What changed in this filing

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Item 1. Financial Statements

2024-11-13 compared with 2024-08-14 · 133 added, 138 removed, 358 unchanged (43% of the section changed)

4 unchanged sentences

(in thousands, except share amounts)

September 30,

Current assets:

18 unchanged sentences

Preferred stock, par value $ 0.0001 per share Authorized:

10,000,000 shares at June 30 , 2024 and December 31,

10,000,000 shares at September 30 , 2024 and

December 31, 2023 ;

Issued and outstanding:

shares at June 30 , 2024

and December 31, 2023

0 shares at September 30 , 2024 and December 31, 2023

Common stock, par value $ 0.0001

per share Authorized:

100,000,000 shares at June 30 , 2024 and December 31, 2023 ;

100,000,000 shares at September 30 , 2024 and December 31, 2023 ;

Issued and outstanding:

shares at June 30 , 2024

shares at September 30 , 2024

and 3,618,431 at December 31, 2023

11 unchanged sentences

Three Months Ended

September 30,

September 30 ,

Operating expense:

16 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Other comprehensive income (loss):

5 unchanged sentences

VIRNETX HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF

CONDENSED CONSOLIDATED

STATEMENTS OF

SHAREHOLDERS ’ EQUITY (Unaudited)

1 unchanged sentence

Three Months Ended

September 30,

September 30 ,

Total shareholders’ equity, beginning balances

20 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

24 unchanged sentences

VIRNETX HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

(in thousands, except per share amounts)

8 unchanged sentences

Unaudited Interim Financial

The accompanying Condensed Consolidated Balance Sheet as of June 30, 2024, the Condensed Consolidated Statements of Operations for the three and six

months ended June 30, 2024 and 2023, the Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2024 and 2023, the Condensed Consolidated Statements of Shareholders’ Equity for the three and six months

ended June 30, 2024 and 2023, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 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, 2024, our results of operations for the three and six months ended June 30, 2024 and 2023, and our cash flows for the six months ended June 30, 2024 and 2023.

The results of operations for interim periods are not

necessarily indicative of the results to be expected for a full year.

The accompanying Condensed Consolidated Balance Sheet as of September 30, 2024, the Condensed Consolidated Statements of Operations for the three and

nine months ended September 30, 2024 and 2023, the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2024 and 2023, the Condensed Consolidated Statements of Shareholders’ Equity for the three

and nine months ended September 30, 2024 and 2023, and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 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 September 30, 2024, our results of operations for the three and nine months ended September 30, 2024 and 2023, and our cash flows for the nine months ended September 30, 2024 and 2023.

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

50 unchanged sentences

reduce the carrying value for the impairment loss with a charge to earnings.

We have no t identified any impairment as of June 30, 2024.

We have no t identified any impairment as of September 30,

Property and Equipment

5 unchanged sentences

The Company determines if an arrangement is a lease at inception in accordance 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.

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, using the risk-free rate.

107 unchanged sentences

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, 2024 and December 31, 2023.

June 30, 2024

following tables show the adjusted cost, gross unrealized gains, gross unrealized losses, and fair value of our securities by significant investment category as of September 30, 2024 and December 31, 2023.

September 30, 2024

Adjusted Cost

8 unchanged sentences

Note 3 — Income Taxes

For the three and six months ended June 30, 2024, we recognized no income tax benefit which is an effective tax rate of 0 %.

For the three and six months ended June 30, 2023, we recognized an income tax benefit of $ 0 and $ 78 , respectively, which is an effective tax rate of 0.0 % and 0.49 %.

The effective tax

rate was lower than the statutory federal income tax rate during 2023 and 2024 primarily due to the change in valuation allowance.

Our tax years for 2005 and forward are

subject to examination by the U.S.

For the three and nine months ended September 30, 2024, we recognized income tax expense of $ 0

and $ 3 , an effective income tax rate of approximately 0.0 %

for both periods.

For the three and nine months ended September 30, 2023, we recognized an income tax benefit of $ 1 and $ 79 , an effective income tax rate of 0.0 %

The effective tax rate was lower than the statutory federal income tax rate during 2023 and 2024 primarily due to the

change in valuation allowance.

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.

The statute of limitation for those years expires three years after October 2021,

the date we filed our 2020 income tax returns.

The California Franchise Tax Board is currently conducting an audit on the Company's 2019, 2020 and 2021

California tax returns.

The statute of limitations for those years

expires three years after October 2021, the date we filed our 2020 income tax returns.

The California Franchise Tax Board is currently conducting an audit on the Company's 2019, 2020 and 2021 California tax returns;

the outcome of the audit is yet to be determined.

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 June 30, 2024, we have no uncertain tax positions.

At September 30, 2024, we have no uncertain tax positions.

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

We had no accrued interest or penalties related to uncertain tax positions at June 30, 2024.

We had no accrued interest or penalties related to uncertain tax positions at September 30, 2024.

Note 4 — Commitments and

Related Party Transactions

We have a non-exclusive service agreement for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for employees of the

We incurred approximately $ 315 and $ 686 compared to $ 112 and $ 399 in fees and reimbursements to the LLC during the three and six months ended June 30, 2024 and 2023, respectively.

We pay for the Company’s usage of the aircraft and have

no rights to purchase.

We have a non-exclusive service agreement for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business

travel for employees of the Company.

We incurred fees and reimbursemen ts to the LLC of approximately $ 446 and $ 1,132 during the three and nine months ended September 30, 2024, and $ 314 and $ 713 during the three and nine months ended September 30, 2023.

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.

The agreement with the LLC provides for use of the plane at an initial rate of $ 8 per flight hour which increased to $ 9.8

per flight hour in April 2024.

The agreement with the LLC

provides for use of the plane at an initial rate of $ 8 per flight hour which increased to $ 9.8 per flight hour in April 2024.

The agreement contains no minimum usage requirement and includes other terms and conditions.

The agreement can be cancelled by either us or the LLC with 30 days’ notice and renews on an annual basis unless terminated by either party.

Neither party has exercised their termination rights.

The agreement can be cancelled by either us or

the LLC with 30 days’ notice and renews on an annual basis unless terminated by either party.

Neither party has exercised their

termination rights.

– Leases for further discussion of our lease commitments.

9 unchanged sentences

All options, RSUs and restricted stock are subject to forfeiture if service terminates prior to the shares vesting.

At June 30, 2024, there were 1,058,006 shares available for grant under the Plan.

compensation expense included in general and administrative expense was $ 264 and $ 393 , and in research and development expense was $ 196 and $ 289 , for the three months ended June 30, 2024 and 2023, respectively.

Stock-based compensation expense included in general and administrative expense

was $ 494 and $ 764 , and

in research and development expense was $ 454 and $ 600 , for the six months ended June 30, 2024 and 2023, respectively.

During the three

months ended June 30, 2024, we granted 48,000 shares of restricted stock with a weighted average grant date fair value of $ 3.77 .

During the six months ended June 30, 2024, we granted 119,000 shares of restricted stock with a weighted average grant date fair value of $ 5.58 .

six months ended June 30, 2024, we paid $ 3 in withholding taxes on shares of restricted stock;

the grantees surrendered shares of equal

value and those surrendered shares were cancelled.

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

restricted stock was issued during the six months ended June 30, 2023.

No options were granted during the three and six months ended June 30, 2024.

During the three and six months ended June 30, 2023, we granted 1,875 options with a weighted average grant date fair value of $ 7 per share.

No options were exercised during the three and six months ended June 30, 2024

No RSUs were granted during the three and six months ended June 30, 2024.

During the three and six months ended June 30, 2023, we granted 1,248 RSUs with a grant date fair value of $ 10

We issued 7,168 shares of common stock as a result of vesting RSUs in the three and six months ended June 30, 2024.

issued 10,763 shares of common stock as a result of vesting RSUs in the three and six months ended June 30, 2023, for which we

paid $ 5 in withholding taxes.

As of June 30, 2024

and 2023, the unrecognized stock-based compensation expense related to unvested stock options, RSUs, and restricted stock was $ 2,374

At September 30, 2024, there were 1,081,278 shares available for grant under the Plan.

compensation expense included in general and administrative expense was $ 309 and $ 449 , and in research and development expense was $ 149 and $ 257 , for the three months ended September 30, 2024 and 2023, respectively.

Stock-based compensation expense included in general and administrative

expense was $ 802 and $ 1,213 ,

and in research and development expense was $ 603 and $ 857 , for the nine months ended September 30, 2024 and 2023, respectively.

No restricted stock awards were

granted during the three months ended September 30, 2024.

During the nine months ended September 30, 2024, we granted 119,000 shares

of restricted stock with a weighted average grant date fair value of $ 5.58 .

We paid $ 6 in withholding taxes on shares of restricted stock, which is reflected as financing costs in the accompanying statement of cash flows;

the grantees surrendered shares of

equal value, and those surrendered shares were cancelled.

During the three and nine months ended September 30, 2023, we granted 36,927

shares of restricted stock with a weighted average grant date fair value of $ 9.12 .

We paid $ 6 in withholding taxes on shares of restricted stock, which is reflected as financing costs in the accompanying statement of cash flows;

grantees surrendered shares of equal value, and those surrendered shares were cancelled.

No options were granted during the three and nine months ended September 30, 2024.

During the three and nine months ended September 30, 2023, we

granted 1,875 options with a weighted average grant date fair value of $ 7 per share.

No options were exercised during the

three and nine months ended September 30, 2024 or 2023.

No RSUs were granted during the three and nine months ended September 30, 2024.

No RSUs were granted during the three months ended September 30, 2023.

During the nine months ended September 30, 2023, we granted 1,248 RSUs with a grant date fair value of $ 10 per share.

During the nine months ended September 30, 2024 and 2023, we issued 7,166 and 10,763 shares of common stock as a result of vesting RSUs, for which we paid $ 3

and $ 5 , respectively, in withholding taxes, which is reflected as financing costs in the accompanying statement of cash flows;

grantees surrendered shares of equal value, and those surrendered shares were cancelled.

As of September 30,

2024 and 2023, the unrecognized stock-based compensation expense related to unvested awards (including stock options, RSUs, and restricted stock) was $ 1,778

and $ 3,712 , respectively, which will be amortized over an estimated weighted average period of approximately 2.16 years and 2.62 years,

respectively.

During the six months

ended June 30, 2024, we returned 32,750 options, 2,210 RSUs and 7,138 shares of restricted stock to the plan due to termination of employees and the

expiration of unexercised options.

During the nine

months ended September 30, 2024, we returned 49,937 options, 2,897 RSUs and 12,494 shares of restricted stock to the plan

due to termination of employees and the expiration of unexercised options.

Note 6 — Equity

During the six months ended June 30, 2024, we issued 119,000

shares of restricted stock, as well as 7,168 shares of common stock as a result of vesting RSUs.

During the six months ended June

30, 2023 we issued 10,763 shares of common stock as a result of vesting RSUs.

During the nine months ended September 30, 2024, we issued 119,000 shares of restricted stock, as well as 7,166 shares of common stock as a result of vesting

During the nine months ended September 30, 2023, we issued 36,927 shares of restricted stock, as well as 10,763 shares of common stock as a result of vesting RSUs.

2020, we issued warrants for the purchase of 1,250 shares of common stock at an exercise price of $ 115 per share, exercisable on the date of grant, expiring in April 2025 .

The weighted average fair value at the grant date was $ 83.20 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

June 30, 2024

The weighted average fair value at the grant date was $ 83.20 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.

December 31, 2023

September 30, 2024

April 30, 2025

Note 7 — Litigation

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 opening brief was filed on May 8, 2023, and Apple and the USPTO each filed a response brief on July 24, 2023.

VirnetX filed its reply brief on September 1, 2023.

On April 10, 2024,

we filed a motion voluntarily dismissing the appeal, which USCAFC granted on April 11, 2024.

This case is now closed.

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.

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

29, 2023, VirnetX filed a motion to remand.

That motion was denied without prejudice to VirnetX raising the same arguments in its opening appeal brief in an order dated December 27, 2023, which also set the deadline for VirnetX to file an opening

brief for February 5, 2024.

VirnetX filed its opening brief on February 5, 2024.

On April 3, 2024, VirnetX and Cisco filed a joint stipulation dismissing the appeal and cross-appeal.

USCAFC issued an order dismissing the appeal and cross-appeal

on April 8, 2024.

This case is now closed.

Other Legal Matters

From time to time, we are subject to various legal proceedings, the outcomes of which are inherently uncertain.

time to time, we are subject to various legal proceedings, the outcomes of which are inherently uncertain.

We record any potential gains related to legal proceedings only after cash is collected.

liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment.

As additional information becomes available, we reassess our potential liability and may

revise our estimates.

Such resolutions could have a material impact on future quarterly or annual results of operations.

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

We record a liability when it is probable that a

loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment.

As additional information becomes available, we reassess our potential liability and may revise our estimates.

resolutions could have a material impact on future quarterly or annual results of operations.

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.

Note 8 — Leases

1 unchanged sentence

The operating lease requires monthly payments of $ 5 and expires in October 2025 .

June 30, 2024, our ROU asset and lease liability totaled $ 68 .

Lease expense totaled $ 14 and $ 28 for the three and six months ended June 30, 2024.

September 30, 2024, our ROU asset and lease liability totaled $ 55 .

Lease expense totaled $ 14 and $ 42 for the three and nine months ended September 30,

Lease expense totaled $ 13 and $ 41

for the three and six months ended June 30, 2023.

for the three and nine months ended September 30, 2023.

We lease a facility in Utah to be used for technical integration and as a training facility.

This operating lease requires monthly payments starting at $ 72 , includes periodic increases, provides six months

This operating lease requires monthly payments starting at $ 72 , includes periodic increases, provides nine months

of free rent, and expires in April 2029.

At June 30, 2024, our ROU asset and lease liability totaled $ 3,233 and $ 3,719 , respectively.

At September 30, 2024, our ROU asset and lease liability totaled $ 3,099 and $ 3,578 , respectively.

Lease expense totaled $ 210

and $ 419 for the three and six months ended June 30, 2024.

and $ 629 for the three and nine months ended September 30, 2024.

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

3 unchanged sentences

2035, and requires either a single payment of $ 6,000 or annual payments each March beginning at $ 600 , increasing annually, for a total commitment of approximately $ 7,500 .

At June 30, 2024, our ROU asset totaled $ 5,778 and our lease

At September 30, 2024, our ROU asset totaled $ 5,757 and our lease

liability totaled $ 5,792 .

Lease expense totaled $ 143 and $ 241 for the three and six months ended June 30, 2024, and $ 75 and $ 150 for the three and six

months ended June 30, 2023.

Payments due under the above leases as of June 30, 2024 are as follows:

Lease expense totaled $ 143 and $ 384 for the three and nine months ended September 30, 2024, and $ 75 and $ 225 for the three and nine

months ended September 30, 2023.

Payments due under the above leases as of September 30, 2024 are as follows:

Less imputed interest

We have a service agreement for the use of an aircraft from a related party discussed in more detail in Note 4 – Commitments and Related Party Transactions.

We incurred approximately $ 315 and $ 686 in rental fees and reimbursements to the entity during the three and six months ended June 30, 2024 compared to $ 112 and $ 399 incurred during the three

and six months ended June 30, 2023.

We have a service agreement for the use of an aircraft from a related party discussed in more detail in Note 4 – Commitments and Related Party

Transactions.

We incurred rental fees and reimbursements to the entity of approximately $ 446 and $ 1,132 during the three and nine months ended September 30, 2024 compared to $ 314 and $ 713 incurred during the three and nine months ended September 30,

Note 9 — Earnings Per Share

2 unchanged sentences

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

Unvested restricted shares ( 138,633 in 2024 and zero in 2023) are

excluded from weighted average shares outstanding.

Unvested restricted shares ( 127,865 in 2024 and 34,990 in 2023)

are excluded from weighted average 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, 2024 and 2023 (in thousands, except per share

The following table shows the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2024 and 2023 (in thousands, except per share amounts):

Three Months Ended

Weighted-average

basic shares outstanding

dilutive securities

Weighted-average

diluted shares

Nine Months Ended

September 30,

September 30 ,

Weighted-average basic shares outstanding

Effect of dilutive securities

Weighted-average diluted shares

Basic (loss) per

1 unchanged sentence

We incurred a net

loss for the three and six months ended June 30, 2024 and 2023;

loss for the three and nine months ended September 30, 2024 and 2023;

therefore, all potentially dilutive securities representing shares of common stock ( 287,908

at June 30, 2024 and 348,729 at June 30, 2023) were excluded from the computation of diluted earnings per share, because their effect

would have been antidilutive.

at September 30, 2024 and 348,729 at September 30, 2023) were excluded from the computation of diluted earnings per share, because

their effect would have been antidilutive.

Note 10 — Subsequent Events

On November 12, 2024 we issued 507,000

shares of restricted stock, with a weighted average fair values at the date of grant of $ 6.08 .

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