What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-17 compared with 2024-03-15 · 268 added, 398 removed, 383 unchanged (63% of the section changed)

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Report of Farber Hass Hurley LLP, Independent Registered Public Accounting Firm

Consolidated Balance Sheets of VirnetX Holding Corporation as of December 31, 2023 and December 31, 2022

Consolidated Statements of Operations of VirnetX Holding Corporation for the years ended December 31, 2023, and December 31, 2022

Consolidated Statements of Comprehensive (Loss) of VirnetX Holding Corporation for the years ended December 31, 2023, and December 31,

Consolidated Statements of Stockholders’ Equity of VirnetX Holding Corporation for the years ended December 31, 2023, and December 31,

Consolidated Statements of Cash Flows of VirnetX Holding Corporation for the years ended December 31, 2023, and December 31, 2022,

Consolidated Balance Sheet at December 31, 2024 and December 31, 2023

Consolidated Statements of Operations of VirnetX Holding Corporation for the years ended December 31, 2024 and 2023

Consolidated Statements of Comprehensive (Loss) of VirnetX Holding Corporation for the years ended December 31, 2024 and 2023

Consolidated Statements of Stockholders’ Equity of VirnetX Holding Corporation for the years ended December 31, 2024 and 2023

Consolidated Statements of Cash Flows of VirnetX Holding Corporation for the years ended December 31, 2024 and 2023

Notes to Consolidated Financial Statements of VirnetX Holding Corporation

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We have audited the accompanying consolidated balance sheets of VirnetX Holding Corporation (the “Company”) as of December 31, 2024 and 2023, and the related

consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year

period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the “financial

statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years

in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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.

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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.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

we express no such opinion.

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.

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.

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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.

As discussed in Note 2 to the financial statements, in 2023 the Company purchased equity interests in two private entities.

the entities do not have a readily determinable fair market value, the investments in the entities are measured at cost minus impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for

the identical or a similar investment of the same issuer minus impairment, if any in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 321:

Investments - Equity Securities.

Management must

consider various factors, including the Company’s ability to apply significant influence to the overall operations of the entities and also evaluate the investments as of each reporting period to determine if there are any factors

that would impact the recorded value of Other Investments reflected on the consolidated balance sheet.

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.

judgment by management when assessing the recognition method, the limited availability of public information related to the entities, and the subjectivity of the qualitative factors involved in the assessment.

This in turn led to a

high degree of auditor judgment, subjectivity, and effort in performing procedures relating to management’s assessment of the recognition method 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.

includes reviewing management’s internal analysis as well as any publicly available data regarding any factors or events that could impact the entities’ values.

- 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 of the entities through the year to determine whether an adjustment in the recognized value was necessary.

This includes testing management’s internal

analysis as well as reviewing for any publicly available data regarding any factors or events that could impact the entities’ values.

/s/ Farber Hass Hurley LLP

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Operating expense:

Licensing costs

Research and development

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Other comprehensive (loss) income, net of tax:

Change in unrealized (loss) gain on investments, net

Change in unrealized gain on investments, net

Change in foreign currency translation, net

Total other comprehensive (loss) gain, net of tax

Total other comprehensive gain, net of tax

Comprehensive (loss)

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Stock-based compensation

Deferred income taxes

Changes in assets and liabilities:

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Accrued payroll and related expenses

Accrued licensing costs

Accounts receivable

Prepaid income taxes

Net cash used in operating activities

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Proceeds from sale or maturity of investments

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Cash flows from financing activities:

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Cash paid for income taxes

Non-cash transaction

ROU asset and lease liability

See accompanying notes to consolidated financial statements.

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portfolio of patents.

We seek to 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 (“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 or who seek to secure their systems and applications.

We seek to derive revenue from selling our software products including VirnetX War Room™ and VirnetX Matrix™ and licensing our technology, including VirnetX One™, to various original equipment manufacturers (“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 or who seek to secure their systems and applications.

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

We currently own approximately 205 total patents and pending applications, including 72

patents/patent applications and 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.

The subject matter of all our U.S and foreign patents and pending applications relates generally to securing communications over the Internet and such covers all our technology and other products.

We currently own U.S.

and 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.

The subject matter of all our U.S and foreign patents and pending applications relates generally to securing communications over the Internet and such covers

all our technology and other products.

Some of our issued U.S.

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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

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.

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 U.S.

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.

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.

accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.

We have reviewed our critical accounting policies and estimates with the Audit Committee of our Board of Directors.

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 of our Board of Directors.

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.

The consolidated financial statements include the accounts of VirnetX Holding

Corporation and our wholly owned subsidiaries.

All intercompany balances and transactions have been eliminated.

Revenue Recognition

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 Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.

transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Our revenue arrangements may consist of multiple-element arrangements, with revenue for each unit

of accounting recognized as the product or service is delivered to the customer.

With the licensing of our patents, performance obligations

are generally satisfied at a point in time as work is complete when our patent rights are transferred to our customers.

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 Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.

A performance obligation is a promise in a contract to transfer a

distinct good or service to the customer.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Our revenue arrangements may consist of

multiple-element arrangements, with revenue for each unit of accounting recognized as the product or service is delivered to the customer.

With the licensing of our patents, performance obligations are generally satisfied

at a point in time as work is complete when our patent rights are transferred to our customers.

We generally have no further obligation to our customers regarding our technology.

Certain contracts may require our customers to enter into a hosting arrangement with us and for these arrangements, revenue is recognized over time,

generally over the life of the servicing contract.

The Company actively monitors and 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, from time to time, receive payments as part of a settlement or compensation for a patent infringement dispute.

Proceeds received are allocated to each element identified

in the settlement or compensation, based on the fair value of each element.

Generally, settlements and compensation may include the following elements:

Certain contracts may require our customers to enter into a hosting arrangement

with us and for these arrangements, revenue is recognized over time, generally over the life of the servicing contract.

The Company actively monitors and 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, from time to

time, receive payments as part of a settlement or compensation for a patent infringement dispute.

Proceeds received are allocated to each element identified in the settlement or compensation, based on the fair value of each element.

settlements and compensation may include the following elements:

the value of a license or royalty agreement, cost reimbursement, damages, and interest.

identified related to licensing and royalty are 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 operations.

Elements identified related to licensing and royalty are recognized as revenue.

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 operations.

Licensing Costs

Included in operating expenses are licensing costs we incurred in conjunction with a patent infringement case.

operating expenses are licensing costs.

Contingent Gains

ASC Topic 450-30-25, Contingent Gains, prohibits recognition of contingent gains until realized.

Accordingly, we do not record contingent gains

ahead of such realization.

ASC Topic 450-30-25, Contingent Gains, prohibits recognition of contingent gains

until realized.

Accordingly, we do not record contingent gains ahead of such realization.

Management generally considers any such gains as realized only upon the collection of cash.

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.

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.

Investments classified as available-for-sale are recorded at fair market value.

Unrealized gains and losses are reported as other comprehensive

Unrealized gains and losses are reported as other comprehensive income.

Realized gains and losses are recorded in income in the period they are realized using specific identification of each security’s cost basis.

We invest our excess cash primarily in highly liquid debt instruments including corporate,

government and federal agency securities, with contractual maturities less than two years .

By policy, we limit the amount of credit

exposure to any one issuer.

We have elected the

investment measurement alternative for other investments without readily determinable fair values.

During 2023, we invested $ 2,000 in L2

Holdings LLC and $ 500 in OP Media Inc.

These investments are carried at our initial cost less any impairment, because we do not have the

ability to exercise significant influence over operating and financial matters.

For these investments, we adjust the carrying value for any purchases or sales of our ownership interests.

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.

We elected the investment measurement alternative for other investments

without readily determinable fair values.

During 2023, we invested $ 2,000 in L2 Holdings LLC and $ 500 in OP Media Inc.

These investments are carried at our initial cost because we do not have the ability to exercise significant influence over

operating and financial matters.

For these investments, we adjust the carrying value for any purchases or sales of our ownership interests and other observable transactions.

Periodically, we evaluate these investments for impairment.

If we identify an impairment, we reduce the carrying value for the impairment loss with a charge to earnings.

identify an impairment, we reduce the carrying value for the impairment loss with a charge to earnings.

We have no t identified any

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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.

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 (“FDIC”).

In 2024, 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.

not experienced any losses on our deposits of cash and cash equivalents.

The carrying amounts of our financial instruments, including cash equivalents, accounts payable, and accrued liabilities, approximate fair value

because of their generally short maturities.

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.

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.

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.

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

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.

Operating lease right-of-use (“ROU”) assets are included in Prepaid expenses, and other assets, and lease

liabilities are included in other liabilities in 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 incremental borrowing rate, U.S.

prime rate, of 8.5 % in both 2023 and 2024.

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.

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 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.

We identify and record impairment losses on long-lived assets used in operations

when events and changes in circumstances indicate that the carrying amount of an asset might not be recoverable, but not less than annually.

Recoverability is measured by comparison of the anticipated future net undiscounted cash flows to the

related assets’ carrying value.

If such assets are deemed impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset.

Research and Development

Research and development costs include expenses paid to outside development consultants and compensation related expenses for our engineering staff.

Research and development costs include expenses paid to outside development

consultants and compensation related expenses for our engineering staff.

Research and development costs are expensed as incurred.

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.

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.

The 2017 U.S.

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.

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

A valuation allowance is provided for deferred income tax assets when, in our

judgment, based upon currently available information and other factors, it is more likely than not that all or a portion of such deferred income tax assets will not be realized.

The determination of the need for a valuation allowance is based on an

on-going evaluation of current information including, among other things, historical operating results, estimates of future earnings in different taxing jurisdictions and the expected timing of the reversals of temporary differences.

We believe the

determination to record a valuation allowance to reduce a deferred income tax asset is a significant accounting estimate because it is based, among other things, on an estimate of future taxable income in the United States and certain other

jurisdictions, which is susceptible to change and may or may not occur, and because the impact of adjusting a valuation allowance may be material.

In determining when to release the valuation allowance established against our net deferred income

tax assets, we consider all available evidence, both positive and negative.

We continually assess our ability to generate sufficient taxable income during future periods in which our deferred tax assets may be realized.

If and when we believe it is more likely than not that we will recover our deferred tax assets,

we will reverse the valuation allowance as an income tax benefit in our statements of operations.

If and when we believe it is

more likely than not that we will recover our deferred tax assets, we will reverse the valuation allowance as an income tax benefit in our statements of operations.

We account for our uncertain tax positions in accordance with U.S.

GAAP, which utilizes a two-step approach to evaluate tax positions.

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

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.

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.

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.

Evaluation of tax positions, their technical merits, and measurements using cumulative probability are highly subjective management estimates.

Actual results could differ materially from these estimates.

Stock-Based Compensation

We account for stock-based compensation using the fair value recognition method in accordance with U.S.

We recognize these compensation costs

on a straight-line basis over the requisite service period of the award, which is generally a vesting term of 4 years.

forfeitures, if any, when they occur.

In addition, we record stock-based compensation expense for awards granted to non-employees at fair value of the consideration received or the fair value of the equity instruments issued, as they vest, over the

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

We account for stock-based compensation using the fair value recognition method in

accordance with U.S.

We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally a vesting term of 4 years.

We recognize forfeitures, if any, when they occur.

In addition, we record stock-based compensation expense for awards granted to non-employees at fair value of the

consideration received or the fair value of the equity instruments issued, as they vest, over the performance period (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.

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.

Additionally, weighted average shares outstanding for both basic and diluted earnings per share include all vested restricted shares issued and

New Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

The amendments in this ASU require disclosures, on an annual and interim basis, of significant

segment expenses that are regularly provided to the chief operating officer decision maker (“CODM”), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss.

The ASU requires that a public

entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

The Company adopted ASU 2023-07 on

January 1, 2024.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes

2023-09, Income

Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires disaggregated information about an entity’s effective tax rate reconciliation as well as information on income tax paid.

The guidance in this ASU is effective for public companies

with annual periods beginning after December 15, 2024.

The guidance in this ASU is effective for public

companies with annual periods beginning after December 15, 2024.

We plan to adopt the guidance for the fiscal year ending December 31, 2025.

We are currently evaluating the effect adoption of this ASU will have on our consolidated financial statements.

We are currently evaluating the effect adoption of this ASU will have on our consolidated financial

Note 3 − Property and Equipment

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Note 4 − Commitments, Contingencies and Related Party Transactions

We have a service agreement for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for our employees.

approximately $ 1,097 and $ 1,123

in rental fees and reimbursements to the LLC in 2023 and 2022, respectively.

We pay for the Company’s business usage of the aircraft and 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.

We entered into a 12 -month non-exclusive 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 agreement renews on an annual basis unless terminated

by either party.

We have a non-exclusive service agreement for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for our employees.

Chief Executive Officer and Chief Administrative Officer are the managing partners and control the equity interests of the LLC.

The agreement provided for the use of the plane at an initial rate of $ 8.1 per flight hour, which increased to $ 9.8 per flight hour in

April 2024, includes no minimum usage requirement, contains other terms and conditions normal in such transactions and can be cancelled by either us or the LLC with 30 days’ notice.

Neither party has exercised their termination rights.

We incurred approximately $ 1,556

and $ 1,097 in rental fees and reimbursements to the LLC in 2024 and 2023, respectively.

See Note 13 for further discussion of our lease commitments.

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Restricted Stock

Outstanding, December 31, 2022

3 unchanged sentences

Outstanding, December 31, 2023

Intrinsic value is calculated as the difference between the per-share market price of our common stock on the last trading day of 2023, which was $ 7 and the exercise price of the awards.

Restricted stock granted

Restricted stock vested

Restricted stock cancelled

Outstanding, December 31, 2024

Intrinsic value is calculated as the difference between the per-share market price of our common stock on the last trading day of 2024, which was $ 7.85 and the grant price of the awards.

For awards exercised, the intrinsic value is the difference between market price and the exercise price on the

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Based on the Black-Scholes option pricing

model, the weighted average estimated fair value of employee stock options granted was $ 6.96 and $ 21.77 per share during 2023 and 2022, respectively.

The expected life was determined using the simplified method outlined in ASC 718, “ Compensation - Stock Compensation ”.

model, the weighted average estimated fair value of employee stock options granted was $ 6.96 per share during 2023.

life was determined using the simplified method outlined in ASC 718, “ Compensation - Stock Compensation ”.

Expected volatility of the stock options was based upon historical data and other relevant factors.

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Year Ended December 31,

Net (loss) income

Basic weighted average number of shares outstanding

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Diluted weighted average number of shares outstanding

Basic (loss) earnings per share

Diluted (loss) earnings per share

Basic (loss) per share

Diluted (loss) per share

Note 8 − Common Stock

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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 $ 0.0001 par value common stock.

Our amended and restated certificate of incorporation authorize us to issue up to 100,000,000 shares of $ 0.0001 par value common stock.

October 25, 2023, every 20 shares of our common stock outstanding was combined into one share of common stock.

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The weighted average fair value at the grant date was $ 83.20 per warrant.

The fair value at the grant date was estimated utilizing the Black-Scholes valuation model with the 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 (iv) and expected

option term of 5 years .

The fair value at the grant date was estimated utilizing the Black-Scholes valuation model with the 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 (iv) and expected option term of 5 years .

Outstanding and

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Deferred tax assets after valuation allowance

Total deferred tax liability – depreciation and

Total deferred tax liability

Depreciation and amortization

Net deferred tax assets

Pursuant to IRC Section

174, we capitalized direct and 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 .

174, we capitalized direct and indirect research and development costs for our tax return totaling $ 5,251 in 2024 $ 8,599 in 2023, of which $ 3,273 will be

amortized in our 2024 tax return and $ 1,888 will be amortized in our 2023 tax return.

Unamortized capitalized R&D expenditures as of

December 31, 2024 total $ 18,989 and after deducting amortization amounts the net captizaized R&D expenditures total $ 13,315 .

At December 31, 2024,

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The state net operating loss carryforward begins expiring in 2029 .

We provide full valuation allowances for our net deferred tax assets, 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.

We provide valuation allowances for our net deferred tax assets, 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.

We are required to

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At December 31, 2024, we have no uncertain tax positions.

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 in 2024.

Our tax years for 2005

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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, which is October 2024.

is to recognize interest and penalties, if any, accrued on any unrecognized tax benefits, as a component of income tax expense.

interest or penalties accrued in 2023.

These years are open because NOLs and tax credits generated in these years were utilized in 2020.

The statute of limitations for these years shall

expire three years after the date of filing 2020 income tax returns.

Note 11 − Fair Value Measurement

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A fair value hierarchy prioritizes the inputs used to measure fair value.

The hierarchy gives

the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

Level 2 measurements utilize either directly or

indirectly observable inputs in markets other than quoted prices in active markets.

financial instruments are stated at amounts that equal, or approximate, fair value.

When we estimate fair value, we utilize market data or assumptions that we believe market participants would use in pricing the financial instrument, including

assumptions about risk and inputs to the valuation technique.

We use valuation techniques, primarily the income and market approach, which maximizes the use of observable inputs and minimize the use of unobservable inputs for recurring fair value

measurements.

The hierarchy gives the highest priority to

unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

Level 2 measurements utilize either directly or indirectly observable inputs

in markets other than quoted prices in active markets.

Our financial instruments

are stated at amounts that equal, or approximate, fair value.

When we estimate fair value, we utilize market data or assumptions that we believe market participants would use in pricing the financial instrument, including assumptions about risk and

inputs to the valuation technique.

We use valuation techniques, primarily the income and market approach, which maximizes the use of observable inputs and minimize the use of unobservable inputs for recurring fair value measurements.

Mutual funds:

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The maturities of our investments generally range from within one to two years .

Actual maturities could differ from contractual maturities due

to call or prepayment provisions.

Note 12 − Litigation (all

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

We have several intellectual property

infringement lawsuits pending in the United States Court of Appeals for the Federal Circuit (“USCAFC”).

(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 United States District Court (“USDC”) in which we alleged that Apple infringed on certain of our patents, (U.S.

6,502,135, 7,418,504, 7,921,211 and 7,490,151).

We sought damages and

injunctive relief.

The accused products include the iPhone 5, iPod Touch 5th Generation, iPad 4th Generation, iPad mini, and the latest Macintosh computers.

The USDC entered a Final Judgment and issued its Memorandum Opinion and Order regarding

post-trial motions, affirming the jury’s verdict of $ 502,600 and granting VirnetX motions for supplemental damages, a sunset royalty, and

the royalty rate of $ 1.20 per infringing iPhone, iPad and Mac products, pre-judgment and post-judgment interest and costs.

Apple filed a

notice of appeal with the United States Court of Appeals for the Federal Circuit (“USCAFC”) in the Apple II case.

On October 9, 2018, USCAFC docketed the appeal as Case No.

19-1050 - VirnetX Inc.

On 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.

panel and en banc rehearing, which the USCAFC denied on February 10, 2020.

On February 22, 2021, the USCAFC docketed the appeal as Case No.

Apple’s opening brief 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 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

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.

evaluating all our options in this matter.

Mangrove Partners Master Fund, Ltd., Apple Inc.

(USCAFC Case 20-2271) and VirnetX Inc.

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

On September 15, 2020,

we filed with the USCAFC an appeal of the invalidity findings by the Patent Trial and Appeal Board (“PTAB”) in inter-partes review proceedings IPR2015-01046 and IPR2016-00062 involving our U.S.

6,502,135, and an appeal of the invalidity

findings by the PTAB in inter-partes review proceedings IPR2015-1047, IPR2016-00063, and IPR2016-00167 involving our U.S.

On September 25, 2020, the USCAFC issued an order consolidating the two appeals.

On December 15, 2020, we filed a motion to vacate the PTAB decisions below and to remand these appeals to the PTAB.

On March 16, 2021, the

USCAFC denied the motion without prejudice to us raising the challenges made in the motion in our opening brief.

Our opening brief was filed on 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.

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 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.

20, 2024, the Supreme Court denied our petition.

We are evaluating all our options in this matter.

Hirshfeld (USCAFC Case

17-2593, -2594)

On September 22, 2017,

we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes review proceeding IPR2016-00693 involving our U.S.

7,418,504, and an appeal of the invalidity findings by the PTAB in inter-partes review

proceeding IPR2016-00957 involving our U.S.

On September 16, 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 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

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 the April 4, 2022 order, the USCAFC further set a briefing schedule, in Appeal No.

VirnetX filed its opening brief on September

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

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.

Smith & Nephew, Inc.

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.

VirnetX sought rehearing, which

was denied, and the mandate to close the case was issued on January 12, 2024.

Cisco Systems, Inc.

Case 19-1671)

On March 18, 2019, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding 95/001,679 involving our U.S.

On October 5, 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 written decisions by the Director of the PTO.

The USCAFC retained jurisdiction

over the 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, 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 Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc.

Smith & Nephew, Inc.

The motion, filed on April 18, 2023, 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.

22-1523 and its prior decision in USCAFC No.

VirnetX sought rehearing, which was denied, and the mandate to close the case was issued on January 12, 2024.

(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.

Our opening brief was filed on August 22, 2022.

Apple and 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 No.

20-2271, -2272 appeal, and pending the Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc.

Smith & Nephew, Inc.

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.

(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.

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 23, 2023, the USCAFC denied that motion without prejudice to the 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

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.

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.

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 inter-partes re-examination proceeding 95/001,714 involving our U.S.

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.

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 likely valid, commencing a lawsuit can be expensive and

time-consuming, and there is no assurance that we could prevail on such potential claims if we made them.

In addition, bringing a lawsuit may lead to potential counterclaims which may distract our management and our other resources, including capital

resources, from efforts to successfully commercialize our 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.

Actual maturities could differ from contractual maturities due to call or prepayment

Note 12 − Litigation

From time to time, we are subject to various legal proceedings, the outcomes of which

are inherently uncertain.

We record any potential gains related to legal proceedings only after cash is collected.

We record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of

which requires significant judgment.

As additional information becomes available, we reassess our potential liability and may revise our estimates.

Such resolutions could have a material impact on future quarterly or annual results of operations.

One or more potential intellectual property infringement claims may also be available

to us against certain other companies who have the resources to defend against any such claims.

Although we believe these potential claims are likely valid, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we

could prevail on such potential claims if we made them.

Note 13 − Leases

2 unchanged sentences

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.

At December 31, 2024 and 2023, our ROU asset and lease liability totaled $ 42 and $ 93 , respectively.

Lease expense totaled $ 56

in 2024 and $ 55 in 2023.

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 .

3 unchanged sentences

lease liability totaled $ 2,963 and $ 3,430 , respectively .

Lease expense

totaled $ 140 in 2023.

At December 31,

2023, our ROU asset and lease liability totaled $ 3,479 and $ 3,546 , respectively.

Lease expense totaled $ 838 in 2024 and $ 140 in 2023 .

weighted average remaining life of the office and facility leases discussed above is approximately 8 years , and the related

4 unchanged sentences

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.

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

facility for corporate promotional and marketing purposes in California which was prepaid at inception and expires in 2025.

In March 2024, we renewed the lease recording an ROU asset and lease liability of $ 5,512 .

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

(In January 2025, the Company elected the 10

annual payments option which will result in an adjustment to the carrying amount of the ROU asset and lease liability of just over $ 600 .)

At December 31, 2024, the ROU asset totaled $ 5,739 and our lease liability totaled $ 5,917 ;

at December 31, 2023, the ROU asset totaled $ 349 and our

lease liability was nil .

Lease expense totaled $ 527 in 2024 and $ 300 in 2023.

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 − Subsequent Event

In January 2024, we issued 71,000

shares of restricted stock from our Amended and Restated Equity Incentive Plan.

We incurred approximately $ 1,556 and $ 1,097 in rental fees and reimbursements to the LLC in 2024 and 2023, respectively.

Note 14 - Segment Reporting

The Company views its operations and makes decisions regarding how to allocate resources and manages its business as one reportable segment and one

reporting unit.

The Company's Chief Executive Officer, who is the chief operating decision maker ("CODM"), regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net

income calculated on the same basis as net income reported in the Company's consolidated statements of income and other comprehensive income.

The CODM is also regularly provided with expense information at a level consistent with that disclosed

in the Company's consolidated statements of income and other comprehensive income.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data