VirnetX Holding Corp

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 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.

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 local, state, Federal and foreign 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. 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. In October 2024, OmniTeq signed a Cooperative Research and Development Agreement (CRADA) with the Air Force (AF) Research Laboratory Intelligence Systems Directorate (AFRL/RI) to facilitate collaboration on cybersecurity and Zero Trust technologies to support integrated surveillance and reconnaissance operations as well as AF and joint targeting processes. This agreement allows VirnetX to apply for security clearances for its employees. 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

Our employees include the core development team behind our inventions, technology, and software. Some members of this team have worked together for over twenty years and were on the same team that invented and developed this technology while working at Leidos. The team has continued its research and development work to refine our unique network security technology and make it more secure and easy to deploy.

Current wording

Our employees include the core development team behind our inventions, technology, and software. Some members of this team have worked together for over twenty years and were on the same team that invented and developed this technology while working at Leidos, Inc., or Leidos, (f/k/a Science Applications International Corporation, or SAIC). The team has continued its research and development work to refine our unique network security technology and make it more secure and easy to deploy.

Previous wording

Our portfolio of intellectual property is the foundation of our business model. We currently own U.S. and foreign patents/validations/pending applications. Our patent portfolio is primarily focused on securing real-time communications over the Internet, and related services, and is used in all our technology and products, some of which were acquired by our principal operating subsidiary, VirnetX, Inc., from Leidos, Inc., or Leidos, (f/k/a Science Applications International Corporation, or SAIC) in 2006.

Current wording

Our portfolio of intellectual property is the foundation of our business model. We currently own U.S. and foreign patents/validations/pending applications. Our patent portfolio is primarily focused on securing real-time communications over the Internet, and related services, and is used in all our technology and products, some of which were acquired by our principal operating subsidiary, VirnetX, Inc., from Leidos in 2006.

Previous wording

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

Current wording

Compared with the Three and Nine Months Ended September 30, 2023

Previous 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.

Current wording

We recognized revenue of $2 and $5 in the three and nine months ended September 30, 2024 and $3 and $7 in the three and nine months ended September 30, 2023.

Previous 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.

Current wording

Our research and development expenses decreased by $42 to $1,176 for the three months ended September 30, 2024, and by $3,674 to $3,667 for the nine months ended September 30, 2024. The decrease was primarily due to higher engineering compensation costs in 2023.

Previous 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.

Current wording

Our selling, general and administrative expenses decreased by $1,207 to $3,213 for the three months ended September 30, 2024, and by $6,267 to $10,066 for the nine months ended September 30, 2024. The decrease is primarily due to lower legal fees and compensation costs in 2024.

Previous 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.

Current wording

As of September 30, 2024, our cash and cash equivalents totaled approximately $25,130 and our short-term investments totaled approximately $18,624, 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 $36,885 at September 30, 2024, and $52,577 at December 31, 2023.

Previous wording

We expect that our cash and cash equivalents and short-term investments as of June 30, 2024, will be sufficient to fund our current level of operating expense, including legal expenses and provide related working capital for the foreseeable future. Over the longer term, we expect to derive our future revenue from license fees and royalties associated with our patent portfolio, technology, software and secure domain name registry, as well as partnering with others to integrate our family of cybersecurity products and services into their solutions and to resell them to their current and future customers.

Current wording

We expect that our cash and cash equivalents and short-term investments as of September 30, 2024, will be sufficient to fund our current level of operating expense, including legal expenses and provide related working capital for the foreseeable future. Over the longer term, we expect to derive our future revenue from license fees and royalties associated with our patent portfolio, technology, software and secure domain name registry, as well as collaborating with others to integrate our family of cybersecurity products and services into their solutions and to resell them to their current and future customers.

Previous 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.

Current wording

For the three and nine months ended September 30, 2024, we recognized income tax expense of $0 and $3, an effective income tax rate of approximately 0.0% for both periods. For the three and nine months ended September 30, 2023, we recognized an income tax benefit of $1 and $79, an effective income tax rate of 0.0% and 0.4%. 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.