# Intrusion Inc: Form 10-Q for the period ended Jun 30, 2024

- Company: [Intrusion Inc](/companies/intz.md) (CIK 736012)
- Form: 10-Q
- Filed: 2024-08-14
- Accepted by EDGAR: Aug 13, 2024, 19:15 ET
- Period: 2024-06-30
- Accession: 0001683168-24-005587
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/736012/000168316824005587/intrusion_i10q-63024.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/736012/000168316824005587/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $1.5m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $2.6m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $350.0k | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2024-01-01 to 2024-06-30 | $576.0k | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $1.1m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-01-01 to 2024-06-30 | $2.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-04-01 to 2024-06-30 | $1.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2024-01-01 to 2024-06-30 | $2.1m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$2.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | −$4.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-04-01 to 2024-06-30 | $34.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2024-01-01 to 2024-06-30 | $262.0k | us-gaap:InterestExpense |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$2.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$3.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.53 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.31 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.53 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.31 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 4,327 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 3,099 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | −$4.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $33.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-06-30 | $1.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $2.6m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $7.5m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $3.1m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2024-06-30 | $2.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 24,301 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 June 30, 2024, we had $1.5 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 Three and Six Months Ended June 30, 2024 and June 30, 2023

*(in thousands)*

|  | Three Months Ended June 30, 2024 | 2023 | Change |  | Six Months Ended June 30, 2024 | 2023 | Change |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $1,460 | $1,468 | $(8) | -1% | $2,591 | $2,777 | $(186) | -7% |
| Cost of revenue | 350 | 330 | 20 | 6% | 576 | 643 | (67) | -10% |
| Gross profit | 1,110 | 1,138 | (28) | -2% | 2,015 | 2,134 | (119 | -6% |
| Gross profit percentage | 76.0% | 77.5% |  |  | 77.8% | 76.8% |  |  |
| Operating expenses: |  |  |  |  |  |  |  |  |
| Sales and marketing | 1,158 | 1,423 | (265) | -68% | 2,335 | 3,161 | (826) | -26% |
| Research and development | 1,035 | 1,451 | (416) | -29% | 2,054 | 3,247 | (1,193) | -37% |
| General and administrative | 950 | 1,185 | (235) | -20% | 2,131 | 2,691 | (560) | -21% |
| Total operating expenses | 3,143 | 4,059 | (916) | -23% | 6,520 | 9,099 | (2,579) | -28% |
| Operating Loss | (2,033) | (2,921) | 888 | 30% | (4,505) | (6,965) | 2,460 | 35% |
| Interest expense | (34) | (233) | 199 | -85% | (262) | (518) | 256 | -49% |
| Interest accretion and amortization of debt issuance costs, net | – | 25 | (25) | -100% | 990 | (421) | 1,399 | -334% |
| Other (expense) income, net | – | – | – | 0% | (6) | 41 | (47) | 115% |
| Net loss | $(2,067) | $(3,129) | $1,062 | 34% | $(3,783) | $(7,863) | $4,080 | 52% |

**Revenues**. Revenue for the three and six month periods ended June 30, 2024, was $1.5 and $2.6 million compared to $1.5 and $2.8 million for the same periods in 2023. Revenue from consulting totaled $1.2 and $1.9 million for the three and six month periods ended June 30, 2024, compared to $1.1 and $2.1 million for the three and six month periods ended June 30, 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 the timing of renewals and task orders received for long-standing contracts which resulted in a decline in consulting revenues for the six month period ended June 30, 2024. **INTRUSION** ***Shield*** revenues were $0.3 and $0.7 million for the three and six month periods ended June 30, 2024, compared to $0.4 million and $0.7 million for the three and six month periods ended June 30, 2023. The decline in Shield revenues for the three month period resulted from the loss of a large early **INTRUSION** ***Shield*** customer that had implemented a highly customized and non-standard configuration of the product. The loss of revenues from this customer was partially offset by revenues from new customers signed in recent quarters. We believe the revenues from these new customers and several transactions that we anticipate will close in the second half of this year will fully offset this loss and drive **INTRUSION** ***Shield*** revenue growth in 2024.

**Concentration of Revenues**. For the three and six month periods ended and June 30, 2024, revenues from sales to various U.S. government entities totaled $1.3 and $2.0 million, or 89.0% and 75.7% of revenues compared to $0.7 and $1.3 million, or 46.7% and 47.5% of revenues, for the same periods 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, any cancelled or renegotiated government orders could have a material adverse effect on our financial results. We had one commercial customer in the six months ended June 30, 2024, and two commercial customers in the 2023 period, that each contributed individually to more than 10% of our total revenue. Our 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 $1.1 and $2.0 million or 76.0% and 77.8% of revenues for the three and six month periods ended June 30, 2024, compared to $1.1 and $2.1 million or 77.5% and 76.8% of revenues for the three and six months ended June 30, 2023. The gross profit margin will vary depending on product mix. **INTRUSION** ***Shield*** revenues represented 20.5% and 28.3% of revenues for the three and six month periods ended June 30, 2024, compared to 28.6% and 26.3% in the same periods 2023.

**Operating Expenses**. Operating expenses for the three and six months ended June 30, 2024, totaled $3.1 and $6.5 million, representing a decrease of 23% and 28% when compared to $4.1 and $9.1 million for the same periods in 2023. The decrease was most notably due to a reduction in staffing and contract labor expenses in addition to reduced spend on sales and marketing and reduced litigation defense costs.

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 at June 30, 2024, and 2023 was fifty and forty-nine, respectively. 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 $1.2 and $2.3 million for the three and six months ended June 30, 2024, compared to $1.4 and $3.2 million for the three and six month periods ended June 30, 2023. The 2024 six month period includes approximately $0.2 million in one-time negotiated contract savings. 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 and $2.1 million for the three and six months ended June 30, 2024, a $0.4 and $1.2 million decrease compared to the same periods 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 $1.0 and $2.1 million for the three and six months ended June 30, 2024, compared to $1.2 and $2.7 million for the three and six months ended June 30, 2023. The $0.6 million reduction in the six month period relates to the elimination of two positions, reduced share-based compensation and one-time negotiated cost savings of $0.1 million.

**Interest Expense**. Interest expense for the three and six months ended June 30, 2024, was $34 thousand and $262 thousand 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 three and six months ended June 30, 2023, was $233 thousand and $530 thousand. The decreased interest expense resulted principally from the aggregate exchange of the Streeterville debt to both common and preferred stock. At June 30, 2024, only $511 thousand of Streeterville debt remains outstanding. 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 six months ended June 30, 2023, the interest accretion and amortization of debt issuance costs totaled $0.4 million.

**Other (Expense) Income, Net.** Other income and expense were nominal amounts for the three and six months ended June 30, 2024, and 2023.

#### Liquidity and Capital Resources

As of June 30, 2024, we had cash and cash equivalents of $1.5 million and a working capital deficit of $(0.5) million. 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 for the six months ended June 30, 2024, has been proceeds received from the issuance of common stock in a series of transactions which include $3.3 million from ATM sales, $2.6 million from a private placement, and $0.6 million from the exercise of warrants. Our principal source of cash for funding operations in 2023 was $1.3 million from sales of common stock utilizing the ATM program and changes in working capital which includes the receipt of $1.2 million in Employee Retention Tax Credit refunds recorded in 2022.

#### Stand-by Equity Purchase Agreement

On July 3, 2024, we entered into a $10 million Standby Equity Purchase Agreement (“SEPA”) with Streeterville Capital, LLC (“Streeterville”) pursuant to which the Company has the right to direct Streeterville during the 24 month term of the agreement to purchase common stock subject to certain limitations and conditions set forth in the SEPA.

The shares of common stock purchased pursuant to SEPA will be at a purchase price equal to 95% of the lowest daily VWAP of the shares of Common Stock during the three consecutive trading days commencing on the date of the delivery of an advance notice. “VWAP” is defined as the daily volume weighted average price of the shares of Common Stock for such trading day on the Nasdaq Stock Market during regular trading hours as reported by Bloomberg L.P.

Under applicable Nasdaq rules and the terms of the SEPA, in no event may the Company issue to Streeterville under the SEPA shares of Common Stock equal to greater than 19.99% of the shares of Common Stock outstanding immediately prior to the execution of the SEPA (the “Exchange Cap”), unless (i) the Company obtains stockholder approval to issue shares of Common Stock in excess of the Exchange Cap in accordance with applicable Nasdaq rules, or (ii) the average price per share paid by Streeterville for all of the shares of Common Stock that the Company directs Streeterville to purchase from the Company pursuant to the SEPA, if any, equals or exceeds the lower of (a) the official closing price of the Common Stock on Nasdaq immediately preceding the execution of the SEPA or (b) the average official closing price of the Common Stock on Nasdaq for the five consecutive trading days immediately preceding the execution of the SEPA, adjusted as required by Nasdaq. Moreover, the Company may not issue or sell any shares of Common Stock to Streeterville under the SEPA which, when aggregated with all other shares of Common Stock then beneficially owned by Streeterville and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 thereunder), would result in Streeterville beneficially owning more than 19.99% of the outstanding shares of Common Stock. The Company is seeking stockholder approval under Nasdaq Listing Rule 5635(d) for the sale, issuance or potential issuance by the Company of Common Stock (or securities convertible into or exercisable for our Common Stock) in excess of 20% of the shares of our Common Stock outstanding immediately prior to the SEPA at an exercise price less than the Minimum Price in connection with the SEPA.

Actual sales of shares of Common Stock to Streeterville as an advance under the SEPA will depend on a variety of factors to be determined by the Company from time to time, which may include, among other things, market conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate sources of funding for our business and operations. The Company will use 10% of the proceeds associated with each Advance to redeem the outstanding Series A Preferred Stock held by Streeterville.

#### 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 six months ended June 30, 2024, we received $3.3 million, net of fees for sales of common stock were made pursuant to the program. As of June 30, 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 $6.7 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 shares 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 at June 30, 2024. 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 March quarter we made $200 thousand in principal payments. 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 remaining outstanding balance of $1.1 million for both notes in exchange for common stock and common stock purchase warrants.

#### Condensed Consolidated Statements of Cash Flows

Our cash flows for the six months ended June 30, 2024, and 2023 were:

|  | Six Months Ended June 30, 2024 | June 30, 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(4,036) | $(3,275) |
| Net cash used in investing activities | (697) | (717) |
| Net cash provided by financing activities | 6,100 | 1,277 |
| Change in cash and cash equivalents | $1,367 | $(2,715) |

19

#### Operating Activities

Net cash used in operations for the six months ended June 30, 2024, was ($4.0) million primarily resulting from 1) a net loss of ($3.8) million offset partially offset by adjustments for non-cash items of $0.4 million which are mostly comprised of depreciation, stock-based compensation and non-cash interest related to the Streeterville notes, and 2) changes in working capital of ($0.7) million which consisted principally of increased accounts receivable and decreased vendor payables.

Net cash used in operations for the six months ended June 30, 2023, was ($3.3) million due primarily to a net loss of ($7.9) million partially offset by 1) adjustments for non-cash items of $2.2 million which are mostly comprised of depreciation, stock-based compensation and interest related to Streeterville notes, and 2) changes in working capital of $2.4 million consisting principally of the cash receipt of amounts due relating to Employee Retention Credit and amounts received as prepayment for a one year customer contract.

#### Investing Activities

For the six months ended June 30, 2024, net cash used in investing activities was $0.7 million, which was comprised of capitalization of internally developed software and hardware purchases. Net cash used by investing activities, for the six months ended June 30, 2023, was $0.7 million principally for capitalization of internally developed software.

#### Financing Activities

For six months ended June 30, 2024, net cash provided by financing activities totaled $6.1 million which resulted from $6.5 million in net proceeds from the sale of common stock through the use our ATM program, private placement offering, and the exercise of warrants partially offset by finance lease payments. Net proceeds from financing activities of $1.3 million for six months ended June 30, 2023, resulted principally from sales of common stock using our ATM program.

### 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, 1,525 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 June 30, 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 June 30, 2024.

There have not been any changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 8,066 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.

***Our stock price is likely to be highly volatile because of several factors, including a limited public float.***

The market price of our common stock has been volatile in the past and the market price of our common stock is likely to be highly volatile in the future. You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility.

Other factors that could cause such volatility may include, among other things:

- actual or anticipated fluctuations in our operating results;
- the absence of securities analysts covering us and distributing research and recommendations about us;
- we may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held;
- overall stock market fluctuations;
- announcements concerning our business or those of our competitors;
- actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms;
- conditions or trends in the industry;
- litigation;
- changes in market valuations of other similar companies;
- future sales of common stock;
- departure of key personnel or failure to hire key personnel; and
- general market conditions.

Any of these factors could have a significant and adverse impact on the market price of our common stock. In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.

***Substantial future sales of shares of common stock could cause the market price of our shares of common stock to decline.***

We have agreed, at our expense, to prepare and file with the SEC certain registration statements providing for the resale of shares of common stock, including this registration statement. The resale, or expected or potential resale, of a substantial number of our shares of common stock in the public market could adversely affect the market price for our shares of common stock and make it more difficult for you to sell your shares of common stock at times and prices that you feel are appropriate. In particular, as a result of the SEPA, Streeterville is an “underwriter” as such term is defined in Section 2(a)(11) of Securities Act, and the SEPA contemplates that Streeterville expects to resell any shares of common stock we may issue and sell pursuant thereto. Furthermore, we expect that, because there will be a large number of shares registered, Streeterville will continue to offer such covered securities for a significant period of time, the precise duration of which cannot be predicted. Accordingly, the adverse market and price pressures resulting from an offering pursuant to a registration statement may continue for an extended period of time.

***The issuances of additional shares of common stock under the SEPA may result in dilution of holders of common stock and have a negative impact on the market price of the common stock.***

Pursuant to the SEPA, we may issue and sell up to $10 million worth of shares of common stock (“Advance Shares”) to Streeterville. The price at which we may issue and sell shares is at 95% of the lowest daily VWAP of the common stock during the three trading days following a notice to sell to Streeterville. Assuming that (a) we issue and sell the full $10 million worth of shares of common stock under the SEPA to Streeterville, (b) no beneficial ownership limitations, and (c) the issue price for such sales is $1.08 per share, such additional issuances would represent in the aggregate approximately 1,195,666 additional shares of common stock or approximately 16.5% of the total number of shares of common stock outstanding as of the date hereof, after giving effect to such issuance. In addition, the Company issued 92,592 shares of common stock (the “Streeterville Commitment Shares”) to Streeterville upon the effective date of the SEPA as consideration for its irrevocable commitment to purchase shares of common stock at our direction, from time to time after the date of this prospectus. Furthermore, the Company issued 216,921 shares of common stock (the “Pre-Delivery Shares”) to Streeterville for the purchase price of $0.01 per share upon the effective date of the SEPA as further consideration for its irrevocable commitment to purchase shares of common stock at our direction, from time to time after the date of this prospectus. If the beneficial ownership limitation is not waived, we may issue approximately 670,365, shares of common stock, or approximately 9.99% of the total number of shares of common stock outstanding as of the date hereof, after giving effect to such issuance. The timing, frequency, and the price at which we issue shares of common stock are subject to market prices and management’s decision to sell shares of common stock, if at all.

Upon effectiveness of this registration statement, Streeterville may resell all, some or none of their shares of common stock beneficially owned by them from time to time in their discretion and at different prices subject to the terms of the SEPA. As a result, investors will likely pay different prices for those shares, and so may experience different levels of dilution (and in some cases substantial dilution) and different outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase as a result of future issuances by the Company, whether to Streeterville or others at prices lower than the prices such investors paid for their shares. In addition, if we issue a substantial number of shares to such parties, or if investors expect that we will do so, the actual sales of shares or the mere existence of the SEPA may adversely affect the price of our common stock or make it more difficult for us to sell equity or equity-related securities in the future at a desirable time and price, or at all.

The issuance, if any, of common stock would not affect the rights or privileges of the Company’s existing stockholders, except that the economic and voting interests of existing stockholders would be diluted. Although the number of shares of common stock that existing stockholders own would not decrease as a result of these additional issuances, the shares of common stock owned by existing stockholders would represent a smaller percentage of the total outstanding shares of common stock after any such issuance, potentially significantly smaller.

### Future sales of our common stock may depress our share price.

As of August 14, 2024, we had 6,641,525 shares of our common stock outstanding. Sales of a number of shares of common stock in the public market or issuances of additional shares pursuant to the exercise of our outstanding warrants, or the expectation of such sales or exercises, could cause the market price of our common stock to decline. We may also sell additional shares of common stock or securities convertible into or exercisable or exchangeable for common stock in subsequent public or private offerings or other transactions, which may adversely affect the market price of our common stock.

Filed Aug 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001683168-24-005587. Last ingested by Listed: Nov 2, 2026, 07:54 ET. No prices; not investment advice.