What changed in this filing

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Item 1. Financial Statements

2023-08-11 compared with 2023-05-15 · 299 added, 236 removed, 342 unchanged (61% of the section changed)

24 unchanged sentences

Preferred stock, par value $ 0.0001 per share Authorized:

10,000,000 shares at March 31 , 2023 and December

10,000,000 shares at June 30 , 2023 and December 31,

Issued and outstanding:

0 shares at March 31 , 2023 and December 31, 2022

shares at June 30 , 2023

and December 31, 2022

Common stock, par value $ 0.0001

per share Authorized:

100,000,000 shares at March 31 , 2023 and December 31, 2022 ;

100,000,000 shares at June 30 , 2023 and December 31, 2022 ;

Issued and outstanding:

shares at March 31 , 2023

shares at June 30 , 2023

and 71,424,650 at December 31, 2022

7 unchanged sentences

CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS (Unaudited)

STATEMENTS OF

OPERATIONS (Unaudited)

(in thousands, except per share amounts)

5 unchanged sentences

Total operating expense

Income (loss) from operations

(Loss) from operations

Interest and other income, net

Income (loss) before taxes

(Loss) before taxes

Income tax (expense) benefit

Net income (loss)

Basic income (loss) per share

Diluted income (loss) per share

Basic (loss) per share

Diluted (loss) per share

Weighted average shares outstanding - basic

6 unchanged sentences

Three Months Ended

Net income (loss)

Six Months Ended

Other comprehensive income (loss):

2 unchanged sentences

Total other comprehensive income (loss)

Comprehensive income (loss)

Comprehensive (loss)

See accompanying notes to condensed consolidated financial statements.

7 unchanged sentences

Beginning balances

Common stock issued for options/RSUs, net

Stock-based compensation

2 unchanged sentences

Beginning balances

Net (loss) income

Ending balances

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(in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

Net (loss) income

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

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

Deferred tax assets

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Net cash provided by (used in) investing activities

Cash flows from financing activities:

Payment of dividends

Payment of payroll taxes on vested restricted stock units

Net cash used in financing activities

Net change in cash and cash equivalents

1 unchanged sentence

Cash and cash equivalents, end of period

Non-cash transactions

Dividends approved and accrued on March 30, 2023, paid in April 2023

Cash paid for income taxes

See accompanying notes to condensed consolidated financial statements.

VIRNETX HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

(in thousands, except per share amounts)

17 unchanged sentences

for sale worldwide.

Our next-generation, VirnetX One ™ platform builds upon our patented Secure Domain Names and GABRIEL Connection Technology™ to further enhance the

security and efficiency of our patented secure communication links.

VirnetX One ™ is a security-as-a-service platform that protects enterprise applications, services, and

infrastructure from cyber-attacks.

Our platform allows businesses and other enterprises of all sizes to add a “security umbrella” as an added layer on top of their existing infrastructure to further reduce risk and bolster security against

ever-growing cyberthreats to data, operating systems, other infrastructure products and gateway security controllers.

Our next-generation, VirnetX One ™ platform builds upon our patented Secure Domain Name Registry and Technology and GABRIEL Connection Technology™ to

further enhance the security and efficiency of our patented secure communication links.

VirnetX One ™ is a security-as-a-service platform that protects enterprise

applications, services, and infrastructure from cyber-attacks.

Our platform allows businesses and other enterprises of all sizes to add a “security umbrella” as an added layer on top of their existing infrastructure to further reduce risk and

bolster security against ever-growing cyberthreats to data, operating systems, other infrastructure products and gateway security controllers.

Note 2 — Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying Condensed Consolidated Balance Sheet as of

March 31, 2023, the Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022, the

Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2023 and 2022, and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 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, 2023, our results of operations for the three months ended March 31, 2023 and 2022, and our cash flows for the three months ended

March 31, 2023 and 2022.

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

Unaudited Interim Financial

The accompanying Condensed Consolidated Balance Sheet as of June 30, 2023, the Condensed Consolidated Statements of Operations for the three and six months

ended June 30, 2023 and 2022, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022, the Condensed Consolidated Statements of Shareholders’ Equity for the three and six months

ended June 30, 2023 and 2022, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 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, 2023, our results of operations for the three and six months ended June 30, 2023 and 2022, and our cash flows for the six months ended June 30, 2023 and 2022.

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

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Use of Estimates

We prepare our consolidated financial statements in

accordance with U.S.

We prepare our consolidated financial statements in accordance

In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities.

In some cases, we

could reasonably have used different accounting policies and estimates.

In some cases, we could

reasonably have used different accounting policies and estimates.

In some cases, changes in the accounting estimates are reasonably likely to occur from period to period.

Accordingly, actual results could differ materially from our estimates.

To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected.

We base our estimates on past experience and other assumptions that we believe are

reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected.

We base our estimates on past experience and other assumptions that we believe are reasonable

under the circumstances, and we evaluate these estimates on an ongoing basis.

We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.

We have reviewed our critical

accounting policies and estimates with the audit committee of our Board of Directors.

We have reviewed our critical accounting

policies and estimates with the audit committee of our Board of Directors.

Basis of Consolidation

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

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).

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

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Licensing Costs

Included in operating expenses in 2022 is a refund of

licensing costs we incurred in conjunction with a favorable court decision relating to a patent infringement case.

Included in operating expenses in 2022 is a refund of licensing costs we incurred in conjunction with a favorable court decision relating to a patent infringement case .

Contingent Gains

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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 deposits.

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, 2023, 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, 2023, 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.

4 unchanged sentences

amortization.

Amortization of intangible assets is provided over their estimated useful lives, which can range from 3 to 15 years, on either a straight-line basis or as revenue is generated by the assets.

Amortization of intangible assets is provided over their estimated useful lives, which can range from three to 15 years, on either a straight-line basis or as revenue is generated by the assets.

Impairment of Long-Lived Assets

6 unchanged sentences

Research and Development

Research and development costs include expenses paid to

outside development consultants and compensation related expenses for our engineering staff.

Research and development costs include expenses paid to outside

development consultants and compensation related expenses for our engineering staff.

Research and development costs are expensed as incurred.

9 unchanged sentences

The 2017 U.S.

Tax Cuts and Jobs Act changes IRC Section 174, regarding capitalization of book research and development (“R&D”) expenses for income tax purposes.

Effective for tax years beginning in 2022, IRC Section 174 requires the capitalization of book R&D expenses which are capitalized and amortized over 5 years for domestic R&D expenses and over 15 years for foreign R&D expenses.

there has been limited guidance from the IRS on how to quantify the amount of book R&D expenses subject to capitalization, including the indirect expenses supporting the R&D function.

Due to the limited guidance, some assumptions were

made in our estimates.

Tax Cuts and Jobs Act changes IRC Section 174, regarding capitalization of book research and development (“R&D”) expenses

for income tax purposes.

R&D expenses.

To date there has been limited guidance from the IRS on how to quantify the amount of book R&D expenses subject to capitalization, including the indirect expenses supporting the R&D function.

Due to the limited guidance,

some assumptions were made in our estimates.

A valuation allowance is provided for deferred income tax

8 unchanged sentences

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.

We account for our uncertain tax positions in accordance with

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

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

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.

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.

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 reversed if and 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.

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 years.

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).

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 four 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).

Earnings per Share

3 unchanged sentences

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

1 unchanged sentence

A fair value hierarchy prioritizes the inputs used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets

or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or

liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

Level 2 measurements utilize either directly or indirectly observable inputs in markets other than quoted prices in active markets.

Our financial instruments are stated at amounts that equal,

or approximate, fair value.

When we estimate fair value, we utilize market data or assumptions that we believe market participants would use in pricing the financial instrument, including assumptions about risk and inputs to the valuation

We 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.

Our financial instruments are stated at amounts that equal, or

approximate, fair value.

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.

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, 2023 and December 31, 2022.

March 31, 2023

Adjusted Cost

Cash and Cash

Available for

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, 2023 and December 31, 2022.

June 30, 2023

treasury securities

December 31, 2022

Adjusted Cost

Cash and Cash

Available for

treasury securities

New Accounting Pronouncements

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards

Update (“Update”) 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations”, which requires entities to disclose the key terms of supplier finance programs used in connection with

the purchase of goods and services along with information about their obligations under these programs.

This Update does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations.

Update is effective for all entities for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, except for the rollforward requirement, which is effective for fiscal years beginning after December

We do not have a supplier finance program currently in place, and, therefore, there was no impact on our financial position or cash flows as a result.

agency and treasury securities

Note 3 — Income Taxes

For the three months ended March 31, 2023, we recognized an income tax benefit of $ 78 on loss before taxes of $ 4,545 , which is an effective tax rate of 1.71 %.

For the three months ended June 30, 2023, we recognized no

income tax on loss before taxes of $ 11,379 , which is an effective tax rate of 0.0 %.

For the six months ended June 30, 2023, we recognized an income tax benefit of $ 78 on loss of $ 15,924 , which is an effective tax rate of 0.49 %.

The effective rate is lower than the statutory federal rate primarily due to the change in valuation allowance.

For the three months ended

March 31, 2022, we recognized an income tax benefit of $ 1,059 on loss before taxes of $ 4,379 , an effective tax rate of 24.45 %.

The effective rate

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

Management determined that a full valuation allowance should be provided against net deferred income tax assets at March 31, 2023.

June 30, 2022, we recognized an income tax expense of $ 373 on loss before taxes of $ 4,064 , an effective tax rate of 9.18 %.

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 tax rate of 8.10 %.

effective rate is lower than the statutory federal rate primarily due to the effect of stock-based compensation and expiring options, requiring us to reduce our deferred tax asset.

Management provided a full valuation allowance against net

deferred income tax assets at June 30, 2023 .

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

tax authority and various state tax authorities because we utilized the

NOLs and tax credits generated in those years in 2020.

tax authority and various state tax authorities because we utilized the NOLs and tax

credits generated in those years in 2020.

The statute of limitation for those 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, 2022 and March 31, 2023, we have no uncertain tax positions.

At December 31, 2022 and June 30, 2023, 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, 2023.

We had no accrued interest or penalties related to uncertain tax positions at June 30, 2023.

Note 4 — Commitments and

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We incurred approximately $ 112

compared to $ 265 in fees and reimbursements to the LLC during the three months ended March 31, 2023 and 2022, respectively.

and $ 399 compared to $ 249

and $ 514 in fees and reimbursements to the LLC during the three and six months ended June 30, 2023 and 2022, respectively.

We pay for the

6 unchanged sentences

Note 5 — Stock Based

Our stockholders are

being asked to approve the Amended and Restated Equity Incentive Plan (the “Amended 2013 Plan”) at our annual shareholders’ meeting in June 2023.

Our shareholder-approved 2013 Equity Incentive Plan (the “Prior Plan”) expired March 29, 2023;

further awards will be made under the Prior Plan, but the Amended 2013 Plan will govern awards granted under the Prior Plan.

compensation expense included in general and administrative expense was $ 371 and $ 466 , and in research and development expense was $ 311 and $ 312 , for the three months ended March 31, 2023 and 2022, respectively.

Our stockholders

approved the Amended and Restated Equity Incentive Plan (the “A&R Plan”) at our annual shareholders’ meeting in June 2023, which added 3,500,000

shares to the plan.

Our prior plan expired March 29, 2023;

no further awards will be made under the prior plan, but the A&R Plan will govern awards granted under the prior plan.

At June 30, 2023, there were 5,253,971 shares available for grant under the A&R Plan.

compensation expense included in general and administrative expense was $ 393 and $ 487 , and in research and development expense was $ 289 and $ 325 , for the three months ended June 30, 2023 and 2022, respectively.

Stock-based compensation expense included in general and administrative expense

was $ 764 and $ 953 , and

in research and development expense was $ 600 and $ 637 , for the six months ended June 30, 2023 and 2022, respectively.

During the three

months ended March 31, 2023 and 2022, we did no t grant any options or RSUs.

As of March 31, 2023,

the unrecognized stock-based compensation expense related to unvested stock options and RSUs was $ 3,484 and $ 1,256 , respectively, which will be amortized over an estimated weighted average period of approximately 2.47 and 2.18 years, respectively.

months ended June 30, 2023, we granted options for a total of 37,500 shares with a weighted average grant date fair value of $ 0.35 per option.

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 $ 1.09

During the six

months ended June 30, 2023, we granted options for a total of 37,500 shares with a weighted average grant date fair value of $ 0.35 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) 81 percent volatility, (iii) 4 % risk free rate and (iv) 6 years expected term.

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 $ 1.09

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.

During the three

months ended June 30, 2023 and 2022, we granted 24,999 and 258,363 RSUs respectively, with weighted average fair values at the date of grant of $ 0.50

and $ 1.46 , 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, 2023 and 2022, we paid $ 5 and $ 29 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 2023 or

June 30, 2023, the unrecognized stock-based compensation expense related to non-vested stock options and RSUs was $ 3,009 and $ 1,074 , respectively, which will be amortized over an estimated weighted average period of approximately 2.25 and 2.24 years, respectively.

During the three

and six months ended June 30, 2023 and 2022 no options were exercised.

During the three

months ended June 30, 2023 and 2022, we issued 215,255 and 191,795 shares as a result of vesting RSUs, respectively.

shares were issued during the first three months of 2023 or 2022 as a result of vesting RSUs.

During the three

ended June 30, 2023 and 2022, there were 213,125 and 255,000 options returned to the plan due to the 10 -year expiration for unexercised options

respectively.

During six months ended June 30, 2023 and 2022, there were 253,125 and 255,000 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, 2023 or 2022, respectively.

We issued no shares as a result of vesting RSUs during the three months ended March 31, 2023 or 2022.

We issued no shares for options exercised during the three and six months ended June 30, 2023 or 2022, respectively.

We issued 215,255 and 191,795 shares as a result of vesting RSUs during the

three months ended June 30, 2023 and 2022, respectively.

No shares were issued during the first three months of 2023 or 2022 as a

result of vesting RSUs .

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

March 31, 2023

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.

June 30, 2023

April 30, 2025

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This case began on

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.

November 6, 2012, when we filed a complaint against Apple Inc.

(“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).

damages and injunctive relief.

We sought damages and injunctive relief.

The accused products include the iPhone 5, iPod Touch 5th Generation, iPad 4th Generation, iPad mini, and the latest Macintosh computers.

The USDC entered a Final Judgment and issued its Memorandum Opinion and Order

regarding post-trial motions, affirming the jury’s verdict of $ 502,600 and granting VirnetX motions for supplemental damages, a sunset

royalty, and the royalty rate of $ 1.20 per infringing iPhone, iPad and Mac products, pre-judgment and post-judgment interest and costs.

The USDC entered a Final Judgment and issued its Memorandum Opinion

and Order regarding post-trial motions, affirming the jury’s verdict of $ 502,600 and granting VirnetX motions for supplemental damages, a

sunset royalty, and the royalty rate of $ 1.20 per infringing iPhone, iPad and Mac products, pre-judgment and post-judgment interest and

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

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On February 22, 2021, the USCAFC docketed the appeal as Case No.

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

VirnetX filed its

responsive brief on July 26, 2021.

Apple’s opening brief was filed on

June 2, 2021.

VirnetX filed its responsive brief on July 26, 2021.

Apple filed its reply brief on September 13, 2021.

Oral arguments were held on September 8, 2022.

On March 31, 2023, the USCAFC

issued its decision vacating the USDC’s judgement in this matter and remanding it back to the USDC with instructions to dismiss the case as moot.

On April 20, 2023, VirnetX filed a motion to extend the time to file a petition for rehearing from

May 1, 2023, until June 5, 2023, and remains pending.

On March 31, 2023, the USCAFC issued its decision vacating the USDC’s judgement

in this matter and remanding it back to the USDC with instructions to dismiss the case as moot.

On July 14, 2023 the District Court vacated its prior Final Judgment against Apple dated January 6, 2021 and dismissed the case as moot.

May 1, 2023, VirnetX filed a petition for panel rehearing.

On June 27, 2023, the petition for panel rehearing was denied, and the mandate issued on June 30, 2023.

The current deadline to file any petition for a writ of certiorari from the

USCAFC’s decision is September 25, 2023 .

Partners Master Fund, Ltd., Apple Inc.

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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.

Other parties,

including the U.S.

On July 7, 2021, we filed a brief in

response to the court’s order.

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.

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.

briefings have been completed.

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.

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.

The oral arguments in this matter were held on September 8, 2022.

On March 30, 2023, the USCAFC issued its decision affirming

PTAB’s decisions finding certain claims of the ‘135 patent and the ‘151 patent to be unpatentable.

On April 19, 2023, VirnetX filed a motion to extend the time to file a petition for rehearing from May 15, 2023, until June 5, 2023.

was granted on April 20, 2023.

On March 30, 2023, the USCAFC issued its decision affirming PTAB’s decisions finding

certain claims of the ‘135 patent and the ‘151 patent to be unpatentable.

On June 5, 2023, VirnetX filed a petition for panel rehearing.

On June 22, 2023, the petition for panel rehearing was denied, and the mandate issued on June 29,

The current deadline to file any petition for a writ of certiorari from the USCAFC’s decision is September 20, 2023 .

Hirshfeld (USCAFC Case 17-2593, -2594)

On September 22, 2017, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes review proceeding

IPR2016-00693 involving our U.S.

On September 22, 2017, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in

inter-partes review proceeding IPR2016-00693 involving our U.S.

7,418,504, and an appeal of the invalidity findings by the PTAB in inter-partes review proceeding IPR2016-00957 involving our U.S.

On September 16, 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.

October 18, 2021, we filed our requests for Director rehearing with the USPTO.

16, 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 October 18, 2021, we filed our requests for Director rehearing with the USPTO.

On January 7, 2022, our requests for Director rehearing were denied.

On January 21, 2022, we informed the USCAFC about the denial of Director rehearing and requested

that the court dismiss the appeal involving IPR2016-00957 as moot and vacate the PTAB’s underlying decision.

On April 4, 2022, the USCAFC vacated the PTAB’s decision in IPR2016-00957 and remanded Appeal No.

On January 21, 2022, we informed the USCAFC about the

denial of Director rehearing and requested that the court dismiss the appeal involving IPR2016-00957 as moot and vacate the PTAB’s underlying decision.

On April 4, 2022, the USCAFC vacated the PTAB’s decision in IPR2016-00957 and remanded

17-2594 with instructions to dismiss.

1 unchanged sentence

VirnetX filed its opening brief on September 12, 2022.

filed its response brief on December 20, 2022.

VirnetX filed its reply brief on February 14, 2023, and we currently await scheduling of oral arguments.

VirnetX has filed a motion to hold this appeal in abeyance pending the disposition of any

petition for rehearing in the No.

20-2271, -2272 appeal, and pending the Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc.

The USPTO filed its response brief on

December 20, 2022.

VirnetX filed its reply brief on February 14, 2023.

On April 18, 2023, VirnetX filed a motion to hold this appeal in abeyance pending the disposition of any petition for rehearing in the No.

20-2271, -2272 appeal,

and pending the Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc.

Smith & Nephew, Inc.

That motion, filed on April 18, 2023, and remains pending.

That motion was denied on June 1, 2023, and we

currently await scheduling of oral arguments .

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.

Our request for Director rehearing with the PTO was filed on November 5, 2021.

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

informed the USCAFC about the denial of Director rehearing.

On January 10, 2022, our request

for Director rehearing was denied.

We informed the USCAFC about the denial of Director rehearing.

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

The USPTO’s response brief was filed on August 2, 2022, and Cisco’s response brief was filed on September 2, 2022.

VirnetX filed its

reply brief on October 7, 2022, and we currently await scheduling of oral arguments.

The USPTO’s response brief was filed on August 2, 2022, and Cisco’s response brief was filed

on September 2, 2022.

VirnetX filed its reply brief on October 7, 2022.

On April 18, 2023, VirnetX filed a motion to hold this appeal in abeyance pending the disposition of any petition for rehearing in the No.

20-2271, -2272 appeal,

and pending the Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc.

Smith & Nephew, Inc.

That motion was denied on June 1, 2023, and we

currently await scheduling of oral arguments.

(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 was

filed on August 22, 2022.

Apple and USPTO each filed a response brief on December 28, 2022.

VirnetX filed its reply brief on February 8, 2023, and we currently await scheduling of oral arguments.

VirnetX has, however, filed a motion to hold

this appeal in abeyance pending the disposition of any petition for rehearing in the No.

20-2271, -2272 appeal, and pending the Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex,

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 was filed on August 22, 2022.

Apple and USPTO each filed a response brief

on December 28, 2022.

VirnetX filed its reply brief on February 8, 2023.

On April 18, 2023, VirnetX filed a motion to hold this appeal in abeyance pending the disposition of any petition for rehearing in the No.

20-2271, -2272 appeal,

and pending the Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc.

Smith & Nephew, Inc.

That motion, filed on April 18, 2023, and remains pending.

That motion was denied on June 1, 2023, and we

currently await scheduling of oral arguments.

(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.

On October 17, 2022, we filed a motion to remand the appeal in light of the PTAB’s refusal to permit Director rehearing.

On January 23, 2023, the USCAFC denied that motion without prejudice to the parties raising their arguments in the

merits briefs.

VirnetX’s opening brief was filed on May 10, 2023, and remains pending.

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.

On October 17, 2022, we filed a motion to remand the appeal in light of the PTAB’s

refusal to permit Director rehearing.

On January 23, 2023, the USCAFC denied that motion without prejudice to the parties raising their arguments in the merits briefs.

VirnetX opening brief was filed on May 8, 2023, and Apple and

the USPTO each filed a response brief on July 24, 2023.

VirnetX reply brief is currently due on August 14, 2023.

Cisco Systems, Inc.

(USCAFC Case 22-2234)

On September 16, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,851 involving our U.S.

We filed our opening brief on February 28, 2023, and remains pending.

On September 16, 2022, we filed

with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,851 involving our U.S.

We filed our opening brief on February 28, 2023.

Cisco’s response brief

was filed on May 10, 2023, and VirnetX reply brief was filed on June 21, 2023.

We currently await scheduling of oral arguments.

Cisco Systems, Inc.

(USCAFC Case 23-1765)

On April 7, 2023, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,714 involving our U.S.

The certified list is due to be filed by the USPTO by May 30, 2023, and our opening brief will be due 60

days thereafter.

On April 7, 2023, we filed with

the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,714 involving our U.S.

The certified list is due to be filed by the USPTO by May 30, 2023, and our opening

brief will be due 60 days thereafter.

In addition, on April 21, 2023, Cisco filed a cross-appeal.

Cisco’s response brief was filed on May 10, 2023.

Cisco’s response brief was

filed on May 10, 2023.

VirnetX opening brief is currently due on September 29, 2023.

Other Legal Matters

One or more potential intellectual property infringement claims may also be available to us against certain other companies who have the resources to defend against any such claims.

believe these potential claims are likely valid, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we could prevail on such potential claims if we made them.

In addition, bringing a lawsuit may lead to

potential counterclaims which may distract our management and our other resources, including capital resources, from efforts to successfully commercialize our products.

One or more potential intellectual property infringement

claims may also be available to us against certain other companies who have the resources to defend against any such claims.

Although we believe these potential claims are likely valid, commencing a lawsuit can be expensive and time-consuming,

and there is no assurance that we could prevail on such potential claims if we made them.

In addition, bringing a lawsuit may lead to potential counterclaims which may distract our management and our other resources, including capital resources,

from efforts to successfully commercialize our products.

Currently, we are not a

1 unchanged sentence

Note 8 — Leases

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

On March 31, 2023, the underlying ROU asset and lease liability totaled $ 31 .

On December 31, 2022, the underlying ROU asset and lease liability totaled $ 45 .

For the three months ended March 31, 2023 and 2022, lease expense totaled $ 14 and $ 13 , 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, 2023 and December 31, 2022, the ROU asset

totaled $ 573 and $ 648 ,

respectively.

For the three months ended March 31, 2023 and 2022, lease expense totaled $ 75 and $ 75 , respectively.

We lease office space under an operating lease which expires

on October 31, 2023.

On June 30, 2023, the underlying ROU asset and lease liability totaled $ 18 .

On December 31, 2022, the

underlying ROU asset and lease liability totaled $ 45 .

Lease expense totaled $ 13 , for each of the three months ended June 30, 2023 and 2022.

Lease expense totaled $ 27 , for each of the six months ended June 30, 2023 and 2022.

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, 2023 and December 31, 2022, the ROU asset totaled $ 499

and $ 648 , respectively.

For the three and six months ended June 30, 2023, lease expense totaled $ 75 and $ 150 , respectively.

three and six months ended June 30, 2022, 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, 2023 and 2022 (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, 2023 and 2022 (in thousands, except per share amounts):

Three Months Ended

Net (loss) income

Weighted-average basic shares outstanding

Effect of dilutive securities

Weighted-average diluted shares

Basic (loss) earnings

Diluted (loss) earnings

We incurred a net loss for the three months ended March

31, 2023 and 2022;

therefore, all potentially dilutive securities representing shares of common stock ( 7,353,129 in 2023 and 6,931,592 in 2022) 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

Basic (loss) per

Diluted (loss)

We incurred a net

loss for the three and six months ended June 30, 2023 and 2022;

therefore, all potentially dilutive securities representing shares of common stock ( 6,974,580

in 2023 and 7,520,546 in 2022) were excluded from the computation of diluted earnings per share, because their effect would have

been antidilutive.

Note 10 — Subsequent Events

2023, the Company paid $ 71,429 for a special dividend of $ 1 per share.

Additionally in April 2023, the Company paid $ 7,245 for a special

bonus to employees.

On July 5, 2023 we issued 578,830 shares of restricted stock, with weighted average fair values at

the date of grant of $ 0.48 .

Restricted stock is subject to forfeiture if service terminates prior to the shares vesting and is expensed

ratably over the vesting period.

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