Stock Based Compensation

9 Months Ended

Sep. 30, 2022

Stock Based Compensation [Abstract]

Stock Based Compensation

Note 5 — Stock Based Compensation

We have a stock incentive plan for employees and others called the VirnetX Holding Corporation 2013 Equity Incentive Plan (the “2013 Plan”), which has been approved by our stockholders. To the extent that any award should expire, become un-exercisable or is otherwise forfeited, the shares subject to such award will again become available for issuance under the 2013 Plan. The 2013 Plan provides for the granting of stock options and restricted stock units purchase rights (“RSUs”) to our employees and consultants. Stock options granted under the 2013 Plan may be incentive stock options or nonqualified stock options. Incentive stock options (“ISOs”) may only be granted to our employees (including officers and directors). Nonqualified stock options (“NSOs”) and stock purchase rights may be granted to our employees and consultants. The 2013 Plan expires in 2023.

Options may be granted under the 2013 Plan with an exercise price determined by our Board of Directors, or a duly appointed committee thereof, provided, however, that the exercise price of an option granted to any employee shall be not less than 100% of the fair market value at the date of grant in the case of ISOs or 85% of the fair market value at the date of grant in the case of an NSO. The exercise price of an ISO or NSO granted to one of our Named Executive Officers shall not be less than 100% of the fair market value of the shares at the date of grant and the exercise price of an ISO granted to a 10% shareholder shall not be less than 110% of the fair market value of the shares on the date of grant. Stock options granted under the 2013 Plan typically vest over four years and have a 10-year term. All RSUs are considered to be granted at the fair value of our stock on the date of grant because they have no exercise price. RSUs typically vest over four years. As of September 30, 2022, there were 1,513,345 shares available for grant under the 2013 Plan.

Stock-based compensation expense included in general and administrative expense was $573 and $703, and in research and development expense was $301 and $473, for the three months ended September 30, 2022 and 2021, respectively. Stock-based compensation expense included in general and administrative expense was $1,526 and $1,549, and in research and development expense was $938 and $1,480, for the nine months ended September 30, 2022 and 2021, respectively.

During the three months ended September 30, 2022, we did not grant any options. During the three months ended September 30, 2021, we granted options for a total of 170,000 shares with a weighted average grant date fair value of $3.10 per option.

During the nine months ended September 30, 2022, we granted options for a total of 801,004 shares with a weighted average grant date fair value of $1.09 per option. We estimated the fair value of the options on the date of grant utilizing the Black-Scholes valuation model with the following assumptions: (i) 0 percent dividend yield, (ii) 86 percent volatility, (iii) 3 percent risk free rate and (iv) 6 years expected term. During the nine months ended September 30, 2021, we granted options for a total of 949,500 shares with a weighted average grant date fair value of $3.39 per option. We estimated the fair value of the options on the date of grant utilizing the Black-Scholes valuation model with the following assumptions: (i) 0 percent dividend yield, (ii) 90 percent volatility, (iii) 1 percent risk free rate and (iv) 6 years expected term.

During the three months ended September 30, 2022 and 2021, we did not grant any RSUs. During the nine months ended September 30, 2022 and 2021, we granted 258,363 and 236,661 RSUs respectively, with weighted average fair values at the date of grant of $1.46 and $4.61, respectively. RSUs, which are subject to forfeiture if service terminates prior to the shares vesting, are expensed ratably over the vesting period. During the nine months ended September 30, 2022 and 2021, we paid $29 and $196 in withholding taxes on shares issued upon conversion of RSUs, respectively. The underlying shares were cancelled. The amounts are reflected as financing costs in the accompanying statement of cash flows.

As of September 30, 2022, the unrecognized stock-based compensation expense related to non-vested stock options and RSUs was $4,571 and $1,716, respectively, which will be amortized over an estimated weighted average period of approximately 2.86 and 2.68 years, respectively.

During the three and nine months ended September 30, 2022, and 2021 no options were exercised.

During the nine months ended September 30, 2022 and 2021, we issued 191,795 and 174,285 shares, respectively, as a result of vesting RSUs, all of which occurred in the second quarter of each respective year.

During the nine months ended September 30, 2022 and 2021, there were 332,416 and 390,000 options returned to the plan due to the expiration of unexercised options, respectively.