~~focus~~Provide appropriate levels of customer training and technical support for our ~~research and development efforts in areas that generate returns on our efforts;~~products;

Rapidly anticipate and adapt to changes in ~~our market; or~~the market and evolving customer requirements;

~~protect~~Protect our products from any system failures or other breaches.

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.

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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 Zero Trust Network Access (“ZTNA”) security solutions is rapidly evolving and highly competitive as new entrants and traditional network solutions companies offer cloud-based cybersecurity solutions. Many of our competitors and potential competitors have established brand recognition, larger customer bases, and greater resources than we do. Our primary competitors in the zero-trust network access market include Appgate, Cloudflare, and Illumio. In the enterprise market, our primary competitors include Zscaler (ZPA), Palo Alto Networks (Prisma Access), Cisco (Umbrella), Citrix (Secure Private Access), Netskope (Private Access for ZTNA) and Cato Networks. 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 may fundamentally alter the market for our services in unpredictable ways and reduce customer demand. If we fail to compete effectively, our business will be harmed. 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 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. For any of these reasons, we may not be able to compete successfully against our competitors.

Our success depends in part on establishing and maintaining relationships with other companies to distribute our technology and products or to incorporate our products and services, into their technology or vice versa.

Part of our business strategy is to enter into partnerships, strategic investments, and other cooperative arrangements with third parties. 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, research and development efforts, and marketing, distributor and reseller arrangements. 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.

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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 ~~or not~~ 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 its 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;~~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:

~~power~~

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Power loss, transmission cable cuts and other telecommunications ~~failures;~~failures;

~~damage~~Damage or interruption caused by fire, earthquake, and other natural ~~disasters;~~disasters;

~~computer~~Computer viruses, electronic break-ins, sabotage, vandalism or software ~~defects;~~defects; and

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~~physical~~Physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.

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.~~

~~Any significant problem with our systems or operations could~~customers, and result in lost revenue, customer dissatisfaction, or lawsuits against us. ~~A failure~~

Our business has been, and may continue to be, negatively affected by shareholders intent upon alternate business strategies.

Responding to actions by activist shareholders is costly and time-consuming, has diverted the attention of management, our board of directors and our employees, and may be disruptive to our operations. Additionally, perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a change in the ~~operation~~direction of our business or other instability, which may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel. Furthermore, if customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us, then our business, financial condition and operating results would be adversely affected. In addition, our share price could experience periods of increased volatility as a result of shareholder activism.

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. Additionally, several of our patents are currently, and other patents may in the future be, subject to USPTO post-grant inter partes review proceedings (“IPR”) which may result in all, or part of these patents being invalidated, or the claims of our patents being limited. Unfavorable or adverse outcomes in our litigation or IPRs or material leaks of trade secrets may result in losses, exhaustion of financial resources, reduction in our ability to protect our intellectual property rights, or other adverse effects, which could encumber our ability to develop and commercialize our products. 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.

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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 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~~system. The secure domain name servers that we will operate will be critical hardware to our registry services operations. Additionally, we maintain confidential and proprietary business information, including trade secrets. We expect 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 eliminate security vulnerabilities and may find it necessary or appropriate to repair or replace products already sold or licensed to our customers. Despite the ~~inability of one or more registrars to register and maintain secure domain names for a period of time. A failure in the operation or update of the master directory~~security measures that we ~~plan~~and our service providers utilize, our infrastructure and that of our service providers may be vulnerable to ~~maintain~~physical break-ins, ransomware, computer viruses, other malicious code attacks by hackers, phishing attacks, social engineering, or similar disruptive problems. 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 ~~deletion~~loss, disclosure or ~~discontinuation~~other unauthorized processing of ~~assigned~~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. The increase in remote work by our personnel and those of third parties in recent years has resulted in increased vulnerability to 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 ~~names for a period~~name registration systems, including any compromise due to human error or employee or contractor malfeasance, may jeopardize the security of ~~time. The inability~~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 ~~registrar systems we establish, including our back-office billing~~security of electronic commerce and ~~collections infrastructure, and telecommunications systems to meet~~communications over IP networks as well as the demands of an increasing number of secure domain name requests could result in substantial degradation in our customer support service and our ability to process registration requests in a timely manner.

~~Our ability to sell our solutions will be dependent on the quality~~security or reliability of our ~~technical support, and our failure to deliver~~ ~~high-quality technical support~~ services, which could have a material adverse ~~effect~~impact on our ~~sales~~business, financial condition, and results of ~~operations.~~

operation.

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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. 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 ~~do not effectively assist~~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 ~~customers~~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 ~~succeed~~globally or, in ~~helping~~some cases, prevent or delay the export or import of our ~~customers quickly resolve post-deployment~~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.

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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 and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security and storage of personally identifiable 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, such as names, email addresses and, in some jurisdictions, IP addresses.

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 adopted a General Data Protection Regulation (the “GDPR”) that became fully effective on May 25, 2018, superseding prior EU data protection legislation, imposing more stringent EU data protection requirements, and providing for greater 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. We may be required to incur substantial expense in order to make significant changes to our product and business operations in connection with obtaining and maintaining compliance with the GDPR and similar legislation, such as the UK GDPR and UK Data Protection Act, all of which may adversely affect our revenue and product sales. California has enacted legislation, the California Consumer Privacy Act (the “CCPA”) that, among other things, requires covered companies to provide disclosures to California consumers, and afford such consumers abilities to opt-out of certain sales of personal information. The CCPA was modified and expanded by the California Privacy Rights Act (the “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, and Colorado have enacted legislation similar to the CCPA and CPRA that has taken effect in 2023; Utah has enacted such legislation that is effective ~~ongoing~~as of December 31, 2023; Florida, Montana, Oregon, and Texas have enacted similar legislation that becomes effective in 2024; Delaware, Tennessee, and Iowa have enacted similar legislation that will take effect in 2025; and Indiana has enacted similar legislation that will become effective in 2026. 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.

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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, warrants, and RSUs would result in a dilution of our current stockholders’ voting power and an increase in the number of shares eligible for future resale in the public market which may negatively impact the market price of our stock.

The exercise of our outstanding vested stock options, warrants, and RSUs would dilute the ownership interests of our existing stockholders. As of December 31, 2023, we had outstanding options, warrants and RSUs to purchase an aggregate of 348,717 shares of common stock representing approximately 10% of our total shares outstanding of which 287,503 were vested and therefore exercisable. To the extent outstanding stock options or warrants are exercised, additional shares of common stock will be issued, existing stockholders’ percentage voting interests will decline and the number of shares eligible for resale in the public market will increase. 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 December 31, 2023, our executive officers and directors beneficially owned approximately 14% of our outstanding common stock. Because of their beneficial ownership interest, our officers and directors could significantly influence stockholder actions of which you disapprove or that are contrary to your interests. This ability to exercise significant influence could prevent or significantly delay another company from acquiring or merging with us.

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Our protective provisions in our Amended and Restated Certificate of Incorporation and bylaws could make it difficult for a third party to successfully acquire us even if you would like to sell your stock to them.

We have protective provisions in our Amended and Restated Certificate of Incorporation and bylaws that could delay, discourage, or prevent a third party from acquiring control of us without the approval of our Board of Directors. These protective provisions include:

A staggered Board of Directors: Only one or two directors (of our five-person Board of Directors) will be up for election at any given annual meeting. This delays the ability of stockholders to affect a change in control of us because it would take two annual meetings to effectively replace a majority of the Board of Directors.

Blank check preferred stock: Our Board of Directors has the authority to establish the rights, preferences, and privileges of our 10,000,000 authorized, but unissued, shares of preferred stock. 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.

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 bylaws.

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.

Super majority requirement for stockholder amendments to the bylaws: Stockholder proposals to alter or amend our bylaws or to adopt new bylaws can only be approved by the affirmative vote of at least 66 2/3% of the outstanding shares of our common stock.

No ability of stockholders to call a special meeting of the stockholders: A special meeting of the stockholders, other than as required by statute, may be called at any time by the Board of Directors, or by the chairman of the board, or by the president, and any power of stockholders to call a special meeting of stockholders is specifically denied. Accordingly, stockholders, even those who represent a significant percentage of our shares of common stock, may need to wait for the annual meeting before nominating directors or raising other business proposals to be voted on by the stockholders.

In addition, the provisions of Section 203 of the Delaware General Corporation Law govern us. 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.

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These and other provisions in our Amended and Restated Certificate of Incorporation, our bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

Our amended and 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 amended and 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 amended and restated certificate of incorporation or amended and 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 amended and 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 amended and 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 ~~if potential customers perceive that we~~ may not be ~~able achieve~~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.

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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 ~~foregoing,~~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 ~~products would~~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 ~~reputation with current and potential customers could~~business may be harmed. In addition, as we expand our operations internationally, our technical support team will face additional challenges, including those associated with delivering support, training and documentation in languages other than English. Our failure to deliver and maintain high-quality technical support services to our customers could result in customers choosing to use our competitors’ products and support services instead of ours in the future.

~~Telephone carriers have petitioned governmental agencies to enforce regulatory tariffs, which, if granted, would~~ ~~increase the cost of online communication, and such increase in cost may impede the growth of online~~ ~~communication and adversely affect our business.~~

Use of the Internet has over-burdened existing telecommunications infrastructures, and many high traffic areas have begun to experience interruptions in service. As a result, certain local telephone carriers have petitioned governmental agencies to enforce regulatory tariffs on IP telephony traffic that crosses over their traditional telephone networks. If the relief sought in these petitions is granted, the costs of communicating via online could increase substantially, potentially adversely affecting the growth in the use of online secure communications. Any of these developments could have an adverse effect on our business.

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 ~~may result in additional severance costs to us.~~

materially harm our business.

Our success ~~largely~~ 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 ~~failure to adequately~~ 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.~~

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.

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~~Our international expansion will subject us to additional costs and risks,~~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 ~~plans~~service delivery.

Our business may ~~not~~ be ~~successful.~~

~~We expect to expand~~adversely affected by instability, disruption, or destruction in a geographic region in which we operate, regardless of cause, including war, terrorism, riot, civil insurrection, or social unrest, and natural or manmade disasters, including famine, flood, fire, earthquake, storm, or pandemic events and spread of disease, such as the COVID-19 pandemic. Our business may also be adversely affected by further downturn in macroeconomic conditions, including inflation and rising interest rates, 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, and other factors. Such events can adversely affect our ~~presence internationally through, for example, international partnerships with third parties and~~operations or the ~~possibility of establishing international subsidiaries and offices. Our international expansion may present challenges and risks, including those inherent in international operations, to us~~economy as a whole and may ~~require~~cause our customers to delay their decisions on spending for the services we provide and perpetuate significant ~~attention from management. We~~changes in regional and global economic conditions and cycles. These events may ~~not be successful in~~also pose risks to our ~~international partnerships, expansion efforts,~~personnel and ~~we may incur significant operating expenses~~

~~We may identify future material weakness which may result in late filings, increased costs or declines in our share~~ ~~price.~~

~~Although we believe that we currently maintain effective control over our disclosures~~to physical facilities and procedures and internal control over financial reporting, we may in the future identify deficiencies regarding the design and effectiveness of our system of internal control over financial reporting. If we experience any material weaknesses in our internal control over financial reporting the future or are unable to provide unqualified management or attestation reports about our internal controls, we may be unable to meet financial and other reporting deadlines and may incur costs associated with remediation, and any ofoperations, which could ~~cause~~adversely affect our ~~share price to decline.~~

~~Risks Related to Our Common Stock~~

financial results.

Index

Trading in our common stock is limited and the price of our common shares may be subject to ~~substantial~~ volatility.

Our common stock is currently listed on the NYSE and was previously listed on the NYSE American LLC (formerly the NYSE MKT LLC). Over the past years, the market price of our common stock has experienced significant fluctuations. Between January 1, ~~2017,~~2023, and December 31, ~~2017,~~2023, the ~~reported last~~ adjusted closing price on the NYSE ~~American LLC~~ for our common stock ranged between ~~$1.85~~$3.53 and ~~$8.25 per share.~~$12.60, adjusted for a 1-for-20 reverse stock split effective October 26, 2023. The price of our common stock may continue to be volatile as a result of several factors, some of which are beyond our control. These factors include, but not limited to, the following:

~~developments~~

Annual variations, actual or ~~lack thereof in any then-outstanding litigation;~~

~~quarterly variations~~anticipated, in our operating ~~results;~~results;

~~large~~Significant changes in our management;

Large purchases or sales of common stock or derivative transactions related to our ~~stock;~~stock;

~~actual~~Actual or anticipated announcements of new products or services by us or ~~competitors;~~competitors;

~~general~~General conditions in the markets in which we ~~compete;~~compete; and

~~general~~General social, political, economic, and financial conditions, including the significant volatility in the global financial markets.

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 or ~~“FINRA”.~~“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;~~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 ~~or other types of~~ market manipulation could cause our stock trading price to decline, to become more volatile, or both.

~~The market~~ For more information regarding trading in our common stock and listing on the NYSE, see additional risk factors included elsewhere in this Annual Report on Form 10-K.

We have broad discretion in how we apply our funds, and we may not use these funds effectively, which could affect our results of operations and cause our stock price to decline.

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 has been and~~stock. Pending their use, we may ~~continue~~invest our available funds in a manner that does not produce income or that loses value. The failure by our management to ~~be volatile, and you~~apply our available funds effectively could ~~lose all or part~~ ~~of your investment.~~

~~The trading price of our common stock has been volatile since our initial public offering, and is likely to continue to be volatile. Factors~~result in financial losses that could cause ~~fluctuations in~~ the ~~market price of our common stock include, but are not limited to the following:~~

~~price and volume fluctuations in the overall stock market from time to time;~~

~~volatility in the market prices and trading volumes of companies in our industry or companies that investors consider comparable;~~

~~changes in operating performance and stock market valuations of other companies generally, or those in our industry;~~

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~~sales of shares of our common stock by us or our stockholders;~~

~~failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow us, or our failure to meet these estimates or the expectations of investors;~~

~~the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;~~

~~announcements by us or our competitors of new products or services;~~

~~the public’s reaction to our press releases, other public announcements and filings with the SEC;~~

~~rumors and market speculation involving us or other companies in our industry;~~

~~actual or anticipated changes in our results of operations;~~

~~actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;~~

~~litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;~~

~~announced or completed acquisitions of businesses or technologies by us or our competitors;~~

~~new laws or regulations or new interpretations of existing laws or regulations applicable to our business;~~

~~changes in accounting standards, policies, guidelines, interpretations or principles;~~

~~any significant change in our management; and~~

~~general economic conditions and slow or negative growth of our markets.~~

Further, in recent years the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. In addition, the stock prices of many technology companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, government shutdowns, interest rate changes the stability of the EU and the exit of the United Kingdom or international currency fluctuations, may cause the market price of our common stock to ~~decline.~~ decline and delay the development of our products.

In ~~the past, following periods of volatility~~addition, an entity that, among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the ~~overall market and~~business of investing, reinvesting, owning, trading, or holding certain types of securities would be deemed an Investment Company under the ~~market price~~Investment Company Act of ~~a particular company’s securities, securities class action litigation has often been instituted against these companies.~~

We1940 (the “1940 Act”). If we do not ~~currently pay dividends on~~manage our ~~common stock~~investments 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. This appreciation may not occur.

~~The exercise of our outstanding stock options, RSU’s and issuance of new shares would result in a dilution of our~~ ~~current stockholders’ voting power and an increase in the number of shares eligible for future resale in the public~~ ~~market which may negatively impact the market price of our stock.~~

The exercise of our outstanding vested stock options would dilute the ownership interests of our existing stockholders. As of December 31, 2017, we had outstanding options to purchase an aggregate of 5,138,066 shares of common stock representing approximately 9% of our total shares outstanding of which 3,129,233 were vested and therefore exercisable. To the extent outstanding stock options are exercised, additional shares of common stock will be issued, existing stockholders’ percentage voting interests will decline and the number of shares eligible for resale in the public market will increase. Such increase may have a negative effect on the value or market trading price of our common stock.

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~~The market price of our common stock may decline because our operating results may not be consistent and may~~ ~~be difficult to predict.~~

Our reported net income has fluctuated in the past due to several factors. We expect that our future operating results may also fluctuate due to the same or similar factors. We had a net loss of $29.2 million for the year ended December 31, 2015, a net loss of $28.6 million for the year ended December 31, 2016, and a net loss of $17.3 million for the year ended December 31, 2017, with an accumulated deficit of $176 million. The following include some of the factors that may cause our operating results to fluctuate:

~~the outcome of actions to enforce our intellectual property rights currently in progress or that we may undertake in the future, and the timing thereof;~~

~~the amount and timing of receipt of license fees from potential infringers, licensees or customers;~~

~~the rate of adoption of our patented technologies;~~

the number of new license arrangements we may execute, or that may expire, within a particular period and the scope of those licenses, including the number of our patents which are licensed, the extent of prior infringement of our patent rights, royalty rates, timing of payment obligations, expiration date etc.;

~~the success of a licensee in selling products that use our patented technologies; and~~

~~the amount and timing of expenses related to our patent filings and enforcement proceedings, including litigation, related to our intellectual property rights.~~

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.

~~Because ownership of our common stock is concentrated, investors may have limited influence on stockholder~~ ~~decisions.~~

As of December 31, 2017, our executive officers and directors beneficially owned approximately 12% of our outstanding common stock. In addition, a group of stockholders that, as of December 31, 2007, held 4,766,666 shares, or approximately 8% of our outstanding common stock, have entered into a voting agreement with us that requires them to vote all of their shares of our voting stock in favor of the director nominees approved by our Board of Directors at each director election going forward, and in a manner that ~~is proportional~~meets the requirements for an exemption under the 1940 Act, we may be deemed to be an investment company under the ~~votes cast by~~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.

Index

Item 1B.

Unresolved Staff Comments

None.

Index

Item 1C.

Cybersecurity

Cybercriminals, hackers, and threat-actors are becoming more sophisticated and effective every day. To mitigate threats to our business, we take a comprehensive approach to cybersecurity risk management and make securing the data that our customers and other stakeholders entrust to us a top priority. We are committeed to safeguarding the confidentiality, integrity, and availability of all ~~other voting shares as~~physical and electronic information assets to ~~any other matters submitted to~~ensure that regulatory, operational, and contractual requirements are fulfilled. Our board of directors (the “Board”) and our management are actively involved in the ~~stockholders for a vote. However, we cannot be certain how many shares~~oversight of our ~~common stock this group of stockholders currently owns. Because of their beneficial ownership interest, our officers and directors could significantly influence stockholder actions~~risk management program, of which ~~you disapprove or that are contrary to your interests. This ability to exercise significant influence could prevent or significantly delay another company~~cybersecurity represents an important component. As described in more detail below, we have established policies, processes and practices for assessing, identifying, and managing material risks from ~~acquiring or merging with us.~~

~~Our protective provisions in our amended and restated certificate of incorporation and bylaws could make it~~ ~~difficult for a third party to successfully acquire us even if you would like to sell your stock to them.~~

cybersecurity threats. We have devoted significant resources to implement and maintain security measures to meet regulatory requirements and customer expectations, and we intend to continue to make significant investments to maintain the security of our data and cybersecurity infrastructure. Notwithstanding the extensive approach we take to cybersecurity, we may not be successful in preventing or mitigating a ~~number of protective provisions in our amended and restated certificate of incorporation and bylaws~~cybersecurity incident that could ~~delay, discourage or prevent~~have a ~~third party from acquiring control of~~material adverse effect on us ~~without the approval of our Board of Directors. These protective provisions include:~~

~~A staggered Board of Directors:~~ ~~This means that only one or two directors (since~~. While we have ~~a five-person Board of Directors) will be up for election~~technology and processes in place to detect and respond to cybersecurity threats, we are continually at ~~any given annual meeting. This has~~risk from the ~~effect of delaying the ability of stockholders to affect a change in control of us because it would take two annual meetings to effectively replace a majority of the Board of Directors.~~

~~Blank check preferred stock~~: Our Board of Directors has the authority to establish the rights, preferences and privileges of our 10,000,000 authorized, but unissued, shares of preferred stock. 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. evolving cybersecurity threat landscape. We have not ~~adopted such~~previously experienced a ~~“poison pill;” but our Board of Directors has the ability to do so in the future, very rapidly and without stockholder approval.~~

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~~Advance notice requirements for director nominations and for new business~~cybersecurity event that was determined to be ~~brought up at~~ ~~stockholder meetings:~~ ~~Stockholders wishing~~material, and our business strategy, results of operations and financial condition have not been materially affected by risks from cybersecurity threats. For additional information regarding risks from cybersecurity threats, please refer to ~~submit director nominations~~Item 1A, “Risk Factors,” in this Annual Report on Form 10-K.

Risk Management and Strategy

We have developed detailed policies, processes and practices for assessing, identifying, and managing material risks from cybersecurity threats as a part of our overall risk management program and are based on frameworks established by the National Institute of Standards and Technology (“NIST”), and other applicable industry standards. This does not imply that we meet any particular technical standards, specifications or ~~raise matters~~requirements, however, we do use these frameworks as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business. Our cybersecurity program in particular focuses on the following key areas:

Collaboration

Our cybersecurity risks are identified and addressed through a ~~vote~~comprehensive, cross-functional approach. Key security, risk, and compliance stakeholders meet regularly to develop strategies for preserving the confidentiality, integrity and availability of our own and our customer’s information, identifying, preventing and mitigating cybersecurity threats, and effectively responding to cybersecurity incidents. We maintain controls and procedures that are designed to ensure prompt escalation of certain cybersecurity incidents so that decisions regarding such incidents can be made by management, the Board, and legal counsel in a timely manner.

Risk Assessment

We conduct cybersecurity risk assessments annually, quarterly and upon certain triggering events. Such risk assessments take into account information from internal stakeholders, known information security vulnerabilities, and information from external sources (e.g., reported security incidents that have impacted other companies, industry trends, and recommendations from our IT vendors). The results of the ~~stockholders must provide notice~~assessment are used to ~~us within very specific date windows~~drive alignment on, and ~~in very specific form in order~~prioritization of, initiatives to ~~have the matter voted on at~~enhance our security controls, make recommendations to improve processes, and inform a stockholder meeting. This has the effect of giving our Board of Directors and management more time to react to stockholder proposals generally and could also have the effect of disregarding a stockholder proposal or deferring it to a subsequent meeting to the extent such proposalbroader enterprise-level risk assessment that is ~~not raised properly.~~

~~No stockholder actions by written consent:~~ ~~No stockholder or group of stockholders may take actions rapidly and without prior notice~~presented to our Board and members of ~~Directors~~senior management.

Technical Safeguards

We regularly assess and deploy technical safeguards designed to protect our information systems and infrastructure from cybersecurity threats. Such safeguards are regularly evaluated and improved based on vulnerability assessments, cybersecurity threat intelligence and incident response experience.

Incident Response and Recovery Planning

We have established comprehensive incident response and management orplans and continue to regularly test and evaluate the ~~minority stockholders. Along~~effectiveness of those plans. Our incident response and management plans address — and guide our employees, management, and Board on — our response to a cybersecurity incident. In the event of an incident, we intend to follow our incident response playbook, which outlines the steps to be followed from incident detection to mitigation, recovery and notification, including notifying functional areas (e.g., legal), as well as the Board and senior management, as appropriate.

Third-Party Risk Management

We have implemented controls designed to identify and mitigate cybersecurity threats associated with our use of third-party service providers. Such providers are subject to security risk assessments at the ~~advance notice requirements described above, this provision~~time of onboarding, contract renewal, and upon detection of an increase in risk profile. We use a variety of inputs in such risk assessments, including information supplied by providers and third parties. In addition, we encourage our providers to meet appropriate security procedures, controls and responsibilities and investigate security incidents that have impacted our third-party providers, as appropriate.

Education and Awareness

Our policies require each of our employees to contribute to our cybersecurity efforts. We regularly remind employees of the importance of handling and protecting customer and employee data, including through privacy and security trainings to enhance employee awareness of how to detect and report cybersecurity threats and cybersecurity incidents.

Governance

Board Oversight

The Nominating and Corporate Governance Committee (the “Committee”) and senior management oversee our cybersecurity risk processes and policies. The Committee receives regular reports from senior management about the prevention, detection, mitigation, and remediation of cybersecurity incidents, including security risks and information security vulnerabilities. The Committee also ~~gives our~~ensures that procedures for safeguarding the Company’s information technology (“IT”) systems are documented and implemented, monitors the effectiveness of the Company’s cybersecurity program for protecting against internal and external threats as well as disaster recovery and disruption mitigation, and addresses deficiencies as the threat and business landscape continues to evolve. The Board receives regular updates from the Committee based on such oversight and communications with senior management regarding cybersecurity risk resulting from risk and control maturity assessments, progress of risk reduction initiatives, external auditor feedback and relevant internal and industry cybersecurity incidents.

Our Board has technical and industry expertise in risk management, computer security and information technology matters. Specifically, the chairperson of the Committee has 39 years of experience in the cybersecurity field, is a former sub-chairman of the NIST Board of ~~Directors~~Assessment for Programs/National Research Council and ~~management more time to react to proposed stockholder actions.~~holds CISSP and CRISC certifications.

~~Super majority requirement~~Management’s Role

Our chief technology officer (“CTO”), Director of IT (Information Technology), Director of SecDevOps (Security, Development Operations) (collectively, the “Security Team”) have primary responsibility for ~~stockholder amendments to~~assessing and managing cybersecurity risks. The Security Team reviews security performance metrics, identifies security risks, and assesses the ~~By-laws:~~ ~~Stockholder proposals to alter or amend our By-laws or to adopt new By-laws can only be~~status of approved ~~by the affirmative vote~~security enhancements. The Security Team also considers and makes recommendations on security policies and procedures, security service requirements, and risk mitigation strategies.

Our CTO has served in various roles in information technology and information security for over 30 years, He holds a PhD in Information Technology and has been with VirnetX since 2007. Our Director of ~~at least 66 2/3% of the outstanding shares of our common stock.~~IT has served in various roles in information technology for 29 years. He holds degree in Computer Technology. Our SecDevOps Director has served in various roles in information technology and information security for over 33 years.

~~No ability of stockholders to call a special meeting of the stockholders:~~ Only the Board of Directors or management can call special meetings of the stockholders. This could mean that stockholders, even those who represent a significant percentage of our shares of common stock, may need to wait for the annual meeting before nominating directors or raising other business proposals to be voted on by the stockholders.

In addition, the provisions of Section 203 of the Delaware General Corporate Law govern us. These provisions may prohibit large stockholders, in particular 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 amended and restated certificate of incorporation, our bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

~~Item 1B.~~

Index

~~Unresolved Staff Comments.~~

~~None~~

Item 2.

Properties

Our principal executive offices are located at 308 Dorla Court, Suite 206, Zephyr Cove, Nevada, 89448. We lease this property, which comprises approximately 2,090 square feet of office space, from a third party for a term that ends in October ~~2019.~~2025. Additionally, we lease a facility in Farmington, Utah. The space includes 28,970 square feet to be used for technical integration and training. The lease continues through April 2029. We ~~have no other properties and~~ believe that our office and facility isleases are suitable and appropriately ~~supports~~support our current business needs.

Item 3.

Legal Proceedings

~~We have eleven intellectual property infringement lawsuits pending~~

See Note 12 in the ~~United States District Court for the Eastern District of Texas, Tyler Division, and United States Court of Appeals for the Federal Circuit (“USCAFC”).~~

~~VirnetX Inc. v. Apple, Inc. (Case 6:12-CV-00855-LED)~~

On March 30, 2015, the United States Court for the Eastern District of Texas, Tyler Division, issued an order finding substantial overlap between the remanded portions of the Civil Action Case 6:10-CV-00417-LED (VirnetX vs. Cisco et. al.), and the ongoing Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.). The court consolidated the two civil actions under Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.) and designated it as the lead case. The jury trial in this case was held on January 25, 2016. On February 4, 2016, a jury in the United States Court for the Eastern District of Texas, Tyler Division, awarded us $625.6 million in a verdict against Apple Inc. for infringing four of our US patents, marking it the second time a federal jury has found Apple liable for infringing VirnetX’s patented technology. The verdict includes royalties awarded to us based on an earlier patent infringement finding ~~(Case 6:10-CV-00417-LED)~~ against Apple. The jury found that Apple’s modified VPN On-Demand, iMessage and FaceTime services infringed VirnetX’s patents and that Apple’s infringement was willful. In addition to determining the royalty owed by Apple for its prior infringement, this verdict also includes an award based on the

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jury’s finding that Apple’s modified VPN On Demand, iMessage and FaceTime services have continued to infringe VirnetX’s patents. The post-trial hearing was held on May 25, 2016 in the United States Court for the Eastern District of Texas, Texarkana Division. On July 29, 2016, the court issued a new order, vacating its previous orders consolidating the cases (Case No. 6:10-cv-417, Docket No. 878 (“Apple I case”); Case No. 6:12-cv-855, Docket No. 220 (“Apple II case”)), ordering that the two cases be retried separately, and setting the retrial date for Apple I case with jury selection to begin on September 26, 2016. The court also ordered that the issue of willfulness in both cases is bifurcated and that the Apple II case will be retried after Apple I case. Events and developments subsequent to the order from the court are described to support Apple I and Apple II matters.

~~VirnetX Inc. v. Cisco Systems, Inc. et al. (Case 6:10-CV-00417-LED) (“Apple I”)~~

On August 11, 2010, we initiated a lawsuit by filing a complaint against Aastra USA. Inc. (“Aastra”), Apple, Cisco Systems, Inc. (“Cisco”), and NEC Corporation (“NEC”) in the United States District Court for the Eastern District of Texas, Tyler Division, pursuant to which we alleged that these parties infringe on certain of our patents. We sought damages and injunctive relief. Aastra and NEC agreed to sign license agreements with us and we agreed to drop all the accusations of infringement against them. At the pre-trial hearing, the judge decided to conduct separate jury trial for each defendant, and try only the case against Apple on the scheduled trial date. The jury trial of our case against Cisco was held on March 4, 2013. The jury in our case against Cisco came back with a verdict of non-infringement also determined that all our patents-in-suit patents are not invalid. Our motions for a new trial and Cisco’s infringement of certain VirnetX patents were denied and the case against Cisco was closed.

The jury trial of our case against Apple was held on October 31, 2012. On November 6, 2012, a jury in the United States Court for the Eastern District of Texas, Tyler Division, awarded us over $368 million in a verdict against Apple for infringing four of our patents. On February 26, 2013, the court issued its Memorandum Opinion and Order regarding post-trial motions resulting from the prior jury verdict denying Apple’s motion to reduce the damages awarded by the jury for past infringement. The Court further denied Apple’s request for a new trial on the liability and damages portions of the verdict and granted our motions for pre-judgment interest, post-judgment interest, and post-verdict damages to date. The Court ordered that Apple pay $34 thousand in daily interest up to final judgment and $330 thousand in daily damages for infringement up to final judgment for certain Apple devices included in the verdict. The Court denied our request for a permanent injunction and severed the future infringement portion into its own separate proceedings under Case 6:13-CV-00211-LED.

On July 3, 2013, Apple filed an appeal of the judgment dated February 27, 2013 and order dated June 4, 2013 denying Apple’s motion to alter or amend the judgment to the USCAFC. On September 16, 2014, USCAFC issued their opinion, affirming the jury’s finding that all 4 of our patents are valid, confirming the jury’s finding of infringement of VPN on Demand under many of the asserted claims of our ‘135 and ‘151 patents, and confirming the district’s court’s decision to allow evidence concerning our licenses and royalty rates in connection with the determination of damages. In its opinion, the USCAFC also vacated the jury’s damages award and the district court’s claim construction with respect to parts of our ‘504 and ‘211 patents and remanded the damages award and determination of infringement with respect to FaceTime –for further proceedings consistent with its opinion. On October 16, 2014, we filed a petition with the USCAFC, requesting a rehearing and rehearing en banc of the Federal Circuit’s September 14, 2014, decision concerning VirnetX’s litigation against Apple Inc. On December 16, 2014, USCAFC denied our petition requesting a rehearing and rehearing en banc of the Federal Circuit’s September 14, 2014, decision and remanded the case back to the Eastern District of Texas, Tyler Division, for further proceedings consistent with its opinion. On February 25, 2015, USCAFC granted Apple’s motions to lift stay of proceedings and vacate Case 6:13-CV-00211-LED. On March 30, 2015, the court issued an order finding substantial overlap between the remanded portions of this case and the ongoing Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.). The court consolidated the two civil actions under Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.) and designated it as the lead case.

On July 29, 2016, the court issued a new order, vacating its previous orders consolidating the cases Apple I case and Apple II case, ordering that the two cases be retried separately, and setting the retrial date for Apple I case with jury selection to begin on September 26, 2016. The court also ordered that the issue of willfulness in both cases is bifurcated and that the Apple II will be retried after Apple I case. The jury trial in this case was held on September 26, 2016. On September 30, 2016, a Jury in the United States Court for the Eastern District of Texas, Tyler Division, in the case VirnetX Inc., et al. v. Apple Inc., No. Apple I, has awarded VirnetX $302.4 million in a verdict against Apple for infringing four VirnetX patents, marking the third time a federal jury has found Apple liable for infringing VirnetX’s patented technology.

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The verdict includes royalties awarded to VirnetX, for unresolved issues in the Apple I case, remanded back from the USCAFC, related to (1) damages owed to VirnetX for infringement by Apple’s original VPN-on-Demand (VOD) and (2) the alleged infringement by Apple’s original FaceTime product, under the new claim construction of “secure communication link” pertaining to the ’504 and ’211 patents by the USCAFC, and the damages associated with that infringement. The hearing on all the post-trial motions was held on November 22, 2016.

On September 29, 2017, the United States District Court for the Eastern District of Texas, Tyler Division, entered Final Judgement and issued its Memorandum Opinion and Order regarding post-trial motions resulting from the prior $302.4 million jury verdict for VirnetX in the Apple I case.

In the Order, the Court denied all of Apple’s post-trial motions including motion for judgment as a matter of law of non-infringement, motion for judgment as a matter of law on damages, motion for a new trial on infringement, and motion for a new trial on damages. The Court granted all VirnetX’s post-trial motions including motion for willful infringement and enhanced the royalty rate during the willfulness period by 50 percent, from $1.20 to $1.80 per device, awarding VirnetX, enhanced damages in the amount of $41.3 million against Apple thereby, granting VirnetX a total sum of $343.7 million in pre-interest damages. The Court also awarded costs, certain attorneys’ fees, and prejudgment interest to VirnetX, and directed the parties to meet and confer regarding these amounts. On October 13, 2017, having met and conferred and having reached agreements on all amounts, parties jointly filed a motion asking the Court to grant VirnetX an additional sum in the amount of $96 million in agreed Bill of Costs, Attorneys’ Fees, and Prejudgment Interest. The Final Judgement is only subject to appeal stemming from new issues unresolved in the Apple I case, remanded back from the United States Court of Appeals for the Federal Circuit. The total Final Judgement amount including Jury Verdict, Willful Infringement, Interest, Costs and Attorney Fees is $439.7 million.

On October 27, 2017 Apple filed its notice of appeal of the Final Judgment entered on September 29, 2017 to the United States Court of Appeals for the Federal Circuit. This case has now been closed and events and developments subsequent to the notice of appeal are described below under ~~VirnetX Inc. v. Cisco Systems, Inc. (USCAFC Case~~ ~~18-1197-CB) (Appeal of Apple I Case)~~.

~~VirnetX Inc. v. Apple, Inc. (Case 6:12-CV-00855-LED) (“Apple II”)~~

On November 6, 2012, we filed a complaint against Apple in the United States District Court for the Eastern District of Texas, Tyler Division for willfully infringing four of our patents, U.S. Patent Nos. 6,502,135, 7,418,504, 7,921,211 and 7,490,151, and seeking both an unspecified amount of damages and injunctive relief. The accused products include the iPhone 5, iPod Touch 5^th ~~Generation, iPad 4~~^th Generation, iPad mini, and the latest Macintosh computers. Due to their release dates, these products were not included in the previous lawsuit that concluded with a Jury verdict on November 6, 2012 that was subsequently upheld by the United States District Court for the Eastern District of Texas, Tyler Division, on February 26, 2013. On July 1, 2013, we filed a consolidated and amended complaint to include U.S. Patent No. 8,051,181 and consolidate Civil Action No. 6:11-cv-00563-LED. On August 27, 2013, we filed an amended complaint including allegations of willful infringement related to U.S. Patent No. 8,504,697 seeking both damages and injunctive relief. The Markman hearing in this case was held on May 20, 2014 and on August 8, 2014, issued its Markman Order, denying Apple’s motion for summary judgment of indefiniteness, in which Apple alleged that some of the disputed claims terms in the patents asserted by us were invalid for indefiniteness. In a separate order, the court granted in part and denied in part our motion for partial summary judgment on Apple’s invalidity counterclaims, precluding Apple from asserting invalidity as a defense against infringement of the claims that were tried before a jury in our prior litigation against Apple (VirnetX vs. Cisco et. al., Case 6:10-CV-00417-LED). The jury trial in this case was scheduled for October 13, 2015. On March 30, 2015, the court issued an order finding substantial overlap between this case and the remanded portions of Case 6:10-CV-00417-LED (VirnetX vs. Cisco et. al.). The court consolidated the two civil actions under Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.) and designated it as the lead case. On July 29, 2016, the court issued a new order, vacating its previous orders consolidating the cases Apple I case and Apple II case, ordering that the two cases be retried separately, and setting the retrial date for Apple I case with jury selection to begin on September 26, 2016. The court also ordered that the issue of willfulness in both cases is bifurcated and that the Apple II will be retried after Apple I case.

On September 29, 2017, the Court issued an order denying Apple’s Motion to Stay. The Court ordered the parties to meet and confer and file a joint motion with a proposed trial date by October 13, 2017. The parties have met, conferred and filed a joint motion on the proposed trial dates. On November 9, 2017, the court issued its order setting this case for jury selection on April 2, 2018 in Tyler, Texas.

~~TABLE OF CONTENTS~~

On January 5, 2018, Apple filed a Petition for Writ of Mandamus with the USCAFC requesting the court to stay the upcoming limited retrial of the Apple II pending the USCAFC’s decision in related consolidated appeal VirnetX Inc. v. Apple Inc., Cases 2017-1591. On February 22, 2018, the USCAFC issued its order denying Apple’s Petition for Writ of Mandamus. The Apple II case is proceeding on schedule for jury selection on April 2, 2018 per the district court’s order.

~~VirnetX Inc. v. Cisco Systems, Inc. (USCAFC Case 18-1197-CB) (Appeal of Apple I Case)~~

~~On October 27, 2017 Apple filed its notice of appeal of the Final Judgment entered on September 29, 2017 to the United States Court of Appeals for the Federal Circuit.~~

On January 5, 2018, Apple filed a motion requesting a stay of the briefing schedule in this appeal pending this court’s decision in related consolidated appeal VirnetX Inc. v. Apple Inc., Cases 2017-1591. On January 24, 2018, USCAFC denied Apple’s motion requesting a stay of the briefing schedule and ordered Apple to file its opening brief no later than March 19, 2018.

~~VirnetX Inc. v. Apple, Inc. (Case 15-1934)~~

On July 10, 2015, we filed appeals with the USCAFC, appealing the invalidity findings by the United States Patent and Trademark Office, Patent Trial and Appeal Board (“PTAB”) in IPR2014-00237 and IPR2014-00238, related to U.S. Patent No. 8,504,697. The oral arguments in this case were heard on November 7, 2016. On December 9, 2016, the USCAFC affirmed the PTAB based on the grounds discussed in IPR2014-00238. We are currently evaluating our options in this case.

~~VirnetX Inc. v. Apple, Inc. (Case 16-1211)~~

On September 28, 2015, we filed appeals with the USCAFC, appealing the invalidity findings by the PTAB in IPR2014-00403 and IPR2014-00404 and on October 22, 2015 for IPR2014-00481 and IPR2014-00482 involving our U.S. Patent Nos. 7,188,180, and 7,987,274. The oral arguments in this case were heard on November 7, 2016. On December 9, 2016, the USCAFC affirmed the PTAB based on the grounds discussed in IPR2014-00403 and IPR2014-00481. We are currently evaluating our options in this case.

~~VirnetX Inc. v. Apple, Inc. (Case 16-1480)~~

On November 30, 2015, we filed appeals with the USCAFC, appealing the invalidity findings by the PTAB in inter-partes reexamination no. 95/001,949 related to U.S. Patent No. 8,051,181. The oral arguments in this case were heard on November 7, 2016. On December 9, 2016, the USCAFC affirmed the PTAB based on certain grounds. We are currently evaluating our options in this case.

~~VirnetX Inc. v. Apple, Inc. (Case 16-119)~~

On March 4, 2016, we filed a petition for writ of mandamus with the USCAFC, requesting the USCAFC’s intervention to revoke the PTAB’s decision joining Apple to IPR2015-01046 and IPR2015-01047, related to U.S. Patent Nos. 6,502,135 and 7,490,151. On March 18, 2016, the USCAFC denied the petition without prejudice to us raising the arguments on appeal after the PTAB’s final decisions. We are currently evaluating our options in this case.

~~VirnetX Inc. v. Apple, Inc. (Case 17-1131)~~

On October 31, 2016, we filed appeals with the USCAFC, appealing the invalidity findings by the PTAB in IPR2015-00810 and IPR2015-00812, on November 9, 2016 for IPR2015-00811, and on November 28, 2016 for IPR2015-00866, IPR2015-00868, IPR2015-00870 and IPR2015-00871 involving our U.S. Patent Nos.8,868,705, 8,850,009, 8,458,341, 8,516,131, and 8,560,705. These appeals have been consolidated. The briefing in these appeals has been concluded; the oral argument were held on March 5, 2018. We are awaiting the courts ruling in this matter.

~~VirnetX Inc. v. The Mangrove Partners (Case 17-1368)~~

On December 16, 2016, we filed appeals with the USCAFC, appealing the invalidity findings by the PTAB in IPR2015-01046, and on December 20, 2016 for IPR2015-1047, involving our U.S. Patent Nos. 6,502,135, and 7,490,151. These appeals also involve Apple, Inc. and one of them involves Black Swamp IP, LLC. On April 27, 2017, the USCAFC stayed these appeals pending the USCAFC’s en banc decision in ~~Wi-Fi One, LLC v. Broadcom~~ ~~Corporation,~~ ~~No. 2015-1944. The stay was lifted on January 31, 2018, and briefing is now ongoing.~~

~~TABLE OF CONTENTS~~

~~VirnetX Inc. v. Apple Inc., Cisco Systems, Inc. (Case 17-1591)~~

~~On February 7, 2017, we filed appeals with the USCAFC, appealing the invalidity findings by the PTAB in inter-partes reexamination nos. 95/001,788, 95/001,789, and 95/001,856 related~~notes to our ~~U.S. Patent Nos. 7,921,211 and 7,418,504~~. ~~These appeals have been consolidated. The briefing in these appeals has been concluded; the oral arguments have not yet been scheduled.~~

~~VirnetX Inc. v. Apple Inc. (Case 17-2490)~~

On August 23, 2017, we filed appeals with the USCAFC, appealing the invalidity findings by the PTAB in IPR2016-00331 and IPR2016-00332 involving our U.S. Patent No. 8,504,696. These appeals have been consolidated. The briefing in these appeals has been concluded; the oral arguments have not yet been scheduled.

~~In re VirnetX Inc. (Case 17-2593)~~

On September 22, 2017, we filed appeals with the USCAFC, appealing the invalidity findings by the PTAB in IPR2016-00693 and IPR2016-00957 involving our U.S. Patent Nos. 7,418,504 and 7,921,211. These appeals have been consolidated. The briefing in these appeals is ongoing. The entity that initiated the IPRs, Black Swamp IP, LLC, indicated on October 18, 2017, that it would not participate in the appeals. On November 27, 2017, the United States Patent and Trademark Office indicated that it would intervene in the appeals. On January 19, 2018, the USCAFC stayed these appeals pending the USCAFC’s decision in Case 17-1591.

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 worth pursuing, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we will prevail on such potential claims. In addition, bringing a lawsuit may lead to potential counterclaims which may preclude our ability to commercialize our initial products, which are currently in development.

~~Currently, we are not a party to any other pending legal proceedings, and are not aware of any proceeding threatened or contemplated against us by any governmental authority or other party.~~

consolidated financial statements.

Item 4.

Mine Safety ~~Disclosure.~~Disclosure

Not ~~applicable~~

applicable.

Index

~~TABLE OF CONTENTS~~

PART II

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity ~~Securities.~~Securities

Market Information

Our common stock currently trades under the symbol “VHC” on the ~~NYSE American LLC.~~

~~The following table shows the price range of our common stock, as reported on the NYSE American LLC, for each quarter ended during the last two fiscal years.~~

VirnetX Holding Corp
HIGH
LOW
Year ended, December 31, 2017:

First quarter
$
2.75

$
1.70

Second quarter
$
5.40

$
2.02

Third quarter
$
4.85

$
3.00

Fourth quarter
$
8.75

$
3.55

Year ended, December 31, 2016:

First quarter
$
9.64

$
1.95

Second quarter
$
6.50

$
3.83

Third quarter
$
4.64

$
2.14

Fourth quarter
$
5.13

$
2.10

NYSE.

~~The closing price of our common stock on the NYSE American LLC on March 14, 2018 was $4.05 per share.~~

Holders of Record

As of ~~March 14, 2018,~~December 31, 2023, we had 41 stockholders of record. Because many of our shares of common stock are held of record by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by such record holders.

~~Dividends~~

~~We do not currently intend to begin paying a regular dividend~~

Dividend Policy

See Note 8 in the ~~foreseeable future. Any future determination~~notes to ~~declare~~our consolidated financial statements.

Since our founding as a public company in 2007, each time we have been successful in generating cash ~~dividends will be~~relating to the successful outcome of litigation, we have made ata special distribution to common shareholders. In 2010, a distribution of $10 per common share closely followed a litigation outcome that resulted in our receipt of $200 million. In 2020, a distribution of $20.00 per share closely followed a litigation outcome that resulted in our receipt of $454 million. In 2023, we paid a one-time capital dividend of $20 share of common stock, to shareholders. Over the ~~discretion~~course of ~~our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.~~

VirnetX’s history as a public company VirnetX has distributed over $165.9 million in cash to shareholders.

Securities Authorized for Issuance under Equity Compensation Plan

See Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for information regarding securities authorized for issuance.

~~TABLE OF CONTENTS~~

Stock Performance Graph

This performance graph shall not be deemed ~~“soliciting material” or to be~~ “filed” for purposes of Section 18 of ~~the~~ ~~Securities Exchange Act of 1934, as amended, or~~ the Exchange Act, or incorporated by reference into any filing of VirnetX Holding Corporation under the Securities Act ~~of 1933, as amended,~~ or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

The stock price performance reflected on this graph is not necessarily indicative of future stock price performance. See the disclosure in part I, Item 1A. “Risk Factors”

12/12
12/13
12/14
12/15
12/16
12/17
VirnetX Holding Corp
$
100.00

$
66.29

$
18.75

$
8.78

$
7.51

$
12.64

S&P 500
$
100.00

$
132.39

$
150.51

$
152.59

$
170.84

$
208.14

RDG Technology Composite
$
100.00

$
132.51

$
155.05

$
161.00

$
181.12

$
247.79

for more information regarding the risks in investing in our common stock.

The graph below matches VirnetX Holding Corp’s cumulative 5-Year total shareholder return on common stock with the cumulative total returns of the S&P 500 index and the RDG Technology Composite index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2018 to 12/31/2023.

Index

	*$100 invested on 12/31/18 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

	Copyright© 2024 Standard & Poor’s, a division of S&P Global. All rights reserved.

	12/18	12/19	12/20	12/21	12/22	12/23

VirnetX Holding Corp	100.00	158.33	246.02	126.92	63.46	44.33
S&P 500	100.00	131.49	155.68	200.37	164.08	207.21
RDG Technology Composite	100.00	142.93	222.56	266.61	181.18	261.37

Recent Sales of Unregistered Securities

~~During the year ended December 31, 2017, we had no sales of unregistered securities and no repurchases of stock.~~

None.

Item 6.

~~Selected Financial Data. (in thousands except per share data)~~[Reserved]

The consolidated statement of operations data for the years ended December 31, 2017, 2016 and 2015 and the balance sheet data at December 31, 2017 and 2016, are derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations data for the years ended December 31, 2014 and 2013 and the balance sheet data at December 31, 2015, 2014 and 2013 are derived from our audited financial statements not included in this annual report on Form 10-K.

~~TABLE OF CONTENTS~~

The selected consolidated financial data below is not necessarily indicative of future performance and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included in Item 8 of this Annual Report on Form 10-K.

For the year ended December 31,

2017
2016
2015
2014
2013
Consolidated Statement of Operations Data:

Revenue
$
1,547

$
1,550

$
1,555

$
1,249

$
2,197

Gain on settlement^(a)
$
—

$
—

$
—

$
23,000

$
—

Total operating expenses
$
(18,868
)
$
(30,055
)
$
(30,732
)
$
(36,414
)
$
(30,784
)
Income tax expense
$
(3
)
$
(133
)
$
(8
)
$
(15
)
$
(751
)
Net loss
$
(17,278
)
$
(28,569
)
$
(29,234
)
$
(9,902
)
$
(27,608
)
Loss per share
$
(0.30
)
$
(0.51
)
$
(0.56
)
$
(0.19
)
$
(0.54
)
Consolidated Balance Sheet Data:

Cash and cash equivalents
$
3,135

$
6,627

$
8,726

$
18,658

$
19,173

Investments available for sale
$
1,453

$
9,249

$
9,954

$
22,571

$
19,815

Total assets
$
7,175

$
18,871

$
22,172

$
45,090

$
39,398

Stockholders’ equity
$
1,553

$
11,147

$
15,095

$
32,627

$
34,024

~~(a)~~

~~The gain on settlement in 2014 relates to a cash settlement of litigation with Microsoft.~~

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations

Index

The Company ~~Overview~~

We ~~develop~~are an Internet security software and technology ~~solutions~~company with patented technology for securing real-time communications over the Internet. Our patented GABRIEL Connection Technology™ combines industry standard encryption protocols with our patented techniques for automated domain name system, or DNS, lookup mechanisms, and enables users to create aZero Trust Network Access (“ZTNA”) based secure communication link using secure domain names over wired or wireless (4G/LTE) networks. Our GABRIEL Collaboration Suite™ is available for download and free trial, for Android, iOS, Windows, Linux and Mac OS X platforms, at ~~http://www.gabrielsecure.com/~~. We continue to enhance our products and add new functionality to our products. We will provide updates to new and existing customers as they are released to the general public. Over 80 small and medium sized businesses have installed our GABRIEL Secure Communication Platform™ and GABRIEL Collaboration Suite™ products in their corporate networks. A number of International Association of Certified ISAO (IACI) have chosen to deploy our software as private and secure e-technology to protect theirnetwork communications. Several other ISAOs are completing their evaluations before deploying our products within their networks. We are actively recruiting best-of-breed partners in various vertical markets including, healthcare, finance, government, etc, to help us rapidly expand our enterprise customer base. We also intend to establish the exclusive secure domain name registry in the United States and other key markets around the world.

We are a holding company and conduct our operations through our wholly-owned subsidiary, VirnetX, Inc. VirnetX, Inc., was incorporated in the State of Delaware in August 2005. In November 2006, VirnetX, Inc. acquired certain patents from SAIC, now Leidos. In July 2007, we effected a merger by and among VirnetX, Inc., VirnetX Holding Corporation and a wholly-owned subsidiary of VirnetX Holding Corporation, whereby VirnetX, Inc. merged with, and became, a wholly-owned subsidiary of VirnetX Holding Corporation and VirnetX Holding Corporation issued shares of its common stock to the stockholders of VirnetX, Inc. as consideration for the merger. As a result of this merger, the former security holders of VirnetX, Inc. came to own a majority of our outstanding common stock. On October 29, 2007, we changed our name from PASW, Inc. to VirnetX Holding Corporation.

Our portfolio of intellectual property is the foundation of our business model. We currently own approximately 185 U.S. and foreign patents, patent validations and pending applications. Our patent portfolio is primarily focused on securing real-time communications over the Internet, as well as related services such as the establishment and maintenance of a secure domain name registry. Our patented methods also have additional applications in the key areas of device operating systems and network security for Cloud services, M2M communications in areas of Smart City, Connected Car and Connected Home.

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~~We have submitted a declaration with the 3~~^rd Generation Partnership Project, or 3GPP, identifying a group of our patents and patent applications that we believe are or may become essential to certain developing specifications in the 3GPP LTE, SAE project. We have agreed to make available a non-exclusive patent license under fair, reasonable and non-discriminatory terms and conditions, with compensation, or FRAND, to 3GPP members desiring to implement the technical specifications identified by us. We believe that we are positioned to license our essential security patents to 3GPP members as they move into 4G.

We believe that the market opportunity for our software and technology solutions is large and expanding as secure domain names are now an integral part of securing the next generation 4G/LTE Advanced wireless networks and M2M communications in areas including Smart City, Connected Car and Connected Home. We also believe that all 4G/LTE Advanced mobile devices will require unique secure domain names and become part of a secure domain name registry.

We intend to license our patent portfolio, technology and software, including our secure domain name registry service, to domain infrastructure providers, communication service providers as well as to system integrators. We intend to seek further license of our technology, including our GABRIEL Connection Technology™ to enterprise customers, developers and original equipment manufacturers, or OEMs, of chips, servers, smart phones, tablets, e-Readers, laptops, net books and other devices, within the IP-telephony, mobility, fixed-mobile convergence and unified communications markets including 4G/LTE. We have published our royalty rates and guidelines on our website. All forward moving licenses have adhered to these guidelines and have met or exceeded these rates and we will use these rates and guidelines in all future license negotiations.

~~Our~~VirnetX’s software and technology solutions, including ~~our~~its Secure Domain Name Registry and Technology, VirnetX One™, War Room™, VirnetX Matrix™, and GABRIEL Connection Technology™, are designed to ~~facilitate~~be device and location-independent, and enable a secure ~~communications~~real-time communication environment for all types of enterprise applications, services, and provide the security platform required by next-generation Internet-based applications such as instant messaging, or IM, voice over Internet protocol, or VoIP, mobile services, streaming video, file transfer, remote desktop and, or M2M communications.critical infrastructures. Our technology generates secure connections on a ~~“zero-click” or~~ “single-click” basis, significantly simplifying the deployment of secure real-time communication solutions by eliminating the need for end-users to enter any encryption information.

Our product ~~GABRIEL Secure Communication Platform™, unlike other collaboration and communication~~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 and GABRIEL Connection Technology™ to further enhance the security and efficiency of our patented secure communication links. VirnetX One™ is a security-as-a-service platform that protects enterprise applications, services, and infrastructure from cyber-attacks. Our platform allows businesses and other enterprises of all sizes to add a “security umbrella” as an added layer on top of their existing infrastructure to further reduce risk and bolster security against ever-growing cyberthreats to data, operating systems, other infrastructure products and gateway security controllers.

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 ~~market today, does not require~~users, and devices requesting access to ~~user’s~~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 ~~minimizes~~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 ~~threat~~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 ~~hacking~~their networks to mitigate morphing attacks on their networks and ~~data mining. It enables individuals and organizations to maintain complete ownership~~for real time access and control ~~over~~of their ~~personal and confidential data, secured within their own private network, while enabling authorized secure encrypted access from anywhere at any time.~~ users.

Our GABRIEL Collaboration Suite™ is a set of communication applications and tools that ~~run on top of~~use our GABRIEL Secure Communication Platform™. It enables seamless and secure ~~cross-platform~~cross platform communications between ~~user’s~~ devices that are enrolled in our “VIRNETX SECURED” network and have our software installed. ~~Our~~Effective May 31, 2023 we have ended the support for our GABRIEL Collaboration Suite™ ~~is available for download~~. All the existing customers and ~~free trial, for Android, iOS, Windows, Linux~~partners have been notified of this announcement.

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

During 2023, we actively engaged in discussions with certain third-parties to pitch the capabilities of VirnetX One™. As a result of our efforts, we made a series of announcements with Solution Synergy, WeSecure, Samsung, Envoy Data Corporation, and Object Security. We also announced new deployments of our VirnetX Matrix™ product at City of Bridgeport, International Association of Certified ISAOs (IACI) and SkinWalker Ranch. Although there can be no assurance in this regard, the Company believes that there are opportunities for Company products’ sales directly to, resale arrangements with and/or adoption as vendor standards by, one or more of these third parties.

Index

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

We have an ongoing licensing program under which we offer licenses to our technology, software, and some of our patented inventions, including our secure domain name registry service, to domain infrastructure providers, communication service providers as well as to system integrators. Our GABRIEL Connection Technology™ License is offered to OEM customers who want to adopt the GABRIEL Connection Technology™ as their solution for establishing secure connections using secure domain names within their products. We have developed GABRIEL Connection Technology™ Software Development Kit to assist with rapid integration of these techniques into existing software implementations.

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

Our portfolio of intellectual property is the foundation of our business model. We currently own approximately 205 total patents and pending applications, including 72 U.S. patents/patent applications and 133 foreign patents/validations/pending applications. Our patent portfolio is primarily focused on securing real-time communications over the Internet, and related services, and is used in all our technology and products, some of which were acquired by our principal operating subsidiary; VirnetX, Inc., from Leidos, Inc., or Leidos, (f/k/a Science Applications International Corporation, or SAIC) in 2006.

We expect to continue to launch new ~~functionality to~~and enhanced security platforms, software products, and services based on our ~~products.~~GABRIEL Connection Technology™. We will provide updates to new and existing customers as they are released to the ~~general~~ public.

We Many small and medium businesses have signed Patent License Agreements with Avaya Inc., Aastra USA, Inc., Microsoft Corporation, Mitel Networks Corporation, NEC Corporation and NEC Corporation of America, Siemens Enterprise Communications GmbH & Co. KG, and Siemens Enterprise Communications Inc. to license certain ofinstalled our patents, for a one-time payment and/or an ongoing royalty for all future sales through the expiration of the licensed patents with respect to certain current and future IP-encrypted products. We have engaged IPVALUE Management Inc. to assist ussoftware products in commercializing our portfolio of patents on securing real-time communications over the Internet. Under the multi-year agreement, IPVALUE will originate and assist us with negotiating transactions related to patent licensing worldwide with respect to certain third parties.

Our employees include the core development team behind our patent portfolio, technology and software. This team has worked together for over ten years and is the same team that invented and developed this technology while working at Leidos, is a FORTUNE 500® scientific, engineering and technology applications company that uses its deep domain knowledge to solve problems of vital importance to the nation and the world, in national security, energy and the environment, critical infrastructure and health. The team has continued its research and development work started at Leidos, and expanded the set of patents we acquired in 2006 from Leidos, into a larger portfolio with approximately 185 U.S. and Foreign patents, patent validations and pending applications. This portfolio now serves as the foundation of our licensing business and planned service offerings and is expected to generate the majority of

~~TABLE OF CONTENTS~~

~~our future revenue in license fees and royalties.~~their corporate networks. We intend to continue our research and development efforts to further strengthen and expand our patent portfolio. See – Operations – Research and Development Expenses for a description of our research and development expenses for the past three fiscal years discussed below.

We continue using an outsourced and leveraged model to maintain efficiency and manage costs as we grow our licensing business by, for example, offering incentives to early licensing targets or asserting our rights for use of our patents. We also intend to expand our ~~design pilot in participation~~customer base with ~~leading 4G/LTE companies (domain infrastructure providers, chipset manufacturers, service providers,~~targeted promotions and ~~others)~~direct sales initiatives to large enterprise and ~~build our secure domain name registry.~~

~~Developments in~~governmental organizations.

Litigation

We are subject to various legal proceedings, the ~~Year Ended December 31, 2017~~

~~Litigation~~

outcomes of which are inherently uncertain. We have eleven intellectual property infringement lawsuits pending in the United States District Court for the Eastern District of Texas, Tyler Division, and United States Court of Appeals for the Federal Circuit (“USCAFC”).

~~VirnetX Inc. v. Apple, Inc. (Case 6:12-CV-00855-LED)~~

On March 30, 2015, the United States Court for the Eastern District of Texas, Tyler Division, issued an order finding substantial overlap between the remanded portions of the Civil Action Case 6:10-CV-00417-LED (VirnetX vs. Cisco et. al.),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 ongoing Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.). The court consolidated the two civil actions under Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.) and designated it as the lead case. The jury trial in this case was held on January 25, 2016. On February 4, 2016, a jury in the United States Court for the Eastern District of Texas, Tyler Division, awarded us $625.6 million in a verdict against Apple Inc. for infringing four of our US patents, marking it the second time a federal jury has found Apple liable for infringing VirnetX’s patented technology. The verdict includes royalties awarded to us based on an earlier patent infringement finding ~~(Case 6:10-CV-00417-LED)~~ against Apple. The jury found that Apple’s modified VPN On-Demand, iMessage and FaceTime services infringed VirnetX’s patents and that Apple’s infringement was willful. In addition to determining the royalty owed by Apple for its prior infringement, this verdict also includes an award based on the jury’s finding that Apple’s modified VPN On Demand, iMessage and FaceTime services have continued to infringe VirnetX’s patents. The post-trial hearing was held on May 25, 2016 in the United States Court for the Eastern District of Texas, Texarkana Division. On July 29, 2016, the court issued a new order, vacating its previous orders consolidating the cases (Case No. 6:10-cv-417, Docket No. 878 (“Apple I case”); Case No. 6:12-cv-855, Docket No. 220 (“Apple II case”)), ordering that the two cases be retried separately, and setting the retrial date for Apple I case with jury selection to begin on September 26, 2016. The court also ordered that the issue of willfulness in both casesamount is ~~bifurcated and that the Apple II case will be retried after Apple I case. Events and developments subsequent to the order from the court are described to support Apple I and Apple II matters.~~

~~VirnetX Inc. v. Cisco Systems, Inc. et al. (Case 6:10-CV-00417-LED) (“Apple I”)~~

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and $330 thousand in daily damages for infringement up to final judgment for certain Apple devices included in the verdict. The Court denied our request for a permanent injunction and severed the future infringement portion into its own separate proceedings under Case 6:13-CV-00211-LED.

On July 3, 2013, Apple filed an appeal of the judgment dated February 27, 2013 and order dated June 4, 2013 denying Apple’s motion to alter or amend the judgment to the USCAFC. On September 16, 2014, USCAFC issued their opinion, affirming the jury’s finding that all 4 of our patents are valid, confirming the jury’s finding of infringement of VPN on Demand under many of the asserted claims of our ‘135 and ‘151 patents, and confirming the district’s court’s decision to allow evidence concerning our licenses and royalty rates in connection withreasonably estimable, the determination of ~~damages. In its opinion, the USCAFC also vacated the jury’s damages award~~which requires significant judgment. Resolution of legal matters in a manner inconsistent with management’s expectations could have a material impact on our financial condition and the district court’s claim construction with respect to parts of our ‘504 and ‘211 patents and remanded the damages award and determination of infringement with respect to FaceTime –for further proceedings consistent with its opinion. On October 16, 2014, we filed a petition with the USCAFC, requesting a rehearing and rehearing en banc of the Federal Circuit’s September 14, 2014, decision concerning VirnetX’s litigation against Apple Inc. On December 16, 2014, USCAFC denied our petition requesting a rehearing and rehearing en banc of the Federal Circuit’s September 14, 2014, decision and remanded the case back to the Eastern District of Texas, Tyler Division, for further proceedings consistent with its opinion. On February 25, 2015, USCAFC granted Apple’s motions to lift stay of proceedings and vacate Case 6:13-CV-00211-LED. On March 30, 2015, the court issued an order finding substantial overlap between the remanded portions of this case and the ongoing Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.). The court consolidated the two civil actions under Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.) and designated it as the lead case.

On July 29, 2016, the court issued a new order, vacating its previous orders consolidating the cases Apple I case and Apple II case, ordering that the two cases be retried separately, and setting the retrial date for Apple I case with jury selection to begin on September 26, 2016. The court also ordered that the issue of willfulness in both cases is bifurcated and that the Apple II will be retried after Apple I case. The jury trial in this case was held on September 26, 2016. On September 30, 2016, a Juryoperating results. See Note 12 in the United States Court for the Eastern District of Texas, Tyler Division, in the case VirnetX Inc., et al. v. Apple Inc., No. Apple I, has awarded VirnetX $302.4 million in a verdict against Apple for infringing four VirnetX patents, marking the third time a federal jury has found Apple liable for infringing VirnetX’s patented technology.

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~~VirnetX Inc. v. Apple, Inc. (Case 6:12-CV-00855-LED) (“Apple II”)~~

~~VirnetX Inc. v. Cisco Systems, Inc. (USCAFC Case 18-1197-CB) (Appeal of Apple I Case)~~

~~On October 27, 2017 Apple filed its notice of appeal of the Final Judgment entered on September 29, 2017 to the United States Court of Appeals for the Federal Circuit.~~

~~VirnetX Inc. v. Apple, Inc. (Case 15-1934)~~

~~VirnetX Inc. v. Apple, Inc. (Case 16-1211)~~

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~~VirnetX Inc. v. Apple, Inc. (Case 16-1480)~~

~~VirnetX Inc. v. Apple, Inc. (Case 16-119)~~

~~VirnetX Inc. v. Apple, Inc. (Case 17-1131)~~

~~VirnetX Inc. v. The Mangrove Partners (Case 17-1368)~~

~~VirnetX Inc. v. Apple Inc., Cisco Systems, Inc. (Case 17-1591)~~

~~VirnetX Inc. v. Apple Inc. (Case 17-2490)~~

~~In re VirnetX Inc. (Case 17-2593)~~

~~One or~~consolidated financial statements for 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 worth pursuing, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we will prevail on such potential claims. In addition, bringing a lawsuit may lead to potential counterclaims which may preclude our ability to commercialize our initial products, which are currently in development. Currently, we are not a party to any other pending legal proceedings, and are not aware of any proceeding threatened or contemplated against us by any governmental authority or other party.

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Commitments and Related Party Transactions

We lease our offices in Nevada under an operating lease with a third party expiring in October ~~2019.~~2025. We recognize rent expense on a straight-line basis over the term of the lease.

We have a facility lease in Utah to be used for technical integration and as a training facility. This lease requires monthly payments and expires in April 2029.

We have a 12-month non-exclusive service agreement, for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for ~~employees of the Company. We incurred approximately $1,240, $772, and $593 in rental fees and reimbursements to the LLC during the years ended December 31, 2017, 2016 and 2015, respectively.~~our employees. Our Chief Executive Officer and Chief Administrative Officer are the managing partners of the LLC and control the equity interests of the LLC. ~~On January 31, 2015, we entered into a 12-month non-exclusive lease with~~We pay for the ~~LLC for use~~Company’s business usage of the ~~plane~~aircraft at a rate of $8 per flight ~~hour, with no minimum usage requirement.~~hour.

In March 2024, we renewed our facility lease, used for corporate, promotional and marketing purposes. The ~~agreement contains other terms~~renewal period begins in 2025, continues for 10 years through 2035, requires either a single payment of $6,000, or annual payments each March, beginning in 2025 starting at $600 and conditions normal in such transactions and can be cancelled by either us or the LLC with 30 days’ notice. The lease renews on an annual basis unless terminated by the lessor or lessee. Neither party has exercised their termination rights.

increasing annually for a total commitment of approximately $7,500.

Index

Critical Accounting Policies

and Estimates

The preparation of financial statements in conformity with ~~accounting principles generally accepted in the United States (“GAAP”)~~U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. The critical accounting policies we employ in the preparation of our consolidated financial statements are those which involve ~~impairment of long-lived assets,~~ income taxes, fair value of financial instruments and stock-based compensation.

~~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.~~

Use of Estimates

~~The preparation of~~

We prepare our consolidated financial statements in ~~conformity~~accordance with U.S. ~~GAAP requires us~~GAAP. In doing so, we have to make estimates and assumptions that affect ~~the~~our reported amounts ~~reported~~of assets, liabilities, revenues, and ~~disclosed~~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 ~~financial statements and the accompanying notes. Actual~~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. On an ongoing basis, we evaluate~~estimates and actual results, our ~~estimates, including those related to the fair values~~financial condition or results of ~~financial instruments, fair values of stock-based awards, income taxes, and derivative liabilities, among others.~~operations will be affected. We base our estimates on ~~historical~~past experience and ~~on various~~ other assumptions that we believe are ~~believed~~reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to ~~be reasonable,~~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 ~~results~~Audit Committee of ~~which form~~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 ~~basis for making judgments about~~period they are realized using specific identification of each security's cost basis. We invest our excess cash primarily in highly liquid debt instruments including corporate, government and federal agency securities, with contractual maturities less than two years. By policy, we limit the ~~carrying values of assets and liabilities.~~

~~Revenue Recognition (see New Accounting Pronouncements - ASU No. 2014-09, Revenue from Contracts with~~ ~~Customers)~~

~~We derive our revenue from patent licensing. The timing and~~ amount of revenue recognized from each licensee depends upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. Such agreements may be complex and include multiple elements. These agreements may include, without limitation, elements relatedcredit exposure to the settlement of past patent infringement liabilities, up-front and non-refundable license fees for the use of patents, patent licensing royalties on covered products sold by licensees, and the compensation structure and ownership of intellectual property rights associated with contractual technology development arrangements. Licensing agreements are accounted for under the Financial Accounting Standards Board (“FASB”) revenue recognition guidance, “Revenue Arrangements with Multiple Deliverables.” This guidance requires consideration to be allocated to each element of an agreement that has stand-alone value using the relative fair value method. In other circumstances, such as those agreements involving consideration for past and expected future patent royalty obligations, after consideration of the particular facts and circumstances, the appropriate recording of revenue between periods may require the use of judgment. In all cases, revenue is only recognized after all the following criteria are met: (1) written agreements have been executed; (2) delivery of technology or intellectual property rights has occurred or services have been rendered; (3) fees are fixed or determinable; and (4) collectability of fees is reasonably assured.any one issuer.

~~Patent License Agreements~~: Upon signing a patent license agreement, including licenses entered upon settlement of litigation, we provide the licensee permission to use our patented technology in specific applications. We account for

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~~patent license agreements in accordance with the guidance for revenue recognition for arrangements with multiple deliverables, with amounts allocated to each element based on their fair values.~~ We have elected ~~to utilize~~ the ~~leased-based model~~investment measurement alternative for ~~revenue recognition with revenue being recognized over the expected period of benefit to the licensee. Under~~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 ~~patent license agreements,~~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 ~~expect to typically receive one or a combination~~sales of our ownership interests. Periodically, we evaluate these investments for impairment. If we identify an impairment, we reduce the ~~following forms of payment as consideration for permitting our licensees to use our patented inventions in specific applications and products:~~

•

~~Consideration for Past Sales~~: Consideration related to a licensee’s product sales from prior periods may result from a negotiated agreement with a licensee that utilized our patented technology prior to signing a patent license agreement with us or from the resolution of a litigation, disagreement or arbitration with a licensee over the specific terms of an existing license agreement. We may also receive royalty for past sales in connection with the settlement of patent litigation where there was no prior patent license agreement. These amounts are negotiated, typically based upon application of a royalty rate to historical sales prior to the execution of the license agreement. In each of these cases, because delivery has occurred, we record the consideration as revenue when we have obtained a signed agreement, identified a fixed or determinable price, and determined that collectability is reasonably assured.

•

~~Current Royalty Payments~~: Ongoing royalty payments cover a licensee’s obligations to us related to its sales of covered products in the current contractual reporting period. Licensees that owe these current royalty payments are obligated to provide us with quarterly or semi-annual royalty reports that summarize their sales of covered products and their related royalty obligations to us. We expect to receive these royalty reports subsequent to the period in which our licensees’ underlying sales occurred. As a result, it is impractical for us to recognize revenue in the period in which the underlying sales occur, and, in most cases, we will recognize revenue in the period in which the royalty report is received and other revenue recognition criteria are met due to the fact that without royalty reports from our licensees, our visibility into our licensees’ sales is limited.

•

~~Non-Refundable Up-Front Fees and Minimum Fee Contracts~~: For licenses that provide for non-refundable up-front or fixed minimum fees over their term, for which we have no future obligations or performance requirements, revenue is generally recognized over the license term. For licenses that provide for fees that are not fixed or determinable, including licenses that provide for extended payment terms and/or payment of a significant portion of the fee after expiration of the license or more than 12 months after delivery, the fees are generally presumed not to be fixed or determinable, and revenue is deferred and recognized as earned, but generally not in advance of collection.

•

~~Non-Royalty Elements~~: Elements that are not related to royalty revenue in nature, such as settlement fees, expense reimbursement, and damages, if any, are recorded as gain from settlement which is reflected as a separate line item within the operating expenses section in the consolidated statements of operations.

~~Deferred revenue~~

In August 2013, we began receiving annual payments on a contract that required payment to us over 4 years of $10,000 (“August 2013 Contract Settlement”). From the inception of that license to December 31, 2017, we received cash totaling $10,000, all of which is non-refundable. We recognized $1,500, $1,500 and $1,500 of revenue related to the August 2013 Contract Settlement during the years ended December 31, 2017, 2016 and 2015, respectively.

~~Activity under the August 2013 Contract Settlement was as follows (in thousands):~~

2017
2016
2015
Deferred Revenue, beginning of year
$
4,000

$
3,000

$
2,000

Payment received

—

2,500

2,500

Less: Amount amortized as revenue

1,500

1,500

1,500

Deferred Revenue, end of year
$
2,500

$
4,000

$
3,000

~~Royalty Expense~~

~~Royalty expense~~carrying value for the ~~years ended December 31, 2017, 2016 and 2015 was $0, $884 and $5,265, respectively, and was~~impairment loss with a ~~result of our royalty agreement with Leidos. The agreement provides for revenue sharing and legal~~

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~~reimbursements related~~charge to ~~attorney time and expenses incurred by Leidos during discovery and other aspects of litigation involving the defense of our patents which have been resolved.~~

~~Earnings Per Share~~

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. During the years ended 2017, 2016 and 2015 we incurred losses. Therefore, the effects of any common stock equivalent were anti-dilutive during those periods.

~~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. A portion of those balances are insured by the Federal Deposit Insurance Corporation. During the year ended December 31, 2017, and 2016 we had, at times, funds which were uninsured. We do not believe that we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships with major financial institutions.earnings. We have not ~~experienced~~identified any ~~losses on our deposits~~impairment as of ~~cash and cash equivalents.~~

~~Derivative Instruments~~

Our Series I Warrants contained an anti-dilution provision which prevented them from being considered indexed to our stock. As a result, the warrants were required to be accounted for as derivative instruments during 2015. The remaining balance of Series 1 Warrants expired during the year ended December 31, ~~2015.~~2023.

We recognize derivative instruments as either assets or liabilities on the accompanying Consolidated Balance Sheets at fair value. We record changes in the fair value (i.e., gains or losses) of the derivatives in the accompanying Consolidated Statements of Operations.

~~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 considered to be 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.

Income Taxes

We account for income taxes using the asset and liability method. The asset and liability method require the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of our assets and liabilities. 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.

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against our net deferred income tax assets, we consider all available evidence, both positive and negative. Consistent with our policy, and because of our history of operating losses, we do not currently recognize the benefit of all of our deferred tax assets, including tax loss carry forwards, that may be used to offset future taxable income. 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 if any, as an income tax benefit in our statements of operations.

We account for our uncertain tax positions in accordance with U.S. GAAP. The U.S. GAAP method of accounting for uncertain tax positions 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 derecognized when we subsequently determine the position no longer is more likely than not to be sustained. Evaluation of tax positions, their technical merits, and measurements using cumulative probability are highly subjective management estimates. Actual results could differ materially from these estimates.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Act”). The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Act reduces the corporate federal tax rate from a maximum of 35% to a 21% rate. The rate reduction will be taking effect on January 1, 2018. Therefore, we applied the tax rate of 21% to the ending balance of federal deferred tax assets, but because we provided a full valuation allowance against our net deferred tax assets, no tax impact is recognized due to the tax rate change.

The Act changes the worldwide territorial tax system. Therefore, the deemed repatriation tax applies to undistributed earnings of certain non-U.S. subsidiaries. The company has no deemed repatriation tax liability because its foreign subsidiary’s accumulated earnings are negative. We also assess the tax impact of the Act for 2018 and future years and do not believe there is a need to change our valuation allowance position as of December 31, 2017.

~~Stock-based Compensation~~

We account for stock-based compensation using the fair value recognition method. We recognize these compensation costs net of the applicable forfeiture rate and recognize the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally based the option vesting term of 4 years. Beginning January 1, 2017, we discontinued estimating forfeitures for time-based awards upon adoption of ASU No. 2016-09 – “Compensation – Stock Compensation” discussed below in New Accounting Pronouncements.

In addition, we record stock and options granted to non-employees at fair value of the consideration received or the fair value of the equity investments issued as they vest over the performance period.

Index

Fair Value

We apply fair value accounting to all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.

Fair value is ~~estimated by applying~~ the ~~following~~price that would result from an orderly transaction between market participants at the measurement date. A fair value hierarchy ~~which~~ prioritizes the inputs used to measure fair ~~value into three levels and bases~~value. The hierarchy gives the ~~categorization within the hierarchy upon the lowest level of input that is available and significant~~highest priority to ~~the fair value measurement:~~

~~Level 1 – Quoted~~unadjusted quoted prices in active markets for identical assets or ~~liabilities.~~

liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 ~~– Observable~~measurements utilize either directly or indirectly observable inputs in markets other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

~~Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.~~

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Our financial instruments are stated at amounts that equal, or ~~are intended to~~ approximate, fair value. When we ~~approximate~~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 ~~quoted~~ valuation techniques, primarily the income and market approach, ~~that maximize~~which maximizes the use of observable inputs and minimize the use of unobservable inputs for recurring fair value measurements.

~~New Accounting Pronouncements~~

~~In June 2016,~~

Stock-based Compensation

We account for stock-based compensation using the ~~FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326) “ASU 2016-13”. The purpose of ASU 2016-13 is to require~~fair value recognition method in accordance with U.S. GAAP. We recognize these compensation costs on a ~~financial asset measured at amortized cost~~straight-line basis ~~to be presented at~~over the net amount expected to be collected. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. We are evaluating the impact this guidance will have on our financial position and statement of operations.

~~In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”), which simplified certain aspects~~requisite service period of the ~~accounting~~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 ~~share-based payment transactions, including income taxes, classification~~awards granted to non-employees at fair value of ~~awards and classification~~the consideration received or the fair value of the equity instruments issued, as they vest, over the performance period. See Note 6 in the ~~statement of cash flows. We adopted this ASU in 2017 with the following affects:~~

~~ASU 2016-09 requires excess tax benefits~~notes to ~~be recognized regardless of whether the benefit reduces taxes payable. We had zero excess tax benefits recognized for the year ended December 31, 2017.~~

Certain prior period amounts were reclassified to conform to the current year’s presentation. None of these reclassifications had an impact on reported net income for any of the periods presented. As a result of the implementation of ASU 2016-09, our consolidated statements of cash flow for the years ended December 31, 2016 and 2015 have been restated to reflect the reclassification of $93 and $51, respectively, for payments of taxes on cashless exercise of restricted stock units, previously reported in cash flows from operation activities to the current presentation in cash flows from financing activities.

The Company has elected to not estimate forfeitures expected to occur to determine the amount of stock-based compensation cost to be recognized in each period. The guidance relating to forfeitures did not have an impact on our accumulated deficit as of December 31, 2017.

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. We are evaluating the impact this guidance will have on our financial position and statement of operations.

In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606) “ASU 2014-09”. ASU 2014-09 was subsequently amended by ASU No. 2016-10 and 2016-12. As amended, Topic 606 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments create a new Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For a public entity, the amendments to ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We will adopt the new revenue standards in our first quarter of 2018 utilizing the modified retrospective transition method. We expect the adoption of the standard to result in an approximate $2,500 increase in accumulated deficit and a $2,500 decrease in deferred revenue in our consolidated balance sheet. The new revenue standards are not expected to have a material impact on the amount and timing of revenue recognized in our consolidated financial ~~statements.~~

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Results of Operations (all amounts in this section are expressed in thousands)

Revenue

2017
2016
2015
Revenue
$
1,547

$
1,550

$
1,555

		2023				2022
Revenue		$	7			$	48

Revenue generated ~~for the year ended December 31, 2017~~in 2023 was ~~$1,547~~$7, compared to ~~December 31, 2016~~$48 in 2022. The change in revenue from 2022 to 2023 was the expiration of ~~$1,550,~~contracts with NEC and December 31, 2015 revenue of approximately $1,555. Revenue for the year ended December 31, 2017 of $1,547, was largely attributable to the 2013 Contract Settlement described under the heading “Deferred Revenue” above. Under the terms of the 2013 Contract Settlement we were paid annual payments of $2,500 over the contract period for a total of $10,000. During 2017, 2016 and 2015 we recognized $1,500 of revenue for royalties from the 2013 Contract Settlement and $47, $50 and $55 respectively of revenue for royalties from other licensees.

In addition to the settlement discussed above, during 2017, 2016 and 2015 we recognized royalty revenue as part of license agreements entered into with customers during the patent infringement actions (see Note 14 “Litigation”). These revenues relate to payment for use of our patented technology prior to the signing of a license agreement, and royalty payments after the execution of the license agreements. No amounts were allocable to settlement fees, expense reimbursement, damages or any other amounts other than historical and future sales as no such amounts were requested or received.

Mitel.

Licensing Costs

2023 2022
Licensing costs $ — $ (4 )

Research and Development Expenses

2017
2016
2015
Research and Development
$
2,674

$
2,499

$
2,277

		2023				2022
Research and Development		$	9,713			$	6,406

Research and development costs include expenses paid to outside development consultants and compensation-related expenses for our engineering staff. Research and development costs are expensed as incurred.

Our research and development expenses ~~for the year ended December 31, 2017 was $2,674~~in 2023 were $9,713 compared to ~~December 31, 2016 of $2,499 and $2,277 for the year ended December 31, 2015.~~$6,406 in 2022. The ~~increase~~fluctuation in ~~2017~~2023 compared to ~~2016~~2022 was primarily due to ~~the increase~~changes in ~~staff, wages and~~engineering compensation costs, including bonuses. ~~The increase in 2016 compared to 2015 was primarily due to increase in wages and bonuses paid in 2016 compared to 2015.~~

Selling, General and Administrative Expenses

2017
2016
2015
Selling, General and Administrative
$
16,194

$
26,672

$
23,190

		2023				2022
Selling, General and Administrative		$	21,739			$	15,722

Selling, general and administrative expenses include compensation ~~expense~~costs for management and administrative personnel, as well as expenses for outside legal, accounting, and consulting services.

Our selling, general and administrative expenses ~~for the year ended December 31, 2017 was $16,194~~in 2023 were $21,739 compared to ~~December 31, 2016 of $26,672 and $23,190 for the year ended December 31, 2015.~~$15,722 in 2022. The ~~decrease in 2017 was primarily due to a decrease in legal fees, mostly related to cases involving the defense of our patents. The increases in 2016 were primarily due to the~~ increase in ~~legal fees. Legal fees represent approximately 23% of general and administrative expenses for 2017 as compared to 49% for 2016 and 42% for 2015.~~

~~Within~~ selling, general and administrative expenses ~~legal fees for the year ended December 31, 2017 were $3,657 compared~~was primarily due to ~~the year ended December 31, 2016 of $13,002~~outside services and ~~$9,638 for the year ended December 31, 2015.~~

~~Also included in selling, general~~additional compensation costs, including bonuses.

Index

Interest and administrative expense in 2017, 2016 and 2015 is royalty expense of $0 for the year ended December 31, 2017, $884 for the year ended December 31, 2016 and $5,265 for the year ended December 31, 2015, paid to Leidos, in connection with the settlement with Microsoft, Avaya and Mitel et al.

~~Loss on change in value of derivative liability~~

2017
2016
2015
Loss on change in value of derivative liability
$
—

$
—

$
(117
)

~~Our non-cash loss related to the periodic revaluation of our Series I Warrants liability for the year ended December 31, 2015 was $117. All outstanding Series 1 Warrants expired in March 2015.~~

~~TABLE OF CONTENTS~~

Other Income, ~~and Expenses~~

2017
2016
2015
Interest and Other Income
$
46

$
69

$
68

net

		2023				2022
Interest and Other Income		$	3,495			$	1,848

Interest and other income ~~for the year ended December 31, 2017~~in 2023 was ~~$46,~~$3,495 compared to ~~December 31, 2016 of $69 and $68 for the year ended December 31, 2015.~~

$1,848 in 2022, due to higher interest rates.

Effective Income Tax Rate

A reconciliation of the United States federal statutory income tax rate to our effective income tax rate is as follows:

Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
United States federal statutory rate

35.00
%

35.00
%

35.00
%
State taxes, net of federal benefit

(0.01
)%

(0.31
)%

(0.04
)%
Valuation allowance

(35.94
)%

(35.43
)%

(33.36
)%
Stock options

—

—

(1.62
)%
Prior year adjustment

—

(0.06
)%

0.03
%
R&D Credit

1.43
%

0.66
%

0.38
%
Warrants

—

—

(0.14
)%
Other

(0.50
)%

(0.33
)%

(0.29
)%
Effective income tax rate

(0.02
)%

(0.47
)%

(0.04
)%

~~In 2017, 2016~~

Year
Ended
December
31,
2023

Year
Ended
December
31,
2022

United States federal statutory rate 21.00 % 21.00 %
State taxes, net of federal benefit (0.01 )% (0.55 )%
Valuation allowance (20.31 )% (91.21 )%
Stock based compensation (0.58 )% (9.44 )%
R&D Credit 2.20 % 1.22 %
Other (2.03 )% (0.29 )%
Effective income tax rate 0.28 % (79.27 )%

The Company’s effective tax rate for 2023 and ~~2015, we had pre-tax losses of $17, $28 and $29 million, respectively, which are available for carry forward~~2022 was substantially lower than the statutory Federal income tax rate primarily due to ~~offset future taxable income. We made determinations to provide full~~our valuation ~~allowances for~~allowance, additionally in 2022 our ~~net deferred~~effective tax ~~assets at the end of 2017, 2016 and 2015,~~rate was further reduced by stock based compensation, including NOL carryforwards generated during the years, based on our evaluation of positive and negative evidence, including our history of operating losses and the uncertainty of generating future taxable income that would enable us to realize our deferred tax.

expiring options.

Liquidity and Capital Resources

~~For the year ended~~

As of December 31, ~~2017,~~2023, our cash and cash equivalents totaled ~~$3,135~~$26,289 and our short-term investments totaled ~~$1,453~~$27,258 compared to ~~$6,627~~$86,561 and ~~$9,249,~~$65,462, respectively, ~~for the year ended~~as of December 31, ~~2016.~~

2022. We expect that our cash and cash equivalents and short-term investments as of December 31, 2017, the $6,821 in proceeds subsequent to December 31, 2017, from sales of our common shares under the ATM, as well as the possibility of future sales of common shares under the ATM and the universal shelf registration statement, described below,2023, will be sufficient to fund our current level of selling, general and administration costs ~~including legal expenses~~ and provide related working capital for the foreseeable future. Over the longer term, we expect to derive the majority of our future revenue from license fees and royalties associated with our patent portfolio, technology, software and secure domain name registry ~~in the United States~~ and ~~other markets around the world.~~

~~Universal Shelf Registration and ATM Offering~~

In August 2015, we filed a universal shelf registration statement with the SEC enabling us to offer and sell from time to time up to $100 million of equity, debt or other types of securities. We also entered into an at-the-market (“ATM”) equity offering sales agreement with Cowen & Company, LLC in August 2015, under which we may offer and sell shares of our common stock having an aggregate value of up to $35 million. We have and expect to use proceeds from this offering for GABRIEL product development and marketing, and general corporate purposes, which may include working capital, capital expenditures, other corporate expenses and acquisitions of complementary products, technologies or businesses. As of December 31, 2017, common stock with an aggregate value of up to $8,041 remains available for offer and sale under the ATM agreement.

We sold 730,444, 4,760,594 and 835,056 shares of common stock under the ATM program during the years ended December 31, 2017, 2016 and 2015, respectively. The average sales price per common share sold during the year ended December 31, 2017 was $5.19 and the aggregate proceeds from the sales totaled $3,790 during the period.

sales.

~~TABLE OF CONTENTS~~

Sales commissions, fees and other costs associated with the ATM transactions totaled $113 for 2017. The average sales price per common share sold during the year ended December 31, 2016 was $4.16 and the aggregate proceeds from the sales totaled $19,791 during the period. Sales commissions, fees and other costs associated with the ATM transactions totaled $594 for 2016. The average sales price per common share sold during the year ended December 31, 2015 was $4.04 and the aggregate proceeds from the sales totaled $3,378 during the period. Sales commissions, fees and other costs associated with the ATM totaled $101 for 2015. On March 8, 2018, we amended our August 20, 2015 equity offering sales agreement (“Amended Agreement”) with Cowen and Company, LLC (“Cowen”), whereby the maximum aggregate value of the Company’s common stock (“Shares”) we may offer and sell, from time to time, was increased from $35,000,000 to $50,000,000.

~~Contractual Commitments~~

Total
2018
2019
Leases
$
102

$
56

$
46

Total
$
102

$
56

$
46

~~Off-Balance Sheet Arrangements~~

~~As of December 31, 2017, we had no off-balance sheet arrangements.~~

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

~~We invest our excess cash primarily in highly liquid debt instruments including corporate, government and federal agency securities. By policy,~~

Consistent with the rules applicable to “smaller reporting companies,” we ~~limit~~have omitted the ~~amount of credit exposure to any one issuer.~~

Investments in fixed rate securities 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 as they will be maturing in six months or less.

information required by Item 7A.

~~TABLE OF CONTENTS~~

Item 8.

Financial Statements and Supplementary ~~Data.~~Data

Set forth below, are the audited consolidated financial statements for our company accompanied by all reports thereon of Farber Hass Hurley LLP (PCAOB No. 223)

Index

FINANCIAL STATEMENTS

Financial Statements Index

	Page

Report of Farber Hass Hurley LLP, Independent Registered Public Accounting Firm		46	33
Consolidated Balance Sheets of VirnetX Holding Corporation as of December 31, ~~2017~~2023 and December 31, ~~2016~~2022		47	35
Consolidated Statements of Operations of VirnetX Holding Corporation for the years ended December 31, ~~2017, December 31, 2016~~2023, and December 31, ~~2015~~2022		48	36
Consolidated Statements of Comprehensive ~~Loss~~(Loss) of VirnetX Holding Corporation for the years ended December 31, ~~2017, December 31, 2016~~2023, and December 31, ~~2015~~2022		48	37
Consolidated Statements of Stockholders’ Equity of VirnetX Holding Corporation for the years ended December 31, ~~2017, December 31, 2016~~2023, and December 31, ~~2015~~2022		49	38
Consolidated Statements of Cash Flows of VirnetX Holding Corporation for the years ended December 31, ~~2017, December 31, 2016~~2023, and December 31, ~~2015~~2022,		50	39
Notes to Consolidated Financial Statements of VirnetX Holding Corporation		51	40

Index

~~TABLE OF CONTENTS~~

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of VirnetX Holding Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of VirnetX Holding Corporation (the “Company”) as of December 31, ~~2017~~2023 and ~~2016,~~2022, and the related consolidated statements of ~~income,~~operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the ~~three-year~~two-year period ended December 31, ~~2017,~~2023, and the related notes (collectively referred to as the ~~financial statements)~~“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the ~~consolidated~~ financial position of the Company as of December 31, ~~2017~~2023 and ~~2016,~~2022, and the ~~consolidated~~ results of ~~their~~its operations and its cash flows for each of the years in the ~~three-year~~two-year period ended December 31, ~~2017,~~2023, in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2018, expressed an unqualified opinion.

America.

Basis for Opinion

These ~~consolidated~~ financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s ~~consolidated~~ financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Index

Description of the Matter	Other Investments As discussed in Note 2 to the financial statements, the Company purchased equity interests in two private entities. Given that the entities do not have a readily determinable fair market value, management must consider various factors, including the Company’s ability to apply significant influence to the overall operations of the entities, in determining the classification and the initial value of the Other Investments. In addition, management must also evaluate the investments as of each reporting period to determine if there are any factors that would impact the recognized value of Other Investments. Our determination that the classification and the valuation of Other Investments is a critical audit matter results from the significant judgment by management when assessing the recognition method of the initial purchase as well as the ongoing analysis of the valuation of the investments. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures relating to management’s assessment of the initial recognition and valuation of Other Investments.

Audit Procedures	Our principal audit procedures related to the Company’s Other Investments included the following: - We evaluated management’s analysis regarding their ability to apply significant influence in the operations of the entities by obtaining information of the ownership percentage of the entities, composition of the respective boards, and any other relevant factors in determining their recognition method being recognized as cost in accordance with Accounting Standards Codification 321. - We also evaluated management’s assessment of impairment factors or any observable transactions from inception of the investments through year-end to determine whether an adjustment in the recognized value was necessary. This includes reviewing management’s internal analysis as well as any publicly available data regarding any factors or events that could impact the entities’ values.

/s/ Farber Hass Hurley LLP

We have served as the Company’s auditor since 2008.

Chatsworth, California

March ~~16, 2018~~

15, 2024

Index

~~TABLE OF CONTENTS~~

VIRNETX HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

As of
December 31, 2017
As of
December 31, 2016
ASSETS

Current assets:

Cash and cash equivalents
$
3,135

$
6,627

Investments available for sale

1,453

9,249

Prepaid expenses and other current assets

591

588

Total current assets

5,179

16,464

Prepaid expenses, non-current

1,989

2,374

Property and equipment, net

7

33

Total assets
$
7,175

$
18,871

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued liabilities
$
414

$
1,806

Accrued payroll and related expenses

2,175

1,522

Income tax liability

393

396

Deferred revenue, current portion

1,500

1,500

Total current liabilities

4,482

5,224

Deferred revenue, non-current portion

1,000

2,500

Other liabilities

140

—

Commitments and contingencies (Note 4)

—

—

Total liabilities

5,622

7,724

Stockholders’ equity:

Preferred stock, par value $0.0001 per share Authorized: 10,000,000 shares at December 31, 2017 and December 31, 2016, Issued and outstanding: 0 shares at December 31, 2017 and December 31, 2016

—

—

Common stock, par value $0.0001 per share

Authorized: 100,000,000 shares at December 31, 2017 and December 31, 2016, Issued and outstanding: 59,051,978 shares and 58,144,888 shares, at December 31, 2017 and December 31, 2016, respectively

6

6

Additional paid-in capital

177,076

169,391

Accumulated deficit

(175,516
)

(158,238
)
Accumulated other comprehensive loss

(13
)

(12
)
Total stockholders’ equity

1,553

11,147

Total liabilities and stockholders’ equity
$
7,175

$
18,871

	As of December 31, 2023			As of December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	26,289		$	86,561
Investments available for sale		27,258			65,462
Accounts receivables		2			14
Prepaid expenses and other current assets		282			224
Total current assets		53,831			152,261
Prepaid expenses and other assets		4,014			703
Property and equipment, net		67			11
Other investments		2,500			—
Total assets	$	60,412		$	152,975
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	440		$	373
Accrued payroll and related expenses		316			311
Other liabilities, current		498			47
Total current liabilities		1,254			731

Other liabilities		3,145			—
Total liabilities		4,399			731
Commitments and contingencies (Note 4)

Stockholders’ equity:
Preferred stock, par value $0.0001 per share Authorized: 10,000,000 shares at December 31, 2023 and December 31, 2022, Issued and outstanding: 0 shares at December 31, 2023 and December 31, 2022		—			—
Common stock, par value $0.0001 per share
Authorized: 100,000,000 shares at December 31, 2023 and December 31, 2022, Issued and outstanding: 3,618,431 and 3,571,232 shares, at December 31, 2023 and December 31, 2022, respectively		—			—
Additional paid-in capital		242,520			239,753
Accumulated deficit		(186,495	)		(87,195	)
Accumulated other comprehensive loss		(12	)		(314	)
Total stockholders’ equity		56,013			152,244
Total liabilities and stockholders’ equity	$	60,412		$	152,975

See accompanying notes to consolidated financial statements.

Index

~~TABLE OF CONTENTS~~

VIRNETX HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Revenue
$
1,547

$
1,550

$
1,555

Operating expense:

Royalty expense

—

884

5,265

Research and development

2,674

2,499

2,277

Selling, general and administrative expenses

16,194

26,672

23,190

Total operating expense

18,868

30,055

30,732

Loss from operations

(17,321
)

(28,505
)

(29,177
)
Loss on change in value of derivative liability

—

—

(117
)
Interest and other income, net

46

69

68

Loss before taxes

(17,275
)

(28,436
)

(29,226
)
Income tax expense

(3
)

(133
)

(8
)
Net loss
$
(17,278
)
$
(28,569
)
$
(29,234
)
Basic and diluted loss per share
$
(0.30
)
$
(0.51
)
$
(0.56
)
Weighted average shares outstanding basic and diluted

58,354,397

55,984,825

52,384,494

~~VIRNETX HOLDING CORPORATION~~
~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS~~
~~(in thousands)~~

Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Net loss
$
(17,278
)
$
(28,569
)
$
(29,234
)
Other comprehensive gain (loss), net of tax:

Change in equity adjustment from foreign currency translation, net of tax

—

3

(1
)
Change in unrealized gain (loss) on investments, net of tax

(1
)

4

(3
)
Total other comprehensive income (loss), net of tax

(1
)

7

(4
)
Comprehensive loss
$
(17,279
)
$
(28,562
)
$
(29,238
)

	Year Ended December 31, 2023			Year Ended December 31, 2022
Revenue	$	7		$	48
Operating expense:
Licensing costs		—			(4	)
Research and development		9,713			6,406
Selling, general and administrative expenses		21,739			15,722
Total operating expense		31,452			22,124
(Loss) from operations		(31,445	)		(22,076	)
Interest and other income, net		3,495			1,848
(Loss) before taxes		(27,950	)		(20,228	)
Income tax (provision) benefit		79			(16,032	)
Net (loss)	$	(27,871	)	$	(36,260	)
Basic (loss) per share	$	(7.79	)	$	(10.17	)
Diluted (loss) per share	$	(7.79	)	$	(10.17	)
Weighted average shares outstanding basic		3,579			3,565
Weighted average shares outstanding diluted		3,579			3,565

See accompanying notes to consolidated financial statements.

Index

~~TABLE OF CONTENTS~~

~~VirnetX Holding Corporation~~
VIRNETX HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~
COMPREHENSIVE (LOSS)
(in ~~thousands, except share amounts)~~

Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
(Deficit)

Shares
Amount
Balance at December 31, 2014

51,996,701

$
5

$
133,072

$
(100,435
)
$
(15
)
$
32,627

Stock issued for cash exercise of warrants at $3.59 per share, net

120,161

431

431

Stock issued for cash at $4.04 per share, net

835,056

3,276

3,276

Advisor warrant issuance

121

121

Stock-based compensation

7,275

7,275

Exercise of options

143,100

165

165

Stock issued for vested RSUs

103,817

Derivative liability

438

438

Comprehensive income:

Net Loss

(29,234
)

(29,234
)
Other comprehensive loss, net of tax

(4
)

(4
)
Comprehensive loss

(29,238
)
Balance at December 31, 2015

53,198,835

$
5

$
144,778

$
(129,669
)
$
(19
)
$
15,095

Stock issued for cash at 3.00-$5.05 per share, net

4,760,594

1

19,195

19,196

Stock-based compensation

5,398

5,398

Exercise of options

50,357

20

20

Stock issued for vested RSUs

135,102

Comprehensive income:

Net Loss

(28,569
)

(28,569
)
Other comprehensive income, net of tax

7

7

Comprehensive loss

(28,562
)
Balance at December 31, 2016

58,144,888

$
6

$
169,391

$
(158,238
)
$
(12
)
$
11,147

Stock issued for cash at $4.00 -$5.69 per share, net

730,444

3,677

3,677

Stock-based compensation

3,986

3,986

Exercise of options

12,500

22

22

Stock issued for vested RSUs

164,146

Comprehensive income:

Net Loss

(17,278
)

(17,278
)
Other comprehensive loss, net of tax

(1
)

(1
)
Comprehensive loss

(17,279
)
Balance at December 31, 2017

59,051,978

$
6

$
177,076

$
(175,516
)
$
(13
)
$
1,553

thousands)

	Year Ended December 31, 2023			Year Ended December 31, 2022
Net (loss)	$	(27,871	)	$	(36,260	)
Other comprehensive (loss) income, net of tax:
Change in unrealized (loss) gain on investments, net		306			(246	)
Change in foreign currency translation, net		(4	)		—
Total other comprehensive (loss) gain, net of tax		302			(246	)
Comprehensive (loss)	$	(27,569	)	$	(36,506	)

See accompanying notes to consolidated financial statements.

Index

~~TABLE OF CONTENTS~~

VIRNETX HOLDING CORPORATION
~~CONDENSED~~
CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~
STOCKHOLDERS’ EQUITY
(in ~~thousands)~~

Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Cash flows from operating activities:

Net loss
$
(17,278
)
$
(28,569
)
$
(29,234
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation

26

28

26

Amortization of warrant issuance costs

—

30

91

Stock-based compensation

3,986

5,398

7,275

Change in value of derivative liability

—

—

117

Changes in assets and liabilities:

Prepaid expenses and other current assets

(3
)

66

(2
)
Prepaid expense – Non-current

385

385

385

Accounts payable

(1,392
)

(477
)

(1,044
)
Other liabilities

140

—

—

Accrued payroll and related expenses

695

232

1,207

Royalty payable

—

—

(6,100
)
Related-party payable

—

(11
)

(70
)
Income tax liability

(3
)

(4
)

(8
)
Deferred revenue

(1,500
)

1,000

1,000

Net cash used in operating activities

(14,944
)

(21,922
)

(26,357
)
Cash flows from investing activities:

Purchase of property and equipment

—

(13
)

(10
)
Purchase of investments

(946
)

(10,527
)

(10,673
)
Proceeds from sale or maturity of investments

8,741

11,240

23,287

Net cash provided by investing activities

7,795

700

12,604

Cash flows from financing activities: Restate for rule

Proceeds from exercise of options

22

20

165

Proceeds from exercise of warrants

—

—

431

Proceeds from sale of common stock

3,677

19,196

3,276

Payments of taxes on cashless exercise of restricted stock units

(42
)

(93
)

(51
)
Net cash provided by financing activities

3,657

19,123

3,821

Net decrease in cash and cash equivalents

(3,492
)

(2,099
)

(9,932
)
Cash and cash equivalents, beginning of period

6,627

8,726

18,658

Cash and cash equivalents, end of period
$
3,135

$
6,627

$
8,726

Cash paid for income taxes
$
5

$
126

$
6

Non-cash transactions

Fair value of warrants issued for services
$
—

$
—

$
121

thousands, except share amounts)

	Year Ended
	December 31,
	2023			2022
Total shareholders’ equity, beginning balances	$	152,244		$	185,449

Common stock and additional paid-in capital:
Beginning balances		239,753			236,452
Common stock issued for options/RSUs/RS, net		(11	)		(29	)
Stock-based compensation		2,778			3,330
Ending balances		242,520			239,753

Accumulated deficit
Beginning balances		(87,195	)		(50,935	)
Net (loss)		(27,871	)		(36,260	)
Dividends		(71,429	)		—
Ending balances		(186,495	)		(87,195	)

Accumulated other comprehensive loss:
Beginning balances		(314	)		(68	)
Change in unrealized investment (loss) gain, net		306			(246	)
Change in foreign currency translation, net		(4	)		—
Ending balances		(12	)		(314	)

Total shareholders’ equity, ending balances	$	56,013		$	152,244

Dividends per share	$	20		$	—

See accompanying notes to consolidated financial statements.

Index

VIRNETX HOLDING CORPORATION~~TABLE~~
CONSOLIDATED STATEMENTS OF ~~CONTENTS~~CASH FLOWS
(in thousands)

	Year Ended December 31, 2023			Year Ended December 31, 2022
Cash flows from operating activities:
Net (loss)	$	(27,871	)	$	(36,260	)
Adjustments to reconcile net (loss) to net cash from operating activities:
Depreciation		9			7
Stock-based compensation		2,778			3,330
Bad debt		15			—
Deferred income taxes		—			16,032
Changes in assets and liabilities:
Prepaid expenses and other current assets		(3,369	)		331
Accounts payable and accrued liabilities		67			35
Other liabilities		3,596			(54	)
Accrued payroll and related expenses		5			41
Accrued licensing costs		—			(355	)
Accounts receivable		(3	)		3
Prepaid income taxes		—			(3	)
Net cash used in operating activities		(24,773	)		(16,893	)
Cash flows from investing activities:
Purchase of property and equipment		(65	)		—
Purchase of investments at cost		(2,500	)		—
Purchase of investments		(47,215	)		(67,070	)
Proceeds from sale or maturity of investments		85,721			28,535
Net cash provided by (used in) investing activities		35,941			(38,535	)
Cash flows from financing activities:
Dividend		(71,429	)		—
Withholding taxes paid on cashless exercise of restricted stock and restricted stock units		(11	)		(29	)
Net cash used in financing activities		(71,440	)		(29	)
Net (decrease) in cash and cash equivalents		(60,272	)		(55,457	)
Cash and cash equivalents, beginning of period		86,561			142,018
Cash and cash equivalents, end of period	$	26,289		$	86,561
Cash paid for income taxes	$	—		$	2

See accompanying notes to consolidated financial statements.

Index

VIRNETX HOLDING CORPORATION~~VirnetX Holding Corporation~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands except share, per share and per device ~~amounts~~)

amounts)

Note 1 − Formation and Business of the Company

VirnetX Holding Corporation, which we refer to ~~as” we”~~as “we”, “us”, “our”, “the Company” or “VirnetX”, is engaged in the business of commercializing a portfolio of patents. We seek to ~~license~~derive revenue from selling our software products including VirnetX War Room™ and VirnetX Matrix™ and licensing our technology, including VirnetX One™, and our secure domain name technology GABRIEL Connection Technology™, to various original equipment manufacturers ~~or OEMs,~~(“OEMs”) and others, that use our technologies in the development and manufacturing of their own products within the IP-telephony, mobility, fixed-mobile convergence, and unified communications ~~markets. Prior~~markets or who seek to ~~2012 our revenue was limited to an insignificant amount of software royalties pursuant to the terms of a single license agreement. During 2013~~secure their systems and 2012 we had revenues from settlements of patent infringement disputes whereby we received consideration for past sales of licensees that utilized our technology, where there was no prior patent license agreement (see “Revenue Recognition”).

applications.

Our portfolio of intellectual property is the foundation of our business model. We currently own approximately ~~185~~205 total patents and pending applications, including ~~70 US~~72 U.S. patents/patent applications and ~~115~~133 foreign patents/validations/pending applications. Our patent portfolio is primarily focused on securing real-time communications over the Internet, as well as related services such as the establishment and maintenance of a secure domain name registry. Our patented methods also have additional applications in the key areas of device operating systems and network ~~security for Cloud services, M2M communications in areas of Smart City, Connected Car and Connected Home.~~security. The subject matter of all our U.S and foreign patents and pending applications relates generally to securing communications over the ~~internet~~Internet and such covers all our technology and other products. ~~Our~~Some of our issued U.S. and foreign patents expire at various times during the period from ~~2019~~2023 to 2024. Some of our issued patents and pending patent applications were acquired by our principal operating subsidiary; VirnetX, Inc., from Leidos, (f/k/a Science Applications International Corporation or SAIC) in 2006 and we are required to make payments to Leidos, based on cash or certain other values generated from those patents. The amount of such payments depends upon the type of value generated, and certain categories are subject to maximums and other limitations.

2034.

Note 2 − Summary of Significant Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. The critical accounting policies we employ in the preparation of our consolidated financial statements are those which involve impairment of long-lived assets, income taxes, fair value of financial instruments and stock-based compensation.

Use of Estimates

We prepare our consolidated financial statements in accordance with ~~accounting principles generally accepted in the~~ U.S. ~~(“U.S. GAAP”).~~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 past 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~~Audit Committee of our ~~board~~Board of ~~directors.~~

Directors.

Basis of Consolidation

The consolidated financial statements include the accounts of VirnetX Holding Corporation and our ~~wholly-owned~~wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Revenue Recognition ~~(see Note 2 -New~~

The Company derives revenue from licensing and royalty fees from contracts with customers which often span several years. We account for this revenue in accordance with Accounting ~~Pronouncements - ASU No. 2014-09,~~Standards Codification (“ASC”) Topic 606, Revenue from Contracts with ~~Customers)~~

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.

Index

With thelicensing 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 ~~derive~~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 ~~from patent licensing. The timing and amount of revenue~~is recognized ~~from each licensee depends upon a variety of factors, including~~over time, generally over the ~~specific terms of each agreement and the nature~~life of the ~~deliverables~~

servicing contract.

~~TABLE OF CONTENTS~~

The Company actively monitors and ~~obligations. Such agreements~~enforces its intellectual property (“IP”) rights, including seeking appropriate compensation from third parties that utilize the Company’s IP without a license. As a result, the Company may, ~~be complex and include multiple elements. These agreements may include, without limitation, elements related~~from time to ~~the~~time, receive payments as part of a settlement ~~of past~~or compensation for a patent infringement liabilities, up-front and non-refundable license fees for the use of patents, patent licensing royalties on covered products sold by licensees, and the compensation structure and ownership of intellectual property rights associated with contractual technology development arrangements. Licensing agreementsdispute. Proceeds received are accounted for under the Financial Accounting Standards Board (“FASB”) revenue recognition guidance, “Revenue Arrangements with Multiple Deliverables.” This guidance requires consideration to be allocated to each element ~~of an agreement that has stand-alone value using~~identified in the ~~relative~~settlement or compensation, based on the fair value ~~method. In other circumstances, such as those agreements involving consideration for past~~of each element. Generally, settlements and ~~expected future patent royalty obligations, after consideration of the particular facts and circumstances, the appropriate recording of revenue between periods~~compensation may ~~require the use of judgment. In all cases, revenue is only recognized after all~~include the following ~~criteria~~elements: the value of a license or royalty agreement, cost reimbursement, damages, and interest. Elements identified related to licensing and royalty are ~~met: (1) written agreements have been executed; (2) delivery~~recognized as revenue. Elements identified as reimbursed costs are generally recorded as a reduction to the reported expenses. Elements identified as damages or interest are generally recorded in other income in the condensed consolidated statement of ~~technology or intellectual property rights has occurred or services have been rendered; (3) fees~~operations.

Licensing Costs

Included in operating expenses are ~~fixed or determinable; and (4) collectability of fees is reasonably assured.~~

~~Patent License Agreements~~~~: Upon signing~~licensing costs we incurred in conjunction with a patent ~~license agreement, including licenses entered upon settlement~~infringement case.

Contingent Gains

ASC Topic 450-30-25, Contingent Gains, prohibits recognition of litigation, we provide the licensee permission to use our patented technology in specific applications. We account for patent license agreements in accordance with the guidance for revenue recognition for arrangements with multiple deliverables, with amounts allocated to each element based on their fair values. We have elected to utilize the leased-based model for revenue recognition with revenue being recognized over the expected period of benefit to the licensee. Under our patent license agreements,contingent gains until realized. Accordingly, we do ~~or expect to typically receive one or a combination~~not record contingent gains ahead of such realization. Management generally considers any such gains as realized only upon the ~~following forms~~collection of ~~payment as consideration for permitting our licensees to use our patented inventions in specific applications and products:~~

•

~~Deferred Revenue~~

In August 2013, we began receiving annual payments on a contract that required payment to us over 4 years totaling $10,000 (“August 2013 Contract Settlement”). As of December 31, 2017, we received cash totaling $10,000, all of

cash.

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~~which is non-refundable. We recognized $1,500, $1,500 and $1,500 of revenue related to the August 2013 Contract Settlement during the years ended December 31, 2017, 2016 and 2015, respectively.~~

~~Activity under the August 2013 Contract Settlement was as follows:~~

~~Royalty Expense~~

Royalty expense for the years ended December 31, 2017, 2016 and 2015 was $0, $884 and $5,265, respectively and was a result of our royalty agreement with Leidos. The agreement provides for revenue sharing and legal reimbursements related to attorney time and expenses incurred by Leidos during discovery and other aspects of litigation matters that have been resolved.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with original 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.

~~Prepaid Expenses and Other Current Assets~~

Prepaid Expense and Other Current Assets at December 31, 2017 includes the current portion of prepaid rent for a facility lease for corporate promotional and marketing purposes. Beginning March 2014, the prepayment totaling $4,000 is being amortized over the 10-year term of the lease. The unamortized non-current portion of the prepayment is included in Prepaid Expenses-Non-current on the consolidated balance sheet.

Investments

Investments ~~are~~ classified as available-for-sale ~~and~~ 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. Unrealized gains and losses on our investments are included in other comprehensive income.~~realized using specific identification of each security’s cost basis. We invest our excess cash primarily in highly liquid debt instruments including corporate, government and federal agency securities, with contractual maturities less than two years. By policy, we limit the amount of credit exposure to any one issuer.

~~Property~~

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 ~~Equipment~~

~~Property and equipment~~$500 in OP Media Inc. These investments are ~~stated~~carried at ~~historical~~our initial cost less ~~accumulated depreciation~~any impairment, because we do not have the ability to exercise significant influence over operating and ~~amortization. Depreciation and amortization are computed using~~financial matters. For these investments, we adjust the ~~accelerated and straight-line methods over~~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 ~~estimated useful lives~~carrying value for the impairment loss with a charge to earnings. We have not identified any impairment as of ~~the assets, which range from five to seven years. Repair and maintenance costs are charged to expense as incurred.~~

December 31, 2023.

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, or FDIC. ~~During the year ended December 31, 2017 and 2016,~~In 2023, we had, at times, 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.

Index

Fair Value

The carrying amounts of our financial instruments, including cash equivalents, accounts payable, and accrued liabilities, approximate fair value because of their generally short maturities.

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

The Company determines if an arrangement is a lease at inception in accordance with ASC Topic 842. Operating lease right-of-use (“ROU”) assets are included in Prepaid expenses, and other assets on the Condensed Consolidated Balance Sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s 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 risk-free rate, U.S. prime rate, of 8.5% in 2023.

~~TABLE OF CONTENTS~~

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 3 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 ~~considered to be~~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.

Index

The 2017 U.S. Tax Cuts and Jobs Act changes IRC Section 174, regarding capitalization of book research and development (“R&D”) expenses for income tax purposes. Effective for tax years beginning in 2022 IRC Section 174 requires the capitalization of book R&D expenses which are capitalized and amortized over 5 years for domestic R&D expenses and over 15 years for foreign R&D expenses. To date there has been limited guidance from the IRS on how to quantify the amount of book R&D expenses subject to capitalization, including the indirect expenses supporting the R&D function. Due to the limited guidance, some assumptions were made in our estimates.

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. Consistent with our policy, and because of our history of operating losses, we do not currently recognize the benefit of all our deferred tax assets, including tax loss carry forwards, that may be used to offset future taxable income. 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. The purpose of this method is to clarify accounting for uncertain tax positions recognized. The U.S.~~ GAAP, ~~method of accounting for uncertain tax positions~~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 derecognized when we subsequently determine the position no longer is more likely than not to be sustained. Evaluation of tax positions, their technical merits, and measurements using cumulative

~~TABLE OF CONTENTS~~

probability are highly subjective management estimates. Actual results could differ materially from these estimates. We include interest and penalties, if any, in income tax expense. During the years ended December 31, 2017, 2016 and 2015, income tax expense included interest and penalties of $0, $48 and $0, respectively.

The Act changes the worldwide territorial tax system. Therefore, the deemed repatriation tax applies to undistributed earnings of certain non-U.S. subsidiaries. The company has no deemed repatriation tax liability because its foreign subsidiaries accumulated earnings is negative. We also assess the tax impact of the Act for 2018 and future years and do not believe there is a need to change our valuation allowance position as of December 31, 2017.

~~Derivative Instruments~~

Our Series I Warrants were accounted for as derivative instruments as a result of an anti-dilution provision which, in accordance with U.S. GAAP, prevented them from being considered indexed to our stock and qualified for an exception to derivative accounting. The balance of our Series I Warrants expired during the year ended December 31, 2015.

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 ~~net of the applicable forfeiture rate and recognize the compensation costs for only those shares expected to vest~~ on a straight-line basis over the requisite service period of the award, which is generally ~~the~~a vesting term of 4 years. We ~~estimate the forfeiture rate based on our historical experience~~recognize forfeitures, if ~~any. See Note 6 - Stock-Based Compensation and New Accounting Pronouncements below for additional information concerning our share-based compensation awards.~~

any, when they occur. In addition, ~~as required~~ we record ~~stock and options~~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.~~

period (See Note 6 - Stock-Based Compensation).

Earnings per Share

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares 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. ~~During 2017, 2016 and 2015 we incurred losses; therefore, the effect of any common stock equivalent would be anti-dilutive during these periods.~~

~~Reclassifications~~

~~Certain prior year amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year’s presentation.~~

New Accounting Pronouncements

In ~~June 2016,~~December 2023, the FASB issued ~~Accounting Standards Update (“ASU”)~~ASU No. ~~2016-13, Financial Instruments-Credit Losses~~2023-09, Income Taxes (Topic ~~326) “ASU 2016-13”.~~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 ~~purpose of~~guidance in this ASU 2016-13 is to require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. ASU 2016-13 is effective for ~~interim and~~public companies with annual ~~reporting~~ periods beginning after December 15, ~~2019.~~2024. We plan to adopt the guidance for the fiscal year ending December 31, 2025. We are currently evaluating the ~~impact~~effect adoption of this ~~guidance~~ASU will have on our ~~financial position and statement of operations.~~

~~TABLE OF CONTENTS~~

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”), which simplified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification in the statement of cash flows. We adopted this ASU in 2017 with the following affects:

~~ASU 2016-09 requires excess tax benefits to be recognized regardless of whether the benefit reduces taxes payable. We had zero excess tax benefits recognized for the year ended December 31, 2017.~~

In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606) “ASU 2014-09”. ASU 2014-09 was subsequently amended by ASU No. 2016-10 and 2016-12. As amended, Topic 606 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments create a new Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For a public entity, the amendments to ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We will adopt the new revenue standards in our first quarter of 2018 utilizing the modified retrospective transition method. We expect the adoption of the standard to result in an approximate $2,500 decrease in accumulated deficit and a $2,500 decrease in deferred revenue in our consolidated balance sheet. The new revenue standards are not expected to have a material impact on the amount and timing of revenue recognized in our consolidated financial statements.

Index

Note 3 − Property and Equipment

Our major classes of property and equipment were as follows:

December 31

2017
2016
Office furniture
$
79

$
79

Computer equipment

172

172

Total

251

251

Less accumulated depreciation

(244
)

(218
)

$
7

$
33

December 31
2023 2022
Office furniture $ 143 $ 79
Computer equipment 92 92
Total 235 171
Less accumulated depreciation (168 ) (160 )
Total property and equipment, net $ 67 $ 11

Depreciation expense for ~~the years ended December 31, 2017, 2016~~2023 and ~~2015~~2022 was ~~$26, $28~~$9 and ~~$26,~~$7, respectively.

~~TABLE OF CONTENTS~~

Note 4 − Commitments,, C~~ontingencies~~ Contingencies andRelated Party Transactions

We ~~lease our offices under an operating lease with~~have a ~~third party expiring in October 2019. We recognize rent expense on a straight-line basis over the term of the lease. Rent expense was $56,~~service agreement for ~~each of the years ended December 31, 2017, 2016 and 2015. Future minimum rents due under the lease total $56 in 2018, and $46 in 2019 when the lease expires.~~

~~During 2017, 2016 and 2015 we leased~~ the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for ~~employees of the Company.~~our employees. We incurred approximately ~~$1,240, $772~~$1,097 and ~~$593~~$1,123 in rental fees ~~(including fees~~ and ~~other reimbursements)~~reimbursements to the LLC ~~during~~in 2023 and 2022, respectively. We pay for the ~~year ended December 31, 2017, 2016~~Company’s business usage of the aircraft and ~~2015, respectively.~~have no right to purchase. Our Chief Executive Officer and Chief Administrative Officer are the managing partners of the LLC and control the equity interests of the LLC. ~~On January 31, 2015, we~~We entered into a 12-month non-exclusive ~~lease~~agreement with the LLC for use of the plane at a rate of $8 per flight hour, with no minimum usage requirement. The agreement contains other terms and conditions normal in such transactions and can be cancelled by either us or the LLC with 30 days’ notice. The ~~lease~~agreement renews on an annual basis unless terminated by ~~the lessor or lessee.~~either party. Neither party has ~~yet~~ exercised their termination rights.

See Note 13 for further discussion of our lease commitments.

Note 5 − Stock Plan

~~We have a stock incentive plan for employees~~

Our stockholders approved the Amended and ~~others called the VirnetX Holding Corporation 2013~~Restated Equity Incentive Plan (the ~~“Plan”~~“A&R Plan”), at our annual shareholders’ meeting in June 2023, which ~~has been approved by our stockholders. To~~added 175,000 shares to the ~~extent that any award should expire, become un-exercisable or is otherwise forfeited, the shares subject to such award~~plan. Our prior plan expired March 29, 2023; no further awards will ~~again become available for issuance~~be made under the ~~2013 Plan.~~prior plan, and the A&R Plan will govern awards granted under the prior plan. The ~~2013~~A&R Plan provides for the granting of stock options, restricted stock units (“RSUs”) and restricted ~~stock purchase rights (“RSU”) to our employees and consultants. Stock options~~stock. Options granted under the ~~2013~~A&R Plan ~~may be incentive stock options or nonqualified stock options. Incentive stock options (“ISO”) may only be~~are granted ~~to our employees (including officers and directors). Nonqualified stock options (“NSO”) and stock purchase rights may be granted to our employees and consultants.~~

~~The 2013 Plan will expire in 2023. Options may be granted under the 2013 Plan~~ with an exercise price ~~determined by our Board of Directors, or a duly appointed committee thereof, provided, however, that~~equal to the ~~exercise price of an option granted to any employee shall be not less than 100% of the~~ fair market value at the date of grant in the case of ISO or 85% of the fair market value at the date of grant in the case of an NSO. The exercise price of an ISO or NSO granted to one of our Named Executive Officers shall not be less than 100% fair market value of the ~~shares at the date~~ of ~~grant and the exercise price of an ISO granted to a 10% shareholder shall not be less than 110% of the fair market value of the shares~~our stock on the date of grant. ~~Stock options granted under the 2013 Plan typically vest over four years~~RSUs and ~~have a 10-year term. All RSUs~~restricted stock are ~~considered to be~~ granted at the fair value of our stock on the date of grant because they have no exercise price. The fair value of options, RSUs ~~typically vest~~and restricted stock are expensed over ~~four years.~~the vesting periods. All options, RSUs and restricted stock are subject to forfeiture if service terminates prior to the shares vesting. At December 31, ~~2017,~~2023, there were ~~2,928,562~~225,778 shares available for grant under the ~~2013~~A&R Plan.

Note 6 − Stock-Based Compensation

The following tables summarize information ~~about stock-options~~ and ~~RSUs outstanding at December 31, 2017:~~

Options Outstanding
Options Vested and Exercisable
Range of
Exercise Prices
Number
Outstanding
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
Number
Exercisable
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
$ 0.24- 1.58

771,045

1.26

$
1.16

771,045

1.26

$
1.16

$ 1.74- 6.95

3,113,396

8.04

4.27

1,134,677

5.86

4.63

$ 14.52- 35.25

1,253,625

4.71

23.16

1,223,510

4.67

23.35

5,138,066

6.21

$
8.41

3,129,233

4.26

$
11.09

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~~The following tables summarize~~ activity under the ~~Plan~~plan for the indicated ~~periods:~~

Options

Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 2014

4,489,028

$
9.33

—

$
—

Options granted

694,000

4.47

—

—

Options exercised

(143,100
)

1.15

—

—

Options cancelled

(40,000
)

25.61

—

—

Outstanding at December 31, 2015

4,999,928

$
8.76

—

$
—

Options granted

429,000

4.77

—

—

Options exercised

(50,357
)

0.40

—

—

Outstanding at December 31, 2016

5,378,571

$
8.52

—

$
—

Options granted

1,613,500

4.06

—

—

Options exercised

(12,500
)

1.74

—

—

Options cancelled

(1,841,505
)

4.71

—

—

Outstanding at December 31, 2017

5,138,066

$
8.41

6.21

$
2,529

Options exercisable at December 31, 2017

3,129,233

$
11.09

4.26

$
2,271

periods.

RSUs

Number of
RSUs
Weighted
Average
Grant Date
Fair Value
Aggregate
Intrinsic
Value
Outstanding at December 31, 2014

310,394

$
19.74

$
—

RSUs granted

162,665

5.57

—

RSUs vested

(113,103
)

20.11

—

Outstanding at December 31, 2015

359,956

$
13.22

$
—

RSUs granted

219,331

4.75

—

RSUs vested

(155,852
)

15.27

—

Outstanding at December 31, 2016

423,435

$
8.08

$
—

RSUs granted

220,664

3.83

—

RSUs vested

(174,438
)

10.47

—

Outstanding at December 31, 2017

469,661

$
5.19

$
—

Options Outstanding							Options Vested and Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
$ 10.00 - 31.60		41,925		8.45	$	28.67		17,519		8.45	$	28.16
$ 34.80 - 139.00		275,217		4.66	$	90.31		252,243		4.42	$	90.00
$ 290.40 - 308.00		12,875		0.49	$	304.24		12,875		0.49	$	304.24
		330,017		4.98	$	90.63		282,637		4.49	$	95.70

Index

	Options
	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, December 31, 2021		319,868		$	139.80		—	$	—
Options granted		40,050			29.60		—		—
Options exercised		—			—		—		—
Options cancelled		(19,120	)		501.20		—		—
Outstanding, December 31, 2022		340,798		$	106.60		—	$	—
Options granted		1,875			10.00		—		—
Options exercised		—			—		—		—
Options cancelled		(12,656	)		510.21		—		—
Outstanding, December 31, 2023		330,017		$	90.63		4.98	$	—
Options exercisable, December 31, 2023		282,637		$	95.70		4.49	$	—

	RSUs
	Number of RSUs			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding, December 31, 2021		25,457		$	107.80	$	—
RSUs granted		12,918			29.20		—
RSUs vested		(10,770	)		103.00		—
RSUs cancelled		—			—		—
Outstanding, December 31, 2022		27,605		$	73.00	$	—
RSUs granted		1,250			10.00		—
RSUs vested		(11,405	)		83.81		—
RSUs cancelled		—			—		—
Outstanding, December 31, 2023		17,450		$	60.81	$	—

	Restricted Stock
	Number of Restricted Stock			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding, December 31, 2022		—		$	—	$	—
Restricted stock granted		36,927			9.12		—
Restricted stock vested		(3,617	)		9.19		—
Restricted stock cancelled		(604	)		9.60		—
Outstanding, December 31, 2023		32,706		$	9.11	$	—

Intrinsic value is calculated as the difference between the per-share market price of our common stock on the last trading day of ~~2017,~~2023, which was ~~$3.70,~~$7 and the exercise price of the ~~options.~~awards. For ~~options~~awards exercised, the intrinsic value is the difference between market price and the exercise price on the date of exercise. We received cash proceeds of $22, $20 and $165 from stock options exercised in 2017, 2016 and 2015, respectively. The total intrinsic value of options exercised was $25, $91 and $203 during the years ended December 31, 2017, 2016 and 2015, respectively. For RSUs vested, the intrinsic value is the difference between market price and the vested price on the date of vest. The total intrinsic value of the RSUs vested was zero during the year ended December 31, 2017.

Index

Stock-based compensation expense is included in ~~general and administrative~~operating expense for each period as follows:

Stock-Based Compensation by Type of Award
Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Stock options
$
2,446

$
3,436

$
4,939

RSUs

1,540

1,962

2,336

Total stock-based compensation expense
$
3,986

$
5,398

$
7,275

Stock-Based Compensation by Type of Award	Year Ended December 31, 2023		Year Ended December 31, 2022
Stock options	$	1,960	$	2,303
RSUs		778		1,027
Restricted stock		40
Total stock-based compensation expense	$	2,778	$	3,330

~~TABLE OF CONTENTS~~

As of December 31, ~~2017,~~2023, there was ~~$6,086~~$3,006 of unrecognized stock-based compensation ~~expense expected to be recognized~~expense; $2,025 related to unvested ~~employee~~ stock options, ~~and $1,767 of unrecognized stock-based compensation expense to be recognized~~$683 related to unvested ~~RSUs.~~RSUs, and $298 related to unvested restricted stock. These costs are expected to be recognized over a weighted-average period of ~~3.11~~1.8 years for options, 1.74 years for RSUs, and ~~2.43~~3.54 years ~~respectively.~~

for restricted stock.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:

Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Expected stock price volatility
84.91%
79.6%
82%
Risk-free interest rate
1.94%
1.85%
2.12%
Expected life term (in years)
6.08 years
6.03 years
6.07 years
Expected dividends
0%
0%
0%

Year Ended
December 31, 2023

Year Ended
December 31, 2022

Expected stock price volatility 81.39 % 85.39 %
Risk-free interest rate 3.9 % 3.09 %
Expected life term 5.5 years 6.2 years
Expected dividends 0 % 0 %

Based on the Black-Scholes option pricing model, the weighted average estimated fair value of employee stock options granted was ~~$2.93, $3.25~~$6.96 and ~~$3.17~~$21.77 per share during ~~the years ended December 31, 2017, 2016~~2023 and ~~2015,~~2022, respectively.

The expected life was determined using the simplified method outlined in ASC 718, ~~“Compensation~~ “Compensation - Stock ~~Compensation”,~~ ~~taking the average of the vesting term and the contractual term of the option.~~Compensation”. Expected volatility of the stock options was based upon historical data and other relevant factors, such as the volatility of comparable publicly-traded companies at a similar stage of life cycle. We have not provided an estimate for forfeitures because we have had nominal forfeited options and RSUs and believe that all outstanding options and RSUs at December 31, 2017, will vest. In 2017 we adopted a policy not to estimate forfeitures (see Note 2, New Accounting Pronouncements, ASU No. 2016-09).

factors.

Note 7 − Earnings Per Share

Basic earnings per share are based on the weighted average number of shares outstanding for a period. Diluted earnings per share are based upon the weighted average number of shares and potentially dilutive common shares outstanding. Potential common shares outstanding principally include stock options, RSUs and unvested restricted stock under our stock plan and warrants. During ~~2017, 2016~~2023 and ~~2015~~2022 we incurred losses; therefore, the effect of any common stock equivalent would be ~~anti-dilutive during those periods.~~

anti-dilutive.

The table below sets forth the basic and diluted loss per share calculations:

Year Ended December 31,

2017
2016
2015
Net loss
$
(17,278
)
$
(28,569
)
$
(29,234
)
Basic and diluted weighted average number of shares outstanding

58,354

55,985

52,384

Basic and diluted loss per share
$
(0.30
)
$
(0.51
)
$
(0.56
)

Year Ended December 31,
2023 2022
Net (loss) income
$ (27,871 ) $ (36,260 )

Basic weighted average number of shares outstanding 3,579 3,565
Effect of dilutive securities — —
Diluted weighted average number of shares outstanding 3,579 3,565

Basic (loss) earnings per share $ (7.79 ) $ (10.17 )
Diluted (loss) earnings per share $ (7.79 ) $ (10.17 )

Index

Note 8 − Common Stock

Each share of common stock has the right to one ~~vote.~~vote. The holders of common stock are entitled to receive dividends whenever funds are legally available and when declared by our Board of Directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. Our restated articles of incorporation authorize us to issue up to 100,000,000 shares of ~~$.0001~~$0.0001 par value common stock.

Effective October 25, 2023, every 20 shares of our common stock ~~having an aggregate value~~outstanding was combined into one share of upcommon stock. Proportional adjustments were also made to $35 million. We have and expect to use proceeds from this offering for GABRIEL product development and marketing, and general corporate purposes, which may include working capital, capital expenditures, other corporate expenses and acquisitionsthe number of ~~complementary products, technologies or businesses. As of December 31, 2017,~~restricted stock, common stock ~~with an aggregate value~~issuable upon the exercise of upoptions, warrants as well as common stock issuable upon the vesting of RSUs. The exercise price of all equity awards were also proportionally adjusted. The accompanying financial statements include the effect of this adjustment on all periods presented.

Dividends

In 2023, we paid a one-time capital dividend of $20 per share of common stock to ~~$8,041 remains available~~shareholders. The timing and amount of future dividends, if any, will depend on market conditions, corporate business and financial considerations and regulatory requirements.

Warrants

In 2020, we issued warrants for ~~offer and sale under~~ the ~~ATM agreement.~~

~~TABLE OF CONTENTS~~

~~We sold 730,444, 4,760,594 and 835,056~~purchase of 1,250 shares of common stock ~~under the ATM program during the years ended December 31, 2017, 2016 and 2015 respectively. The average sales~~at an exercise price per common share sold during the year ended December 31, 2017 was $5.19 and the aggregate proceeds from the sales totaled $3,790 during the period. Sales commissions, fees and other costs associated with the ATM transactions totaled $113 for 2017. The average sales price per common share sold during the year ended December 31, 2016 was $4.16 and the aggregate proceeds from the sales totaled $19,791 during the period. Sales commissions, fees and other costs associated with the ATM transactions totaled $594 for 2016. The average sales price per common share sold during the year ended December 31, 2015 was $4.04 and the aggregate proceeds from the sales totaled $3,378 during the period. Sales commissions, fees and other costs associated with the ATM totaled $101 for 2015 ~~(see Note 15 - Subsequent~~ ~~Events)~~.

~~Note 9 − Equity~~ ~~Warrants~~

~~During the year ended December 31, 2015 we issued warrants (“Advisor Warrants”) for the purchase~~ of ~~25,000 shares of common stock for $7~~$115 per share, ~~which expire~~exercisable on the date of grant, expiring in April ~~2020.~~2025. The ~~Advisor Warrants were issued for advisory services provided by a third party. Our Advisor Warrants were recorded at~~weighted average fair value onat the ~~issuance~~grant date and included in Additional Paid in Capital on our Consolidated Balance Sheet. The Advisor Warrants are exercisable by the holder, in whole or in part, until expiration, and may also be net-share-settled. Terms of the warrant agreement include no registration requirements for the underlying common stock and there are no anti-dilution provisions.was $83.20 per warrant. The fair value at ~~issuance of~~ the ~~warrants~~grant date was ~~recorded in Prepaid Expenses and Other Current Assets, and is being amortized over~~estimated utilizing the ~~twelve-month life of the service contract,~~Black-Scholes valuation model with the ~~expense included in Selling, General~~following weighted average assumptions (i) dividend yield on our common stock of 0 percent (ii) expected stock price volatility of 97 percent (iii) a risk-free interest rate of 0.27 percent and ~~Administrative Expense in our Consolidated Statements~~(iv) and expected option term of ~~Operations.~~

~~Information about the Advisor Warrants outstanding during the twelve months ended December 31, 2017 follows:~~

Original
Number of
Warrants
Issued
Exercise
Price per
Common
Share
Exercisable at
December 31,
2016
Became
Exercisable
Exercised
Terminated /
Cancelled /
Expired
Exercisable at
December 31,
2017
Expiration
Date
25,000
$7.00
25,000
—
—
—
25,000
April 2020
5 years.

Warrants
Issued

Exercise
Price

Outstanding and
Exercisable
December 31, 2022
Issued Exercised
Terminated /
Cancelled

Outstanding and
Exercisable
December 31, 2023
Expiration Date

1,250 $ 115 1,250 — — — 1,250 April 30, 2025

Note 109 − Employee Benefit Plan

We sponsor a defined contribution 401k plan covering substantially all our employees. Our matching contribution to the plan was approximately ~~$84, $90~~$229 and ~~$59~~$179 in ~~2017, 2016~~2023 and ~~2015,~~2022, respectively.

Note 1110 − Income Taxes

The income tax provision (benefit) is comprised of the following:

Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Current:

Federal
$
—

$
—

$
10

State

(3
)

(133
)

(18
)
Foreign

—

—

—

(3
)

(133
)

(8
)
Deferred:

Federal

—

—

—

State

—

—

—

Total income tax provision
$
(3
)
$
(133
)
$
(8
)

	Year Ended December 31, 2023			Year Ended December 31, 2022
Current:
Federal	$	—		$	—
State		2			3
Foreign		—			—
		2			3
Deferred:
Federal		(79	)		15,920
State		(2	)		109
		(81	)		16,029
Total income tax (benefit) provision	$	(79	)	$	16,032

Index

~~TABLE OF CONTENTS~~

A reconciliation of the United States federal statutory income tax rate to our effective income tax rate is as follows:

Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
United States federal statutory rate

35.00
%

35.00
%

35.00
%
State taxes, net of federal benefit

(0.01
)%

(0.31
)%

(0.04
)%
Valuation allowance

(35.94
)%

(35.43
)%

(33.36
)%
Stock options

—

—

(1.62
)%
Prior year true-up

—

(0.06
)%

0.03
%
R&D Credit

1.43
%

0.66
%

0.38
%
Warrants

—

—

(0.14
)%
Other

(0.50
)%

(0.33
)%

(0.29
)%
Effective income tax rate

(0.02
)%

(0.47
)%

(0.04
)%

~~In 2017, 2016~~

Year Ended
December 31, 2023

Year Ended
December 31, 2022

United States federal statutory rate 21.00 % 21.00 %
State taxes, net of federal benefit (0.01 )% (0.55 )%
Valuation allowance (20.31 )% (91.21 )%
Stock based compensation (0.58 )% (9.44 )%
R&D Credit 2.20 % 1.22 %
Other (2.03 )% (0.29 )%
Effective income tax rate 0.28 % (79.27 )%

Deferred tax assets (liabilities) consist of the following:

	As of December 31, 2023			As of December 31, 2022
Deferred tax assets:
Reserves and accruals	$	65		$	147
Research and development credits and other credits		1,110			430
Net operating loss carry forward		15,262			11,988
Stock based compensation		4,360			5,018
Other		2,382			970
Total deferred tax assets	$	23,179		$	18,553

Valuation allowance		(23,179	)		(18,553	)
Deferred tax assets after valuation allowance		—			—

Total deferred tax liability – depreciation and amortization		—			—

Net deferred tax assets	$	—		$	—

Pursuant to IRC Section 174, we capitalized direct and ~~2015,~~indirect research and development costs for our tax return totaling $8,599 in 2023 and $5,140 in 2022, of which $1,888 will be amortized in our 2023 tax return and $514 in our 2022 tax return. At December 31, 2023, unamortized capitalized direct and indirect research and development costs for our tax return totaled $11,337, resulting in a deferred tax asset of $2,381.

At December 31, 2023, we had ~~pre-tax~~federal and state net operating loss carryforwards of approximately $72,645 and $109,435, respectively. Federal net operating loss carryforwards do not expire. None of the state net operating loss carryforward is apportioned to a deferred tax asset, because currently we do not have operations in states where losses ~~of $17, $28 and $29 million, respectively, which are available for carry forward to offset future taxable income.~~accumulated. The state net operating loss carryforward begins expiring in 2029. We ~~made determinations to~~ provide full valuation allowances for our net deferred tax assets, ~~at the end of 2017, 2016 and 2015,~~ including NOL carryforwards generated during the years, based on our evaluation of positive and negative evidence, including our history of operating losses and the uncertainty of generating future taxable income that would enable us to realize our deferred tax assets.

~~Deferred tax assets (liabilities) consist of the following:~~

Year Ended
December 31, 2017
Year Ended
December 31, 2016
Deferred tax assets:

Reserves and accruals
$
963

$
1,063

State tax

—

1

Research and development credits and other credits

1,300

1,092

Net operating loss carry forward

22,448

29,186

Stock based compensation

9,260

13,031

Other

54

88

Total deferred tax assets

34,025

44,461

Valuation allowance

(34,025
)

(44,455
)
Deferred tax assets after valuation allowance

—

6

Deferred tax liability:

Depreciation and amortization

—

(6
)

Total deferred tax liability

—

(6
)

Net deferred tax assets
$
—

$
—

The Act changes the worldwide territorial tax system. Therefore, the deemed repatriation tax applies to undistributed earnings of certain non-U.S. subsidiaries. The company has no deemed repatriation tax liability because its foreign subsidiary’s accumulated earnings is negative. We also assess the tax impact of the Act for 2018 and future years and do not believe there is a need to change our valuation allowance position as of December 31, 2017.

~~TABLE OF CONTENTS~~

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of deferred assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets at December 31, 2017 will not be fully realizable. Accordingly, management has maintained a full valuation allowance against its net deferred tax assets at December 31, 2017. The net change in the total valuation allowance for the 12 months ended December 31, 2017 was a decrease of $10,430. At December 31, 2017, we had federal and state net operating loss carry-forwards of approximately $87,429 and $98,425, respectively, expiring beginning in 2027 for federal and began expiring in 2016, for state. At December 31, 2017, we had federal research and development credit carry-forwards of approximately $1,300, expiring beginning in 2031.

Internal Revenue Code Section 382 places a limitation (the “Section 382 Limitation”) on the amount of taxable income that can be offset by net operating loss carry forwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. California, the state in which our headquarters was once located, has similar rules. Our capitalization described herein may have resulted in such a change. Generally, after a control change, a loss corporation cannot deduct net operating loss carry forwards generated in years prior to the deemed change of control under IRC Section 382 in excess of the Section 382 Limitation.

We are required to recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. ~~As a result,~~At December 31, 2023, we have ~~provided contingent reserve under ASC 740-10 of $316 at December 31, 2017, and December 31, 2016.~~ no uncertain tax positions.

Our tax ~~returns~~years for 2005 and forward are subject to ~~review~~examination by the U.S. tax authority and various state tax authorities. These years are open due to NOLs and tax credits generated in these years were utilized in 2020. The statute of limitation for these years shall expire three years after the date of filing 2020 income tax returns, ~~subject to review are those from 2005 forward.~~

which is October 2024.

Our policy is to recognize interest and penalties, if any, accrued on any unrecognized tax benefits, as a component of income tax expense. We had no interest or penalties accrued ~~for the year ended December 31, 2017.~~

~~A reconciliation of beginning and ending amounts of unrecognized tax benefits follows:~~

Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Balance at the beginning of the year
$
316

$
316

$
316

Additions based on tax positions related to the current year

—

—

—

Additions for tax positions of prior years

—

—

—

Settlements

—

—

—

Lapse of applicable statute of limitations

—

—

—

Balance at the end of the year
$
316

$
316

$
316

in 2023.

Index

Note 1211 − Fair Value Measurement

We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.

~~Level 1 – Quoted~~unadjusted quoted prices in active markets for identical assets or ~~liabilities.~~

Our financial instruments are stated at amounts that equal, or ~~similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable~~approximate, fair value. When we estimate fair value, we utilize market data ~~for substantially the full term of the assets~~ or ~~liabilities.~~

~~Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of~~ assumptions that we believe market participants would use in pricing the ~~asset or liability.~~

~~The carrying amounts for cash~~financial instrument, including assumptions about risk and ~~cash equivalents, investments in certificates of deposit, accounts payable and accrued expenses approximate their fair values due~~inputs to the ~~short period~~valuation technique. We use valuation techniques, primarily the income and market approach, which maximizes the use of ~~time until maturity.~~

observable inputs and minimize the use of unobservable inputs for recurring fair value measurements.

Mutual ~~Funds~~:funds: Valued at the quoted net asset value (NAV) of shares held.

~~TABLE OF CONTENTS~~

U.S. ~~Agency securities~~:agency and treasury securities: Fair value measured at the closing price reported on the active market on which the individual securities are traded.

The following table shows ~~our cash and available-for-sale securities~~the adjusted cost, gross unrealized gains, gross unrealized losses, and fair value ~~by significant investment category recorded as cash and cash equivalents~~ of ~~investments available for sale~~our financial assets as of December 31, ~~2017~~2023 and ~~2016~~2022 (in thousands):

December 31, 2017

Adjusted
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Cash
and Cash
Equivalents
Investments
Available
for Sale
Cash
$
1,972

$
—

$
—

$
1,972

$
1,972

$
—

Level 1:

Mutual funds

616

—

—

616

616

U.S. agency securities

2,001

—

(1
)

2,000

547

1,453

2,617

—

(1
)

2,616

1,163

1,453

Total
$
4,589

$
—

$
(1
)
$
4,588

$
3,135

$
1,453

	December 31, 2023
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Investments Available for Sale
Cash	$	1,452	$	—	$	—		$	1,452	$	1,452	$	—
Level 1:
Mutual funds		20,040		—		—			20,040		20,040		—
U.S. agency and treasury securities		32,046		27		(18	)		32,055		4,797		27,258
		52,086		27		(18	)		52,095		24,837		27,258
Total	$	53,538	$	27	$	(18	)	$	53,547	$	26,289	$	27,258

	December 31, 2022
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Investments Available for Sale
Cash	$	16,949	$	—	$	—		$	16,949	$	16,949	$	—
Level 1:
Mutual funds		66,493		—		—			66,493		66,493		—
U.S. agency and treasury securities		68,958		9		(386	)		68,581		3,119		65,462
		135,451		9		(386	)		135,074		69,612		65,462
Total	$	152,400	$	9	$	(386	)	$	152,023	$	86,561	$	65,462

December 31, 2016

Adjusted
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Cash
and Cash
Equivalents
Investments
Available
for Sale
Cash
$
3,432

$
—

$
—

$
3,432

$
3,432

$
—

Level 1:

Mutual funds

3,195

—

—

3,195

3,195

—

U.S. government securities

1,254

—

—

1,254

—

1,254

U.S. agency securities

7,996

2

(3
)

7,995

—

7,995

12,445

2

(3
)

12,444

3,195

9,249

Total
$
15,877

$
2

$
(3
)
$
15,876

$
6,627

$
9,249

The maturities of our ~~marketable securities~~investments generally range from within one to two years. Actual maturities could differ from contractual maturities due to call or prepayment provisions.

Note 1312 − Litigation

(all dollar amounts in this section are expressed in thousands except for rates per device)

We have ~~eleven~~several intellectual property infringement lawsuits pending in the ~~United States District Court for the Eastern District of Texas, Tyler Division, and~~ United States Court of Appeals for the Federal Circuit (“USCAFC”).

~~VirnetX Inc. v. Apple, Inc. (Case 6:12-CV-00855-LED)~~

On March 30, 2015, the United States Court for the Eastern District of Texas, Tyler Division, issued an order finding substantial overlap between the remanded portions of the Civil Action Case 6:10-CV-00417-LED (VirnetX vs. Cisco et. al.), and the ongoing Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.). The court consolidated the two civil actions under Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.) and designated it as the lead case. The jury trial in this case was held on January 25, 2016. On February 4, 2016, a jury in the United States Court for the Eastern District of Texas, Tyler Division, awarded us $625.6 million in a verdict against Apple Inc. for infringing four of our US patents, marking it the second time a federal jury has found Apple liable for infringing VirnetX’s patented technology. The verdict includes royalties awarded to us based on an earlier patent infringement finding ~~(Case 6:10-CV-00417-LED)~~ against Apple. The jury found that Apple’s modified VPN On-Demand, iMessage and FaceTime services infringed VirnetX’s patents and that Apple’s infringement was willful. In addition to determining the royalty owed by Apple for its prior infringement, this verdict also includes an award based on the jury’s finding that Apple’s modified VPN On Demand, iMessage and FaceTime services have continued to infringe VirnetX’s patents. The post-trial hearing was held on May 25, 2016 in the United States Court for the Eastern District of Texas, Texarkana Division. On July 29, 2016, the court issued a new order, vacating its previous orders

Index

~~TABLE OF CONTENTS~~

consolidating the cases (Case No. 6:10-cv-417, Docket No. 878 (“Apple I case”); Case No. 6:12-cv-855, Docket No. 220 (“Apple II case”)), ordering that the two cases be retried separately, and setting the retrial date for Apple I case with jury selection to begin on September 26, 2016. The court also ordered that the issue of willfulness in both cases is bifurcated and that the Apple II case will be retried after Apple I case. Events and developments subsequent to the order from the court are described to support Apple I and Apple II matters.

~~VirnetX Inc. v. Cisco Systems, Inc. et al. (Case 6:10-CV-00417-LED) (“Apple I”)~~

~~TABLE OF CONTENTS~~

(2) the alleged infringement by Apple’s original FaceTime product, under the new claim construction of “secure communication link” pertaining to the ’504 and ’211 patents by the USCAFC, and the damages associated with that infringement. The hearing on all the post-trial motions was held on November 22, 2016.

VirnetX Inc. v. Apple, Inc. (Case 6:12-CV-00855-LED) (“Apple II”)

This case began on November 6, 2012, when we filed a complaint against Apple Inc. (“Apple”) in ~~the~~ United States District Court ~~for the Eastern District of Texas, Tyler Division for willfully infringing four~~(“USDC”) in which we alleged that Apple infringed on certain of our patents, ~~U.S.~~(U.S. Patent Nos. 6,502,135, 7,418,504, 7,921,211 and ~~7,490,151, and seeking both an unspecified amount of~~7,490,151). We sought damages and injunctive relief. The accused products include the iPhone 5, iPod Touch 5^th5th Generation, iPad 4^th4th Generation, iPad mini, and the latest Macintosh computers. ~~Due to their release dates, these products were not included in the previous lawsuit that concluded with~~The USDC entered a Jury verdict on November 6, 2012 that was subsequently upheld by the United States District Court for the Eastern District of Texas, Tyler Division, on February 26, 2013. On July 1, 2013, we filed a consolidatedFinal Judgment and amended complaint to include U.S. Patent No. 8,051,181 and consolidate Civil Action No. 6:11-cv-00563-LED. On August 27, 2013, we filed an amended complaint including allegations of willful infringement related to U.S. Patent No. 8,504,697 seeking both damages and injunctive relief. The Markman hearing in this case was held on May 20, 2014 and on August 8, 2014, issued its ~~Markman~~Memorandum Opinion and Order ~~denying Apple’s motion~~regarding post-trial motions, affirming the jury’s verdict of $502,600 and granting VirnetX motions for ~~summary judgment of indefiniteness, in which Apple alleged that some of the disputed claims terms in the patents asserted by us were invalid for indefiniteness. In~~supplemental damages, a separate order, the court granted in part and denied in part our motion for partial summary judgment on Apple’s invalidity counterclaims, precluding Apple from asserting invalidity as a defense against infringement of the claims that were tried before a jury in our prior litigation against Apple (VirnetX vs. Cisco et. al., Case 6:10-CV-00417-LED). The jury trial in this case was scheduled for October 13, 2015. On March 30, 2015, the court issued an order finding substantial overlap between this casesunset royalty, and the ~~remanded portions~~royalty rate of ~~Case 6:10-CV-00417-LED (VirnetX vs. Cisco et. al.). The court consolidated the two civil actions under Civil Action Case 6:12-CV-00855-LED (VirnetX Inc. v. Apple, Inc.)~~$1.20 per infringing iPhone, iPad and ~~designated it as the lead case. On July 29, 2016, the court issued a new order, vacating its previous orders consolidating the cases Apple I case~~Mac products, pre-judgment and ~~Apple II case, ordering that the two cases be retried separately,~~post-judgment interest and setting the retrial date for Apple I case with jury selection to begin on September 26, 2016. The court also ordered that the issue of willfulness in both cases is bifurcated and that the Apple II will be retried after Apple I case.

~~TABLE OF CONTENTS~~

~~On January 5, 2018,~~costs. Apple filed a Petition for Writ of Mandamus with the USCAFC requesting the court to stay the upcoming limited retrial of the Apple II pending the USCAFC’s decision in related consolidated appeal VirnetX Inc. v. Apple Inc., Cases 2017-1591. On February 22, 2018, the USCAFC issued its order denying Apple’s Petition for Writ of Mandamus. The Apple II case is proceeding on schedule for jury selection on April 2, 2018 per the district court’s order.

~~VirnetX Inc. v. Cisco Systems, Inc. (USCAFC Case 18-1197-CB) (Appeal of Apple I Case)~~

~~On October 27, 2017 Apple filed its~~ notice of appeal ~~of the Final Judgment entered on September 29, 2017 to~~with the United States Court of Appeals for the Federal ~~Circuit.~~

Circuit (“USCAFC”) in the Apple II case.

On ~~January 5,~~October 9, 2018, ~~Apple filed a motion requesting a stay of~~USCAFC docketed the ~~briefing schedule in this~~ appeal ~~pending this court’s decision in related consolidated appeal~~as Case No. 19-1050 - VirnetX Inc. v. Apple Inc.~~, Cases 2017-1591.~~ On ~~January 24, 2018,~~November 22, 2019, the USCAFC issued an opinion affirming the district court’s findings that Apple is precluded from making certain invalidity arguments and that Apple infringed the ‘135 and ‘151 patents; reversing the USDC’s finding that Apple infringed the ‘504 and ‘211 patents; and remanding the case for proceedings on damages. Apple sought panel and en banc rehearing, which the USCAFC denied ~~Apple’s motion requesting a stay of~~on February 10, 2020.

On February 22, 2021, the ~~briefing schedule and ordered Apple to file its~~USCAFC docketed the appeal as Case No. 19-1672. Apple’s opening brief ~~no later than~~was filed on June 2, 2021. VirnetX filed its responsive brief on July 26, 2021. Apple filed its reply brief on September 13, 2021. Oral arguments were held on September 8, 2022. On March ~~19, 2018.~~

31, 2023, the USCAFC issued its decision vacating the USDC’s judgement in this matter and remanding it back to the USDC with instructions to dismiss the case as moot. On July 14, 2023 the District Court vacated its prior Final Judgment against Apple dated January 6, 2021 and dismissed the case as moot. On May 1, 2023, VirnetX filed a petition for panel rehearing. On June 27, 2023, the petition for panel rehearing was denied, and the mandate issued on June 30, 2023. VirnetX filed a petition for a writ of certiorari with the United States Supreme Court, on September 20, 2023. On February 20, 2024, the Supreme Court denied our petition. We are evaluating all our options in this matter.

VirnetX Inc. v. Mangrove Partners Master Fund, Ltd., Apple Inc. ~~(Case 15-1934)~~

(USCAFC Case 20-2271) and VirnetX Inc. v. Mangrove Partners Master Fund, Ltd., Apple Inc., and Black Swamp, LLC (USCAFC Case 20-2272)

On ~~July 10, 2015,~~September 15, 2020, we filed ~~appeals~~ with the USCAFC ~~appealing~~an appeal of the invalidity findings by the ~~United States Patent and Trademark Office,~~ Patent Trial and Appeal Board (“PTAB”) in ~~IPR2014-00237~~inter-partes review proceedings IPR2015-01046 and IPR2014-00238, related to U.S. Patent No. 8,504,697. The oral arguments in this case were heard on November 7, 2016. On December 9, 2016, the USCAFC affirmed the PTAB based on the grounds discussed in IPR2014-00238. We are currently evaluating our options in this case.

~~VirnetX Inc. v. Apple, Inc. (Case 16-1211)~~

~~On September 28, 2015, we filed appeals with the USCAFC, appealing the invalidity findings by the PTAB in IPR2014-00403 and IPR2014-00404 and on October 22, 2015 for IPR2014-00481 and IPR2014-00482~~IPR2016-00062 involving our U.S. Patent ~~Nos. 7,188,180,~~No. 6,502,135, and 7,987,274. The oral arguments in this case were heard on November 7, 2016. On December 9, 2016, the USCAFC affirmed the PTAB based on the grounds discussed in IPR2014-00403 and IPR2014-00481. We are currently evaluating our options in this case.

~~VirnetX Inc. v. Apple, Inc. (Case 16-1480)~~

~~On November 30, 2015, we filed appeals with the USCAFC, appealing~~an appeal of the invalidity findings by the PTAB in inter-partes ~~reexamination no. 95/001,949 related to~~review proceedings IPR2015-1047, IPR2016-00063, and IPR2016-00167 involving our U.S. Patent No. ~~8,051,181. The oral arguments in this case were heard on November 7, 2016.~~7,490,151. On September 25, 2020, the USCAFC issued an order consolidating the two appeals. On December ~~9, 2016, the USCAFC affirmed the PTAB based on certain grounds. We are currently evaluating our options in this case.~~

~~VirnetX Inc. v. Apple, Inc. (Case 16-119)~~

~~On March 4, 2016,~~15, 2020, we filed a ~~petition for writ of mandamus with~~motion to vacate the ~~USCAFC, requesting~~PTAB decisions below and to remand these appeals to the ~~USCAFC’s intervention to revoke the PTAB’s decision joining Apple to IPR2015-01046 and IPR2015-01047, related to U.S. Patent Nos. 6,502,135 and 7,490,151.~~PTAB. On March ~~18, 2016,~~16, 2021, the USCAFC denied the ~~petition~~motion without prejudice to us raising the ~~arguments~~challenges made in the motion in our opening brief. Our opening brief was filed on ~~appeal after~~June 7, 2021.

On June 23, 2021, the USCAFC entered an order directing us (and parties in other appeals that raised Appointments Clause challenges) to file a brief explaining how they believe their cases should proceed in light of the Supreme Court’s decision in United States v. Arthrex, Inc., 141 S. Ct. 1970 (2021). On July 7, 2021, we filed a brief in response to the court’s order. Other parties, including the U.S. Patent and Trademark Office (“USPTO”) filed their responses on July 21, 2021. On August 19, 2021, USCAFC issued an order remanding these appeals for the limited purpose of allowing VirnetX the opportunity to request rehearing of the PTAB’s final ~~decisions.~~written decisions by the Director of the USPTO. The USCAFC retained jurisdiction over the appeals in the meantime. On September 20, 2021, we filed our requests for Director rehearing with the USPTO. On October 29, 2021, our requests for Director rehearing were denied. We subsequently filed an amended opening brief to the USCAFC on December 10, 2021, the other parties filed response briefs on February 2, 2022, and we filed a reply brief on February 22, 2022. All the briefings have been completed. The oral arguments in this matter were held on September 8, 2022. On March 30, 2023, the USCAFC issued its decision affirming PTAB’s decisions finding certain claims of the ‘135 patent and the ‘151 patent to be unpatentable. On June 5, 2023, VirnetX filed a petition for panel rehearing. On June 22, 2023, the petition for panel rehearing was denied, and the mandate issued on June 29, 2023. VirnetX filed a petition for a writ of certiorari with the United States Supreme Court, on September 20, 2023. On February 20, 2024, the Supreme Court denied our petition. We are ~~currently~~ evaluating all our options in this ~~case.~~

matter.

Index

VirnetX Inc. v. ~~Apple, Inc. (Case 17-1131)~~

Hirshfeld (USCAFC Case 17-2593, -2594)

On ~~October 31, 2016,~~September 22, 2017, we filed ~~appeals~~ with the USCAFC appealing the invalidity findings by the PTAB in IPR2015-00810 and IPR2015-00812, on November 9, 2016 for IPR2015-00811, and on November 28, 2016 for IPR2015-00866, IPR2015-00868, IPR2015-00870 and IPR2015-00871 involving our U.S. Patent Nos.8,868,705, 8,850,009, 8,458,341, 8,516,131, and 8,560,705. These appeals have been consolidated. The briefing in these appeals has been concluded; the oral argument were held on March 5, 2018. We are awaiting the courts ruling in this matter.

~~VirnetX Inc. v. The Mangrove Partners (Case 17-1368)~~

On December 16, 2016, we filed appeals with the USCAFC, appealing the invalidity findings by the PTAB in IPR2015-01046, and on December 20, 2016 for IPR2015-1047, involving our U.S. Patent Nos. 6,502,135, and 7,490,151. These appeals also involve Apple, Inc. and onean appeal of ~~them involves Black Swamp IP, LLC. On April 27, 2017, the USCAFC stayed these appeals pending the USCAFC’s en banc decision in~~ ~~Wi-Fi One, LLC v. Broadcom~~ ~~Corporation,~~ ~~No. 2015-1944. The stay was lifted on January 31, 2018, and briefing is now ongoing.~~

~~TABLE OF CONTENTS~~

~~VirnetX Inc. v. Apple Inc., Cisco Systems, Inc. (Case 17-1591)~~

~~On February 7, 2017, we filed appeals with the USCAFC, appealing~~ the invalidity findings by the PTAB in inter-partes ~~reexamination nos. 95/001,788, 95/001,789, and 95/001,856 related to~~review proceeding IPR2016-00693 involving our U.S. Patent ~~Nos. 7,921,211~~No. 7,418,504, and ~~7,418,504~~. ~~These appeals have been consolidated. The briefing in these appeals has been concluded; the oral arguments have not yet been scheduled.~~

~~VirnetX Inc. v. Apple Inc. (Case 17-2490)~~

~~On August 23, 2017, we filed appeals with the USCAFC, appealing~~an appeal of the invalidity findings by the PTAB in ~~IPR2016-00331 and IPR2016-00332~~inter-partes review proceeding IPR2016-00957 involving our U.S. Patent No. ~~8,504,696. These appeals have been consolidated. The briefing in~~7,921,211. On September 16, 2021, USCAFC issued an order remanding these appeals ~~has been concluded;~~for the ~~oral arguments have not yet been scheduled.~~

limited purpose of allowing VirnetX the opportunity to request rehearing of the PTAB’s final written decisions by the Director of the USPTO. The USCAFC retained jurisdiction over the appeals in the meantime. On October 18, 2021, we filed our requests for Director rehearing with the USPTO. On January 7, 2022, our requests for Director rehearing were denied. On January 21, 2022, we informed the USCAFC about the denial of Director rehearing and requested that the court dismiss the appeal involving IPR2016-00957 as moot and vacate the PTAB’s underlying decision. On April 4, 2022, the USCAFC vacated the PTAB’s decision in IPR2016-00957 and remanded Appeal No. 17-2594 with instructions to dismiss. In re the April 4, 2022 order, the USCAFC further set a briefing schedule, in Appeal No. 17-2593. VirnetX filed its opening brief on September 12, 2022. The USPTO filed its response brief on December 20, 2022. VirnetX filed its reply brief on February 14, 2023. On April 18, 2023, VirnetX filed a motion to hold this appeal in abeyance pending the disposition of any petition for rehearing in the No. 20-2271, -2272 appeal, and pending the United States Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc. v. Smith & Nephew, Inc., No. 22-639. That motion was denied on June 1, 2023. On October 20, 2023, the USCAFC issued a decision finding the appeal moot in view of its concurrent decision in USCAFC No. 22-2234. VirnetX sought rehearing, which was denied, and the mandate to close the case was issued on January 12, 2024.

VirnetX Inc. ~~(Case 17-2593)~~

v. Cisco Systems, Inc. (USCAFC Case 19-1671)

On ~~September 22, 2017,~~March 18, 2019, we filed ~~appeals~~ with the USCAFC ~~appealing~~an appeal of the invalidity findings by the PTAB in ~~IPR2016-00693 and IPR2016-00957~~inter-partes re-examination proceeding 95/001,679 involving our U.S. Patent ~~Nos. 7,418,504 and 7,921,211. These appeals have been consolidated. The briefing in~~No. 6,502,135. On October 5, 2021, USCAFC issued an order remanding these appeals ~~is ongoing.~~for the limited purpose of allowing VirnetX the opportunity to request rehearing of the PTAB’s final written decisions by the Director of the PTO. The ~~entity that initiated~~USCAFC retained jurisdiction over the ~~IPRs, Black Swamp IP, LLC, indicated~~appeals in the meantime. Our request for Director rehearing with the PTO was filed on November 5, 2021. On January 10, 2022, our request for Director rehearing was denied. We informed the USCAFC about the denial of Director rehearing. VirnetX’s opening brief was filed on June 23, 2022. The USPTO’s response brief was filed on August 2, 2022, and Cisco’s response brief was filed on September 2, 2022. VirnetX filed its reply brief on October 7, 2022. On April 18, ~~2017, that it would not participate~~2023, VirnetX filed a motion to hold this appeal in abeyance pending the disposition of any petition for rehearing in the ~~appeals.~~No. 20-2271, -2272 appeal, and pending the Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc. v. Smith & Nephew, Inc., No. 22-639. The motion, filed on April 18, 2023, was denied on June 1, 2023. On ~~November 27, 2017,~~October 20, 2023, the ~~United States~~USCAFC issued a decision finding the appeal moot in view of its concurrent decision in USCAFC No. 22-1523 and its prior decision in USCAFC No. 20-2271. VirnetX sought rehearing, which was denied, and the mandate to close the case was issued on January 12, 2024.

VirnetX Inc. v. Apple Inc. (USCAFC Case 22-1523) (“Apple Reexam I”)

On March 10, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,682 involving our U.S. Patent No. 6,502,135. Our opening brief was filed on August 22, 2022. Apple and ~~Trademark Office indicated that it would intervene~~USPTO each filed a response brief on December 28, 2022. VirnetX filed its reply brief on February 8, 2023. On April 18, 2023, VirnetX filed a motion to hold this appeal in abeyance pending the disposition of any petition for rehearing in the ~~appeals.~~No. 20-2271, -2272 appeal, and pending the Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc. v. Smith & Nephew, Inc., No. 22-639, which was denied on June 1, 2023. On October 20, 2023, the USCAFC issued a decision affirming the PTAB’s invalidity findings. VirnetX sought rehearing, which was denied, and the mandate to close the case was issued on January 12, 2024.

VirnetX Inc. v. Apple Inc. (USCAFC Case 22-1997) (“Apple Reexam II”)

On July 6, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,697 involving our U.S. Patent No. 7,490,151. On October 17, 2022, we filed a motion to remand the appeal in light of the PTAB’s refusal to permit Director rehearing. On January ~~19, 2018,~~23, 2023, the USCAFC ~~stayed these appeals pending~~denied that motion without prejudice to the ~~USCAFC’s~~parties raising their arguments in the merits briefs. VirnetX opening brief was filed on May 8, 2023, and Apple and the USPTO each filed a response brief on July 24, 2023. VirnetX filed its reply brief on September 1, 2023. We currently await scheduling of oral arguments.

Index

VirnetX Inc. v. Cisco Systems, Inc. (USCAFC Case 22-2234)

On September 16, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,851 involving our U.S. Patent No. 7,418,504. We filed our opening brief on February 28, 2023. Cisco’s response brief was filed on May 10, 2023, and VirnetX reply brief was filed on June 21, 2023. On October 20, 2023, the USCAFC issued a decision affirming the PTAB’s invalidity findings. The mandate to close the case was issued on December 26, 2023.

VirnetX Inc. v. Cisco Systems, Inc. (USCAFC Case 23-1765)

On April 7, 2023, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in ~~Case 17-1591.~~

inter-partes re-examination proceeding 95/001,714 involving our U.S. Patent No. 7,490,151. The certified list is due to be filed by the USPTO by May 30, 2023, and our opening brief will be due 60 days thereafter. In addition, on April 21, 2023, Cisco filed a cross-appeal. On September 29, 2023, VirnetX filed a motion to remand. That motion was denied without prejudice to VirnetX raising the same arguments in its opening appeal brief in an order dated December 27, 2023, which also set the deadline for VirnetX to file an opening brief for February 5, 2024. VirnetX filed its opening brief on February 5, 2024, and Cisco’s opening/response brief’s is currently due March 18, 2024

Other Legal Matters

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 ~~worth pursuing,~~likely valid, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we ~~will~~could prevail on such potential ~~claims.~~claims if we made them. In addition, bringing a lawsuit may lead to potential counterclaims which may ~~preclude~~distract our ~~ability~~management and our other resources, including capital resources, from efforts to successfully commercialize our ~~initial products, which are currently in development.~~ products.

Currently, we are not a party to any other pending legal proceedings and are not aware of any proceeding threatened or contemplated against ~~us by any governmental authority~~us.

Note 13 − Leases

In October 2023, we renewed our lease for office space in Nevada with a third party recording an ROU asset and lease liability of $102. The lease requires monthly payments of $4.6 and expires in October 2025. At December 31, 2023, our ROU asset and lease liability totaled $93. Lease expense totaled $55 in 2023 and $54 in 2022.

In October 2023, we executed a facility lease in Utah to be used for technical integration and as a training facility recording an ROU asset and a lease liability of $3,587. This operating lease requires monthly payments starting at $72, includes periodic increases, provides six months of free rent, and expires in April 2029. At December 31, 2023, our ROU asset and lease liability totaled $3,479 and $3,546, respectively. Lease expense totaled $140 in 2023.

The weighted average remaining life of the office and facility leases discussed above is approximately 5 years, and the related lease liability is as follows:

Due in 2024	$	494
Due in 2025	$	946
Due in 2026	$	927
Due in 2027	$	954
Due in 2028	$	983
Thereafter	$	336
Total undiscounted lease liability	$	4,640
Less: imputed interest	$	(1,001	)
Total lease liability	$	3,639

We also lease a facility for corporate promotional and marketing purposes which was prepaid at inception and expires in 2025. At December 31, 2023 and 2022, the ROU asset totaled $349 and $648, respectively; lease expense totaled $300 per year in 2023 and 2022. In March 2024, we renewed our facility lease, used for corporate, promotional and marketing purposes. The renewal period begins in 2025, continues for 10 years through 2035, requires either a single payment of $6,000, or ~~other party.~~

annual payments each March, beginning in 2025 starting at $600 and increasing annually for a total commitment of approximately $7,500.

Index

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 $1,097 and $1,123 in rental fees and reimbursements to the entity in 2023 and 2022, respectively.

Note 14 − ~~Quarterly Financial Information (unaudited)~~

First
Second
Third
Fourth

(in thousands except per share)

2017

Revenue
$
375

$
396

$
375

$
401

Loss from operations
$
(3,906
)
$
(3,811
)
$
(3,562
)
$
(6,042
)
Net loss
$
(3,894
)
$
(3,798
)
$
(3,552
)
$
(6,034
)
Basic earnings (loss) per common share
$
(0.07
)
$
(0.07
)
$
(0.06
)
$
(0.10
)
Diluted earnings (loss) per common share
$
(0.07
)
$
(0.07
)
$
(0.06
)
$
(0.10
)
Subsequent Event

In January 2024, we issued 71,000 shares of restricted stock from our Amended and Restated Equity Incentive Plan.

First
Second
Third
Fourth

(in thousands except per share)

2016

Revenue
$
375

$
398

$
375

$
402

Loss from operations
$
(8,618
)
$
(5,353
)
$
(7,287
)
$
(7,247
)
Net loss
$
(8,610
)
$
(5,337
)
$
(7,387
)
$
(7,235
)
Basic earnings (loss) per common share
$
(0.16
)
$
(0.10
)
$
(0.13
)
$
(0.12
)
Diluted earnings (loss) per common share
$
(0.16
)
$
(0.10
)
$
(0.13
)
$
(0.12
)

Index

~~TABLE OF CONTENTS~~

~~Note 15 – Subsequent Event~~

On March 8, 2018, we amended our August 20, 2015 equity offering sales agreement (“Amended Agreement”) with Cowen and Company, LLC (“Cowen”), whereby the maximum aggregate value of the Company’s common stock (“Shares”) we may offer and sell, from time to time, was increased from $35,000,000 to $50,000,000. The Company intends to use the proceeds of this offering for Gabriel product development and marketing, and general corporate purposes, which may include working capital, capital expenditures, other corporate expenses and acquisitions of complementary products, technologies or businesses.

Under the Amended Agreement, Cowen may sell Shares in an “at-the-market” offering (“ATM”) as defined in Rule 415 promulgated under the Securities Act of 1933, including sales made directly on the NYSE American, LLC, on any other existing trading market for the Shares, or to or through a market maker. In addition, under the Amended Agreement, Cowen may sell the Shares by any other method permitted by law, including private offerings. Subject to the terms and conditions of the Amended Agreement, Cowen will act as sales agent and use commercially reasonable efforts to sell on our behalf all the shares of common stock requested to be sold by us, consistent with its normal trading and sales practices, on mutually agreed terms between Cowen and us.

Between January 1, 2018 and March 14, 2018, we sold 1,749,185 shares of common stock under the ATM program. The average sales price per common share sold was $4.02 and the aggregate proceeds from the sales totaled $7,032. Sales commissions, fees and other costs associated with the ATM transactions totaled $211.

~~TABLE OF CONTENTS~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Board of Directors and~~
~~Stockholders of VirnetX Holding Corporation~~

~~Opinion on Internal Control over Financial Reporting~~

~~We have audited VirnetX Holding Corporation’s (the Company’s) internal control over financial reporting as of December 31, 2017, based on criteria established in~~ ~~Internal Control—Integrated Framework (2013)~~ issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in ~~Internal Control—Integrated Framework (2013)~~ ~~issued by COSO.~~

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets and the related consolidated statements of income, comprehensive loss, stockholders’ equity, and cash flows of the Company, and our report dated March 16, 2018, expressed an unqualified opinion.

~~Basis for Opinion~~

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

~~Definition and Limitations of Internal Control over Financial Reporting~~

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

~~/s/ Farber Hass Hurley LLP~~

~~Chatsworth, California~~
~~March 16, 2018~~

~~TABLE OF CONTENTS~~

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial ~~Disclosure.~~Disclosure

None.

Item 9A.

Controls and ~~Procedures.~~Procedures

Evaluation of Disclosure Controls and Procedures

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, December 31, ~~2017.~~

2023.

The purpose of this evaluation was to determine whether as of December 31, ~~2017~~2023 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 December 31, ~~2017,~~2023, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting (as such term is defined in rules ~~13a-15 (f)~~13a-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal year ended December 31, ~~2017~~2023, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, ~~2017.~~2023. There were no changes in our internal control over financial reporting during the period ended December 31, ~~2017~~2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ~~Farber Hass Hurley LLP has audited our internal control over financial reporting as of December 31, 2017; their report is included elsewhere herein.~~

Item 9B.

Other Information

Securities Trading Plans of Directors and Executive Officers.

During the three months ended December 31, 2023, the Company did not adopt, modify or terminate and no directors or officers, as defined in Rule 16a-1(f), adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," each as defined in Regulation SK Item 408.

Index

~~Other Information.~~

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

On March 16, 2018, we sent a letter to PITA acknowledging the termination of the Amended and Restated Revenue Sharing Agreement and the Amended and Restated Gabriel License Agreement with PITA. Although we consider the PITA Agreements terminated as of March 16, 2018, our letter also constituted our (i) notice of termination of the Amended and Restated Revenue Sharing Agreement pursuant to Section 5.2(b) thereof and (ii) notice of termination of the Amended and Restated Gabriel License Agreement pursuant to Section 5.2(b) thereof to PITA.

None.

~~TABLE OF CONTENTS~~

PART III

Item 10.

Directors, Executive Officers and Corporate ~~Governance.~~Governance

The information required by this item will be contained in our definitive proxy statement to be filed with the SEC in connection with our ~~2018 annual meeting~~2024 Annual Meeting of ~~stockholders~~Stockholders (the “Proxy Statement”), which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, ~~2017,~~2023 and is incorporated in this report by reference.

Item 11.

Executive ~~Compensation.~~Compensation

The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder ~~Matters.~~Matters

The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.

Securities Authorized for Issuance Under the Equity Compensation Plans

~~We have a stock incentive plan for employees~~

Our Amended and ~~others called the “VirnetX Holding Corporation 2013 Stock~~Restated Equity Incentive Plan (the “A&R Plan”~~, or the Plan, which has been~~) was approved by our ~~stockholders.~~shareholders in June 2023. Our prior plan expired March 29, 2023; no further awards will be made under the prior plan, and the A&R Plan will govern awards granted under the prior plan. The A&R Plan ~~provides for~~allows us to grant stock options, restricted stock units (“RSUs”) and restricted stock. Options granted under the ~~granting~~A&R Plan are granted with an exercise price equal to the fair value of ~~up to 14,124,469 shares~~the of our ~~common~~ stock ~~including~~on the date of grant. RSUs and restricted stock are granted at the fair value of our stock on the date of grant. The fair value of options, RSUs and restricted stock are expensed over the vesting periods. All awards are subject to forfeiture if service terminates prior to the shares vesting. At December 31, 2023, there were 225,778 shares available for grant under the A&R Plan.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options and RSUs		Weighted-Average Exercise Price of Outstanding Options and RSUs		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by security holders		347,467	$	89.32		225,778
Equity compensation plans not approved by security holders		—		—
Total		347,467	$	89.32		225,778

During 2023, we granted 1,875 stock options and stock purchase rights, and will expire in 2023. As of December 31, 2017, there were 2,928,562 shares available to be granted under the Plan. We had 5,138,066 and 5,378,571 options outstanding at December 31, 2017, and December 31, 2016, respectively, with an average exercise price of $8.41 and $8.52, respectively. We had 469,661 and 423,435 restricted stock units outstanding at December 31, 2017 and December 31, 2016, respectively, with a weighted average grant price of $5.19 and $8.08 respectively.

Plan Category
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans
Equity compensation plans approved by security holders

5,632,727

$
8.14

2,928,562

Equity compensation plans not approved by security holders

—

—

Total

5,632,727

$
8.14

2,928,562

On February 24, 2017, June 2, 2017 and September 14, 2017 the Compensation Committee granted 1,576,000 options and 195,665 RSU’s to the employees of VirnetX Inc. On June 1, 2017, the Compensation Committee granted 37,500 options and 24,9991,251 RSUs to members of ~~the~~our Board of Directors ~~of VirnetX, Inc.~~

and 36,927 restricted stock awards to our employees respectively.

Index

Item 13.

Certain Relationships and Related Transactions, and Director ~~Independence.~~Independence

The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.

Item 14.

Principal ~~Accountant~~Accounting Fees and ~~Services.~~Services

The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.

PART IV

Delaware		77-0390628
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification ~~Number)~~No.)

308 Dorla Court, Suite 206 Zephyr Cove, Nevada		89448
(Address of principal executive offices)		(Zip Code)

Title of ~~Class~~ each class		Trading Symbol(s)		Name of ~~Exchange~~each exchange on ~~Which Registered~~which registered
Common Stock, par value $0.0001 per share		VHC		NYSE ~~American LLC~~

Large accelerated filer o☐	Accelerated filer ☒☐	~~Smaller reporting company~~ o
Non-accelerated filer o ~~(Do not check if a smaller reporting company)~~☒
Emerging growth company o☐	Smaller reporting company ☒

		Page
	PART I

Item 1.	Business		3	2
Item 1A.	Risk Factors		13	9
Item 1B.	Unresolved Staff Comments	22
Item 1C.	24Cybersecurity	23
Item 2.	Properties		24
Item 3.	Legal Proceedings		24
Item 4.	Mine Safety Disclosure		28	24

	PART II

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	29[Reserved]	26
~~Item 6.~~	~~Selected Financial Data~~				30
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31	26
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		44	31
Item 8.	Financial Statements and Supplementary Data		45	31
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		70	54
Item 9A.	Controls and Procedures		70	54
Item 9B.	Other Information	54
Item 9C.	70Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	55

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance		71	55
Item 11.	Executive Compensation		71	55
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		71	55
Item 13.	Certain Relationships and Related Transactions, and Director Independence		71	56
Item 14.	Principal ~~Accountant~~Accounting Fees and Services		71	56

	PART IV

Item 15.	Exhibits and Financial Statement Schedules		72	56

VirnetX Holding Corp	HIGH		LOW
Year ended, December 31, 2017:
First quarter	$	2.75	$	1.70
Second quarter	$	5.40	$	2.02
Third quarter	$	4.85	$	3.00
Fourth quarter	$	8.75	$	3.55
Year ended, December 31, 2016:
First quarter	$	9.64	$	1.95
Second quarter	$	6.50	$	3.83
Third quarter	$	4.64	$	2.14
Fourth quarter	$	5.13	$	2.10

	12/12		12/13		12/14		12/15		12/16		12/17
VirnetX Holding Corp	$	100.00	$	66.29	$	18.75	$	8.78	$	7.51	$	12.64
S&P 500	$	100.00	$	132.39	$	150.51	$	152.59	$	170.84	$	208.14
RDG Technology Composite	$	100.00	$	132.51	$	155.05	$	161.00	$	181.12	$	247.79

	For the year ended December 31,
	2017			2016			2015			2014			2013
Consolidated Statement of Operations Data:
Revenue	$	1,547		$	1,550		$	1,555		$	1,249		$	2,197
Gain on settlement^(a)	$	—		$	—		$	—		$	23,000		$	—
Total operating expenses	$	(18,868	)	$	(30,055	)	$	(30,732	)	$	(36,414	)	$	(30,784	)
Income tax expense	$	(3	)	$	(133	)	$	(8	)	$	(15	)	$	(751	)
Net loss	$	(17,278	)	$	(28,569	)	$	(29,234	)	$	(9,902	)	$	(27,608	)
Loss per share	$	(0.30	)	$	(0.51	)	$	(0.56	)	$	(0.19	)	$	(0.54	)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	3,135		$	6,627		$	8,726		$	18,658		$	19,173
Investments available for sale	$	1,453		$	9,249		$	9,954		$	22,571		$	19,815
Total assets	$	7,175		$	18,871		$	22,172		$	45,090		$	39,398
Stockholders’ equity	$	1,553		$	11,147		$	15,095		$	32,627		$	34,024

	Year Ended December 31, 2017			Year Ended December 31, 2016			Year Ended December 31, 2015
United States federal statutory rate		35.00	%		35.00	%		35.00	%
State taxes, net of federal benefit		(0.01	)%		(0.31	)%		(0.04	)%
Valuation allowance		(35.94	)%		(35.43	)%		(33.36	)%
Stock options		—			—			(1.62	)%
Prior year adjustment		—			(0.06	)%		0.03	%
R&D Credit		1.43	%		0.66	%		0.38	%
Warrants		—			—			(0.14	)%
Other		(0.50	)%		(0.33	)%		(0.29	)%
Effective income tax rate		(0.02	)%		(0.47	)%		(0.04	)%

	Year Ended December 31, 2023			Year Ended December 31, 2022
United States federal statutory rate		21.00	%		21.00	%
State taxes, net of federal benefit		(0.01	)%		(0.55	)%
Valuation allowance		(20.31	)%		(91.21	)%
Stock based compensation		(0.58	)%		(9.44	)%
R&D Credit		2.20	%		1.22	%
Other		(2.03	)%		(0.29	)%
Effective income tax rate		0.28	%		(79.27	)%

	As of December 31, 2017			As of December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	3,135		$	6,627
Investments available for sale		1,453			9,249
Prepaid expenses and other current assets		591			588
Total current assets		5,179			16,464
Prepaid expenses, non-current		1,989			2,374
Property and equipment, net		7			33
Total assets	$	7,175		$	18,871
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	414		$	1,806
Accrued payroll and related expenses		2,175			1,522
Income tax liability		393			396
Deferred revenue, current portion		1,500			1,500
Total current liabilities		4,482			5,224

Deferred revenue, non-current portion		1,000			2,500
Other liabilities		140			—
Commitments and contingencies (Note 4)		—			—
Total liabilities		5,622			7,724

Stockholders’ equity:
Preferred stock, par value $0.0001 per share Authorized: 10,000,000 shares at December 31, 2017 and December 31, 2016, Issued and outstanding: 0 shares at December 31, 2017 and December 31, 2016		—			—
Common stock, par value $0.0001 per share
Authorized: 100,000,000 shares at December 31, 2017 and December 31, 2016, Issued and outstanding: 59,051,978 shares and 58,144,888 shares, at December 31, 2017 and December 31, 2016, respectively		6			6
Additional paid-in capital		177,076			169,391
Accumulated deficit		(175,516	)		(158,238	)
Accumulated other comprehensive loss		(13	)		(12	)
Total stockholders’ equity		1,553			11,147
Total liabilities and stockholders’ equity	$	7,175		$	18,871

	Common Stock				Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity (Deficit)
	Shares		Amount		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity (Deficit)
Balance at December 31, 2014		51,996,701	$	5	$	133,072	$	(100,435	)	$	(15	)	$	32,627

Stock issued for cash exercise of warrants at $3.59 per share, net		120,161				431								431
Stock issued for cash at $4.04 per share, net		835,056				3,276								3,276
Advisor warrant issuance						121								121
Stock-based compensation						7,275								7,275
Exercise of options		143,100				165								165
Stock issued for vested RSUs		103,817
Derivative liability						438								438
Comprehensive income:
Net Loss								(29,234	)					(29,234	)
Other comprehensive loss, net of tax											(4	)		(4	)
Comprehensive loss														(29,238	)
Balance at December 31, 2015		53,198,835	$	5	$	144,778	$	(129,669	)	$	(19	)	$	15,095

Stock issued for cash at 3.00-$5.05 per share, net		4,760,594		1		19,195								19,196
Stock-based compensation						5,398								5,398
Exercise of options		50,357				20								20
Stock issued for vested RSUs		135,102
Comprehensive income:
Net Loss								(28,569	)					(28,569	)
Other comprehensive income, net of tax											7			7
Comprehensive loss														(28,562	)
Balance at December 31, 2016		58,144,888	$	6	$	169,391	$	(158,238	)	$	(12	)	$	11,147

Stock issued for cash at $4.00 -$5.69 per share, net		730,444				3,677								3,677
Stock-based compensation						3,986								3,986
Exercise of options		12,500				22								22
Stock issued for vested RSUs		164,146
Comprehensive income:
Net Loss								(17,278	)					(17,278	)
Other comprehensive loss, net of tax											(1	)		(1	)
Comprehensive loss														(17,279	)
Balance at December 31, 2017		59,051,978	$	6	$	177,076	$	(175,516	)	$	(13	)	$	1,553

	December 31
	2017			2016
Office furniture	$	79		$	79
Computer equipment		172			172
Total		251			251
Less accumulated depreciation		(244	)		(218	)
	$	7		$	33

	December 31
	2023			2022
Office furniture	$	143		$	79
Computer equipment		92			92
Total		235			171
Less accumulated depreciation		(168	)		(160	)
Total property and equipment, net	$	67		$	11

Options Outstanding							Options Vested and Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
$ 0.24- 1.58		771,045		1.26	$	1.16		771,045		1.26	$	1.16
$ 1.74- 6.95		3,113,396		8.04		4.27		1,134,677		5.86		4.63
$ 14.52- 35.25		1,253,625		4.71		23.16		1,223,510		4.67		23.35
		5,138,066		6.21	$	8.41		3,129,233		4.26	$	11.09

	Options
	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2014		4,489,028		$	9.33		—	$	—
Options granted		694,000			4.47		—		—
Options exercised		(143,100	)		1.15		—		—
Options cancelled		(40,000	)		25.61		—		—
Outstanding at December 31, 2015		4,999,928		$	8.76		—	$	—
Options granted		429,000			4.77		—		—
Options exercised		(50,357	)		0.40		—		—
Outstanding at December 31, 2016		5,378,571		$	8.52		—	$	—
Options granted		1,613,500			4.06		—		—
Options exercised		(12,500	)		1.74		—		—
Options cancelled		(1,841,505	)		4.71		—		—
Outstanding at December 31, 2017		5,138,066		$	8.41		6.21	$	2,529
Options exercisable at December 31, 2017		3,129,233		$	11.09		4.26	$	2,271

	RSUs
	Number of RSUs			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at December 31, 2014		310,394		$	19.74	$	—
RSUs granted		162,665			5.57		—
RSUs vested		(113,103	)		20.11		—
Outstanding at December 31, 2015		359,956		$	13.22	$	—
RSUs granted		219,331			4.75		—
RSUs vested		(155,852	)		15.27		—
Outstanding at December 31, 2016		423,435		$	8.08	$	—
RSUs granted		220,664			3.83		—
RSUs vested		(174,438	)		10.47		—
Outstanding at December 31, 2017		469,661		$	5.19	$	—

	Year Ended December 31, 2023			Year Ended December 31, 2022
Expected stock price volatility		81.39	%		85.39	%
Risk-free interest rate		3.9	%		3.09	%
Expected life term	5.5 years			6.2 years
Expected dividends		0	%		0	%

	Year Ended December 31,
	2017			2016			2015
Net loss	$	(17,278	)	$	(28,569	)	$	(29,234	)
Basic and diluted weighted average number of shares outstanding		58,354			55,985			52,384
Basic and diluted loss per share	$	(0.30	)	$	(0.51	)	$	(0.56	)

	Year Ended December 31,
	2023			2022
Net (loss) income	$	(27,871	)	$	(36,260	)

Basic weighted average number of shares outstanding		3,579			3,565
Effect of dilutive securities		—			—
Diluted weighted average number of shares outstanding		3,579			3,565

Basic (loss) earnings per share	$	(7.79	)	$	(10.17	)
Diluted (loss) earnings per share	$	(7.79	)	$	(10.17	)

Original Number of Warrants Issued	Exercise Price per Common Share	Exercisable at December 31, 2016	Became Exercisable	Exercised	Terminated / Cancelled / Expired	Exercisable at December 31, 2017	Expiration Date
25,000	$7.00	25,000	—	—	—	25,000	April 2020

Warrants Issued				Exercise Price				Outstanding and Exercisable December 31, 2022				Issued				Exercised				Terminated / Cancelled				Outstanding and Exercisable December 31, 2023			Expiration Date
	1,250			$	115				1,250				—				—				—				1,250		April 30, 2025

	December 31, 2017
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Investments Available for Sale
Cash	$	1,972	$	—	$	—		$	1,972	$	1,972	$	—

Level 1:
Mutual funds		616		—		—			616		616
U.S. agency securities		2,001		—		(1	)		2,000		547		1,453
		2,617		—		(1	)		2,616		1,163		1,453
Total	$	4,589	$	—	$	(1	)	$	4,588	$	3,135	$	1,453

	December 31, 2016
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Investments Available for Sale
Cash	$	3,432	$	—	$	—		$	3,432	$	3,432	$	—

Level 1:
Mutual funds		3,195		—		—			3,195		3,195		—
U.S. government securities		1,254		—		—			1,254		—		1,254
U.S. agency securities		7,996		2		(3	)		7,995		—		7,995
		12,445		2		(3	)		12,444		3,195		9,249
Total	$	15,877	$	2	$	(3	)	$	15,876	$	6,627	$	9,249

	First			Second			Third			Fourth
				(in thousands except per share)
2017
Revenue	$	375		$	396		$	375		$	401
Loss from operations	$	(3,906	)	$	(3,811	)	$	(3,562	)	$	(6,042	)
Net loss	$	(3,894	)	$	(3,798	)	$	(3,552	)	$	(6,034	)
Basic earnings (loss) per common share	$	(0.07	)	$	(0.07	)	$	(0.06	)	$	(0.10	)
Diluted earnings (loss) per common share	$	(0.07	)	$	(0.07	)	$	(0.06	)	$	(0.10	)

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by security holders		5,632,727	$	8.14		2,928,562
Equity compensation plans not approved by security holders		—		—
Total		5,632,727	$	8.14		2,928,562

Exhibit Number		Incorporated by reference herein
Exhibit Number	Description	Form	Exhibit No.	Filing Date	File No.
3.1	Certificate of Incorporation of the Company.	8-K	3.1	11/01/2007	000-26895
3.2	By-Laws of the Company.	8-K	3.2	11/01/2007	000-26895
4.1	Form of Warrant Agency Agreement by and between the Company and Corporate Stock Transfer, Inc. as Warrant Agent.	S-1/A	4.1	01/16/2009	333-153645
4.2	Form of Series I Warrant.	8-K	4.1	09/03/2009	001-33852
4.3	Specimen Common Stock Certificate.	S-3	4.1	08/21/2015	333-206497
4.4	Form of Senior Indenture	S-3	4.2	08/21/2015	333-206497
4.5	Form of Subordinated Indenture	S-3	4.4	08/21/2015	333-206497
10.1	Form of Indemnification Agreement by and between the Company and each of Kendall Larsen, Robert D. Short III, Gary Feiner, Michael F. Angelo, Thomas M. O’Brien and Richard Nance.	8-K	10.3	07/12/2007	000-26895
10.2*	2007 Stock Plan, as amended on April 13, 2012.	10-Q	10.2	05/10/2012	001-33852
10.3*	Amended Form of Stock Option Agreement – 2007 Stock Plan.	10-Q	4.5	05/10/2011	001-33852
10.4*	Form of Restricted Stock Unit Award Agreement – 2007 Stock Plan.	10-Q	10.3	05/10/2012	001-33852
10.5*	2013 Equity Incentive Plan.	DEF 14A	Appendix A	04/12/2013	001-33852
10.6*	Form of Stock Option Agreement – 2013 Equity Incentive Plan.	10-K	10.6	03/02/2015	001-33852
10.7*	Form of Restricted Stock Unit Agreement – 2013 Equity Incentive Plan.	10-K	10.7	03/02/2015	001-33852
10.8	Voting Agreement among the Company and certain of its stockholders, dated as of December 12, 2007.	10-K	10.11	03/31/2008	001-33852
10.9	Securities Purchase Agreement, dated as of September 2, 2009, by and between the Company and the Purchasers (as defined therein).	8-K	10.1	09/03/2009	001-33852
10.10	Form of Registration Rights Agreement by and between the Company and the Purchasers (as defined therein).	8-K	10.2	09/03/2009	001-33852

Exhibit Number	Description	Incorporated by reference herein
Exhibit Number	Description	Form	Exhibit No.	Filing Date	File No.	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of the Company, as amended.	8-K	3.1	11/01/2007	000-26895
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company.	8-K	3.1	10/25/2023	001-33852
3.3	Amended and Restated Bylaws of the Company.	8-K	3.1	1/27/2023	001-33852
4.2	Specimen Common Stock Certificate.	S-3	4.1	07/30/2018	333-226413
4.3	Form of Senior Indenture.	S-3	4.2	07/30/2018	333-226413
4.4	Form of Subordinated Indenture.	S-3	4.4	07/30/2018	333-226413
4.5	Description of Capital Stock.	10-K	4.6	03/16/2020	001-33852
10.1	Form of Indemnification Agreement.	10-K	10.1	03/18/2019	001-33852
10.2*	2007 Stock Plan, as amended.	10-Q	10.2	05/10/2012	001-33852
10.3*	Amended Form of Stock Option Agreement – 2007 Stock Plan.	10-Q	4.5	05/10/2011	001-33852
10.4*	Form of Restricted Stock Unit Award Agreement – 2007 Stock Plan.	10-Q	10.3	05/10/2012	001-33852
10.5*	2013 Equity Incentive Plan, as amended.	DEF 14A	Appendix A	04/13/2021	001-33852
10.6*	Amended and Restated 2013 Equity Incentive Plan.	S-8	10.1	06/15/2023	333-272677
10.7*	Form of Stock Option Agreement – 2013 Equity Incentive Plan and Amended and Restated 2013 Equity Incentive Plan.	10-K	10.6	03/02/2015	001-33852
10.8*	Form of Restricted Stock Unit Agreement – 2013 Equity Incentive Plan and Amended and Restated 2013 Equity Incentive Plan.	10-K	10.7	03/02/2015	001-33852
10.9*	Form of Restricted Stock Agreement – Amended and Restated 2013 Equity Incentive Plan.	10-Q	10.2	08/11/2023	001-33852
10.10	Patent License and Assignment Agreement by and between the Company and Leidos, Inc. (formerly Science Applications International Corporation) dated as of August 12, 2005.	8-K	10.4	07/12/2007	000-26895
10.11**	Amendment No. 1 to Patent License and Assignment Agreement by and between the Company and Leidos, Inc. dated as of November 2, 2006.	8-K	10.6	07/12/2007	000-26895
10.12	Amendment No. 2 to Patent License and Assignment Agreement by and between VirnetX, Inc. and Leidos, Inc. dated as of March 12, 2008.	8-K	10.1	03/18/2008	001-33852
10.13	Security Agreement by and between the Company and Leidos, Inc. dated as of August 12, 2005.	8-K	10.5	07/12/2007	000-26895
10.14	Assignment Agreement between the Company and Leidos, Inc. dated as of December 21, 2006.	8-K	10.7	07/12/2007	000-26895
10.15	Professional Services Agreement by and between the Company and Leidos, Inc. dated as of August 12, 2005.	8-K	10.8	07/12/2007	000-26895
10.16**	Settlement and License Agreement, by and between Microsoft Corporation and VirnetX, Inc., dated May 14, 2010.	10-Q/A	10.1	01/31/2011	001-33852
10.17**	Amended Settlement and License Agreement, by and between Microsoft Corporation and VirnetX, Inc., dated December 17, 2014.	10-K	10.23	03/02/2015	001-33852
10.18*	Hire Letter by and between Katherine Allanson and the Company, dated as of September 1, 2021.	10-Q	10.1	11/08/2021	001-33852
10.19*	Offer Letter by and between Darl C. McBride and the Company, dated as of December 22, 2023.					X
10.20	Cooperation Letter Agreement, dated March 29, 2023, among The Radoff Family Foundation, Bradley L. Radoff, JEC II Associates, LLC, Michael Torok and the Company.	8-K	10.1	03/30/2023	001-33852

10.21	Warrant to Purchase Shares of Common Stock of the Company by and between the Company and Odeon Capital Group LLC, dated as of April 29, 2020.	10-Q	10.2	05/15/2023	001-33852
10.22*	Outside Director Compensation Policy, as amended.					X
21.1	Subsidiaries of VirnetX Holding Corporation.	10-K	21.1	03/16/2021	001-33852
23.1	Consent of Farber Hass Hurley LLP, Independent Registered Public Accounting Firm.					X
24.1	Power of Attorney (contained on signature page hereto)					X
31.1	Chief Executive Officer Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act.					X
31.2	Chief Financial Officer Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act.					X
32.1†	Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2†	Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
97.1*	Compensation Recovery Policy of the Company as adopted November 8, 2023.					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)					X

	VirnetX Holding Corporation

	By:	/s/ Kendall Larsen
		Name: Kendall Larsen
		Title: Chief Executive Officer and President

Dated: March 15, 2024

Name	~~Capacity~~	Capacity	Date

/s/Kendall Larsen		Director, Chief Executive Officer and President	March ~~16, 2018~~15, 2024
Kendall Larsen		(Principal Executive Officer)

/s/ ~~Richard H. Nance~~ Katherine Allanson		Chief Financial Officer	March ~~16, 2018~~15, 2024
~~Richard H. Nance~~ Katherine Allanson		(Principal Financial Officer and Principal Accounting Officer)

/s/Robert D. Short III	~~Director~~	Director	March ~~16, 2018~~15, 2024
Robert D. Short III

/s/Gary Feiner	~~Director~~	Director	March ~~16, 2018~~15, 2024
Gary Feiner

/s/Michael F. Angelo	~~Director~~	Director	March ~~16, 2018~~15, 2024
Michael F. Angelo

/s/Thomas M. O’Brien	~~Director~~	Director	March ~~16, 2018~~15, 2024
Thomas M. O’Brien