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Item 1. Business

2021-03-16 compared with 2020-03-16 · 110 added, 204 removed, 135 unchanged (70% of the section changed)

We are an Internet security software and technology company with patented technology for secure communications including 5G and 4G LTE security.

Our software and technology solutions, including our Secure Domain Name Registry and GABRIEL Connection Technology™, are designed to facilitate secure communications 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 Machine-to-Machine, or M2M communications.

We are an Internet security software and technology company with patented technology for various types of secure network communications, including 5G and 4G LTE network security.

Our patented Secure Domain Name Registry and GABRIEL Connection Technology™, are the foundation for our GABRIEL Secure Communication Platform™ that protects communications using Zero Trust Network Access (ZTNA).

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.

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patents/patent applications and 124 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 the new initiatives like Smart City, Connected Car and Connected Home that would connect everything from social services and citizen engagement to public safety, transportation and economic development to the internet to enable more productivity, features and efficiency in our everyday lives.

The subject matter of all our U.S.

and foreign patents and pending applications relates generally to securing communication over the internet, and as such covers all our technology and other products.

Our issued U.S.

and foreign patents expire at various times during the period from 2020 to 2024.

Some of our issued patents and pending patent applications 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 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.

Our product GABRIEL Secure Communication Platform™ includes a set of sophisticated software libraries with application interfaces available for securing third-party applications seamlessly across multiple operating system platforms.

Unlike other collaboration and communication products and services on the market today, this product does not require access to users confidential data and reduces the threat of hacking and data mining.

Our patent portfolio is primarily focused on securing real-time communications over the Internet, and related services, and is used in all our technology and products, some of which were acquired by our principal operating subsidiary;

VirnetX, Inc., from Leidos, Inc., or Leidos, (f/k/a Science Applications International Corporation, or SAIC) in 2006.

Our product portfolio includes sophisticated technologies, products and services that are available for sale worldwide.

Our GABRIEL Secure Communication Platform™ includes a set of software libraries with application interfaces available for securing third-party applications seamlessly across multiple operating systems.

It enables individuals and organizations to maintain complete ownership and control over their personal and confidential data, secured within their own private network, while enabling authorized secure encrypted access from anywhere at any time.

Our GABRIEL Gateway product extends our Secure Communication Platform™ by allowing existing networked devices and services to seamlessly join the “GABRIEL SECURED” network without requiring any modifications.

All these devices or services, including cloud based services, can now be assigned a VirnetX Secure Domain Name and use a fully authenticated secure communication channels for its communications.

Our GABRIEL Collaboration Suite™ is a set of communication tools that use our GABRIEL Secure Communication Platform™.

It enables seamless and secure cross-platform communications between devices that are enrolled in our security fabric and have our software installed.

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.

A large number of small and medium businesses have installed our GABRIEL Secure Communication Platform™ and GABRIEL Collaboration Suite™ products in their corporate networks.

All these devices or services, including on-premise or cloud-based services, can now be assigned a VirnetX Secure Domain Name and use fully authenticated, secure communication channels for its communications.

Our GABRIEL Collaboration Suite™ is a set of communication applications and tools that use our GABRIEL Secure Communication Platform™.

It enables seamless and secure cross-platform communications between devices that are enrolled in our “GABRIEL SECURED” network and have our software installed.

Our GABRIEL Collaboration Suite™ is available for download and free trial, for Android, iOS, Windows, Linux, and Mac OS X platforms, at https://virnetx.com .

We continue to enhance our products and add new functionality.

We will provide updates to new and existing customers as they are released to the public.

Many small and medium businesses have installed our GABRIEL Secure Communication Platform™ and GABRIEL Collaboration Suite™ products in their corporate networks.

We intend to continue to expand our customer base with targeted promotions and direct sales initiatives.

We are actively recruiting partners in various vertical markets including, healthcare, finance, government, etc., to help us rapidly expand our enterprise customer base.

A number of International Association of Certified ISAO (IACI) including ISAO's for Maritime & Ports ISAO, Credit Union ISAO, City of Chicago ISAO, Human Trafficking ISAO, have chosen to deploy our software as private and secure e-technology to protect their communications.

Several other ISAOs are completing their evaluations before deploying our products within their networks.

We have executed a number of patent and technology licenses and intend to seek further licensees for our technology, including our GABRIEL Connection Technology™ to 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 5G and 4G/LTE Advanced.

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, Systems Architecture Evolution, or 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 deploying 5G and 4G/LTE Advanced devices and solutions.

We have an ongoing GABRIEL Licensing Program under which we offer licenses to a portion of our patent portfolio, technology, and software, including our secure domain name registry service, to domain infrastructure providers, communication service providers as well as to system integrators.

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 (SDK) to assist with rapid integration of these techniques into existing software implementations with minimal code changes and include object libraries, sample code, testing and quality assurance tools and the supporting documentation necessary for a customer to implement our technology.

We have developed GABRIEL Connection Technology™ Software Development Kit (SDK) to assist with rapid integration of these techniques into existing software implementations.

Customers who want to develop their own implementation of the VirnetX patented techniques for supporting secure domain names, or other techniques that are covered by our patent portfolio for establishing secure communication links, can purchase a patent license.

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These licenses will typically include an initial license fee, as well as an ongoing royalty.

We 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 of 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 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 5G and 4G/LTE Advanced wireless networks and M2M communications in areas including Smart City, Connected Car and Connected Home.

We also believe that all 5G and 4G/LTE Advanced mobile devices will require unique secure domain names and become part of a secure domain name registry.

We intend to continue 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 5G and 4G/LTE.

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, Inc.

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 of approximately 194 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 our future revenue in license fees and royalties.

We intend to continue our research and development efforts to further strengthen and expand our patent portfolio.

Please see Item 7 – Managements Discussion and Analysis of Financial Condition and Results of Operations – Operations – Research and Development Expenses for a description of our research and development expenses for the past three fiscal years.

Some members of this team have worked together for over twenty years and were on same team that invented and developed this technology while working at Leidos, Inc.

The team has continued its research and development work and expanded the set of patents we acquired in 2006 from Leidos, into a larger patent portfolio.

This portfolio now serves as the foundation of our products, services, and our licensing business.

It is expected to generate most of our future revenue in license fees and royalties.

We intend to continue our efforts to develop new products and technologies and further strengthen and expand our patent portfolio.

We intend to continue using an outsourced and leveraged model to maintain efficiency and manage costs as we grow our licensing business by, for example, offering incentives to early licensing targets or asserting our rights for use of our patents.

We also intend to expand our design pilot in participation with leading 5G and 4G/LTE companies (domain infrastructure providers, chipset manufacturers, service providers and others) and build our secure domain name registry.

Industry Overview

We believe that the rapid growth of mobile devices (smartphones/tablets/ultra-mobile PCs), with always-on network access, and need to socially interact with friends and family while maintaining a constant online presence has transformed the Internet of Web 2.0 into the The Internet of the People.

It has become an evolving, rich and complex medium used by individuals and businesses to conduct commerce, share information and engage in real-time communications including email, text messaging, IM, and voice and video calls.

We believe the user demand for high speed broadband access along with the quality of experience wherever they are and whatever BYOD (bring your own device) they may be using;

Mobility, IP video delivery, and the move to cloud have dramatically changed the way service providers deliver services.

While wireline networks remain the primary mechanism for delivering premium and high bandwidth services, its growth has held steady compared to the growth of the mobile communications.

The cost barrier to obtaining a mobile device with data access has disappeared allowing billions of people to have online access on fixed and mobile networks, and those users accessing social networking websites, using peer-to-peer, or P2P applications, and uploading live content over the internet, which in turn is downloaded by billions, has led to significant growth in packet traffic.

Not only is traffic growing and changing in nature, its location of origin and timing has become completely unpredictable.

There is a significant impact on the mobile signaling network, brought on by smartphone penetration and consumer use of chatty applications that conduct frequent network queries.

Before all the security issues related to the signaling protocols in 4G/Advanced LTE and other hybrid networks could be resolved, some service providers are forging ahead with early deployments of the emerging 5G standard.

The researchers are increasingly worried that these existing vulnerabilities may get carried over into the 5G networks.

Due to 5Gs high-speed bandwidth along with billions of connected IoT devices with suspected SIM vulnerabilities, an insecure 5G network sets the stage for increasingly widespread attacks with exponentially large number of available attack points.

Its not difficult to imagine a business using IoT sensors within a factory setting and getting shut down due to a DDoS attack.

We believe that as the users become more comfortable with using their smartphones/tablets and other connected devices, they will increasingly treat their mobile and fixed/WiFi networks as a single network and demand seamless transition from one network type to another without any disruption of service.

The 4G/LTE standard was developed with the goal of creating a single IP network that is efficient, flexible, open up new business models and services revenues and eventually lead to true virtual networks or software-defined networks (SDN).

The service providers were forced to perform complete overhaul of their telecom network infrastructure in order to move from TDM paradigm to next generation IP networks based on 4G/LTE for dealing with this rapidly growing demand.

Before these network overhauls could be completed, some service providers decided to label their hybrid 3.5G/HSPA+/partial LTE implementations as 4G networks in order to mitigate the risk of losing revenue.

We believe this has led to significant confusion and misunderstanding among users.

Adding to the demand for mobile and fixed broadband services is the fast adoption of connected machines or devices, or embedded systems capable of M2M communication.

These M2M communications are made possible by a device (non-phone/tablet/pc such as a sensor) that is attached to a machine to capture an event that is relayed over a network via 3G/4G routers or fixed broadband lines, delivering data or events (such as temperature, location, consumption, heart rate, stress levels, light, movement, altitude and speed) to applications creating an Internet of Things or IoT.

As the service providers start deploying true 4G (Long Term Evolution-Advanced, or LTE-Advanced) and this pace picks up, we believe that almost every device will get its own unique identity and a high-speed connection to the internet over a high-speed IP (Internet Protocol) based telecommunication network making it an Internet of Everything.

We believe that growing security concerns and vulnerabilities in a large number of use-case scenarios due to the inherent open nature of this architecture can throttle the successful adoption of these technologies.

Security can no longer exist as a point solution, and enterprises are currently upgrading core IT infrastructure (systems, networks, and management) to integrate security into everything.

Because of the complexity of todays networks and the requirement to connect users from any location at any time on any device, enterprise buyers looking to improve security posture have to evaluate everything from software solutions for smartphones to routers and switches with integrated security, massive security appliances for data centers, cloud-based security services, and security solutions for virtualized environments and public and private clouds.

We believe that telecommunication markets are rapidly changing and presenting new challenges to the equipment and service providers, including but not limited to increasing user demand for mobile, always-on connections with multiple devices.

We also believe that traffic growth, video acceleration, cloud services and a rapidly growing number of subscribers challenge currently available network architectures and that, because of this, service providers and carriers will eventually use a single network for fixed and mobile communications, private/premium communications and Internet access, in spite of the difficulties involved challenging their business models and forcing the consideration of new network architectures.

We believe that LTE technology will deliver users the benefits of faster data speeds and new services by creating a new radio access technology thats optimized for IP-based traffic and offers operators a simple upgrade path from 3G networks.

Smartphones are multi-functional devices that handle a wide variety of business-critical applications and support increasingly complex functions including enhanced data processing, Internet access, e-mail access, calendars and scheduling, contact management and the ability to view electronic documents.

Users have continual access to these applications while on the move making them an increasingly essential business tool for the mobile worker.

These devices enable mobile workers to have similar functionality inside or outside the office thereby increasing employee efficiency.

However, it is critical that this mobile environment have the same level of security as an enterprises internal network.

Embedded mobile broadband computing devices include PCs, netbooks, tablets, and mobile Internet devices (MIDs) with embedded mobile broadband modems to enable Internet access via a mobile broadband network.

A growing number of these devices are now shipping enabled with LTE/4G.

Mobile Internet devices (MIDs) include handheld mobile Internet devices;

e.g, eReader, gaming console, digital picture frame, digital camera, with embedded mobile broadband modems.

Mobile broadband routers have mobile broadband modems or antenna as the broadband connection;

have multiple Ethernet ports and integrated wireless access points for local area connectivity and bandwidth sharing;

can have integrated hub or switch;

may have an integrated stateful firewall or IPSec VPN and are also known as mobile hotspot routers.

Machine-to-Machine, or M2M, connected devices, or embedded systems;

connected machines are fast becoming the eyes and ears of the enterprise.

By adding sensors and networking technologies to the products they sell and the equipment they employ, companies are finding new ways to gather powerful insights and use new forms of data, thus creating a vast internet of things.

This communication is made possible by a device (such as an intelligent sensor) that is attached to a machine to capture an event, such as such as temperature, location, consumption, heart rate, stress levels, light, movement, altitude and speed, that is relayed over a network delivering data to applications.

The potential applications for this technology are numerous and as such include smart meters in energy and utilities (the smart grid), connected vehicles in automotive and logistics, heart monitors in healthcare, RFID tagged inventory in retail and manufacturing, and digital signage in media and communications to name a few.

Another fast-growing application is in the wearable technology products namely, fitness and wellness, infotainment (information-based media content), healthcare and medical, and industrial and military.

The fitness and wellness segment comprise products like smart clothing and smart sensors, activity monitors, sleep sensors and others, whereas the Infotainment sector consists of products like smart watches, heads-up displays, smart glasses and others.

The products like continuous glucose monitor, drug delivery, monitors, wearable patches and others have been covered under healthcare and medical segment and products like hand worn terminals, augmented reality headsets and others have been mentioned under industrial and military segment.

We believe that the large revenue potential for M2M services that has attracted the attention of carriers globally risks being thwarted by the growing security concerns in M2M applications.

Porous security is exposing vulnerabilities in a large number of use-case scenarios, including Automobiles, energy management systems, telemedicine, and telemetry.

While built-in security is a high priority in all other information and communication technologies, it is yet to be considered, even at a basic level, in most M2M applications.

The rapid and successful adoption of M2M in automobiles, healthcare, industrial installations, and consumer homes may be jeopardized if communication security is not designed in to all M2M devices and applications.

All these new devices will require a unique identity addressable by a secure domain name

and all their communications, with application servers and other devices, completely secured automatically and on-demand.

IP mobility services require an environment where wired and wireless phones work together with Internet Protocol to deliver services (voice, video, data and combinations thereof) uniformly across multiple access networks, including, among others, LTE, WiMAX, WiFi cellular and fixed.

Voice over LTE (VoLTE) technology is the foundation for communication services on any device over LTE, Wi-Fi and 5G.

VoLTE is delivered via the IP Multimedia Subsystem (IMS) and enables operators to offer high-quality, simultaneous voice and LTE data services on smartphones and other devices.

There are currently more than 1,000 VoLTE-enabled device models, supporting different regions and frequencies.

Wi-Fi calling is built on the same core network systems as VoLTE and enables operators to extend their voice service to places with limited cellular coverage.

Based on our estimates, using several market data sources, we believe that growth in 5G network subscriptions will start picking up in 2020 and forecast to reach 2.6 billion in 2025, equivalent to more than one in every five mobile connections.

According to our calculations, 5G connections in North America are forecasted to surpass 32 million by the end of 2021 while the worldwide count for the same period is expected to be approximately 156 million.

Worldwide LTE based subscriptions are expected to grow from 4.7 billion in 2019 to 5.9 billion by 2024.

VoLTE is now available in more than 125 networks spanning across approximately 60 countries.

Based on recent measurements in operator networks, the number of VoLTE subscriptions is now projected to grow from 1.4 million to 6.1 billion by the end of 2024, making up more than 90 percent of all LTE subscriptions globally.

Mobile Data Traffic per device, including smartphone and tablets, is expected to increase from 13.5 Gigabytes per month in 2018 to over 29 Gigabytes per month in 2023.

We believe in order to realize the full functionality of IP mobility, several challenges including security must be overcome.

When users are mobile, connections and data need to cross multiple network boundaries, each of which poses a security threat.

Wireless networks may be threatened or compromised by rogue users who enter through insecure wireless access points.

We believe that providing authenticated access to the M2M networks and enterprise applications are important requirements and represent a significant market opportunity for our patented technology and secure domain names to provide users or machines fully authenticated secure access on a zero-click or single-click basis.

Our Solutions

Our software and technology solutions, including our secure domain name registry, our patents and our GABRIEL Connection Technology™ are designed to secure real-time communications over the Internet.

Our technology uses industry standard encryption methods with our patented Domain Name System, or DNS, lookup mechanisms to create a secure communication link between users intending to communicate in real time over the Internet.

Our technology can be built into network infrastructure, operating systems or silicon chips developed for a communication or computing device to secure real-time communications over the Internet between numerous devices.

Our technology automatically encrypts data allowing organizations and individuals to establish communities of secure, registered users and transmit information between multiple devices, networks and operating systems.

These secure network communities, which we call secure private domains, or SPDs, are designed to be fully-customizable and support rich content applications such as IM, VoIP, mobile services, streaming video, file transfer and remote desktop in a completely secure environment.

Our approach is a unique and patented solution that we believe provides the robust security platform required by these rich content applications and real-time communications over the Internet.

We believe the key benefits and features of our technology include the following:

• Automatic and seamless to the user.

After a one-time registration, users connect securely on a zero-click or single-click basis.

• Secure data communications.

Users create secure networks with people they trust and communicate over a secure channel.

• Control of data at all times.

Users can secure and customize their unified communication and collaboration applications such as file sharing and remote desktop with policy-based access and secure presence information.

• Authenticated users.

Users know they are communicating with authenticated users with secure domain names.

• Application-agnostic technology.

Our solution provides security at the IP layer of the network by using patented DNS lookup mechanisms to make connections between secure domain names, thereby obviating the need to provide application specific security.

Our GABRIEL Secure Communication Platform™, unlike other collaboration and communication products and services on the market today, does not require access to users confidential data and reduces the threat of hacking and data mining.

Our GABRIEL Collaboration Suite™ is a set of applications that run on top of our GABRIEL Secure Communication Platform™.

It enables seamless and secure cross-platform communications between users devices.

The following applications are included in the current release and can be easily accessed through the GABRIEL interface:

• Secure chat.

Allows users to quickly send and receive text, files and screen shots.

• Secure share.

Allows users to grant coworkers read/write access to desired folders.

• Secure video/voice.

Provides users ability to conduct audio and/or video conferencing securely with any other GABRIEL user.

• Secure mail.

Allows users to send email and attachments directly from sender to recipient without requiring a centralized mail server.

• Secure sync/backup.

Allows users to quickly push single files or automatically backup your files to one or multiple GABRIEL destinations.

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 publicly.

Over 80 small and medium businesses have installed our GABRIEL Secure Communication Platform™ and GABRIEL Collaboration Suite™ products in their corporate networks.

We intend to continue to expand our customer base with targeted promotions and direct sales initiatives.

Industry Overview & Trends

We believe that the rapid growth in remote work has accelerated digital business transformation initiatives that would have taken years, into a matter of months.

The demand to work remotely, explosive growth of video conferencing tools and rapid growth in the cloud has created an opportunity to secure communications regardless of a user’s location, network, or BYOD (bring your own device).

The shift to remote work and expansion of the enterprise network perimeter has driven the growth of ZTNA solutions.

The Zero Trust concept treats all networks like the Internet, where all users and devices are untrusted by default.

Their location within the network is not a factor for deciding trust.

Each user and device on the network require authentication and authorization, based on policy, prior to accessing any applications or resources on the network.

ZTNA facilitates security around remote work, because Zero Trust policies enable granular access control, end-to-end encryption of network communications and remove application visibility from the public Internet reducing the attack surface.

Based on our research and estimates, we believe that the Zero-Trust Security Market size is projected to grow from USD 15.6 billion in 2019 to USD 38.6 billion by 2024, at a Compound Annual Growth Rate (CAGR) of 19.9% from 2019 to 2024.

We believe Zero Trust represents a growing market and an ideal fit for our technology and products.

With large portions of the global population now living under some form of lockdown, the global coronavirus pandemic has forced many organizations to shift their business processes – and their employees are having to embrace a work-from-home culture on a scale never attempted.

Remote work has accelerated the adoption of video conferencing and meeting applications across all industries making it an essential tool to connect with remote customers, workforces, and employees to prevent direct contact.

Based on our estimates, we believe that the worldwide Video Conferencing Market size is projected to grow from USD 14 billion in 2019 to USD 35 billion by 2026, at a CAGR of 16.5% from 2020 to 2026.

This rapid adoption, learning curve and demand to continue working remotely has created significant security concerns and breaches for enterprises.

Our market research has focused on security conscious verticals such as healthcare, banking, legal and government where security breaches can significantly impact outcomes.

In many cases, these enterprises adopted industry standard video conferencing tools and are now looking at more secure alternative solutions.

Enterprises want video conferencing solutions that protect their information and allow them greater security control and visibility, while continuing to be reliable, easy to use and cost effective.

Enterprises in these verticals are also looking for video conferencing solutions that integrate into their existing workflows and better align with specific use cases instead of forcing them to adapt to more one size fits all solutions on the market.

We believe our GABRIEL Collaboration Suite™ represents a starting point to offer secure video conferencing tools built on a zero-trust architecture.

Cloud computing growth has rapidly expanded as enterprises continue to move applications and services to the cloud.

The cloud offers scalability, operations and development efficiency and remote access benefits for their workforce.

Based on our estimates, we believe that the global cloud computing market size is expected to grow from approximately USD 293 billion in 2020 to over USD 810 billion by 2026, at a CAGR of 18.5% during the forecast period.

The cloud technology adoption is expected to increase quite significantly in industries where the Work-From-Home (WFH) initiative is helping to sustain enterprise business functions.

However, shifting critical data to the cloud has resulted in security concerns and the need for enterprises to control access and gain visibility into how information is being used, who is accessing it and where it is going.

We believe our scalable technology allows enterprises to secure applications and services regardless of whether hosting is on-premise or in the cloud.

As billions of connected Internet of Things (IoT) devices come online in support of enterprise operations, products, and industrial controls they will need to be secured and integrated into the enterprise.

Facilitated by advancements in 4G/Advanced LTE and high-speed 5G networks, IoT devices will be able to operate from any network, transmit higher volumes of data including video streaming and sensor data collection and require real-time decisions based on that data.

Without next generation security, these IoT devices represent a large attack surface that manages and control critical enterprise infrastructure.

These IoT devices can operate from anywhere, will need to be secured with the same level of network security and ZTNA solutions enterprises are already deploying for their remote workforce.

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 5G and 4G/LTE Advanced wireless networks and IoT communications in areas including Smart City, Connected Car and Connected Home.

Based on our estimates, we believe that the size of global Industrial Internet of Things (IIoT) market is projected to grow from USD 83.6 billion in 2020 to approximately USD 254 billion by 2027 at a CAGR of 20.35% during this forecasted period with a growing investment in securing the infrastructure around these devices.

Our Approach & Strategy

Our portfolio of intellectual property is the foundation of our business model.

We currently own approximately 194 total patents and pending applications, including 70 U.S.

patents/patent applications and 124 foreign patents/validations/pending applications.

This portfolio now serves as the foundation of our products, services, and our licensing business.

It is expected to generate the majority of our future revenue in license fees and royalties.

Our strategy is to become the market leader in securing real-time communications over the Internet and to establish our GABRIEL Connection Technology™ as the industry standard security platform.

Key elements of our strategy are to:

Actively recruit partners in various vertical markets, including healthcare, finance, legal, government to help us rapidly expand our enterprise customer base.

Continue to grow our technology licensing program to commercialize our intellectual property, including our GABRIEL Connection Technology™.

Promote our Gabriel Secure Communication Platform™ as a solution for delivering ZTNA.

Grow our GABRIEL Gateway product offering to secure enterprise applications, services, and infrastructure.

Grow registration of GABRIEL Secure Domains as the network segmentation component of our ZTNA solution.

Establish VirnetX as the exclusive, universal registry of secure domain names and enable our customers to act as registrars for their users and broker secure communication between devices.

Promote Gabriel Collaboration Suite™ products in the general market for sale to end-user enterprises, directly and with partners, with targeted promotions and other marketing programs.

Expand GABRIEL Collaboration Suite™ to include video conferencing to assist remote workers and offer an industry leading secure meeting solution.

GABRIEL Secure Communication Platform™ delivers ZTNA allowing enterprises to secure their information, control access and gain visibility into how information is being used, who is accessing it and where it is going.

Our patented technology allows enterprises to license our technology for integration into their products and services, easily deploy our technology through our GABRIEL Gateway product for endpoint security or securing their communications with our GABRIEL Collaboration Suite™ application.

We believe GABRIEL Gateway will support enterprises in securing their networks as their applications, services, virtualized resources, and data moves to the cloud.

GABRIEL Gateway secures applications, services and infrastructure using ZTNA.

Enterprises can quickly deploy GABRIEL Gateway to protect legacy applications, secure new cloud-based services and remove application visibility from the public Internet.

Enterprises can move towards more granular network access control to protect their network at the edge and away from legacy VPN technologies.

GABRIEL Gateway enables remote employees to securely communication with on-premise and cloud-based applications, regardless of their location.

GABRIEL Gateway is included with the GABRIEL Collaboration Suite™ and offered as a separate licensing program for enterprises that need a Gateway only solution.

Enterprises can also use GABRIEL Gateway to secure open-source applications powering communications, data and analytics, infrastructure, and business services with a focus on making those applications easier to secure, access and manage.

GABRIEL Secure Domains provide two fundamental capabilities for enterprises to manage device security and access control.

Unique, certificate-based device identities, tied to a user, that are used to authenticate and authorize device access (e.g., GABRIEL Connection Technology™), based on a set of policies.

Flexible, software-based network segmentation that enterprises can deploy on-demand, without requiring additional hardware infrastructure.

Enterprise customers understand the complexity of device certificate management at scale, the operational costs and security ramifications, if not done properly.

GABRIEL Secure Domains enable certificate-based identities and when used within the GABRIEL Secure Communication Platform™, provides a cloud-based service that automates the process of issuing, renewing, and revoking device certificates across the enterprise at scale.

With GABRIEL Secure Domains, enterprises have a solution for managing device security and access control driven by the rapid growth of IoT and remote work.

Each GABRIEL Secure Domain creates a network microsegment or secure enclave that includes a set of resources (e.g., applications, services, or data) and a set of users and devices an enterprise can assign to access those resources.

Used within the GABRIEL Secure Communication Platform™, enterprises can scale and adapt their network architecture, on-demand, based on business and workforce needs.

Enterprises see the power of GABRIEL Secure Domains as a way to flexibility segment their networks, enforce access policies, audit compliance, isolate and limit lateral network movement, secure and limit access for remote workers and gain access control and visibility into their network.

We believe GABRIEL Collaboration Suite™ provides the foundation for real-time, secure communications and collaboration applications for the enterprise remote workforce.

We bundle multiple applications together within the GABRIEL Collaboration Suite™, including Secure Chat, Secure Share, Secure Video/Voice, Secure Mail, Secure Backup/Sync and GABRIEL Gateway.

We are exploring unbundling the applications within GABRIEL Collaboration Suite™ and offering à la carte product options.

This approach allows us to offer more flexible licensing options to solve specific customer use-cases, align with partner product offerings and create upsell opportunities.

Competitive Strengths

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Our unique solutions combine industry standard encryption methods and communication protocols with our patented techniques for automated DNS lookup mechanisms.

Our technology and patented approach enables users to create a secure communication link by generating secure domain names.

Our technology and patented approach enable users to create a secure communication link by generating secure domain names.

We currently own approximately 194 total patents and pending applications, including 70 U.S.

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Based on the collective knowledge and experience of our development team, we believe that we have one of the most experienced and sophisticated groups of security experts researching vulnerability and threats to real-time communication over the Internet and developing solutions to mitigate these problems.

Our strategy is to become the market leader in securing real-time communications over the Internet and to establish our GABRIEL Communications Technology™ as the industry standard security platform.

Key elements of our strategy are to:

• Actively recruit partners in various vertical markets, including healthcare, finance, government to help us rapidly expand our enterprise customer base.

• Promote our Gabriel Secure Communication Platform™ and Gabriel Collaboration Suite™ products in the general market for sale to end-user enterprises, directly and with partners, with targeted promotions and other marketing programs.

• Continue to grow our technology licensing program to commercialize our intellectual property, including our GABRIEL Connection Technology™.

• Establish VirnetX as the exclusive universal registry of secure domain names and to enable our customers to act as registrars for their users and broker secure communication between users on different registries.

We have submitted a declaration with the 3rd 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 also submitted a number of updates to our original declaration, identifying additional technical specifications that would also require a license to our U.S.

and Foreign patents.

License and Service Offerings

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We intend to provide high-quality technical support services to licensees and customers for the rapid customization and deployment of GABRIEL Connection Technology™ in an individual customer’s products and services.

Our research and development team is the team responsible for inventing the claimed subject matter of the patents that form the foundation of our technology.

This team has worked together for over ten years.

We intend to leverage this experience and continue investing in research and development and, over time, expect to strengthen and expand our patent portfolio, technology, and software.

While we are currently focused on securing real-time communications over the Internet and establishing the first and only secure domain name registry, we believe our existing and future intellectual property portfolio will extend to additional areas including, among others, network security and operating systems for fixed and mobile devices.

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/ .

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Marketing and Sales

We plan to employ a leveraged, partner-oriented, marketing strategy for our technology licenses and software product offerings.

We successfully signed a number of Resellers & Managed Service Provider in various market segments, including, healthcare, finance, government, etc, to assist us in selling our software products to their customers.

Some of our key partners include:

• ASCARD MSP (Healthcare)

• Above PAR Advisors (Financial)

• Max Cybersecurity (Government)

We employ a leveraged, partner-oriented, marketing strategy for our technology licenses and software product offerings.

We successfully signed a number of Resellers & Managed Service Provider in various market segments, including, healthcare, finance, legal, government, etc., to assist us in selling our software products to their customers.

A list of our partners can be found on our website at https://virnetx.com/partners .

We plan to continue working on a number of sales and marketing promotions, in the U.S.

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We market our Gabriel line of products directly to small and medium businesses using online marketing programs and tools.

A number of International Association of Certified ISAO (IACI) including, ISAOs for Maritime & Ports, ISAO Credit Union ISAO, City of Chicago ISAO and Human Trafficking ISAO have chosen to deploy our software as private and secure e-technology to protect their communications.

Several other ISAOs are completing their evaluations before deploying our products within their networks.

We expect to leverage our relationship with Leidos, to extend our offering to departments and agencies within the federal government.

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We intend to leverage our sales team for managing current accounts and pursuing sales opportunities with new customers.

In January 2021, we added a Chief Operating Officer (COO) to our Japanese team to further our technology licensing efforts in Japan.

We have signed a non-exclusive Distribution and Service Agreement with IP Dream, a Japanese based strategic technology developer and service provider, to sell VirnetX’s Gabriel Collaboration Suite as well as VirnetX’s Secure Domain Name technology to its clients in Japan and greater Asia.

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Along with our efforts with IP dream, we continue to explore alternative strategies to pursue opportunities to work with other third parties in Japan, and elsewhere, using an approach that will seek to capitalize on these opportunities in part by placing more emphasis on the use of our own employees.

We believe our technology and solutions compete primarily against various proprietary security solutions.

We group these solutions into three main categories:

• Proprietary or home-grown application specific security solutions have been developed by vendors and integrated directly into their products for our target markets including IP-telephony, mobility, fixed-mobile convergence, and unified communications.

These proprietary solutions have been developed due to the lack of standardized approaches to securing real-time communications.

This approach has led to corporate networks that are isolated and, as a result, restrict enterprises to using these next-generation networks within the boundaries of their private network.

These solutions generally do not provide security for communications over the Internet or require network administrators to manually exchange keys and other security parameters with each destination network outside their corporate network boundary.

The cost-savings and other benefits of IP-based real-time communications are significantly limited by this approach to securing real-time communications.

• A session border controller, or SBC, is a device used in networks to exert control over the signaling and media streams involved in establishing, conducting and terminating VoIP calls.

A traditional firewall or network address translation, or NAT, device typically block information like endpoint IP addresses and port numbers required by signaling protocols, such as SIP and XMPP, to reach and communicate with their intended destination.

SBCs are used in physical networks to address these limitations and enable real-time session traffic to cross the boundaries created by firewalls and other NAT devices and enable VoIP calls to be established successfully.

However, SBCs must decrypt and analyze every single data packet for the

information to be transmitted successfully, thereby preventing end-to-end encryption.

This network design results in SBCs becoming a single point of congestion on the network, as well as a single point of failure.

SBCs are also limited to the physical network they secure.

• SIP firewalls, or SIP-aware firewalls, and application layer gateways, manage and protect the traffic, flow and quality of VoIP and other SIP-related communications.

They perform real-time network address translation, dynamic firewall functions;

support multiple signaling protocols, and media functionality, allowing secure interconnection and the flow of IP media streams across multiple networks.

While SIP firewalls assist in analyzing SIP traffic transmitted over the corporate network to filter out various threats, they do not necessarily encrypt the traffic.

As a result, this traffic is not entirely secure from end-to-end nor is it protected against threats like man-in-middle and eavesdropping.

Our GABRIEL Collaboration Suite™ is available for download and free trial, for Android, iOS, Windows, Linux, and Mac OS X platforms, at https://virnetx.com .

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 publicly.

We continue to rapidly expand our customer base with targeted promotions and direct sales initiatives.

We intend to continue 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 5G and 4G/LTE.

We have published our royalty rates and guidelines on our website at https://virnetx.com/licensing .

All forward moving licenses have adhered to these guidelines and have met or exceeded these rates and we will use these rates and guidelines in all future license negotiations.

Intellectual Property and Patent Rights

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Although it is possible to create and manage other DNS root directories privately without accreditation from ICANN, the possibility of conflicting name and number assignments makes it less likely that users would widely adopt a top-level domain name associated with an alternative DNS root directory provided by a non-ICANN-accredited registry service.

As of December 31, 2019, we had 20 full time employees.

Corporate Overview and History

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.

On December 31, 2020, the Company had 21 full and part time employees, most of whom work remotely from our corporate offices.

The Company has had an at-home work force since its inception.

The emphasis of our employees is on our technology research and product development with 11 employees focused on this effort.

The team has been working on enhancing our products and adding new functionality along with successfully filing several new patent applications in 2021.

We also continue building our sales and marketing teams to expand our product-lines and customer base.

In 2021 we added a Chief Operating Officer for our subsidiary in Japan who will be focused on growing our market and products in that region.

In addition to our regular employees, we also engage with important consultants on a regular basis.

These consultants can be involved in our product development, customer relations, legal, and/or regulatory compliance and reporting.

The Company has experienced low employee turnover rates over the years with both employees and some consultants participating in our incentive stock option/RSU plans.

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business