1082324--3/31/2009--VirnetX_Holding

related topics

{system, service, information}

{stock, price, operating}

{provision, law, control}

{product, liability, claim}

{control, financial, internal}

{product, candidate, development}

{stock, price, share}

{property, intellectual, protect}

{acquisition, growth, future}

{product, market, service}

{regulation, government, change}

{condition, economic, financial}

{personnel, key, retain}

{operation, international, foreign}

{customer, product, revenue}

We may commence additional legal proceedings against third parties who we believe are infringing on our intellectual property rights, and 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. Risks Related to Our Business and Our Industry We are a development stage company with virtually no revenues. We anticipate incurring operating losses and negative cash flows for the foreseeable future resulting in uncertainty of future profitability and limitations on our operations. Our business plan for commercializing our patents and technology is new and unproven, and therefore we can provide no assurance that we will be successful in pursuing it. We may or may not be able to capitalize on potential market opportunities related to our licensing strategy or our patent portfolio. Our business greatly depends on the growth of IM, VoIP, mobile services, streaming video, file transfer and remote desktop and other next-generation Internet-based applications. If the market for IM, VoIP, mobile services, streaming video, file transfer and remote desktop does not grow as anticipated, our business would be adversely affected. While the use of IM and other next-generation Internet-based applications has grown rapidly in personal and professional use, there can be no assurance that users will pay to secure their use of such applications. We expect that we will experience long and unpredictable sales cycles, which may impact our quarterly operating results. We expect that we will be substantially dependent on a concentrated number of customers. If we are unable to establish, maintain or replace our relationships with customers and develop a diversified customer base, our revenues may fluctuate and our growth may be limited. If we do not successfully develop our planned products and services in a cost-effective manner to customer demand in the rapidly evolving market for Internet and IP-based communications services, our business may fail. If our products do not gain market acceptance, we may not be able to fund future operations. Our products are highly technical and may contain undetected errors, which could cause harm to our reputation and adversely affect our business. Malfunctions of third-party communications infrastructure, hardware and software exposes us to a variety of risks we cannot control. System failure or interruption or our failure to meet increasing demands on our systems could harm our business. If we experience security breaches, we could be exposed to liability and our reputation and business could suffer. We may incur significant expenses and damages because of liability claims. Our ability to sell our solutions will be dependent on the quality of our technical support, and our failure to deliver high-quality technical support services could have a material adverse effect on our sales and results of operations. There has been increased competition for security solutions 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. If we are not able to adequately protect our patented rights, our operations would be negatively impacted. If we fail to meet our obligations to SAIC, we may lose our rights to key technologies on which our business depends. When we attempt to implement our secure domain name registry services business, we may be subject to government and industry regulation and oversight which may impede our ability to achieve our business strategy. 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. 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. Growth of internal operations and business may strain our financial resources. 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. We will continue to incur significant costs as a result of being a public company. Failing to maintain the effectiveness of our internal control over financial reporting could cause the cost related to remediation to increase and could cause our stock price to decline. Our ability to sell our solutions will be dependent on the quality of our technical support, and our failure to deliver high-quality technical support services could have a material adverse effect on our sales and results of operations. Risks Related to Our Stock Our business is subject to risks associated with the ongoing financial crisis and weakening global economy. Trading in our common stock is limited and the price of our common stock may be subject to substantial volatility, particularly in light of the instability in the financial and capital markets. 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 were 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 difficult for a third party to successfully acquire us even if you would like to sell your shares to them. A staggered Board of Directors Advance notice requirements for director nominations and for new business to be brought up at stockholder meetings No stockholder actions by written consent Super majority requirement for stockholder amendments to the By-laws Elimination of the ability of stockholders to call a special meeting of the stockholders

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1082324--3/31/2009--VirnetX_Holding_Corp