VHC 10-Q
VirnetX Holding Corp (VHC)
10-Q
2025-11-14
For: 2025-09-30
View Original
Added on
April 06, 2026
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 September 30, 2025 .
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, staffing strategies and entering into another sector), the impact of potential litigation, statements regarding our efforts and ability to
maintain compliance with the Nasdaq Stock Market LLC (“Nasdaq”) continued listing standard, 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 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, commercialization of products such as ours is subject to significant obstacles and risks that may delay or prevent future revenues for us.
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
September 30,
2025
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As of
December 31,
2024
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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 STOCKHOLDERS’ 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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Stockholders’ 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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Total stockholders’ equity
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|
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||||||
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Total liabilities and stockholders’ 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
|
Nine Months Ended
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|||||||||||||||
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September 30,
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September 30,
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|||||||||||||||
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2025
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2024
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2025
|
2024
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|||||||||||||
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Revenue
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$
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|
$
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|
$
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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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| Impairment loss on investment |
- |
- |
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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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( |
)
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( |
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Interest and other income, net
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||||||||||||
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(Loss) before taxes
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( |
)
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( |
)
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( |
)
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( |
)
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Income tax (expense) benefit
|
|
|
( |
)
|
( |
)
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||||||||||
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Net (loss)
|
$
|
( |
)
|
$
|
( |
)
|
$
|
( |
)
|
$
|
( |
)
|
||||
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Basic (loss) per share
|
$
|
( |
)
|
$
|
( |
)
|
$
|
( |
)
|
$
|
( |
)
|
||||
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Diluted (loss) per share
|
$
|
( |
)
|
$
|
( |
)
|
$
|
( |
)
|
$
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( |
)
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Weighted average shares outstanding - basic
|
|
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||||||||||||
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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
|
Nine Months Ended
|
|||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2025
|
2024
|
2025
|
2024
|
|||||||||||||
|
Net (loss)
|
$
|
( |
)
|
$
|
( |
)
|
$
|
( |
)
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$
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( |
)
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Other comprehensive income (loss):
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||||||||||||||||
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Change in unrealized gain (loss) on investments, net of tax
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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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Comprehensive (loss)
|
$
|
( |
)
|
$
|
( |
)
|
$
|
( |
)
|
$
|
( |
)
|
||||
See accompanying notes to condensed consolidated financial statements.
VIRNETX HOLDING CORPORATION
(in thousands, except per share amounts)
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30,
|
September 30,
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|||||||||||||||
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2025
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2024
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2025
|
2024
|
|||||||||||||
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Total shareholders’ equity, beginning balances
|
$
|
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$
|
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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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( |
)
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( |
)
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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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||||||||||||||||
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Beginning balances
|
( |
)
|
( |
)
|
( |
)
|
( |
)
|
||||||||
|
Net (loss)
|
( |
)
|
( |
)
|
( |
)
|
( |
)
|
||||||||
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Ending balances
|
( |
)
|
( |
)
|
( |
)
|
( |
)
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||||||||
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Accumulated other comprehensive loss:
|
||||||||||||||||
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Beginning balances
|
( |
)
|
( |
)
|
|
( |
)
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|||||||||
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Change in unrealized investment gain/loss, net
|
|
|
( |
)
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|||||||||||
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Change in foreign currency translation, net
|
( |
)
|
|
|
( |
)
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||||||||||
|
Ending balances
|
( |
)
|
|
( |
)
|
|
||||||||||
|
Total shareholders’ equity, ending balances
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
See accompanying notes to condensed consolidated financial statements.
VIRNETX HOLDING CORPORATION
(in thousands)
|
Nine Months Ended
September 30,
|
||||||||
|
2025
|
2024
|
|||||||
|
Cash flows from operating activities:
|
||||||||
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Net (loss)
|
$
|
( |
)
|
$
|
( |
)
|
||
|
Adjustments to reconcile net loss to cash flows from operating activities:
|
||||||||
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Depreciation
|
|
|
||||||
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Stock-based compensation
|
|
|
||||||
| Impairment loss on investment |
- |
|||||||
|
Changes in assets and liabilities:
|
||||||||
|
Accounts receivables
|
( |
)
|
|
|||||
|
Prepaid expenses and other assets
|
|
|
||||||
|
Accounts payable
|
|
( |
)
|
|||||
|
Accrued payroll and related expenses
|
|
|
||||||
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Other liabilities
|
( |
)
|
|
|||||
|
Net cash used in operating activities
|
( |
)
|
( |
)
|
||||
|
Cash flows from investing activities:
|
||||||||
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Purchase of property and equipment
|
( |
)
|
( |
)
|
||||
|
Purchase of investments
|
( |
)
|
( |
)
|
||||
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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:
|
||||||||
|
Payment of payroll taxes on equity awards
|
( |
)
|
( |
)
|
||||
|
Net cash used in financing activities
|
( |
)
|
( |
)
|
||||
|
Net change in cash and cash equivalents
|
( |
)
|
( |
)
|
||||
|
Cash and cash equivalents, beginning of period
|
|
|
||||||
|
Cash and cash equivalents, end of period
|
$
|
|
$
|
|
||||
|
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 Basis of Presentation
VirnetX Holding Corporation (Company, we, us, or our) is an Internet security software and technology company. We develop patented cybersecurity solutions that ensure resilient, secure communications
across any network or device. Built on Zero Trust Network Access (ZTNA) principles, our flagship platform, VirnetX One™, virtualizes on-demand private networks using patented Secure Domain Names and automatically establishes secure links regardless
of location or endpoint.
Our products, including War Room™ and VirnetX Matrix™, are designed to support the U.S. Department of War (DoW) with real-time, encrypted collaboration. War RoomTM offers advanced visualization for situational awareness, while Matrix secures communications through robust encryption, even in contested environments.
Our Digital Engineering (DE) services are designed to strengthen our current and evolving Model-Based Systems Engineering (MBSE) processes while also providing comprehensive Cyber Threat Assessment
services seamlessly integrating into the US DoW’s Digital Engineering strategy. Additionally, our DE professional services include integration of our subject matter expertise in kinetic and non-kinetic secure, automated, command and control, battle
management, and all-domain collection sensor orchestration. With embedded secure communication from research and development (R&D) to operational deployment, our Dynamic Trust Evaluation (DTE) methods continuously enforce real-time trust
policies, ensuring resilient and adaptive network security. Our Cyber Threat Intelligence (CTE) and assessment services deliver context-aware insights, empowering defense leaders to anticipate and mitigate emerging cyber threats.
Our product portfolio includes sophisticated technologies, products and services that are available for sale worldwide. Our next-generation VirnetX One™ platform builds upon our patented Secure Domain
Name Registry and Technology to further enhance the security and efficiency of our patented secure communication links. VirnetX One™ is a security-as-a-service platform that protects enterprise applications, services, and infrastructure from
cyber-attacks. Our platform allows government organizations, businesses, and other enterprises of all sizes to add a “security umbrella” as an added layer on top of their existing infrastructure to further reduce risk and bolster security against
evolving cyberthreat landscape to data, operating systems, other infrastructure products and gateway security controllers.
Note 2 — Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying Condensed Consolidated Balance Sheet as of September 30, 2025, 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 and nine months ended September 30, 2025 and 2024 are unaudited. These unaudited interim 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 consolidated financial statements include all adjustments of a normal recurring nature necessary for the
fair presentation of our financial position as of September 30, 2025, our results of operations and our cash flows for the three and nine months ended September 30, 2025 and 2024. The results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year.
These unaudited interim 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, 2024, filed with the SEC on March 17, 2025.
Use of Estimates
We prepare our 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 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. Effective September 30, 2025 we identified an impairment in our investment in OP Media Inc., and as a result, we recognized an impairment loss totaling $500 .
Basis of Consolidation
The 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 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 on the Condensed Consolidated Balance Sheets. 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, U.S. prime rate of 7.5 % in 2025 and 8.5 % in 2024.
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
Our financial instruments are stated at amounts that equal, or approximate, fair value. When we estimate fair value, we utilize market data or assumptions that we believe market participants would use
in pricing the financial instrument, including assumptions about risk and inputs to the valuation technique. We use valuation techniques, primarily the income and market approach, which maximizes the use of observable inputs and minimize the use of
unobservable inputs for recurring fair value measurements.
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.
On July 4, 2025, the United States enacted tax legislation, often referred to as the “One Big Beautiful Bill” Act (OB3). Management is evaluating the impact of OB3 to the Company and cannot yet
estimate what elections it will make related to accelerating pre-2025 IRC Section 174 domestic capitalized R&D costs or federal bonus depreciation elections for fixed assets placed in service on or after January 19, 2025. We will continue to
monitor and assess options.
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 is
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 December 2023, the FASB issued Accounting Standards Updated (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about an
entity’s effective tax rate reconciliation as well as information on income tax paid. The guidance in this ASU is effective for public companies with annual periods beginning after December 15, 2024. We plan to adopt the guidance for the fiscal
year ending December 31, 2025. 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 March 2024, the FASB issued ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. The guidance in this ASU is effective for public
companies with annual periods beginning after December 15, 2024. We plan to adopt the guidance for the fiscal year ending December 31, 2025. We are currently evaluating the effect adoption of this ASU will have on our consolidated financial
statements.
In November 2024, the FASB issued 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.
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 September 30, 2025 and December 31, 2024.
|
September 30, 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
|
$
|
|
$
|
|
$
|
( |
)
|
$
|
|
$
|
|
$
|
|
|||||||||||
|
December 31, 2024
|
||||||||||||||||||||||||
|
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 September 30, 2025 and 2024, we recognized no 2 and $3 , on pretax losses of $11,646 , and $11,957 . 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 September 30, 2025.
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 September 30, 2025, we have 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 $458 and $1,214 compared to $446 and $1,132 during the three and nine months ended September 30, 2025 and 2024, 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 September 30, 2025, there were 562,529 shares available for grant under the Amended and Restated 2013 Equity Incentive Plan.
Stock-based compensation expense included in general and administrative expense was $314 and $309 , and in research and development expense was $166 and $149 , for the three months ended September 30, 2025 and 2024, respectively. Stock-based compensation expense included in general and administrative expense was $741 and $803 , and in research and development expense was $611 and $603 , for the nine months ended September 30, 2025 and 2024, respectively.
As of September 30, 2025 and 2024, the unrecognized stock-based compensation expense related to unvested awards (including stock options, RSUs, and restricted stock) was $3,346 and $1,778 , respectively, which will be amortized over an estimated weighted average period of approximately 2.9 years and 2.2 years, respectively.
During 2025, we returned 17,474 awards to the plan due to cancellation of unexercised options.
Note 6 — Equity
Common Stock
During the nine months ended September 30, 2025, we issued 30,000 shares of restricted stock as well as 3,341 shares of common stock as a result of vesting RSUs; we also cancelled 1,082 shares used to cover withholding taxes on awards. During the nine months ended September 30, 2024, we issued 119,000 shares of restricted stock, as well as 7,166 shares of common stock as a result of vesting RSUs; we also cancelled 2,981 shares to cover withholding taxes on awards.
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 September 30, 2025, our ROU asset and lease liability totaled $4 . Lease expense totaled $14 42
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 September 30, 2025, our ROU asset totaled $2,535 and lease liability totaled $2,959 . Lease expense totaled $210 629
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 for the modification. At September 30, 2025, our ROU asset totaled $4,848 and our lease liability totaled $4,964 . Lease expense totaled $181 and $538 for the three and nine months ended September 30, 2025, respectively. Lease expense totaled $143 and $384 for the three months and nine months ended September 30, 2024, respectively.
Payments due under the above leases as of September 30, 2025, are as follows:
|
Due in 2025
|
$
|
|
||
|
Due in 2026
|
|
|||
|
Due in 2027
|
|
|||
|
Due in 2028
|
|
|||
|
Due in 2029
|
|
|||
|
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 $458 and $1,214 compared to $446 and $1,132 during the three and nine months ended September 30, 2025 and 2024, 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 (597,874 as of September 30, 2025 and 127,865 as of September 30, 2024) 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 and nine months ended September 30, 2025, and 2024 (in thousands, except per share amounts):
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2025
|
2024
|
2025
|
2024
|
|||||||||||||
|
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 and nine months ended September 30, 2025 and 2024; therefore, all potentially dilutive securities representing shares of common stock (228,615 at September 30, 2025 and 287,908 at September 30, 2024) 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 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 consolidated financial statements.
Company Overview
We develop patented cybersecurity solutions that ensure resilient, secure communications across any network or device. Built on Zero Trust Network Access (ZTNA) principles, our flagship platform,
VirnetX One™, virtualizes on-demand private networks using patented Secure Domain Names and automatically establishes secure links regardless of location or endpoint.
Our products, including War Room™ and VirnetX Matrix™, are designed to support the U.S. Department of War (DoW) with real-time, encrypted collaboration. War RoomTM offers advanced
visualization for situational awareness, while VirnetX MatrixTM secures communications through robust encryption, even in contested environments.
Our War Room™ software product provides safe and secure video conferencing meeting environment where sensitive communications and data is invisible to those not authorized to view it. War Room™
validates permissions of all the users, and devices requesting access to any secure meeting room prior to granting access. We believe our War Room™ will be an attractive solution for government and law enforcement agencies as well as all
professional sectors such as legal, financial, and medical where limiting access to confidential data is a critical requirement.
Our VirnetX Matrix™ product provides superior security for internet-enabled enterprise applications and their connected devices, and for control systems currently deployed by those enterprises
(e.g., file servers, data back-up systems, VPN/firewalls). VirnetX Matrix™ provides a true “zero-trust” access protection, “single-click” ease of use, and is a highly effective added layer of protection that is deployed simply, without the need for
changes to an enterprise’s existing, in-place infrastructure. We believe VirnetX Matrix™ is an attractive solution for all businesses, cloud and on-premise application service providers, and original equipment manufacturers (OEMs), looking to
improve visibility and management of their networks to mitigate morphing attacks on their networks and for real time access and control of their users.
Our Digital Engineering (DE) services are designed to strengthen our current and evolving Model-Based Systems Engineering (MBSE) processes while also providing comprehensive Cyber Threat Assessment
services seamlessly integrating into the DoW Digital Engineering strategy. Additionally, our DE professional services include integration of our subject matter expertise in kinetic and non-kinetic secure, automated, command and control, battle
management, and all-domain collection sensor orchestration. With embedded secure communication from R&D to operational deployment, our Dynamic Trust Evaluation (DTE) methods continuously enforce real-time trust policies, ensuring resilient and
adaptive network security. Our Cyber Threat Intelligence (CTI) and assessment services deliver context-aware insights, empowering defense leaders to anticipate and mitigate emerging cyber threats.
We have undertaken activities to align our products and services with DoW’s Digital Engineering Strategy, and as such, plan to make available the following services to Federal, state, and local
government agencies.
| • |
DE services for embedding cybersecurity in system design, command and control processes, battle management, and all-domain sensor orchestration and lifecycle management to enhance system resilience by identifying
vulnerabilities early via threat modeling and design.
|
| • |
Advanced hybrid Cyber MBSE services for building artificial intelligence and machine learning (AI/ML) hybrid models to represent communication flows and threat boundaries using specialized VirnetX engineering to
customize architectures in multi domain digital engineering projects.
|
| • |
Cyber Threat Assessment services for providing systematic evaluation of cyber risks, vulnerabilities, and potential impacts on critical systems with threat modeling, risk prioritization, and AI/ML based defensive
and offensive threat mitigation strategies.
|
We are building our Center for Advanced Software/Hardware Integration, at our Farmington, Utah office, utilizing AI/ML and digital twin technology integrated with VirnetX’s SDNS technology. We intend
to further augment our product strategy to provide secure, dynamic cyber-driven, AI to the marketplace. In addition to our investments with L2 Holdings, LLC (OmniTeq), AI/ML solutions provider and OP Media, Inc, a dynamic software platform
provider, we participated in a Cooperative Research and Development Agreement (CRADA) with the Air Force (AF) Research Laboratory Intelligence Systems Directorate (AFRL/RI) to facilitate collaboration on cybersecurity and Zero Trust technologies to
support integrated surveillance and reconnaissance operations as well as AF and joint targeting processes. This CRADA continues through 2030 and allows us to apply for security clearances for our employees. We are also beginning to integrate AI/ML
capabilities into VirnetX Matrix™ to enhance its zero-trust security, threat detection, and network resilience by enabling autonomous threat response, adaptive access control, and self-healing network architectures.
We intend to sell directly to U.S. defense, intelligence and government agencies. We obtained a Multiple Award Schedule (MAS) contract, so we can sell our products, services, and solutions at
pre-negotiated prices to Federal, state, and local government buyers. To strengthen our ability to support these markets, we have obtained DD Form 2345 certifications for our facilities in Zephyr Cove, Nevada, and Farmington, Utah. This
certification, formally known as the Militarily Critical Technical Data Agreement and administered by the DoW’s Joint Certification Program, enables us to access and share unclassified technical data with military or space applications subject to
export controls under the Export Administration Regulations or the International Traffic in Arms Regulations. This certification is an essential step in ensuring that we can securely handle sensitive technical information while advancing
opportunities with U.S. defense and government agencies.
We intend to continue our activities to commercialize our products, services and intellectual property in and outside the United States including VirnetX One™, War Room™, VirnetX Matrix™ and our
Secured Domain Name Registry and Technology. We believe our product portfolio to secure devices and systems are suitable in areas such as national defense, local, state, Federal and foreign governments, critical infrastructure, law enforcement,
healthcare, finance, legal, oil and gas, medical, and related support industries. We continue to actively pursue new sales opportunities in and outside of the United States.
Our employees include the core development team behind our inventions, technology, and software. Some members of this team have worked together for over twenty years and were on the same team that
invented and developed this technology while working at Leidos, Inc., or Leidos. The team has continued its research and development work to refine our unique network security technology and make it more secure and easy to deploy.
Our portfolio of intellectual property is the foundation of our business model. We currently own U.S. and foreign patents and pending applications. Our patent
portfolio is primarily focused on securing real-time communications over the Internet, and related services, and is used in all our technology and products, some of which were acquired by our principal operating subsidiary, VirnetX, Inc., from
Leidos in 2006.
Results of Operation
Three and Nine Months Ended September 30, 2025
Compared with the Three and nine Months Ended September 30, 2024
(in thousands, except per share amounts)
Revenue
We recognized revenue of $106 and $5 in the nine months ended September 30, 2025 and 2024.
Research and Development Expenses
Our research and development expenses remained steady between 2025 and 2024 totaling $1,143 and $3,617 for the three and nine months ended September 30, 2025 compared to $1,176 and $3,667 for the
three and nine months ended September 30, 2024.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses decreased from $3,213 in 2024 to $3,059 for the three months ended September 30, 2025, and decreased from $10,066 in 2024 to $8,624 for the nine months
ended September 30, 2025. The decrease was related to legal fees incurred in 2024 to protect our patents; no similar costs were incurred in 2025.
Loss on impairment of investment
Effective September 30, 2025, we identified an impairment in our investment in OP Media Inc., and a result, we recognized an impairment loss
totaling $500.
Liquidity and Capital Resources
As of September 30, 2025, our cash and cash equivalents totaled $17,129 and our short-term investments totaled $11,064, compared to cash and cash equivalents of $23,296 and short-term investments of
$14,786 at December 31, 2024, respectively. Working capital was $26,363 at September 30, 2025, and $31,009 at December 31, 2024.
We expect that our cash and cash equivalents and short-term investments as of September 30, 2025, will be sufficient to fund our current level of operating expenses and provide related working capital
for the foreseeable future. Over the longer term, we expect to derive our future revenue from collaborating with others to integrate our family of cybersecurity products and services into their solutions and to resell them to their current and
future customers as well as from license fees and royalties associated with our patent portfolio, technology, software and secure domain name registry.
Income Taxes
Our effective tax rate is 0% for income tax for the three and nine months ended September 30, 2025, and 2024, 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 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 in the fair value of our marketable securities, which generally mature within twelve months of September 30, 2025.
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 to our 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 September 30, 2025.
The purpose of this evaluation was to determine whether as of September 30, 2025 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 September 30, 2025, 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 September 30, 2025, 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”)
Risks Related to our Business and Our Financial Reporting
Our operating results may not be consistent and may be difficult to predict, and we may not be able to achieve or sustain profitability in the future.
We had a net loss of $11.6 million for the nine months ended September 30, 2025 and a net loss of $18.2 million for the year ended December 31, 2024. As of September 30, 2025, we had an accumulated
deficit of $216.3 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, MBSE and Cyber Threat 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 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 OneTM 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 or license agreement with a customer or purchaser of our products 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 are able to generate significant revenue. In addition, potential customers of our products 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.
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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 plan to 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.
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 has 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. Also, to the extent that the number of users of networks
utilizing our current or future products suddenly increases, the technology platform and secure hosting services which will be required to accommodate a higher volume of traffic may result in slower response times or service interruptions. System
interruptions or increases 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. In addition, users depend on real-time communications; outages caused
by increased traffic could result in delays and system failures. 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.
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 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 will be 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. Additionally, we maintain confidential and proprietary business information, including trade secrets. We expect to continue to have 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. Likewise, 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, 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. Remote work by our personnel and those of third parties has resulted in increased vulnerability to cyber-attacks. 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 have enacted similar legislation that has become effective in 2024; Delaware, Nebraska, Maryland, New Hampshire, New Jersey, Minnesota, Tennessee, and Iowa have enacted similar
legislation that has or will become effective in 2025; and Indiana, Kentucky, and Rhode Island have enacted similar legislation that will become effective in 2026. 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 and restricted stock dilutes the ownership interests of our existing stockholders. As of September 30, 2025, we had 242,300
outstanding options and RSUs to purchase shares of common stock representing approximately 6% of our total shares outstanding of which 228,615 were vested. To the extent restricted stock is awarded, outstanding stock options or warrants 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 September 30, 2025, our executive officers and directors beneficially owned approximately 17% 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 growth, and this capital may be dilutive, may cause our stock price to drop or may not be
available on acceptable terms, if at all.
We may need to raise additional capital, which may not be available to us when needed or may not be available on terms acceptable to us, to support our business growth or to respond to business
opportunities, challenges, or unforeseen circumstances, including sales under our past and any future shelf registration 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 Israel-Hamas 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.
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.
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 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 October 1, 2024, and September 30, 2025, the adjusted closing price for our common stock ranged between $3.86 and $20.91. 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:
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annual 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;
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| • |
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 nine months ended September 30, 2025, the Company did not adopt terminate
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Incorporated by reference herein
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||||||
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Exhibit
Number
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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.
|
||||||
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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.
|
||||||
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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.
|
||||||
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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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||
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Name:
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Katherine Allanson
|
||
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
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Date: November 14, 2025
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30