests for Director rehearing with the USPTO.

On October 29,

2021, our requests for Director rehearing were denied.

On October 29, 2021, our

requests for Director rehearing were denied.

We subsequently filed an amended opening brief to the USCAFC on December 10, 2021, the other parties filed response briefs on February 2, 2022, and we filed a reply brief on February 22, 2022.

All the briefings have been completed.

We are awaiting the court order with the schedule for oral arguments in this matter.

briefings have been completed.

The oral arguments in this matter have been scheduled on September 8 , 2022.

Hirshfeld (USCAFC Case 17-2593, -2594)

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17-2594 with instructions to dismiss.

In the April 4, 2022 order, the USCAFC further set a briefing schedule, with VirnetX’s opening brief currently due June 17, 2022.

In the April 4, 2022 order, the USCAFC further set a briefing schedule, in Appeal No.

17-2593, with VirnetX’s opening brief currently due on August 22, 2022.

Cisco Systems, Inc.

(USCAFC Case 19-1671)

On March 18, 2019, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination

proceeding 95/001,679 involving our U.S.

On October 5, 2021, USCAFC issued an order remanding these appeals for the limited purpose of allowing VirnetX the opportunity to request rehearing of the PTAB’s final written

decisions by the Director of the PTO.

On March 18, 2019, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding

95/001,679 involving our U.S.

On October 5, 2021, USCAFC issued an order remanding these appeals for the limited purpose of allowing VirnetX the opportunity to request rehearing of the PTAB’s final written decisions by the

Director of the PTO.

The USCAFC retained jurisdiction over the appeals in the meantime.

1 unchanged sentence

On January 10, 2022, our request for Director rehearing was denied.

We informed the USCAFC about the denial of Director rehearing.

On March 1, 2022, the USCAFC issued an order setting a briefing

schedule, with VirnetX’s opening brief currently due May 9, 2022.

(USCAFC Case 22-1523) (“Apple Reexam”)

On March 10, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes

re-examination proceeding 95/001,682 involving our U.S.

Our opening brief is currently due June 20, 2022.

informed the USCAFC about the denial of Director rehearing.

VirnetX’s opening brief was filed on June 23, 2022.

(USCAFC Case 22-1523) (“Apple Reexam I”)

On March 10, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination

proceeding 95/001,682 involving our U.S.

Our opening brief is currently due August 22, 2022.

(USCAFC C ase 22 - 1997 ) (“Apple Reexam II”)

On July 6, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95 / 001,697 involving our U.S.

Our opening brief is currently due October 21, 2022.

McKool Smith P.C.

11 unchanged sentences

evidentiary hearing was held on the matter during the week of February 22, 2021 and the parties submitted additional briefings.

On April 19, 2021, the arbitrator awarded McKool $ 36,323 in damages, plus pre-judgment interest in the amount of 5 % simple

interest from March 23, 2020 to April 18, 2021, and post-judgment interest in the amount of 5 %, compounded annually, until payment of

On April 19, 2021, the arbitrator awarded McKool $ 36,323 in damages, plus pre-judgment interest in the amount of 5 %

simple interest from March 23, 2020 to April 18, 2021, and post-judgment interest in the amount of 5 %, compounded annually, until

payment of the award.

We accrued the resulting $ 38,284 as of March 31, 2021 and paid that amount to McKool on April 20, 2021.

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Note 8 — Leases

We lease office space under an operating lease which expires on October 31, 2023.

On March 31, 2022, the underlying ROU asset and lease liability totaled $ 85 .

office space under an operating lease which expires on October 31, 2023.

On June 30, 2022, the underlying ROU asset and lease liability totaled $ 71 .

On December 31, 2021, the underlying ROU asset and lease liability totaled $ 98 .

For the three months ended March 31, 2022 and 2021, lease expense totaled $ 13

and $ 14 , respectively.

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

On March 31, 2022 and December 31, 2021, the ROU asset totaled $ 873 and $ 948 , respectively.

For the three months ended March 31, 2022 and 2021, lease expense totaled $ 75 and $ 75 , respectively.

For the three and six months ended June 30, 2022,

lease expense totaled $ 13 and $ 27 ,

respectively.

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

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

On June 30, 2022 and December

31, 2021, the ROU asset totaled $ 799 and $ 948 ,

respectively.

For the three and six months ended June 30, 2022, lease expense totaled $ 75 and $ 150 , respectively.

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

Note 9 — Earnings Per Share

Basic earnings per share are based on the weighted average number of common shares outstanding for the period.

Diluted earnings per share are based on the

weighted average number of common shares and potentially dilutive common shares outstanding.

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, 2022 and 2021 (in thousands, except per share amounts):

earnings per share are based on the weighted average number of common shares outstanding for the period.

Diluted earnings per share are based on the weighted average number of common shares and potentially dilutive common shares outstanding.

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

The following

table shows the computation of basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021 (in thousands, except per share amounts):

Three Months Ended

Weighted-average basic shares outstanding

Effect of dilutive securities

Weighted-average diluted shares

Basic loss per share

Diluted loss per share

We incurred a net loss for the three months ended March 31, 2022 and 2021;

therefore, all potentially dilutive securities representing shares of common

stock ( 6,931,592 in 2022 and 6,341,844 ,

in 2021) were excluded from the computation of diluted earnings per share, because their effect would have been antidilutive.

Weighted-average

basic shares outstanding

dilutive securities

Weighted-average

diluted shares

earnings per share

Diluted (loss)

earnings per share

We incurred a net

loss for the three and six months ended June 30, 2022 and 2021;

therefore, all potentially dilutive securities representing shares of common stock ( 7,520,546

in 2022 and 6,752,839 in 2021) were excluded from the computation of diluted earnings per share, because their effect would have

been antidilutive.

Note 10 — Subsequent Events

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