Intrusion Inc: Form 10-Q for the period ended Mar 31, 2026

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

We offer businesses of all sizes and industries products and services that leverage our 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.

Results of Operations

Comparison of the Periods Ended March 31, 2026, and March 31, 2025

(in thousands)

Revenues. Revenue for the three month period ended March 31, 2026, was $0.9 million compared to $1.8 million for the same period in 2025. Revenue from consulting services totaled $0.8 million for the three month period ended March 31, 2026, compared to $1.4 million for the three month period ended March 31, 2025. INTRUSION Shield revenues were $0.1 million for the three month period ended March 31, 2026 as compared to $0.4 million for the three month period ended March 31, 2025. The continuing delay in the contract extension of the long-standing U.S. Department of War contract due to timing variability and federal funding and procurement processes resulted in a decline in both consulting revenues and INTRUSION Shield revenues.

Concentration of Revenues. Revenues from sales to various U.S. government entities totaled $0.8 million, or 87.8% of revenues, for the quarter ended March 31, 2026, compared to $1.6 million, or 91.6% of revenues, for the same period in 2025. 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 contracts with government customers will be renegotiated or cancelled, the loss of government orders could have a material adverse effect on our financial results. We had two customers accounting for 87.3% of total revenue for the three months ended March 31, 2026. We had three customers in the first quarter of 2025 that accounted for 91.4% of total revenue. Our similar product and service offerings are not viewed as individual segments, as our management analyzes the business as a whole and expenses are not allocated to each product offering.

Gross Profit. Gross profit was $0.7 million, or 74.2%, of revenues for the quarter ended March 31, 2026, compared to $1.3 million, or 75.7%, of revenues for the quarter ended March 31, 2025. The decrease in gross profit margin for the 2026 period is a result of a change in product mix with INTRUSION Shield revenues representing only 12.7% of our revenue mix compared to 23.4% in the same period in 2025.

Operating Expenses. Operating expenses for the quarter ended March 31, 2026, totaled $4.2 million, a $0.8 million increase compared to the same period in 2025. The increase is primarily related to increased investment in sales and R&D personnel as we continue to expand our product offerings and brand awareness, further impacted by cost of living and merit increases that occurred in the second half of 2025. The increase is also due to a decrease in the allocations out of operating expense to cost of sales due to the underutilization of resources to support the delayed U.S. Department of War contract.

Sales and Marketing. Sales and marketing expenses totaled $1.6 million for the quarter ended March 31, 2026, representing an increase of $0.4 million compared to the same period in 2025. The increase was primarily due to an increased investment in sales and sales support personnel and an increased participation in trade shows and associated marketing spend to continue to create more brand awareness and growth in our pipeline as well as an underutilization of our government sales team due to the delayed U.S. Department of War contract. Certain discretionary marketing spends 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 marketing and savings initiatives that may be necessary.

Research and Development. Research and development expenses totaled $1.5 million for the quarter ended March 31, 2026, representing an increase of $0.2 million compared to the same period in 2025. The increase is primarily due to a $0.3 million decrease in internally developed software as we continue to invest in adding new features and functionality to INTRUSION Shield, partially offset by a $0.1 million decrease in amortization expense associated with the termination of one of our material finance leases at the end 2025. 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 $1.1 million for the quarter ended March 31, 2026, compared to $1.0 million for the quarter ended March 31, 2025. The increase is primarily due to an increase in operating lease expenses associated with the Plano office space.

Interest Expense. Interest expense for the three months ended March 31, 2026, was $11 thousand, consisting principally of imputed interest on finance leases. Interest expense for the 2025 period totaled $29 thousand and consisted principally of the stated interest related to the Streeterville note and imputed interest on finance leases.

Other Income (Expense), Net. Other income and expense were nominal amounts for both the periods ended March 31, 2026, and 2025.

Net Loss. Net loss for the first quarter of 2026 was $3.6 million, or $0.18 per share, compared to a net loss of $2.1 million, or $0.11 per share, for the first quarter of 2025. The increase in net loss for 2026 was primarily a result of the decrease in revenues for the 2026 period as discussed above.

Liquidity and Capital Resources

Sources of Liquidity

As of March 31, 2026, we had cash and cash equivalents of $1.4 million. Net working capital at March 31, 2026 totaled ($0.9) million compared to $2.4 million as of December 31, 2025. Our principal sources of cash for funding operations in the March 2026 and March 2025 quarters were receipt of proceeds from the sale of common stock pursuant to the SEPA $1.5 million, recorded as stock subscription receivable at December 31, 2024, and net proceeds of $7.0 million from a registered direct offering that closed on January 6, 2025. On April 6, 2026, we received $3.0 million in cash related to the sale of a promissory note with Streeterville Capital, LLC.

We generated a net loss of $3.6 million and $2.1 million for the three months ended March 31, 2026, and 2025, respectively. If our operations do not generate positive cash flow in the upcoming year, of if we are not able to obtain additional debt or equity financing on terms and conditions acceptable to us, we may be unable to implement our business plan, fund our liquidity needs or even continue our operations.

ATM Program

On June 11, 2025, we terminated our At Market Sales Agreement with B. Riley Securities, Inc. The following day, on June 12, 2025, we entered into a new At The Market Offering Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC to potentially sell up to $50.0 million of the Company’s common stock using a shelf registration statement on Form S-3/A (File No. 333-281565) which was filed on January 31, 2025 and became effective on February 10, 2025. No sales under the new shelf registration have been made to date.

Notes Payable

In March 2025, through three separate exchange agreements we retired the remaining $0.5 million in Streeterville debt through the issuance of 552.3 thousand shares of common stock. The issuance of common stock was made pursuant to the exemption from the registration requirements afforded by the Securities Act.

Unaudited Condensed Consolidated Statements of Cash Flows

Our cash flows for the three months ended March 31, 2026 and 2025 were:

Operating Activities

Net cash used in operations for the quarter ended March 31, 2026, was $(1.8) million due primarily to a net loss of $(3.6) million partially offset by 1) adjustments for non-cash items of $0.7 million which are mostly comprised of depreciation and stock-based compensation, and 2) changes in working capital of $1.1 million.

Net cash used in operations for the quarter ended March 31, 2025, was $(1.7) million principally due to a net loss of $(2.1) million partially offset by 1) adjustments for non-cash items of $0.8 million which are mostly comprised of depreciation and stock-based compensation, and 2) changes in working capital of $(0.4) million.

Investing Activities

For the three months ended March 31, 2026, net cash used in investing activities was $(0.3) 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, 2025, was $(0.8) million, which was principally comprised of capitalization of internally developed software and purchases of property and equipment.

Financing Activities

For three months ended March 31, 2026, net cash used in financing activities was $0.2 million which was principally comprised of cash paid on tax withholding for net settled restricted stock units. Net cash provided by financing activities for the three months ended March 31, 2025, was $8.4 million which resulted from the receipt of proceeds from the sale of common stock pursuant to the SEPA of $1.5 million, previously recorded as stock subscription receivable at December 31, 2024, and net proceeds of $7.0 million from a registered direct offering that closed on January 6, 2025.

Critical Accounting Policies and Use of Estimates

Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these unaudited 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, 2025, filed with the SEC on March 25, 2026 (the “2025 Annual Report”) 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 disclosed in the 2025 Annual Report.

Evaluation of Effectiveness of Disclosure Controls and Procedures

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, 2026, 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, 2026.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting that occurred during the three months ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As a smaller reporting company, we are not required to disclose material changes to the risk factors that were contained in the 2025 Annual Report. You should carefully consider the risk factors we previously disclosed in the 2025 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.