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What changed in VirnetX Holding Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of VirnetX Holding Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+190 added−270 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-31)

Top changes in VirnetX Holding Corp's 2023 10-K

190 paragraphs added · 270 removed · 127 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

39 edited+16 added−20 removed46 unchanged
Biggest changeOur patent portfolio serves as the foundation of our GABRIEL Connection Technology™, software products, services, and our licensing business. We currently own approximately 205 total patents and pending applications, including 72 U.S. patents/patent applications and 133 foreign patents/validations/pending applications. It is expected to generate the majority of our future revenue in license fees and royalties.
Biggest changeThe team has continued its research and development work to refine our unique network security technology and make it more secure and easy to deploy. Our portfolio of intellectual property is the foundation of our business model. We currently own approximately 205 total patents and pending applications, including 72 U.S. patents/patent applications and 133 foreign patents/validations/pending applications.
Based on our estimates, using publicly available market data, we believe that the size of the global Industrial IoT security market is projected to grow from $4.76 billion in 2022 to approximately $23.17 billion by 2028 at a CAGR of 30.2% during the forecasted period with a growing investment in securing the infrastructure around these devices.
Based on our estimates, using publicly available market data, we believe that the size of the global Industrial IoT security market size is projected to grow from $4.76 billion in 2022 to approximately $23.17 billion by 2028 at a CAGR of 30.2% during the forecasted period with a growing investment in securing the infrastructure around these devices.
We do not warrant the accuracy, or completeness or adequacy of the USPTO website, and expressly disclaim liability for errors or omissions on such website.
We do not warrant the accuracy, completeness or adequacy of the USPTO website, and expressly disclaim liability for errors or omissions on such website.
VirnetX Matrix TM provides a true “zero-trust” access protection, “single-click” ease of use, and is a highly-effective added layer of protection that is deployed simply, without the need for changes to an enterprise’s existing, in-place infrastructure.
VirnetX Matrix™ provides a true “zero-trust” access protection, “single-click” ease of use, and is a highly-effective added layer of protection that is deployed simply, without the need for changes to an enterprise’s existing, in-place infrastructure.
Enterprises can use VirnetX One platform to secure open-source applications powering communications, data and analytics, infrastructure, and business services with a focus on making those applications easier to secure, access and manage. 6 Index We believe our software products and technologies provide the foundation for securing real-time communications and collaboration applications for the enterprise remote workforce.
Enterprises can use VirnetX One platform to secure open-source applications powering communications, data and analytics, infrastructure, and business services with a focus on making those applications easier to secure, access and manage. We believe our software products and technologies provide the foundation for securing real-time communications and collaboration applications for the enterprise remote workforce.
The demand to work remotely, explosive growth of video conferencing tools and rapid growth in the cloud has created an opportunity to secure communications regardless of a user’s location, network, or BYOD (bring your own device). The shift to remote work and expansion of the enterprise network perimeter has driven the growth of ZTNA solutions.
The demand to work remotely, explosive growth of video conferencing tools and rapid growth in the cloud has created an opportunity to secure communications regardless of a user’s location, network, or BYOD (bring your own device). 3 Index The shift to remote work and expansion of the enterprise network perimeter has driven the growth of ZTNA solutions.
Although there can be no assurance in this regard, the Company believes that there are opportunities for Company products sales directly to, resale arrangements with and/or adoption as vendor standards by, one or more of these third parties.
Although there can be no assurance in this regard, the Company believes that there are opportunities for Company products’ sales directly to, resale arrangements with and/or adoption as vendor standards by, one or more of these third parties.
Intellectual Property and Patent Rights Our intellectual property is primarily comprised of trade secrets, patented know-how, issued and pending patents, copyrights and technological innovation. 7 Index We currently own approximately 205 total patents and pending applications, including 72 U.S. patents/patent applications and 133 foreign patents/validations/pending applications.
Intellectual Property and Patent Rights Our intellectual property is primarily comprised of trade secrets, patented know-how, issued and pending patents, copyrights and technological innovation. We currently own approximately 205 total patents and pending applications, including 72 U.S. patents/patent applications and 133 foreign patents/validations/pending applications.
Our War Room™ software product provides an industry leading, safe, and secure video conferencing meeting environment where sensitive communications and data is invisible to those not authorized to view it. War Room™ validates permissions of all the users, and devices requesting access to any secure meeting room prior to granting access.
Our War Room™ software product provides safe and secure video conferencing meeting environment where sensitive communications and data is invisible to those not authorized to view it. War Room™ validates permissions of all the users, and devices requesting access to any secure meeting room prior to granting access.
Item 1. Business The Company We are an Internet security software and technology company with industry-leading, patented technology for Zero Trust Network Access (“ZTNA”) based secure network communications.
Item 1. Business The Company We are an Internet security software and technology company with patented technology for Zero Trust Network Access (“ZTNA”) based secure network communications.
We recorded the assignment from Leidos, with the U.S. Patent Office on December 21, 2006. Key terms of these agreements are as follows: • Patent Assignment .
We recorded the assignment from Leidos, with the U.S. Patent Office on December 21, 2006. 7 Index Key terms of these agreements are as follows: • Patent Assignment .
All forward moving licenses have adhered to these guidelines and have met or exceeded these rates and we will use these rates and guidelines in all future license negotiations. Marketing and Sales We employ a leveraged, partner-oriented, marketing strategy for our technology licenses and software product offerings.
All forward moving licenses have adhered to these guidelines and have met or exceeded these rates and we will use these rates and guidelines in all future license negotiations. Marketing and Sales We employ a leveraged, partner-oriented marketing and sales strategy for software product and services offerings.
Our GABRIEL Connection Technology™ License is offered to original equipment manufacturer (“OEM”) customers who want to adopt the GABRIEL Connection Technology™ as their solution for establishing secure connections using secure domain names within their products. We have developed GABRIEL Connection Technology™ Software Development Kit (“SDK”) to assist with rapid integration of these techniques into existing software implementations.
Our GABRIEL Connection Technology™ License is offered to OEM customers who want to adopt the GABRIEL Connection Technology™ as their solution for establishing secure connections using secure domain names within their products. We have developed GABRIEL Connection Technology™ Software Development Kit to assist with rapid integration of these techniques into existing software implementations.
We believe VirnetX Matrix™ is an attractive solution for all businesses, cloud and on-premise application service providers, and OEMs, looking to improve visibility and management of their networks to mitigate morphing attacks on their networks and for real time access and control of their users.
We believe VirnetX Matrix™ is an attractive solution for all businesses, cloud and on-premise application service providers, and original equipment manufacturers (“OEMs”), looking to improve visibility and management of their networks to mitigate morphing attacks on their networks and for real time access and control of their users.
Department of Commerce extended its delegation of authority by entering into a new agreement with the Internet Corporation for Assigned Names and Numbers, or ICANN, a California non-profit corporation headquartered in Marina Del Rey, California.
On September 29, 2006, the U.S. Department of Commerce extended its delegation of authority by entering into a new agreement with the Internet Corporation for Assigned Names and Numbers, or ICANN, a California non-profit corporation headquartered in Marina Del Rey, California.
We have signed a non-exclusive Distribution and Service Agreement with IP Dream, a Japanese based strategic technology developer and service provider, to sell our software products as well as VirnetX’s Secure Domain Name technology to its clients in Japan and greater Asia.
We added a Chief Operating Officer to our Japanese team to further our technology licensing efforts in Japan. We have signed a non-exclusive Distribution and Service Agreement with IP Dream, a Japanese based strategic technology developer and service provider, to sell our software products as well as VirnetX’s Secure Domain Name technology to its clients in Japan and greater Asia.
We have an ongoing licensing program under which we offer licenses to a portion of 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 have an ongoing licensing program under which we offer licenses to our technology, software, and some of our patented inventions, including our secure domain name registry service, to domain infrastructure providers, communication service providers as well as to system integrators.
Our GABRIEL Collaboration Suite™ is a set of communication applications and tools that use our GABRIEL Secure Communication Platform™. It enables seamless and secure cross platform communications between devices that are enrolled in our “VIRNETX SECURED” network and have our software installed.
Our GABRIEL Collaboration Suite™ is a set of communication applications and tools that use our GABRIEL Secure Communication Platform™. It enables seamless and secure cross platform communications between devices that are enrolled in our “VIRNETX SECURED” network and have our software installed. Effective May 31, 2023 we have ended the support for our GABRIEL Collaboration Suite™.
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 Names and GABRIEL Connection 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 next-generation, VirnetX One™ platform builds upon our patented Secure Domain Name Registry and Technology and GABRIEL Connection 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.
Based on the collective knowledge and experience of our development team, we believe that we have one of the most experienced and sophisticated groups of security experts researching vulnerability and threats to real-time communication over the Internet and developing solutions to mitigate these problems.
Based on the collective knowledge and experience of our development team, we believe that we have one of the most experienced and sophisticated groups of security experts researching vulnerability and threats to real-time communication over the Internet and developing solutions to mitigate these problems. 5 Index License and Service Offerings We offer a diversified portfolio of licenses, software and service offerings focused on securing real-time communications over the Internet.
On July 1, 1997, the President of the United States directed the U.S. Secretary of Commerce to privatize the management of the domain name system in a manner that increases competition and facilitates international participation in its management. On September 29, 2006, the U.S.
The U.S. government has controlled the authoritative domain name system, or DNS, root server since the inception of the Internet. On July 1, 1997, the President of the United States directed the U.S. Secretary of Commerce to privatize the management of the domain name system in a manner that increases competition and facilitates international participation in its management.
Although it is possible to create and manage other DNS root directories privately without accreditation from ICANN, the possibility of conflicting name and number assignments makes it less likely that users would widely adopt a top-level domain name associated with an alternative DNS root directory provided by a non-ICANN- accredited registry service.
Although it is possible to create and manage other DNS root directories privately without accreditation from ICANN, the possibility of conflicting name and number assignments makes it less likely that users would widely adopt a top-level domain name associated with an alternative DNS root directory provided by a non-ICANN- accredited registry service. 8 Index Employees and Human Capital As of December 31, 2023, we had 27 full and part time employees, most of whom work remotely from our corporate offices.
We intend to continue to expand our customer base with targeted promotions and direct sales initiatives. Our employees include the core development team behind our patent portfolio, technology, and software. Some members of this team have worked together for over twenty years and were on same team that invented and developed this technology while working at Leidos.
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.
Our Approach & Strategy We believe that VirnetX One™ software products are positioned to help enterprises adapt to the rapidly evolving threat landscape in work environments and the growing need to secure communications regardless of a user’s location, network, or device using our GABRIEL Connection Technology™.
Our Approach & Strategy We believe that VirnetX One™ software products are positioned to help enterprises adapt to the rapidly evolving threat landscape in work environments and the growing need to secure communications regardless of a user’s location, network, or device using our GABRIEL Connection Technology™. 4 Index VirnetX One™ products deliver ZTNA, allowing enterprises to secure their information, control access and gain visibility into how information is being used, who is accessing it and where it is going.
Key elements of our strategy are to: • Actively recruit partners in various vertical markets, including healthcare, finance, legal, government to help us expand our enterprise customer base. • Promote our next-generation VirnetX One™ platform as a solution for delivering ZTNA, and securing enterprise applications, services, and infrastructure. • Continue to grow our technology licensing program to commercialize our intellectual property, including our GABRIEL Connection Technology™. • Grow registration of VirnetX Secure Domain Names as the network segmentation component of our ZTNA solution.
Key elements of our strategy are to: • Direct sales efforts with larger users, particularly those engaged in defense and others govermental or national initiatives. • Actively recruit partners in various vertical markets, including healthcare, finance, legal, government to help us expand our enterprise customer base. • Promote our next-generation VirnetX One™ platform as a solution for delivering ZTNA, and securing enterprise applications, services, and infrastructure. • Combine with VirnetX One™ platform with technologies from the companies we have invested in, namely OmniTeq and OPMedia, to enhance their offerings and provide supplemental sales channels for VirnetX One™ • Continue to grow our technology licensing program to commercialize our intellectual property, including our GABRIEL Connection Technology™. • Grow registration of VirnetX Secure Domain Names as the network segmentation component of our ZTNA solution.
New and evolving laws and regulations, and changes in their enforcement and interpretation, may have material impacts upon our development and commercialization plans or business practices, and may significantly increase our compliance costs and otherwise adversely affect our business, financial condition, and results of operations. 8 Index The U.S. government has controlled the authoritative domain name system, or DNS, root server since the inception of the Internet.
New and evolving laws and regulations, and changes in their enforcement and interpretation, may have material impacts upon our development and commercialization plans or business practices, and may significantly increase our compliance costs and otherwise adversely affect our business, financial condition, and results of operations.
We have successfully signed a number of Resellers & Managed Service Provider Agreements in various market segments, including, healthcare, finance, legal, government, etc., to assist us in selling our software products to their customers. A list of our partners can be found on our website at https://virnetx.com/partners.
We have successfully signed several Resellers & Managed Service Provider Agreements in various market segments, including healthcare, finance, legal, government, etc., to assist us in selling our software products to their customers.
We have experienced low employee turnover rates over the years with both employees and consultants participating in our equity incentive plan. Available Information We file or furnish various reports, such as registration statements, periodic and current reports, proxy statements and other materials with the SEC. Our website address is http://www.virnetx.com.
Available Information We file or furnish various reports, such as registration statements, periodic and current reports, proxy statements and other materials with the SEC. Our website address is http://www.virnetx.com.
We believe our War Room™ represents a starting point to offer secure video conferencing tools built on a Zero Trust architecture. Cloud computing growth has rapidly expanded as enterprises continue to move applications and services to the cloud. The cloud offers scalability, operations and development efficiency and remote access benefits for their workforce.
We believe Zero Trust represents a growing market and an ideal fit for our technology and products. Cloud computing growth has rapidly expanded as enterprises continue to move applications and services to the cloud. The cloud offers scalability, operations and development efficiency and remote access benefits for their workforce.
Our technology generates secure connections on a “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. Our portfolio of intellectual property is the foundation of our business model.
Our technology generates secure connections on a “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. Our product portfolio includes sophisticated technologies, products and services that are available for sale worldwide.
Our patented technology allows enterprises to license our technology for integration into their products and services, easily deploy our technology through our VirnetX One™ family of products for endpoint security or securing their communications with our mobile and desktop applications. 5 Index Our strategy is to become the market leader in securing real-time communications over the Internet and to establish our VirnetX One™ and GABRIEL Connection Technology™ as the industry standard security platforms.
Our patented technology allows enterprises to license our technology for integration into their products and services, easily deploy our technology through our VirnetX One™ family of products for endpoint security or securing their communications with our mobile and desktop applications.
This marketplace strategy will allow us to offer more flexible licensing options to solve specific customer use-cases, align with partner product offerings and create upsell opportunities for our products. Customers Our software products are available for download and free trial, for Android, iOS, Windows, Linux, and Mac OS X platforms, at http://www.virnetx.com/.
This marketplace strategy will allow us to offer more flexible licensing options to solve specific customer use-cases, align with partner product offerings and create upsell opportunities for our products.
Enterprises can quickly deploy VirnetX One software products to protect legacy applications, secure new cloud-based services and remove application visibility from the public Internet. Enterprises can move towards more granular network access control to protect their network at the edge and away from legacy VPN technologies.
Enterprises can move towards more granular network access control to protect their network at the edge and away from legacy VPN technologies. VirnetX One family of software products enables remote employees to securely interact with on-premise and cloud-based applications, regardless of their location.
The Company believes that these parties have interest to secure devices and systems in areas such as healthcare, finance, legal, oil and gas, medical, law enforcement, national defense and related support industries.
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.
In 2021, we added a Chief Operating Officer to our team in Japan who will be focused on growing our market and products in that region. In addition to our regular employees, we also engage with consultants on a regular basis. These consultants can be involved in our product development, customer relations, legal, and/or regulatory compliance and reporting.
In addition to our regular employees, we also engage with consultants on a regular basis. These consultants can be involved in our product development, customer relations, legal, and/or regulatory compliance and reporting. We have experienced low employee turnover rates over the years with both employees and consultants participating in our equity incentive plan.
License and Service Offerings We offer a diversified portfolio of licenses, software and service offerings focused on securing real-time communications over the Internet. We believe software products will allow enterprises to seamlessly integrate ZTNA protection into their networks to secure their applications, services, virtualized resources, and data as it moves into the cloud.
We believe software products will allow enterprises to seamlessly integrate ZTNA protection into their networks to secure their applications, services, virtualized resources, and data as it moves into the cloud. Enterprises can quickly deploy VirnetX One software products to protect legacy applications, secure new cloud-based services and remove application visibility from the public Internet.
Employees and Human Capital As of December 31, 2022, we had 25 full and part time employees, most of whom work remotely from our corporate offices. We have had a work-from-home workforce since our inception. The emphasis of our employees is on our technology research and product development with 14 employees focused on this effort.
We have had a work-from-home workforce since our inception. The emphasis of our employees is on our technology research and product development with 14 employees focused on this effort. Our team has been working on enhancing our products and adding new functionality along with successfully filing several new patent applications in 2022.
We intend to continue using an outsourced and leveraged model to maintain efficiency and manage costs as we grow our licensing business by, for example, offering incentives to early licensing targets or asserting our rights for use of our patents. 4 Index Industry Overview & Trends We believe that the rapid growth in remote work has accelerated digital business transformation initiatives that would have taken years, into a matter of months.
We intend to continue to expand our customer base with targeted promotions and direct sales initiatives to large enterprise and governmental organizations. Industry Overview & Trends We believe that the rapid growth in remote work has accelerated digital business transformation initiatives that would have taken years, into a matter of months.
Our team has been working on enhancing our products and adding new functionality along with successfully filing several new patent applications in 2022. We also continue building our sales and marketing teams to expand our product-lines and customer base.
We also continue building our sales and marketing teams to expand our product-lines and customer base.
Removed
We currently own approximately 205 total patents and pending applications, including 72 U.S. patents/patent applications and 133 foreign patents/validations/pending applications.
Added
All the existing customers and partners have been notified of this announcement. We have undertaken activities to commercialize our products and intellectual property in and outside the United States including VirnetX One™, War Room™, VirnetX Matrix™, GABRIEL Connection Technology™ and our Secured Domain Name Registry and Technology.
Removed
Our GABRIEL Collaboration Suite™ is available for download and free trial, for Android, iOS, Windows, Linux, and Mac OS X platforms, at https://virnetx.com. During the fourth quarter of 2022 and the first quarter of 2023, the Company engaged in discussions with certain third-parties to pitch the capabilities of VirnetX One™.
Added
We continue to actively pursue new sales opportunities in and outside of United States. 2 Index During 2023, we actively engaged in discussions with certain third-parties to pitch the capabilities of VirnetX One™. As a result of our efforts, we made a series of announcements with Solution Synergy, WeSecure, Samsung, Envoy Data Corporation, and Object Security.
Removed
Customers who want to develop their own implementation of the VirnetX patented techniques for supporting secure domain names, or other techniques that are covered by our patent portfolio for establishing secure communication links, can purchase a patent license.
Added
We also announced new deployments of our VirnetX Matrix™ product at City of Bridgeport, International Association of Certified ISAOs (IACI) and SkinWalker Ranch.
Removed
The number of patents licensed, and therefore the cost of the patent license to the customer, will depend upon which of the patents are used in a particular product or service. These licenses will typically include an initial license fee, as well as an ongoing royalty.
Added
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.
Removed
The team has continued its research and development work and expanded the set of patents we acquired in 2006 from Leidos, into a larger patent portfolio. This portfolio now serves as the foundation of our products, services, and our licensing business. It is expected to generate most of our future revenue in license fees and royalties.
Added
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.
Removed
We intend to continue our efforts to develop new products and technologies and further strengthen and expand our patent portfolio.
Added
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.
Removed
We believe Zero Trust represents a growing market and an ideal fit for our technology and products. The global coronavirus COVID-19 pandemic forced many organizations to shift their business processes – and their employees are having to embrace a work-from-home or “hybrid” culture on a scale never before attempted.
Added
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.
Removed
Remote work has accelerated the adoption of video conferencing and meeting applications across all industries making them essential tools for connection with remote customers, workforces, and employees to limit person-to-person direct contact.
Added
Our strategy is to become the market leader in securing real-time communications over the Internet and to establish our VirnetX One™ and GABRIEL Connection Technology™ as the industry standard security platforms.
Removed
Based on our estimates, using publicly available market data, we believe that the worldwide video conferencing market size is projected to grow from $7.69 billion in 2022 to $18.1 billion by 2027, at a CAGR of 18.7% during the forecast period.
Added
Customers We have undertaken activities to commercialize our products and intellectual property in and outside the United States including VirnetX One TM , War Room TM , VirnetX Matrix TM , GABRIEL Connection Technology TM and our Secured Domain Name Registry and Technology.
Removed
This rapid adoption, learning curve and demand to continue working remotely has created significant security concerns and breaches for enterprises. Our market research has focused on security conscious verticals such as healthcare, banking, legal and government where security breaches can significantly impact outcomes.
Added
We believe our product portfolio to secure devices and systems are stable 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 one of United States.
Removed
In many cases, these enterprises adopted industry standard video conferencing tools and are now looking at more secure alternative solutions. Enterprises want video conferencing solutions that protect their information and allow them greater security control and visibility, while continuing to be reliable, easy to use and cost effective.
Added
During 2023, we actively engaged in discussions with certain third-parties to pitch the capabilities of VimetX One TM .
Removed
Enterprises in these verticals are also looking for video conferencing solutions that integrate into their existing workflows and better align with specific use cases instead of forcing them to adapt to more one size fits all solutions on the market.
Added
As a result of our efforts, we made a series of announcements with Solution Synergy, WeSecure, Samsung, Every Data Corporation, and Object Security We also announced new deployments of our VimetX Matrix TM product at City of Bridgeport, International Association of Certified ISAOs (IACI) and SkinWalker Ranch.
Removed
VirnetX One™ products deliver ZTNA, allowing enterprises to secure their information, control access and gain visibility into how information is being used, who is accessing it and where it is going.
Added
Although there can be no assurance in this regard, the Company believes that there are opportunities for Company products' sales directly to, resale arrangements with and/or adoption as vendor standards by, one or more of these third parties. We have signed Patent License Agreements with Aastra USA, Inc.
Removed
VirnetX One family of software products enables remote employees to securely interact with on-premise and cloud-based applications, regardless of their location.
Added
We plan to directly market our software products, domain name registry services to large enterprises and government organizations along with our service provider and system integrator customers. 6 Index We believe significant opportunities exist for our VirnetX One™, War Room™, VirnetX Matrix™ products and services in areas such as Local and State Governments, Power and Energy generation, Healthcare, Finance, Legal, Oil and Gas, Medical, Law Enforcement, National Defense and related support industries.
Removed
We continue to enhance our products and add new functionality to our products. Small and medium businesses have installed our software products in their corporate networks. We continue to expand our customer base with targeted promotions and direct sales initiatives. We have signed Patent License Agreements with Aastra USA, Inc.
Added
We are actively pursuing a number of sales opportunities, in and outside the United States, for as we seek to extend out our customer base globally. We expect to leverage our relationship with OmniTeq and Op Media to extend our offering to departments and agencies within the federal government.
Removed
We plan to continue working on a number of sales and marketing promotions, in the U.S. and Japan, to recruit more resellers and partners along with direct sales programs as we seek to extend out our customer base internationally. We plan to directly market our software products, domain name registry services to our service provider and system integrator customers.
Added
In 2024, the Chief Operating Officer to our team in Japan was promoted to Chief Operating Officer of the Company, who will be focused on growing our operations, expanding the Company's line of security products into Japan as well as the broader Pacific Rim, and transacting with military-affiliated partners within the United States to facilitate the collaborative development of next-generation cybersecurity and protective artificial intelligence solutions.
Removed
We market our software products directly to small and medium businesses using online marketing programs and tools. We expect to leverage our relationship with Leidos, to extend our offering to departments and agencies within the federal government.
Removed
Leidos 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. We intend to leverage our sales team for managing current accounts and pursuing sales opportunities with new customers.
Removed
We continue to rapidly expand our customer base with targeted promotions and direct sales initiatives. We added a Chief Operating Officer to our Japanese team to further our technology licensing efforts in Japan.
Removed
We have published our royalty rates and guidelines on our website at https://virnetx.com/licensing. All forward moving licenses have adhered to these guidelines and have met or exceeded these rates and we will use these rates and guidelines in all future license negotiations.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

50 edited+31 added−97 removed71 unchanged
Biggest changeA security breach or other security incident, or the perception any such event has occurred, could require a substantial level of financial resources to address and otherwise respond to, may be difficult to identify or address in a timely manner, and could result in claims, investigations, inquiries, and other proceedings or actions by private parties or governmental entities that may divert management’s attention and require the expenditure of significant time and resources, and which may cause us to incur substantial fines, penalties, or other liability and related legal and other costs.
Biggest changeAdditionally, any such data security incident, or the perception that one has occurred could also result in adverse publicity, harm to our reputation and competitive position, 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, which could have a material adverse impact on our business, financial condition, and results of operation. 14 Index A security breach or other security incident, or the perception any such event has occurred, could require a substantial level of financial resources to address and otherwise respond to, may be difficult to identify or address in a timely manner, and could result in claims, investigations, inquiries, and other proceedings or actions by private parties or governmental entities that may divert management’s attention and require the expenditure of significant time and resources, and which may cause us to incur substantial fines, penalties, or other liability and related legal and other costs.
Notwithstanding this belief, third parties may make claims of infringement or invalidity claims with respect to our patents or become aware of our trade secrets by way of leaks from bad actors within or outside of our employee base or otherwise, and such claims could give rise to material cost for defense or settlement or both, and such claims or leaks could jeopardize or substantially delay a successful outcome of litigation we are or may become involved in, divert resources away from our other activities, limit or cease our related revenues, or otherwise materially and adversely affect our business.
Notwithstanding this belief, third parties may make claims of infringement with respect to our products or services or invalidity claims with respect to our patents or become aware of our trade secrets by way of leaks from bad actors within or outside of our employee base or otherwise, and such claims could give rise to material cost for defense or settlement or both, and such claims or leaks could jeopardize or substantially delay a successful outcome of litigation we are or may become involved in, divert resources away from our other activities, limit or cease our related revenues, or otherwise materially and adversely affect our business.
We expect that our sales cycles will be long and unpredictable due to several factors, including but not limited to: • The need to educate potential customers about our patent rights and our product and service capabilities; 14 Index • Our customers’ willingness to invest potentially substantial resources and modify their network infrastructures to take advantage of our products; • Our customers’ budgetary constraints; • The timing of our customers’ budget cycles; • Delays caused by customers’ internal review processes; and • Long sales cycles that may increase the risk that our financial resources are exhausted before we are able to generate significant revenue.
We expect that our sales cycles will be long and unpredictable due to several factors, including but not limited to: • The need to educate potential customers about our patent rights and our product and service capabilities; • Our customers’ willingness to invest potentially substantial resources and modify their network infrastructures to take advantage of our products; • Our customers’ budgetary constraints and timing of their budget cycles; • Delays caused by customers’ internal review processes; and • Long sales cycles may increase the risk that our financial resources are exhausted before we are able to generate significant revenue.
We have a number of protective provisions in our amended and restated certificate of incorporation and bylaws that could delay, discourage, or prevent a third party from acquiring control of us without the approval of our Board of Directors.
We have protective provisions in our Amended and Restated Certificate of Incorporation and bylaws that could delay, discourage, or prevent a third party from acquiring control of us without the approval of our Board of Directors.
Our systems and operations will also be vulnerable to damage or interruption from, among other things: • 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.
Our systems and operations will also be vulnerable to damage or interruption from, among other things: 12 Index • Power loss, transmission cable cuts and other telecommunications failures; • Damage or interruption caused by fire, earthquake, and other natural disasters; • Computer viruses, electronic break-ins, sabotage, vandalism or software defects; and • Physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.
If we do not manage our investments and business in a manner that meets the requirements for an exemption under the 1940 Act, we may be deemed to be an investment company under the 1940 Act and subject to additional limitations on operating our business including limitations on the issuance of securities, which may make it difficult for us to raise capital.
If we do not manage our investments and business in a manner that meets the requirements for an exemption under the 1940 Act, we may be deemed to be an investment company under the 1940 Act and subject to additional limitations on operating our business including limitations on the issuance of securities, which may make it difficult for us to raise capital. 21 Index
Additionally, if customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us, then our business, financial condition and operating results would be adversely affected. In addition, our share price could experience periods of increased volatility as a result of shareholder activism.
Furthermore, if customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us, then our business, financial condition and operating results would be adversely affected. In addition, our share price could experience periods of increased volatility as a result of shareholder activism.
In addition, potential customers of our products include local, state, federal and foreign government authorities. Sales to government authorities can be extended and unpredictable. Government authorities generally have complex budgeting, purchasing, and regulatory processes that govern their capital spending, and their spending is likely to be adversely impacted by economic conditions.
In addition, potential customers of our products include local, state, federal and foreign government authorities. Sales to government authorities can be extensive and unpredictable. Government authorities generally have complex budgeting, purchasing, and regulatory processes that govern their capital spending, and their spending is likely to be adversely impacted by economic conditions.
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 bylaws: Stockholder proposals to alter or amend our bylaws or to adopt new bylaws 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: A special meeting of the stockholders, other than as required by statute, may be called at any time by the Board of Directors, or by the chairman of the board, or by the president, but a special meeting may not be called by any other person or persons and any power of stockholders to call a special meeting of stockholders is specifically denied.
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 bylaws: Stockholder proposals to alter or amend our bylaws or to adopt new bylaws 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: A special meeting of the stockholders, other than as required by statute, may be called at any time by the Board of Directors, or by the chairman of the board, or by the president, and any power of stockholders to call a special meeting of stockholders is specifically denied.
The exercise of our outstanding stock options, warrants, and RSUs and issuance of new shares 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 stock options, warrants, and RSUs 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.
Our business may be adversely affected by instability, disruption, or destruction in a geographic region in which we operate, regardless of cause, including war, terrorism, riot, civil insurrection, or social unrest, and natural or manmade disasters, including famine, flood, fire, earthquake, storm, or pandemic events and spread of disease, such as the COVID-19 pandemic and the Russian invasion of Ukraine.
Our business may be adversely affected by instability, disruption, or destruction in a geographic region in which we operate, regardless of cause, including war, terrorism, riot, civil insurrection, or social unrest, and natural or manmade disasters, including famine, flood, fire, earthquake, storm, or pandemic events and spread of disease, such as the COVID-19 pandemic.
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 business to be brought before 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.
We have not adopted such a “poison pill;” but our Board of Directors can do so in the future, very rapidly and without stockholder approval. • Advance notice requirements for director nominations and for business to be brought before 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 to have the matter voted on at a stockholder meeting.
This has the effect of delaying the ability of stockholders to affect 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.
This delays the ability of stockholders to affect 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.
We cannot yet fully determine the impact these or future laws, regulations and standards may have on our business, but they may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.
We cannot yet fully determine the impact these or future laws, regulations and standards may have on our business, but they may require us to modify our data processing practices and policies and to incur substantial costs and expenses in efforts to comply.
Additionally, perceived uncertainties as to our future direction as a result of shareholder activism or changes to the composition of our board of directors may lead to the perception of a change in the direction of our business or other instability, which may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel.
Additionally, perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a change in the direction of our business or other instability, which may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel.
Risks Related to Our Business and Our Financial Reporting Our business has been, and may continue to be, negatively affected by shareholders intent upon alternate business strategies. Responding to actions by activist shareholders is costly and time-consuming, has diverted some the attention of management, our board of directors and our employees, and may be disruptive to our operations.
Our business has been, and may continue to be, negatively affected by shareholders intent upon alternate business strategies. Responding to actions by activist shareholders is costly and time-consuming, has diverted the attention of management, our board of directors and our employees, and may be disruptive to our operations.
Our success depends on the skills, experience, and performance of our key personnel. Due to the specialized nature of our business and limited staff, we are particularly dependent on 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.
Due to the specialized nature of our business and limited staff, we are particularly dependent on 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.
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. 18 Index In addition, the provisions of Section 203 of the Delaware General Corporation Law govern us.
Accordingly, 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 Corporation Law govern us.
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 permitting us to disregard a stockholder proposal to the extent such proposal is not submitted in accordance with the bylaws. • No stockholder actions by written consent: No stockholder or group of stockholders may take action by written consent.
This gives our Board of Directors and management more time to react to stockholder proposals generally and could also permit us to disregard a stockholder proposal to the extent such proposal is not submitted in accordance with the bylaws. • No stockholder actions by written consent: No stockholder or group of stockholders may take action by written consent.
War, terrorism, other acts of violence, or natural or manmade disasters may affect the markets in which we operate, our clients and our service delivery.
War, terrorism, other acts of violence, or natural or manmade disasters as well as macroeconomic conditions may affect the markets in which we operate, our clients and our service delivery.
We are evaluating obligations imposed on us by the GDPR and we may be required to incur substantial expense in order to make significant changes to our product and business operations in connection with obtaining and maintaining compliance with the GDPR and similar legislation, such as the UK GDPR and UK Data Protection Act, all of which may adversely affect our revenue and product sales.
We may be required to incur substantial expense in order to make significant changes to our product and business operations in connection with obtaining and maintaining compliance with the GDPR and similar legislation, such as the UK GDPR and UK Data Protection Act, all of which may adversely affect our revenue and product sales.
Based on the scale of our technical resources, our limited historical financial data upon which to base our projected revenue or planned operating expenses related to our software products and services, we may not be able to effectively: • Generate revenues or profit from product sales; • Drive adoption of our products; • Attract and retain customers for our products; • Provide appropriate levels of customer training and support for our products; • Implement an effective marketing strategy to promote awareness of our products; • Focus our research and development efforts in areas that generate returns on our efforts; • Anticipate and adapt to changes in our market; or • Protect our products from any system failures or other breaches.
Based on the scale of our technical resources, our limited historical financial data upon which to base our projected revenue or planned operating expenses related to our software products and services, we may not be able to effectively: • Implement an effective marketing strategy to promote awareness of our products; • Attract and retain customers for our products; • Generate revenues or profit from product sales; • Provide appropriate levels of customer training and technical support for our products; • Rapidly anticipate and adapt to changes in the market and evolving customer requirements; • Protect our products from any system failures or other breaches.
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. 16 Index Any significant problem with our systems or operations could result in lost revenue, customer dissatisfaction or lawsuits against us.
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, and result in lost revenue, customer dissatisfaction, or lawsuits against us.
These factors include, but not limited to, the following: • Developments or lack thereof in any then-outstanding litigation; • Quarterly variations in our operating results; • Large purchases or sales of common stock or derivative transactions related to our stock; • Actual or anticipated announcements of new products or services by us or competitors; • General conditions in the markets in which we compete; and • General social, political, economic, and financial conditions, including the significant volatility in the global financial markets.
These factors include, but not limited to, the following: • Annual variations, actual or anticipated, in our operating results; • Significant changes in our management; • Large purchases or sales of common stock or derivative transactions related to our stock; • Actual or anticipated announcements of new products or services by us or competitors; • General conditions in the markets in which we compete; and • General social, political, economic, and financial conditions, including the significant volatility in the global financial markets.
The United Kingdom has enacted a Data Protection Act and legislation referred to as the UK GDPR that substantially implements the GDPR.
The United Kingdom has enacted a Data Protection Act and legislation referred to as the UK GDPR that substantially implements the GDPR and provides for a penalty regime similar to the GDPR.
These protective provisions include: • 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.
These protective provisions include: • A staggered Board of Directors: Only one or two directors (of our five-person Board of Directors) will be up for election at any given annual meeting.
Any actual or perceived security breach or other security incident may also harm our reputation, result in a loss of customers, and make it more difficult or impossible for us to successfully market to others.
Any actual or perceived security breach or other security incident may also harm our reputation, result in a loss of customers, and make it more difficult or impossible for us to successfully market to others. Any of the foregoing matters could harm our business, operating results and financial condition.
The exercise of our outstanding vested stock options, warrants, and RSUs would dilute the ownership interests of our existing stockholders. As of December 31, 2022, we had outstanding options, warrants and RSUs to purchase an aggregate of 7,393,130 shares of common stock representing approximately 10% of our total shares outstanding of which 5,260,355 were vested and therefore exercisable.
The exercise of our outstanding vested stock options, warrants, and RSUs would dilute the ownership interests of our existing stockholders. As of December 31, 2023, we had outstanding options, warrants and RSUs to purchase an aggregate of 348,717 shares of common stock representing approximately 10% of our total shares outstanding of which 287,503 were vested and therefore exercisable.
California has enacted legislation, the California Consumer Privacy Act (the “CCPA”) that, among other things, requires covered companies to provide disclosures to California consumers, and afford such consumers abilities to opt-out of certain sales of personal information. Additionally, the California Privacy Rights Act (the “CPRA”), was approved by California voters in the November 2020 election.
California has enacted legislation, the California Consumer Privacy Act (the “CCPA”) that, among other things, requires covered companies to provide disclosures to California consumers, and afford such consumers abilities to opt-out of certain sales of personal information.
Trading in our common stock is limited and the price of our common shares may be subject to substantial volatility. Our common stock is currently listed on the NYSE and was previously listed on the NYSE American LLC (formerly the NYSE MKT LLC). Over the past years, the market price of our common stock has experienced significant fluctuations.
Our common stock is currently listed on the NYSE and was previously listed on the NYSE American LLC (formerly the NYSE MKT LLC). Over the past years, the market price of our common stock has experienced significant fluctuations.
We therefore cannot make assurances that our Board of Directors will determine to pay regular or special dividends in the future. Accordingly, unless our Board of Directors determines to pay dividends, stockholders will be required to look to appreciation of our common stock to realize a gain on their investment, which may not occur.
Accordingly, unless our Board of Directors determines to pay dividends, stockholders will be required to look to appreciation of our common stock to realize a gain on their investment, which may not occur.
Between January 1, 2022, and December 31, 2022, the adjusted closing price on the NYSE for our common stock ranged between $1.03 and $2.69 per share. The price of our common stock may continue to be volatile as a result of several factors, some of which are beyond our control.
Between January 1, 2023, and December 31, 2023, the adjusted closing price on the NYSE for our common stock ranged between $3.53 and $12.60, adjusted for a 1-for-20 reverse stock split effective October 26, 2023. The price of our common stock may continue to be volatile as a result of several factors, some of which are beyond our control.
Our protective provisions in our amended and restated certificate of incorporation and bylaws could make it difficult for a third party to successfully acquire us even if you would like to sell your stock to them.
This ability to exercise significant influence could prevent or significantly delay another company from acquiring or merging with us. 17 Index Our protective provisions in our Amended and Restated Certificate of Incorporation and bylaws 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 limited technical resources and are at an early stage in commercialization of our VirnetX One™ platform and software products. Part of our business includes the internal development of commercial products we seek to monetize.
Consequently, if customer orders are not realized or delayed, our revenues and results of operations could be materially and adversely affected. We have limited technical resources and are at an early stage in commercialization of our VirnetX One™ platform and software products. Part of our business includes the internal development of commercial products we seek to monetize.
These and other provisions in our amended and restated certificate of incorporation, our bylaws 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.
These provisions may prohibit large stockholders, particularly those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. 18 Index These and other provisions in our Amended and Restated Certificate of Incorporation, our bylaws 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.
Privacy, information security, and data protection concerns, whether valid or not valid, may inhibit market adoption of our platform, particularly in certain industries and foreign countries . We expect that we will experience long and unpredictable sales cycles, which may impact our operating results.
Privacy, information security, and data protection concerns, whether valid or not valid, may inhibit market adoption of our platform, particularly in certain industries and foreign countries .
If we raise additional funds through the issuance of equity, equity-linked or debt securities, including those under our past and any future shelf registration statements, those securities may have rights, preferences, or privileges senior to the rights of our common stock, and our existing stockholders may experience dilution.
Our ability to obtain additional capital, if and when required, will depend on our business plans, investor demand, our operating performance, the condition of the capital markets, the terms of our current contractual obligations and other factors. 19 Index If we raise additional funds through the issuance of equity, equity-linked or debt securities, including those under our past and any future shelf registration statements, those securities may have rights, preferences, or privileges senior to the rights of our common stock, and our existing stockholders may experience dilution.
If we are unable to obtain additional capital or are unable to obtain additional capital on satisfactory terms, our ability to continue to support our business growth or to respond to business opportunities, challenges, or other circumstances could be adversely affected, and our business may be harmed. 19 Index 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 materially harm our business.
If we are unable to obtain additional capital or are unable to obtain additional capital on satisfactory terms, our ability to continue to support our business growth or to respond to business opportunities, challenges, or other circumstances could be adversely affected, and our business may be harmed.
The costs of compliance with and other burdens imposed by laws, regulations and standards may limit the use and adoption of our service and reduce overall demand for it, or lead to significant fines, penalties, or liabilities for any noncompliance.
We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to develop new products and features could be limited. 16 Index The costs of compliance with and other burdens imposed by laws, regulations and standards may limit the use and adoption of our service and reduce overall demand for it, or lead to significant fines, penalties, or liabilities for any noncompliance.
Any of the foregoing matters could harm our operating results and financial condition. 13 Index Privacy and data security concerns, and data collection and transfer restrictions and related domestic or foreign regulations may limit the use and adoption of our solutions and adversely affect our business.
Any decreased use of our products or limitation on our ability to export to or sell our products in international markets would likely adversely affect our business, financial condition, and results of operations. 15 Index Privacy and data security concerns, data collection and transfer restrictions and related domestic or foreign regulations may limit the use and adoption of our solutions and adversely affect our business.
Such events may cause our customers to delay their decisions on spending for the services we provide and give rise to sudden significant changes in regional and global economic conditions and cycles. These events may also pose risks to our personnel and to physical facilities and operations, which could adversely affect our financial results.
Such events can adversely affect our operations or the economy as a whole and may cause our customers to delay their decisions on spending for the services we provide and perpetuate significant changes in regional and global economic conditions and cycles.
Because ownership of our common stock is concentrated, investors may have limited influence on stockholder decisions. As of December 31, 2022, our executive officers and directors beneficially owned approximately 14% of our outstanding common stock.
Investors may have limited influence because ownership of our common stock is limited. As of December 31, 2023, our executive officers and directors beneficially owned approximately 14% of our outstanding common stock. 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.
We have broad discretion in how we apply our funds, and we may not use these funds effectively, which could affect our results of operations and cause our stock price to decline.
For more information regarding trading in our common stock and listing on the NYSE, see additional risk factors included elsewhere in this Annual Report on Form 10-K. We have broad discretion in how we apply our funds, and we may not use these funds effectively, which could affect our results of operations and cause our stock price to decline.
Risks Related to Ownership of Our Common Stock We do not regularly pay dividends on our common stock and thus stockholders must look to appreciation of our common stock to realize a gain on their investments. 17 Index Our 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.
Risks Related to Ownership of Our Common Stock We do not regularly pay dividends on our common stock and thus stockholders must look to appreciation of our common stock to realize a gain on their investments.
It is possible that we may have to expend additional financial and other resources to address such problems. The COVID-19 pandemic has resulted in increasing vulnerability to cyber-attacks, as more individuals and companies work online, which increases these risks.
It is possible that we may have to expend additional financial and other resources to address such problems. The increase in remote work by our personnel and those of third parties in recent years has resulted in increased vulnerability to cyber-attacks.
The market price of our common stock may decline because our operating results may not be consistent and may be difficult to predict. Our operating results have 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.
Risks Related to Our Business and Our Financial Reporting Our operating results may not be consistent and may be difficult to predict and we may not be able to achieve or sustain profitability in the future. Our operating results have fluctuated in the past due to several factors.
Accordingly, if we do not generate revenue as and when anticipated, our losses may be greater than expected and our operating results will suffer. 15 Index Our products are highly technical and may contain undetected errors, which could cause harm to our reputation and adversely affect our business.
Accordingly, if we do not generate revenue as and when anticipated, our losses may be greater than expected and our operating results will suffer. 10 Index The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed.
This aspect of our business may require significant capital, time and resources and we cannot guarantee that it will be successful or meet our expectations. As such, we have a small technical team, which may limit our ability to rapidly adapt our product to customer requirements or add new product features to maintain our competitive edge and drive adoption .
This aspect of our business may require significant capital, time and resources and we cannot guarantee that it will be successful or meet our expectations.
If we are unable to protect our intellectual property rights or otherwise realize value from them, our business would be negatively affected. 11 Index We can provide no assurances that the licensing of our essential security patents under FRAND will be successful.
If we are unable to protect our intellectual property rights or otherwise realize value from them, our business would be negatively affected. 13 Index If we experience security breaches or incidents, we could be exposed to liability and our reputation and business could suffer.
We had a net loss of $36.3 million for the year ended December 31, 2022. We had a net loss of $42.9 million for the year ended December 31, 2021 and net income of $280.4 million for the year ended December 31, 2020. As of December 31, 2022, we had an accumulated deficit of $87.2 million.
We expect that our future operating results may also fluctuate due to the same or similar factors. We had a net loss of $27.9 million for the year ended December 31, 2023. We had a net loss of $36.3 million for the year ended December 31, 2022. As of December 31, 2023, we had an accumulated deficit of $186 million.
Removed
You should read this summary together with the more detailed description of each risk factor contained in the subheadings further below. • Our business has been, and may continue to be, negatively affected by shareholders intent upon alternate business strategies. • We may not generate significant sales revenues from our new software products and services. • We are involved and will continue to be involved in litigation defending our patent portfolio, which can be time-consuming and costly, and we cannot anticipate the results. • We may not be able to capitalize on market opportunities related to our product strategy, our licensing strategy or our patent portfolio. 9 Index • If we are not able to adequately protect our patent rights and trade secrets, our business would be negatively impacted. • Because our business is conducted or expected to be conducted in an environment that is subject to rapid change, we may be subject to various developments in regulation, law, and consumer preferences to which we may not be able to adapt successfully. • Our exposure to outside influences beyond our control, including new legislation, court rulings or actions by the USPTO could adversely affect our licensing and enforcement activities and results of operations. • New legislation, regulations or court rulings related to enforcing patents could harm our business and operating results. • Privacy and data security concerns, and data collection and transfer restrictions and related domestic or foreign regulations may limit the use and adoption of our solutions and adversely affect our business. • If we are unable to expand our revenue sources or establish, sustain, grow, or replace relationships with a diversified customer base, our revenues may be limited. • We have limited technical resources and are at an early stage in commercialization of our software products. • Our international expansion will subject us to additional costs and risks, and our plans may not be successful. • We have had to restate our previously issued financial statements and in connection with such process identified a material weakness in our internal control over financial reporting. • We may face litigation over the restatement of our previously issued financial statements.
Added
You should read this summary together with the more detailed description of each risk factor contained in the subheadings further below. • Long and unpredictable sales cycles. • We have limited technical resources and are at an early stage in commercialization of our products. • Intensely competitive market with established brand names. • Our business has been, and may continue to be, negatively affected by shareholders intent upon alternate business strategies. • Our products are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets. • If we are not able to adequately protect our patent rights and trade secrets, our business would be negatively impacted.
Removed
The change in composition of our board of directors could jeopardize our ability to execute our strategic plan and materially harm our business. Due to the current status of our ongoing litigation proceedings, it is critical for us to retain our current board members for proper and timely execution of our strategy in this matter for maximizing shareholder equity value.
Added
The following include some of the factors that may cause our operating results to fluctuate: • Time and resources required to accelerate transition to new product development and sales strategies targeting large enterprises and government customers; • Customer adoption of our VirnetX One TM platform and software products and services; • The number of product license sales of VirnetX Warroom, VirnetX Matrix and associated services; • Adoption of VirnetX One TM platform by third party application providers of secure communications; • Intensely competitive market with established brands that have larger customer bases, and greater resources than we do; • Prolonged economic uncertainties or downturns, globally or in certain regions or industries, could materially adversely affect our business; • Government export and import control regulations on selling products with encryption technology in certain international markets; 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.
Removed
We may not generate significant sales revenues from our new software products and services. In March and April 2022, we launched War Room™ and VirnetX Matrix™ on our VirnetX One™ platform in the U.S. We currently expect to launch these products in Asia Pacific and Europe in fiscal year 2023.
Added
If we fail to increase our revenue to offset any increases in our operating expenses, we may not achieve or sustain profitability in the future. 9 Index We expect that we will experience long and unpredictable sales cycles, which may impact our operating results.
Removed
We also intend to continue to introduce new products on our VirnetX One™ platform in the future. The introduction and launch of new products is subject to significant costs, risks of slow market acceptance, and variable costs and timing of customer acquisition.
Added
The market for Zero Trust Network Access (“ZTNA”) security solutions is rapidly evolving and highly competitive as new entrants and traditional network solutions companies offer cloud-based cybersecurity solutions. Many of our competitors and potential competitors have established brand recognition, larger customer bases, and greater resources than we do.
Removed
While we believe our software products will be attractive to businesses, government agencies, cloud and on-premise application service providers, and OEMs, if we are unable to overcome these risks, we may never generate significant revenue from the sales of these products.
Added
Our primary competitors in the zero-trust network access market include Appgate, Cloudflare, and Illumio. In the enterprise market, our primary competitors include Zscaler (ZPA), Palo Alto Networks (Prisma Access), Cisco (Umbrella), Citrix (Secure Private Access), Netskope (Private Access for ZTNA) and Cato Networks.
Removed
We are involved and will continue to be involved in litigation defending our patent portfolio, which can be time-consuming and costly, and we cannot anticipate the results. We spend a significant amount of our financial and management resources to pursue our current litigation.
Added
As we expand our product offerings and use cases, we will begin to compete with companies that offer bundled security-as-a-service solutions that include Secure Access Service Edge (SASE) and Security Service Edge (SSE). With the introduction of new technologies and market entrants, we expect competition to intensify in the future.
Removed
We believe that this litigation and others that we may pursue in the future could continue for years and consume significant financial and management resources. The counterparties to our litigation include large, well-financed companies with substantially greater resources than us.
Added
For example, disruptive technologies such as generative AI may fundamentally alter the market for our services in unpredictable ways and reduce customer demand. If we fail to compete effectively, our business will be harmed.
Removed
Patent litigation is risky, and the outcome is uncertain, and we cannot assure you that any of our current or future litigation matters will result in a favorable outcome for us. In addition, even if we obtain favorable interim rulings or verdicts, they may be inconsistent with the ultimate resolution of the dispute.
Added
Some of our competitors offer their products or services at lower prices or for free as part of a broader bundled product sale or enterprise license arrangement, which has placed pricing pressure on our business. If we are unable to achieve our target pricing levels, our operating results will be negatively impacted.
Removed
Furthermore, any awards we receive may be subject to obligations to Leidos and fee arrangements with outside counsel. 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.
Added
For us to compete effectively, we need to introduce new products and services in a timely and cost-effective manner, meet customer expectations and needs at prices that customers are willing to pay, and continue to enhance the features and functionalities of our cloud content management platform.
Removed
Unfavorable or adverse outcomes may result in losses, exhaustion of financial resources or other adverse effects, which could reduce our ability to return cash to our shareholders by way of distributions or otherwise to develop and commercialize our products. 10 Index We may not be able to capitalize on market opportunities related to our product strategy, our licensing strategy or our patent portfolio.
Added
In addition, pricing pressures and increased competition could result in reduced sales, lower margins, losses or the failure of our services to achieve or maintain widespread market acceptance, any of which could harm our business. Many of our competitors are able to devote greater resources to the development, promotion and sale of their products or services.
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A large part of 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 may depend on intellectual property licensing fees and royalties for the majority of our revenues.
Added
In addition, many of our competitors have established marketing relationships and major distribution agreements with channel partners, consultants, system integrators and resellers. Competitors may offer products or services at lower prices or with greater depth than our services. Our competitors may be able to respond more quickly and effectively to new or changing opportunities, technologies, standards or customer requirements.
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We currently derive minimal revenue from licensing activities, and royalties, and we cannot assure you that we will successfully capitalize on our market opportunities or that this portion of our business strategy will succeed.
Added
Furthermore, some potential customers, particularly large enterprises, may elect to develop their own internal solutions. For any of these reasons, we may not be able to compete successfully against our competitors.
Removed
Although to date we have entered into a limited number of settlement and license agreements, we may not be successful in entering into further licensing relationships, or if we are successful in entering into such relationships, the acquisition of them may be expensive, and they, as well as our existing settlement and our existing and pending license agreements may not generate the financial results, we expect.
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Our success depends in part on establishing and maintaining relationships with other companies to distribute our technology and products or to incorporate our products and services, into their technology or vice versa. Part of our business strategy is to enter into partnerships, strategic investments, and other cooperative arrangements with third parties.
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Factors that may affect our ability to execute our current business strategy include, but are not limited to, the following: • Third parties may challenge the validity of our patents; • The pendency of our various litigations may cause potential licensees not to do business with us; • Our patents may expire before we can make our business strategy successful; • We face, and we expect to continue to face, intense competition from 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.
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We have invested in and we continue to seek to invest in or acquire businesses, technologies, or other assets that we believe could complement or expand our business.
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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 policies.
Added
In addition, we are regularly involved in cooperative efforts with respect to the incorporation of our products into products of others and vice versa, research and development efforts, and marketing, distributor and reseller arrangements.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our principal executive offices are located at 308 Dorla Court, Suite 206, Zephyr Cove, Nevada, 89448. We lease this property, which comprises approximately 2,090 square feet of office space, from a third party for a term that ends in October 2023.
Biggest changeItem 2. Properties Our principal executive offices are located at 308 Dorla Court, Suite 206, Zephyr Cove, Nevada, 89448. We lease this property, which comprises approximately 2,090 square feet of office space, from a third party for a term that ends in October 2025. Additionally, we lease a facility in Farmington, Utah.
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We have no other properties and believe that our office facility is suitable and appropriately supports our current business needs.
Added
The space includes 28,970 square feet to be used for technical integration and training. The lease continues through April 2029. We believe that our office and facility leases are suitable and appropriately support our current business needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIn 2020, a distribution of $1.00 per share closely followed a litigation outcome that resulted in our receipt of $454 million. On March 30, 2023, we declared a special cash dividend of $1.00 per common share to be paid on or about April 17, 2023 to shareholders of record on April 10, 2023.
Biggest changeIn 2020, a distribution of $20.00 per share closely followed a litigation outcome that resulted in our receipt of $454 million. In 2023, we paid a one-time capital dividend of $20 share of common stock, to shareholders. Over the course of VirnetX’s history as a public company VirnetX has distributed over $165.9 million in cash to shareholders.
Since our founding as a public company in 2007, each time we have been successful in generating cash relating to the successful outcome of litigation, we have made a special distribution to common shareholders. In 2010, a distribution of $0.50 per common share closely followed a litigation outcome that resulted in our receipt of $200 million.
Since our founding as a public company in 2007, each time we have been successful in generating cash relating to the successful outcome of litigation, we have made a special distribution to common shareholders. In 2010, a distribution of $10 per common share closely followed a litigation outcome that resulted in our receipt of $200 million.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock currently trades under the symbol “VHC” on the NYSE. Holders of Record As of March 28, 2023, we had 56 stockholders of record.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock currently trades under the symbol “VHC” on the NYSE. Holders of Record As of December 31, 2023, we had 41 stockholders of record.
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Including this special dividend, over the course of VirnetX’s history as a public company VirnetX will have distributed over $165.9 million in cash to shareholders.
Added
The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2018 to 12/31/2023. 25 Index *$100 invested on 12/31/18 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2024 Standard & Poor’s, a division of S&P Global.
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If the final outcome of the Apple II litigation described elsewhere in this Form 10-K results in proceeds to us, we are committed to distribute to our shareholders a substantial portion of the net proceeds (after legal costs, licensing costs and taxes), after the case concludes.
Added
All rights reserved. 12/18 12/19 12/20 12/21 12/22 12/23 VirnetX Holding Corp 100.00 158.33 246.02 126.92 63.46 44.33 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 RDG Technology Composite 100.00 142.93 222.56 266.61 181.18 261.37 Recent Sales of Unregistered Securities None. Item 6. [Reserved]
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The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2017 to 12/31/2022. 24 Index 12/17 12/18 12/19 12/20 12/21 12/22 VirnetX Holding Corp 100.00 64.86 102.70 186.05 95.98 47.99 S&P 500 100.00 95.62 125.72 148.85 191.58 156.89 RDG Technology Composite 100.00 93.54 133.70 208.19 249.39 169.48 Recent Sales of Unregistered Securities None.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved] 25 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 30 Item 8. Financial Statements and Supplementary Data 31 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 52 Item 9A. Controls and Procedures 52 Item 9B.
Biggest changeItem 6. [Reserved] 26 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 31 Item 8. Financial Statements and Supplementary Data 31 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 54 Item 9A. Controls and Procedures 54 Item 9B.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeEffective Income Tax Rate A reconciliation of the United States federal statutory income tax rate to our effective income tax rate is as follows: Year Ended December 31, 2022 Year Ended December 31, 2021 Year Ended December 31, 2020 United States federal statutory rate 21.00 % 21.00 % 21.00 % State taxes, net of federal benefit (0.55 )% (0.31 )% 0.17 % Valuation allowance (91.21 )% — % (12.22 )% Stock based compensation (9.44 %) (6.68 )% (0.01 )% R&D Credit 1.22 % 0.19 % (0.21 )% Other (0.29 )% (1.57 )% 0.06 % Effective income tax rate (79.27 )% 12.63 % 8.79 % The Company’s effective tax rate for 2022 and 2020 was substantially lower than the statutory Federal income tax rate primarily due to the change in valuation allowance.
Biggest changeEffective Income Tax Rate A reconciliation of the United States federal statutory income tax rate to our effective income tax rate is as follows: Year Ended December 31, 2023 Year Ended December 31, 2022 United States federal statutory rate 21.00 % 21.00 % State taxes, net of federal benefit (0.01 )% (0.55 )% Valuation allowance (20.31 )% (91.21 )% Stock based compensation (0.58 )% (9.44 )% R&D Credit 2.20 % 1.22 % Other (2.03 )% (0.29 )% Effective income tax rate 0.28 % (79.27 )% The Company’s effective tax rate for 2023 and 2022 was substantially lower than the statutory Federal income tax rate primarily due to our valuation allowance, additionally in 2022 our effective tax rate was further reduced by stock based compensation, including expiring options.
We believe our War Room™ will be an attractive solution for government agencies and law enforcement as well as all professional sectors such as legal, financial, and medical where limiting access to confidential data is a critical requirement.
We believe our War Room™ will be an attractive solution for government and law enforcement agencies as well as all professional sectors such as legal, financial, and medical where limiting access to confidential data is a critical requirement.
We expect to continue to launch new and enhanced security platforms, software products, and services based on our GABRIEL Connection Technology™. We expect to provide updates to new and existing customers as they are released to the public. Many small and medium businesses have installed our software products in their corporate networks.
We expect to continue to launch new and enhanced security platforms, software products, and services based on our GABRIEL Connection Technology™. We will provide updates to new and existing customers as they are released to the public. Many small and medium businesses have installed our software products in their corporate networks.
Our platform allows 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.
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.
VirnetX Matrix TM provides a true “zero-trust” access protection, “single-click” ease of use, and is a highly-effective added layer of protection that is deployed simply, without the need for changes to an enterprise’s existing, in-place infrastructure.
VirnetX Matrix™ provides a true “zero-trust” access protection, “single-click” ease of use, and is a highly-effective added layer of protection that is deployed simply, without the need for changes to an enterprise’s existing, in-place infrastructure.
Our next-generation, VirnetX One™ platform builds upon our patented Secure Domain Names and GABRIEL Connection 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 next-generation, VirnetX One™ platform builds upon our patented Secure Domain Name Registry and Technology and GABRIEL Connection 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 War Room™ software product provides an industry leading, safe, and secure video conferencing meeting environment where sensitive communications and data is invisible to those not authorized to view it. War Room™ validates permissions of all the users, and devices requesting access to any secure meeting room prior to granting access.
Our War Room™ software product provides safe and secure video conferencing meeting environment where sensitive communications and data is invisible to those not authorized to view it. War Room™ validates permissions of all the users, and devices requesting access to any secure meeting room prior to granting access.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The Company We are an Internet security software and technology company with industry-leading, patented technology for Zero Trust Network Access (“ZTNA”) based secure network communications.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 Index The Company We are an Internet security software and technology company with patented technology for Zero Trust Network Access (“ZTNA”) based secure network communications.
Our GABRIEL Connection Technology™ License is offered to original equipment manufacturer (“OEM”) customers who want to adopt the GABRIEL Connection Technology™ as their solution for establishing secure connections using secure domain names within their products. We have developed GABRIEL Connection Technology™ Software Development Kit (“SDK”) to assist with rapid integration of these techniques into existing software implementations.
Our GABRIEL Connection Technology™ License is offered to OEM customers who want to adopt the GABRIEL Connection Technology™ as their solution for establishing secure connections using secure domain names within their products. We have developed GABRIEL Connection Technology™ Software Development Kit to assist with rapid integration of these techniques into existing software implementations.
We believe VirnetX Matrix™ is an attractive solution for all businesses, cloud and on-premise application service providers, and OEMs, looking to improve visibility and management of their networks to mitigate morphing attacks on their networks and for real time access and control of their users.
We believe VirnetX Matrix™ is an attractive solution for all businesses, cloud and on-premise application service providers, and original equipment manufacturers (“OEMs”), looking to improve visibility and management of their networks to mitigate morphing attacks on their networks and for real time access and control of their users.
We expect that our cash and cash equivalents and short-term investments as of December 31, 2022, will be sufficient to fund our current level of selling, general and administration costs, including legal expenses and provide related working capital for the foreseeable future.
We expect that our cash and cash equivalents and short-term investments as of December 31, 2023, will be sufficient to fund our current level of selling, general and administration costs and provide related working capital for the foreseeable future.
The asset and liability method require the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of our assets and liabilities.
Income Taxes We account for income taxes using the asset and liability method. The asset and liability method require the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of our assets and liabilities.
Positions previously recognized are derecognized when we subsequently determine the position no longer is more likely than not to be sustained. Evaluation of tax positions, their technical merits, and measurements using cumulative probability are highly subjective management estimates. Actual results could differ materially from these estimates.
Positions previously recognized are derecognized when we subsequently determine the position no longer is more likely than not to be sustained. Evaluation of tax positions, their technical merits, and measurements using cumulative probability are highly subjective management estimates.
Over the longer term, we 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 and product sales in the United States and other markets around the world.
Over the longer term, we 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 and product sales.
We have an ongoing licensing program under which we offer licenses to a portion of 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 have an ongoing licensing program under which we offer licenses to our technology, software, and some of our patented inventions, including our secure domain name registry service, to domain infrastructure providers, communication service providers as well as to system integrators.
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. 25 Index Our product portfolio includes sophisticated technologies, products and services that are available for sale worldwide.
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.
Our GABRIEL Collaboration Suite™ is a set of communication applications and tools that use our GABRIEL Secure Communication Platform™. It enables seamless and secure cross platform communications between devices that are enrolled in our “VIRNETX SECURED” network and have our software installed.
Our GABRIEL Collaboration Suite™ is a set of communication applications and tools that use our GABRIEL Secure Communication Platform™. It enables seamless and secure cross platform communications between devices that are enrolled in our “VIRNETX SECURED” network and have our software installed. Effective May 31, 2023 we have ended the support for our GABRIEL Collaboration Suite™.
In addition, we record stock-based compensation expense for awards granted to non-employees at fair value of the consideration received or the fair value of the equity instruments issued, as they vest, over the performance period.
In addition, we record stock-based compensation expense for awards granted to non-employees at fair value of the consideration received or the fair value of the equity instruments issued, as they vest, over the performance period. See Note 6 in the notes to our consolidated financial statements for more information.
Liquidity and Capital Resources As of December 31, 2022, our cash and cash equivalents totaled $86,561 and our short-term investments totaled $65,462 compared to $142,018 and $27,254, respectively, as of December 31, 2021.
Liquidity and Capital Resources As of December 31, 2023, our cash and cash equivalents totaled $26,289 and our short-term investments totaled $27,258 compared to $86,561 and $65,462, respectively, as of December 31, 2022.
Fair Value 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.
Actual results could differ materially from these estimates. 29 Index Fair Value 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.
We intend to continue to expand our customer base with targeted promotions and direct sales initiatives. Our employees include the core development team behind our patent portfolio, technology, and software. Some members of this team have worked together for over twenty years and were on same team that invented and developed this technology while working at Leidos.
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.
Although there can be no assurance in this regard, the Company believes that there are opportunities for Company products sales directly to, resale arrangements with and/or adoption as vendor standards by, one or more of these third parties.
Although there can be no assurance in this regard, the Company believes that there are opportunities for Company products’ sales directly to, resale arrangements with and/or adoption as vendor standards by, one or more of these third parties. 27 Index 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.
Research and Development Expenses 2022 2021 2020 Research and Development $ 6,406 $ 5,577 $ 8.830 Research and development costs include expenses paid to outside development consultants and compensation-related expenses for our engineering staff. Research and development costs are expensed as incurred. Our research and development expenses in 2022 were $6,406 compared to $5,577 in 2021 and $8,830 in 2020.
Licensing Costs 2023 2022 Licensing costs $ — $ (4 ) Research and Development Expenses 2023 2022 Research and Development $ 9,713 $ 6,406 Research and development costs include expenses paid to outside development consultants and compensation-related expenses for our engineering staff. Research and development costs are expensed as incurred.
Selling, General and Administrative Expenses 2022 2021 2020 Selling, General and Administrative $ 15,722 $ 52,715 $ 45,812 Selling, general and administrative expenses include compensation costs for management and administrative personnel, as well as expenses for outside legal, accounting, and consulting services.
Selling, General and Administrative Expenses 2023 2022 Selling, General and Administrative $ 21,739 $ 15,722 Selling, general and administrative expenses include compensation costs for management and administrative personnel, as well as expenses for outside legal, accounting, and consulting services. Our selling, general and administrative expenses in 2023 were $21,739 compared to $15,722 in 2022.
Resolution of legal matters in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results. See Note 12 in the notes to our consolidated financial statements for more information. Commitments and Related Party Transactions We lease our offices under an operating lease with a third party expiring in October 2023.
See Note 12 in the notes to our consolidated financial statements for more information. Commitments and Related Party Transactions We lease our offices in Nevada under an operating lease with a third party expiring in October 2025. We recognize rent expense on a straight-line basis over the term of the lease.
We pay for the Company’s business usage of the aircraft and have no right to purchase. Our Chief Executive Officer and Chief Administrative Officer are the managing partners of the LLC and control the equity interests of the LLC.
Our Chief Executive Officer and Chief Administrative Officer are the managing partners of the LLC and control the equity interests of the LLC. We pay for the Company’s business usage of the aircraft at a rate of $8 per flight hour. In March 2024, we renewed our facility lease, used for corporate, promotional and marketing purposes.
Our technology generates secure connections on a “single-click” basis, significantly simplifying the deployment network security solutions by eliminating the need for end-users to enter any encryption information. Our portfolio of intellectual property is the foundation of our business model. We currently own approximately 205 total patents and pending applications, including 72 U.S. patents/patent applications and 133 foreign patents/validations/pending applications.
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. Our portfolio of intellectual property is the foundation of our business model. We currently own approximately 205 total patents and pending applications, including 72 U.S. patents/patent applications and 133 foreign patents/validations/pending applications.
The fluctuation in 2022 compared to 2021 and 2020 was primarily due to changes in engineering staff compensation costs.
Our research and development expenses in 2023 were $9,713 compared to $6,406 in 2022. The fluctuation in 2023 compared to 2022 was primarily due to changes in engineering compensation costs, including bonuses.
We record any potential gains related to legal proceedings only after cash is collected. We record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment.
We record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment. Resolution of legal matters in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results.
The Company believes that these parties have interest to secure devices and systems in areas such as healthcare, finance, legal, oil and gas, medical, law enforcement, national defense and related support industries.
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.
See Note 6 in the notes to our consolidated financial statements for more information. 28 Index Results of Operations (all amounts in this section are expressed in thousands) Revenue 2022 2021 2020 Revenue $ 48 $ 35 $ 302,636 Revenue generated in 2022 was $48, compared to $35 in 2021 and $302,636 in 2020.
Results of Operations (all amounts in this section are expressed in thousands) Revenue 2023 2022 Revenue $ 7 $ 48 Revenue generated in 2023 was $7, compared to $48 in 2022. The change in revenue from 2022 to 2023 was the expiration of contracts with NEC and Mitel.
We have reviewed our critical accounting policies and estimates with the Audit Committee of our Board of Directors. 27 Index Income Taxes We account for income taxes using the asset and liability method.
We have reviewed our critical accounting policies and estimates with the Audit Committee of our Board of Directors. Investments Investments classified as available-for-sale are recorded at fair market value. Unrealized gains and losses are reported as other comprehensive income.
We recognize rent expense on a straight-line basis over the term of the lease. We entered into a service agreement for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for our employees. We incurred approximately $1,123, $791, and $324 in rental fees and reimbursements to the LLC in 2022, 2021 and 2020, respectively.
We have a facility lease in Utah to be used for technical integration and as a training facility. This lease requires monthly payments and expires in April 2029. We have a 12-month non-exclusive service agreement, for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for our employees.
Removed
Our GABRIEL Collaboration Suite™ is available for download and free trial, for Android, iOS, Windows, Linux, and Mac OS X platforms, at https://virnetx.com. During the fourth quarter of 2022 and the first quarter of 2023, the Company engaged in discussions with certain third-parties to pitch the capabilities of VirnetX One™.
Added
Our technology generates secure connections on a “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. Our product portfolio includes sophisticated technologies, products and services that are available for sale worldwide.
Removed
Customers who want to develop their own implementation of the VirnetX patented techniques for supporting secure domain names, or other techniques that are covered by our patent portfolio for establishing secure communication links, can purchase a patent license.
Added
All the existing customers and partners have been notified of this announcement. We have undertaken activities to commercialize our products and intellectual property in and outside the United States including VirnetX One™, War Room™, VirnetX Matrix™, GABRIEL Connection Technology™ and our Secured Domain Name Registry and Technology.
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The number of patents licensed, and therefore the cost of the patent license to the customer, will depend upon which of the patents are used in a particular product or service. These licenses will typically include an initial license fee, as well as an ongoing royalty.
Added
During 2023, we actively engaged in discussions with certain third-parties to pitch the capabilities of VirnetX One™. As a result of our efforts, we made a series of announcements with Solution Synergy, WeSecure, Samsung, Envoy Data Corporation, and Object Security.
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The team has continued its research and development work and expanded the set of patents we acquired in 2006 from Leidos, into a larger patent portfolio. This portfolio now serves as the foundation of our products, services, and our licensing business. It is expected to generate most of our future revenue in license fees and royalties.
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We also announced new deployments of our VirnetX Matrix™ product at City of Bridgeport, International Association of Certified ISAOs (IACI) and SkinWalker Ranch.
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We intend to continue our efforts to develop new products and technologies and further strengthen and expand our patent portfolio.
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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.
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We intend to continue using an outsourced and leveraged model to maintain efficiency and manage costs as we grow our licensing business by, for example, offering incentives to early licensing targets or asserting our rights forum of our patents. 26 Index Our employees include the core development team behind our patent portfolio, technology, and software.
Added
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.
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Some members of this team have worked together for over twenty years and were on same team that invented and developed this technology while working at Leidos. The team has continued its research and development work and expanded the set of patents we acquired in 2006 from Leidos, into a larger patent portfolio.
Added
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.
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This portfolio now serves as the foundation of our products, services, and our licensing business. It is expected to generate most of our future revenue in license fees and royalties. We intend to continue our efforts to develop new products and technologies and further strengthen and expand our patent portfolio.
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We intend to continue to expand our customer base with targeted promotions and direct sales initiatives to large enterprise and governmental organizations. Litigation We are subject to various legal proceedings, the outcomes of which are inherently uncertain. We record any potential gains related to legal proceedings only after cash is collected.
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We intend to continue using an outsourced and leveraged model to maintain efficiency and manage costs as we grow our licensing business by, for example, offering incentives to early licensing targets or asserting our rights for use of our patents. Litigation We are subject to various legal proceedings, the outcomes of which are inherently uncertain.
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The renewal period begins in 2025, continues for 10 years through 2035, requires either a single payment of $6,000, or annual payments each March, beginning in 2025 starting at $600 and increasing annually for a total commitment of approximately $7,500. 28 Index Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S.
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We entered into a 12-month non-exclusive agreement with the LLC for use of the plane at a rate of $8 per flight hour, with no minimum usage requirement. The agreement contains other terms and conditions normal in such transactions and can be cancelled by either us or the LLC with 30 days’ notice.
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Realized gains and losses are recorded in income in the period they are realized using specific identification of each security's cost basis. We invest our excess cash primarily in highly liquid debt instruments including corporate, government and federal agency securities, with contractual maturities less than two years. By policy, we limit the amount of credit exposure to any one issuer.
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The agreement renews on an annual basis unless terminated by either party. Neither party has exercised their termination rights. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S.
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We have elected the investment measurement alternative for other investments without readily determinable fair values. During 2023, we invested $2,000 in L2 Holdings LLC and $500 in OP Media Inc. These investments are carried at our initial cost less any impairment, because we do not have the ability to exercise significant influence over operating and financial matters.
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In 2020, we collected a lump sum payment of $454,034 from Apple, Inc., as a result of a favorable court decision relating to a patent infringement case. The one-time payment included past royalties, damages for willful infringement, interest, court costs and attorneys’ fees. See Note 2 in the notes to our consolidated financial statements for more information.
Added
For these investments, we adjust the carrying value for any purchases or sales of our ownership interests. Periodically, we evaluate these investments for impairment. If we identify an impairment, we reduce the carrying value for the impairment loss with a charge to earnings. We have not identified any impairment as of December 31, 2023.
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We recognized royalty revenue as part of license agreements entered into with customers during the patent infringement actions (see “Litigation”). These revenues relate to payment for use of our patented technology prior to the signing of a license agreement, and royalty payments after the execution of the license agreements.
Added
The increase in selling, general and administrative expenses was primarily due to outside services and additional compensation costs, including bonuses. 30 Index Interest and Other Income, net 2023 2022 Interest and Other Income $ 3,495 $ 1,848 Interest and other income in 2023 was $3,495 compared to $1,848 in 2022, due to higher interest rates.
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Licensing Costs 2022 2021 2020 Licensing costs $ (4 ) $ (9,083 ) $ 90,101 Included in operating expenses for 2020 was $90,101 in licensing costs we incurred in conjunction with the proceeds received in the case regarding Apple, Inc. discussed above.
Removed
Accrued licensing costs of $9,083 were reversed in the year ended December 31, 2021, as a result of litigation. See Note 12 in the notes to our consolidated financial statements for more information.
Removed
Our selling, general and administrative expenses in 2022 were $15,722 compared to $52,715 in 2021 and $45,812 in 2020. The volatility within selling, general and administrative expenses was primarily due to legal fees related to cases involving the defense of our patents.
Removed
Legal fees were $3,305, $41,828, and $30,699 in 2022, 2021 and 2020, respectively and represented approximately 21% of selling, general and administrative expenses for 2022 compared to 80% for 2021 and 67% for 2020. 29 Index Gain on Settlement In 2020, we recorded a gain of $41,271 pursuant to a favorable court ruling in the case regarding Apple, Inc. discussed above.
Removed
See Note 2 in the notes to our consolidated financial statements for more information. Interest and Other Income, net 2022 2021 2020 Interest and Other Income $ 1,848 $ 48 $ 108,288 Interest and other income in 2022 was $1,848 compared to $48 in 2021 and $108,288 in 2020.
Removed
During 2020 we received interest of $108,221 pursuant to a favorable court ruling in the case with Apple, Inc. discussed above. See Note 2 in the notes to our consolidated financial statements for more information.
Removed
The Company’s effective tax rate for 2021 was substantially lower than the statutory Federal income tax rate primarily due to the effect of stock based compensation, including expiring options.
Removed
Universal Shelf Registration and ATM Offering On July 30, 2018 we filed a universal shelf registration statement on SEC Form S-3. This replacement registration statement was declared effective by the SEC on August 16, 2018. We used the universal shelf proceeds for development and marketing of our software product and services, and general corporate purposes.
Removed
The universal shelf registration expired August 16, 2021.

Other VHC 10-K year-over-year comparisons