form10q.htm

0001140361-12-024466.txt : 20120510 0001140361-12-024466.hdr.sgml : 20120510 20120510171524 ACCESSION NUMBER: 0001140361-12-024466 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20120331 FILED AS OF DATE: 20120510 DATE AS OF CHANGE: 20120510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VirnetX Holding Corp CENTRAL INDEX KEY: 0001082324 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 770390628 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-33852 FILM NUMBER: 12831318 BUSINESS ADDRESS: STREET 1: 308 DORLA COURT STREET 2: SUITE 206 CITY: ZEPHYR COVE STATE: NV ZIP: 89448 BUSINESS PHONE: (831) 438-8200 MAIL ADDRESS: STREET 1: 308 DORLA COURT STREET 2: SUITE 206 CITY: ZEPHYR COVE STATE: NV ZIP: 89448 FORMER COMPANY: FORMER CONFORMED NAME: PASW INC DATE OF NAME CHANGE: 20001109 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC SOFTWORKS INC DATE OF NAME CHANGE: 19990322 10-Q 1 form10q.htm VIRNETX HOLDING CORPORATION 10-Q 3-31-2012 form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-33852

VirnetX Holding Corporation

(Exact name of registrant as specified in its charter)

Delaware		77-0390628
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

308 Dorla Court, Suite 206
Zephyr Cove, Nevada		89448
(Address of principal executive offices)		(Zip Code))

Registrant’s telephone number, including area code: (775) 548-1785

Former name, former address and former fiscal year, if changed since last report:

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares outstanding of the Registrant’s Common Stock as of May 4, 2012, was 50,862,872.

WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS "BELIEVE", "EXPECT", "ANTICIPATE", "INTEND", "PLAN", "ESTIMATE" OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. AMONG OTHERS, THE FORWARD LOOKING STATEMENTS WHICH APPEAR IN THIS REPORT THAT MAY NOT OCCUR INCLUDE:

●

THE DESCIPTION OF OUR BUSINESS INCLUDES A STATEMENT THAT WE INTEND TO MARKET OUR GABRIEL CONNECTION TECHNOLOGY™. AN IMPLICATION OF THIS STATEMENT MAY BE THAT WE WILL BE ABLE TO SUCCESSFULLY MARKET THIS TECHNOLOGY AND THAT IT WILL GENERATE REVENUE IN THE FUTURE. IN FACT, THERE ARE MANY FACTORS WHICH WILL IMPACT THE SUCCESS OF THIS TECHNOLOGY FOR US, INCLUDING SEVERAL FACTORS WHICH ARE BEYOND OUR CONTROL, SUCH AS THE DEMAND FOR THIS TECHNOLOGY BY POTENTIAL CUSTOMERS AND THE LEVEL OF COMPETITION IN OUR BUSINESS.

●

THE DESCRIPTION OF OUR BUSINESS INCLUDES STATEMENTS RELATING TO OUR INTENT TO ESTABLISH A SECURE DOMAIN NAME REGISTRY IN THE U.S. AND OTHER PARTS OF THE WORLD AND THAT WE ARE CONSIDERING MAKING APPLICATIONS TO BECOME ACCREDITED TO DO SO UNDER AUTHORITY OF THE U.S. GOVERNMENT. THE IMPLICATION OF THOSE STATEMENTS MAY BE THAT WE WILL BE ABLE TO ESTABLISH A REGISTRY THAT WILL HAVE MARKET ACCEPTANCE AND THAT IT WILL GENERATE REVENUE FOR US IN THE FUTURE. THERE ARE MANY FACTORS WHICH WILL IMPACT OUR ABILITY TO SUCCESSFULLY ESTABLISH A DOMAIN NAME REGISTRY, INCLUDING SEVERAL FACTORS WHICH ARE BEYOND OUR CONTROL, SUCH AS THE ACCREDITATION APPLICATION PROCESS OR THE ACCEPTANCE OF OUR REGISTRY OVER OTHERS, PARTICULARLY IF WE DETERMINE TO ESTABLISH A REGISTRY WITHOUT ACCREDITATION.

●

THE STATEMENTS THAT WE HAVE SUBMITTED A LICENSING DECLARATION TO THE 3RD GENERATION PARTNERSHIP, OR 3GPP, UPDATED SUCH DECLARATIONS AT THE REQUEST OF THE EUROPEAN TELECOMMUNICATIONS STANDARDS INSTITUTE, OR ETSI, AND THE ALLIANCE FOR TELECOMMUNICATIONS INDUSTRY SOLUTIONS, OR ATIS, AND THAT WE BELIEVE WE ARE POSITIONED TO LICENSE OUR PATENTS TO 3GPP MEMBERS DESIRING TO IMPLEMENT THE TECHNICAL SPECIFICATIONS IDENTIFIED BY US, MAY IMPLY THAT THE PATENTS WE HAVE IDENTIFIED TO 3GPP WILL GENERATE LICENSING REVENUE FOR US IN THE FUTURE. WE CANNOT ASSURE YOU THAT WE WILL BE SUCCESSFUL IN LICENSING OUR PATENTS OR THAT THIRD PARTIES WILL BE WILLING TO ENTER INTO LICENSES WITH US ON REASONABLE TERMS OR AT ALL.

●

OUR STATEMENT THAT WE BELIEVE WE HAVE THE FINANCIAL AND OTHER RESOURCES TO COMPLETE OUR BUSINESS PLAN MAY IMPLY THAT OUR RESOURCES WILL BE SUFFICIENT TO COMPLETE THAT PLAN SUCCESSFULLY. HOWEVER, WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN FOR MANY REASONS, INCLUDING MANY REASONS THAT ARE BEYOND OUR CONTROL, SUCH AS THE POSSIBILITY THAT OUR FINANCIAL RESOURCES BECOME EXHAUSTED DUE TO INCREASED COSTS ASSOCIATED WITH OUR ATTEMPTS TO COMPETE WITH OTHERS WHO MAY HAVE GREATER RESOURCES, OR DUE TO OUR OTHER ACTIVITIES, INCLUDING OUR LITIGATION ACTIVITIES.

●

STATEMENTS DESCRIBING OUR LITIGATION EFFORTS MAY IMPLY THAT WE WILL PREVAIL IN SOME OR ALL OF OUR PENDING LITIGATION. HOWEVER, WE CANNOT ASSURE YOU WE WILL PREVAIL IN OUR PENDING LITIGATION MATTERS AND ANY ADVERSE RULING MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. ALSO, THE LEGAL AND OTHER COSTS WE MAY INCUR IN CONNECTION WITH LITIGATION MATTERS WILL DEPEND, IN PART, UPON ACTIONS TAKEN BY OTHER PARTIES, WHICH ACTIONS ARE NOT WITHIN OUR CONTROL AND THESE COSTS MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

●

OUR REFERENCES TO THE FACTS THAT OUR CORE DEVELOPMENT TEAM HAS SPENT OVER TEN YEARS WORKING TOGETHER, AND HAS HAD PRIOR SUCCESS AT SAIC MAY IMPLY THAT OUR TEAM WILL BE SUCCESSFUL IN THE FUTURE. HOWEVER, THIS TEAM MAY NOT BE SUCCESSFUL FOR MANY REASONS, INCLUDING MANY REASONS THAT ARE BEYOND OUR CONTROL, SUCH AS THE POSSIBILITY THAT ONE OR MORE KEY MEMBERS OF THE TEAM BECOMES INCAPACITATED, OR THAT COMPETITORS ARE SUCCESSFUL IN DEVELOPING SUPERIOR PRODUCTS.

●

OUR STATEMENT WITH RESPECT TO OUR INTENT TO MARKET AND SELL LICENSE AND SERVICES TO OTHERS MAY IMPLY THAT OUR PLANS TO DO SO ARE IMMINENT OR WILL BE SUCCESSFUL. HOWEVER, MARKETING AND SELLING OUR PRODUCT AND SERVICES WHILE SIMULTANEOUSLY PURSUING OUR LITIGATION AND OUR FURTHER DEVELOPMENT ACTIVITIES CAN PRESENT SIGNIFICANT CHALLENGES. OUR MARKETING AND SALES PLANS MAY TAKE LONGER TO IMPLEMENT THAN WE NOW EXPECT, MAY NOT BE IMPLEMENTED, OR MAY FAIL.

THESE AND OTHER UNEXPECTED RESULTS MAY BE CAUSED BY VARIOUS FACTORS, SOME OF WHICH ARE BEYOND OUR CONTROL, INCLUDING:

●

THE IMPACT OF CHANGES IN THE U.S. AND GLOBAL ECONOMIES IN GENERAL, TECHNOLOGICAL INNOVATIONS THAT AFFECT OUR INDUSTRY, OR CHANGES IN CAPITAL MARKETS ON US AND OUR INTENDED CUSTOMERS;

●

COMPLIANCE WITH, AND CHANGES TO, U.S. FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS, FOREIGN LAWS AND REGULATIONS, ACCOUNTING RULES, TAX RATES AND SIMILAR MATTERS; AND

●

COMPETITION WITHIN OUR INDUSTRY.

WE HAVE GENERATED NET INCOME IN ONLY ONE ANNUAL REPORTING PERIOD SINCE WE BECAME PUBLICLY OWNED. ALTHOUGH OUR PLANS ARE INTENDED TO GENERATE NET INCOME, THERE CAN BE NO ASSURANCE THAT THESE PLANS WILL SUCCEED.

RESULTS THAT DIFFER FROM THOSE STATED OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS MAY ALSO BE CAUSED BY VARIOUS CHANGES IN OUR BUSINESS OR MARKET CONDITIONS AS DESCRIBED MORE FULLY IN OUR ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND ALSO UNDER "PART I. ITEM 1A. RISK FACTORS" AND ELSEWHERE IN THIS REPORT.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.

EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD LOOKING STATEMENT AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

VIRNETX HOLDING CORPORATION

INDEX

		Page
PART I — FINANCIAL INFORMATION		1
	Item 1 — Financial Statements.	1
	Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011	1
	Condensed Consolidated Statements Of Operations for the three months ended March 31, 2012 and 2011	2
	Condensed Consolidated Statements Of Comprehensive Income for the three months ended March 31, 2012 and 2011	2
	Condensed Consolidated Statements Of Cash Flows for the three months ended March 31, 2012 and 2011	3
	Notes to Condensed Consolidated Financial Statements	4
	Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	Item 3 — Quantitative and Qualitative Disclosures About Market Risk	13
	Item 4 — Controls and Procedures	13
PART II — OTHER INFORMATION		14
	Item 1 — Legal Proceedings	14
	Item 1A — Risk Factors	14
	Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	20
	Item 3 — Defaults Upon Senior Securities	20
	Item 4 — Mine Safety Disclosure	20
	Item 5 — Other Information	20
	Item 6 — Exhibits	21
SIGNATURES		22
EXHIBIT INDEX		23

Index

PART I — FINANCIAL INFORMATION

ITEM 1. — FINANCIAL STATEMENTS.

VIRNETX HOLDING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	March 31, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	39,957			$	49,482
Investments available for sale		19,935				14,438
Prepaid taxes		12,639				10,459
Prepaid expense and other current assets		447				91
Total current assets		72,978				74,470
Property and equipment, net		61				56
Intangible and other assets		48				60
Deferred tax benefit		40				47
Total assets	$	73,127			$	74,633
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	3,756			$	1,227
Income tax liability		430				430
Derivative liability		4,430				4,699
Total current liabilities		8,616				6,356
Stockholders’ equity:
Preferred stock, par value $0.0001 per share
Authorized: 10,000,000 shares at March 31, 2012, and December 31, 2011 Issued and outstanding: 0 shares at March 31, 2012 and December 31, 2011		—				—
Common stock, par value $0.0001 per share
Authorized: 100,000,000 shares at March 31, 2012 and December 31, 2011 Issued and outstanding: 50,697,136 shares at March 31, 2012, and 50,619,136 at December 31, 2011, respectively		5				5
Additional paid in capital		105,239				104,277
Accumulated deficit		(40,711	)			(36,001	)
Accumulated other comprehensive loss		(22	)			(4	)
Total stockholders’ equity		64,511				68,277
Total liabilities and stockholders’ equity	$	73,127			$	74,633

See accompanying notes to condensed consolidated financial statements.

Index

VIRNETX HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share amounts)

	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011
Revenue — Royalties	$	—		$	17
Operating expense:
Research and development		256			196
General, selling and administrative		6,967			2,573
Total operating expense		7,223			2,769
Loss from operations		(7,223	)		(2,752	)
Gain (loss) on change in value of derivative liability		269			(5,130	)
Interest income, net		74			60
Loss before taxes		(6,880	)		(7,822	)
Income tax benefit		(2,173	)		(700	)
Net loss	$	(4,707	)	$	(7,122	)
Basic and diluted loss per share:	$	(0.09	)	$	(0.14	)
Weighted average shares outstanding basic and diluted		50,658			49,461

VIRNETX HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)

	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011
Net loss	$	(4,707	)	$	(7,122	)
Other comprehensive income (loss), net of tax:
Change in unrealized loss on investments, net of tax		(18	)		962

Comprehensive loss	$	(4,725	)	$	(6,160	)

See accompanying notes to condensed consolidated financial statements.

Index

VIRNETX HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011
Cash flows from operating activities:
Net loss	$	(4,707	)	$	(7,122)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		17			15
Stock-based compensation		873			643
Net change in deferred taxes		7			3,325
Change in value of derivative liability		(269	)		5,130
Changes in assets and liabilities:
Receivables and other current assets		—			(3	)
Prepaid taxes		(2,180	)		—
Prepaid expenses and other current assets		(356	)		(216	)
Accounts payable and accrued liabilities		2,529			(15	)
Income tax liability		—			(13,723	)
Net cash used in operating activities		(4,086	)		(11,966	)
Cash flows from investing activities:
Purchase of property and equipment		(10	)		—
Purchase of investments		(23,980	)		(10,224	)
Proceeds from sale or maturity of investments		18,461			30,372
Net cash provided by (used in) investing activities		(5,529	)		20,148
Cash flows from financing activities:
Proceeds from exercise of options		90			—
Proceeds from exercise of warrants		—			736
Net cash provided by financing activities		90			736
Net increase (decrease) in cash and cash equivalents		(9,525	)		8,918
Cash and cash equivalents, beginning of period		49,482			34,635
Cash and cash equivalents, end of period	$	39,957		$	43,553
Supplemental disclosure of cash flow information:
Cash paid during the period for taxes	$	—		$	9,600
Cash paid during the period for interest	$	—		$	—

See accompanying notes to condensed consolidated financial statements.

Index

VIRNETX HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

Note 1 — Business Description and Basis of Presentation

VirnetX, Inc. (“we” or “VirnetX”) develop software and technology solutions for securing real-time communications over the Internet. Our patented GABRIEL Connection Technology™ combines industry standard encryption protocols with our patented techniques for automated domain name system, or DNS, lookup mechanisms, and enables users to create a secure communication link using secure domain names over wired or wireless (4G/LTE) networks.

Our portfolio of intellectual property is the foundation of our business model. We currently own 20 patents in the United States and 26 foreign patents, as well as several pending U.S. and foreign patent applications. Our patent portfolio is primarily focused on securing real-time communications over the Internet, as well as related services such as the establishment and maintenance of a secure domain name registry. Our patented methods also have additional applications in operating systems and network security. On December 1, 2009, we submitted a licensing declaration to the 3rd Generation Partnership Project, or 3GPP, identifying those of our U.S. and international patents which may be relevant to Long Term Evolution, or LTE. On March 14, 2011, we supplemented our licensing declaration to include five additional specifications. On April 28, 2011, at the request of the European Telecommunications Standards Institute, or ETSI, we agreed to update our licensing declaration to ETSI under ETSI's Intellectual Property Rights or IPR policy. We agreed with ETSI that we will make available a non-exclusive patent license under fair, reasonable and non-discriminatory terms and conditions, with compensation, or FRAND, to 3GPP members desiring to implement the Technical Specifications identified by us, as set forth in the updated licensing declaration under ETSI’s IPR policy. On June 17, 2011, in response to a request from the Alliance for Telecommunications Industry Solutions, or ATIS, the North American Organizational Partner for 3GPP, we also agreed to make available a non-exclusive patent license to 3GPP members desiring to implement the technical specifications identified by us, as set forth in the updated licensing declaration under ATIS' IPR policy.

Our software and technology solutions provide the security platform required by next-generation Internet-based applications such as instant messaging, or IM, voice over Internet protocol, or VoIP, mobile services, streaming video, file transfer and remote desktop. Our technology generates secure connections on a “zero-click” or “single-click” basis, significantly simplifying the deployment of secure real-time communication solutions by eliminating the need for end-users to enter any encryption information.

Microsoft Corporation is our first licensee and has been granted a worldwide, irrevocable, nonexclusive, non-sublicenseable fully paid up license of our patents for Microsoft products. We intend to seek further license of our technology, including our GABRIEL Connection Technology™ to enterprise customers, developers and original equipment manufacturers, or OEMs, of chips, servers, smart phones, tablets, e-Readers, laptops, net books and other devices, within the IP-telephony, mobility, fixed-mobile convergence and unified communications markets including 4G/LTE.

The accompanying interim condensed consolidated financial statements are unaudited. These unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, applicable for interim financial statements. Therefore, the disclosures do not include all the information necessary for complete financial statements in accordance with GAAP. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2011, or our Annual Report. Interim financial reporting standards require us to make estimates that are based on assumptions regarding the outcome of future events and circumstances not known at that time. Inevitably, some assumptions will not materialize, unanticipated events or circumstances may occur which vary from those estimates and such variations may significantly affect our future results. In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included. Our financial results have varied significantly from period to period. For this and other reasons, our operating results for any historical periods are not necessarily indicative of the results that may be expected for any future period.

Index

Note 2 – Summary of Significant Accounting Policies

Revenue Recognition

We defer recognition of revenue in accordance with ASC Topic 605 until such time as all of the criteria below have been met:

●

persuasive evidence of sales arrangements;

●

delivery has occurred or services have been rendered;

●

the buyer’s price is fixed or determinable; and

●

collection is reasonably assured.

We expect that some or all of our future licensing agreements will provide for payments to us over an extended period of time. For a licensing agreement with fixed royalty payments, we expect to recognize revenue as amounts become due. For a licensing agreement with variable royalty payments we expect to recognize royalty revenue at the time that the licensees' sales occur; however, because we expect that a licensee may report sales information to us on a delayed basis, we expect our revenue recognition criterion may also be met on a delayed basis.

Complex revenue arrangements may require us to make significant judgments, assumptions and estimates about when substantial delivery of contract elements will occur, whether any significant ongoing obligations exist subsequent to contract execution, whether amounts due are collectible and the appropriate period in which the completion of the earning process occurs. If new information subsequently becomes known to us which causes us to make different judgments, assumptions or estimates regarding material contracts, our financial results may be materially affected.

Earnings Per Share

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share is 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. During the three months ended March 31, 2012 and 2011, we incurred losses; therefore, the effect of any Common Stock equivalents was anti-dilutive during those periods.

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. A portion of those balances are insured by the Federal Deposit Insurance Corporation, or FDIC. During the period ended March 31, 2012 and 2011, we had, at times, funds that were uninsured. The uninsured balance at March 31, 2012, was approximately $18,715 compared to $29,185 at December 31, 2011. We do not believe that we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships with major financial institutions. We have not experienced any losses on our deposits of cash and cash equivalents.

Derivative Instruments

Our Series I Warrants contain an anti-dilution provision which precludes them from being considered indexed to our stock. As a result, the warrants are required to be accounted for as derivative instruments.

We recognize derivative instruments as either assets or liabilities on the accompanying Condensed Consolidated Balance Sheets at fair value. We record changes in the fair value (i.e., gains or losses) of the derivatives in the accompanying Condensed Consolidated Statements of Operations.

Impairment of Long-Lived Assets

On an annual basis 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. Recoverability is measured by comparison of the anticipated future net undiscounted cash flows to the related assets’ carrying value. If such assets are considered to be 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.

Fair Value of Financial Instruments

Fair value is the price that would result from an orderly transaction between market participants at the measurement date. 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 observable inputs in markets other than active markets.

Our financial instruments are stated at amounts that equal to, or approximate, fair value. When we approximate 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 technique. We use quoted valuation techniques, primarily the income and market approach, that maximize the use of observable inputs and minimize the use of unobservable inputs for recurring fair value measurements.

Index

Certificate of deposits: Fair value measured at face value plus accrued interest.

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

Series I Warrants: Fair value measured by using a Binomial valuation model. As of March 31, 2012 and December 31, 2011, the assumptions used to measure fair value of our outstanding Series I Warrants carried as derivative liabilities on our condensed consolidated balance sheet for March 31, 2012 included a warrant exercise price of $3.59 per share, a common share price of $23.93, a discount rate of 1.04%, and a volatility of 115%. The assumptions used for December 31, 2011 was a warrant exercise price of $3.59 per share, a common share price of $24.97, a discount rate of 0.83%, and a volatility of 123%.

The following tables show our securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category as of March 31, 2012 and December 31, 2011.

	March 31, 2012
Level 1:	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Certificates of deposit	$	3,332	$	3	$	—		$	3,335

Corporate Bonds:
AA		4,185		13		—			4,198
A		7,261		—		(7	)		7,254
BAA		5,179		—		(31	)		5,148
Total Corporate Bonds		16,625		13		(38	)		16,600

Total Investments at Fair Value	$	19,957	$	16	$	(38	)	$	19,935

	December 31, 2011
Level 1:	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Certificates of deposit	$	2,582	$	2	$	—		$	2,584

Corporate Bonds:
AA		2,014		—		(3	)		2,011
A		9,846		—		(3	)		9,843
Total Corporate Bonds		11,860		—		(6	)		11,854

Total Investments at Fair Value	$	14,442	$	2	$	(6	)	$	14,438

The following tables set forth by level within the fair value hierarchy, our financial instrument liabilities as of March 31, 2012 and December 31, 2011.

	March 31, 2012
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Series l Warrants	$	—	$	—	$	4,430	$	4,430
Total	$	—	$	—	$	4,430	$	4,430

	December 31, 2011
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Series l Warrants	$	—	$	—	$	4,699	$	4,699
Total	$	—	$	—	$	4,699	$	4,699

Index

The following table sets forth a summary of changes in the fair value of our Level 3 financial instrument liability for the period ended March 31, 2012 and year ended December 31, 2011:

	March 31, 2012				December 31, 2011
	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)				Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance December 31, 2011	$	4,699		Balance December 31, 2010	$	14,364
Net gain included in loss		(269	)	Net loss included in earnings		5,595
Settlements		—		Settlements		(15,260	)
Balance March 31, 2012	$	4,430		Balance December 31, 2011	$	4,699

Note 3 — Patent Portfolio

As of March 31, 2012, we own 20 issued U.S. and 26 issued foreign patents, in addition to several pending U.S. and foreign patent applications. Our issued U.S. and foreign patents expire at various times during the period from 2019 to 2024. Some of our issued patents and pending patent applications were acquired by our principal operating subsidiary, VirnetX, Inc., from Science Applications International Corporation, or SAIC, in 2006 and we are required to make payments to SAIC based on cash or certain other values generated from those patents. The amount of such payments depends upon the type of value generated, and certain categories are subject to maximums and other limitations. As of June 30, 2010, we met our maximum royalty payment requirement; however, SAIC is also entitled under certain circumstances to receive a portion of the proceeds paid to us for certain acquisitions of VirnetX or from the settlement of certain patent infringement claims of ours.

Note 4 — Income Taxes

The components of the income tax expense for the period ended March 31, 2012 and 2011 respectively are as follows:

	March 31, 2012			March 31, 2011
Current:
Federal	$	(2,177	)	$	(4,007)
State		-			3
Foreign		(3	)		4
		(2,180	)		(4,000)
Deferred:
Federal		1			3,300
State		6			-
Foreign		-			-
		7			3,300
Total provision for income taxes	$	(2,173	)	$	(700)

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of deferred assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable for the three months ended March 31, 2012. Accordingly, management has maintained partial valuation allowance against its net deferred tax assets at March 31, 2012. The net change in the total valuation allowance for the period ended March 31, 2012 was a decrease of $208.

At March 31, 2012, the Company has federal and state net operating loss carryforwards of approximately $912 and $44,277 respectively, expiring beginning in 2027 and 2012, respectively.

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Note 5 — Commitments

We lease our offices under an operating lease with a third party that requires minimum payments monthly until it ends in June 2013. We recognize rent expense on a straight-line basis over the term of the lease.

For the Year	Minimum Required Lease Payments in Period
2012	$	42
2013		28
Total	$	70

Note 6 — Stock Plan

We have a stock incentive plan for employees and others called the “VirnetX Holding Corporation 2007 Stock Plan”, or the Plan, which has been approved by our stockholders. On April 31, 2012, our Compensation Committee approved amendments to the Plan to allow us to grant restricted stock units awards. The Plan provides for the granting of up to 11,624,469 shares of our common stock, including stock options, stock purchase rights and restricted stock units and will expire in 2018. As of March 31, 2012, there were 628,478 shares available to be granted under the Plan.

We had 4,828,998 and 4,906,998 options outstanding at March 31, 2012, and December 31, 2011, respectively, with an average exercise price of $5.20 and $5.12, respectively.

Note 7 — Stock-Based Compensation

We account for equity instruments issued to employees in accordance with the fair value method which requires that such issuances be recorded at their fair value on the grant date. The recognition of the expense is subject to periodic adjustment as the underlying equity instrument vests.

Stock-based compensation expense included in general and administrative expenses was $873 and $643 for the three months ended March 31, 2012 and 2011, respectively.

As of March 31, 2012, the unrecognized stock-based compensation expense related to non-vested stock options was $8,673 which will be amortized as expense over an estimated weighted average vesting amortization period of approximately 0.6 years, as compared to $3,384 and 1 year for 2011.

Note 8 — Warrants

Information about warrants outstanding during the three months ended March 31, 2012 follows:

Original Number of Warrants Issued			Exercise Price per Common Share		Exercisable at December 31, 2011		Became Exercisable		Exercised		Terminated / Cancelled / Expired		Exercisable at March 31, 2012		Expiration Date

	2,619,036	(1)	$	3.59		204,908		—		—		—		204,908	March 2015
Total						204,908				—		—		204,908

(1)

Referred to as our Series I Warrants.

Note 9 — Litigation

We have three intellectual property infringement lawsuits pending against multiple parties in the United States District Court for the Eastern District of Texas, Tyler Division, pursuant to which we allege that these parties infringe on certain of our patents. We seek damages and injunctive relief in all the complaints. We have one complaint with the United States International Trade Commission (ITC) alleging that Apple, Inc. has engaged in unfair trade practices by the importation, sale for importation, and sale after importation of certain devices with secure communication capabilities that infringe one or more claims of our U.S. Patent No. 8,051,181.

On August 11, 2010, we initiated a lawsuit by filing a complaint against Aastra Technologies, Inc., Apple, Inc., Cisco Systems, Inc., and NEC Corporation.

On January 12, 2011, we initiated a new lawsuit by filing a complaint against Siemens Enterprise Communications and Mitel Networks Corp. On April 12, 2011, we amended this complaint to add Avaya, Inc., as a defendant.

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We believe that Aastra, Apple, Cisco, NEC, Siemens, Mitel and Avaya infringe on certain of our patents, but obtaining and collecting a judgment against these parties may be difficult or impossible. Patent litigation is inherently risky and the outcome is uncertain. Aastra, Apple, Cisco, NEC, Siemens, Mitel and Avaya are all large, well-financed companies with substantially greater resources than us. We believe that these parties will devote a substantial amount of resources in an attempt to prove that either their products do not infringe our patents or that our patents are invalid and unenforceable. At this time, we cannot predict the final outcome of these litigation matters.

On November 1, 2011, we initiated a lawsuit against Apple in the United States District Court, Tyler Division, pursuant to which we allege that Apple infringes an additional patent of ours. We seek damages and injunctive relief. No hearing or trial dates have been set.

On November 4, 2011, we filed a complaint with the United States International Trade Commission (ITC) alleging that Apple has engaged in unfair trade practices by the importation, sale for importation, and sale after importation of certain devices with secure communication capabilities that infringe one or more claims of our U.S. Patent No. 8,051,181. The accused products include the latest iPhones, iPads, iPods and Macintosh computers. We have requested that the ITC institute an investigation into Apple’s allegedly infringing imports and ultimately bar Apple from importing those Apple products or further selling the infringing Apple products that have already been imported.

On January 5, 2012, a claims construction hearing was held in our case against Aastra, Apple, Cisco and NEC in the United States District Court for the Eastern District of Texas, Tyler Division. On April 25, 2012 the United States District Court for the Eastern District of Texas, Tyler Division, issued its Markman Order on the claim terms that were in dispute in the Aastra, Apple, Cisco and NEC litigation and adopted certain interpretations that we believe are favorable to us. The trial in connection with the Aastra, Apple, Cisco and NEC litigation is scheduled to start on November 5, 2012.

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 worth pursuing, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we will prevail on such potential claims. In addition, bringing a lawsuit may lead to potential counterclaims which may preclude our ability to commercialize our initial products, which are currently in development.

Note 10 — Subsequent Events

On April 13, 2012, our Compensation Committee approved changes to the compensation for our Board of Directors, approved amendments to the Plan to allow us to grant restricted stock unit awards and authorized the issuance of 240,000 options and 126,667 RSUs (restricted stock units), at a price of $24.

On May 3, 2012 – VirnetX Holding Corp. (AMEX:VHC) and Aastra USA, Inc. (the “Parties”) today announced that on May 3 2012, they signed a Patent License Agreement (the “Agreement”). Under the terms of the Agreement, VirnetX has agreed to license certain of its patents to Aastra USA, Inc., for a one-time payment to VirnetX and an ongoing reasonable royalty for all future sales through the expiration of the licensed patents as outlined in the Agreement with respect to certain current and future IP-encrypted products.

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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Company Overview

We develop software and technology solutions for securing real-time communications over the Internet. Our patented GABRIEL Connection Technology™ combines industry standard encryption protocols with our patented techniques for automated domain name system, or DNS, lookup mechanisms, and enables users to create a secure communication link using secure domain names over wired or wireless (4G/LTE) networks. We are currently beta testing our GABRIEL Connection Technology™ as part of our Secure Domain Name Initiative, or (SDNI), on various platforms including PCs, smart phones and tablets. We also intend to establish the exclusive secure domain name registry in the United States and other key markets around the world.

Our portfolio of intellectual property is the foundation of our business model. We currently own 20 patents in the United States and 26 foreign patents, as well as several pending U.S. and foreign patent applications. Our patent portfolio is primarily focused on securing real-time communications over the Internet, as well as related services such as the establishment and maintenance of a secure domain name registry. Our patented methods also have additional applications in operating systems and network security. On December 2, 2009, we submitted a licensing declaration to the 3rd Generation Partnership Project, or 3GPP, identifying those of our U.S. and international patents which may be relevant to Long Term Evolution, or LTE. On March 14, 2011, we supplemented our licensing declaration to include five additional specifications. On April 28, 2011, at the request of the European Telecommunications Standards Institute, or ETSI, we agreed to update our licensing declaration to ETSI under ETSI's Intellectual Property Rights or IPR policy. We agreed with ETSI that we will make available a non-exclusive patent license under fair, reasonable and non-discriminatory terms and conditions, with compensation, or FRAND, to 3GPP members desiring to implement the technical specifications identified by us, as set forth in the updated licensing declaration under ETSI’s IPR policy. On June 17, 2011, in response to a request from the Alliance for Telecommunications Industry Solutions, or ATIS, the North American Organizational Partner for 3GPP, we also agreed to make available a non-exclusive patent license to 3GPP members desiring to implement the technical specifications identified by us, as set forth in the updated licensing declaration under ATIS' IPR policy. We believe that we are positioned to license our essential security patents to 3GPP members as they move into 4G.

We intend to license our patent portfolio, technology and software, including our secure domain name registry service, to domain infrastructure providers, communication service providers as well as to system integrators. We believe that the market opportunity for our software and technology solutions is large and expanding as secure domain names are now an integral part of securing the next generation 4G/LTE wireless networks. We also believe that all 4G mobile devices will require unique secure domain names and become part of a secure domain name registry.

In connection with the settlement of our lawsuit against Microsoft Corporation in 2010, Microsoft became our first licensee. Pursuant to the Settlement and License Agreement between us and Microsoft, Microsoft paid us $200 million, which has been recognized as gain on settlement and Microsoft was granted a worldwide, irrevocable, nonexclusive, non-sublicenseable fully paid up license for our patents for Microsoft products. We intend to seek further license of our technology, including our GABRIEL Connection Technology™ to enterprise customers, developers and original equipment manufacturers, or OEMs, of chips, servers, smart phones, tablets, e-Readers, laptops, net books and other devices, within the IP-telephony, mobility, fixed-mobile convergence and unified communications markets including 4G/LTE.

Our employees include the core development team behind our patent portfolio, technology and software. This team has worked together for over ten years and is the same team that invented and developed this technology while working at Science Application International Corporation, or SAIC. SAIC is a FORTUNE 500® scientific, engineering and technology applications company that uses its deep domain knowledge to solve problems of vital importance to the nation and the world, in national security, energy and the environment, critical infrastructure and health. The team has continued its research and development work started at SAIC and expanded the set of patents we acquired in 2006 from SAIC into a larger portfolio with 46 issued U.S. and foreign patents and numerous pending U.S. and foreign patent applications. This portfolio now serves as the foundation of our licensing business and planned service offerings and is expected to generate the majority of our future revenue in license fees and royalties. We intend to continue our research and development efforts to further strengthen and expand our patent portfolio.

We intend to continue using an outsourced and leveraged model to maintain efficiency and manage costs as we grow our licensing business by offering incentives to early licensing targets or asserting our rights for use of our patents. We also intend to expand our design pilot in participation with leading 4G/LTE companies (domain infrastructure providers, chipset manufacturers, service providers, and others) and build our secure domain name registry.

Competition

We believe our technology and solutions will compete primarily against various proprietary security solutions. We group these solutions into three main categories:

●

Proprietary or home-grown application specific security solutions have been developed by vendors and integrated directly into their products for our target markets including IP-telephony, mobility, fixed-mobile convergence, and unified communications. These proprietary solutions have been developed due to the lack of standardized approaches to securing real-time communications. This approach has led to corporate networks that are isolated and, as a result, restrict enterprises to using these next-generation networks within the boundaries of their private network. These solutions generally do not provide security for communications over the Internet or require network administrators to manually exchange keys and other security parameters with each destination network outside their corporate network boundary. The cost-savings and other benefits of IP-based real-time communications are significantly limited by this approach to securing real-time communications.

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●

A session border controller, or SBC, is a device used in networks to exert control over the signaling and media streams involved in establishing, conducting and terminating VoIP calls. A traditional firewall or network address translation, or NAT, device typically block information like endpoint IP addresses and port numbers required by signaling protocols, such as SIP and XMPP, to reach and communicate with their intended destination. SBCs are used in physical networks to address these limitations and enable real-time session traffic to cross the boundaries created by firewalls and other NAT devices and enable VoIP calls to be established successfully. However, SBCs must decrypt and analyze every single data packet for the information to be transmitted successfully, thereby preventing end-to-end encryption. This network design results in SBCs becoming a single point of congestion on the network, as well as a single point of failure. SBCs are also limited to the physical network they secure.

●

SIP firewalls, or SIP-aware firewalls, and application layer gateways, manage and protect the traffic, flow and quality of VoIP and other SIP-related communications. They perform real-time network address translation, dynamic firewall functions; support multiple signaling protocols, and media functionality, allowing secure interconnection and the flow of IP media streams across multiple networks. While SIP firewalls assist in analyzing SIP traffic transmitted over the corporate network to filter out various threats, they do not necessarily encrypt the traffic. As a result, this traffic is not entirely secure from end-to-end nor is it protected against threats like man-in-middle and eavesdropping.

New Accounting Pronouncements

In May 2011, the FASB issued a new accounting standard update, which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011. This standard did not have an impact on our results of operations and financial position, when adopted on January 1, 2012.

In June 2011, the FASB modified the presentation of comprehensive income in the financial statements. The revised standard requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and must be applied retrospectively. This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The revised standard does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. Our adoption of modification of the standard did not have an effect on our consolidated results of operations and financial position.

In September 2011, the FASB issued an amendment to an existing accounting standard, which provides entities an option to perform a qualitative assessment to determine whether further impairment testing on goodwill is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. This standard is effective for annual and interim goodwill impairment test performed for fiscal years beginning after December 15, 2011. Our adoption did not have a material impact on our consolidated financial statements.

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Results of Operations

Three Months Ended March 31, 2012

Compared with Three Months Ended March 31, 2011

(in thousands, except per share amounts)

Revenue — Royalties

We had no revenue for the three months ended March 31, 2012, compared to $17 for the comparable 2011 period. Our revenue in 2011 was solely limited to the royalties earned under a single license agreement through our Japanese subsidiary. We expect the revenue from this license will continue to be insignificant in the future. We do not intend to seek additional licenses or other revenue through our Japanese subsidiary.

Research and Development Expenses

Our research and development expenses increased by $60 to $256 for the three months ended March 31, 2012, from $196 for comparable 2011 period. This increase was primarily due to the increase in wages and medical costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include management and administrative personnel, as well as outside legal, accounting, and consulting services.

Our selling, general and administrative expenses increased by $4,394 to $6,967 for the three months ended March 31, 2012, from $2,753 for the comparable 2011 period. This increase is primarily due to an increase in legal fees of $4,174, totaling $5,103 for the three months ended March 31, 2012 compared to $929.

For the comparable 2011 period while wages and medical costs also increased in the 2012 period, the increase is primarily due to the increase in legal fees associated with the current patent infringement actions taken against companies previously discussed.

Other Income and Expenses

During the three months ended March 31, 2012, the non-cash gain related to the periodic revaluation of our Series I Warrants liability was $269, which compares to a non-cash loss of $5,130 for the comparable period in 2011. The balance of the liability for the Series I Warrants decreased to $4,430 at March 31, 2012, from $4,699 at December 31, 2011. The gains and losses from the revaluations of the warrant liability in the first quarter of 2012 and 2011 were primarily the result of changes in our common share price during the periods.

Interest income increased by $14 to $74 for the three months ended March 31, 2012, from $60 for the comparable 2011 period.

Liquidity and Capital Resources

As of March 31, 2012, our cash and cash equivalents totaled approximately $39,957 and our short-term investments totaled approximately $19,935, compared to cash equivalents of approximately $49,482 and short-term investments of approximately $14,438 at December 31, 2011. Working capital was $64,362 at March 31, 2012 and $68,114 at December 31, 2011.

We expect that our cash and cash equivalents and short-term investments as of March 31, 2012, will be sufficient to fund our operations and provide working capital for general corporate purposes and legal expenses including the expenses for our ongoing complaints against Aastra, Apple, Cisco, NEC, Siemens, Mitel and Avaya in the United States District Court of the Eastern District of Texas, Tyler Division, as well as our filed complaint with the U.S. International Trade Commission, for at least the next 36 months. While we do not expect to generate net income in the near term, we do expect to derive the majority of our future revenue from license fees and royalties associated with our patent portfolio, technology, software and secure domain name registry in the United States and other markets around the world over the long term. However, there is no guarantee that our patent infringement claims will be resolved in our favor or receive any proceeds from these claims unless and until they may be resolved in our favor, and we expect to continue to incur substantial legal and other costs associated with pursuit of our claims.

Off-Balance Sheet Arrangements

None.

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ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

We invest our excess cash primarily in highly liquid instruments including time deposits, money market, and corporate debt securities. We seek to limit the amount of our credit exposure to any one issuer.

Investments in fixed rate instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates. Due in part to these factors, our income from investments may decrease in the future.

We considered the historical volatility of short-term interest rates and determined that it was reasonably possible that an adverse change of 100 basis points could be experienced in the near term but would have an immaterial impact in the fair value of our marketable securities, which generally mature within six months of March 31, 2012.

Other Market Risks

We have no obligation to settle our Series I Warrant obligations in cash. However, these derivative instruments are accounted for as liabilities on our consolidated balance sheets and are marked-to-market each period based on their estimated fair value. The non-cash gains or losses from the decreases and increases in the estimated fair value of the warrant liability are recognized in earnings each period. The estimated fair value is determined in large part by reference to our assumptions and estimates of various factors. Our liability will increase by approximately $200 and we may recognize significant non-cash losses, if all other factors being constant, the market price of our common shares increases by $1. Conversely, our liability will decrease by approximately $200 and we may recognize significant non-cash gains, if all other factors being constant, if the market price of our common shares decreases by $1.

We considered the historical volatility of our stock prices and determined that it was reasonably possible that the fair market value of our stock price could increase substantially in the near term and could have a material impact to our consolidated balance sheets and statement of operations.

ITEM 4 — CONTROLS AND PROCEDURES.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, March 31, 2012.

The purpose of this evaluation was to determine whether as of March 31, 2012 our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the SEC, (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2012, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS.

We have three intellectual property infringement lawsuits pending against multiple parties in the United States District Court for the Eastern District of Texas, Tyler Division, pursuant to which we allege that these parties infringe on certain of our patents. We seek damages and injunctive relief in all the complaints. We have one complaint with the United States International Trade Commission (ITC) alleging that Apple Inc has engaged in unfair trade practices by the importation, sale for importation, and sale after importation of certain devices with secure communication capabilities that infringe one or more claims of our U.S. Patent No. 8,051,181.

On August 11, 2010, we initiated a lawsuit by filing a complaint against Aastra Technologies, Inc., Apple, Inc., Cisco Systems, Inc., and NEC Corporation.

On November 4, 2011,We filed a complaint with the United States International Trade Commission (ITC) alleging that Apple Inc has engaged in unfair trade practices by the importation, sale for importation, and sale after importation of certain devices with secure communication capabilities that infringe one or more claims of our U.S. Patent No. 8,051,181. The accused products include the latest iPhones, iPads, iPods and Macintosh computers. We have requested that the ITC institute an investigation into Apple’s allegedly infringing imports and ultimately bar Apple from importing those Apple products or further selling the infringing Apple products that have already been imported

ITEM 1A — RISK FACTORS.

You should carefully consider the following material risks in addition to the other information set forth in this Quarterly Report on Form 10-Q before making any investment in the offered securities. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of these risk factors occurs, you could lose substantial value or your entire investment in our shares.

Risks Related to Financial Reporting Obligations

Our 2009 and 2010 consolidated financial statements were restated in 2011 in connection with our identification of a material weakness in our internal control over financial reporting; we may identify future material weakness which may result in late filings, increased costs or declines in our share price.

In early 2011, we restated our previously filed financial statements for the fiscal quarter ended September 30, 2010, each of the then previous five fiscal quarters and the fiscal year ended December 31, 2009, to adjust our accounting for our Series I Warrants. In connection with these restatements, we determined that we had not maintained effective control over our accounting for these Series I Warrants and, as a result, that a material weakness existed with respect to our reporting of complex, non-routine transactions as of the end of the periods covered by the Form 10-K and Form 10-Qs that included the financial statements referenced above. Although we believe that we currently maintain effective control over our disclosure controls and procedures and internal control over financial reporting as regards this issue, we may in the future identify deficiencies regarding the design and effectiveness of our system of internal control over financial reporting. In addition, we expect that we will continue to be required to provide a management report in our Form 10-K regarding our internal control over financial reporting and that our independent registered public accounting firm will continue to be required to attest to our internal control matters. If we experience any material weaknesses in our internal control over financial reporting in the future or are unable to provide unqualified management or attestation reports about our internal controls, we may be unable to meet financial and other reporting deadlines and may incur costs associated with remediation, and any of which could cause our share price to decline.

Our litigation can be time-consuming, costly and we cannot anticipate the results.

We spend a significant amount of our financial and management resources to pursue our current litigation matters. We believe that these litigation matters and others that we may in the future determine to pursue could continue for years and continue to consume significant financial and management resources. The counterparties to our litigation are all large, well-financed companies with substantially greater resources than us. We cannot assure you that any of our current or future litigation matters will result in a favorable outcome for us. Also, we cannot assure you that we will not be exposed to claims or sanctions against us which may be costly or impossible for us to defend. Unfavorable or adverse outcomes may result in losses, exhaustion of financial resources or other adverse affect our ability to develop and commercialize products.

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Risks Related to Our Business and Our Industry

We may not be able to capitalize on market opportunities related to our licensing strategy or our patent portfolio.

Our business strategy includes licensing our patents and technology to other companies in order to reach a larger end-user base than we could reach through direct sales and marketing efforts; as such our business strategy and revenues will depend on intellectual property licensing fees and royalties for the majority of our revenues. We currently derive minimal revenue from licensing activities and we cannot assure you that we will successfully capitalize on our market opportunities or that our current business strategy will succeed. Factors on-going that may affect our ability to execute our current business strategy including, but are not limited to:

●

Although we entered into a Settlement and License Agreement with Microsoft Corporation, we may not be successful in entering into further licensing relationships;

●

Third parties may challenge the validity of certain of our patents;

●

The pendency of our various litigations may cause potential licensees not to do business with us;

●

We expect that we will face intense competition new and established competitors who may have superior products and services or better marketing, financial or other capacities than we do; and

●

It is possible that one or more of our potential customers or licensees develops or otherwise sources products or technologies similar to, competitive with or superior to ours.

If we are not able to adequately protect our patented rights, our business would be negatively impacted.

We believe our patents are valid, enforceable and valuable. Notwithstanding this belief, third parties may make claims of infringement or invalidity claims with respect to our patents and such claims could give rise to material cost for defense or settlement or both, jeopardize or substantially delay a successful outcome of litigation we are or may become involved in, divert resources away from our other activities, or otherwise materially and adversely affect our business. Similar challenges could also prevent us from obtaining additional patents in the future. Even if we are successful in enforcing our rights, our patents may not ultimately provide us with any competitive advantages and may be less valuable than we currently expect. These risks may be heightened in countries other than the U.S., and may be negatively affected by the fact that legal standards in the U.S. and elsewhere for protection of intellectual property rights in Internet-related businesses are uncertain and still evolving. In addition, there are a significant number of U.S. and foreign patents and patent applications in our areas of interest, and we expect that significant litigation in these areas will continue, and will add uncertainty to the value of certain patents and other intellectual property rights in our areas of interest. If we are unable to protect our intellectual property rights or otherwise realize value from them, our business would be negatively affected.

We can provide no assurances that the licensing of our essential security patents under FRAND will be successful.

At the request of the European Telecommunications Standards Institute (ETSI), and the Alliance for Telecommunications Industry Solutions (ATIS), we agreed to update our licensing declaration to ETSI and ATIS under their respective Intellectual Property Rights (IRP) policies. This was in response to our Statement of Patent Holder identifying a group of our patents and patent applications that we believe are or may become essential to certain developing specifications in the 3rd Generation Partnership Project (3GPP) Long Term Evolution (LTE), Systems Architecture Evolution (SAE) project. We will make available a non-exclusive patent license under FRAND (fair, reasonable and non-discriminatory terms and conditions, with compensation) for the patents identified by VirnetX that are or become essential, to applicants desiring to implement the Technical Specifications identified by VirnetX, as set forth in the updated licensing declaration under the ATIS and ETSI IPR policies. While we believe that our FRAND commitment positions us to license our essential security patents for the Technical Specifications identified by VirnetX, our licensing declarations under the ATIS and ETSI IPR policies may limit our flexibility in determining royalties and license terms for certain of our patents. Consequently, we cannot assure you that the licensing of the essential security patents will be successful or that third parties will be willing to enter into licenses with VirnetX on reasonable terms or at all, which could have an adverse effect on our business and harm our competitive position.

Because our business is conducted or expected to be conducted in an environment that is subject to rapid change, we may be subjected to various developments in regulation, law and consumer preferences that we may not be able to adapt to successfully.

The current regulatory environment for our products and services remains unclear. We can give no assurance that our planned product offerings will be in compliance with laws and regulations of local, state, U.S. federal or foreign authorities. Further, we can give no assurance that we will not unintentionally violate such laws or regulations or that such laws or regulations will not be modified, or that new laws or regulations will be enacted in the future which would cause us to be in violation of such laws or regulations. For example, VoIP services are not currently subject to all of the same regulations that apply to traditional telephony, but it is possible that similar regulations may be applied to VoIP in the future and that these could result in substantial costs and adversely affect of the marketability of our products and planned products related to VoIP. For further example, the use of the Internet and private IP networks for communication is largely unregulated within the United States, but may become regulated in the future; also several foreign governments have enacted measures that could restrict or prohibit voice communications services over the Internet or private IP networks.

Our business depends on the growth of IM, VoIP, mobile services, streaming video, file transfer and remote desktop and other next-generation Internet-based applications which are relatively new. The Internet may ultimately prove not to be a viable commercial marketplace which could cease growth or cause material decline in the number of users in these areas due to complexity or cost of these applications relative to alternate traditional or newly developed communications channels.

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More aggressive domestic or international regulation of the Internet in general, and Internet telephony providers and services specifically or a lack of growth in acceptance of the Internet as a long term viable marketplace for communications services may materially and adversely affect our business, financial condition, operating results and future prospects.

Our exposure to outside influences beyond our control, including new legislation, court rulings or actions by the United States Patent and Trademark Office, could adversely affect our licensing and enforcement activities and results of operations.

Our licensing and enforcement activities are subject to numerous risks from outside influences, including the following:

●

New legislation, regulations or rules related to obtaining patents or enforcing patents could significantly increase our operating costs and decrease our revenue. . For instance, the U.S. Supreme Court has recently modified some tests used by the U.S. Patent and Trademark Office in granting patents during the past 20 years which may decrease the likelihood that we will be able to obtain patents and increase the likelihood of challenge of any patents we obtain or license. In addition, the U.S. recently enacted sweeping changes to the U.S. patent system under the Leahy-Smith America Invents Act (“AIA”), including changes that would transition the U.S. from a “first-to-invent” system to a “first to file” system and alter the processes for challenging issued patents

●

More patent applications are filed each year resulting in longer delays in getting patents issued by the USPTO.

●

Federal courts are becoming more crowded, and as a result, patent enforcement litigation is taking longer.

●

As patent enforcement becomes more prevalent, it may become more difficult for us to voluntarily license our patents.

If we experience security breaches, we could be exposed to liability and our reputation and business could suffer.

We expect to retain certain confidential customer information in our secure data centers and secure domain name registry. It will be critical to our business strategy that our facilities and infrastructure remain secure and are perceived by the marketplace to be secure. Our secure domain name registry operations will also depend on our ability to maintain our computer and telecommunications equipment in effective working order and to reasonably protect our systems against interruption, and potentially depend on protection by other registrars in the shared registration system. The secure domain name servers that we will operate will be critical hardware to our registry services operations. Therefore, we expect to have to expend significant time and money to maintain or increase the security of our facilities and infrastructure. Security technologies are constantly being tested by computer professionals, academics and “hackers.” Advances in the techniques for attacking security solutions could make some or all of our products obsolete or unmarketable. Likewise, if any of our products are found to have significant security vulnerabilities, then we may need to dedicate engineering and other resources to eliminate the vulnerabilities and to repair or replace products already sold or licensed to our customers. Despite our security measures, our infrastructure may be vulnerable to physical break-ins, computer viruses, attacks by hackers or similar disruptive problems. It is possible that we may have to expend additional financial and other resources to address such problems. Any physical or electronic break-in or other security breach or compromise of the information stored at our secure data centers and domain name registration systems may jeopardize the security of information stored on our premises or in the computer systems and networks of our customers. In such an event, we could face significant liability and customers could be reluctant to use our services. Such an occurrence could also result in adverse publicity and therefore adversely affect the market’s perception of the security of electronic commerce and communications over IP networks as well as the security or reliability of our services.

A security breach could require a substantial amount of expense to rectify and could result in a product liability claim that causes us to incur substantial liability and related legal and other costs. A security breach may also harm our reputation and make it more difficult or impossible for us to successfully market to others. These matters could harm our operating results and financial condition.

We expect that we will experience long and unpredictable sales cycles, which may impact our operating results.

We expect that our sales cycles will be long and unpredictable due to a number of uncertainties such as:

●

The need to educate potential customers about our patent rights and our product and service capabilities;

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Customers’ willingness to invest potentially substantial resources and modify their network infrastructures to take advantage of our products;

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Customers’ budgetary constraints;

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The timing of customers’ budget cycles; and

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Delays caused by customers’ internal review processes.

●

Long sales cycles may increase the risk that our financial resources are exhausted before we are able to generate significant revenue.

We expect that we will be substantially dependent on a concentrated number of customers. If we are unable to establish, maintain or replace our relationships with customers and develop a diversified customer base, our revenues may fluctuate and our growth may be limited.

We expect that in the future, a significant portion of our revenues will be generated from a limited number of customers. Substantially all of our income during 2010 was from the payments to us resulting from the Settlement and License Agreement we entered into with Microsoft. There can be no guarantee that we will be able to obtain additional customers, or if we do so, to sustain our revenue levels from these prospective customers. If we are not able to establish, maintain or replace the limited group of prospective customers that we anticipate may generate a substantial majority of our revenues in the future, or if they do not generate revenues at the levels or at the times that we anticipate, our ability to maintain or grow our revenues will be adversely affected.

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Our products are highly technical and may contain undetected errors, which could cause harm to our reputation and adversely affect our business.

Our products are highly technical and complex and, when deployed, may contain errors or defects. Despite testing, some errors in our products may only be discovered after a product has been installed and used by customers. Any errors or defects discovered in our products after commercial release could result in failure to achieve market acceptance, loss of revenue or delay in revenue recognition, loss of customers and increased service and warranty cost, any of which could adversely affect our business, operating results and financial condition. In addition, we could face claims for product liability, tort or breach of warranty, including claims relating to changes to our products made by our channel partners. The performance of our products could have unforeseen or unknown adverse effects on the networks over which they are delivered as well as on third-party applications and services that utilize our services, which could result in legal claims against us, harming our business. Furthermore, we expect to provide implementation, consulting and other technical services in connection with the implementation and ongoing maintenance of our products, which typically involves working with sophisticated software, computing and communications systems. We expect that our contracts with customers will contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of us and our products. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, operating results and financial condition could be adversely impacted.

Malfunctions of third-party communications infrastructure, hardware and software expose us to a variety of risks we cannot control.

Our business will also depend upon the capacity, reliability and security of the infrastructure owned by third parties that we will use to deploy our offerings. We have no control over the operation, quality or maintenance of a significant portion of that infrastructure or whether or not those third parties will upgrade or improve their equipment. We depend on these companies to maintain the operational integrity of our connections. If one or more of these companies is unable or unwilling to supply or expand its levels of service to us in the future, our operations could be severely interrupted. Also, to the extent the number of users of networks utilizing our future products suddenly increases, the technology platform and secure hosting services which will be required to accommodate a higher volume of traffic may result in slower response times or service interruptions. System interruptions or increases in response time could result in a loss of potential or existing users and, if sustained or repeated, could reduce the appeal of the networks to users. In addition, users depend on real-time communications; outages caused by increased traffic could result in delays and system failures. These types of occurrences could cause users to perceive that our solution does not function properly and could therefore adversely affect our ability to attract and retain licensees, strategic partners and customers.

System failure or interruption or our failure to meet increasing demands on our systems could harm our business.

The success of our license and service offerings will depend on the uninterrupted operation of various systems, secure data centers and other computer and communication networks that we establish. To the extent the number of users of networks utilizing our future products suddenly increases, the technology platform and hosting services which will be required to accommodate a higher volume of traffic may result in slower response times, service interruptions or delays or system failures. Our systems and operations will also be vulnerable to damage or interruption from:

●

power loss, transmission cable cuts and other telecommunications failures;

●

damage or interruption caused by fire, earthquake, and other natural disasters;

●

computer viruses or software defects; and

●

physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.

System interruptions or failures and increases or delays in response time could result in a loss of potential or existing users and, if sustained or repeated, could reduce the appeal of the networks to users. These types of occurrences could cause users to perceive that our solution does not function properly and could therefore adversely affect our ability to attract and retain licensees, strategic partners and customers.

Any significant problem with our systems or operations could result in lost revenue, customer dissatisfaction or lawsuits against us. A failure in the operation of our secure domain name registration system could result in the inability of one or more registrars to register and maintain secure domain names for a period of time. A failure in the operation or update of the master directory that we plan to maintain could result in deletion or discontinuation of assigned secure domain names for a period of time. The inability of the registrar systems we establish, including our back office billing and collections infrastructure, and telecommunications systems to meet the demands of an increasing number of secure domain name requests could result in substantial degradation in our customer support service and our ability to process registration requests in a timely manner.

Our ability to sell our solutions will be dependent on the quality of our technical support, and our failure to deliver high-quality technical support services could have a material adverse effect on our sales and results of operations.

If we do not effectively assist our customers in deploying our products, succeed in helping our customers quickly resolve post-deployment issues and provide effective ongoing support, or if potential customers perceive that we may not be able achieve to the foregoing, our ability to sell our products would be adversely affected, and our reputation with potential customers could be harmed. In addition, as we expand our operations internationally, our technical support team will face additional challenges, including those associated with delivering support, training and documentation in languages other than English. Our failure to deliver and maintain high-quality technical support services to our customers could result in customers choosing to use our competitors’ products instead of ours in the future.

Telephone carriers have petitioned governmental agencies to enforce regulatory tariffs, which, if granted, would increase the cost of online communication, and such increase in cost may impede the growth of online communication and adversely affect our business.

Use of the Internet has over-burdened existing telecommunications infrastructures, and many high traffic areas have begun to experience interruptions in service. As a result, certain local telephone carriers have petitioned governmental agencies to enforce regulatory tariffs on IP telephony traffic that crosses over their traditional telephone networks. If the relief sought in these petitions is granted, the costs of communicating via online could increase substantially, potentially adversely affecting the growth in the use of online secure communications. Any of these developments could have an adverse effect on our business.

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The departure of Kendall Larsen, our Chief Executive Officer and President, and/or other key personnel could compromise our ability to execute our strategic plan and may result in additional severance costs to us.

Our success largely depends on the skills, experience and efforts of our key personnel, including Kendall Larsen, our Chief Executive Officer and President. We have no employment agreements with any of our key executives that prevent them from leaving us at any time. In addition, we do not maintain key person life insurance for any of our officers or key employees. The loss of Mr. Larsen, or our failure to retain other key personnel, would jeopardize our ability to execute our strategic plan and materially harm our business.

We will need to recruit and retain additional qualified personnel to successfully grow our business.

Our future success will depend in part on our ability to attract and retain qualified operations, marketing and sales personnel as well as engineers. Inability to attract and retain such personnel could adversely affect our business. Competition for engineering, sales, marketing and executive personnel is intense, particularly in the technology and Internet sectors and in the regions where our facilities are located. We can provide no assurance that we will attract or retain such personnel.

Risks Related to Our Stock

We do not intend to pay regular future dividends on our common stock and thus stockholders must look to appreciation of our common stock to realize a gain on their investments.

Although we paid a special cash dividend to holders of our common stock with a record date of July 1, 2010, we do not have any plans to pay regular dividends in the foreseeable future. Instead, we generally intend to retain future earnings to fund our business plan. Our future dividend policy is within the discretion of our Board of Directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements, and investment opportunities. Accordingly, stockholders must generally look to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur.

The exercise of our outstanding stock options would result in a dilution of our current stockholders' voting power and an increase in the number of shares eligible for future resale in the public market which may negatively impact the market price of our stock.

The exercise of our outstanding vested stock options would dilute the ownership interests of our existing stockholders. As of March 31, 2012, we had outstanding options to purchase an aggregate of 4,828,998 shares of common stock (representing 9.7% of our total shares outstanding as of March 31, 2012) of which 3,926,896 are vested and therefore exercisable. To the extent outstanding stock options are exercised, additional shares of common stock will be issued, and such issuance would dilute non-exercising stockholders' percentage voting interests and increase the number of shares eligible for resale in the public market.

The fair value of accounting for our Series I Warrants as derivative liabilities may materially impact our results of our operations in future periods.

We record the Series I Warrants as a derivative liability in accordance with ASC 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity.” These derivative liabilities are reported at fair value each reporting period with changes in the fair value recognized as gain or loss during each reporting period. An increase in our share price or measure of our share price volatility, for example, will generally result in an increase in the fair value of our warrant liability and a non-cash charge during the period of such increase, which could materially and negatively impact our results of operations in future periods.

Trading in our common shares is limited and the price of our common shares may be subject to substantial volatility, particularly in light of the instability in the financial and capital markets.

Our common stock is listed on NYSE Amex, but its daily trading volume has been limited, sporadic and volatile. Over the past years the market price of our common stock has experienced significant fluctuations. Between April 1, 2011, and March 31, 2012, the reported last sale price for our common stock ranged between $12.38 and $39.88 per share. The price of our common stock may continue to be volatile as a result of a number of factors, some of which are beyond our control. These factors include, but not limited to, the following:

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developments in any then-outstanding litigation;

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quarterly variations in our operating results;

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large purchases or sales of common stock;

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actual or anticipated announcements of new products or services by us or competitors;

●

general conditions in the markets in which we compete; and

●

economic and financial conditions.

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The market price of our common stock may decline because our operating results may not be consistent and may be difficult to predict.

Our reported net income has fluctuated in the past due to several factors. We expect that our future operating results may also fluctuate due to the same or similar factors. We had a net loss of $12.5 million for the year ended December 31, 2009, a net income of $41.4 million for the year ended December 31, 2010, and we have had a net loss of $17.3 million for the year ended December 31, 2011. The following include some of the factors that may cause our operating results to fluctuate:

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the outcome of enforcement actions currently in progress or that we may undertake in the future, and the timing thereof;

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the amount and timing of receipt of license fees from potential infringers, licensees or customers;

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the outcome of actions we have taken and may take in the future to enforce our intellectual property rights;

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the rate of adoption of our patented technologies;

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the number of new license arrangements we may execute, or that may expire, within a particular period and the scope of those licenses, including the number of our patents which are licensed, the extent of prior infringement of our patent rights, royalty rates, timing of payment obligations, expiration date etc;

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the success of a licensee in selling products that use our patented technologies; and

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the amount and timing of expenses related to our patent filings and enforcement proceedings, including litigation, related to our intellectual property rights.

These fluctuations may make our business particularly difficult to manage, adversely affect our business and operating results, make our operating results difficult for investors to predict and, further, cause our results to fall below investor’s expectations and adversely affect the market price of our common stock.

Because ownership of our common stock is concentrated, investors may have limited influence on stockholder decisions.

As of March 31, 2012, our executive officers and directors beneficially owned approximately 21% of our then outstanding common stock. In addition, a group of stockholders that, as of December 31, 2007, held 4,766,666 shares, or approximately 12%, of our then outstanding common stock, have entered into a voting agreement with us that requires them to vote all of their shares of our voting stock in favor of the director nominees approved by our Board of Directors at each director election going forward, and in a manner that is proportional to the votes cast by all other voting shares as to any other matters submitted to the stockholders for a vote. However, we cannot be certain how many shares of our common stock this group of stockholders currently owns. Because of their beneficial ownership interest, our officers and directors could significantly influence stockholder actions of which you disapprove or that are contrary to your interests. This ability to exercise significant influence could prevent or significantly delay another company from acquiring or merging with us.

Our protective provisions could make it difficult for a third party to successfully acquire us even if you would like to sell your stock to them.

We have a number of protective provisions that could delay, discourage or prevent a third party from acquiring control of us without the approval of our Board of Directors. Our protective provisions include:

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A staggered Board of Directors: This means that only one or two directors (since we have a five-person Board of Directors) will be up for election at any given annual meeting. This has the effect of delaying the ability of stockholders to effect a change in control of us because it would take two annual meetings to effectively replace a majority of the Board of Directors.

●

Blank check preferred stock: Our Board of Directors has the authority to establish the rights, preferences and privileges of our 10,000,000 authorized, but unissued, shares of preferred stock. Therefore, this stock may be issued at the discretion of our Board of Directors with preferences over your shares of our common stock in a manner that is materially dilutive to you. In addition, blank check preferred stock can be used to create a “poison pill” which is designed to deter a hostile bidder from buying a controlling interest in our stock without the approval of our Board of Directors. We have not adopted such a “poison pill;” but our Board of Directors has the ability to do so in the future, very rapidly and without stockholder approval.

●

Advance notice requirements for director nominations and for new business to be brought up at stockholder meetings: Stockholders wishing to submit director nominations or raise matters to a vote of the stockholders must provide notice to us within very specific date windows and in very specific form in order to have the matter voted on at a stockholder meeting. This has the effect of giving our Board of Directors and management more time to react to stockholder proposals generally and could also have the effect of disregarding a stockholder proposal or deferring it to a subsequent meeting to the extent such proposal is not raised properly.

●

No stockholder actions by written consent: No stockholder or group of stockholders may take actions rapidly and without prior notice to our Board of Directors and management or to the minority stockholders. Along with the advance notice requirements described above, this provision also gives our Board of Directors and management more time to react to proposed stockholder actions.

●

Super majority requirement for stockholder amendments to the By-laws: Stockholder proposals to alter or amend our By-laws or to adopt new By-laws can only be approved by the affirmative vote of at least 66 2/3% of the outstanding shares of our common stock.

●

No ability of stockholders to call a special meeting of the stockholders: Only the Board of Directors or management can call special meetings of the stockholders. This could mean that stockholders, even those who represent a significant percentage of our shares of common stock, may need to wait for the annual meeting before nominating directors or raising other business proposals to be voted on by the stockholders.

In addition, the provisions of Section 203 of the Delaware General Corporate Law govern us. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time.

These and other provisions in our amended and restated certificate of incorporation, our By-laws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

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ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

There were no sales of unregistered securities during the three months ended March 31, 2012.

ITEM 3 — DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4 — MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5 — OTHER INFORMATION.

None.

Index

ITEM 6 — EXHIBITS.

Exhibit Number		Description
10.1+		VirnetX Holding Corporation Fiscal 2012 Director Compensation Program.
10.2+		VirnetX Holding Corporation 2007 Stock Plan.
10.3+		Form of VirnetX Holding Corporation 2007 Stock Plan Restricted Stock Unit Award Agreement.
10.4+		Employment Offer Letter from VirnetX, Inc. to Richard H. Nance.
31.1		Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**		Interactive Data Files

+	Denotes a management contract or compensatory plan or arrangement.
*	This exhibit is furnished herewith, but not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section. Such certifications will not be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act, except to the extent that we explicitly incorporate them by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	VIRNETX HOLDING CORPORATION

	By:	/s/ Kendall Larsen
		Name	Kendall Larsen

		Title	Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Richard Nance
		Name	Richard H. Nance

		Title	Chief Financial Officer (Principal Financial Officer and
			Principal Accounting Officer)
Date: May 10, 2012

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EXHIBIT INDEX

Exhibit Number		Description
10.1+		VirnetX Holding Corporation Fiscal 2012 Director Compensation Program.
10.2+		VirnetX Holding Corporation 2007 Stock Plan.
10.3+		Form of VirnetX Holding Corporation 2007 Stock Plan Restricted Stock Unit Award Agreement.
10.4+		Employment Offer Letter from VirnetX, Inc. to Richard H. Nance.
31.1		Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**		Interactive Data Files

+	Denotes a management contract or compensatory plan or arrangement.
*	This exhibit is furnished herewith, but not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section. Such certifications will not be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act, except to the extent that we explicitly incorporate them by reference.

EX-10.1 2 ex10_1.htm EXHIBIT 10.1 ex10_1.htm

Exhibit 10.1

Fiscal Year 2012 Director Compensation

Compensation Element	Compensation
General Board Service – Cash	} Board cash retainer: $40,000 } Meeting fees: none
General Board Service – Equity	} Annual equity grants: 12,500 option shares and 8,333 restricted stock units
		● Vest 100% after 1 year ● Vest 100% prior to a change of control
Committee Chair Service	} Annual cash retainer:
		● Audit: $16,500 ● Compensation: $9,000 ● Nom/Gov: $5,000
	} Meeting fees: none
Committee Member Service	} Annual cash retainer:
		● Audit: $6,000 ● Compensation: $5,000 ● Nom/Gov: none
	} Meeting fees: none

EX-10.2 3 ex10_2.htm EXHIBIT 10.2 ex10_2.htm

Exhibit 10.2

VIRNETX HOLDING CORPORATION

2007 STOCK PLAN

(As amended on April 13, 2012)

1. Purposes of the Plan. The purposes of this 2007 Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants and to promote the success of the Company’s business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. Stock Purchase Rights and Restricted Stock Units may also be granted under the Plan.

2. Definitions. As used herein, the following definitions shall apply:

(a) “Administrator” means the Board or its Committee appointed pursuant to Section 4 of the Plan.

(b) “Affiliate” means an entity other than a Subsidiary (as defined below) which, together with the Company, is under common control of a third person or entity.

(c) “Applicable Laws” means the legal requirements relating to the administration of stock option and restricted stock purchase plans under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, the Code, any Stock Exchange rules or regulations and the applicable laws of any other country or jurisdiction where Awards are granted under the Plan, as such laws, rules, regulations and requirements shall be in place from time to time.

(d) “Award” means, individually or collectively, a grant under the Plan of Options, Stock Purchase Rights or Restricted Stock Units

(e) “Board” means the Board of Directors of the Company.

(f) “Cause” for termination of a Participant’s Continuous Service Status will exist (unless another applicable definition is provided in the Option Agreement, Restricted Stock Purchase Agreement, employment agreement or other applicable agreement) if the Participant is terminated for any of the following reasons: (i) Participant’s willful failure substantially to perform his or her duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Participant’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Participant of any proprietary information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company; or (iv) Participant’s willful breach of any of his or her obligations under any written agreement or covenant with the Company. The determination as to whether a Participant is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Participant. The foregoing definition does not in any way limit the Company’s ability to terminate a Participant’s employment or consulting relationship at any time as provided in Section 5(d) below, and the term “Company” will be interpreted to include any Subsidiary, Parent, Affiliate, or any successor thereto, if appropriate.

(g) “Change of Control” means (1) a sale of all or substantially all of the Company’s assets, or (2) any merger, consolidation or other business combination transaction of the Company with or into another corporation, entity or person, other than a transaction in which the holders of at least a majority of the shares of voting capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by such shares remaining outstanding or by their being converted into shares of voting capital stock of the surviving entity) a majority of the total voting power represented by the shares of voting capital stock of the Company (or the surviving entity) outstanding immediately after such transaction, or (3) the direct or indirect acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a group, of beneficial ownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of the Company; provided that an acquisition of shares from the Company in an equity financing approved by the Board shall not constitute a “Change of Control” hereunder.

(h) “Code” means the Internal Revenue Code of 1986, as amended.

(i) “Committee” means one or more committees or subcommittees of the Board appointed by the Board to administer the Plan in accordance with Section 4 below.

(j) “Common Stock” means the Common Stock of the Company.

(k) “Company” means VirnetX Holding Corporation, a Delaware corporation.

(l) “Consultant” means any person, including an advisor, who is engaged by the Company or any Parent, Subsidiary or Affiliate to render services and is compensated for such services, and any director of the Company whether compensated for such services or not.

(m) “Continuous Service Status” means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Service Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Parents, Subsidiaries, Affiliates or their respective successors. A change in status from an Employee to a Consultant or from a Consultant to an Employee will not constitute an interruption of Continuous Service Status.

(n) “Corporate Transaction” means a sale of all or substantially all of the Company’s assets, or a merger, consolidation or other capital reorganization or business combination transaction of the Company with or into another corporation, entity or person, or the direct or indirect acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a group, of beneficial ownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of the Company.

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(o) “Director” means a member of the Board.

(p) “Employee” means any person employed by the Company or any Parent, Subsidiary or Affiliate, with the status of employment determined based upon such factors as are deemed appropriate by the Administrator in its discretion, subject to any requirements of the Code or the Applicable Laws. The payment by the Company of a director’s fee to a Director shall not be sufficient to constitute“employment” of such Director by the Company.

(q) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(r) “Fair Market Value” means, as of any date, the fair market value of the Common Stock, as determined by the Administrator in good faith on such basis as it deems appropriate and applied consistently with respect to Participants. Whenever possible, the determination of Fair Market Value shall be based upon the closing price for the Shares as reported in the Wall Street Journal for the applicable date.

(s) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable Option Agreement.

(t) “Listed Security” means any security of the Company that is listed or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.

(u) “Named Executive” means any individual who, on the last day of the Company’s fiscal year, is the chief executive officer of the Company (or is acting in such capacity) or among the four most highly compensated officers of the Company (other than the chief executive officer). Such officer status shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act.

(v) “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option, as designated in the applicable Option Agreement.

(w) “Option” means a stock option granted pursuant to the Plan.

(x) “Option Agreement” means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of an Option granted under the Plan and includes any documents attached to or incorporated into such Option Agreement, including, but not limited to, a notice of stock option grant and a form of exercise notice.

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(y) “Option Exchange Program” means a program approved by the Administrator whereby outstanding Options are exchanged for Options with a lower exercise price or are amended to decrease the exercise price as a result of a decline in the Fair Market Value of the Common Stock.

(z) “Optioned Stock” means the Common Stock subject to an Option.

(aa) “Optionee” means an Employee or Consultant who receives an Option.

(bb) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code, or any successor provision.

(cc) “Participant” means any holder of one or more Awards, or the Shares issuable or issued upon exercise of such awards, under the Plan.

(dd) “Plan” means this 2007 Stock Plan.

(ee) “Reporting Person” means an officer, Director, or greater than ten percent stockholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act.

(ff) “Restricted Stock” means Shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below.

(gg) “Restricted Stock Purchase Agreement” means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of a Stock Purchase Right granted under the Plan and includes any documents attached to such agreement.

(hh) “Restricted Stock Unit” means a bookkeeping entry representing the right to receive one share of Common Stock, granted pursuant to Section 11. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.

(ii) “Restricted Stock Unit Agreement” means a written or electronic agreement between the Company and any Participant evidencing the terms and restrictions applying to Shares acquired under a Restricted Stock Unit. The Restricted Stock Unit Agreement is subject to the terms and conditions of the Plan and the notice of grant.

(jj) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time, or any successor provision.

(kk) “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.

(ll) “Stock Exchange” means any stock exchange or consolidated stock price reporting system on which prices for the Common Stock are quoted at any given time.

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(mm) “Stock Purchase Right” means the right to purchase Common Stock pursuant to Section 11 below.

(nn) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code, or any successor provision.

(oo) “Ten Percent Holder” means a person who owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary.

3. Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, the maximum aggregate number of Shares that may be sold under the Plan is 11,624,469 Shares of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Award should expire or become unexercisable for any reason without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares that were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock which are retained by the Company upon exercise or settlement of an Award in order to satisfy the exercise or purchase price for such Award or any withholding taxes due with respect to such exercise, purchase or settlement shall be treated as not issued and shall continue to be available under the Plan. Shares issued under the Plan and later repurchased by the Company pursuant to any repurchase right that the Company may have shall not be available for future grant under the Plan.

4. Administration of the Plan.

(a) General. The Plan shall be administered by the Board or a Committee, or a combination thereof, as determined by the Board. The Plan may be administered by different administrative bodies with respect to different classes of Participants and, if permitted by the Applicable Laws, the Board may authorize one or more officers to make Awards under the Plan.

(b) Committee Composition. If a Committee has been appointed pursuant to this Section 4, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and remove all members of a Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws and, in the case of a Committee administering the Plan in accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to the extent permitted or required by such provisions.

(c) Powers of the Administrator. Subject to the provisions of the Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:

(i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(r) of the Plan, provided that such determination shall be applied consistently with respect to Participants under the Plan;

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(ii) to select the Employees and Consultants to whom Awards may from time to time be granted;

(iii) to determine whether and to what extent Awards are granted;

(iv) to determine the number of Shares of Common Stock to be covered by each Award granted;

(v) to approve the form(s) of agreement(s) used under the Plan;

(vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder, which terms and conditions include but are not limited to the exercise or purchase price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vii) to determine whether and under what circumstances an Award may be settled in cash instead of Common Stock;

(viii) to implement an Option Exchange Program on such terms and conditions as the Administrator in its discretion deems appropriate, provided that no amendment or adjustment to an Option that would materially and adversely affect the rights of any Optionee shall be made without the prior written consent of the Optionee;

(ix) to adjust the vesting of an Award held by an Employee or Consultant as a result of a change in the terms or conditions under which such person is providing services to the Company;

(x) to construe and interpret the terms of the Plan and Awards granted under the Plan, which constructions, interpretations and decisions shall be final and binding on all Participants; and

(xi) in order to fulfill the purposes of the Plan, to modify grants of Awards to Participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs.

5. Eligibility.

(a) Recipients of Grants. Nonstatutory Stock Options, Stock Purchase Rights and Restricted Stock Units may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees, provided that Employees of Affiliates shall not be eligible to receive Incentive Stock Options.

(b) Type of Option. Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.

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(c) ISO $100,000 Limitation. Notwithstanding any designation under Section 5(b), to the extent that the aggregate Fair Market Value of Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(c), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the date of the grant of such Option.

(d) No Employment Rights. The Plan shall not confer upon any Participant any right with respect to continuation of an employment or consulting relationship with the Company, nor shall it interfere in any way with such Participant’s right or the Company’s right to terminate his or her employment or consulting relationship at any time, with or without cause.

6. Term of Plan. The Plan shall become effective upon its adoption by the Board of Directors. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 16 of the Plan.

7. Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided that the term shall be no more than ten years from the date of grant thereof or such shorter term as may be provided in the Option Agreement and provided further that, in the case of an Incentive Stock Option granted to a person who at the time of such grant is a Ten Percent Holder, the term of the Option shall be five years from the date of grant thereof or such shorter term as may be provided in the Option Agreement.

8. [Reserved.]

9. Option Exercise Price and Consideration.

(a) Exercise Price. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator and set forth in the Option Agreement, but shall be subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who at the time of grant is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant; or

(B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

(ii) In the case of a Nonstatutory Stock Option

(A) granted prior to the date, if ever, on which the Common Stock becomes a Listed Security to a person who is at the time of grant is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant if required by the Applicable Laws and, if not so required, shall be such price as is determined by the Administrator;

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(B) granted prior to the date, if ever, on which the Common Stock becomes a Listed Security to any other eligible person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant if required by the Applicable Laws and, if not so required, shall be such price as is determined by the Administrator; or

(C) granted on or after the date, if ever, on which the Common Stock becomes a Listed Security to any eligible person, the per share Exercise Price shall be such price as determined by the Administrator provided that if such eligible person is, at the time of the grant of such Option, a Named Executive of the Company, the per share Exercise Price shall be no less than 100% of the Fair Market Value on the date of grant if such Option is intended to qualify as performance-based compensation under Section 162(m) of the Code.

(iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction.

(b) Permissible Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash; (2) check; (3) to the extent permitted under Applicable Laws, delivery of Optionee’s promissory note with such recourse, interest, security and redemption provisions as the Administrator determines to be appropriate (subject to the provisions of Section 153 of the Delaware General Corporation Law); (4) cancellation of indebtedness; (5) other Shares that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option is exercised, provided that in the case of Shares acquired, directly or indirectly, from the Company, such Shares must have been owned by the Optionee for more than six months on the date of surrender (or such other period as may be required to avoid the Company’s incurring an adverse accounting charge); (6) to the extent permitted under Applicable Laws, delivery of a properly executed exercise notice together with such other documentation as the Administrator and a securities broker approved by the Company shall require to effect exercise of the Option and prompt delivery to the Company of the sale or loan proceeds required to pay the exercise price and any applicable withholding taxes (subject to the applicable provisions of the Sarbanes-Oxley Act prohibiting loans to directors and officers); (7) any combination of the foregoing methods of payment; or (8) such other consideration and method of payment permitted under Applicable Laws. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company and the Administrator may, in its sole discretion, refuse to accept a particular form of consideration at the time of any Option exercise.

10. Exercise of Option.

(a) General.

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(i) Exercisability. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, consistent with the term of the Plan and reflected in the Option Agreement, including vesting requirements and/or performance criteria with respect to the Company and/or the Optionee; provided however that, if required by Applicable Laws, any Option granted prior to the date, if ever, upon which the Common Stock becomes a Listed Security shall become exercisable at the rate of at least 20% per year over five years from the date the Option is granted. In the event that any of the Shares issued upon exercise of an Option (which exercise occurs prior to the date, if ever, upon which the Common Stock becomes a Listed Security) should be subject to a right of repurchase in the Company’s favor, such repurchase right shall, if required by Applicable Laws, lapse at the rate of at least 20% per year over five years from the date the Option is granted. Notwithstanding the above, in the case of an Option granted to an officer, Director or Consultant of the Company or any Parent, Subsidiary or Affiliate of the Company, the Option may become fully exercisable, or a repurchase right, if any, in favor of the Company Shall lapse, at any time or during any period established by the Administrator.

(ii) Leave of Absence. The Administrator shall have the discretion to determine whether and to what extent the vesting of Options shall be tolled during any unpaid leave of absence; provided, however, that in the absence of such determination, vesting of Options shall be tolled during any such unpaid leave (unless otherwise required by the Applicable Laws). In the event of military leave, vesting shall toll during any unpaid portion of such leave, provided that, upon a Participant’s returning from military leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given vesting credit with respect to Options to the same extent as would have applied had the Participant continued to provide services to the Company throughout the leave on the same terms as he or she was providing services immediately prior to such leave.

(iii) Minimum Exercise Requirements. An Option may not be exercised for a fraction of a Share. The Administrator may require that an Option be exercised as to a minimum number of Shares, provided that such requirement shall not prevent an Optionee from exercising the full number of Shares as to which the Option is then exercisable.

(iv) Procedures for and Results of Exercise. An Option shall be deemed exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and the Company has received full payment for the Shares with respect to which the Option is exercised. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 9(b) of the Plan, provided that the Administrator may, in its sole discretion, refuse to accept any form of consideration at the time of any Option exercise.

Exercise of an Option in any manner shall result in a decrease in the number of Shares that thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(v) Rights as Stockholder. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 14 of the Plan.

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(b) Termination of Employment or Consulting Relationship. Except as otherwise set forth in this Section 10(b), the Administrator shall establish and set forth in the applicable Option Agreement the terms and conditions upon which an Option shall remain exercisable, if at all, following termination of an Optionee’s Continuous Service Status, which provisions may be waived or modified by the Administrator at any time. To the extent that the Optionee is entitled to exercise an Option at the date of his or her termination of Continuous Service Status, or if the Optionee (or other person entitled to exercise the Option) does not exercise the Option to the extent so entitled within the time specified in the Option Agreement or below (as applicable), the Option shall terminate and the Optioned Stock underlying the unexercised portion of the Option shall revert to the Plan. In no event may any Option be exercised after the expiration of the Option term as set forth in the Option Agreement (and subject to Section 7).

The following provisions (1) shall apply to the extent an Option Agreement does not specify the terms and conditions upon which an Option shall terminate upon termination of an Optionee’s Continuous Service Status, and (2) establish the minimum post-termination exercise periods that may be set forth in an Option Agreement:

(i) Termination other than Upon Disability or Death or for Cause. In the event of termination of an Optionee’s Continuous Service Status, such Optionee may exercise an Option for 30 days following such termination to the extent the Optionee was entitled to exercise it at the date of such termination. No termination shall be deemed to occur and this Section 10(b)(i) shall not apply if (i) the Optionee is a Consultant who becomes an Employee, or (ii) the Optionee is an Employee who becomes a Consultant.

(ii) Disability of Optionee. In the event of termination of an Optionee’s Continuous Service Status as a result of his or her disability (including a disability within the meaning of Section 22(e)(3) of the Code), such Optionee may exercise an Option at any time within six months following such termination to the extent the Optionee was entitled to exercise it at the date of such termination.

(iii) Death of Optionee. In the event of the death of an Optionee during the period of Continuous Service Status since the date of grant of the Option, or within thirty days following termination of Optionee’s Continuous Service Status, the Option may be exercised by Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance at any time within twelve months following the date of death, but only to the extent the Optionee was entitled to exercise it at the date of death or, if earlier, the date the Optionee’s Continuous Service Status terminated.

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(iv) Termination for Cause. In the event of termination of an Optionee’s Continuous Service Status for Cause, any Option (including any exercisable portion thereof) held by such Optionee shall immediately terminate in its entirety upon first notification to the Optionee of termination of the Optionee’s Continuous Service Status. If an Optionee’s employment or consulting relationship with the Company is suspended pending an investigation of whether the Optionee shall be terminated for Cause, all the Optionee’s rights under any Option likewise shall be suspended during the investigation period and the Optionee shall have no right to exercise any Option. This Section 10(b)(iv) shall apply with equal effect to vested Shares acquired upon exercise of an Option granted on any date on which the Common Stock is not a Listed Security to a person other than an officer, Director or Consultant, in that the Company shall have the right to repurchase such Shares from the Participant upon the following terms: (A) the repurchase is made within 90 days of termination of the Participant’s Continuous Service Status for Cause at the Fair Market Value of the Shares as of the date of termination, (B) consideration for the repurchase consists of cash or cancellation of purchase money indebtedness, and (C) the repurchase right terminates upon the effective date of the Company’s initial public offering of its Common Stock. With respect to vested Shares issued upon exercise of an Option granted to any officer, Director or Consultant, the Company’s right to repurchase such Shares upon termination of the Participant’s Continuous Service Status for Cause shall be made at the Participant’s original cost for the Shares and shall be effected pursuant to such terms and conditions, and at such time, as the Administrator shall determine. Nothing in this Section 10(b)(iv) shall in any way limit the Company’s right to purchase unvested Shares issued upon exercise of an Option as set forth in the applicable Option Agreement.

(c) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted under the Plan based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made.

11. Stock Purchase Rights and Restricted Stock Units.

(a) Rights to Purchase. When the Administrator determines that it will offer Stock Purchase Rights or Restricted Stock Units under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to such Award, including the number of Shares subject to such Award, the purchase price to be paid (if any), and the time within which such person must accept such offer. In the case of a Stock Purchase Right granted prior to the date, if any, on which the Common Stock becomes a Listed Security and if required by the Applicable Laws at that time, the purchase price of Shares subject to such Stock Purchase Rights shall not be less than 85% of the Fair Market Value of the Shares as of the date of the offer, or, in the case of a Ten Percent Holder, the price shall not be less than 100% of the Fair Market Value of the Shares as of the date of the offer. If the Applicable Laws do not impose the requirements set forth in the preceding sentence and with respect to any Stock Purchase Rights granted after the date, if any, on which the Common Stock becomes a Listed Security, the purchase price of Shares subject to Stock Purchase Rights shall be as determined by the Administrator. The grant of Stock Purchase Rights or Restricted Stock Units shall be accepted by execution of the applicable Award agreement in the form determined by the Administrator. The permissible consideration for Stock Purchase Rights shall be determined by the Administrator and shall be the same as is set forth in Section 9(b) with respect to exercise of Options.

(b) Repurchase Option.

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(i) General. Unless the Administrator determines otherwise, the Award agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser’s employment with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Award agreement shall be the original purchase price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine, provided that with respect to a Stock Purchase Right granted prior to the date, if ever, on which the Common Stock becomes a Listed Security to a purchaser who is not an officer, Director or Consultant of the Company or of any Parent, Subsidiary of Affiliate, it shall lapse at a minimum rate of 20% per year if required by Applicable Laws.

(ii) Leave of Absence. The Administrator shall have the discretion to determine whether and to what extent the lapsing of Company repurchase rights shall be tolled during any unpaid leave of absence; provided, however, that in the absence of such determination, such lapsing shall be tolled during any such unpaid leave (unless otherwise required by the Applicable Laws). In the event of military leave, the lapsing of Company repurchase rights shall toll during any unpaid portion of such leave, provided that, upon a Participant’s returning from military leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given “vesting” credit with respect to Shares purchased pursuant to the Award agreement to the same extent as would have applied had the Participant continued to provide services to the Company throughout the leave on the same terms as he or she was providing services immediately prior to such leave.

(iii) Termination for Cause. In the event of termination of a Participant’s Continuous Service Status for Cause, the Company shall have the right to repurchase from the Participant vested Shares issued upon exercise of a Stock Purchase Right or settlement of a Restricted Stock Unit granted to any person other than an officer, Director or Consultant prior to the date, if any, upon which the Common Stock becomes a Listed Security upon the following terms: (A) the repurchase must be made within 90 days of termination of the Participant’s Continuous Service Status for Cause at the Fair Market Value of the Shares as of the date of termination, (B) consideration for the repurchase consists of cash or cancellation of purchase money indebtedness, and (C) the repurchase right terminates upon the effective date of the Company’s initial public offering of its Common Stock. With respect to vested Shares issued upon exercise of a Stock Purchase Right or settlement of a Restricted Stock Unit granted to any officer, Director or Consultant, the Company’s right to repurchase such Shares upon termination of such Participant’s Continuous Service Status for Cause shall be made at the Participant’s original cost for the Shares and shall be effected pursuant to such terms and conditions, and at such time, as the Administrator shall determine. Nothing in this Section 11(b)(iii) shall in any way limit the Company’s right to purchase unvested Shares as set forth in the applicable Award agreement.

(c) Other Provisions. The Award agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Award agreements need not be the same with respect to each purchaser.

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(d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) determined by the Administrator and set forth in the Restricted Stock Unit Agreement. The Administrator, in its sole discretion, provide in any Restricted Stock Unit Agreement for the settlement of any earned Restricted Stock Units in cash, Shares, or a combination of both.

(e) Rights as a Stockholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 14 of the Plan.

12. Taxes.

(a) As a condition of the grant, vesting or exercise of an Option or Stock Purchase Right or settlement of Restricted Stock Unit granted under the Plan, the Participant (or in the case of the Participant’s death, the person exercising the Option or Stock Purchase Right or receiving the Shares upon settlement of a Restricted Stock Unit) shall make such arrangements as the Administrator may require for the satisfaction of any applicable federal, state, local or foreign withholding tax obligations that may arise in connection with such grant, vesting or exercise of the Option, Stock Purchase Right, the issuance of Shares or the settlement of a Restricted Stock Unit. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied. If the Administrator allows the withholding or surrender of Shares to satisfy a Participant’s tax withholding obligations under this Section 12 (whether pursuant to Section 12(c), (d) or (e), or otherwise), the Administrator shall not allow Shares to be withheld in an amount that exceeds the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes.

(b) In the case of an Employee and in the absence of any other arrangement, the Employee shall be deemed to have directed the Company to withhold or collect from his or her compensation an amount sufficient to satisfy such tax obligations from the next payroll payment otherwise payable after the date of an exercise of the Option or Stock Purchase Right or the settlement of a Restricted Stock Unit.

(c) This Section 12(c) shall apply only after the date, if any, upon which the Common Stock becomes a Listed Security. In the case of Participant other than an Employee (or in the case of an Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with respect to any remaining tax obligations), in the absence of any other arrangement and to the extent permitted under the Applicable Laws, the Participant shall be deemed to have elected to have the Company withhold from the Shares to be issued upon exercise of the Option or Stock Purchase Right or the settlement of a Restricted Stock Unit that number of Shares having a Fair Market Value determined as of the applicable Tax Date (as defined below) equal to the amount required to be withheld. For purposes of this Section 12, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined under the Applicable Laws (the “Tax Date”).

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(d) If permitted by the Administrator, in its discretion, a Participant may satisfy his or her tax withholding obligations upon exercise of an Option or Stock Purchase Right or the vesting or settlement of a Restricted Stock Unit by surrendering to the Company Shares that have a Fair Market Value determined as of the applicable Tax Date equal to the amount required to be withheld. In the case of shares previously acquired from the Company that are surrendered under this Section 12(d), such Shares must have been owned by the Participant for more than six (6) months on the date of surrender (or such other period of time as is required for the Company to avoid adverse accounting charges).

(e) Any election or deemed election by a Participant to have Shares withheld to satisfy tax withholding obligations under Section 12(c) or (d) above shall be irrevocable as to the particular Shares as to which the election is made and shall be subject to the consent or disapproval of the Administrator. Any election by a Participant under Section 12(d) above must be made on or prior to the applicable Tax Date.

(f) In the event an election to have Shares withheld is made by a Participant and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the Option or Stock Purchase Right is exercised but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date.

13. Non-Transferability of Awards.

(a) General. Except as set forth in this Section 13, Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution. The designation of a beneficiary by a Participant will not constitute a transfer. An Award may be exercised, during the lifetime of the holder of an Award, only by such holder or a transferee permitted by this Section 13.

(b) Limited Transferability Rights. Notwithstanding anything else in this Section 13, prior to the date, if ever, on which the Common Stock becomes a Listed Security, the Administrator may in its discretion grant Nonstatutory Stock Options that may be transferred by instrument to an inter vivos or testamentary trust in which the Options are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift to “Immediate Family Members” (as defined below) of the Optionee. “Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law and shall include adoptive relationships. Following the date, if ever, on which the Common Stock becomes a Listed Security, the Administrator may in its discretion grant transferable Awards pursuant to Award agreements specifying the manner in which such Awards are transferable.

14. Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions.

(a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares of Common Stock covered by each outstanding Award, the numbers of Shares set forth in Sections 3(a) and 8 above, and the number of Shares of Common Stock that have been authorized for issuance under the Plan but as to which no Awards have yet been granted or that have been returned to the Plan upon cancellation or expiration of an Award, as well as the price per Share of Common Stock covered by each such outstanding Award, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares of Common Stock subject to an Award.

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(b) Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company, each Award will terminate immediately prior to the consummation of such action, unless otherwise determined by the Administrator.

(c) Corporate Transaction. In the event of a Corporate Transaction (including without limitation a Change of Control), each outstanding Award shall be assumed or an equivalent award shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation (the “Successor Corporation”), unless the Successor Corporation does not agree to assume the Award or to substitute an equivalent award, in which case such Award shall terminate upon the consummation of the transaction.

Notwithstanding the above, in the event of a Change of Control and irrespective of whether outstanding Awards are being assumed, substituted or terminated in connection with the transaction, the vesting and exercisability of each outstanding Award shall accelerate as and to the extent (if at all) provided in such Participant’s Award agreement.

For purposes of this Section 14(c), an Award shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction or a Change of Control, as the case may be, each holder of an Award would be entitled to receive upon exercise or settlement of the Award the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the Award at such time (after giving effect to any adjustments in the number of Shares covered by the Award as provided for in this Section 14); provided that if such consideration received in the transaction is not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon exercise or settlement of the Award to be solely common stock of the Successor Corporation equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction.

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(d) Limitation on Payments. In the event that the vesting acceleration of any Award or lapse of a repurchase right provided for in this Plan or in any Award agreement constitutes “parachute payments” within the meaning of Section 280G of the Code, and (y) but for this Section 14(d) would be subject to the excise tax imposed by Section 4999 of the Code (or any corresponding provisions of state income tax law), then such vesting acceleration or lapse of a repurchase right shall be either:

(A) delivered in full, or

(B) delivered to such lesser extent as would result in no portion of such severance benefits being subject to excise tax under Code Section 4999,

whichever amount, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Code Section 4999, results in the receipt by the Participant on an after-tax basis of the greater amount of acceleration or lapse of repurchase rights benefits, notwithstanding that all or some portion of such benefits may be taxable under Code Section 4999. Any determination required under this Section 14(d) shall be made in writing by the Company’s independent accountants, whose determination shall be conclusive and binding for all purposes on the Company and any affected Participant. In the event that (A) above applies, then the Participant shall be responsible for any excise taxes imposed with respect to such benefits. In the event that (B) above applies, then each benefit provided hereunder shall be proportionately reduced to the extent necessary to avoid imposition of such excise taxes.

(e) Certain Distributions. In the event of any distribution to the Company’s stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per Share of Common Stock covered by each outstanding Award to reflect the effect of such distribution.

15. Time of Granting Awards. The date of grant of an Award shall, for all purposes, be the date on which the Administrator makes the determination granting such Award, or such other date as is determined by the Administrator, provided that in the case of any Incentive Stock Option, the grant date shall be the later of the date on which the Administrator makes the determination granting such Incentive Stock Option or the date of commencement of the Optionee’s employment relationship with the Company. Notice of the determination shall be given to each Employee or Consultant to whom an Award is so granted within a reasonable time after the date of such grant.

16. Amendment and Termination of the Plan.

(a) Authority to Amend or Terminate. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation (other than an adjustment pursuant to Section 14 above) shall be made that would materially and adversely affect the rights of any Participant under any outstanding grant, without his or her consent. In addition, to the extent necessary and desirable to comply with the Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required.

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(b) Effect of Amendment or Termination. Except as to amendments which the Administrator has the authority under the Plan to make unilaterally, no amendment or termination of the Plan shall materially and adversely affect Awards already granted, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company.

17. Conditions Upon Issuance of Shares. Notwithstanding any other provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with the Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel. As a condition to the exercise of an Option or Stock Purchase Right, or the settlement of a Restricted Stock Unit, the Company may require the person exercising the Award or receiving the Shares upon settlement of a Restricted Stock Unit to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law. Shares issued upon exercise of Awards granted prior to the date, if ever, on which the Common Stock becomes a Listed Security shall be subject to a right of first refusal in favor of the Company pursuant to which the Participant will be required to offer Shares to the Company before selling or transferring them to any third party on such terms and subject to such conditions as is reflected in the applicable Award agreement.

18. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

19. Agreements. Awards shall be evidenced by Option Agreements, Restricted Stock Purchase Agreements, and Restricted Stock Unit Agreements, respectively, in such form(s) as the Administrator shall from time to time approve.

20. Stockholder Approval. If required by the Applicable Laws, continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under the Applicable Laws.

21. Information and Documents to Optionees and Purchasers. Prior to the date, if any, upon which the Common Stock becomes a Listed Security and if required by the Applicable Laws, the Company shall provide financial statements at least annually to each Participant and to each individual who acquired Shares pursuant to the Plan, during the period such Participant or purchaser has one or more Awards outstanding, and in the case of an individual who acquired Shares pursuant to the Plan, during the period such individual owns such Shares. The Company shall not be required to provide such information if the issuance of Awards under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information.

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22. Compliance With Code Section 409A. Awards will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Code Section 409A, except as otherwise determined in the sole discretion of the Administrator. The Plan and each Award agreement under the Plan is intended to meet the requirements of Code Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral thereof, is subject to Code Section 409A the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Code Section 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A.

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EX-10.3 4 ex10_3.htm EXHIBIT 10.3 ex10_3.htm

Exhibit 10.3

VIRNETX HOLDING CORPORATION

2007 STOCK PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

Unless otherwise defined herein, the terms defined in the VirnetX Holding Corporation 2007 Stock Plan (the “Plan”) will have the same defined meanings in this Restricted Stock Unit Award Agreement (the “Award Agreement”).

I. NOTICE OF RESTRICTED STOCK UNIT GRANT

Participant Name:

Address:

You have been granted the right to receive an Award of Restricted Stock Units, subject to the terms and conditions of the Plan and this Award Agreement, as follows:

Grant Number
Date of Grant
Vesting Commencement Date
Number of Restricted Stock Units

Vesting Schedule:

Subject to any acceleration provisions contained in the Plan or as otherwise set forth below, the Restricted Stock Units will vest in accordance with the following schedule:

[INSERT VESTING SCHEDULE.]

In the event Participant ceases to be in Continuous Service Status for any or no reason before Participant vests in the Restricted Stock Units, the Restricted Stock Units and Participant’s right to acquire any Shares hereunder will immediately terminate.

By Participant’s signature and the signature of the representative of VirnetX Holding Corporation (the “Company”) below, Participant and the Company agree that this Award of Restricted Stock Units is granted under and governed by the terms and conditions of the Plan and this Award Agreement, including the Terms and Conditions of Restricted Stock Unit Grant, attached hereto as Exhibit A, all of which are made a part of this document. Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions of the Plan and Award Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Award Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.

PARTICIPANT:		VIRNETX HOLDING CORPORATION


Signature		By


Print Name		Title

Address:

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EXHIBIT A

TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT GRANT

1. Grant. The Company hereby grants to the individual named in the Notice of Grant attached as Part I of this Award Agreement (the “Participant”) under the Plan an Award of Restricted Stock Units, subject to all of the terms and conditions in this Award Agreement and the Plan, which is incorporated herein by reference. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Award Agreement, the terms and conditions of the Plan will prevail.

2. Company’s Obligation to Pay. Each Restricted Stock Unit represents the right to receive a Share on the date it vests. Unless and until the Restricted Stock Units will have vested in the manner set forth in Section 3, Participant will have no right to payment of any such Restricted Stock Units. Prior to actual payment of any vested Restricted Stock Units, such Restricted Stock Unit will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company. Any Restricted Stock Units that vest in accordance with Sections 3 or 4 will be paid to Participant (or in the event of Participant’s death, to his or her estate) in whole Shares, subject to Participant satisfying any applicable tax withholding obligations as set forth in Section 7. Subject to the provisions of Section 4, such vested Restricted Stock Units will be paid in Shares as soon as practicable after vesting, but in each such case within the period ending no later than the date that is two and one-half (2½) months from the end of the Company’s tax year that includes the vesting date.

3. Vesting Schedule. Except as provided in Section 4, and subject to Section 5, the Restricted Stock Units awarded by this Award Agreement will vest in accordance with the vesting provisions set forth in the Notice of Grant. Restricted Stock Units scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest in Participant in accordance with any of the provisions of this Award Agreement, unless Participant will have been in Continuous Service Status from the Date of Grant until the date such vesting occurs.

4. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Restricted Stock Units at any time, subject to the terms of the Plan. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator.

Notwithstanding anything in the Plan or this Award Agreement to the contrary, if the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units is accelerated in connection with Participant’s termination of Continuous Service Status (provided that such termination is a “separation from service” within the meaning of Section 409A, as determined by the Company), other than due to death, and if (x) Participant is a “specified employee” within the meaning of Section 409A at the time of such termination of Continuous Service Status and (y) the payment of such accelerated Restricted Stock Units will result in the imposition of additional tax under Section 409A if paid to Participant on or within the six (6) month period following Participant’s termination of Continuous Service Status, then the payment of such accelerated Restricted Stock Units will not be made until the date six (6) months and one (1) day following the date of Participant’s termination of Continuous Service Status, unless the Participant dies following his or her termination of Continuous Service Status, in which case, the Restricted Stock Units will be paid in Shares to the Participant’s estate as soon as practicable following his or her death. It is the intent of this Award Agreement to comply with the requirements of Section 409A so that none of the Restricted Stock Units provided under this Award Agreement or Shares issuable thereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. For purposes of this Award Agreement, “Section 409A” means Section 409A of the Code, and any proposed, temporary or final Treasury Regulations and Internal Revenue Service guidance thereunder, as each may be amended from time to time.

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5. Forfeiture upon Termination of Continuous Service Status. Notwithstanding any contrary provision of this Award Agreement, the balance of the Restricted Stock Units that have not vested as of the time of Participant’s termination of Continuous Service Status for any or no reason and Participant’s right to acquire any Shares hereunder will immediately terminate.

6. Death of Participant. Any distribution or delivery to be made to Participant under this Award Agreement will, if Participant is then deceased, be made to Participant’s designated beneficiary, or if no beneficiary survives Participant, the administrator or executor of Participant’s estate. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.

7. Withholding of Taxes. Notwithstanding any contrary provision of this Award Agreement, no certificate representing the Shares will be issued to Participant, unless and until satisfactory arrangements (as determined by the Administrator) will have been made by Participant with respect to the payment of income, employment and other taxes which the Company determines must be withheld with respect to such Shares. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit Participant to satisfy such tax withholding obligation, in whole or in part (without limitation) by (a) paying cash, (b) electing to have the Company withhold otherwise deliverable Shares having a Fair Market Value equal to the minimum amount required to be withheld, (c) delivering to the Company already vested and owned Shares having a Fair Market Value equal to the amount required to be withheld, or (d) selling a sufficient number of such Shares otherwise deliverable to Participant through such means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld. Notwithstanding any contrary provision of this Award Agreement, the default handling for withholding of taxes shall be that the Company shall reduce the number of Shares otherwise deliverable to Participant in such amount equal to the minimum amount required to be withheld. If Participant fails to make satisfactory arrangements for the payment of any required tax withholding obligations hereunder at the time any applicable Restricted Stock Units otherwise are scheduled to vest pursuant to Sections 3 or 4, Participant will permanently forfeit such Restricted Stock Units and any right to receive Shares thereunder and the Restricted Stock Units will be returned to the Company at no cost to the Company.

8. Rights as Shareholder. Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a shareholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant. After such issuance, recordation and delivery, Participant will have all the rights of a shareholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

-4-

9. No Guarantee of Continued Service Status. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF THE RESTRICTED STOCK UNITS PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING IN CONTINUOUS SERVICE STATUS AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS AWARD OF RESTRICTED STOCK UNITS OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT IN CONTINUOUS SERVICE STATUS FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP IN CONTINUOUS SERVICE STATUS AT ANY TIME, WITH OR WITHOUT CAUSE.

10. Address for Notices. Any notice to be given to the Company under the terms of this Award Agreement will be addressed to the Company, in care of Stock Administration at VirnetX Holding Corporation, at P.O. Box 439, Zephyr Cove, NV 89448, or at such other address as the Company may hereafter designate in writing.

11. Grant is Not Transferable. Except to the limited extent provided in Section 6, this grant and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

12. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Award Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

13. Additional Conditions to Issuance of Stock. If at any time the Company will determine, in its discretion, that the listing, registration or qualification of the Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition to the issuance of Shares to Participant (or his or her estate), such issuance will not occur unless and until such listing, registration, qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the Company. Where the Company determines that the delivery of the payment of any Shares will violate federal securities laws or other applicable laws, the Company will defer delivery until the earliest date at which the Company reasonably anticipates that the delivery of Shares will no longer cause such violation. The Company will make all reasonable efforts to meet the requirements of any such state or federal law or securities exchange and to obtain any such consent or approval of any such governmental authority.

-5-

14. Plan Governs. This Award Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Award Agreement and one or more provisions of the Plan, the provisions of the Plan will govern. Capitalized terms used and not defined in this Award Agreement will have the meaning set forth in the Plan.

15. Administrator Authority. The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Award Agreement.

16. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or another third party designated by the Company.

17. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.

18. Agreement Severable. In the event that any provision in this Award Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Award Agreement.

19. Modifications to the Agreement. This Award Agreement constitutes the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not accepting this Award Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Award Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Award Agreement, the Company reserves the right to revise this Award Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Section 409A or to otherwise avoid imposition of any additional tax or income recognition under Section 409A in connection to this Award of Restricted Stock Units.

-6-

20. Amendment, Suspension or Termination of the Plan. By accepting this Award, Participant expressly warrants that he or she has received an Award of Restricted Stock Units under the Plan, and has received, read and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.

21. Governing Law. This Agreement will be governed by the laws of the State of Nevada, without giving effect to the conflict of law principles thereof. For purposes of litigating any dispute that arises under this Restricted Stock Unit or this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Nevada, and agree that such litigation will be conducted in the state courts of Nevada, or the federal courts for the United States for the District of Nevada, and no other courts, where this Restricted Stock Unit is made and/or to be performed.

-7-

EX-10.4 5 ex10_4.htm EXHIBIT 10.4 ex10_4.htm

Exhibit 10.4

April 5, 2012

Richard H. Nance

51 Hollyleaf

Aliso Viejo, CA 92656

Dear Richard:

VirnetX Inc., a Delaware corporation (the “Company”), is pleased to offer you employment with the Company on a part-time basis as its Chief Financial Officer on the terms described below.

Position. Your position with the Company would be on a part-time basis beginning on April 5, 2012 and you will report to the Company’s Chief Executive Officer. By signing this letter, you confirm with the Company that you are under no contractual or other legal obligations that would prohibit you from performing your duties with the Company.

Compensation and Employee Benefits. You will be paid a starting salary of $60,000 per year, payable on the Company’s regular payroll dates. As a part-time employee of the Company, you may be eligible to participate in the Company-sponsored benefits plans, but only if and to the extent permitted by the terms of such plans, which will be described to you at a later date.

Stock Options. Subject to the approval of the VirnetX Holding Corporation’s Board of Directors (the “Board”), the Company will recommend to the Board that you be granted an option to purchase 50,000 shares of VirnetX Holding Corporation’s common stock pursuant to the VirnetX Holding Corporation 2007 Stock Plan (the “Plan”). The exercise price will be equal to the then current fair market value of VirnetX Holding Corporation’s common stock on your first date of employment, assuming that your employment commences April 5, 2012. The term of the option shall be 10 years, subject to earlier expiration in the event of the termination of your services to the Company. The option will be a nonstatutory stock option and shall be subject to the other terms and conditions set forth in the Plan and in VirnetX Holding Corporation’s standard form of stock option agreement. The option shall vest as follows:

●

12,500 shares, which is 25% of the option shares, will vest on the one year anniversary of the date of commencement of your employment;

●

The remaining shares will vest on a monthly basis following the one year anniversary of the date of commencement of your employment (i.e., approximately 1,042 shares per month thereafter).

●

These options will vest in full upon a Change of Control (as defined in the Plan), the details of which will be set forth in the Plan and your applicable option agreement.

Confidential Information and Invention Assignment Agreement. Like all Company employees, you will be required, as a condition of your employment with the Company, to sign the Company’s enclosed standard Confidential Information and Invention Assignment Agreement.

Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the Company will be “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without cause. Any contrary representations which may have been made to you are superseded by this offer. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company’s Chief Executive Officer.

Outside Activities. While you render services to the Company, you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

Withholding Taxes. All forms of compensation referred to in this letter are subject to applicable withholding and payroll taxes.

Entire Agreement. This letter supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this letter.

If you wish to accept this offer, please sign and date both the enclosed duplicate original of this letter and the enclosed Confidential Information and Invention Assignment Agreement and return them to me. As required, by law, your employment with the Company is also contingent upon your providing legal proof of your identity and authorization to work in the United States. We look forward to having you join us beginning on April 5, 2012.

Very truly yours,

By:	/s/ Kendall Larsen
Name:		Kendall Larsen
Title:		CEO

ACCEPTED AND AGREED:
Richard H. Nance

/s/ Richard H. Nance
Signature

4/5/2012
Date

Anticipated Start Date: April 5, 2012

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Attachment A: Confidential Information and Invention Assignment Agreement

-3-

EX-31.1 6 ex31_1.htm EXHIBIT 31.1 ex31_1.htm

EXHIBIT 31.1

CERTIFICATIONS

I, Kendall Larsen, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of VirnetX Holding Corporation for the quarter ended March 31, 2012;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Kendall Larsen
	Kendall Larsen
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: May 10, 2012

EX-31.2 7 ex31_2.htm EXHIBIT 31.2 ex31_2.htm

EXHIBIT 31.2

CERTIFICATIONS

I, Richard H. Nance, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of VirnetX Holding Corporation for the quarter ended March 31, 2012;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Richard H. Nance
	Richard H. Nance
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

Date: May 10, 2012

EX-32.1 8 ex32_1.htm EXHIBIT 32.1 ex32_1.htm

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of VirnetX Holding Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2012 as filed with the Securities and Exchange Commission on May 10, 2012 (the “Report”), I, Kendall Larsen, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	/s/ Kendall Larsen
	Kendall Larsen
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: May 10, 2012

EX-32.2 9 ex32_2.htm EXHIBIT 32.2 ex32_2.htm

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of VirnetX Holding Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2012 as filed with the Securities and Exchange Commission on May 10, 2012 (the “Report”), I, Richard H. Nance, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	/s/ Richard H. Nance
	Richard H. Nance
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

Date: May 10, 2012

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873000

643000

<div><div style="text-align: left; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Note 4 - Income Taxes</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><div style="text-align: left; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">The components of the income tax expense for the period ended March 31, 2012 and 2011 respectively are as follows:</div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></div><div style="text-align: left;"><table cellpadding="0" cellspacing="0" style="width: 80%; font-family: times new roman; font-size: 10pt;"><tr><td valign="bottom" style="padding-bottom: 2px; width: 56%; font-family: times new roman; font-size: 10pt;">  </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">March 31, 2012</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">March 31, 2011</div></td><td valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;">  </td></tr><tr><td align="left" valign="bottom" style="width: 56%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Current:</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 10%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 10%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">  </td></tr><tr bgcolor="#cceeff"><td align="left" valign="bottom" style="width: 56%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Federal</div></td><td align="right" valign="bottom" style="width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(2,177</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="right" valign="bottom" style="width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(4,007)</div></td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">  </td></tr><tr bgcolor="white"><td align="left" valign="bottom" style="width: 56%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">State</div></td><td align="right" valign="bottom" style="width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">  </td><td align="right" valign="bottom" style="width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td valign="bottom" style="width: 9%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">                       3</div></td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">  </td></tr><tr bgcolor="#cceeff"><td align="left" valign="bottom" style="padding-bottom: 2px; width: 56%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Foreign</div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(3</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">                      4</div></td><td valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;">  </td></tr><tr bgcolor="white"><td valign="bottom" style="width: 56%; display: inline; font-family: times new roman; font-size: 10pt;">  </td><td align="right" valign="bottom" style="width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(2,180</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="right" valign="bottom" style="width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(4,000)</div></td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">  </td></tr><tr bgcolor="#cceeff"><td align="left" valign="bottom" style="width: 56%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Deferred:</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">  </td></tr><tr bgcolor="white"><td align="left" valign="bottom" style="width: 56%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Federal</div></td><td align="right" valign="bottom" style="width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">1</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">3,300</div></td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">  </td></tr><tr bgcolor="#cceeff"><td align="left" valign="bottom" style="width: 56%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">State</div></td><td align="right" valign="bottom" style="width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">6</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;">  </td></tr><tr bgcolor="white"><td align="left" valign="bottom" style="padding-bottom: 2px; width: 56%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Foreign</div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;">  </td></tr><tr bgcolor="#cceeff"><td valign="bottom" style="padding-bottom: 2px; width: 56%; font-family: times new roman; font-size: 10pt;">  </td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">7</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">3,300</div></td><td valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;">  </td></tr><tr bgcolor="white"><td align="left" valign="bottom" style="padding-bottom: 4px; width: 56%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Total provision for income taxes</div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(2,173</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(700)</div></td><td valign="bottom" style="padding-bottom: 4px; width: 1%; font-family: times new roman; font-size: 10pt;">  </td></tr></table></div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of deferred assets will not be realized.  The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable for the three months ended March 31, 2012.  Accordingly, management has maintained partial valuation allowance against its net deferred tax assets at March 31, 2012.  The net change in the total valuation allowance for the period ended March 31, 2012 was a decrease of $208.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">At March 31, 2012, the Company has federal and state net operating loss carryforward of approximately $912 and $44,277 respectively, expiring beginning in 2027 and 2012, respectively.</div></div>

19935000

14438000

73127000

74633000

90000

736000

-5529000

20148000

-4086000

-11966000

-4707000

-7122000

-9525000

8918000

74000

60000

-7223000

-2752000

<div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Note 1 - Business Description and Basis of Presentation</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">VirnetX, Inc. ("we" or "VirnetX") develop software and technology solutions for securing real-time communications over the Internet.  Our patented GABRIEL Connection Technology™ combines industry standard encryption protocols with our patented techniques for automated domain name system, or DNS, lookup mechanisms, and enables users to create a secure communication link using secure domain names over wired or wireless (4G/LTE) networks.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Our portfolio of intellectual property is the foundation of our business model.  We currently own 20 patents in the United States and 26 foreign patents, as well as several pending U.S. and foreign patent applications.  Our patent portfolio is primarily focused on securing real-time communications over the Internet, as well as related services such as the establishment and maintenance of a secure domain name registry.  Our patented methods also have additional applications in operating systems and network security.  On December 1, 2009, we submitted a licensing declaration to the 3rd Generation Partnership Project, or 3GPP, identifying those of our U.S. and international patents which may be relevant to Long Term Evolution, or LTE. On March 14, 2011, we supplemented our licensing declaration to include five additional specifications. On April 28, 2011, at the request of the European Telecommunications Standards Institute, or ETSI, we agreed to update our licensing declaration to ETSI under ETSI's Intellectual Property Rights or IPR policy.  We agreed with ETSI that we will make available a non-exclusive patent license under fair, reasonable and non-discriminatory terms and conditions, with compensation, or FRAND, to 3GPP members desiring to implement the Technical Specifications identified by us, as set forth in the updated licensing declaration under ETSI's IPR policy. On June 17, 2011, in response to a request from the Alliance for Telecommunications Industry Solutions, or ATIS, the North American Organizational Partner for 3GPP, we also agreed to make available a non-exclusive patent license to 3GPP members desiring to implement the technical specifications identified by us, as set forth in the updated licensing declaration under ATIS' IPR policy.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Our software and technology solutions provide the security platform required by next-generation Internet-based applications such as instant messaging, or IM, voice over Internet protocol, or VoIP, mobile services, streaming video, file transfer and remote desktop.  Our technology generates secure connections on a "zero-click" or "single-click" basis, significantly simplifying the deployment of secure real-time communication solutions by eliminating the need for end-users to enter any encryption information.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Microsoft Corporation is our first licensee and has been granted a worldwide, irrevocable, nonexclusive, non-sublicenseable fully paid up license of our patents for Microsoft products.  We intend to seek further license of our technology, including our GABRIEL Connection Technology™ to enterprise customers, developers and original equipment manufacturers, or OEMs, of chips, servers, smart phones, tablets, e-Readers, laptops, net books and other devices, within the IP-telephony, mobility, fixed-mobile convergence and unified communications markets including 4G/LTE.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">The accompanying interim condensed consolidated financial statements are unaudited.  These unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, applicable for interim financial statements.  Therefore, the disclosures do not include all the information necessary for complete financial statements in accordance with GAAP.  These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2011, or our Annual Report. Interim financial reporting standards require us to make estimates that are based on assumptions regarding the outcome of future events and circumstances not known at that time. Inevitably, some assumptions will not materialize, unanticipated events or circumstances may occur which vary from those estimates and such variations may significantly affect our future results. In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included.  Our financial results have varied significantly from period to period.  For this and other reasons, our operating results for any historical periods are not necessarily indicative of the results that may be expected for any future period.</div></div>

-18000

962000

10000000

0.0001

12639000

10459000

18461000

30372000

736000

90000

61000

56000

23980000

10224000

10000

-40711000

-36001000

17000

6967000

2573000

-9600000

72978000

74470000

50658000

49461000

50658000

49461000

256000

196000

73127000

74633000

<div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Note 3 - Patent Portfolio</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">As of March 31, 2012, we own 20 issued U.S. and 26 issued foreign patents, in addition to several pending U.S. and foreign patent applications.  Our issued U.S. and foreign patents expire at various times during the period from 2019 to 2024.  Some of our issued patents and pending patent applications were acquired by our principal operating subsidiary, VirnetX, Inc., from Science Applications International Corporation, or SAIC, in 2006 and we are required to make payments to SAIC based on cash or certain other values generated from those patents.  The amount of such payments depends upon the type of value generated, and certain categories are subject to maximums and other limitations. As of June 30, 2010, we met our maximum royalty payment requirement; however, SAIC is also entitled under certain circumstances to receive a portion of the proceeds paid to us for certain acquisitions of VirnetX or from the settlement of certain patent infringement claims of ours</div></div></div>

40000

47000

7223000

2769000

-6880000

-7822000

0.0001

64511000

68277000

-2173000

-700000

430000

17000

15000

447000

91000

3756000

1227000

<div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Note 2 - Summary of Significant Accounting Policies</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: justify; background-color: #ffffff; font-style: italic; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Revenue Recognition</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">We defer recognition of revenue in accordance with ASC Topic 605 until such time as all of the criteria below have been met:</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><div><table align="center" border="0" cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr valign="top"><td style="width: 18pt;"><div style="display: inline; font-family: Times New Roman; font-size: 10pt;"></div></td><td style="width: 18pt;"><div style="text-indent: 0pt; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">●</div></td><td><div style="text-align: justify; font-family: Times New Roman; font-size: 10pt;">persuasive evidence of sales arrangements;</div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div><table align="center" border="0" cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr valign="top"><td style="width: 18pt;"><div style="display: inline; font-family: Times New Roman; font-size: 10pt;"></div></td><td style="width: 18pt;"><div style="text-indent: 0pt; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">●</div></td><td><div style="text-align: justify; font-family: Times New Roman; font-size: 10pt;">delivery has occurred or services have been rendered;</div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div><table align="center" border="0" cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr valign="top"><td style="width: 18pt;"><div style="display: inline; font-family: Times New Roman; font-size: 10pt;"></div></td><td style="width: 18pt;"><div style="text-indent: 0pt; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">●</div></td><td><div style="text-align: justify; font-family: Times New Roman; font-size: 10pt;">the buyer's price is fixed or determinable; and</div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div><table align="center" border="0" cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr valign="top"><td style="width: 18pt;"><div style="display: inline; font-family: Times New Roman; font-size: 10pt;"></div></td><td style="width: 18pt;"><div style="text-indent: 0pt; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">●</div></td><td><div style="text-align: justify; font-family: Times New Roman; font-size: 10pt;">collection is reasonably assured.</div></td></tr></table></div></div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">We expect that some or all of our future licensing agreements will provide for payments to us over an extended period of time. For a licensing agreement with fixed royalty payments, we expect to recognize revenue as amounts become due. For a licensing agreement with variable royalty payments we expect to recognize royalty revenue at the time that the licensees' sales occur; however, because we expect that a licensee may report sales information to us on a delayed basis, we expect our revenue recognition criterion may also be met on a delayed basis.</div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Complex revenue arrangements may require us to make significant judgments, assumptions and estimates about when substantial delivery of contract elements will occur, whether any significant ongoing obligations exist subsequent to contract execution, whether amounts due are collectible and the appropriate period  in which the completion of the earning process occurs. If new information subsequently becomes known to us which causes us to make different judgments, assumptions or estimates regarding material contracts, our financial results may be materially affected.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; font-style: italic; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Earnings Per Share</div></div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares during the period.  Diluted earnings per share is 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. During the first period 2012 and 2011, the Company has incurred losses; therefore, the effect of any Common Stock equivalents was anti-dilutive during those period.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; font-style: italic; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Concentration of Credit Risk and Other Risks and Uncertainties</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">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.  A portion of those balances are insured by the Federal Deposit Insurance Corporation, or FDIC.  During the period ended March 31, 2012 and 2011, we had, at times, funds that were uninsured.  The uninsured balance at March 31, 2012, was approximately $18,715 compared to $29,185 at December 31, 2011.  We do not believe that we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships with major financial institutions. We have not experienced any losses on our deposits of cash and cash equivalents.</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: justify; background-color: #ffffff; font-style: italic; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Derivative Instruments</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Our Series I Warrants contain an anti-dilution provision which precludes them from being considered indexed to our stock. As a result, the warrants are required to be accounted for as derivative instruments.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">We recognize derivative instruments as either assets or liabilities on the accompanying Condensed Consolidated Balance Sheets at fair value. We record changes in the fair value (i.e., gains or losses) of the derivatives in the accompanying Condensed Consolidated Statements of Operations.</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: justify; background-color: #ffffff; font-style: italic; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Impairment of Long-Lived Assets</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">On an annual basis 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.  Recoverability is measured by comparison of the anticipated future net undiscounted cash flows to the related assets' carrying value.  If such assets are considered to be 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.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></div><div style="text-align: justify; background-color: #ffffff; font-style: italic; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Fair Value of Financial Instruments</div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Fair value is the price that would result from an orderly transaction between market participants at the measurement date. 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 observable inputs in markets other than active markets.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Our financial instruments are stated at amounts that equal to, or approximate, fair value.  When we approximate 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 technique.  We use quoted valuation techniques, primarily the income and market approach, that maximize the use of observable inputs and minimize the use of unobservable inputs for recurring fair value measurements.</div><div style="text-indent: 0pt; display: block;"> </div></div><div style="text-align: justify; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;"><font style="background-color: #ffffff; font-style: italic; display: inline;">Certificate of deposits</font><font style="background-color: #ffffff; display: inline;">: Fair value measured at face value plus accrued interest.</font></div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;"><font style="background-color: #ffffff; font-style: italic; display: inline;">Corporate bonds</font><font style="background-color: #ffffff; display: inline;">:  Fair value measured at the closing price reported on the active market on which the individual securities are traded.</font></div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><div style="text-align: justify; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;"><font style="background-color: #ffffff; font-style: italic; display: inline;">Series I Warrants</font><font style="background-color: #ffffff; display: inline;">: Fair value measured by using a Binomial valuation model.  As of March 31, 2012 and December 31, 2011, the assumptions used to measure fair value our outstanding Series I Warrants carried as derivative liabilities on our condensed consolidated balance sheet for March 31, 2012 included a warrant exercise price of $3.59 per share, a common share price of $23.93, a discount rate of 1.04%, and a volatility of 115%. The assumptions used for December 31, 2011 was a warrant exercise price of $3.59 per share, a common share price of $24.97, a discount rate of 0.83%, and a volatility of 123%.</font></div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">The following tables show the Company's securities' adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category  as of March 31, 2012 and December 31, 2011<font style="display: inline; font-family: Times New Roman; font-size: 10pt;">.</font></div><div style="text-align: left; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">                                                                                                </div><div style="text-align: left;"><table cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr><td align="left" nowrap="nowrap" valign="bottom" style="width: 51%; display: inline; font-family: times new roman; font-size: 10pt; font-weight: bold;"> </td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt; font-weight: bold;"> </td><td align="left" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td colspan="14" nowrap="nowrap" valign="bottom" style="text-align: center; width: 10%; font-family: times new roman; font-size: 10pt; font-weight: bold;">March 31, 2012</td><td align="left" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td></tr><tr><td align="left" nowrap="nowrap" valign="bottom" style="padding-bottom: 2px; width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Level 1:</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt; font-weight: bold;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Adjusted Cost</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 12%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Unrealized Gains</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 12%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Unrealized Losses</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 9%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Fair Value</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="#cceeff"><td align="left" nowrap="nowrap" valign="bottom" style="width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Certificates of deposit</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">3,332</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 10%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">3</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 11%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">3,335</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="white"><td nowrap="nowrap" valign="bottom" style="width: 51%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 10%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 11%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="#cceeff"><td align="left" nowrap="nowrap" valign="bottom" style="width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Corporate Bonds:</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 10%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 11%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="white"><td align="left" nowrap="nowrap" valign="bottom" style="width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">AA</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">4,185</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 10%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">13</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 11%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">4,198</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="#cceeff"><td valign="bottom" style="text-align: left; text-indent: 0pt; padding-left: 0pt; width: 51%; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">    A</td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">7,261</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 10%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 11%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(7</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">7,254</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="white"><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; text-indent: 0pt; padding-left: 0pt; width: 51%; margin-left: 9pt; margin-right: 0pt;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">BAA</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">5,179</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 11%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(31</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">5,148</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="#cceeff"><td align="left" nowrap="nowrap" valign="bottom" style="width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Total Corporate Bonds</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">16,625</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 10%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">13</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 11%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(38</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">16,600</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="white"><td align="left" nowrap="nowrap" valign="bottom" style="padding-bottom: 2px; width: 51%; font-family: times new roman; font-size: 10pt;"> </td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 10%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 11%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td></tr><tr bgcolor="#cceeff"><td align="left" nowrap="nowrap" valign="bottom" style="padding-bottom: 4px; width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Total Investments at Fair Value</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 4px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">19,957</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 10%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">16</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 11%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(38</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">19,935</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr></table></div><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: center;"><table cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 51%; display: inline; font-family: times new roman; font-size: 10pt; font-weight: bold;"> </td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt; font-weight: bold;"> </td><td align="left" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td colspan="14" nowrap="nowrap" valign="bottom" style="text-align: center; background-color: #ffffff; width: 10%; font-family: times new roman; font-size: 10pt; font-weight: bold;">December 31, 2011</td><td align="left" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td></tr><tr><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="padding-bottom: 2px; width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Level 1:</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt; font-weight: bold;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Adjusted Cost</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Unrealized Gains</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Unrealized Losses</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Fair Value</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="#cceeff"><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Certificates of deposit</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">2,582</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">2</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">2,584</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="white"><td colspan="2" nowrap="nowrap" valign="bottom" style="width: 51%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="#cceeff"><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Corporate Bonds:</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="white"><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">AA</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">2,014</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(3</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">2,011</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="#cceeff"><td colspan="2" valign="bottom" style="text-align: left; padding-bottom: 2px; text-indent: 0pt; padding-left: 0pt; width: 51%; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">       A</td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">9,846</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(3</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">9,843</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="white"><td colspan="2" nowrap="nowrap" valign="bottom" style="text-align: left; text-indent: 0pt; padding-left: 0pt; width: 51%; margin-left: 9pt; margin-right: 0pt;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Total Corporate Bonds</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">11,860</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(6</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">11,854</div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="#cceeff"><td valign="bottom" style="text-align: left; padding-bottom: 2px; width: 42%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="text-align: right; padding-bottom: 2px; width: 9%; font-family: times new roman; font-size: 10pt;"> </td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="white"><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="padding-bottom: 4px; width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 18pt; font-size: 10pt; margin-right: 0pt;">Total Investments at Fair Value</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 4px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">14,442</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">2</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(6</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">)</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">14,438</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr></table></div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><br /></div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The following tables set forth by level within the fair value hierarchy, our financial instrument liabilities as of March 31, 2012 and December 31, 2011.</font><br /></div></div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: center;"><table cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr><td align="left" valign="bottom" style="width: 52%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td colspan="14" nowrap="nowrap" valign="bottom" style="text-align: center; background-color: #ffffff; width: 46%; font-family: times new roman; font-size: 10pt; font-weight: bold;">March 31, 2012</td><td align="left" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td></tr><tr><td align="left" valign="bottom" style="padding-bottom: 2px; width: 52%;"><div style="text-align: left; text-indent: -9pt; display: block; margin-left: 9pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Quoted</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Prices in</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Active</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Markets for</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Identical</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Assets</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Significant</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Other</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Observable</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Inputs</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Significant</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Unobservable</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Inputs</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr><td align="left" valign="bottom" style="padding-bottom: 2px; width: 52%;"><div style="text-align: left; text-indent: -9pt; display: block; margin-left: 9pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">(Level 1)</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">(Level 2)</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">(Level 3)</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Total</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="#cceeff"><td align="left" valign="bottom" style="padding-bottom: 2px; width: 52%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Series l Warrants</div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">4,430</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">4,430</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="white"><td align="left" valign="bottom" style="padding-bottom: 4px; width: 52%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Total</div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">4,430</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">4,430</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr></table></div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: left;"><table cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr><td align="left" valign="bottom" style="width: 52%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td colspan="14" nowrap="nowrap" valign="bottom" style="width: 46%;"><div style="text-align: center; background-color: #ffffff; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">December 31, 2011</div></td><td align="left" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td></tr><tr><td align="left" valign="bottom" style="padding-bottom: 2px; width: 52%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Quoted</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Prices in</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Active</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Markets for</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Identical</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Assets</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Significant</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Other</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Observable</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Inputs</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Significant</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Unobservable</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Inputs</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%; border-top: #000000 1.5pt solid;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr><td valign="bottom" style="padding-bottom: 2px; width: 52%; font-family: times new roman; font-size: 10pt;">  </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">(Level 1)</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">(Level 2)</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">(Level 3)</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Total</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="#cceeff"><td align="left" valign="bottom" style="padding-bottom: 2px; width: 52%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Series l Warrants</div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">4,699</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">4,699</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="white"><td align="left" valign="bottom" style="padding-bottom: 4px; width: 52%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Total</div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">4,699</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">4,699</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr></table></div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: left; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">The following table sets forth a summary of changes in the fair value of our Level 3 financial instrument liability for the period ended March 31, 2012 and year ended December 31, 2011:</div><div style="text-align: justify; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;"><font style="background-color: #ffffff; display: inline;">           </font>                                                                                                         </div><div style="text-align: center;"><table cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr><td align="left" valign="bottom" style="padding-bottom: 2px; width: 51%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="text-align: center; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; text-align: center; width: 10%; font-family: times new roman; font-size: 10pt; font-weight: bold;">March 31, 2012</td><td nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 25%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="border-bottom: black 2px solid; text-align: center; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; text-align: center; background-color: #ffffff; width: 10%; font-family: times new roman; font-size: 10pt; font-weight: bold;">December 31, 2011</td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td></tr><tr><td align="left" valign="bottom" style="width: 51%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td align="right" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td align="right" colspan="2" nowrap="nowrap" valign="bottom" style="width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Fair Value</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Measurements</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Using</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Significant</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Unobservable</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;"><font style="display: inline; font-weight: bold;">Inputs (Level</font><font style="display: inline; font-weight: bold;">3)</font></div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 25%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Fair Value</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Measurements</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Using</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Significant</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Unobservable</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;"><font style="display: inline; font-weight: bold;">Inputs (Level</font><font style="display: inline; font-weight: bold;">3)</font></div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td></tr><tr bgcolor="#cceeff"><td align="left" valign="bottom" style="width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Balance December 31, 2011</div></td><td align="right" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;">$</td><td valign="bottom" style="text-align: right; width: 9%; font-family: times new roman; font-size: 10pt;">4,699</td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 25%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Balance December 31, 2010</div></td><td align="left" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;">$</td><td valign="bottom" style="text-align: right; width: 9%; font-family: times new roman; font-size: 10pt;">14,364</td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td></tr><tr bgcolor="white"><td valign="bottom" style="text-align: left; text-indent: 0pt; padding-left: 0pt; width: 51%; margin-left: 9pt; margin-right: 0pt;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Net gain included in loss</div></td><td align="right" valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="text-align: right; width: 9%; font-family: times new roman; font-size: 10pt;">(269 </td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;">)</td><td align="left" valign="bottom" style="padding-left: 0pt; width: 25%; margin-left: 9pt;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Net loss included in earnings</div></td><td valign="bottom" style="width: 1%; display: inline; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="text-align: right; width: 9%; font-family: times new roman; font-size: 10pt;">5,595</td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td></tr><tr bgcolor="#cceeff"><td valign="bottom" style="text-align: left; padding-bottom: 2px; text-indent: 0pt; padding-left: 0pt; width: 51%; margin-left: 9pt; margin-right: 0pt;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Settlements</div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="border-bottom: black 2px solid; text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="border-bottom: black 2px solid; text-align: right; width: 9%; font-family: times new roman; font-size: 10pt;">-</td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; padding-left: 0pt; width: 25%; margin-left: 9pt;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Settlements</div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="border-bottom: black 2px solid; text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="border-bottom: black 2px solid; text-align: right; width: 9%; font-family: times new roman; font-size: 10pt;">(15,260</td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;">)</td></tr><tr bgcolor="white"><td align="left" valign="bottom" style="padding-bottom: 4px; width: 51%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Balance March 31, 2012</div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="border-bottom: black 4px double; text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;">$</td><td valign="bottom" style="border-bottom: black 4px double; text-align: right; width: 9%; font-family: times new roman; font-size: 10pt;">4,430</td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 4px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 25%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Balance December 31, 2011</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="border-bottom: black 4px double; text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;">$</td><td valign="bottom" style="border-bottom: black 4px double; text-align: right; width: 9%; font-family: times new roman; font-size: 10pt;">4,699</td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 4px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td></tr></table></div></div>

<div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><div style="text-align: left; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Note 10 - Subsequent Events</div><div style="text-indent: 0pt; display: block;"> </div></div><div style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">On January 5, 2012, a claims construction hearing was held in our case against Aastra, Apple, Cisco and NEC in the United States District Court for the Eastern District of Texas, Tyler Division. On April 25, 2012 the United States District Court for the Eastern District of Texas, Tyler Division, issued its Markman Order on the claim terms that were in dispute in the  Aastra, Apple, Cisco and NEC litigation and adopted certain interpretations that we believe are favorable to us. The trial in connection with the Aastra, Apple, Cisco and NEC litigation is scheduled to start on November 5, 2012.</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">On April 13, 2012, our Compensation Committee approved changes to the compensation for our Board of Directors, approved <font style="background-color: #ffffff; display: inline;">amendments to the Plan to allow us to grant restricted stock unit awards</font> and authorized the issuance of 240,000 options and 126,667 RSUs (restricted stock units) at a price of $24.</div><div style="text-indent: 0pt; display: block;"><br /></div></div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">On May 3, 2012 - VirnetX Holding Corp. (AMEX:VHC) and Aastra USA, Inc. (the "Parties") today announced that on May 3 2012, they signed a Patent License Agreement (the "Agreement").  Under the terms of the Agreement, VirnetX has agreed to license certain of its patents to Aastra USA, Inc., for a one-time payment to VirnetX and an ongoing reasonable royalty for all future sales through the expiration of the licensed patents as outlined in the Agreement with respect to certain current and future IP-encrypted products.</div></div>

2180000

4430000

4699000

false --12-31 2012-03-31 Yes No Yes Large Accelerated Filer VirnetX Holding Corp 0001082324 50671136 2012 Q1 10-Q 48000 60000 0 3000 <div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Note 6 - Stock Plan</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">We have a stock incentive plan for employees and others called the "VirnetX Holding Corporation 2007 Stock Plan", or the Plan, which has been approved by our stockholders. On April 31, 2012, our Compensation Committee approved amendments to the Plan to allow us to grant restricted stock units awards. The Plan provides for the granting of up to 11,624,469 shares of our common stock, including stock options, stock purchase rights and restricted stock units and will expire in 2018.  As of March 31, 2012, there were 628,478 shares available to be granted under the Plan.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">We had 4,828,998 and 4,906,998 options outstanding at March 31, 2012, and December 31, 2011, respectively, with an average exercise price of $5.20 and $5.12, respectively.</div></div> <div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Note 8 - Warrants</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: justify; background-color: #ffffff; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Information about warrants outstanding during the three months ended March 31, 2012 follows:</div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div style="text-align: left;"><table cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr><td colspan="2" nowrap="nowrap" valign="bottom" style="padding-bottom: 2px; width: 16%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Original Number of</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Warrants Issued</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt; font-weight: bold;"> </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Exercise</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Price per Common </div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Share</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt; font-weight: bold;">Exercisable </font><font style="display: inline; font-family: times new roman; font-size: 10pt; font-weight: bold;">at</font></div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">December 31, </div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">2011</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Became </div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Exercisable</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Exercised</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt; font-weight: bold;">Terminated</font><font style="display: inline; font-family: times new roman; font-size: 10pt; font-weight: bold;"> /</font></div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Cancelled /</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Expired</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Exercisable</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">at March 31, 2012</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td valign="bottom" style="border-bottom: black 2px solid; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Expiration</div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Date</div></td></tr><tr><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 16%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 10%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 10%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 10%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 10%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 10%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="width: 10%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 10%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr><tr bgcolor="#cceeff"><td valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td valign="bottom" style="text-align: right; padding-bottom: 2px; width: 15%; font-family: times new roman; font-size: 10pt;">2,619,036</td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;">(1)</td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">$</div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">3.59</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">204,908</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt;">  </td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 2px solid; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 2px solid; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">204,908</div></td><td align="left" valign="bottom" style="padding-bottom: 2px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td valign="bottom" style="padding-bottom: 2px; width: 10%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0.2pt;">March 2015</div></td></tr><tr bgcolor="white"><td align="left" colspan="2" nowrap="nowrap" valign="bottom" style="padding-bottom: 4px; width: 16%;"><div style="text-align: left; text-indent: -9pt; display: block; font-family: times new roman; margin-left: 9pt; font-size: 10pt; margin-right: 0pt;">Total</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 4px; width: 1%; font-family: times new roman; font-size: 10pt;"> </td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">204,908</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td valign="bottom" style="padding-bottom: 4px; width: 1%; font-family: times new roman; font-size: 10pt;">  </td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">-</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="border-bottom: black 4px double; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="right" valign="bottom" style="border-bottom: black 4px double; width: 9%;"><div style="text-align: right; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">204,908</div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 1%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="bottom" style="padding-bottom: 4px; width: 10%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td></tr></table></div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div><table cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr><td align="left" valign="top" style="width: 3%;"><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div></td><td align="left" valign="top" style="width: 3%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">(1)</div></td><td align="left" valign="top" style="width: 89%;"><div style="text-align: left; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Referred to as our Series I Warrants.</div></td></tr></table></div></div> EX-101.SCH 11 vhc-20120331.xsd XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT 000100 - Document - Document and Entity Information link:presentationLink link:calculationLink link:definitionLink 010000 - Statement - 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Patent Portfolio	3 Months Ended
Patent Portfolio	Mar. 31, 2012
Patent Portfolio [Abstract]
Patent Portfolio	Note 3 - Patent Portfolio As of March 31, 2012, we own 20 issued U.S. and 26 issued foreign patents, in addition to several pending U.S. and foreign patent applications. Our issued U.S. and foreign patents expire at various times during the period from 2019 to 2024. Some of our issued patents and pending patent applications were acquired by our principal operating subsidiary, VirnetX, Inc., from Science Applications International Corporation, or SAIC, in 2006 and we are required to make payments to SAIC based on cash or certain other values generated from those patents. The amount of such payments depends upon the type of value generated, and certain categories are subject to maximums and other limitations. As of June 30, 2010, we met our maximum royalty payment requirement; however, SAIC is also entitled under certain circumstances to receive a portion of the proceeds paid to us for certain acquisitions of VirnetX or from the settlement of certain patent infringement claims of ours

- Definition

The entire disclosure for all or part of the information related to intangible assets.

+ References+ Details

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 2 - Summary of Significant Accounting Policies

Revenue Recognition

We defer recognition of revenue in accordance with ASC Topic 605 until such time as all of the criteria below have been met:

●

persuasive evidence of sales arrangements;

●

delivery has occurred or services have been rendered;

●

the buyer's price is fixed or determinable; and

●

collection is reasonably assured.

Earnings Per Share

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share is 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. During the first period 2012 and 2011, the Company has incurred losses; therefore, the effect of any Common Stock equivalents was anti-dilutive during those period.

Concentration of Credit Risk and Other Risks and Uncertainties

Derivative Instruments

Impairment of Long-Lived Assets

On an annual basis 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. Recoverability is measured by comparison of the anticipated future net undiscounted cash flows to the related assets' carrying value. If such assets are considered to be 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.

Fair Value of Financial Instruments

Certificate of deposits: Fair value measured at face value plus accrued interest.

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

Series I Warrants: Fair value measured by using a Binomial valuation model. As of March 31, 2012 and December 31, 2011, the assumptions used to measure fair value our outstanding Series I Warrants carried as derivative liabilities on our condensed consolidated balance sheet for March 31, 2012 included a warrant exercise price of $3.59 per share, a common share price of $23.93, a discount rate of 1.04%, and a volatility of 115%. The assumptions used for December 31, 2011 was a warrant exercise price of $3.59 per share, a common share price of $24.97, a discount rate of 0.83%, and a volatility of 123%.

The following tables show the Company's securities' adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category as of March 31, 2012 and December 31, 2011.

	March 31, 2012
Level 1:	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Certificates of deposit	$	3,332		3		-		$	3,335

Corporate Bonds:
AA		4,185		13		-			4,198
A		7,261		-		(7	)		7,254
BAA		5,179		-		(31	)		5,148
Total Corporate Bonds		16,625		13		(38	)		16,600

Total Investments at Fair Value	$	19,957		16		(38	)	$	19,935

	December 31, 2011
Level 1:	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Certificates of deposit	$	2,582		2		-		$	2,584

Corporate Bonds:
AA		2,014		-		(3	)		2,011
A		9,846		-		(3	)		9,843
Total Corporate Bonds		11,860		-		(6	)		11,854

Total Investments at Fair Value	$	14,442		2		(6	)	$	14,438

The following tables set forth by level within the fair value hierarchy, our financial instrument liabilities as of March 31, 2012 and December 31, 2011.

	March 31, 2012
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Series l Warrants	$	-	$	-	$	4,430	$	4,430
Total	$	-	$	-	$	4,430	$	4,430

	December 31, 2011
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Series l Warrants	$	-	$	-	$	4,699	$	4,699
Total	$	-	$	-	$	4,699	$	4,699

The following table sets forth a summary of changes in the fair value of our Level 3 financial instrument liability for the period ended March 31, 2012 and year ended December 31, 2011:

	March 31, 2012				December 31, 2011
	Fair Value Measurements Using Significant Unobservable Inputs (Level3)				Fair Value Measurements Using Significant Unobservable Inputs (Level3)
Balance December 31, 2011	$	4,699		Balance December 31, 2010	$	14,364
Net gain included in loss		(269	)	Net loss included in earnings		5,595
Settlements		-		Settlements		(15,260	)
Balance March 31, 2012	$	4,430		Balance December 31, 2011	$	4,699

XML 20 R2.htm IDEA: XBRL DOCUMENT

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 39,957	$ 49,482
Investments available for sale	19,935	14,438
Prepaid taxes	12,639	10,459
Prepaid expenses and other current assets	447	91
Total current assets	72,978	74,470
Property and equipment, net	61	56
Intangible and other assets	48	60
Deferred tax benefit	40	47
Total assets	73,127	74,633
Current liabilities:
Accounts payable and accrued liabilities	3,756	1,227
Income tax liability	430	430
Derivative liability	4,430	4,699
Total current liabilities	8,616	6,356
Stockholders' equity:
Preferred stock, par value $0.0001 per share Authorized: 10,000,000 shares at March 31, 2012, and December 31, 2011, respectively Issued and outstanding: 0 shares at March 31, 2012 and December 31, 2011, respectively	0	0
Common stock, par value $0.0001 per share Authorized: 100,000,000 shares at March 31, 2012 and December 31, 2011 respectively Issued and outstanding: 50,697,136 shares at March 31, 2012, and 50,619,136 at December 31, 2011, respectively	5	5
Additional paid-in capital	105,239	104,277
Accumulated deficit	(40,711)	(36,001)
Accumulated other comprehensive loss	(22)	(4)
Total stockholders' equity	64,511	68,277
Total liabilities and stockholders' equity	$ 73,127	$ 74,633

XML 21 R6.htm IDEA: XBRL DOCUMENT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Cash flows from operating activities:
Net loss	$ (4,707)	$ (7,122)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	17	15
Stock-based compensation	873	643
Net change in deferred taxes	7	3,325
Change in value of derivative liability	(269)	5,130
Changes in assets and liabilities:
Receivables and other current assets	0	(3)
Prepaid taxes	(2,180)	0
Prepaid expenses and other current assets	(356)	(216)
Accounts payable and accrued liabilities	2,529	(15)
Income tax liability	0	(13,723)
Net cash provided by (used in) operating activities	(4,086)	(11,966)
Cash flows from investing activities:
Purchase of property and equipment	(10)	0
Purchase of investments	(23,980)	(10,224)
Proceeds from sale or maturity of investments	18,461	30,372
Net cash provided by (used in) investing activities	(5,529)	20,148
Cash flows from financing activities:
Proceeds from exercise of options	90	0
Proceeds from exercise of warrants	0	736
Net cash provided by (used in) financing activities	90	736
Net increase (decrease) in cash and cash equivalents	(9,525)	8,918
Cash and cash equivalents, beginning of period	49,482	34,635
Cash and cash equivalents, end of period	39,957	43,553
Supplemental disclosure of cash flow information:
Cash paid during the year for taxes	0	9,600
Cash paid during the year for interest	$ 0	$ 0

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Business Description and Basis of Presentation	3 Months Ended
Business Description and Basis of Presentation	Mar. 31, 2012
Business Description and Basis of Presentation [Abstract]
Business Description and Basis of Presentation	Note 1 - Business Description and Basis of Presentation VirnetX, Inc. ("we" or "VirnetX") develop software and technology solutions for securing real-time communications over the Internet. Our patented GABRIEL Connection Technology™ combines industry standard encryption protocols with our patented techniques for automated domain name system, or DNS, lookup mechanisms, and enables users to create a secure communication link using secure domain names over wired or wireless (4G/LTE) networks. Our portfolio of intellectual property is the foundation of our business model. We currently own 20 patents in the United States and 26 foreign patents, as well as several pending U.S. and foreign patent applications. Our patent portfolio is primarily focused on securing real-time communications over the Internet, as well as related services such as the establishment and maintenance of a secure domain name registry. Our patented methods also have additional applications in operating systems and network security. On December 1, 2009, we submitted a licensing declaration to the 3rd Generation Partnership Project, or 3GPP, identifying those of our U.S. and international patents which may be relevant to Long Term Evolution, or LTE. On March 14, 2011, we supplemented our licensing declaration to include five additional specifications. On April 28, 2011, at the request of the European Telecommunications Standards Institute, or ETSI, we agreed to update our licensing declaration to ETSI under ETSI's Intellectual Property Rights or IPR policy. We agreed with ETSI that we will make available a non-exclusive patent license under fair, reasonable and non-discriminatory terms and conditions, with compensation, or FRAND, to 3GPP members desiring to implement the Technical Specifications identified by us, as set forth in the updated licensing declaration under ETSI's IPR policy. On June 17, 2011, in response to a request from the Alliance for Telecommunications Industry Solutions, or ATIS, the North American Organizational Partner for 3GPP, we also agreed to make available a non-exclusive patent license to 3GPP members desiring to implement the technical specifications identified by us, as set forth in the updated licensing declaration under ATIS' IPR policy. Our software and technology solutions provide the security platform required by next-generation Internet-based applications such as instant messaging, or IM, voice over Internet protocol, or VoIP, mobile services, streaming video, file transfer and remote desktop. Our technology generates secure connections on a "zero-click" or "single-click" basis, significantly simplifying the deployment of secure real-time communication solutions by eliminating the need for end-users to enter any encryption information. Microsoft Corporation is our first licensee and has been granted a worldwide, irrevocable, nonexclusive, non-sublicenseable fully paid up license of our patents for Microsoft products. We intend to seek further license of our technology, including our GABRIEL Connection Technology™ to enterprise customers, developers and original equipment manufacturers, or OEMs, of chips, servers, smart phones, tablets, e-Readers, laptops, net books and other devices, within the IP-telephony, mobility, fixed-mobile convergence and unified communications markets including 4G/LTE. The accompanying interim condensed consolidated financial statements are unaudited. These unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, applicable for interim financial statements. Therefore, the disclosures do not include all the information necessary for complete financial statements in accordance with GAAP. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2011, or our Annual Report. Interim financial reporting standards require us to make estimates that are based on assumptions regarding the outcome of future events and circumstances not known at that time. Inevitably, some assumptions will not materialize, unanticipated events or circumstances may occur which vary from those estimates and such variations may significantly affect our future results. In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included. Our financial results have varied significantly from period to period. For this and other reasons, our operating results for any historical periods are not necessarily indicative of the results that may be expected for any future period.

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The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011
Stockholders' equity (deficit):
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	50,697,136	50,619,136
Common stock, shares outstanding (in shares)	50,697,136	50,619,136

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Total number of shares of common stock held by shareholders. May be all or portion of the number of common shares authorized. These shares represent the ownership interest of the common shareholders. Shares outstanding equals shares issued minus shares held in treasury and other adjustments, if any.

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Face amount or stated value per share of nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer); generally not indicative of the fair market value per share.

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Document and Entity Information	3 Months Ended
Document and Entity Information	Mar. 31, 2012	Feb. 22, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	VirnetX Holding Corp
Entity Central Index Key	0001082324
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		50,671,136
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]
Revenue - Royalties	$ 0	$ 17
Operating expenses:
Research and development	256	196
General, selling and administrative	6,967	2,573
Total operating expenses	7,223	2,769
Loss from operations	(7,223)	(2,752)
Gain (loss) on change in value of derivative liability	269	(5,130)
Interest income, net	74	60
Loss before taxes	(6,880)	(7,822)
Income tax benefit	(2,173)	(700)
Net loss	$ (4,707)	$ (7,122)
Basic earnings (loss) per share: (in dollars per share)	$ (0.09)	$ (0.14)
Diluted earnings (loss) per share: (in dollars per share)	$ (0.09)	$ (0.14)
Weighted average shares outstanding basic (in shares)	50,658	49,461
Weighted average shares outstanding diluted (in shares)	50,658	49,461

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Stock Plan	3 Months Ended
Stock Plan	Mar. 31, 2012
Stock Plan [Abstract]
Stock Plan	Note 6 - Stock Plan We have a stock incentive plan for employees and others called the "VirnetX Holding Corporation 2007 Stock Plan", or the Plan, which has been approved by our stockholders. On April 31, 2012, our Compensation Committee approved amendments to the Plan to allow us to grant restricted stock units awards. The Plan provides for the granting of up to 11,624,469 shares of our common stock, including stock options, stock purchase rights and restricted stock units and will expire in 2018. As of March 31, 2012, there were 628,478 shares available to be granted under the Plan. We had 4,828,998 and 4,906,998 options outstanding at March 31, 2012, and December 31, 2011, respectively, with an average exercise price of $5.20 and $5.12, respectively.

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Commitments

3 Months Ended

Mar. 31, 2012

Commitments [Abstract]

Commitments

Note 5 - Commitments

For the Year	Minimum Required Lease Payments in Period
2012	$	42
2013		28
Total	$	70

- Definition

The entire disclosure for significant arrangements with third parties, which includes operating lease arrangements and arrangements in which the entity has agreed to expend funds to procure goods or services, or has agreed to commit resources to supply goods or services, and operating lease arrangements. Descriptions may include identification of the specific goods and services, period of time covered, minimum quantities and amounts, and cancellation rights.

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Litigation	3 Months Ended
Litigation	Mar. 31, 2012
Litigation [Abstract]
Litigation	Note 9 - Litigation We have three intellectual property infringement lawsuits pending against multiple parties in the United States District Court for the Eastern District of Texas, Tyler Division, pursuant to which we allege that these parties infringe on certain of our patents. We seek damages and injunctive relief in all the complaints. We have one complaint with the United States International Trade Commission (ITC) alleging that Apple, Inc. has engaged in unfair trade practices by the importation, sale for importation, and sale after importation of certain devices with secure communication capabilities that infringe one or more claims of our U.S. Patent No. 8,051,181. On August 11, 2010, we initiated a lawsuit by filing a complaint against Aastra Technologies, Inc., Apple, Inc., Cisco Systems, Inc., and NEC Corporation. On January 12, 2011, we initiated a new lawsuit by filing a complaint against Siemens Enterprise Communications and Mitel Networks Corp. On April 12, 2011, we amended this complaint to add Avaya, Inc., as a defendant. We believe that Aastra, Apple, Cisco, NEC, Siemens, Mitel and Avaya infringe on certain of our patents, but obtaining and collecting a judgment against these parties may be difficult or impossible. Patent litigation is inherently risky and the outcome is uncertain. Aastra, Apple, Cisco, NEC, Siemens, Mitel and Avaya are all large, well-financed companies with substantially greater resources than us. We believe that these parties will devote a substantial amount of resources in an attempt to prove that either their products do not infringe our patents or that our patents are invalid and unenforceable. At this time, we cannot predict the final outcome of these litigation matters. On November 1, 2011, we initiated a lawsuit against Apple in the United States District Court, Tyler Division, pursuant to which we allege that Apple infringes an additional patent of ours. We seek damages and injunctive relief. No hearing or trial dates have been set. On November 4, 2011, we filed a complaint with the United States International Trade Commission (ITC) alleging that Apple has engaged in unfair trade practices by the importation, sale for importation, and sale after importation of certain devices with secure communication capabilities that infringe one or more claims of our U.S. Patent No. 8,051,181. The accused products include the latest iPhones, iPads, iPods and Macintosh computers. We have requested that the ITC institute an investigation into Apple's allegedly infringing imports and ultimately bar Apple from importing those Apple products or further selling the infringing Apple products that have already been imported. On January 5, 2012, a claims construction hearing was held in our case against Aastra, Apple, Cisco and NEC in the United States District Court for the Eastern District of Texas, Tyler Division. On April 25, 2012 the United States District Court for the Eastern District of Texas, Tyler Division, issued its Markman Order on the claim terms that were in dispute in the Aastra, Apple, Cisco and NEC litigation and adopted certain interpretations that we believe are favorable to us. The trial in connection with the Aastra, Apple, Cisco and NEC litigation is scheduled to start on November 5, 2012. 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 worth pursuing, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we will prevail on such potential claims. In addition, bringing a lawsuit may lead to potential counterclaims which may preclude our ability to commercialize our initial products, which are currently in development.

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Stock-Based Compensation	3 Months Ended
Stock-Based Compensation	Mar. 31, 2012
Stock-Based Compensation [Abstract]
Stock-Based Compensation	Note 7 - Stock-Based Compensation We account for equity instruments issued to employees in accordance with the fair value method which requires that such issuances be recorded at their fair value on the grant date. The recognition of the expense is subject to periodic adjustment as the underlying equity instrument vests. Stock-based compensation expense included in general and administrative expenses was $873 and $643 for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, the unrecognized stock-based compensation expense related to non-vested stock options was $8,673 which will be amortized as expense over an estimated weighted average vesting amortization period of approximately 0.6 years, as compared to $3,384 and 1 year for 2011.

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The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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Warrants

3 Months Ended

Mar. 31, 2012

Warrants [Abstract]

Warrants

Note 8 - Warrants

Information about warrants outstanding during the three months ended March 31, 2012 follows:

Original Number of Warrants Issued			Exercise Price per Common Share		Exercisable at December 31, 2011		Became Exercisable		Exercised		Terminated / Cancelled / Expired		Exercisable at March 31, 2012		Expiration Date

	2,619,036	(1)	$	3.59		204,908		-		-		-		204,908	March 2015
Total						204,908				-		-		204,908

(1)

Referred to as our Series I Warrants.

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Subsequent Events	3 Months Ended
Subsequent Events	Mar. 31, 2012
Subsequent Events [Abstract]
Subsequent Events [Text Block]	Note 10 - Subsequent Events On January 5, 2012, a claims construction hearing was held in our case against Aastra, Apple, Cisco and NEC in the United States District Court for the Eastern District of Texas, Tyler Division. On April 25, 2012 the United States District Court for the Eastern District of Texas, Tyler Division, issued its Markman Order on the claim terms that were in dispute in the Aastra, Apple, Cisco and NEC litigation and adopted certain interpretations that we believe are favorable to us. The trial in connection with the Aastra, Apple, Cisco and NEC litigation is scheduled to start on November 5, 2012. On April 13, 2012, our Compensation Committee approved changes to the compensation for our Board of Directors, approved amendments to the Plan to allow us to grant restricted stock unit awards and authorized the issuance of 240,000 options and 126,667 RSUs (restricted stock units) at a price of $24. On May 3, 2012 - VirnetX Holding Corp. (AMEX:VHC) and Aastra USA, Inc. (the "Parties") today announced that on May 3 2012, they signed a Patent License Agreement (the "Agreement"). Under the terms of the Agreement, VirnetX has agreed to license certain of its patents to Aastra USA, Inc., for a one-time payment to VirnetX and an ongoing reasonable royalty for all future sales through the expiration of the licensed patents as outlined in the Agreement with respect to certain current and future IP-encrypted products.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended

Mar. 31, 2012

Mar. 31, 2011

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME [Abstract]

Net loss $ (4,707) $ (7,122)

Other comprehensive income (loss), net of tax:

Change in unrealized loss on investments, net of tax (18) 962

Comprehensive loss $ (4,725) $ (6,160)

X

- Definition

The change in equity [net assets] of a business enterprise during a period from transactions and other events and circumstances from non-owner sources which are attributable to the reporting entity. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners, but excludes any and all transactions which are directly or indirectly attributable to that ownership interest in subsidiary equity which is not attributable to the parent.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 220

-SubTopic 10

-Section 45

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e540-108580

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Research Bulletin (ARB)

-Number 51

-Paragraph 30

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Research Bulletin (ARB)

-Number 51

-Paragraph A5

-Appendix A

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Research Bulletin (ARB)

-Number 51

-Paragraph 38

-Subparagraph c(3)

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Research Bulletin (ARB)

-Number 51

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Income Taxes
3 Months Ended

Mar. 31, 2012

Income Taxes [Abstract]

Income Taxes
Note 4 - Income Taxes

The components of the income tax expense for the period ended March 31, 2012 and 2011 respectively are as follows:

March 31, 2012

March 31, 2011

Current:

Federal

$
(2,177
)

$
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State

-

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State

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$
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Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable for the three months ended March 31, 2012.  Accordingly, management has maintained partial valuation allowance against its net deferred tax assets at March 31, 2012.  The net change in the total valuation allowance for the period ended March 31, 2012 was a decrease of $208.

At March 31, 2012, the Company has federal and state net operating loss carryforward of approximately $912 and $44,277 respectively, expiring beginning in 2027 and 2012, respectively.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME [Abstract]
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Change in unrealized loss on investments, net of tax	(18)	962
Comprehensive loss	$ (4,725)	$ (6,160)