1082324--3/31/2008--VirnetX_Holding

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{product, liability, claim}

{property, intellectual, protect}

{control, financial, internal}

{stock, price, share}

{acquisition, growth, future}

{system, service, information}

{financial, litigation, operation}

{product, candidate, development}

{stock, price, operating}

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While we believe Microsoft infringes our patents, we can provide no assurance that we will be successful in our lawsuit. We are devoting a substantial amount of our financial and management resources to the Microsoft litigation, and if we are unsuccessful in this lawsuit, our financial condition may be so adversely affected, we may not survive. The burdens of being a public company may adversely affect our ability to pursue the Microsoft litigation. We may commence additional legal proceedings against third parties who we believe are infringing on our intellectual property rights, and such legal proceedings may be costly and time-consuming. Risks related to our business and our industry There is uncertainty as to our ability to continue as a going concern. We anticipate incurring operating losses and negative cash flows in the foreseeable future resulting in uncertainty of future profitability and limitations on our operations. We will need additional capital to pursue our litigation strategy, conduct our operations and develop our products, and our ability to obtain the necessary funding is uncertain. We are a development stage company with virtually no revenues. If we fail to meet our obligations to SAIC, we may lose our rights to key technologies on which our business depends. Our business model is new and unproven, and therefore we can provide no assurance that we will be successful in pursuing it. We will rely on third parties for software and hardware development, manufacturing content and technology services. Malfunctions of third party hosting services could adversely affect their business, which may impede our ability to attract and retain strategic partners and customers. There has been increased competition in the real-time communications industry, as more companies seek to provide products and services similar to our proposed products and services, and because larger and better-financed competitors may affect our ability to operate our business and achieve profitability, our business may fail. Our business model depends on our ability to successfully develop and operate our networks and deploy new offerings and technology. Growth of internal operations and business may strain our financial resources. If we do not successfully develop our planned products and services in a cost-effective manner to meet customer demand in the rapidly evolving market for internet and IP-based communications services, our business may fail. Our business greatly depends on the development and growth of IM and VoIP. While the use of IM has grown rapidly in personal and professional use, there can be no assurance that users will pay to secure their IM services. If the market for VoIP service does not develop as anticipated, our business would be adversely affected. If our products do not gain market acceptance, we may not be able to fund future operations. If we are not able to adequately protect our proprietary rights, our operations would be negatively impacted. If we are forced to litigate to defend our intellectual property rights, or to defend claims by third parties against us relating to intellectual property rights, legal fees and court injunctions could adversely affect our financial condition or end our business. The laws governing online secure communications are largely unsettled, and if we become subject to various government regulations, costs associated with those regulations may materially adversely affect our business. Telephone carriers have petitioned governmental agencies to enforce regulatory tariffs, which, if granted, would increase the cost of online communication, and such increase in cost may impede the growth of online communication and adversely affect our business. If we expand into international markets, our inexperience outside the United States would increase the risk that our international expansion efforts will not be successful, which would in turn limit our prospects for growth. The departure of Kendall Larsen, our Chief Executive Officer and President, and/or other key personnel could compromise our ability to execute our strategic plan and may result in additional severance costs to us. We will need to recruit and retain additional qualified personnel to successfully grow our business. We will incur significant costs as a result of being a public company. In connection with audits of our financial statements, our independent auditors identified material weaknesses in our internal controls over financial reporting. Our inability to become compliant with the internal controls requirements of Section 404 of the Sarbanes Oxley Act could negatively affect our stock price and limit our ability to raise additional financing. Risks related to our stock Trading in our common stock is limited and the price of our common stock may be subject to substantial volatility. Because ownership of our common shares is concentrated, you and other investors will have minimal influence on stockholder decisions. Large portions of our outstanding common shares will be released from contractual restrictions on July 5, 2008 and December 31, 2008, and sales of those shares may drive down the price of our stock. Our protective provisions could make it more difficult for a third party to successfully acquire us even if you would like to sell your shares to them. Penny stock regulations may impose certain restrictions on the marketability of our securities.

Full 10-K form ▸

1082324--3/31/2008--VirnetX_Holding_Corp