VirnetX Holding Corp 10-Q for FY2026 Q1
VirnetX Holding Corp (VHC)
10-Q
2026-05-15
For: 2026-03-31
View Original
Added on
May 17, 2026
About this 10-Q
VirnetX Holding Corp filed this 10-Q on May 15, 2026, covering the quarter ended March 31, 2026 (FY2026 Q1).
Headline figures
Quarter ended March 31, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $0
- compared with $0 a year earlier
- Net loss
- $4.35M
- compared with a net loss of $3.68M a year earlier
- Diluted EPS
- -$1.16
- compared with -$1.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2026 .
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-33852
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (775 ) 548-1785
Former name, former address and former fiscal year, if changed since last report: N/A
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Emerging growth company | Smaller reporting company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have included or incorporated by reference in this Quarterly Report on Form 10-Q (this Report), and from time to time we may make statements that may constitute “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These forward-looking statements are based upon our current
expectations, estimates, assumptions, and beliefs concerning future events and conditions and may discuss, among other things, anticipated future performance (including sales and earnings), products and services, expected growth, future business
plans and costs (including investments, partnerships and collaborations, marketing and business development, and staffing strategies), the impact of potential litigation, our beliefs and statements regarding general industry and market conditions
and growth rates, as well as general domestic and international economic conditions. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as “anticipates,”
“believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result in,” and similar expressions. Readers are cautioned not to place undue reliance on forward-looking statements.
Forward-looking statements are necessarily subject to risks, uncertainties, and other factors, many of which are outside our control, which could cause actual results to differ materially from such statements and from our historical results and
experience. These risks, uncertainties and other factors include, but are not limited to those described in Item 1A – Risk Factors of this Report and elsewhere in this Report and those described from time to time in our reports filed with the
Securities and Exchange Commission (SEC). Readers are cautioned that it is not possible to predict or identify all the risks, uncertainties and other factors that may affect future results and that the risks described herein should not be
considered a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future
events or otherwise.
Among others, the forward-looking statements appearing in this Report that may not occur include statements that pertain to the activities we have undertaken to commercialize our service offerings,
products and patent portfolio in and outside of the United States including VirnetX One™, War Room™, VirnetX Matrix™, our Secured Domain Name Registry and Technology and our service offerings. These statements may imply that the worldwide market
for our commercialized products is large and will result in significant future revenue for us. However, our subcontractor engagement, service offerings, and the commercialization of our products are subject to risks and factors beyond our control
that may delay or prevent future revenues for us. While historical contracts may imply future revenues for us, we can provide no assurances that we will receive follow-on work or generate material revenue from such activities.
EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
VIRNETX HOLDING CORPORATION
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VIRNETX HOLDING CORPORATION
(in thousands, except share amounts)
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As of
March 31,
2026
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As of
December 31,
2025
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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$
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Investments available for sale
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Accounts receivable
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Prepaid expenses and other current assets
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Total current assets
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Prepaid expenses and other assets
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Other investments at cost
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Property and equipment, net
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Total assets
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$
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$
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable and accrued liabilities
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$
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$
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Accrued payroll and related expenses
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Other liabilities, current
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Total current liabilities
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Other liabilities
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Total liabilities
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Commitments and contingencies (Note 4)
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Shareholders’ equity:
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| Preferred stock, par value $ |
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| Common stock, par value $ |
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Additional paid-in capital
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Accumulated deficit
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( |
)
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( |
)
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Accumulated other comprehensive loss
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( |
)
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( |
)
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Total shareholders’ equity
|
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Total liabilities and shareholders’ equity
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$
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$
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See accompanying notes to condensed consolidated financial statements.
VIRNETX HOLDING CORPORATION
(in thousands, except per share amounts)
|
Three Months Ended
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March 31,
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2026
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2025
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Revenue
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$
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$
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Operating expense:
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Research and development
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Selling, general and administrative
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Total operating expense
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(Loss) from operations
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( |
)
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( |
)
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Interest and other income, net
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(Loss) before taxes
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Income tax (expense) benefit
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Net (loss)
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$
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( |
)
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$
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( |
)
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Basic (loss) per share
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$
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( |
)
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$
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( |
)
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Diluted (loss) per share
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$
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( |
)
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$
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( |
)
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||||||||
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Weighted average shares outstanding - basic
|
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Weighted average shares outstanding - diluted
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||||||||||||
See accompanying notes to condensed consolidated financial statements.
VIRNETX HOLDING CORPORATION
(in thousands)
|
Three Months Ended
|
||||||||||||||
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March 31,
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2026
|
2025
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|||||||||||||
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Net (loss)
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$
|
( |
)
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$
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( |
)
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Other comprehensive income (loss):
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Change in unrealized gain (loss) on investments, net of tax
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( |
)
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( |
)
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Change in foreign currency translation, net of tax
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( |
)
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Total other comprehensive income (loss)
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( |
)
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( |
)
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Comprehensive (loss)
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$
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( |
)
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$
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( |
)
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||||||||
See accompanying notes to condensed consolidated financial statements.
VIRNETX HOLDING CORPORATION
(in thousands, except per share amounts)
|
Three Months Ended
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March 31,
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2026
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2025
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Total shareholders’ equity, beginning balances
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$
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$
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Common stock and additional paid-in capital:
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Beginning balances
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Common stock issued for equity awards, net
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( |
)
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Stock-based compensation
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Ending balances
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Accumulated deficit:
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Beginning balances
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( |
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( |
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Net (loss)
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( |
)
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( |
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Ending balances
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( |
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( |
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Accumulated other comprehensive loss:
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Beginning balances
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Change in unrealized investment gain/loss, net
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Change in foreign currency translation, net
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Ending balances
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Total shareholders’ equity, ending balances
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$
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$
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See accompanying notes to condensed consolidated financial statements.
VIRNETX HOLDING CORPORATION
(in thousands)
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Three Months Ended
March 31,
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2026
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2025
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Cash flows from operating activities:
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Net (loss)
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$
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( |
)
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$
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( |
)
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Adjustments to reconcile net loss to cash flows from operating activities:
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Depreciation
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Stock-based compensation
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Changes in assets and liabilities:
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Accounts receivables
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Prepaid expenses and other assets
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( |
)
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Accounts payable
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( |
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( |
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Accrued payroll and related expenses
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Other liabilities
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( |
)
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( |
)
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Net cash used in operating activities
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( |
)
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( |
)
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Cash flows from investing activities:
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Purchase of investments
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( |
)
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Proceeds from sale or maturity of investments
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Net cash provided by investing activities
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Cash flows from financing activities:
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Payment of payroll taxes on equity awards
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( |
)
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Net cash used in financing activities
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( |
)
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Net change in cash and cash equivalents
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( |
)
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( |
)
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Cash and cash equivalents, beginning of period
|
|
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Cash and cash equivalents, end of period
|
$
|
|
$
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Non-cash transactions
|
||||||||
|
ROU asset and lease liability at lease modification date (Note 8)
|
$
|
|
$
|
|
||||
See accompanying notes to condensed consolidated financial statements.
VIRNETX HOLDING CORPORATION
(in thousands, except per share amounts)
(Unaudited)
Note 1 — Business Description and Going Concern
VirnetX Holding Corporation (“Company”, “we”, “us”, or “our”) is an Internet security software and technology company with patented cybersecurity solutions that are designed to ensure resilient,
secure communications across any network or device.
Our products, including VirnetX One™, VirnetX Matrix™, and VirnetX War Room™, are designed to support the U.S. Department of Defense (DoD), federal government, and commercial customers requiring
real-time encrypted communications and network security. Our solutions are designed to also be applicable across a range of public and private sector markets, including critical infrastructure, law enforcement, healthcare, financial services, legal
services, energy, and related industries. We pursue sales opportunities nationwide and engage with universities and academic institutions to support research collaboration, workforce development, and technology transition initiatives.
To support system design and evaluation, we employ Model-Based Systems Engineering (MBSE) and agent-based modeling methodologies. These approaches enable simulation and analysis of complex systems,
including cyber-physical environments and adaptive networks, and support assessment of system behavior under evolving threat conditions.
Going Concern
For the three months ended March 31, 2026, we had a net loss of $4,354 and an accumulated deficit of $227,249 . Management believes that its cash and cash equivalents will be insufficient to satisfy the Company’s current operations for the twelve months following the issuance of these financial statements. As such, there is substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address this condition include pursuit of (1) additional revenue, although there can be no assurance that additional revenue will be timely-secured in sufficient quantity, and (2) additional capital, likely through one or more equity offerings, or otherwise, although there can be no assurance such financing will be available on acceptable terms. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2 — Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying Condensed Consolidated Balance Sheet as of March 31, 2026, the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, Condensed Consolidated
Statements of Shareholders’ Equity, and Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2026, and 2025 are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States (U.S. GAAP). In our opinion, the unaudited interim condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair
presentation of our financial position as of March 31, 2026, our results of operations and our cash flows for the three months ended March 31, 2026, and 2025. The results of operations for interim periods are not necessarily indicative of the
results to be expected for a full year.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2025, filed with the SEC on March 24, 2026.
Use of Estimates
We prepare our condensed consolidated financial statements in accordance with U.S. GAAP. In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and
expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to
occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will
be affected. We base our estimates on experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting
policies and estimates, which we discuss further below. 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. 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 .
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 (dba OmniTeq) 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. 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 operating expenses. In September 2025, we identified an impairment in our investment in OP Media Inc., and as a result, we recognized an impairment loss totalling $500 .
Basis of Consolidation
The condensed consolidated financial statements include the accounts of VirnetX Holding Corporation and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
Revenue Recognition
We derive revenue from professional service contracts and licensing and royalty fees, which can span several years.
We recognize revenue pursuant to Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. A performance obligation is a promise in a contract to transfer a distinct good or service to
the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our revenue arrangements may consist of multiple-element arrangements,
with revenue for each unit of accounting recognized as the product or service is delivered to the customer. With our service contracts, performance obligations are generally satisfied as the service is delivered. With the licensing of our patents,
performance obligations are generally satisfied at a point in time as work is complete when our patent rights are transferred to our customers. We generally have no further obligation to our customers regarding our technology. Certain contracts may
require our customers to enter into a hosting arrangement with us and for these arrangements, revenue is recognized over time, generally over the life of the service contract. Payment for services and licensing is collected within a short period
following commencement of delivery of services or transfer of patent rights.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with maturities of three months or less at the date of purchase to be cash equivalents. Our cash and cash equivalents are not subject to significant interest rate
risk due to the short maturities of these investments.
Property and Equipment
Property and equipment are stated at historical cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the accelerated and straight-line methods over the estimated useful lives of the assets, which range from five to seven years . Repair and maintenance costs are charged to expense as incurred.
Leases
We determine if an arrangement is a lease at inception in accordance with ASC Topic 842. Operating lease right-of-use (ROU) assets are included in prepaid expenses and other assets, and lease
liabilities are included in other liabilities. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease
liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, using the incremental borrowing rate.
Concentration of Credit Risk and Other Risks and Uncertainties
Our cash and cash equivalents are primarily maintained at two major financial institutions in the United States. Deposits held with these financial institutions may exceed the amount of insurance provided on such deposits. A portion of those balances are insured by the Federal Deposit Insurance Corporation. At times, we had funds that were uninsured. We do not believe that we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. We have not experienced any losses on our deposits of cash and cash equivalents.
Fair Value
The carrying amounts of our financial instruments, including cash equivalents, accounts payable, and accrued liabilities, approximate fair value because of their generally short maturities.
Intangible Assets
We record intangible assets at cost, less accumulated amortization. Amortization of intangible assets is provided over their estimated useful lives, which can range from three to 15 years , on either a straight-line basis or as revenue is generated by the assets.
Impairment of Long-Lived Assets
We identify and record impairment losses on long-lived assets used in operations when events and changes in circumstances indicate that the carrying amount of an asset might not be recoverable, but not less than
annually. Recoverability is measured by comparison of the anticipated future net undiscounted cash flows to the related assets’ carrying value. If such assets are deemed impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset.
Research and Development
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.
Income Taxes
We account for income taxes using the asset and liability method. The asset and liability method requires 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. We calculate current and deferred tax provisions based on estimates and assumptions that could differ from actual results
reflected on the income tax returns filed during the following years. Adjustments based on filed returns are recorded when identified in the subsequent years. The effect on deferred taxes for a change in tax rates is recognized in income in the
period that the tax rate change is enacted. In assessing our deferred tax assets, we consider whether it is more likely than not that all or some portion of the deferred tax assets will not be realized.
A valuation allowance is provided for deferred income tax assets when, in our judgment, based upon currently available information and other factors, it is more likely than not that all or a portion
of such deferred income tax assets will not be realized. The determination of the need for a valuation allowance is based on an on-going evaluation of current information including, among other things, historical operating results, estimates of
future earnings in different taxing jurisdictions and the expected timing of the reversals of temporary differences. We believe the determination to record a valuation allowance to reduce a deferred income tax asset is a significant accounting
estimate because it is based, among other things, on an estimate of future taxable income in the United States and certain other jurisdictions, which is susceptible to change and may or may not occur, and because the impact of adjusting a valuation
allowance may be material. In determining when to release the valuation allowance established against our net deferred income tax assets, we consider all available evidence, both positive and negative. We continually assess our ability to generate
sufficient taxable income during future periods in which our deferred tax assets may be realized. If and when we believe it is more likely than not that we will recover our deferred tax assets, we will reverse the valuation allowance as an income
tax benefit in our statements of operations.
We account for our uncertain tax positions in accordance with U.S. GAAP, which utilizes a two-step approach to evaluate tax positions. Step one, recognition, requires evaluation of the tax position to
determine if based solely on technical merits it is more likely than not to be sustained upon examination. Step two, measurement, is addressed only if a position is more likely than not to be sustained. In step two, the tax benefit is measured as
the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement with tax authorities. If a position does not meet the more likely than not threshold for recognition
in step one, no benefit is recorded until the first subsequent period in which the more likely than not standard is met, the issue is resolved with the taxing authority, or the statute of limitations expires. Positions previously recognized are
reversed if and 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.
Stock-Based Compensation
We account for stock-based compensation using the fair value recognition method in accordance with U.S. GAAP. We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally a vesting term of 4 years. We recognize forfeitures, if any, when they occur. 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.
Earnings per Share
Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed by
dividing net income by the weighted average number of shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued.
Additionally, weighted average shares outstanding for both basic and diluted earnings per share include all vested restricted shares issued and outstanding.
New Accounting Pronouncements
In November 2024, the FASB issued Accounting Standards Update (ASU) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation (Subtopic 220-40): Disaggregation
of Income Statement Expenses, that requires disclosure of the amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization included in each relevant expense line item on the income statement.
The standard also requires a qualitative description of other amounts included in each relevant expense line item on the income statement that are not separately disclosed. In addition, entities are required to disclose the nature and amount of
selling expenses. The new standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. We do not expect the adoption of this
accounting standard to have an impact on our consolidated financial statements but will require certain additional disclosures.
In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities, which establishes authoritative
guidance on the recognition, measurement, presentation, and disclosure of government grants. Under ASU 2025-10, government grants are recognized when it is probable that the entity will both comply with the conditions of the grant and the grant
will be received. The ASU provides specific accounting models for grants related to assets and grants related to income, including options to recognize government grants as deferred income or as a reduction of the asset’s cost basis. The ASU also
requires enhanced disclosures regarding the nature of government grants, significant terms and conditions, accounting policies applied, and amounts recognized in the financial statements. ASU 2025-10 is effective for fiscal years beginning after
December 15, 2028, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which clarifies the guidance in Topic 270 to improve the consistency
of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have a material
impact on the entity. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting this
standard.
Fair Value of Financial Instruments
The carrying amounts of our financial instruments, including cash equivalents, accounts payable, and accrued liabilities, approximate fair value because of their generally short maturities.
Fair value is the price that would result from an orderly transaction between market participants at the measurement date. A fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 measurements utilize either directly or
indirectly observable inputs in markets other than quoted prices in active markets.
Mutual funds: Valued at the quoted net asset value of shares held.
U.S. agency and treasury securities: Valued at the closing price reported on the active market on which the individual securities are traded.
The following tables show the adjusted cost, gross unrealized gains, gross unrealized losses, and fair value of our securities by significant investment category as of March 31, 2026 and December 31, 2025.
|
March 31, 2026
|
||||||||||||||||||||||||
|
Adjusted
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value
|
Cash and
Cash
Equivalents
|
Investments
Available
for
Sale
|
|||||||||||||||||||
|
Cash
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Level 1:
|
||||||||||||||||||||||||
|
Mutual funds
|
|
|
|
|
|
|
||||||||||||||||||
|
U.S. agency and treasury securities
|
|
|
|
|
|
|
||||||||||||||||||
| |
|
|
|
|
|
|||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
December 31, 2025
|
||||||||||||||||||||||||
|
Adjusted
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value
|
Cash and
Cash
Equivalents
|
Investments
Available
for
Sale
|
|||||||||||||||||||
|
Cash
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Level 1:
|
||||||||||||||||||||||||
|
Mutual funds
|
|
|
|
|
|
|
||||||||||||||||||
|
U.S. agency and treasury securities
|
|
|
|
|
|
|
||||||||||||||||||
| |
|
|
|
|
|
|||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
Note 3 — Income Taxes
For the three months ended March 31, 2026 and 2025, we recognized income tax expense of $0 and $2 , on pretax losses of $4,354 , and $3,677 . Our effective tax rate is approximately 0 21 %, primarily due to the valuation allowance placed against our net deferred tax assets. We have a full valuation allowance on all federal and state deferred tax assets as of March 31, 2026.
Our tax years for 2007 and forward are subject to examination by the U.S. tax authority and our tax years for 2021 and forward are open for various state tax authorities because we utilized the net operating loss and tax credits generated in those years in 2020. As of March 31, 2026, we have accrued $484 for uncertain tax positions and no
Note 4 — Commitments and Related Party Transactions
We have a non-exclusive service agreement for the use of an aircraft from K2 Investment Fund LLC (LLC) for business travel for our employees. We incurred approximately $560 compared to $377 during the three months ended March 31, 2026 and 2025, respectively. We pay for our use of the aircraft and have no rights 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. The agreement with the LLC provides for use of the plane at a rate of $9.8 per flight hour. The agreement contains no minimum usage requirement and includes other terms and conditions. The agreement can be cancelled by either us or the LLC with 30 days’ notice and renews on an annual basis unless terminated by either party. Neither party has exercised their termination rights.
See Note 8 – Leases for further discussion of our lease commitments.
Note 5 — Stock-Based Compensation
At March 31, 2026, there were 153,090 shares available for grant under our equity incentive plan.
Stock-based compensation expense included in general and administrative expense was $392 and $190 , and in research and development expense was $347 and $242 , for the three months ended March 31, 2026 and 2025, respectively.
As of March 31, 2026 and 2025, the unrecognized stock-based compensation expense related to unvested awards (including stock options, RSUs, and restricted stock) was $8,688 and $3,999 , respectively, which will be amortized over an estimated weighted average period of approximately 3.1 years and 3.3 years, respectively.
During 2026, we cancelled 46,176 awards and added them back to the plan.
Note 6 — Equity
Common Stock
During the three months ended March 31, 2026, and 2025, no
Warrants
In 2020, we issued warrants for the purchase of 1,250 shares of common stock at an exercise price of $115 per share, exercisable on the date of grant; these warrants expired unexercised on April 30, 2025 .
Note 7 — Litigation
From time to time, 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. 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. As additional information becomes available, we reassess our potential liability and may
revise our estimates. Such resolutions could have a material impact on future quarterly or annual results of operations.
One or more potential intellectual property infringement claims may also be available to us against certain other companies who have the resources to defend against any such claims. Although we believe these
potential claims are likely valid, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we could prevail on such potential claims if we made them.
Note 8 — Leases
We lease office space in Nevada. The operating lease requires monthly payments of $5 and expires in October 2027. At March 31, 2026, our ROU asset and lease liability totaled $82 16 and $14 for the three months ended March 31, 2026 and 2025.
We lease a facility in Utah used for technical integration and training. This operating lease requires monthly payments of $75 , includes periodic increases, and expires in April 2029. At March 31, 2026, our ROU asset totaled $2,233 and lease liability totaled $2,617 . Lease expense totaled $207 and $210 for the three months ended March 31, 2026 and 2025, respectively.
We also lease a facility in California for corporate promotional and marketing through 2035. In March 2024, we renewed the lease for another 10 years recording an ROU asset and lease liability of $5,512 two payment options: either a single payment of $6,000 or annual payments each March for a total commitment of approximately $7,500 . Initially, we selected the single payment option; on January 13, 2025, we changed to the annual payment option, adjusting our ROU asset and lease liability approximately $600 4,670 and our lease liability totaled $4,518 . Lease expense totaled $181 and $176 for the three months ended March 31, 2026 and 2025, respectively.
Payments due under the above leases as of March 31, 2026, are as follows:
|
Due in 2026
|
$
|
|
||
|
Due in 2027
|
|
|||
|
Due in 2028
|
|
|||
|
Due in 2029
|
|
|||
|
Due in 2030
|
|
|||
|
Thereafter
|
|
|||
| |
||||
|
Less imputed interest
|
( |
)
|
||
|
Total
|
$
|
|
We have a service agreement for the use of an aircraft from a related party discussed in more detail in Note 4. We incurred approximately $560 compared to $377 during the three months ended March 31, 2026 and 2025, respectively.
Note 9 — Earnings Per Share
Basic earnings per share are based on the weighted average number of common shares outstanding for the period. Diluted earnings per share are based on the weighted average number of common shares and potentially dilutive common shares outstanding. Unvested restricted shares (424,212 as of March 31, 2026, and 611,259 as of March 31, 2025) are excluded from weighted average shares outstanding. Potential common shares outstanding principally include stock options, RSUs and warrants, excluding any potentially dilutive shares convertible at a price higher than the closing price of our stock at the end of each reporting period. The following table shows the computation of basic and diluted earnings per share for the three months ended March 31, 2026 and 2025 (in thousands, except per share amounts):
|
Three Months Ended
|
||||||||
|
March 31,
|
||||||||
|
2026
|
2025
|
|||||||
|
Numerator:
|
||||||||
|
Net (loss)
|
$
|
( |
)
|
$
|
( |
)
|
||
|
Denominator:
|
||||||||
|
Weighted-average basic shares outstanding
|
|
|
||||||
|
Effect of dilutive securities
|
|
|
||||||
|
Weighted-average diluted shares
|
|
|
||||||
|
Basic (loss) per share
|
$
|
( |
)
|
$
|
( |
)
|
||
|
Diluted (loss) per share
|
$
|
( |
)
|
$
|
( |
)
|
||
We incurred a net loss for the three months ended March 31, 2026 and 2025; therefore, all potentially dilutive securities representing shares of common stock (227,490 at March 31, 2026 and 263,790 at March 31, 2025) were excluded from the computation of diluted earnings per share, because their effect would have been antidilutive.
Note 10 — Segment Reporting
We view our operations and make decisions regarding how to allocate resources and manage our business as one reportable segment and one reporting unit. Our Chief Executive Officer, who is the chief operating decision maker (CODM), is regularly provided with expense information at a level consistent with that disclosed in our condensed consolidated financial statements, regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as net income reported in our condensed consolidated financial statements.
Company Overview
VirnetX Holding Corporation (“Company”, “we”, “us”, or “our”) is an Internet security software and technology company with patented cybersecurity solutions that are designed to ensure resilient,
secure communications across any network or device.
Our flagship platform, VirnetX One™, is built on Zero Trust Network Access (ZTNA) principles and extends our patented Secure Domain Name System (SDNS) technology to establish end-to-end encrypted
communications on demand, regardless of user location or endpoint. VirnetX One™ operates as a security-as-a-service platform and may be deployed in cloud, on-premises, or hybrid enterprise environments. The platform is designed to protect
applications, services, and infrastructure by providing an additional security layer that integrates with existing systems to reduce exposure to evolving cyber threats affecting data, operating systems, infrastructure components, and gateway
security controllers.
VirnetX Matrix™ leverages the VirnetX One™ platform to secure communications using encrypted, identity-based access controls, including in contested or high-risk environments. It is designed to
protect internet-enabled enterprise applications, connected devices, and control systems, such as file servers, data backup systems, and VPN or firewall environments. VirnetX Matrix™ is intended to be deployed without requiring material changes to
an enterprise’s existing infrastructure and provides centralized visibility and policy enforcement to address unauthorized access and evolving attack techniques.
VirnetX War Room™ also built on the VirnetX One™ platform, provides secure collaboration and visualization capabilities designed to support sensitive, unclassified but secure communications. The
platform enables controlled access to virtual meeting environments by validating user and device permissions prior to granting access. VirnetX War Room™ is intended for use cases where confidentiality and access control are critical, including
government, law enforcement, legal, financial, and healthcare environments.
Our products, including VirnetX One™, VirnetX Matrix™, and VirnetX War Room™, are designed to support U.S. Department of Defense (DoD), federal government, and commercial customers requiring real-time
encrypted communications and network security. Our solutions are designed to be applicable across a range of public and private sector markets, including critical infrastructure, law enforcement, healthcare, financial services, legal services,
energy, and related industries. We pursue sales opportunities nationwide and engage with universities and academic institutions to support research collaboration, workforce development, and technology transition initiatives.
We also support international sales of our commercial products in compliance with applicable U.S. export control laws and regulations, including the International Traffic in Arms Regulations (ITAR)
and the Export Administration Regulations (EAR). Our compliance processes are designed to ensure that international transactions adhere to export control requirements while supporting authorized global customers.
Our technology focuses on system design and evaluation to address the continued growth of Internet of Things (IoT) and edge computing environments. We are developing a federated, hybrid mesh network
architecture designed with security as a foundational element, extending secure networking capabilities to resource-constrained devices through obfuscated and lightweight security mechanisms designed to protect communications without exposing
underlying security processes. These efforts support secure identity, trust enforcement, and encrypted communications for distributed and edge-based systems, aligning our architecture with the industry’s shift toward decentralized and resilient
network models. This approach incorporates dynamic trust evaluation, autonomous recovery, and distributed decision-making to enhance network resilience and adaptability.
To support system design and evaluation, we employ Model-Based Systems Engineering (MBSE) and agent-based modeling methodologies. These approaches enable simulation and analysis of complex systems,
including cyber-physical environments and adaptive networks, and support assessment of system behavior under evolving threat conditions.
Certain of our services are designed to align with the Department of Defense’s Digital Engineering Strategy (DE) by supporting cybersecurity integration across system design, command and control,
battle management, and sensor orchestration, and by enhancing our MBSE and cyber threat assessment capabilities. Our Dynamic Trust Evaluation (DTE) methods are designed to enforce trust policies throughout system lifecycles, and our cyber threat
intelligence and assessment services provide structured analysis of cyber risks and vulnerabilities.
We intend to make available our digital engineering, cyber MBSE, and cyber threat intelligence services to federal, state, and local government agencies, subject to applicable contracting
requirements. We hold a Multiple Award Schedule (MAS) and obtained DoD Joint Certification Program (DD Form 2345) certifications for our facilities in Zephyr Cove, Nevada, and Farmington, Utah, which permit access to certain unclassified technical
data subject to export controls. These certifications streamline procurement of our products and services by federal, state, and local government agencies and support our ability to engage with government and defense customers while maintaining
compliance with applicable handling and security requirements.
Additionally, we are developing a Center for Advanced Software and Hardware Integration at our Farmington, Utah facility, that incorporates artificial intelligence (AI) and digital twin technologies
alongside our Software-Defined Networks (SDN) capabilities. This facility is intended to support development and integration of secure, adaptive software solutions. We have entered into strategic relationships, including an investment in L2
Holdings, LLC (OmniTeq), an AI/Machine Learning (ML) solutions provider, and cooperative agreements, including a Cooperative Research and Development Agreement (CRADA) with the Air Force Research Laboratory, Intelligence Systems Directorate
(AFRL/RI). The CRADA focuses on cybersecurity and Zero Trust Network Access (ZTNA)-related technologies, extends through 2030, and supports collaboration in areas relevant to defense and intelligence operations.
In addition to federal, state, and local government agencies and defense customers, we pursue sales opportunities nationwide and engage with universities and academic institutions to support research
collaboration, workforce development, and technology transition initiatives. We also support international sales of our commercial products in compliance with applicable U.S. export control laws and regulations, including the International Traffic
in Arms Regulations (ITAR) and the Export Administration Regulations (EAR). Our compliance processes are designed to ensure that international transactions adhere to export control requirements while supporting authorized global customers.
Our intellectual property portfolio is a core component of our business. We own U.S. and foreign patents, as well as pending patent applications, that are primarily directed to securing real-time
communications over the Internet and related services. These patents underpin our technology and products. Certain portions of this portfolio were acquired by our principal operating subsidiary, VirnetX, Inc., from Leidos, Inc. in 2006.
Our employees include the core development team behind our inventions, technology, and software. Some members of this team have worked together for over twenty years and were on the same team that
invented and developed this technology while working at Leidos, Inc. 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.
Results of Operations
Three Months Ended March 31, 2026
Compared with the Three Months Ended March 31, 2025
(in thousands, except per share amounts)
Revenue
We recognized no revenue in the three months ended March 31, 2026 and 2025.
Research and Development Expenses
Our research and development expenses remained steady between 2026 and 2025 totaling $1,162 and $1,259 for the three months ended March 31, 2026 and 2025, respectively.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses increased from $2,788 to $3,346 for the three months ended March 31, 2026, primarily related to compensation expense and corporate travel.
Liquidity and Capital Resources
As of March 31, 2026, the Company held approximately $17.2 million in cash, cash equivalents and short-term investments.
Based on the Company’s current rate of operating expenditures and without giving effect to any future financing or additional revenue, existing liquid resources are projected to be insufficient to sustain the current
level of operations through May 2027, a period of less than twelve months from the date of issuance of these financial statements. This condition triggers the going concern disclosure requirements under U.S. GAAP and as required, is described in
notes to our condensed consolidated financial statements. Management intends to continue pursuit of cash generation via revenue sources and financing.
Income Taxes
Our effective tax rate is 0% for income tax for the three months ended March 31, 2026 and 2025, and we expect our effective tax rate for the full year will be 0%. Our effective tax rate is less than the 21% statutory
tax rate primarily due to our valuation allowance. Based on the weight of available evidence, including net cumulative losses and expected future losses, we have determined it is more likely than not that our U.S. federal and state deferred tax
assets will not be realized and therefore we have provided a full valuation allowance on the U.S. federal and state net deferred tax assets.
Contractual Obligations
We have leases in Nevada, Utah and California, the last of which expires in 2035. See Note 8 – Leases in the accompanying condensed consolidated financial statements for details.
Off-Balance Sheet Arrangements
None.
Interest Rate Risk
We invest our excess cash primarily in highly liquid instruments including time deposits, money market funds, and U.S. agency and treasury securities. We seek to limit the amount of our credit exposure to any one
issuer.
Investments in fixed rate instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates. Due in part to these factors, our
income from investments may decrease in the future.
We considered the historical volatility of short-term interest rates and determined that it was reasonably possible that an adverse change of 100 basis points could be experienced in the near term but would have an
immaterial impact on the fair value of our marketable securities, which generally mature within twelve months of March 31, 2026.
Other Market Risks
We considered the historical volatility of our stock price and determined that it was reasonably possible that the fair market value of our stock price could increase or decrease substantially in the near term and
could have a material impact on our condensed consolidated balance sheets and statement of operations with respect to future stock-based compensation costs and other equity transactions.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of March 31, 2026.
The purpose of this evaluation was to determine whether as of March 31, 2026 our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in
our filings with the SEC, (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2026, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 1 — LEGAL PROCEEDINGS – (See Note 7 — Litigation in the “Notes to Condensed Consolidated Financial
Statements”)
Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely affect our business, financial condition, results of
operations, cash flows, and the trading price of our common and capital stock. You should carefully consider the risks and uncertainties described below in addition to the other information set forth in this Report, including in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes, before making any investment in our common stock. The risks and uncertainties described below are not
the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of these risk factors occur, you could lose substantial value or your
entire investment in our shares.
Risks Related to Our Business and Our Financial Reporting
Our financial statements include a going concern disclosure required under U.S. GAAP.
The Company’s current level of operating expenditures, if continued without additional sources of revenue or financing, would exhaust existing liquid resources in the second quarter of 2027, a period of less than
twelve months from the date of issuance of the financial statements included in this Report on Form 10-Q. Under U.S. GAAP, this condition requires disclosure of substantial doubt about the Company’s ability to continue as a going concern, as set
forth in the Notes to our condensed consolidated financial statements. This disclosure reflects the application of prescribed accounting standards and is not intended to imply any change in the Company’s expectations regarding its business,
strategy or outlook.
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.
We had a net loss of $4.4 million for the quarter ended March 31, 2026, and a net loss of $18.2 million for the year ended December 31, 2025. As of March 31, 2026, we had an accumulated deficit of
$227.2 million.
Our operating results have fluctuated in the past due to several factors and may fluctuate in the future due to the same or similar factors, which include but are not limited to the following:
| • |
Time and resources required to accelerate transition to new product development and sales strategies targeting large enterprises, government customers, service provider partnerships;
|
| • |
Customer acceptance of our DE, DTE methods, MBSE and cyber threat intelligence and assessment services;
|
| • |
Establishing and maintaining relationships with third parties to integrate our family of cybersecurity products and services into their operations and develop solutions key to the defense market, critical
infrastructure, and cyber threat intelligence service;
|
| • |
Customer adoption of our VirnetX One™ platform and software products and services;
|
| • |
The number of product license sales of VirnetX War Room™, VirnetX Matrix™ and associated services;
|
| • |
Adoption of VirnetX One™ platform by third party application providers of secure communications;
|
| • |
Intensely competitive market with established companies 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; and
|
| • |
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. If we fail to increase our revenue, we may not achieve or sustain profitability in the future.
Our success depends in part on establishing and maintaining relationships with third parties to incorporate our products and services into their operations.
Our business strategy is to enter into partnerships, strategic investments, and other cooperative arrangements with other companies and government agencies. 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. In addition, we are regularly involved in cooperative efforts with respect to the incorporation of our products into products
of others and vice versa, collaborative research and development efforts with government and university laboratories, distributor and reseller arrangements and service provider partnerships. These relationships are generally non-exclusive, and some
of our partners also have cooperative relationships with certain of our competitors or offer some products and services that are competitive with ours. If we lose third-party relationships, if these relationships are not commercially successful, or
if we are unable to enter into third-party relationships on commercially reasonable terms in the future, our business could be negatively impacted.
We expect that we will experience long and unpredictable sales cycles, which may impact our operating results.
The sales cycle between initial customer contact and the execution of a contract can vary widely. 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 product and service capabilities;
|
| • |
Our customers’ budgetary constraints and timing of their budget cycles;
|
| • |
Delays caused by time-consuming internal review processes customary with potential customers including large government agencies and institutions in the space and defense industries; and
|
| • |
Long sales cycles may increase the risk that our financial resources are exhausted before we generate significant revenue.
|
In addition, potential customers include local, state, federal and foreign government agencies, as well as institutions in the space and defense industries. Sales processes 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. In
addition, in many instances, sales to government authorities may require field trials and may be delayed by the time it takes for government officials to evaluate multiple competing bids, negotiate terms, and award contracts. For these reasons, the
sales cycle associated with our products is subject to a number of significant risks that are beyond our control. Consequently, if customer orders are delayed or not realized, our revenues and results of operations could be materially and adversely
affected.
We offer our products to government entities, which are subject to a number of challenges and risks.
Government entities have announced reductions in, or experienced increased pressure to reduce, government spending. Continued U.S. debt, income tax and budget issues, government shutdowns and delays
in approving U.S. spending or reductions in such may adversely impact existing or future U.S. public sector transactions and affect future sales of our products and services to such entities. Additionally, any future government demand and payment
for our products may be more volatile as they are affected by public sector budgetary cycles, funding authorizations, and the potential for funding reductions or delays, making the time to close such transactions more difficult to predict.
In addition, sales to government entities are subject to a number of risks. Government entities may continue use of legacy products and services indefinitely and be slow to transition to more modern
products and services, including ours, or impose challenging regulatory requirements on such adoptions, any of which may inhibit the growth of our public sector business. Selling to government entities can be highly competitive, expensive and time
consuming, often requiring significant upfront time and expense without any assurance that we will successfully sell our products to such governmental entity. Government entities may require contract terms that differ from our standard arrangements
or require the maintenance of certain facility and employee security clearance, which may be difficult to obtain or maintain.
Our business could be adversely affected if our employees cannot obtain and maintain required personnel security clearances or we cannot establish and maintain a
required facility security clearance.
Certain government contracts may require our employees to maintain various levels of security clearances and may require us to maintain a facility security clearance to comply with U.S. and
international government agency requirements. Many governments have strict security clearance requirements for personnel who perform work in support of classified programs. Obtaining and maintaining security clearances for employees typically
involves a lengthy process, and it can be difficult to identify, recruit, and retain employees who already hold security clearances. If our employees are unable to obtain security clearances in a timely manner, or at all, or if our employees who
hold security clearances are unable to maintain their clearances or terminate employment with us, then we may be unable to bid on or win new classified contracts. To the extent we are not able to obtain or maintain a facility security clearance, we
may not be able to bid on or win classified contracts, which would have an adverse impact on our business, financial condition, and results of operations.
We have limited technical resources and are at an early stage in commercialization of our VirnetX One™ platform and software products, as well as our DE, DTE
methods, MBSE, and cyber threat assessment services.
Part of our business includes the internal development of commercial products we seek to monetize. 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. 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:
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Implement an effective marketing strategy to promote awareness of our products and services;
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Attract and retain customers for our products and services;
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Generate revenues or profit from product sales;
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Provide appropriate levels of customer training and technical support for our products;
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Rapidly anticipate and adapt to changes in the market and evolving customer requirements; and
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Protect our products from any system failures or other breaches.
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In addition, a high percentage of our expenses are and will continue to be fixed. Accordingly, if we do not generate revenue as and when anticipated, our losses may be greater than expected and our
operating results will suffer.
The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed.
The market for ZTNA security solutions is rapidly evolving and highly competitive as new entrants and traditional network solutions companies offer cloud-based cybersecurity solutions. Competition in
our business is highly diverse, and while our competitors offer different products and services, there is often competition for contracts that are part of government budgets. We also may face competition from companies that provide products and
services to the U.S. Government, including defense contractors.
Many of our competitors and potential competitors have established brand recognition, larger customer bases, and greater resources than we do. Our primary competitors in the ZTNA 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.
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. For example, disruptive technologies such as generative AI have and may continue to 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. 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. 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. 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. In addition, many of our competitors have established marketing
relationships and major distribution agreements with government agencies, 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. Furthermore, some potential customers, particularly large enterprises, may elect to develop their
own internal solutions. In addition, the U.S. government and foreign governments may develop, construct, launch and operate their own ZTNA security solutions with capabilities comparable or similar to ours, which could reduce their need to rely on
us and other commercial suppliers. For any of these reasons, we may not be able to compete successfully against our competitors.
Our products are highly technical and may contain undetected errors, which could cause harm to our reputation and adversely affect our business.
Our products are highly technical and complex and, when deployed, may contain errors or defects. Despite testing, some errors in our products may only be discovered after a product has been installed
and used by customers. Any errors or defects discovered in our products after commercial release could result in failure to achieve market acceptance, loss of revenue or delay in revenue recognition, loss of customers and increased service and
warranty cost, any of which could adversely affect our business, operating results, and financial condition. In addition, we could face claims for product liability, tort, or breach of warranty, including claims relating to changes to our products
made by our channel partners. The performance of our products could have unforeseen or unknown adverse effects on the networks over which they are delivered as well as on third-party applications and services that utilize our services, which could
result in legal claims against us harming our business. Furthermore, we expect to provide implementation, consulting, and other technical services in connection with the implementation and ongoing maintenance of our products, which typically
involves working with sophisticated software, computing, and communications systems. We expect that our contracts with customers will contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld. Defending
a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of us and our products. In addition, if our business liability insurance coverage proves inadequate or future coverage
is unavailable on acceptable terms or at all, our business, operating results, and financial condition could be adversely impacted.
Malfunctions of third-party communications infrastructure, hardware and software expose us to a variety of risks that we cannot control.
Our business will depend upon, among other things, the capacity, reliability, security, and unimpeded access of the infrastructure owned by third parties that we will use to deploy our offerings. We
have no control over the operation, quality, or maintenance of a significant portion of that infrastructure or whether those third parties will upgrade or improve their equipment. We depend on these companies to maintain the operational integrity
of our connections. If one or more of these companies is unable or unwilling to supply or expand their levels of service to us in the future, our operations could be severely interrupted.
System failure or interruption or our failure to meet increasing demands on our systems could harm our business.
The success of our license and service offerings will depend on the uninterrupted operation of various systems, secure data centers and other computer and communication networks that we establish. To
the extent, the number of users of networks utilizing our future products suddenly increases, the technology platform and hosting services which will be required to accommodate a higher volume of traffic may result in slower response times, service
interruptions or delays or system failures. Our systems and operations will also be vulnerable to damage or interruption from, among other things:
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Power loss, transmission cable cuts, and other telecommunications failures;
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Damage or interruption caused by fire, earthquake, and other natural disasters;
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Computer viruses, electronic break-ins, sabotage, vandalism, or software defects; and
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Physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks, and other events beyond our control.
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System interruptions or failures and increases or delays in response time could result in a loss of potential or existing users and, if sustained or repeated, could reduce the appeal of the networks
to users. These types of occurrences could cause users to perceive that our solution does not function properly and could therefore adversely affect our ability to attract and retain licensees, strategic partners, and customers, and result in lost
revenue, customer dissatisfaction, or lawsuits against us.
If we are not able to adequately protect our patent rights and trade secrets, our business would be negatively impacted.
We believe our patents are valid, enforceable, and valuable. Notwithstanding this belief, third parties may make claims of infringement 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. Even if we are successful in protecting our intellectual property rights, they may not ultimately provide us with any competitive advantages and may be less valuable than we currently expect. These risks may be heightened in
countries other than the United States where laws regarding patent protection are less developed and may be negatively affected by the fact that legal standards in the United States and elsewhere for protection of intellectual property rights in
Internet-related businesses are uncertain and still evolving. In addition, there are a significant number of United States and foreign patents and patent applications in our areas of interest, and we expect that significant litigation in these
areas will continue and will add uncertainty to the value of certain patents and other intellectual property rights in our areas of interest. If we are unable to protect our intellectual property rights or otherwise realize value from them, our
business would be negatively affected.
If we experience security breaches or incidents, we could be exposed to liability and our reputation and business could suffer.
We face security threats from malicious third parties that could obtain unauthorized access to our systems, network, and data. We expect to retain certain confidential and proprietary customer
information in our secure data centers and secure domain name registry, as well as personal data and other confidential and proprietary information relating to our business. It is critical to our business strategy that our facilities and
infrastructure, including our secure domain name servers, remain secure and are perceived by the marketplace to be secure. Our secure domain name registry operations will also depend on our ability to maintain our computer and telecommunications
equipment in effective working order and to reasonably protect our systems against interruption, and potentially depend on protection by other registrars in the shared registration system.
We expect to expend significant time and money to maintain or increase the security of our products, facilities, and infrastructure. Security technologies are constantly being tested by computer
professionals, academics and “hackers.” Advances in computer capabilities and the techniques for attacking security solutions, new discoveries in the field of cryptography or other events or developments could result in compromises or breaches of
our security measures and could make some or all our products obsolete or unmarketable. Remote work by our personnel and those of third parties has resulted in increased vulnerability to cyber-attacks. We may need to dedicate engineering and other
resources to mitigate or eliminate security vulnerabilities and may find it necessary or appropriate to repair or replace products already sold or licensed to our customers. Despite the security measures that we and our service providers utilize,
our infrastructure and that of our service providers may be vulnerable to physical break-ins, ransomware, computer viruses, other malicious code attacks by hackers, phishing attacks, social engineering, or similar disruptive problems. There can be
no assurances our security measures or those of our service providers will prevent security breaches or incidents. Any disruption or security breach or incident that we or our service providers suffer or are perceived to suffer, including any such
disruption, breach or incident resulting in a loss of, or damage to, data or systems, or inappropriate disclosure, access, loss, or other processing of confidential, financial, proprietary or personal information, including data related to our
personnel, could result in loss, disclosure or other unauthorized processing of such data. Such events could delay our research and development or commercialization efforts, could compel us to comply with breach notification laws and regulations,
subject us to mandatory corrective action, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. It is possible that we may have to expend additional financial and other
resources to address such problems, which could have a material adverse impact on our operations.
Additionally, during times of war and other geopolitical tensions and conflicts may create increased risks of cyber-attacks. As a provider of Internet security software and technology, we may be the
target of dedicated efforts by hackers and other third parties to overcome or defeat our security measures. Any physical or electronic break-in or other security breach or incident or compromise impacting our products, or any information stored at
our secure data centers and domain name registration systems, including any compromise due to human error or employee or contractor malfeasance, may jeopardize the security of information stored on our premises or in the computer systems and
networks of our customers. Additionally, 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
operations.
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. Cybersecurity risks pose a particularly significant risk to our business given our
focus on providing internet security software and secure communications technology. 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.
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.
Because we incorporate encryption technology into our products, certain of our products are subject to U.S. export controls and may be exported outside the U.S. only with the required export license
or through an export license exception. If we were to fail to comply with U.S. export licensing requirements, U.S. customs regulations, U.S. economic sanctions, or other laws, we could be subject to substantial civil and criminal penalties,
including fines, incarceration for responsible employees and managers, and the possible loss of export or import privileges. Obtaining the necessary export license for a particular sale may be time-consuming and may result in the delay or loss of
sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products to U.S. embargoed or sanctioned countries, governments, and persons. Even though we take precautions to ensure that we
comply with all relevant regulations, any failure by us or any partners to comply with such regulations could have negative consequences for us, including reputational harm, government investigations, and penalties.
In addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to
distribute our products or could limit our end-customers’ ability to implement our products in those countries. Changes in our products or changes in export and import regulations may create delays in the introduction of our products into
international markets, prevent our end-customers with international operations from deploying our products globally or, in some cases, prevent or delay the export or import of our products to certain countries, governments, or persons altogether.
Any change in export or import regulations, economic sanctions, or related legislation, shift in the enforcement, or scope of existing regulations, or change in the countries, governments, persons, or technologies targeted by such regulations,
could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations. 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.
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.
Personal privacy, information security, and data protection are significant issues in the United States, Europe, and many other jurisdictions where we have operations or offer our products. The
regulatory framework governing the collection, processing, storage and use of confidential and proprietary business information and personal data is rapidly evolving. The United States federal, various state and foreign governments have adopted or
proposed requirements regarding the collection, distribution, use, security, storage, and other processing of personal information and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce
regulations related to the online collection, use and dissemination of data.
Further, many foreign countries and governmental bodies, including the European Union (EU), where we conduct business, have laws and regulations concerning the collection and use of personal data
obtained from their residents or by businesses operating within their jurisdiction. These laws and regulations often are more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection,
use, storage, disclosure, and security of data that identifies or may be used to identify or locate an individual.
We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the EU, and other
jurisdictions. For example, the European Commission maintains a General Data Protection Regulation (the GDPR) that imposes stringent data protection requirements and provides for substantial penalties for noncompliance. 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. The United Kingdom made targeted amendments to the Data Protection Act and the UK
GDPR in the UK Data (Use and Access) Act, effective June 19, 2025. We may be required to incur substantial expense in order to make significant changes to our products and operations to address 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. California has enacted legislation, the California Consumer Privacy Act (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. The CCPA was modified and expanded by the California Privacy Rights Act (CPRA), which was approved by California
voters in the November 2020 election. Additionally, other U.S. states continue to propose, and in certain cases adopt, privacy-focused legislation. For example, Connecticut, Virginia, Utah, and Colorado enacted legislation similar to the CCPA and
CPRA that took effect in 2023; Florida, Montana, Oregon, and Texas enacted similar legislation that took effect in 2024; Delaware, Nebraska, Maryland, New Hampshire, New Jersey, Minnesota, Tennessee, and Iowa enacted similar legislation that took
effect in 2025; and Indiana, Kentucky, and Rhode Island enacted similar legislation that took effect in 2026; and Alabama and Oklahoma enacted similar legislation that takes effect in 2027.
The U.S. Department of Justice has also issued regulations regarding certain bulk sensitive personal data transfers. 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. Privacy, data protection and information security laws and
regulations are often subject to differing interpretations, may be inconsistent among jurisdictions, and may be alleged to be inconsistent with our current or future practices. Additionally, we may be bound by contractual requirements applicable to
our collection, use, processing, and disclosure of various types of data, including personal data, and may be bound by, or voluntarily comply with, self-regulatory or other industry standards relating to these matters. These and other requirements
could reduce demand for our products, increase our costs, impair our ability to grow our business, or restrict our ability to store and process data or, in some cases, impact our ability to offer our service in some locations and may subject us to
liability. Any failure or perceived failure to comply with applicable laws, regulations, industry standards, and contractual obligations may adversely affect our business. Further, in view of new or modified federal, state, or foreign laws and
regulations, industry standards, contractual obligations and other legal obligations, or any changes in their interpretation, we may find it necessary or desirable to fundamentally change our business activities and practices or to expend
significant resources to modify our product and otherwise adapt to these changes. 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.
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. 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.
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.
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. 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.
The exercise of our outstanding stock options and the issuance of RSUs and restricted stock would result in a dilution of our current stockholders’ voting power
and an increase in the number of shares eligible for future resale in the public market which may negatively impact the market price of our stock.
The exercise of our outstanding vested stock options and the vesting of RSUs dilutes the ownership interests of our existing stockholders. As of March 31, 2026, we had 697,758 outstanding RSUs and
options to purchase shares of common stock representing approximately 18% of our total shares outstanding of which 227,490 were vested. To the extent restricted stock is awarded, outstanding stock options are exercised, and RSUs vest, existing
stockholders’ percentage voting interests will decline. Also, the number of shares eligible for resale in the public market will increase and such increase may have a negative effect on the value or market trading price of our common stock.
Investors may have limited influence because ownership of our common stock is limited.
As of March 31, 2026, our executive officers and directors beneficially owned approximately 16% of our outstanding common stock. Because of their beneficial ownership interest, our officers and
directors could significantly influence stockholder actions. This ability to exercise significant influence could prevent or significantly delay another company from acquiring or merging with us.
Our protective provisions in our amended and restated certificate of incorporation and amended and restated 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 protective provisions in our amended and restated certificate of incorporation (Restated Charter) and amended and restated bylaws (Restated Bylaws) that could delay, discourage, or prevent a
third party from acquiring control of us without the approval of our Board of Directors. These protective provisions include:
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A staggered Board of Directors: Only one or two of five directors will be up for election at any given annual meeting, 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.
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Blank check preferred stock: Our Board of Directors has the authority to establish the rights, preferences, and privileges of our 10,000,000 authorized, but unissued, shares of preferred stock. Therefore,
this stock may be issued at the discretion of our Board of Directors with preferences over your shares of our common stock in a manner that is materially dilutive to you. In addition, blank check preferred stock can be used to create a
“poison pill” which is designed to deter a hostile bidder from buying a controlling interest in our stock without the approval of our Board of Directors. We have not adopted such a “poison pill;” but our Board of Directors can do so in the
future, very rapidly and without stockholder approval.
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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 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 Restated Bylaws.
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No stockholder actions by written consent: No stockholder or group of stockholders may take action by written consent. 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.
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Super majority requirement for stockholder amendments to the Restated Bylaws: Stockholder proposals to alter or amend our Restated 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.
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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, the
chairman of the Board of Directors, or the president, and any power of stockholders to call a special meeting of stockholders is specifically denied. 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.
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In addition, the provisions of Section 203 of the Delaware General Corporation Law govern us. 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. These and other provisions in our Restated Charter, our Restated 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.
Our Restated Bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us and
our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.
Our Restated Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf,
(2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, stockholders, officers, or other employees to us or our stockholders, (3) any action arising pursuant to any provision of the Delaware General Corporation
Law, or our Restated Charter or Restated Bylaws or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have
jurisdiction, another State court in Delaware or the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants.
However, notwithstanding the exclusive forum provisions, our Restated Bylaws explicitly state that they would not preclude the filing of claims brought to enforce any liability or duty created under
federal securities laws, including the Securities Act or the Exchange Act.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to this provision. This exclusive-forum provision may limit
a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court
were to find this exclusive-forum provision in our Restated Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of
operations.
General Risk Factors
We may need to raise additional capital to support our business in the near term; such capital may be dilutive, may cause our stock price to drop or may not be
available on acceptable terms, if at all.
To the extent we are unable to secure additional revenue over the next several months, we will need to raise additional capital in the near term. Based on our current level of operating expenditures, we project that
our existing cash, cash equivalents and short-term investments will be insufficient to fund the current level of operations, and we have therefore concluded that the conditions for a going concern disclosure under U.S. GAAP are present, as
described notes to our consolidated financial statements. 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.
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. Additionally, we are unable to predict the future success of any future offerings. Sales of a substantial number of
shares of our common stock in the public market, or the perception that these sales or other financings might occur, could depress the market price of our common stock, and could also impair our ability to raise capital through the sale of
additional equity securities. If we issue debt securities or incur indebtedness, we could experience increased future payment obligations and a need to comply with restrictive covenants, such as limitations on our ability to incur additional debt,
limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct 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 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.
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. In addition, we do not maintain key person life insurance for any of our officers or key
employees. The loss of Mr. Larsen, or our failure to retain other key personnel or plan for the succession of key personnel, would jeopardize our ability to execute our strategic plan and materially harm our business.
We will need to recruit and retain additional qualified personnel to successfully grow our business.
Our future success will depend, in part, on our ability to attract and retain qualified engineering, operations, marketing, sales and executive personnel. Inability to attract and retain such
personnel could adversely affect our business. Competition for engineering, operations, marketing, sales, and executive personnel is intense, particularly in the technology and Internet sectors and in the regions where we conduct our business. We
may need to invest significant amounts of cash and equity to attract and retain employees and expend significant time and resources to identify, recruit, train and integrate such employees, and we may never realize returns on these investments.
Additionally, we can provide no assurance that we will attract or retain such personnel.
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.
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. Our business may also be adversely affected by further downturn in macroeconomic conditions, including
inflation and rising interest rates, tariffs, trade wars, global political and economic uncertainty and tensions, such as the ongoing Russia-Ukraine and Middle East conflicts, as well as any related political or economic response, counter responses
or otherwise, financial services sector instability, a reduction in business confidence and activity, financial market volatility, unexpected changes in tax law or policy, and other factors. 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. These events may also pose risks to our
personnel and to physical facilities and operations, which could adversely affect our financial results.
Changes in tax law could materially impact our business, results of operations and financial condition.
Changes to U.S. federal, state, and local, and foreign tax laws that may be enacted in the future could impact the tax treatment of our business operations. Our effective tax rate could be adversely
affected by several factors, many of which are outside of our control, including changes in the mix of earnings and losses in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in
tax laws, rates, treaties and regulations or the interpretation of the same, changes to the financial accounting rules for income taxes, the outcome of current and future tax audits, examinations or administrative appeals and certain non-deductible
expenses. In addition, many jurisdictions, including the United States, are actively considering changes to existing tax laws or have proposed or enacted new laws, such as the recently enacted U.S. federal tax legislation commonly referred to as
the One Big Beautiful Bill Act (OBBB Act), that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business. We are currently evaluating the full impact of the OBBB Act on us. As of
March 31, 2026, the OBBB Act has had no material income tax impact on our financial statements.
In addition, the Organization for Economic Cooperation and Development has proposed imposing a 15% global minimum tax under the Pillar Two Model Rules (Pillar Two), and this proposal has been adopted
or is being considered by a number of countries, which could impact our business if we expand internationally. However, on June 28, 2025, the G7 released a joint statement that it had reached an understanding with the United States for a
side-by-side system based on certain accepted principles, including that U.S.-parented groups, such as ours, would be exempt from certain provisions of Pillar Two. Any of these developments or changes in U.S. federal, state or international tax
laws or tax rulings could adversely affect our effective tax rate and our operating results. As of March 31, 2026, we are not yet subject to Pillar Two due to the level of gross receipts.
Trading in our common stock is limited, and the price of our common shares may be subject to volatility.
Our common stock is currently listed on the Nasdaq Stock Market LLC (Nasdaq) and was previously listed on NYSE and NYSE American LLC (formerly the NYSE MKT LLC). Over the past year, the market price
of our common stock has experienced significant fluctuations. Between April 1, 2025, and March 31, 2026, the adjusted closing price for our common stock ranged between $7.50 and $24.84. The price of our common stock may continue to be volatile as a
result of several factors, some of which are beyond our control. These factors include, but are not limited to, the following:
| • |
variations, actual or anticipated, in our operating results;
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| • |
significant changes in our management;
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| • |
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;
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| • |
general conditions in the markets in which we compete; and
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| • |
general social, political, economic, and financial conditions, including significant volatility in the global financial markets.
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In addition, we believe there has been and may continue to be substantial trading in derivatives of our stock, including short selling activity or related similar activities, which are beyond our
control, and which may be beyond the full control of the SEC and Financial Institutions Regulatory Authority (FINRA). While the SEC and FINRA rules prohibit some forms of short selling and other activities that may result in stock price
manipulation, such activity may nonetheless occur without detection or enforcement. We have held conversations with regulators concerning trading activity in our stock; however, there can be no assurance that should there be any illegal
manipulation in the trading of our stock, it will be detected, prosecuted, or successfully eradicated. Significant short-selling market manipulation could cause our stock trading price to decline, to become more volatile, or both. For more
information regarding trading in our common stock and listing on the Nasdaq, see additional risk factors included elsewhere in this Quarterly Report on Form 10-Q.
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.
Our management has broad discretion in the application of our existing cash, cash equivalents and investments and could spend these funds in ways that do not improve our results of operations or
enhance the value of our common stock. Pending their use, we may invest our available funds in a manner that does not produce income or that loses value. The failure by our management to apply our available funds effectively could result in
financial losses that could cause the price of our common stock to decline and delay the development of our products.
In addition, an entity that, among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, owning, trading, or
holding certain types of securities would be deemed an Investment Company under the Investment Company Act of 1940 (1940 Act). 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.
Securities Trading Plans of Directors and Executive Officers
During the three months ended March 31, 2026, the Company did not adopt terminate
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Incorporated by reference herein
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||||||
|
Exhibit
Number
|
Description
|
Form
|
Exhibit
No.
|
Filing
Date
|
File No.
|
Filed
Herewith
|
|
Certification of the President and Chief Executive Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||||||
|
Certification of the Chief Financial Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||||||
|
Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||||||
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||||||
|
101.INS
|
Inline XBRL Instance Document.
|
x
|
||||
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document.
|
x
|
||||
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
x
|
||||
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
x
|
||||
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
x
|
||||
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
x
|
||||
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
|
x
|
||||
|
**
|
This exhibit is furnished herewith but not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section. Such
certifications will not be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act, except to the extent that we explicitly incorporate them by reference.
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
VIRNETX HOLDING CORPORATION
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|||
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By:
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/s/ Kendall Larsen
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||
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Name:
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Kendall Larsen
|
||
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Chief Executive Officer (Principal Executive Officer)
|
|||
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By:
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/s/ Katherine Allanson
|
||
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Name:
|
Katherine Allanson
|
||
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|
|||
|
Date: May 15, 2026
|
|||
26
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
SECURITIES EXCHANGE ACT OF 1934 RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kendall Larsen, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of VirnetX Holding Corporation for the quarter ended March 31, 2026.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have:
(a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Kendall Larsen
|
|
|
Kendall Larsen
|
|
|
President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
Date: May 15, 2026
|
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
SECURITIES EXCHANGE ACT OF 1934 RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Katherine Allanson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of VirnetX Holding Corporation for the quarter ended March 31, 2026.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have:
(a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Katherine Allanson
|
|
|
Katherine Allanson
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer and Principal Accounting Officer)
|
|
|
Date: May 15, 2026
|
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of VirnetX Holding Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2026 as filed with the Securities and Exchange Commission on May 15, 2026 (the
“Report”), I, Kendall Larsen, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
| (2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
|
|
/s/ Kendall Larsen
|
|
|
Kendall Larsen
|
|
|
President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
Date: May 15, 2026
|
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of VirnetX Holding Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2026 as filed with the Securities and Exchange Commission on May 15, 2026 (the
“Report”), I, Katherine Allanson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
| (2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
|
|
/s/ Katherine Allanson
|
|
|
Katherine Allanson
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer and Principal Accounting Officer)
|
|
|
Date: May 15, 2026
|