INTZ 10-K & 10-Q changes, risk factors and insider trading
Intrusion Inc. · Nasdaq · Computer Communications Equipment · CIK 736012 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “The Company’s ability to implement its current business plan is dependent on our ability to raise additional funds through additional public or private financings, which raises substantial doubt that the Company may not be able to continue as a going concern.”
New heading “You may experience dilution as a result of future equity offerings.”
New heading “We are a “smaller reporting company,” and reduced disclosure requirements may make our common stock less attractive.”
Removed heading “Nasdaq may delist our common stock from trading on its exchange, which could limit stockholders’ ability to trade our common stock.”
Largest changes
“The Company’s ability to implement its current business plan is dependent on our ability to raise additional funds through additional public or private financings, which raises substantial doubt that the Company may not be able to continue as a going concern.”see in full comparison
“Nasdaq may delist our common stock from trading on its exchange, which could limit stockholders’ ability to trade our common stock.”see in full comparison
“There can be no assurance that we will be able to meet the financial, public float, bid price and liquidity standards on an ongoing basis to for continued listing of our common stock on the Nasdaq Capital Market. If our common stock is delisted and we are not able to list our common stock on another national securities exchange, we expect our securities would be quoted on an over-the-counter market. …”see in full comparison
“Our common stock is listed for trading on the Nasdaq Capital Market, which requires us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis to continue the listing of our common stock. If we fail to meet these continued listing requirements, our common stock may be subject to delisting.”see in full comparison
“As of December 31, 2025, we had cash and cash equivalents of $3.6 million. Our primary source of cash for funding operations in 2025 has come from net proceeds received from a registered direct offering of $7.0 million and $1.5 million in proceeds from the sale of common stock pursuant to a standby equity purchase agreement (“SEPA”), recorded as a receivable at December 31, 2024. …”see in full comparison
“We are a “smaller reporting company,” and reduced disclosure requirements may make our common stock less attractive.”see in full comparison
Full comparison: every changed paragraph (26)
The Company’s ability to implement its current business plan is dependent on our ability to raise additional funds through additional public or private financings, which raises substantial doubt that the Company may not be able to continue as a going concern.
As of December 31, 2025, we had cash and cash equivalents of $3.6 million. Our primary source of cash for funding operations in 2025 has come from net proceeds received from a registered direct offering of $7.0 million and $1.5 million in proceeds from the sale of common stock pursuant to a standby equity purchase agreement (“SEPA”), recorded as a receivable at December 31, 2024. Our independent registered public accounting firm’s report on our audited financial statements for fiscal year ended December 31, 2025, includes an explanatory paragraph stating that our historically recurring losses from operations, negative cash flows from operations, and dependence on equity and debt financing raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to raise additional funds through public or private financing, including the utilization of our ATM program. We can provide no assurances that we will be able to raise additional funds through any future equity or debt financings, and the terms of those financings, if available at all, may be on terms, which are not favorable to us and, in the case of equity financings, will result in dilution to our stockholders. The inclusion of a going concern explanatory paragraph may also make it more difficult for us to secure additional financing or enter into strategic partnerships, as it signals a high degree of financial risk to potential investors and creditors. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
CertainWe are subject to certain regulatory limitations
that may affect
our ability to consummate future financings.
IfUnless our public float as
measured measured
pursuant to General Instruction I.B.6 to Form S-3 falls belowexceeds $75 million, we will be subject to the restrictions set forth in General
Instruction I.B.6 to Form S-3 that limit our ability to conduct primary offerings under a Form S-3 registration statement. Under such
limitations, we may not sell, during any 12-month period, securities on Form S-3 having an aggregate market value of more than one-third
of our public float. As of February
25,March 2025,24, 2026, our public float calculated in accordance with General Instruction I.B.6 of Form S-3 was $112.9 $20.1
million.
For the year ended
December December
31, 2024,2025, we had a net loss of $7.8$9.1 million and had an accumulated deficit of approximately $118.0$127.1 million as of December
31, 2024.2025. We
need to increase current revenue levels from the sales of our solutions if we are to regain profitability, and our new INTRUSION Shield suite
suite of products may take time to achieve market penetration, which could negatively impact future revenues and results of operations. If
If we are unable to increase revenue levels, losses could continue for the near term and possibly longer, and we may not regain
profitability profitability
or be able to implement our business plan, fund our liquidity needs, or continue our operations.
Approximately 50.4%43.2% of our
existing revenues result from sales of TraceCop, a cybersecurity solution. TraceCop revenues were $2.9$3.1 million
for the year ended December 31, 2024,2025, compared to $2.5$2.9 million for the year ended December 31, 2023.2024. We can offer no assurances that our
new INTRUSION Shield solution will reduce our dependence on this single solution and in the absence of a shift in solution mix,
mix, we may continue to face risks if sales of this key solution to these limited customers were to decrease.
For the years ended December
31, 2024,2025 and 2023,2024, we derived 35.4%55.0% and 2.6%35.4% of our revenues from sales through indirect sales channels, such as distributors, value-added
resellers, system integrators, original equipment manufacturersmanufacturers, and managed service providers. We must expand sales of our current solutions
as well as any new solutions through these indirect channels in order to increase our revenues. We cannot assure you that our current
solutions or future solutions will gain market acceptance in these indirect sales channels or that sales through these indirect sales
channels will increase our revenues. Further, many of our competitors are also trying to sell their products and solutions through these
indirect sales channels, which could result in lower prices and reduced profit margins for the sales of our solutions.
Our success depends upon the continued contributions of our key management, sales, marketing, research and development and operational personnel, including Anthony Scott, our President, and Chief Executive Officer (“CEO”); T. Joe Head, our Chief Technology Officer; Kimberly Pinson, our Chief Financial Officer (“CFO”); and other key technical personnel. The loss of the services of one or more of our key employees in the future could have a material adverse effect on our operating results. We also believe our future success will depend upon our ability to attract and retain additional highly skilled management, technical, marketing, research and development, and operational personnel with experience in managing large and rapidly changing companies, as well as training, motivating and supervising employees. The market for hiring and retaining certain technical personnel, including software engineers, has become more competitive and intense in recent years. Failure to attract and retain a sufficient number of qualified technical personnel, including software engineers, or retain our key personnel could have a material adverse effect on our operating results.
The network security industry
is characterized by frequent product and service introductions, rapidly changing technology, and continued evolution of new industry standards.
We have and must continue to introduce upgrades to our current solutions rapidly in response to changing circumstances and customer needs
such as the creation and introduction of new computer viruses or other novel external attacks on computer networks. Further, our new INTRUSION
Shield solution represents our efforts to continue to provide state-of-the art first-in-time innovation for our customers’
cybersecurity solutions. As a result, our success depends upon our ability to develop and introduce timely upgrades, enhancements, and
new solutions to meet evolving customer requirements and industry standards. The development of technologically advanced network security
products and solutions is a complex and uncertain process requiring high levels of innovation, rapid response, and accurate anticipation
of technological and market trends. We cannot assure you that we will be able to identify, develop, manufacture, market or support new
or enhanced solutions successfully in a timely manner. Further, we or our competitors may introduce new solutions or enhancements that
shorten the life cycle of our existing solutions or cause our existing solutions to become obsolete.
We must expend time and resources addressing
potential cybersecurity risk,risks, and any breach of our information security safeguards could have a material adverse effect on the Company.
Our principal competitors
in the data mining and advanced persistent threat marketmarkets include Darktrace, Trellix, and Recorded Futures.Future. Our current and potential competitors
may have one or more of the following significant advantages over us:
If we are unable to implement and maintain
effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our
financial reportsreports, and the market price of our common stock may decline.
If we identify material weaknesses
in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner,
or if we assert that our internal control over financial reporting is ineffective, investors may lose confidence in the accuracy and completeness
of our financial reports and the market price of the common stock could be negatively affected. We could also could become subject to investigations
by the stock exchange on which our securities are listed, the Securities Exchange Commission (“SEC”),SEC, or other regulatory
authorities, which could require additional financial
and management resources, and could have a material adverse effect on the market
price of our common stock.
The Sarbanes-Oxley Act requires,
among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. We report
on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition,
in the first Annual Report on Form 10-K following the date on which we no longer qualify as a smaller reporting company, we will be required
to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting.
Our compliance with Section 404 of the Sarbanes-Oxley Act could require that we incur substantial accounting expenseexpenses and expend significant
management efforts including the potential of hiring additional accounting and financial staff with appropriate public company experience
and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or
our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed
to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC
or other regulatory authorities, which would require additional financial and management resources.
We experience significant
shifts in the market value of our common stock as it trades on the Nasdaq Capital Market (“Nasdaq"”) as well as volatility in
the trading volume of our shares on that market. For example, the market price of our common stock fluctuated between $7.34$5.20 and $0.35$0.71
during the year ended December 31, 2024.2025. These fluctuations may result in a hesitancy for investors to purchase and hold shares of our
common stock, continued depression of the market value of our stock, and ultimately negatively affect our ability to raise capital through
the issuance and sale of our common stock, particularly through our At the Market (“ATM”) program or otherwise. Additionally,
a requirement to issue shares at the then-current market prices to fund operations would result in significant dilution to existing shareholders.
Nasdaq may delist our common stock from
trading on its exchange, which could limit stockholders’ ability to trade our common stock.
Our common stock is listed
for trading on the Nasdaq Capital Market, which requires us to meet certain financial, public float, bid price and liquidity standards
on an ongoing basis to continue the listing of our common stock. If we fail to meet these continued listing requirements, our common stock
may be subject to delisting.
On October 28, 2024, Intrusion,
Inc. (the “Company”) received a written notice (the “Bid Price Notice”) from the Listing Qualifications department
(the “Nasdaq Staff”) of The Nasdaq Stock Market (“Nasdaq”) indicating that the Company is not in compliance with
the $1.00 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”)
for continued listing on the Nasdaq Capital Market. The notification of noncompliance had no immediate effect on the listing or trading
of the Company’s common stock on The Nasdaq Capital Market under the symbol “INTZ,” and the Company is currently monitoring
the closing bid price of its common stock and evaluating its alternatives, if appropriate, to resolve the deficiency and regain compliance
with this rule.
The Nasdaq rules require
listed securities to maintain a minimum bid price of $1.00 per share and, based upon the closing bid price for the last thirty
consecutive business days as of October 25, 2024, the Company no longer met this requirement. The Bid Price Notice indicated that
the Company has been provided 180 calendar days, or until April 28, 2025, in which to regain compliance. If at any time during this
period the closing bid price of the Company’s common stock is at least $1.00 per share for a minimum of ten consecutive
business days, the Nasdaq Staff will provide the Company with a written confirmation of compliance and the matter will be closed. On
January 29, 2025, the Company received notification from the Nasdaq Staff that it had met the minimum bid price requirement and,
accordingly, had regained compliance with the listing requirement.
There can be no assurance
that we will be able to meet the financial, public float, bid price and liquidity standards on an ongoing basis to for continued listing
of our common stock on the Nasdaq Capital Market. If our common stock is delisted and we are not able to list our common stock on another
national securities exchange, we expect our securities would be quoted on an over-the-counter market. If this were to occur, our stockholders
could face significant material adverse consequences, including limited availability of market quotations for our common stock and reduced
liquidity for the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain
additional financing in the future.
You may experience dilution as a result of future equity offerings.
In the future, we may issue additional shares of common stock and/or securities convertible into, or exchangeable for, or that represent the right to receive, shares of common stock. We may sell shares or other securities at a price per share that is less than the prices per share paid by stockholders, and stockholders purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of common stock, or securities convertible into, exercisable for, or exchangeable for shares of common stock, in future transactions may be higher or lower than the prices per share paid by stockholders. Additional equity offerings may dilute the holdings of existing stockholders or reduce the market price of our common stock, or both. Any of these events may dilute the ownership interests of current stockholders, reduce earnings per share, or have an adverse effect on our stock price. Further, sales of substantial amounts of our common stock, or the perception that these sales could occur, could have a material adverse effect on the price of our common stock.
Holders of shares of our common
stock are entitled to receive such dividends as may be declared by our Board.Board of Directors (our “Board”). To date, we have
paid no cash dividends on our shares of
common stock, and we do not expect to pay cash dividends on our common stock in the foreseeable
future. We intend to retain future earnings,
if any, to provide funds for the operations of our business. Therefore, any return investors
in our common stock may have will be in the
form of appreciation, if any, in the market value of their shares of common stock.
We are a “smaller reporting company,” and reduced disclosure requirements may make our common stock less attractive.
We qualify, and may qualify for the foreseeable future, as a “smaller reporting company.” As a result, we may provide reduced public disclosure compared to larger reporting companies, including fewer years of audited financial statements and scaled executive compensation and other disclosures. Investors may view our securities as less attractive as a result, which could adversely affect the market price and liquidity of our common stock.
Our solutions are highly technical
and complex, are critical to the operation of many networks and, in the case of ours, provide and monitor network security and may protect
valuable information. Our solutions have contained and may contain one or more undetected errors, defects, or security vulnerabilities.
Some errors in our solutions may only be discovered after a solution has been installed and used by end customers. Any errors or security
vulnerabilities discovered in our solutions after commercial release could result in loss of revenuesrevenue or delay in revenue recognition,
loss of customers and increased service and warranty cost, any of which could adversely affect our business and results of operations.
In addition, we could face claims for product liability, tort, or breach of warranty. Defending a lawsuit, regardless of its merit, is
costly and may divert management’s attention. In addition, if our business liability insurance coverage is inadequate or future
coverage is unavailable on acceptable terms or at all, our financial condition could be harmed.
Management's Discussion & Analysis (MD&A)
Largest changes
“As of December 31, 2025, we had cash and cash equivalents of $3.6 million and $2.4 million in working capital. Our primary source of cash for funding operations in 2025 has come from net proceeds received from a registered direct offering of $7.0 million and $1.5 million in proceeds from the sale of common stock pursuant to a SEPA, recorded as a receivable at December 31, 2024. …”see in full comparison
“In late March 2023 we implemented cost reduction measures that resulted in the reduction of sixteen permanent positions, the reduced use of contractors and renegotiated or replaced spend on certain sales support and marketing services with less costly programs. As a retention incentive, employees were granted equity awards in March 2023 with a one-year vesting. …”see in full comparison
“In June 2025, we terminated our At Market Sales Agreement with B. Riley Securities, Inc (“B. Riley”) and entered into a new ATM Offering Agreement with H.C. Wainwright & Co., LLC (“Wainwright”) to potentially sell up to $50.0 million of our common stock using a shelf registration statement on Form S-3/A (File No. 333-281565) which was filed in January 2025 and became effective in February 2025. Under the Sales Agreement, Wainwright may sell shares of our common stock by any method permitted by law deemed to be an “ATM offering” as defined in Rule 415(a)(4). …”see in full comparison
see in full comparisonThe sharesShares of common stock issuedpurchasedpursuant to SEPA will be purchased at apurchaseprice equal to 95% of the lowest dailyVWAPvolume-weighted average price of our common on thesharesNasdaq Stockof Common StockMarket during the three consecutive trading dayscommencing 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 Marketduring regular tradinghourshours, as reported by Bloomberg L.P.ThebeginningCompanyonwillthe date we deliver an advance notice. We are required to use 10% of the proceedsassociated withfrom eachAdvanceadvance to redeemtheoutstandingoutstandingshares of Series A PreferredPreferredStock held by Streeterville.
“During 2023 and 2024, our primary focus has been building out our sales reseller and channel platform and collaborating with those partners to 1) increase our sales pipeline and 2) progress customer prospects, leads and opportunities through the sales lifecycle. Gaining traction with our Shield solutions has taken longer than initially anticipated. We feel that the progress made with our reseller and channel community along with refining our product messaging will help to shorten the sales cycle and grow revenues in future periods.”see in full comparison
Operating expenses for the year ended December 31,see in full comparison2024,2025, totaled$12.9$14.5 million,aandecreaseincrease of21.5%13.0% when compared to$16.4$12.9 million for the year ended December 31,2023.2024. Factors contributing to thedecreaseincrease most notably related toaone-timereductionsavings realized instaffing2024 from the negotiation or cancellation of existing contracts which contributed $0.5 million in savings in 2024, increased share-based compensation of $0.7 million from equity grants made in the first quarter of 2025 andcontractcostlaborofexpenses, in addition to reduced spending on salesliving andmarketing.merit increases of $0.3 million.
Full comparison: every changed paragraph (52)
The following discussion and
analysis include information management believes is relevant to understandunderstanding and assessassessing our consolidated financial condition and results
of operations. This section should be read in conjunction with our Consolidated Financial Statements, accompanying notes and the risk
factors contained in this report.
During 2023 and 2024, our
primary focus has been building out our sales reseller and channel platform and collaborating with those partners to 1) increase our sales
pipeline and 2) progress customer prospects, leads and opportunities through the sales lifecycle. Gaining traction with our Shield
solutions has taken longer than initially anticipated. We feel that the progress made with our reseller and channel community along with
refining our product messaging will help to shorten the sales cycle and grow revenues in future periods.
Revenue for the year ended December 31, 2025, totaled $7.1 million, representing an increase of $1.3 million or 22.9% from $5.8 million in 2024. Revenue growth in 2025 was primarily driven by work performed for the U.S. Department of Defense for the development and implementation of the Shield OT Defender in the Asia Pacific region which contributed to increases in both Shield and consulting revenues. Consulting revenues totaled $5.3 million in 2025 compared to $4.2 million in 2024. Shield revenues totaled $1.8 million, compared to $1.6 million in 2024.
We anticipate that the sale of our OT Defender solution to other departments of the U.S. government, as well as commercially, will continue to contribute to future growth. Additionally, during 2025, we partnered with Port Nexus to integrate our Shield technology into its My Flare Alert school safety solution. Although sales to Port Nexus did not materially impact 2025 revenues, the expanded pipeline for this offering is expected to support future Shield revenue growth.
Revenue in the fourth quarter of fiscal 2025 decreased 25% compared to the prior quarter and 12% compared to the prior year period, primarily reflecting the delayed timing of incremental funding under a major U.S. government contract. The timing of this funding was impacted by operational and administrative constraints associated with the U.S. government shutdown and continuing resolution, which limited agencies’ ability to initiate and process contract actions during the period. As a company that derives a significant portion of its revenue from U.S. government customers, our operating results are dependent on the timing of government funding authorizations, contract awards, and program execution. While we believe the impact of this delay is primarily timing-related, changes in federal budget priorities, including those related to defense and national security, may continue to influence the timing and allocation of future funding, which could affect our revenue and operating results in future periods.
Revenue for the year ended
December 31, 2024, totaled $5.8 million an increase of $0.2 million or 2.9% from $5.6 million in 2023. Revenues in the first half of 2024
were hampered by both the delay in the approval of a federal budget which impacted the timing of renewals and task orders received and
the loss of a large early Shield customer that had a non-standard custom implementation that was no longer supported. Revenues
increased in the second half of 2024 as a result of new customers signed in recent quarters and, to a large degree, the new government
awards for the combined use of both threat reporting and the use of Shield technology. Consulting revenues totaled $4.2
million in 2024 compared to $4.0 million in 2023. Shield revenues totaled $1.6 million in 2024 which is flat when compared
to 2023. The loss of the large early Shield customer which accounted for greater than 70% of the Shield revenue base has
been fully offset by the expanded use of Shield from existing customers and new customers signed in 2024.
We are beginning to see traction
with our Shield products with multiple Shield sales that, essentially, are paid proof of values which have
the potential for significant Shield sales growth beyond the initial engagement. On December 31, 2024, our Shield
opportunities comprised a large percentage of our sales pipeline.
Revenues from sales to various U.S. government entities totaled $6.7 million, or 94.6% of revenues, for the year ended December 31, 2025, compared to $4.8 million, or 83.8% of revenues, for the same period in 2024. In both 2025 and 2024 three government entities each individually accounted for over 10% of our revenues.
Sales to commercial customers totaled $0.4 million or 5.4% of total revenue for the year ended December 31, 2025, compared to $0.9 million or 16.2% of total revenue for the same period in 2024.
RevenuesDuring from sales to
various U.S. government entities totaled $4.8 million, or 83.8% of revenues, for the year ended December 31, 2024, compared to $2.6
million, or 46.2% of revenues, for the same period in 2023. In 20242025, we had three government entities that individually accounted for
over 10% of our revenues compared to two in 2023. Sales to commercial customers totaled $0.9 million or 16.2% of total revenue for
the year ended December 31, 2024, compared to $3.0 million or 53.8% of total revenue for the same period in 2023. Two commercial
customers individually accounted for over 10% of total revenues in 2023. No commercial customers accounted for 10% or greater of
total revenues in 2024. Over 2024, we have expanded the
number of Shield resellers and referral partners. We anticipate our
concentration of revenues will vary among customers
in future periods depending upon the timing of certain sales. We anticipate
that sales to government customers, while comprising a significant
portion of our revenues in future periods, will represent a lower
percentage of our revenue base as we gain traction selling our Shield
products into commercial markets.
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. Currently, we are not aware of any additional proposed cancellation or renegotiation of any of our
existing arrangements with government entities and, historically, cancellations or renegotiated orders by government entities have not
resulted in a material adverse effect on our business.
Operating expenses for the
year ended December 31, 2024,2025, totaled $12.9$14.5 million, aan decreaseincrease of 21.5%13.0% when compared to $16.4$12.9 million for the year ended December 31,
2023.2024. Factors contributing to the decreaseincrease most notably related to aone-time reductionsavings realized in staffing2024 from the negotiation or cancellation
of existing contracts which contributed $0.5 million in savings in 2024, increased share-based compensation of $0.7 million from equity
grants made in the first quarter of 2025 and contractcost laborof expenses, in addition to
reduced spending on salesliving and marketing.merit increases of $0.3 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 renegotiated
or replaced spend on certain sales support and marketing services with less costly programs. As a retention incentive, employees were
granted equity awards in March 2023 with a one-year vesting. Reduced non-cash share-based compensation in 2024 in addition to one time
negotiated contract savings, and an insurance settlement for legal defense costs associated with litigation matters that arose in 2021,
contributed $1.4 million in savings over 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. Employee headcount on December 31, 2024, totaled fifty compared to forty-nine
on December 31, 2023.
Sales and marketing expenses
decreasedtotaled to$5.3 million, an increase of $0.5 million from $4.7 million in 2024,2024. comparedThe increased Sales and Marketing spend related primarily
to increased participation in trade shows and increased spend to $5.7create millionmore brand awareness and concise product messaging which was partially
offset by increased allocations out of operating expenses to cost of sales for resources dedicated to increased consulting work in 2023.2025
and Theone-time negotiated savings included in the 2024 period includedof approximately $0.2 million in one-time negotiated
contract savings.million. 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 savings initiatives that may be necessary.
Research and development
expenses expenses
decreasedtotaled to $4.4$5.2 million infor 2024the year ended December 31, 2025, representing an increase of $0.7 million when compared to $5.6the prior
year. The increase was primarily due to increased depreciation of $0.2 million inon 2023.infrastructure Thehardware savingspurchases and internally developed
software and increases in 2024compensation arerelated to the addition of a resultSales Engineer and Software Engineer, merit increases and equity awards
made in the first quarter of cost reduction measures implemented
in late March 2023 which included the reduction of 13 FTEs and the reduced use of contractors.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
expenses totaled $4.1 million in 2025 compared to $3.7 million in 20242024. comparedThe $0.4 million increase in 2025 was primarily due to $5.2one-time
negotiated savings of $0.2 million in 2023. The $1.5 million reductionincluded in the 2024 period relatesand principally
increased share-based compensation related to equity grants made in
the eliminationfirst quarter of two positions, reduced share-based compensation, and one-time negotiated cost savings of $0.5 million.2025.
Interest expense for the
twelve months ended December 31, 2024,2025, was $81 thousand which related primarily to imputed interest on finance leases. Interest expense
for the 2024 period totaled $328 thousand consisting principally of interest on finance leases and the stated interest related to the
Streeterville Capital, LLC (“Streeterville”) and
Scott notes, and finance leases. Interest expense for the year ended December 31, 2023, was $958 thousand. The decreased interest expense
resulted principally from the $9.5 million aggregate exchangeboth of thewhich Streetervillehave debtbeen tofully both common and preferred stock. As of December
31, 2024, $529 thousand of the Streeterville Note One remained outstanding.repaid. Interest expenses will
vary in the future based on our
cash flow and borrowing needs.
Interest
Accretion and Amortization of Debt Issuance CostsCosts, Net
During March 2024, the Company
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 year ended December 31, 2023, the interest accretion and amortization of debt issuance costs totaled $0.9 million in expense.
Other Income (Expense) Income,, Net
Other income included interest income on cash and short-term investments of $0.2 million in 2025. Other income (expense) was negligible in 2024.
Interest and other income
were negligible in 2024 and 2023.
Net cash used in operations
for the year ended December 31, 2024,2025, was ($6.3$6.8) million due to a net loss of ($7.8$9.1) million, offset by 1(i) adjustments for non-cash items
of $1.7$3.2 million which are mostly comprised of depreciation,depreciation and stock-based compensation, and interest related to Streeterville notes and
2(ii) ($0.2$0.9) million used for working capital.
Net cash used in operations
for the year ended December 31, 2023,2024, was ($7.8$6.3) million due to a net loss of ($13.9$7.8) million, offset by 1(i) adjustments for non-cash items
of $4.7$1.7 million which are mostly comprised of depreciation, stock-based compensation, and interest related to Streeterville notesnotes, and
2(ii) $1.4$(0.2) million providedused fromfor working capital principally relating to the cash receipt of amounts due relating to ERC.capital.
For the year ended December
31, 2024,2025, net cash used in investing activities was ($1.8$2.5) millionmillion, of which $1.2$1.8 million was the capitalization of internally developed
software, $0.5and $0.8 million was the purchase of equipment and $0.1 million was the deposit on financed equipment.
For the year ended December
31, 2023,2024, net cash used in investing activities was ($1.4$1.8) million, of which $1.2 million was principally the capitalization of internally developed
software, software.$0.5 million was the purchase of equipment and $0.1 million was the deposit on financed equipment.
For the year ended December
31, 31,
2024,2025, net cash provided by financing activities was $12.8$8.1 millionmillion, which consisted principally of net proceeds from salesa registered direct
offering of common stock using
our ATM program of $9.8 million, a private placement in April 2024 of $2.6$7.0 million and the receipt of $1.5 million in proceeds from the sale of common stock and warrants
pursuant to warrantthe inducementSEPA, offeringswhich ofwas $0.8recorded
as milliona stock subscription receivable at December 31, 2024, offset partially by principal payments on equipment finance leases of $0.5$0.4 million.
For the year ended December 31,
31, 2023,2024, net cash provided by financing activities was $6.3$12.8 millionmillion, which consisted principally of proceeds from sales of common stock
using our ATM program of $4.7$9.8 million andmillion, a private placement in NovemberApril 20232024 of $2.3$2.6 million and proceeds from the sale of common stock and
warrants pursuant to warrant inducement offerings of $0.8 million, offset partially by aprincipal $0.4payments million paydown
on theequipment Streetervillefinance notes.leases
of $0.5 million.
As of December 31, 2025, we had cash and cash equivalents of $3.6 million and $2.4 million in working capital. Our primary source of cash for funding operations in 2025 has come from net proceeds received from a registered direct offering of $7.0 million and $1.5 million in proceeds from the sale of common stock pursuant to a SEPA, recorded as a receivable at December 31, 2024. Our independent registered public accounting firm’s report on our audited financial statements for the fiscal year ended December 31, 2025 includes an explanatory paragraph stating that our historically recurring losses from operations, negative cash flows from operations, and dependence on equity and debt financings raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to raise additional funds through public or private financings, including the utilization of our ATM program. We can provide no assurances that we will be able to raise additional funds through any future equity or debt financings, and the terms of those financings, if available at all, may be on terms, which are not favorable to us and, in the case of equity financings, will result in dilution to our stockholders. The inclusion of a going concern explanatory paragraph may also make it more difficult for us to secure additional financing or enter into strategic partnerships, as it signals a high degree of financial risk to potential investors and creditors. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As of December 31, 2024, we
had cash and cash equivalents of $4.9 million and $1.9 million in working capital.
Our principal sources of cash
for funding operations in 2024 have beenwere net proceeds received from sales of common stock using our ATM program of $9.8 million, a private
placement offering completed in April 2024 of $2.6 million, and $0.8 million from the exercise of warrants. Our principal source of cash
for funding operations in 2023 was $4.7 million from sales of common stock utilizing the ATM program, a private placement offering completed
in November 2023 of $2.3 million and net funds through changes in working capital which included the receipt of the remaining ERC refund
of $1.4 million.
In June 2025, we terminated our At Market Sales Agreement with B. Riley Securities, Inc (“B. Riley”) and entered into a new ATM Offering Agreement with H.C. Wainwright & Co., LLC (“Wainwright”) to potentially sell up to $50.0 million of our common stock using a shelf registration statement on Form S-3/A (File No. 333-281565) which was filed in January 2025 and became effective in February 2025. Under the Sales Agreement, Wainwright may sell shares of our common stock by any method permitted by law deemed to be an “ATM offering” as defined in Rule 415(a)(4). We pay Wainwright a commission of up to 3.0% of the gross sales price of any shares sold through Wainwright under the Sales Agreement.
B. Riley Securities, Inc.
acts as sales agent under our ATM program, which, using the shelf-registration statement on Form S-3 filed on August 5, 2021, allowed
us to potentially sell up to $50.0 million of our common stock. On April 11, 2023, as a result of limitations under General 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 could be sold pursuant to the ATM program to $15.0 million. In December 2024, we completed the sale of $15 million
in common stock. For the year ended December 31, 2024, we received $9.8 million, net of fees for sales of common stock pursuant to the
program.
We filed a replacement shelf
registration on Form S-3 onin January 30, 20252025, with an effective date of February 10, 2025, pursuant to which we can sell up to $50.0 million of
of our common stock. As of February 25, 2025, our public float calculated in accordance with General Instruction I.B.1 of Form S-3,wasS-3, was $112.9
$112.9 million based on 19,342,776 shares of common stock outstanding of which 17,861,513 shares are held by non-affiliates, and a per share
share price of $6.32 based on the average of the bid and asked prices of our common stock on the Nasdaq Capital Market on December 30,
2024.
SEPA
Standby Equity Purchase
Agreement
OnIn July 3, 2024, we entered into
into a $10 million Standby Equity Purchase Agreement (“SEPA”) with Streeterville Capital, LLC (“Streeterville”)
pursuant to which the Company has the right to direct Streetervilleright, during the 24-month term of the agreement toand purchase common stocksubject
subject to certain limitations and conditions setto forthdirect inStreeterville theto SEPA.purchase shares of our common stock.
The sharesShares of common stock issued
purchased pursuant to SEPA will be purchased at a purchase price equal to 95% of the lowest daily VWAPvolume-weighted average price of our common on the sharesNasdaq
Stock of Common StockMarket 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
hours, as reported by Bloomberg L.P. Thebeginning Companyon willthe date
we deliver an advance notice. We are required to use 10% of the proceeds associated withfrom each Advanceadvance to redeem theoutstanding outstandingshares of Series A Preferred
Preferred Stock held by Streeterville.
During 2024, pursuant to the
SEPA, Streeterville purchased 1.2 million shares of common stock resulting in aggregate net proceeds of $1.8 million of which $0.1 million
was received in 2024 and the remaining proceeds of $1.7 million waswere received onin January 2nd2025. andNo 3rd,draws on the SEPA were made in 2025.
In March 2022 we entered into a securities purchase agreement (“SPA”) with Streeterville pursuant to which Streeterville purchased two $5.4 million promissory notes for $9.3 net proceeds. Principal payments totaled $1.9 million through 2023. In the fourth quarter of 2023 and the first quarter 2024, we exchanged $0.8 million of principal for 146 thousand shares of common stock. In March 2024, the remaining $9.3 million principal was exchanged for 9,275 shares of Services A Preferred Stock (See Note 8). Following these transactions, $0.5 million principal remained on the first note. During 2024, no principal payments were made on the Streeterville notes following the first quarter debt-for equity-exchanges. In March 2025, we fully retired the remaining $0.5 million Streeterville note through issuance of 553 thousand shares of common stock pursuant to Section 3(a)(9) of the Securities Act. This transaction eliminated all the Streeterville debt with no material cash outflow during 2024 or 2025.
We entered into a securities
purchase agreement (“SPA”) with Streeterville on March 10, 2022, pursuant to which Streeterville purchased two promissory
notes with substantively identical terms. Streeterville purchased the first note on March 10, 2022, and the second note on June 29, 2022,
each note with an aggregate principal amount of $5.4 million in exchange for $5.0 million less certain expenses. We received an aggregate
of approximately $9.3 million, net of transaction expenses, in connection with these issuances.
In 2023 and 2022 we made $0.4
million and $1.5 million in principal payments, respectively. In the fourth quarter 2023 through 3 separate transactions, we exchanged
$0.6 million in aggregate principal on the First Note for 93.6 thousand shares of our common stock. In March 2024, we exchanged $0.2 million
in principal for 52.2 thousand shares of common stock. Also in March 2024, we exchanged $9.3 million in principle for 9,275 shares of
our newly created Series A preferred stock. The issuance of both common and preferred shares was made pursuant to the exemption from the
registration requirements afforded by Section 3(a)(9) of the Securities Act. The Series A preferred stock has a stated value of $1,100
per share and is subject to the 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 the first note was $0.5 million. The maturity
date for the first note was September 2024, we are in discussions with Streeterville to redeem or amend this note.
In September 2024, we entered
into a note purchase agreement with Streeterville where Streeterville purchased a note payable in the principal amount of $0.6 million
in exchange for $0.5 million in cash after redemption of $0.1 million of Series A preferred stock. The note called for weekly payments
of $25 thousand until the maturity onin November 18, 2024. In the event the note was not repaid on the maturity date, weekly payments would
increase to $50 thousand. The note bore no interest. This note was repaid in full in DecemberNovember 2024.
During 2024, we entered into
into two separate note purchase agreements with Mr. Scott, our ChiefPresident, ExecutiveCEO Officer,and Anthonymember Scott.of Onour Board. In January 2,2024, 2024,Mr. 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$40
thousand until
maturity onin June 15, 2024. Interest accrued on the balance of the note at 7% per annum compounding daily. During the quarter
ended March
31, 2024, we made $200$0.2 thousandmillion in principal payments. OnIn March 20,2024, 2024,Mr. Scott purchased a second note payable in the principal
amount amount
of $343$0.3 thousandmillion in exchange for $340$0.3 thousandmillion in cash. The note was non-interest bearing and matured onin April 19, 2024. OnIn April 2, 2024,
we reduced the principal balance due under the note by $101$0.1 thousandmillion, which reflected the amount due from Mr. Scott for the exercise of
common common
stock purchase warrants. OnIn April 19,2024, 2024,Mr. Scott entered into a private placement subscription agreement to convert the aggregate
remaining remaining
outstanding balance of $1.1 million for both notes in exchange for common stock and common stock purchase warrants.
Management’s discussion
and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared
in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The preparation of these financial statements
requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to credit losses,
income taxes, warranty
obligations, maintenance contractscontracts, and contingencies. We base our estimates on historical experience and on various
other assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under
different assumptions or conditions.
Pursuant to the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 350-40 Internal Use Software Accounting Capitalization, certain development costs related to our products during the application development stage are capitalized as part of property and equipment. Costs incurred in the preliminary stages of development are expensed as incurred. The preliminary stage includes activities such as conceptual formulation of alternatives, evaluation of alternatives, determination of existence of needed technology, and the final selection of alternatives. Once the application development stage is reached, internal and external costs are capitalized until the software is complete and ready for its intended use. Capitalized internal use software is amortized on a straight-line basis over its estimated useful life, which is generally three years.
We recognize product revenue
upon shipment or after meeting certain performance obligations. These products can include hardware, software subscriptionssubscriptions, and consulting
services. Most of our sales are from consulting services. We also offer software on a subscription basis subject to SaaS. Warranty costs
have not been material.
We recognize sales of its
consulting services in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 606 whereby revenue from contracts with customers are recognized once the criteria
under the five steps below
are met:
Consulting services, including
reporting,reporting are typically doneperformed monthly,on a monthly basis, and the related revenue is matchedrecognized accordingly.as the services are rendered to the customer.
Product sales may include maintenance and customer support
elements, with consideration allocated revenueto ineach anperformance arrangementobligation usingbased
on the estimated selling prices of the delivered goods and services based on a selling price hierarchy
using the relative selling price
method. All product offering and service offering market values are readily determined based on current
and prior stand-alone sales. WeThe
Company deferdefers and recognizerecognizes maintenance, updates, and support revenue over the term of the contract period, which
is generally one year.
We utilize the five-step process
mentioned above, per ASC Topic 606, to recognize sales and will follow that directive, also, to define revenue items as individual and
distinct. INTRUSION Shield services provided to our customers for a fixed monthly subscription fee include:
We satisfy our performance
obligation when our INTRUSION Shield solution is available to detect and prevent unauthorized access to a client’s
information networks. Revenue is recognized monthly over the term of the contract. The Company’s standard initial contract terms
are automatically renewrenewed unless notice is given 30 days before renewal. Upfront payment of fees is deferred and amortized into income
over over
the period covered by the contract.
See Note 2 to the Consolidated Financial Statements (Part II, Item 8 of this Annual Report on Form 10-K).
What changed in the latest 10-Q
Risk Factors
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.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
Largest changes
“As of June 30, 2026, we had cash and cash equivalents of $0.2 million. We generated a net loss of $6.2 and $4.1 million for the six months ended June 30, 2026, and 2025, respectively. We continue to incur losses from operations, negative cash flows from operations, as well as having a continued dependence on equity and debt financing. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of these financial statements. …”see in full comparison
“During the June 2026 quarter we entered into two separate note purchase agreements with Streeterville. On April 6, 2026, Streeterville purchased a note payable in the principal amount of $3.2 million in exchange for $3.0 million in cash (reflecting an original issue discount and legal fees of $0.2 million). The Company also paid transaction costs associated with this Note of $0.2 million. …”see in full comparison
“On June 29, 2026, we entered into an Agreement to acquire 100% of the membership interests of VigilAigent over two distinct closings. At the first closing, effective June 29, 2026, we acquired 60% of VigilAigent’s membership interests for a purchase price of $2.0 million, paid through $0.4 million of cash and the issuance of $1.6 million of unregistered shares of the Company’s common stock, par value $0.01 per share, at a contractually defined share price of $0.67 per share. …”see in full comparison
“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.”see in full comparison
Revenues. Revenuesee in full comparisonRevenuefor the threemonthandperiodsix months endedMarchJune31,30, 2026, was$0.9$1.5 million and $2.3 million compared to$1.8$1.9 million and $3.6 million for the sameperiodperiods in 2025. Revenue from consulting services totaled$0.8$1.3 million and $2.1 million for the threemonthandperiodsix months endedMarchJune31,30, 2026,2026,respectively, compared to $1.4 million and $2.7 million for thethreesamemonthperiodsperiod ended March 31,in 2025. INTRUSION Shield revenues were $0.1$0.1million and $0.2 million for the threemonthandperiodsix months endedMarchJune31,30, 2026 as compared to$0.4$0.5 million and $0.9 million for the three and six monthperiodperiods endedMarchJune31,30, 2025. Thecontinuingcontinued delay in the contract extension of thelong-standingU.S. Department of War contract due to timing variabilityandof federal funding and procurement processes resulted in a decline in both consulting revenues and INTRUSION Shield revenues.revenues.The June 2026 quarter consulting revenues included revenue from the $3.9 million contract signed in May 2026 to provide cybersecurity and critical infrastructure protection services for a state agency.
“Gross Profit. Gross profit was $1.0 million and $1.6 million, or 66.4% and 69.4% of total revenues, for the three and six months ended June 30, 2026, compared to $1.4 million and $2.8 million, or 76.4% and 76.0% of total revenues, for the prior year comparative periods. Gross margin fluctuations are primarily driven by changes in product mix. Specifically, INTRUSION Shield revenues decreased as a percentage of total revenue to 6.8% and 9.0% for the three and six months ended June 30, 2026, down from 26.0% and 24.7% for the three and six months ended June 30, 2025, respectively. …”see in full comparison
Full comparison: every changed paragraph (31)
On June 29, 2026, we entered into an Agreement to acquire 100% of the membership interests of VigilAigent over two distinct closings. At the first closing, effective June 29, 2026, we acquired 60% of VigilAigent’s membership interests for a purchase price of $2.0 million, paid through $0.4 million of cash and the issuance of $1.6 million of unregistered shares of the Company’s common stock, par value $0.01 per share, at a contractually defined share price of $0.67 per share. At the second closing, subject to specified closing conditions, including obtaining required Company stockholder and Nasdaq Stock Market or other regulatory approvals, we agreed to acquire the remaining 40% of VigilAigent’s membership interests for a cash payment of $1.3 million. The obligations of the parties to consummate the second closing are subject to satisfaction, or waiver, on or before August 30, 2026 or such later date as may be agreed upon by the Seller and Company, of the identified closing conditions.
The financial statements fully consolidate the financial position and operations of VigilAigent as of the three and six months ended June 30, 2026, however, the statement of operations and results of operations reflects virtually none of its historical performance. For the three and six months ended June 30, 2026, VigilAigent contributed revenue of $17 thousand and a net loss of $14 thousand to the consolidated operating results of the Company.
Comparison of the Periods Ended MarchJune 31,30, 2026, and MarchJune 31,30, 2025
Revenues. Revenue
Revenue for the three monthand periodsix months ended MarchJune 31,30, 2026, was $0.9$1.5 million and $2.3 million compared to $1.8$1.9 million and $3.6 million for the
same periodperiods in 2025.
Revenue from consulting services totaled $0.8$1.3 million and $2.1 million for the three monthand periodsix months ended MarchJune 31,30,
2026, 2026,respectively, compared to $1.4 million and $2.7 million for
the threesame monthperiods period ended March 31,in 2025. INTRUSION Shield revenues were
$0.1 $0.1million and $0.2 million for the three monthand period
six months ended MarchJune 31,30, 2026 as compared to $0.4$0.5 million and $0.9 million for the three
and six month periodperiods ended MarchJune 31,30, 2025. The continuingcontinued delay in the
contract extension of the long-standing U.S. Department of War contract due to
timing variability andof federal funding and
procurement processes resulted in a decline in both consulting revenues and INTRUSION Shield
revenues. revenues.The June 2026 quarter consulting revenues included revenue from the $3.9 million contract signed in May 2026 to provide cybersecurity
and critical infrastructure protection services for a state agency.
Concentration of Revenues.
Revenues from sales to various U.S. government entities totaled $0.8$1.3 million and $2.1 million, or 87.8%94% and 91% of revenues, for the
three quarterand six months ended MarchJune 31,
30, 2026, respectively, compared to $1.6$1.8 million and $3.4 million, or 91.6%96% and 94% 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 twothree customers accountingaccount for 87.3%91% and 93% of total revenue for the
three six months ended MarchJune 31,30, 2026.2026 Weand had2025, three customers in the first quarter of 2025 that accounted for 91.4% of total revenue.respectively. Our similar
similar product and service offerings are not viewed as individual segments, as our management analyzes the business as a whole and expenses are
are not allocated to each product offering.
Gross Profit. Gross profit was $1.0 million and $1.6 million, or 66.4% and 69.4% of total revenues, for the three and six months ended June 30, 2026, compared to $1.4 million and $2.8 million, or 76.4% and 76.0% of total revenues, for the prior year comparative periods. Gross margin fluctuations are primarily driven by changes in product mix. Specifically, INTRUSION Shield revenues decreased as a percentage of total revenue to 6.8% and 9.0% for the three and six months ended June 30, 2026, down from 26.0% and 24.7% for the three and six months ended June 30, 2025, respectively. Additionally, gross margins in the 2026 periods were negatively impacted by lower-margin work performed under a new cybersecurity and critical infrastructure protection contract with a state agency.
Operating Expenses. Operating expenses were $3.5 million and $7.7 million for the three and six months ended June 30, 2026, respectively, compared to $3.5 million and $7.0 million for the corresponding periods in 2025.
Operating expenses for the three-month period remained relatively consistent with the prior-year period. Higher sales and marketing investments to support continued brand awareness initiatives, together with merit and cost-of-living salary increases implemented during the second half of 2025, were substantially offset by lower share-based compensation expense resulting from equity awards that became fully vested.
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.
OperatingThe Expenses.$0.7 Operatingmillion increase
in operating expenses for the quarter ended March 31, 2026, totaled $4.2 million, a $0.8 million increase compared to the samesix-month period in 2025. The
increase iswas primarily relatedattributable to increased investment in sales and R&Dmarketing personnelinvestments to support the
Company's growth initiatives, as wewell continueas tothe expandfull-period our product offerings and
brand awareness, further impacted by costimpact of livingmerit and meritcost-of-living salary increases thatimplemented occurred induring the second
half of 2025. The increase iswas also
due todriven aby decrease in thelower allocations outof ofpersonnel costs from operating expenseexpenses to cost of sales due toresulting
from the underutilization of service delivery resources toassociated supportwith the
delayed funding and commencement of work under a significant
U.S. Department of War contract.
Sales and Marketing. Sales
and marketing expenses totaled $1.6$1.4 million and $3.0 million for the quarterthree and six months ended MarchJune 31,30, 2026, representing an increase
of $0.4$0.2 million and $0.6 million when compared to
the same periodperiods in 2025.the prior year. The increase wasis primarily due to an increased investment
in sales and sales support personnel and anincreased 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.
GeneralResearch and Administrative.Development.
GeneralResearch and administrativedevelopment expenses totaled $1.1 million for the quarterthree months ended MarchJune 31,30, 2026,2026 compared to $1.0$1.3 million for the quarter2025
ended March 31, 2025.period. The increasedecrease is primarily duerelated to anlower increaseshare-based compensation as well as increased capitalized software development costs.
Research and development expenses for the six month period ended June 30, 2026 compared to the same period in operating2025 leaseremained expensesflat associatedat with the Plano office space.$2.6
million.
General and Administrative. General and administrative expenses for the three month period ended June 30, 2026 remained flat at $0.9 million when compared to the same prior year period. For the six months ended June 30, 2026, general and administrative expenses increased by approximately $0.1 million compared with the same period in the prior year. The increase was primarily attributable to legal fees incurred in connection with the acquisition of O.W. Cyber LLC, higher operating lease costs related to our Plano office space, and increased recruiting expenses. These increases were partially offset by lower share-based compensation expense and the timing of financial audit fees.
Interest Expense. Interest expense for the three and six months ended June 30, 2026, was $0.1 million and $0.1 million, consisting principally of the stated interest and amortization of OID and transaction costs on the Streeterville note and imputed interest on finance leases. Interest expense for the three and six month periods ended June 30, 2025, was $21 and $50 thousand, respectively, consisting principally of imputed interest on finance leases and the stated interest related to the Streeterville note that was fully retired in the first quarter of 2025.
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 three and six month periods ended MarchJune 31,30, 2026, and 2025.
Noncontrolling interest. Noncontrolling interest were nominal amounts for both the three and six month periods ended June 30, 2026 and 2025 as the acquisition of VigilAigent closed on June 29, 2026.
Net Loss.Loss Attributable
to Intrusion, Inc.. Net loss
for the firstthree quarterand ofsix month periods ended June 30, 2026 was $3.6$(2.6) million and $(6.2) million, or $0.18 per share, respectively
compared to a$(2.0) netmillion lossand of$(4.1) $2.1 million, or $0.11 per share,million for the
first quartersame ofperiods 2025.in the prior year. The increase in net loss for the 2026 periods was
primarily a result of the decrease in revenues for the 2026 period as discussed
above.
As of June 30, 2026, we had cash and cash equivalents of $0.2 million. We generated a net loss of $6.2 and $4.1 million for the six months ended June 30, 2026, and 2025, respectively. We continue to incur losses from operations, negative cash flows from operations, as well as having a continued dependence on equity and debt financing. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of these financial statements. We plan to finance operations by raising additional funds through public or private financings, including the utilization of the ATM program, however, we can provide no assurances that additional funds will be raised or that the terms of those financings, if available at all, will be on favorable terms or will not result in dilution to stockholders. If our operations do not generate positive cash flow in the upcoming year, or 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. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 sourcessource of cash
for funding operations for the six month period ended June 30, 2026 was cash proceeds from the sale of notes payable of $3.3 million.
Our principal source of cash for funding operations in the March 2026 and MarchJune 2025 quarterswas werethe receipt of $1.5 million in proceeds
from the sale of common
stock pursuant to the SEPA $1.5 million,SEPA, 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.
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 toas date.of June 30, 2026.
During the June 2026 quarter we entered into two separate note purchase agreements with Streeterville. On April 6, 2026, Streeterville purchased a note payable in the principal amount of $3.2 million in exchange for $3.0 million in cash (reflecting an original issue discount and legal fees of $0.2 million). The Company also paid transaction costs associated with this Note of $0.2 million. Beginning six months after funding, the Investor may require cash redemptions of up to $0.3 million per calendar month and may require additional limited redemptions if the Company’s common stock trades at a price that is at least 10% greater than the Nasdaq minimum price up to amount equal to 5% of the cumulative daily dollar trading volume. The note bears interest at 7% per annum, compounded daily, matures 24 months after issuance, and includes a monitoring fee provision after 90 days (automatically increases the Outstanding Balance by approximately 17.65%), which is expected to be recorded in Q3’26. The agreement includes certain customary and noncustomary trigger events and defaults which, if triggered, could result in an additional 5% or 15% added to the principal balance. The Note is secured by a first-priority security interest in all of the Company’s assets and intellectual property. On June 25, 2026, Streeterville purchased a second note payable in the principal amount of $385 thousand in exchange for $350 thousand in cash. The note is non-interest bearing and calls for weekly cash payments of $8 thousand until maturity at August 27, 2026.
In Marchthe 2025,2025 period, through
three three
separate exchange agreements we retired the remaining $0.5 million in Streeterville debt through the issuance of 552.3 thousand
shares shares
of common stock. The issuance of common stock was made pursuant to the exemption from the registration requirements afforded by
the Securities
Act.
Our cash flows for the threesix months ended MarchJune 30,
31, 2026 and 2025 were:
Net cash used in operations
for the quartersix months ended MarchJune 31,30, 2026, was $(1.85.4) million due primarily to a net loss of $(3.66.1) million partially offset by 1) adjustments
for non-cash items of $0.7$1.3 million which are mostly comprised of depreciation and stock-based compensation, and 2) changes in working
capital of $1.1($0.6) million.
Net cash used in operations
for the quartersix months ended MarchJune 31,30, 2025, was $(1.7$3.3) million principallydue dueprimarily to a net loss of $(2.1$4.1) million partially offset by 1) adjustments
for non-cash items of $0.8$1.5 million which arewere mostly comprised of depreciation and stock-based compensation, and 2) changes in working
capital of $(0.4$0.7) million.
Net cash used in investing activities for the six months ended June 30, 2026 was $1.0 million, which was comprised of capitalization of internally developed software ($0.6) million and cash paid for the acquisition of O.W. Cyber LLC, net of cash acquired of ($0.4) million.
For the threesix months ended
MarchJune 31,30, 2026,2025, net cash used in investing activities was $(0.3$5.2) million, which wasincluded comprisedshort-term investments in highly liquid, investment-grade
fixed income securities of capitalization($3.7) of internally developed
softwaremillion 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 hardware purchases of property($1.4) and equipment.million.
For threethe six months ended
June March
31,30, 2026, net cash usedprovided inby financing activities was $0.2$3.0 million which was principally comprised net proceeds from issuance of
the Streeterville notes $3.3 million offset partially by cash paid on tax withholding for net
settled restricted stock units.units of ($0.1)
million. Net cashproceeds provided byfrom financing activities for the threeJune months2025 endedperiod Marchtotaled 31, 2025, was $8.4$8.2 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, 2025.2025, partially offset
by payments on financing leases of ($0.2) million.
INTZ insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 2 Form 4 filings (2 insiders, 1 trade date, 5,000 shares, about $4.0K) and open-market sales in 1 filing (1 insider, 1 trade date, 15,000 shares, about $11.7K). Net open-market shares: -10,000 (purchases minus sales); net value about -$7.8K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-04 | Hinchcliffe Dion |
Open-market sale | 15,000 | $0.78 | $11.7K |
| 2026-08-27 | Wilson Gregory K. |
Grant/award | 86,420 | $0.81 | $70.0K |
| 2026-08-27 | Mccallum Katrinka |
Grant/award | 86,420 | $0.81 | $70.0K |
| 2026-08-27 | Levecchio Anthony J |
Grant/award | 86,420 | $0.81 | $70.0K |
| 2026-08-27 | Hinchcliffe Dion |
Grant/award | 86,420 | $0.81 | $70.0K |
| 2026-08-26 | Mccallum Katrinka |
Option exercise | 5,834 | $0.80 | $4.7K |
| 2026-08-19 | Scott Anthony |
Option exercise | 62,894 | $0.80 | $50.3K |
| 2026-08-19 | Pinson Kimberly |
Option exercise | 18,334 | $0.80 | $14.7K |
| 2026-08-19 | Levecchio Anthony J |
Option exercise | 8,334 | $0.80 | $6.7K |
| 2026-07-01 | Head T Joe |
Grant/award | 20,000 | $0.93 | $18.6K |
| 2026-07-01 | Pinson Kimberly |
Grant/award | 19,000 | $0.93 | $17.7K |
| 2026-06-30 | Pinson Kimberly |
Grant/award | 47,698 | $0.93 | $44.4K |
| 2026-06-30 | Scott Anthony |
Grant/award | 143,009 | $0.93 | $133.0K |
| 2026-06-30 | Levecchio Anthony J |
Grant/award | 52,156 | $0.93 | $48.5K |
| 2026-06-30 | Wilson Gregory K. |
Grant/award | 30,284 | $0.93 | $28.2K |
| 2026-06-30 | Hinchcliffe Dion |
Grant/award | 25,237 | $0.93 | $23.5K |
| 2026-06-30 | Mccallum Katrinka |
Grant/award | 37,351 | $0.93 | $34.7K |
| 2026-06-30 | Scott Anthony |
Open-market purchase | 2,500 | $0.79 | $2.0K |
| 2026-06-30 | Pinson Kimberly |
Open-market purchase | 2,500 | $0.79 | $2.0K |
Well-known investors holding INTZ (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Two Sigma Investments | 2026-06-30 | 13,483 | $11.1K | — | Sold out |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 12,125 | $9.9K | — | Sold out |