VirnetX Holding Corp 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, December 31, 2022. The purpose of this evaluation was to determine whether as of December 31, 2022 our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the SEC, (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2022, our disclosure controls and procedures were effective. Changes in Internal Control Over Financial Reporting We modified supervisory review procedures over the tax professionals who perform the accounting and reporting of deferred taxes, to include detailed discussions of current operations and changes in accounting standards and tax law that could affect our calculations, and detailed review including walkthrough of infrequent transactions and complex matters affecting deferred tax calculations. We have tested these procedures and believe the enhanced control is operating effectively. Additionally, our accounting professionals participated in deferred tax accounting training to further enhance our in-house technical abilities. There were no other changes in our internal controls over financial reporting (as such term is defined in rules 13a-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal year ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely; we are continually monitoring and assessing the impact on our internal controls to minimize the impact on their design and operating effectiveness. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2022. Changes made in our internal control over financial reporting during the period ended December 31, 2022 are discussed above; no other change were made to our internal control over financial reporting during the period, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 52 Index Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item will be contained in our definitive proxy statement to be filed with the SEC in connection with our 2022 Annual Meeting of Stockholders (the “Proxy Statement”), which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated in this report by reference. Item 11. Executive Compensation The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. Securities Authorized for Issuance Under the Equity Compensation Plans We have an equity 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, our Board of Directors 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. As of December 31, 2022, there were 1,563,345 shares available to be granted under the Plan. We had 6,816,025 and 6,397,437 options outstanding as of December 31, 2022 and December 31, 2021, respectively, with an average exercise price of $5.33 and $6.99, respectively. We had 552,105 and 509,155 RSUs outstanding as of December 31, 2022 and December 31, 2021, respectively, with a weighted average grant price of $3.65 and $5.38, respectively. 53 Index Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options and RSUs Weighted-Average Exercise Price of Outstanding Options and RSUs Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans Equity compensation plans approved by security holders 7,368,130 $ 5.21 1,563,345 Equity compensation plans not approved by security holders — — Total 7,368,130 $ 5.21 1,563,345 On June 3, 2022, the Compensation Committee of our Board of Directors (the “Compensation Committee”) granted 37,500 stock options and 24,999 RSUs to members of our Board of Directors. On June 7, 2022, the Compensation Committee granted 763,504 stock options and 233,364 RSUs to our employees. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference. PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this Annual Report on Form 10-K (1) Financial Statements: See the Index to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K. (2) Financial Statement Schedule: Financial statement schedules are omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto. All other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or the notes thereto. (3) Exhibits: The documents listed in the Exhibit Index of this Annual Report on Form 10-K are incorporated by reference or are filed with this Annual Report on Form 10-K, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K). 54 Index EXHIBIT INDEX Exhibit Number Description Incorporated by reference herein Form Exhibit No. Filing Date File No. Filed Herewith 3.1 Certificate of Incorporation of the Company. 8-K 3.1 11/01/2007 000-26895 3.2 Amended and Restated Bylaws of the Company. 8-K 3.1 1/27/2023 001-33852 4.2 Specimen Common Stock Certificate. S-3 4.1 07/30/2018 333-226413 4.3 Form of Senior Indenture. S-3 4.2 07/30/2018 333-226413 4.4 Form of Subordinated Indenture. S-3 4.4 07/30/2018 333-226413 4.5 Description of Capital Stock. 10-K 4.6 03/16/2020 001-33852 10.1 Form of Indemnification Agreement. 10-K 10.1 03/18/2019 001-33852 10.2* 2007 Stock Plan, as amended. 10-Q 10.2 05/10/2012 001-33852 10.3* Amended Form of Stock Option Agreement – 2007 Stock Plan. 10-Q 4.5 05/10/2011 001-33852 10.4* Form of Restricted Stock Unit Award Agreement – 2007 Stock Plan. 10-Q 10.3 05/10/2012 001-33852 10.5* 2013 Equity Incentive Plan, as amended. DEF 14A Appendix A 04/13/2021 001-33852 10.6* Form of Stock Option Agreement – 2013 Equity Incentive Plan. 10-K 10.6 03/02/2015 001-33852 10.7* Form of Restricted Stock Unit Agreement – 2013 Equity Incentive Plan. 10-K 10.7 03/02/2015 001-33852 10.12 Patent License and Assignment Agreement by and between the Company and Leidos, Inc. (formerly Science Applications International Corporation) dated as of August 12, 2005. 8-K 10.4 07/12/2007 000-26895 10.13** Amendment No. 1 to Patent License and Assignment Agreement by and between the Company and Leidos, Inc. dated as of November 2, 2006. 8-K 10.6 07/12/2007 000-26895 10.14 Amendment No. 2 to Patent License and Assignment Agreement by and between VirnetX, Inc. and Leidos, Inc. dated as of March 12, 2008. 8-K 10.1 03/18/2008 001-33852 10.15 Security Agreement by and between the Company and Leidos, Inc. dated as of August 12, 2005. 8-K 10.5 07/12/2007 000-26895 10.16 Assignment Agreement between the Company and Leidos, Inc. dated as of December 21, 2006. 8-K 10.7 07/12/2007 000-26895 10.17 Professional Services Agreement by and between the Company and Leidos, Inc. dated as of August 12, 2005. 8-K 10.8 07/12/2007 000-26895 10.18** Settlement and License Agreement, by and between Microsoft Corporation and VirnetX, Inc., dated May 14, 2010. 10-Q/A 10.1 01/31/2011 001-33852 10.19** Amended Settlement and License Agreement, by and between Microsoft Corporation and VirnetX, Inc., dated December 17, 2014. 10-K 10.23 03/02/2015 001-33852 10.20** Amended and Restated Revenue Sharing Agreement by and between the Company and Public Intelligence Technology Associates, dated October 18, 2017. 10-Q 10.1 11/09/2017 001-33852 10.21 Amended and Restated Gabriel License Agreement by and between the Company and Public Intelligence Technology Associates, dated October 18, 2017. 10-Q 10.2 11/09/2017 001-33852 10.22 Sales Agreement, dated August 31, 2018, by and between the Company and Cowen and Company, LLC. 8-K 10.1 08/31/2018 001-33852 10.23* Hire Letter by and between Katherine Allanson and the Company, dated as of September 1, 2021. 10-Q 10.1 11/08/2021 001-33852 21.1 Subsidiaries of VirnetX Holding Corporation. 10-K 21.1 03/16/2021 001-33852 55 Index 23.1 Consent of Farber Hass Hurley LLP, Independent Registered Public Accounting Firm. X 24.1 Power of Attorney (contained on signature page hereto) X 31.1 Chief Executive Officer Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act. X 31.2 Chief Financial Officer Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act. X 32.1† Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 32.2† Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB XBRL Taxonomy Extension Label Linkbase Document X 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) X * Indicates management contract or compensatory plan. ** Confidential treatment has been granted by the SEC as to certain portions of this exhibit. *** Portions of this exhibit have been omitted pending a determination by the SEC as to whether these portions should be granted confidential treatment. † The certifications attached as Exhibit 32.1 and 32.2 that accompany this Report are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of VirnetX Holding Corporation under the Securities Act or the Exchange Act, whether before or after the date of this Report, irrespective of any general incorporation language contained in such filing. 56 Index SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. VirnetX Holding Corporation By: /s/ Kendall Larsen Name: Kendall Larsen Title: Chief Executive Officer and President Dated: March 31, 2023 57 Index POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kendall Larsen as his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities indicated. Name Capacity Date /s/Kendall Larsen Director, Chief Executive Officer and President March 31, 2023 Kendall Larsen ( Principal Executive Officer ) /s/Katherine Allanson Chief Financial Officer March 31, 2023 Katherine Allanson ( Principal Financial Officer and Principal Accounting Officer ) /s/Robert D. Short III Director March 31, 2023 Robert D. Short III /s/Gary Feiner Director March 31, 2023 Gary Feiner /s/Michael F. Angelo Director March 31, 2023 Michael F. Angelo /s/Thomas M. O’Brien Director March 31, 2023 Thomas M. O’Brien 58