What changed in this filing

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Item 1. Financial Statements

2026-08-14 compared with 2026-05-15 · 126 added, 107 removed, 278 unchanged (46% of the section changed)

23 unchanged sentences

Preferred stock, par value $ 0.0001 per share Authorized:

10,000,000 shares at March 31, 2026, and December 31, 2025;

10,000,000 shares at June 30, 2026, and December 31, 2025;

Issued and outstanding:

0 shares at March 31, 2026, and December 31, 2025

0 shares at June 30, 2026, and December 31, 2025

Common stock, par value $ 0.0001 per share Authorized:

100,000,000 shares at March 31, 2026 and December 31, 2025;

100,000,000 shares at June 30, 2026 and December 31, 2025;

Issued and outstanding:

4,185,852 shares at March 31, 2026 and 4,201,948 at December 31, 2025

4,217,203 shares at June 30, 2026 and 4,201,948 at December 31, 2025

Additional paid-in capital

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Three Months Ended

Six Months Ended

Operating expense:

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Three Months Ended

Six Months End

Other comprehensive income (loss):

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Three Months Ended

Six Months Ended

Total shareholders’ equity, beginning balances

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(in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

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Changes in assets and liabilities:

Accounts receivables

Accounts receivable

Prepaid expenses and other assets

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Cash flows from investing activities:

Purchase of property and equipment

Purchase of investments

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secure communications across any network or device.

Our products, including VirnetX One™, VirnetX Matrix™, and VirnetX War Room™, are designed to support the U.S.

Department of Defense (DoD), federal government, and commercial customers requiring

real-time encrypted communications and network security.

Our solutions are designed to also be applicable across a range of public and private sector markets, including critical infrastructure, law enforcement, healthcare, financial services, legal

services, energy, and related industries.

We pursue sales opportunities nationwide and engage with universities and academic institutions to support research collaboration, workforce development, and technology transition initiatives.

Our products, including VirnetX iSCOUT, VirnetX One™, VirnetX Matrix™, and VirnetX War Room™, are designed to support the U.S.

Department of Defense (DoD), federal government, and commercial customers

requiring real-time encrypted communications and network security.

Our VirnetX iSCOUT (IoT System for Connected Object Understanding and Telemetry) leverages a common, secure IoT and data infrastructure to fuse sensor, geospatial, and agency data

into a unified operating picture, including in disaster response and smart city environments.

Our solutions are designed to also be applicable across a range of public and private sector markets, including critical infrastructure, law enforcement,

healthcare, financial services, legal services, energy, and related industries.

We pursue sales opportunities nationwide and engage with universities and academic institutions to support research collaboration, workforce development, and technology

transition initiatives.

To support system design and evaluation, we employ Model-Based Systems Engineering (MBSE) and agent-based modeling methodologies.

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Going Concern

For the three months ended March 31, 2026, we had a net loss of $ 4,354 and an accumulated deficit of $ 227,249 .

For the six months ended June 30, 2026, we had a net loss of $ 8,881 and an accumulated deficit of $ 231,776 .

Management believes that its cash and cash equivalents will be insufficient to satisfy the Company’s current operations for the twelve months following the issuance of these financial statements.

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Unaudited Interim Financial Information

The accompanying Condensed Consolidated Balance Sheet as of March 31, 2026, the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, Condensed Consolidated

Statements of Shareholders’ Equity, and Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2026, and 2025 are unaudited.

These unaudited interim condensed 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 condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair

presentation of our financial position as of March 31, 2026, our results of operations and our cash flows for the three months ended March 31, 2026, and 2025.

The results of operations for interim periods are not necessarily indicative of the

results to be expected for a full year.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal

year ended December 31, 2025, filed with the SEC on March 24, 2026.

The accompanying Condensed Consolidated Balance Sheet as of June 30, 2026, the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, and Condensed

Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2026 and 2025, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2026 and 2025 are unaudited.

These unaudited

interim condensed 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 condensed consolidated financial statements

include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of June 30, 2026, our results of operations for the three and six months ended June 30, 2026 and 2025, and our cash flows for the

six months ended June 30, 2026 and 2025.

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

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form

10-K for the fiscal year ended December 31, 2025, filed with the SEC on March 24, 2026.

Use of Estimates

We prepare our condensed consolidated financial statements in accordance with U.S.

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 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, changes in the accounting estimates are reasonably likely to

occur from period to period.

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

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 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 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.

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If we identify an impairment, we reduce the carrying value for the impairment loss with a charge to operating expenses.

In September 2025, we identified an impairment in our investment in OP Media Inc., and as a result, we recognized an impairment loss totalling $ 500 .

In September 2025, we identified an impairment in our investment in OP Media Inc., and as a result, we recognized an impairment loss totaling $ 500 .

Basis of Consolidation

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Revenue Recognition

We derive revenue from professional service contracts and licensing and royalty fees, which can span several years.

We recognize revenue pursuant to Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers.

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

the customer.

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

Our revenue arrangements may consist of multiple-element arrangements,

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

With our service contracts, performance obligations are generally satisfied as the service is delivered.

With the licensing of our patents,

performance obligations are generally satisfied at a point in time as work is complete when our patent rights are transferred to our customers.

Revenue may include professional services, hosted services, subscriptions and licenses, with revenue recognized pursuant to Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts

with Customers.

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

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

the performance obligation is satisfied.

Our revenue arrangements may consist of multiple-element arrangements, with revenue for each unit of accounting recognized as the product or service is delivered to the customer.

With our service contracts,

performance obligations are generally satisfied as the service is delivered.

With the licensing of our patents, performance obligations are generally satisfied at a point in time as work is complete when our patent rights are transferred to our

We generally have no further obligation to our customers regarding our technology.

Certain contracts may

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

Payment for services and licensing is collected within a short period

following commencement of delivery of services or transfer of patent rights.

Certain contracts may require our customers to enter into a hosting arrangement with us and for these arrangements, revenue is recognized over time,

generally over the life of the service contract.

Payment for services and licensing is collected within a short period following commencement of delivery of services or transfer of patent rights.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with maturities of three months or less at the date of purchase to be cash equivalents.

Our cash and cash equivalents are not subject to significant interest rate

risk due to the short maturities of these investments.

Our cash and cash equivalents are not subject to significant

interest rate risk due to the short maturities of these investments.

Property and Equipment

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Impairment of Long-Lived Assets

We identify and record impairment losses on long-lived assets used in operations when events and changes in circumstances indicate that the carrying amount of an asset might not be recoverable, but not less than

We identify and record impairment losses on long-lived assets used in operations when events and changes in circumstances indicate that the carrying amount of an asset might not be recoverable, but

not less than annually.

Recoverability is measured by comparison of the anticipated future net undiscounted cash flows to the related assets’ carrying value.

If such assets are deemed impaired, the impairment to be recognized is measured by the amount by which

the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset.

If such assets are deemed impaired, the impairment to be recognized is measured by the

amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset.

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 are expensed as incurred.

Research and development costs are expensed as

We account for income taxes using the asset and liability method.

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Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share are computed by

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

Diluted earnings per share

are computed by dividing net income by the weighted average number of shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities

had been issued.

Additionally, weighted average shares outstanding for both basic and diluted earnings per share include all vested restricted shares issued and outstanding.

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In November 2024, the FASB issued Accounting Standards Update (ASU) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation (Subtopic

Disaggregation

of Income Statement Expenses , that requires disclosure of the amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization included in each relevant expense line item on the income statement.

Disaggregation of Income Statement Expenses , that requires disclosure of the amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization included in each relevant expense line item on

the income statement.

The standard also requires a qualitative description of other amounts included in each relevant expense line item on the income statement that are not separately disclosed.

In addition, entities are required to disclose the nature and amount of

selling expenses.

In addition, entities are required to disclose the

nature and amount of selling expenses.

The new standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

We do not expect the adoption of this

accounting standard to have an impact on our consolidated financial statements but will require certain additional disclosures.

We do not expect the

adoption of this accounting standard to have an impact on our consolidated financial statements but will require certain additional disclosures.

In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832):

Accounting for Government Grants Received by Business Entities , which establishes authoritative

guidance on the recognition, measurement, presentation, and disclosure of government grants.

Under ASU 2025-10, government grants are recognized when it is probable that the entity will both comply with the conditions of the grant and the grant

will be received.

The ASU provides specific accounting models for grants related to assets and grants related to income, including options to recognize government grants as deferred income or as a reduction of the asset’s cost basis.

requires enhanced disclosures regarding the nature of government grants, significant terms and conditions, accounting policies applied, and amounts recognized in the financial statements.

ASU 2025-10 is effective for fiscal years beginning after

December 15, 2028, including interim periods within those fiscal years, with early adoption permitted.

Accounting for Government Grants Received by Business Entities , which

establishes authoritative guidance on the recognition, measurement, presentation, and disclosure of government grants.

Under ASU 2025-10, government grants are recognized when it is probable that the entity will both comply with the conditions of

the grant and the grant will be received.

The ASU also requires enhanced disclosures regarding the nature of government grants, significant terms and conditions, accounting policies applied, and amounts recognized in the financial statements.

ASU 2025-10 is effective for fiscal

years beginning after December 15, 2028, including interim periods within those fiscal years, with early adoption permitted.

The Company is currently evaluating the impact of adopting this standard.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270):

Narrow-Scope Improvements , which clarifies the guidance in Topic 270 to improve the consistency

of interim financial reporting.

The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have a material

impact on the entity.

Narrow-Scope Improvements , which clarifies the guidance in Topic 270 to improve

the consistency of interim financial reporting.

have a material impact on the entity.

ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted.

The Company is currently evaluating the impact of adopting this

The Company is currently evaluating the impact of

adopting this standard.

Fair Value of Financial Instruments

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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).

Level 2 measurements utilize either directly or

indirectly observable inputs in markets other than quoted prices in active markets.

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.

Mutual funds:

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Valued 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, 2026 and December 31, 2025.

March 31, 2026

The following tables show the adjusted cost, gross unrealized gains, gross unrealized losses, and fair value of our securities by significant investment category as of June 30, 2026 and December 31, 2025.

June 30, 2026

agency and treasury securities

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Note 3 — Income Taxes

For the three months ended March 31, 2026 and 2025, we recognized income tax expense of $ 0 and $ 2 , on pretax losses of $ 4,354 , and $ 3,677 .

For the three months ended June 30, 2026 and 2025, we recognized no income tax expense in both periods on pretax losses of $ 4,527 and $ 3,621 .

For the six months ended June 30, 2026 and 2025, we recognized income tax expense of $ 0 and $ 2 , on pretax losses of $ 8,881 and $ 7,298 .

Our effective tax rate is approximately 0 % for all periods.

Our effective tax rate differed from the federal statutory rate of 21 %, primarily due to the valuation allowance placed against our net deferred tax assets.

We have a full valuation allowance on all federal and state deferred tax assets as of March 31, 2026.

We have a full valuation allowance on all federal and state deferred tax assets as of June 30, 2026.

Our tax years for 2007 and forward are subject to examination by the U.S.

tax authority and our tax years for 2021 and forward are open for various state tax authorities because we utilized the net operating loss and tax credits generated in those years in 2020.

As of March 31, 2026, we have accrued $ 484 for uncertain tax positions and no interest and penalties related to these positions and do not expect significant changes to the estimate in the coming twelve months.

As of June 30, 2026, we have accrued $ 484 for uncertain tax positions and no interest and penalties related to these positions and do not expect significant changes to the estimate in the coming twelve months.

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 our employees.

We incurred approximately $ 560 compared to $ 377 during the three months ended March 31, 2026 and 2025, respectively.

We incurred approximately $ 566 and $ 380 during the three months ended June 30, 2026 and 2025, respectively.

We incurred approximately $ 1,126 and $ 756 during the six months ended June 30, 2026 and 2025, respectively.

At June 30, 2026, $ 98 due to the LLC was included in accounts payable.

We pay for our use of the aircraft and have no rights to purchase.

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The agreement with the LLC provides for use of the plane at a rate of $ 12 per flight hour;

prior to April 1, 2026 the rate was $ 9.8 per flight hour.

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

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Note 5 — Stock-Based Compensation

At March 31, 2026, there were 153,090 shares available for grant under our equity incentive plan.

Stock-based compensation expense included in general and administrative expense was $ 392 and $ 190 , and in research and development expense was $ 347 and $ 242 , for the three months ended March 31, 2026 and 2025, respectively.

No awards were granted during the three months ended March 31, 2026 or 2025.

As of March 31, 2026 and 2025, the unrecognized stock-based compensation expense related to unvested awards (including stock options, RSUs, and restricted stock) was $ 8,688 and $ 3,999 , respectively, which will be amortized over an estimated weighted average period of approximately 3.1 years and 3.3 years, respectively.

During 2026, we cancelled 46,176 awards and added them back to the plan.

Our stockholders approved the Amended and Restated 2013 Equity Incentive Plan at our annual shareholders’ meeting in June 2026, which added a million shares to the plan;

at June 30, 2026, there were 1,133,720 shares available for grant under the plan.

Stock-based compensation expense included in general and administrative expense was $ 397 and $ 237 , and in research and development expense was $ 346 and $ 204 , for the three months ended June 30, 2026 and 2025, respectively.

Stock-based compensation expense included in general and administrative expense was $ 789 and $ 427 , and in research and development expense was $ 693 and $ 445 , for the six months ended June 30, 2026 and 2025, respectively.

30,000 restricted stock awards were granted in both June 2026 (weighted average price of $ 12.72 per share) and June 2025 (weighted average price of $ 8.90 per share).

No other awards were issued.

As of June 30, 2026 and 2025, the unrecognized stock-based compensation expense related to unvested awards (including stock options, RSUs, and restricted stock) was $ 8,326 and $ 3,825 , respectively, which will be amortized over an estimated weighted average period of approximately 2.91 years.

During the six months ended June 30, 2026 and 2025, we cancelled 56,808 and 11,286 awards, respectively, and added them back to the plan.

Note 6 — Equity

During the three months ended March 31, 2026, and 2025, no shares of common stock were issued.

During the six months ended June 30, 2026, we issued 30,000 shares of restricted stock as well as 1,561 shares of common stock pursuant to vesting RSUs.

During the six months ended June 30, 2025, we issued 30,000 shares of restricted stock as well as 3,341 shares of common stock pursuant to vesting RSUs.

In 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;

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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.

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.

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 made them.

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

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The operating lease requires monthly payments of $ 5 and expires in October 2027.

At March 31, 2026, our ROU asset and lease liability totaled $ 82 .

Lease expense totaled $ 16 and $ 14 for the three months ended March 31, 2026 and 2025.

At June 30, 2026, our ROU asset and lease liability totaled $ 69 .

Lease expense totaled $ 16 and $ 14 , for the three months ended June 30, 2026 and 2025, respectively.

Lease expense totaled $ 33 and $ 28 , for the six months ended June 30, 2026 and 2025, respectively.

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

This operating lease requires monthly payments of $ 75 , includes periodic increases, and expires in April 2029.

At March 31, 2026, our ROU asset totaled $ 2,233 and lease liability totaled $ 2,617 .

Lease expense totaled $ 207 and $ 210 for the three months ended March 31, 2026 and 2025, respectively.

This operating lease requires monthly payments of $ 77 , includes periodic increases, as well as, various pass-thru expenses, and expires in April 2029.

At June 30, 2026, our ROU asset totaled $ 2,076 and lease liability totaled $ 2,440 .

Lease expense totaled $ 211 and $ 210 for the three months ended June 30, 2026 and 2025, respectively.

Lease expense totaled $ 419 for both six month periods ended June 30, 2026 and 2025.

We also lease a facility in California for corporate promotional and marketing through 2035.

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on January 13, 2025, we changed to the annual payment option, adjusting our ROU asset and lease liability approximately $ 600 for the modification.

At March 31, 2026, our ROU asset totaled $ 4,670 and our lease liability totaled $ 4,518 .

Lease expense totaled $ 181 and $ 176 for the three months ended March 31, 2026 and 2025, respectively.

Payments due under the above leases as of March 31, 2026, are as follows:

At June 30, 2026, our ROU asset totaled $ 4,573 and our lease liability totaled $ 4,604 .

Lease expense totaled $ 181 for both three month periods ended June 30, 2026 and 2025, respectively.

Lease expense totaled $ 363 and $ 357 for the six months ended June 30, 2026 and 2025, respectively.

Payments due under the above leases as of June 30, 2026, 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.

We incurred approximately $ 560 compared to $ 377 during the three months ended March 31, 2026 and 2025, respectively.

We incurred approximately $ 566 and $ 1,126 for the three and six months ended June 30, 2026 compared to $ 380 and $ 756 for the three and six months ended June 30, 2025.

Note 9 — Earnings Per Share

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

Unvested restricted shares ( 424,212 as of March 31, 2026, and 611,259 as of March 31, 2025) 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 months ended March 31, 2026 and 2025 (in thousands, except per share amounts):

Unvested restricted shares ( 414,636 as of June 30, 2026 and 608,954 as of June 30, 2025) are excluded from weighted average shares outstanding.

Potential common shares outstanding principally include stock options excluding any 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 June 30, 2026 and 2025 (in thousands, except per share amounts):

Three Months Ended

Six Months Ended

Weighted-average basic shares outstanding

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Diluted (loss) per share

We incurred a net loss for the three months ended March 31, 2026 and 2025;

therefore, all potentially dilutive securities representing shares of common stock ( 227,490 at March 31, 2026 and 263,790 at March 31, 2025) were excluded from the computation of diluted earnings per share, because their effect would have been antidilutive.

We incurred a net loss for the three and six months ended June 30, 2026 and 2025;

therefore, all potentially dilutive securities representing shares of common stock ( 218,337 at June 30, 2026 and 248,488 at June 30, 2025) were excluded from the computation of diluted earnings per share, because their effect would have been antidilutive.

Note 10 — Segment Reporting

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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