# Intrusion Inc: Form 10-Q for the period ended Mar 31, 2024

- Company: [Intrusion Inc](/companies/intz.md) (CIK 736012)
- Form: 10-Q
- Filed: 2024-05-15
- Accepted by EDGAR: May 15, 2024, 14:49 ET
- Period: 2024-03-31
- Accession: 0001683168-24-003495
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/736012/000168316824003495/intrusion_i10q-033124.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/736012/000168316824003495/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $1.1m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $226.0k | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $905.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $1.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$2.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $228.0k | us-gaap:InterestExpense |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$1.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.94 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.94 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 1,865,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$1.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $64.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $122.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $763.0k | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $5.7m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $5.4m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2024-03-31 | −$1.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 20,735 characters.

#### Forward-Looking Statements

This Quarterly Report on Form 10-Q, including, without limitation, the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which statements involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our financial position; our ability to continue our business as a going concern; our business, sales, and marketing strategies and plans; our ability to successfully market, sell, and deliver our **INTRUSION** ***Shield*** commercial product and solutions to an expanding customer base; and our ability to secure additional financing; are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, such statements.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” in this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K as the same may be amended or updated from time to time.

In addition, statements such as "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements do not indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

#### Overview

Intrusion offers businesses of all sizes and industries products and services that leverage the Company’s exclusive threat intelligence database of over 8.5 billion IP addresses and domain names. After many years of gathering intelligence and providing our **INTRUSION** ***TraceCop*** and ***Savant*** solutions exclusively to government entities, we released our first commercial product in 2021, the **INTRUSION** ***Shield.*** **INTRUSION** ***Shield*** was designed to allow businesses to incorporate a Zero Trust, reputation-based security solution into their existing infrastructure to observe traffic flow and instantly block known malicious or unknown connections from both entering or exiting a network, making it an ideal solution for protecting from Zero-Day and ransomware attacks.

As discussed in more detail below on March 31, 2024, we had $0.1 million in cash. Subsequent to March 31, 2024, we raised $5.7 million in net proceeds through the issuance of common stock using our ATM program, a private placement offering and the exercise of warrants resulting from a warrant inducement offering. As of May 10, 2024, we had $2.4 million in cash. If we are not able to raise adequate funds under the Company’s ATM program or obtain additional equity financing, the Company may be unable to implement the Company’s business plan, fund its liquidity needs or even continue its operations.

#### Results of Operations

### Comparison of the Periods ended March 31, 2024, and March 31, 2023

*(in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 | Change Dollar | Percentage |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $1,131 | $1,309 | $(178) | -13.6% |
| Cost of Revenue | 226 | 313 | (87) | -27.8% |
| Gross Profit | 905 | 996 | 91 | -9.1% |
| Operating Expenses: |  |  |  |  |
| Sales and marketing | 1,177 | 1,738 | (561) | -32.3% |
| Research and development | 1,019 | 1,796 | (777) | -43.3% |
| General and administrative | 1,181 | 1,506 | (325) | -21.6% |
| Operating Loss | (2,472) | (4,044) | 1,572 | 38.9% |
| Interest Expense | (228) | (285) | 57 | 20.0% |
| Interest Accretion and Debt Issuance Costs, Net | 990 | (446) | 1,436 | 322.0% |
| Other (Expense) Income, Net | (6) | 41 | (47) | -114.6% |
| Net Loss | $(1,716) | $(4,734) | $3,018 | 63.8% |

**Revenues**. Revenue for the three-month period ended March 31, 2024, was $1.1 million compared to $1.3 million for the same period in 2023. Revenue from consulting totaled $0.7 million for the three-month period ended March 31, 2024, compared to $1.0 million for the three-month period ended March 31, 2023. The continuing resolution and delay in the approval of a federal budget for the 2024 year which did not occur until March 22, 2024, impacted renewals and task orders received for long-standing contracts which resulted in a decline in consulting revenues. We will continue to pursue new consulting opportunities and expect to see an increase in consulting revenues beginning in the second quarter of 2024. **INTRUSION** ***Shield*** revenues were $0.4 million for the three-month period ended March 31, 2024, compared to $0.3 million for the three-month period ended March 31, 2023. We have begun to see some traction in **INTRUSION** ***Shield*** sales with the recent addition of seven new logos and the award of a large contract for the Philippine national elections. These new customers will begin to contribute to revenues more meaningfully in the second half of 2024. We have also been informed by a large early **INTRUSION** ***Shield*** customer that they will not be renewing their **INTRUSION** ***Shield*** contract. The customer was one of the original users of an early version of the **INTRUSION** ***Shield*** product and had implemented a highly customized and non-standard configuration of the product. We believe that the **INTRUSION** ***Shield*** transactions booked in the fourth quarter of 2023 and during the first quarter of 2024 and the several transactions that we anticipate will close in the second quarter of this year will offset this loss and help drive **INTRUSION** ***Shield*** revenue growth in 2024.

**Concentration of Revenues**. Revenues from sales to various U.S. government entities totaled $0.7 million, or 58.6% of revenues, for the quarter ended March 31, 2024, compared to $0.6 million, or 48.4% of revenues, for the same period in 2023. Although we expect our concentration of revenues to vary among customers in future periods depending upon the timing of certain sales, we anticipate that sales to government customers will continue to account for a significant portion of our revenues in future periods. Sales to the government present risks in addition to those involved in sales to commercial customers which could adversely affect our revenues, including, without limitation, potential disruption to appropriation and spending patterns and the government’s reservation of the right to cancel contracts and purchase orders for its convenience. Although we do not anticipate that any of our revenues from government customers will be renegotiated, cancelled or renegotiated government orders could have a material adverse effect on our financial results. The Company has one commercial customer in the first quarter of 2024 that accounted for 30.0% of total revenue. This customer has chosen not to renew their **INTRUSION** ***Shield*** contract. There were two customers accounting for 46.6% of total revenue for the same three-month period in 2023. The Company’s similar product and service offerings are not viewed as individual segments, as its management analyzes the business as a whole and expenses are not allocated to each product offering.

**Gross Profit**. Gross profit was $0.9 million or 80.0% of revenues for the quarter ended March 31, 2024, compared to $1.0 million or 76.1% of revenues for the quarter ended March 31, 2023. The increased gross profit margin is a result of a change in product mix with **INTRUSION** ***Shield*** revenues representing 38.5% of our revenue mix compared to 27.3% in the same period 2023.

**Operating Expenses**. Operating expenses for the quarter ended March 31, 2024, totaled $3.4 million, a 33.0% decrease when compared to $5.0 million for the same period in 2023. The decrease was most notably due to a reduction in staffing and contract labor expenses which totaled $1.1 million in addition to reduced spend on sales and marketing of $0.2 million and reduced litigation defense costs of $0.1 million.

In late March 2023 we implemented cost reduction measures that resulted in the reduction of sixteen permanent positions, the reduced use of contractors and renegotiating or replacing spend on certain sales support and marketing services with less costly programs. Headcount on March 31, 2024, was forty-nine compared to sixty-six for the 2023 period when adjusted for the reductions that took place in late March 2023. Many of the reductions were in Research and Development, which will impact the number and frequency of product releases. As we grow our customer base and increase our revenues, we may choose to accelerate our product development in future periods, which would result in increased spending.

**Sales and Marketing**. Sales and marketing expenses decreased to $1.1 million for the quarter ended March 31, 2024, compared to $1.7 million for the quarter ended March 31, 2023. The 2024 period includes approximately $0.2 million in one-time negotiated contract savings. When adjusted for these one-time savings, the first quarter 2024 expense is more representative of the anticipated spend going forward although, certain discretionary spend, inclusive of participation in trade shows, utilization of third-party contractors for content and product messaging and travel, are likely to vary over time based on savings initiatives that may be necessary.

**Research and Development**. Research and development expenses totaled $1.0 million for the quarter ended March 31, 2024, an $0.8 million decrease compared to the same period in 2023. The savings are a result of cost reduction measures implemented in late March 2023 which included the reduction of 13 FTEs and the reduced use of contractors. Research and development costs may vary over time as we determine the frequency of new releases, improved functionality and enhancements needed to be competitive with our product offering.

**General and Administrative**. General and administrative expenses totaled $1.2 million for the quarter ended March 31, 2024, compared to $1.5 million for the quarter ended March 31, 2023. The reduction is primarily due to one-time negotiated cost savings of $0.1 million and legal defense costs incurred in the 2023 period of $0.1 million for matters that have since been settled.

**Interest Expense**. Interest expense for the period March 31, 2024 was $0.2 million consisting principally of the stated interest related to the Streeterville notes, interest associated with the note’s payable issued to Scott, our CEO and finance leases. Interest expense for the period March 31, 2023 was $0.3 million. Interest expense will vary in the future based on our cash flow and borrowing needs.

**Interest Accretion and Amortization of Debt Issuance Costs.** During the March 2024 quarter, the Company entered into exchange agreements to convert $9.5 million in Streeterville debt to $9.3 million of Series A preferred stock and $0.2 million to common stock and, as a result, the Company reversed the interest accretion associated with the ability to stock-settle principal redemptions and wrote-off the remaining deferred debt issue costs resulting in a net credit to interest expense of $1.0 million. For the March 2023 quarter, the interest accretion and amortization of debt issuance costs was $0.4 million.

**Other (Expense) Income, Net.** Other income and expense were nominal amounts for both the periods ended March 31, 2024, and 2023.

#### Liquidity and Capital Resources

As of March 31, 2024, we had cash and cash equivalents of $0.1 million and a working capital deficit of $(4.7) million. Subsequent to March 31, 2024, we raised $5.7 million in net proceeds through the issuance of common stock using our ATM program, a private placement and a warrant inducement offering. As of May 10, 2024, we had $2.4 million in cash. Management plans to fund the operations of the Company through the continued use of the ATM and or additional equity financings. If the Company is not able to raise adequate funds, the Company may be unable to implement the Company’s business plan, fund its liquidity needs or even continue its operations.

#### Sources of Liquidity

Our principal sources of cash for funding operations in the March 2024 quarter was through the issuance of notes payable to Scott of $1.3 million and the issuance of common stock using the Company’s ATM program which provided $0.5 million. Our principal source of cash for funding operations in 2023 was through changes in working capital which consisted principally of $1.4 million in Employee Retention Tax Credit refunds recorded in 2022.

#### At-The-Market Program

B. Riley Securities, Inc. acts as sales agent under the Company’s at-the-market program, which allowed us to potentially sell up to $50.0 million of its common stock using the shelf registration statement on Form S-3 filed on August 5, 2021. On April 11, 2023, Instruction I.B.6 of Form S-3 and in agreement with the terms of the sales agreement, the company revised the aggregate offering price of shares of common stock that we can sell pursuant to the ATM program to $15 million. For the quarter ended March 31, 2024, we received $0.5 million, net of fees for sales of common stock were made pursuant to the program. As of March 31, 2024, the remaining aggregate offering price of shares of common stock that we can sell pursuant to the ATM program based on gross proceeds was $9.6 million.

#### Notes Payable

In March 2024, we entered into an agreement with Streeterville to exchange $0.2 million in principal for 52.2 thousand shares of common stock. Also in March 2024, we exchanged $9.3 million in Streeterville debt for 9,275 shares of our newly created Series A Preferred. The issuance of both common and preferred shares was made pursuant to the exemption from the registration requirements afforded by the Securities Act, as amended. The designations for the Series A Preferred preclude the Company from repaying any indebtedness for so long as any Series A Preferred shares are outstanding. The Series A Preferred have a stated value of $1,100 per share and are subject to preferences and designations as more fully described in our Amended and Restated Articles of Incorporation filed on March 15, 2024. Following the exchanges noted herein, the remaining balance on Note One was $0.5 million. The maturity date for Note One is September 2024 which conflicts with the Series A Preferred designation prohibiting repayment of any indebtedness. We are in discussions with Streeterville to modify the terms of the Note One agreement.

During the March 2024 quarter we entered into two separate note purchase agreements with our Chief Executive Officer, Anthony Scott. On January 2, 2024, Scott purchased a note payable in the principal amount of $1.1 million in exchange for $1.0 million in cash. The note called for weekly payments of $40,000 until maturity on June 15, 2024. Interest accrued on the balance of the note at 7% per annum compounding daily. During the quarter we made $200 thousand in principal payments, on March 31, 2024, the balance outstanding under this note was $0.9 million.

On March 20, 2024, Scott purchased a second note payable in the principal amount of $343 thousand in exchange for $340 thousand in cash. The note was non-interest bearing and matured on April 19, 2024. On April 2nd, we reduced the principal balance due under the note by $101 thousand which reflected the amount due from Scott for the exercise of common stock purchase warrants.

On April 19, 2024, Scott entered into a private placement subscription agreement to convert the aggregate outstanding balance of $1.1 million for both notes in exchange for common stock and common stock purchase warrants. See Note 11 Subsequent Events for more information pertaining to the private placement offering.

#### Condensed Consolidated Statements of Cash Flows

Our cash flows for the three months ended March 31, 2024, and 2023 were:

|  | Three Months Ended March 31, 2024 | March 31, 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(1,114) | $(2,312) |
| Net cash used in investing activities | (427) | (301) |
| Net cash provided by financing activities | 1,524 | 9 |
| Change in cash and cash equivalents | $(17) | $(2,604) |

#### Operating Activities

Net cash used in operations for the quarter ended March 31, 2024, was ($1.1) million due to a net loss of ($1.7) million offset partially by changes in working capital which consisted principally of reductions in prepaid expenses.

Net cash used in operations for the quarter ended March 31, 2023, was ($2.3) million due primarily to a net loss of ($4.7) million partially offset by 1) adjustments for non-cash items of $1.2 million which are mostly comprised of depreciation, stock-based compensation and changes in working capital of interest related to Streeterville notes, and 2) changes in working capital of $1.2 million consisting principally of the cash receipt of amounts due relating to Employee Retention Credit.

#### Investing Activities

For the three months ended March 31, 2024, net cash used in investing activities was $0.4 million, which was comprised of capitalization of internally developed software and hardware purchases. Net cash used by investing activities, for the three months ended March 31, 2023, was $0.3 million principally for capitalization of internally developed software.

#### Financing Activities

For three months ended March 31, 2024, net cash provided by financing activities was $1.5 million compared to $0.0 million in the March 2023 period which was primarily the result of net proceeds from issuance of the Scott notes $1.1 million and at-the-market program public offerings of $0.5 million.

### Critical Accounting Policies and Use of Estimates

Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

We believe the critical accounting policies and estimates discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 1, 2024, reflect our more significant judgments and estimates used in the preparation of the condensed consolidated financial statements. There have been no significant changes to our critical accounting policies and estimates as filed in such report.

## Controls and procedures

As filed, 1,528 characters.

We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we must apply our reasonable judgment in evaluating the cost-benefit relationship of potential disclosure controls and procedures.

As of March 31, 2024, our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures and concluded that the disclosure controls and procedures were effective as of March 31, 2024.

There have not been any changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 703 characters.

In addition to the information set forth elsewhere in this Quarterly Report on Form 10-Q and the risk factor set forth below, you should carefully consider the risk factors we previously disclosed in our Annual Report on Form 10-K, filed with the SEC on April 1, 2024, as of and for the year ended December 31, 2023 (the “Annual Report”). These risks could materially and adversely affect our business, financial condition, results of operations, and cash flows. However, these risks are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial condition, results of operations, and cash flows.

Filed May 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001683168-24-003495. Last ingested by Listed: Nov 2, 2026, 07:54 ET. No prices; not investment advice.