VirnetX Holding Corp

Previous wording

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

Current wording

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

Previous wording

Our product portfolio includes sophisticated technologies, products and services that are available for sale worldwide. Our next-generation, VirnetX One™ platform builds upon our patented Secure Domain Name Registry and Technology to further enhance the security and efficiency of our patented secure communication links. VirnetX One™ is a security-as-a-service platform that protects enterprise applications, services, and infrastructure from cyber-attacks. Our platform allows businesses and other enterprises of all sizes to add a “security umbrella” as an added layer on top of their existing infrastructure to further reduce risk and bolster security against ever-growing cyberthreats to data, operating systems, other infrastructure products and gateway security controllers.

Current wording

Our product portfolio includes sophisticated technologies, products and services that are available for sale worldwide. Our next-generation, VirnetX One™ platform builds upon our patented Secure Domain Name Registry and Technology to further enhance the security and efficiency of our patented secure communication links. VirnetX One™ is a security-as-a-service platform that protects enterprise applications, services, and infrastructure from cyber-attacks. Our platform allows government organizations, businesses, and other enterprises of all sizes to add a “security umbrella” as an added layer on top of their existing infrastructure to further reduce risk and bolster security against ever-growing cyberthreats to data, operating systems, other infrastructure products and gateway security controllers.

Previous wording

We have undertaken activities to commercialize our products and intellectual property in and outside the United States including VirnetX One™, War Room™, VirnetX Matrix™ and our Secured Domain Name Registry and Technology. We believe our product portfolio to secure devices and systems are suitable in areas such as City, County and State Governments, Healthcare, Finance, Legal, Oil and Gas, Medical, Law Enforcement, National Defense and related support industries. We continue to actively pursue new sales opportunities in and outside of United States.

Current wording

We have undertaken activities to commercialize our products and intellectual property in and outside the United States including VirnetX One™, War Room™, VirnetX Matrix™ and our Secured Domain Name Registry and Technology. We believe our product portfolio to secure devices and systems are suitable in areas such as City, County and State and Federal governments, healthcare, finance, legal, oil and gas, medical, law enforcement, national defense and related support industries. We continue to actively pursue new sales opportunities in and outside of the United States.

Previous wording

We invested in two companies in the artificial intelligence (“AI”) sector partnering with them to augment the Company’s strategy to provide secure AI to the marketplace. The first investment was with L2 Holdings, LLC (“OmniTeq”), an AI, machine learning (“ML”) and predictive analytics-based solutions provider with a primary focus on selling into the space and defense sectors. Under the terms of our agreement, OmniTeq will deploy and integrate our VirnetX One™ family of products at SkinWalker Ranch to secure their data and protect against cyber hackers. Our second investment was with OP Media, Inc, a dynamic software platform provider, addressing a critical market requirement for transforming static infrastructure processes and knowledgebases into digital processes that can be continuously optimized using AI, ML, and blockchain technologies for making informed decisions and creating streamlined workflows in real-time, without requiring coding or programming skills. Further, under the terms of our respective agreements, both OmniTeq and OP Media have agreed to integrate our VirnetX One™ family of products and services into their solutions and to resell them to their current and future customers. Both companies have committed to using VirnetX as their exclusive global cybersecurity solution provider and go-to-market partner.

Current wording

We invested in two companies in the artificial intelligence (“AI”) sector partnering with them to augment the Company’s strategy to provide secure AI to the marketplace. The first investment was with L2 Holdings, LLC (“OmniTeq”), an AI, machine learning (“ML”) and predictive analytics-based solutions provider with a primary focus on selling into the space and defense sectors. Our second investment was with OP Media, Inc, a dynamic software platform provider, addressing a critical market requirement for transforming static infrastructure processes and knowledgebases into digital processes that can be continuously optimized using AI, ML, and blockchain technologies for making informed decisions and creating streamlined workflows in real-time, without requiring coding or programming skills. Further, under the terms of our respective agreements, both OmniTeq and OP Media have agreed to integrate our VirnetX One™ family of products and services into their solutions and to resell them to their current and future customers. Both companies have committed to using VirnetX as their exclusive global cybersecurity solution provider and go-to-market partner.

Previous wording

Compared with the Three months Ended March 31, 2023

Current wording

Compared with the Three and Six Months Ended June 30, 2023

Previous wording

We recognized revenue of $2 and $2 in the three months ended March 31, 2024 and 2023, respectively.

Current wording

We recognized revenue of $1 and $2 in the three and six months ended June 30, 2024 and $3 and $4 in the three and six months ended June 30, 2023.

Previous wording

Our research and development expenses decreased by $100 to $1,268 for the three months ended March 31, 2024 from $1,368 for the three months ended March 31, 2023. The decrease was primarily due to lower engineering costs.

Current wording

Our research and development expenses decreased by $3,532 to $1,223 for the three months ended June 30, 2024, and by $3,632 to $2,491 for the six months ended June 30, 2024. The decrease was primarily due to higher engineering compensation costs in 2023.

Previous wording

Our selling, general and administrative expenses decreased by $888 to $3,660 for the three months ended March 31, 2024 from $4,548 for the three months ended March 31, 2023. The decrease is primarily due to decreased legal fees and outside services.

Current wording

Our selling, general and administrative expenses decreased by $4,173 to $3,193 for the three months ended June 30, 2024, and by $5,059 to $6,854 for the six months ended June 30, 2024. The decrease is primarily due to lower legal fees and compensation costs in 2024.

Previous wording

As of March 31, 2024, our cash and cash equivalents totaled approximately $27,593 and our short-term investments totaled approximately $22,412, compared to cash and cash equivalents of approximately $26,289 and short-term investments of approximately $27,258 at March 31, 2023, respectively. Working capital was $43,343 at March 31, 2024, and $52,577 at December 31, 2023.

Current wording

As of June 30, 2024, our cash and cash equivalents totaled approximately $26,285 and our short-term investments totaled approximately $20,624, compared to cash and cash equivalents of approximately $26,289 and short-term investments of approximately $27,258 at December 31, 2023, respectively. Working capital was $40,201 at June 30, 2024, and $52,577 at December 31, 2023.

Previous wording

For the three months ended March 31, 2024, we recognized no income tax benefit on loss before taxes of $4,291, which is an effective tax rate of 0.0%. For the three months ended March 31, 2023, we recognized an income tax benefit of $78 on loss before income taxes of $4,545, which is an effective tax rate of 1.71%. For both 2024 and 2023, the effective rate is lower than the statutory federal rate primarily due to the change in the valuation allowance.

Current wording

For the three and six months ended June 30, 2024, we recognized no income tax benefit, which is an effective tax rate of 0%. For the three and six months ended June 30, 2023, we recognized an income tax benefit of $0 and $78, respectively, which is an effective tax rate of 0.0% and 0.49%. The effective tax rate was lower than the statutory federal income tax rate during 2023 and 2024 primarily due to the change in valuation allowance.