{"url_path":"/sec/vhc/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF         OPERATIONS.","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1082324/0001140361-26-021650-index.html","accession_number":"0001140361-26-021650","cik":"0001082324","ticker":"VHC","issuer_name":"VirnetX Holding Corp","edgar_url":"https://www.sec.gov/Archives/edgar/data/1082324/0001140361-26-021650-index.html","primary_entity_key":"0001082324","primary_entity_name":"VirnetX Holding Corp"},"word_count":1436,"has_tables":true,"body_markdown":"ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF         OPERATIONS.\n\n \n\nCompany Overview\n\nVirnetX Holding Corporation (“Company”, “we”, “us”, or “our”) is an Internet security software and technology company with patented cybersecurity solutions that are designed to ensure resilient,\nsecure communications across any network or device.\n\nOur flagship platform, VirnetX One™, is built on Zero Trust Network Access (ZTNA) principles and extends our patented Secure Domain Name System (SDNS) technology to establish end-to-end encrypted\ncommunications on demand, regardless of user location or endpoint. VirnetX One™ operates as a security-as-a-service platform and may be deployed in cloud, on-premises, or hybrid enterprise environments. The platform is designed to protect\napplications, services, and infrastructure by providing an additional security layer that integrates with existing systems to reduce exposure to evolving cyber threats affecting data, operating systems, infrastructure components, and gateway\nsecurity controllers.\n\nVirnetX Matrix™ leverages the VirnetX One™ platform to secure communications using encrypted, identity-based access controls, including in contested or high-risk environments. It is designed to\nprotect internet-enabled enterprise applications, connected devices, and control systems, such as file servers, data backup systems, and VPN or firewall environments. VirnetX Matrix™ is intended to be deployed without requiring material changes to\nan enterprise’s existing infrastructure and provides centralized visibility and policy enforcement to address unauthorized access and evolving attack techniques.\n\nVirnetX War Room™ also built on the VirnetX One™ platform, provides secure collaboration and visualization capabilities designed to support sensitive, unclassified but secure communications. The\nplatform enables controlled access to virtual meeting environments by validating user and device permissions prior to granting access. VirnetX War Room™ is intended for use cases where confidentiality and access control are critical, including\ngovernment, law enforcement, legal, financial, and healthcare environments.\n\nOur products, including VirnetX One™, VirnetX Matrix™, and VirnetX War Room™, are designed to support U.S. Department of Defense (DoD), federal government, and commercial customers requiring real-time\nencrypted communications and network security. Our solutions are designed to be applicable across a range of public and private sector markets, including critical infrastructure, law enforcement, healthcare, financial services, legal services,\nenergy, and related industries. We pursue sales opportunities nationwide and engage with universities and academic institutions to support research collaboration, workforce development, and technology transition initiatives.\n\nWe also support international sales of our commercial products in compliance with applicable U.S. export control laws and regulations, including the International Traffic in Arms Regulations (ITAR)\nand the Export Administration Regulations (EAR). Our compliance processes are designed to ensure that international transactions adhere to export control requirements while supporting authorized global customers.\n\nOur technology focuses on system design and evaluation to address the continued growth of Internet of Things (IoT) and edge computing environments. We are developing a federated, hybrid mesh network\narchitecture designed with security as a foundational element, extending secure networking capabilities to resource-constrained devices through obfuscated and lightweight security mechanisms designed to protect communications without exposing\nunderlying security processes. These efforts support secure identity, trust enforcement, and encrypted communications for distributed and edge-based systems, aligning our architecture with the industry’s shift toward decentralized and resilient\nnetwork models. This approach incorporates dynamic trust evaluation, autonomous recovery, and distributed decision-making to enhance network resilience and adaptability.\n\nTo support system design and evaluation, we employ Model-Based Systems Engineering (MBSE) and agent-based modeling methodologies. These approaches enable simulation and analysis of complex systems,\nincluding cyber-physical environments and adaptive networks, and support assessment of system behavior under evolving threat conditions.\n\nCertain of our services are designed to align with the Department of Defense’s Digital Engineering Strategy (DE) by supporting cybersecurity integration across system design, command and control,\nbattle management, and sensor orchestration, and by enhancing our MBSE and cyber threat assessment capabilities. Our Dynamic Trust Evaluation (DTE) methods are designed to enforce trust policies throughout system lifecycles, and our cyber threat\nintelligence and assessment services provide structured analysis of cyber risks and vulnerabilities.\n\nWe intend to make available our digital engineering, cyber MBSE, and cyber threat intelligence services to federal, state, and local government agencies, subject to applicable contracting\nrequirements. We hold a Multiple Award Schedule (MAS) and obtained DoD Joint Certification Program (DD Form 2345) certifications for our facilities in Zephyr Cove, Nevada, and Farmington, Utah, which permit access to certain unclassified technical\ndata subject to export controls. These certifications streamline procurement of our products and services by federal, state, and local government agencies and support our ability to engage with government and defense customers while maintaining\ncompliance with applicable handling and security requirements.\n\n12\n\n[Index](#INDEX)\n\nAdditionally, we are developing a Center for Advanced Software and Hardware Integration at our Farmington, Utah facility, that incorporates artificial intelligence (AI) and digital twin technologies\nalongside our Software-Defined Networks (SDN) capabilities. This facility is intended to support development and integration of secure, adaptive software solutions. We have entered into strategic relationships, including an investment in L2\nHoldings, LLC (OmniTeq), an AI/Machine Learning (ML) solutions provider, and cooperative agreements, including a Cooperative Research and Development Agreement (CRADA) with the Air Force Research Laboratory, Intelligence Systems Directorate\n(AFRL/RI). The CRADA focuses on cybersecurity and Zero Trust Network Access (ZTNA)-related technologies, extends through 2030, and supports collaboration in areas relevant to defense and intelligence operations.\n\nIn addition to federal, state, and local government agencies and defense customers, we pursue sales opportunities nationwide and engage with universities and academic institutions to support research\ncollaboration, workforce development, and technology transition initiatives. We also support international sales of our commercial products in compliance with applicable U.S. export control laws and regulations, including the International Traffic\nin Arms Regulations (ITAR) and the Export Administration Regulations (EAR). Our compliance processes are designed to ensure that international transactions adhere to export control requirements while supporting authorized global customers.\n\nOur intellectual property portfolio is a core component of our business. We own U.S. and foreign patents, as well as pending patent applications, that are primarily directed to securing real-time\ncommunications over the Internet and related services. These patents underpin our technology and products. Certain portions of this portfolio were acquired by our principal operating subsidiary, VirnetX, Inc., from Leidos, Inc. in 2006.\n\nOur 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\ninvented and developed this technology while working at Leidos, Inc. The team has continued its research and development work to refine our unique network security technology and make it more secure and easy to deploy.\n\nResults of Operations\n\n \n\nThree Months Ended March 31, 2026\n\nCompared with the Three Months Ended March 31, 2025\n\n(in thousands, except per share amounts)\n\n \n\nRevenue\n\n \n\nWe recognized no revenue in the three months ended March 31, 2026 and 2025.\n\n \n\nResearch and Development Expenses\n\n \n\nOur research and development expenses remained steady between 2026 and 2025 totaling $1,162 and $1,259 for the three months ended March 31, 2026 and 2025, respectively.\n\n \n\nSelling, General and Administrative Expenses\n\n \n\nOur selling, general and administrative expenses increased from $2,788 to $3,346 for the three months ended March 31, 2026, primarily related to compensation expense and corporate travel.\n\n \n\nLiquidity and Capital Resources\n\nAs of March 31, 2026, the Company held approximately $17.2 million in cash, cash equivalents and short-term investments.\n\n \n\nBased on the Company’s current rate of operating expenditures and without giving effect to any future financing or additional revenue, existing liquid resources are projected to be insufficient to sustain the current\nlevel of operations through May 2027, a period of less than twelve months from the date of issuance of these financial statements. This condition triggers the going concern disclosure requirements under U.S. GAAP and as required, is described in\nnotes to our condensed consolidated financial statements. Management intends to continue pursuit of cash generation via revenue sources and financing.\n\n \n\nIncome Taxes\n\n \n\nOur effective tax rate is 0% for income tax for the three months ended March 31, 2026 and 2025, and we expect our effective tax rate for the full year will be 0%. Our effective tax rate is less than the 21% statutory\ntax rate primarily due to our valuation allowance. Based on the weight of available evidence, including net cumulative losses and expected future losses, we have determined it is more likely than not that our U.S. federal and state deferred tax\nassets will not be realized and therefore we have provided a full valuation allowance on the U.S. federal and state net deferred tax assets.\n\n \n\n13\n\n[Index](#INDEX)\n\nContractual Obligations\n\n \n\nWe have leases in Nevada, Utah and California, the last of which expires in 2035. See Note 8 – Leases in the accompanying condensed consolidated financial statements for details.\n\n \n\nOff-Balance Sheet Arrangements\n\n \n\nNone."}