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What changed in INTRUSION INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of INTRUSION INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+133 added−166 removedSource: 10-K (2025-02-27) vs 10-K (2024-04-01)

Top changes in INTRUSION INC's 2024 10-K

133 paragraphs added · 166 removed · 98 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe believe that our future success will depend in part on our continued ability to hire, motivate and retain qualified management, sales, marketing, and technical personnel. 4 Our Code of Conduct The Company’s directors and employees are required to abide by the Company’s Code of Business Conduct and Ethics, which the Company adopted on September 14, 2020, as amended on March 16, 2022 (the “Code”) to ensure that the Company’s business is conducted in a consistently legal and ethical manner and to avoid instances of insider trading.
Biggest changeOur Code of Conduct The Company’s directors and employees, including executive officers, are required to abide by the Company’s Code of Business Conduct and Ethics (the “Code”) to ensure that the Company’s business is conducted in a consistently legal and ethical manner and to avoid instances of insider trading.
We post the following filings in the “Investors” section of our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission: our Annual Reports on Form 10-K; our Quarterly Reports on Form 10-Q; our current reports on Form 8-K; and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.
We post the following filings in the “Investors” section of our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”): our Annual Reports on Form 10-K; our Quarterly Reports on Form 10-Q; our Current Reports on Form 8-K; and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.
By working closely with our customers, our employees increase their understanding of end-user requirements and are then able to provide specific input in our solution development process. We warrant all our solutions against defects during the service period. Before and after expiration of the solution warranty period, we offer both on-site and factory-based support, parts replacement, and repair services.
By collaborating closely with our customers, our employees increase their understanding of end-user requirements and are then able to provide specific input in our solution development process. We warrant all our solutions against defects during the service period. Before and after expiration of the solution warranty period, we offer both on-site and factory-based support, parts replacement, and repair services.
A reduction in our sales to U.S. government entities could have a material adverse effect on our business and operating results if not replaced. Backlog. We believe that only a small portion of our order backlog is non-cancelable, and that the dollar amount associated with the non-cancelable portion is immaterial.
A reduction in our sales to U.S. government entities could have a material adverse effect on our business and operating results if not replaced. Backlog. We believe that only a small portion of our order backlog is non-cancellable, and that the dollar amount associated with the non-cancellable portion is immaterial.
This request should be directed to the Company’s Secretary at 101 East Park Blvd., Suite 1200, Plano, TX 75074. Reverse Stock Split On March 22, 2024, we effected a 1-for-20 reverse stock split of our common stock.
This request should be directed to the Company’s Secretary at Intrusion Inc., 101 East Park Blvd., Suite 1200, Plano, TX 75074. Reverse Stock Split On March 22, 2024, we effected a 1-for-20 reverse stock split of our common stock.
The Code covers areas of professional conduct that include conflicts of interest, fair dealing and the strict adherence to all laws and regulations applicable to the conduct of the Company’s business. The full text of the amended Code is published on the Company’s website under the investor relations tab at www.intrusion.com.
The Code covers areas of professional conduct that include conflicts of interest, fair dealing and the strict adherence to all laws and regulations applicable to the conduct of the Company’s business. 4 The Code is published on the Company’s website under the investor relations tab at www.intrusion.com.
Extended warranty services are separately invoiced on a time and materials basis or under an annual maintenance contract. Employees As of December 31, 2023, we employed a total of forty-nine persons, five of which are part time. None of our employees are represented by a labor organization, and we are not a party to any collective bargaining agreement.
Extended warranty services are separately invoiced on a time and materials basis or under an annual maintenance contract. Employees As of December 31, 2024, we employed a total of fifty people, five of which were part-time. None of our employees are represented by a labor organization, and we are not a party to any collective bargaining agreement.
Our Customers: Government Sales Sales to U.S. government customers accounted for 46.2% of our revenues for the year ended December 31, 2023, compared to 65.8% of our revenue in 2022.
Our Customers: Government Sales Sales to U.S. government customers accounted for 83.8% of our revenues for the year ended December 31, 2024, compared to 46.2% of our revenues in 2023.
We have also applied for trademark protection for INTRUSION Shield. Our Business Intrusion, Inc. is a cybersecurity company based in Plano, Texas. The company offers its customers access to its exclusive threat intelligence database containing the historical data, known associations, and reputational behavior of over 8.5 billion Internet Protocol (“IP”) addresses.
Our Business Intrusion is a cybersecurity company based in Plano, Texas. The company offers its customers access to its exclusive threat intelligence database containing the historical data, known associations, and reputational behavior of over 8.5 billion Internet Protocol (“IP”) addresses.
All share and per share amounts set forth in the Consolidated Financial Statements have been retroactively restated to reflect the split effected in March 2024 as if it had occurred as of the earliest period presented and unless otherwise stated, all other share and per share amounts for all periods presented in this Annual Report have been adjusted to reflect the reverse stock split effected in March 2024.
All share and per share amounts set forth in this Annual Report on Form 10-K, including the consolidated financial statements and the notes thereto have been retroactively restated to reflect the reverse stock split as if it had occurred as of the earliest period presented and unless otherwise stated, all other share and per share amounts for all periods presented.
In 2023, 46.2% of our revenue was derived from a variety of U.S. government entities through direct sales and indirectly through system integrators and resellers. These sales are attributable to six U.S. Government customers through direct and indirect channels; two U.S. government customers individually exceeded 10% of total revenue in 2023.
In 2024, 83.8% of our revenue was derived from a variety of U.S. government entities through direct sales and indirectly through system integrators and resellers. These sales are attributable to eight U.S. government customers through direct and indirect channels; three U.S. government customers individually exceeded 10% of total revenue in 2024.
Export sales did not account for any revenue in 2023 and 2022. Marketing. We have implemented several methods to market our solutions, including participation in trade shows and seminars, distribution of sales literature and solution specifications and ongoing communication with our resellers and installed base of end-user customers. Customers.
Export sales accounted for 4.7% and 0.8% of revenue in 2024 and 2023, respectively. Marketing. We have implemented several methods to market our solutions, including participation in trade shows and seminars, distribution of sales literature and solution specifications and ongoing communication with our resellers and installed base of end-user customers. Customers.
All such filings on our website are available free of charge. Additionally, filings are available on the Securities and Exchange Commission’s website (www.sec.gov). In this report, references to the “Company,” “we”, “us,” “our”, “Intrusion” or “Intrusion Inc.” refer to Intrusion Inc. and its subsidiaries. TraceCop and Savant are registered trademarks of the Company.
All such filings on our website are available free of charge. Additionally, filings are available on the SEC’s website (www.sec.gov). In this report, references to the “Company,” “we,” “us,” “our”, or “Intrusion” refer to Intrusion Inc. and its subsidiaries. TraceCop and Savant are registered trademarks of the Company. We have also applied for trademark protection for INTRUSION Shield.
Our Solutions INTRUSION Shield™ INTRUSION Shield , our newest cybersecurity solution is a Zero Trust reputation-based Software as a Service (“SaaS”) solution that inspects and kills dangerous network (in and outbound) connections.
After years of gathering global internet intelligence and working exclusively with government entities, the company released its first commercial product in 2021. Our Solutions INTRUSION Shield™ INTRUSION Shield , our newest cybersecurity solution is a Zero Trust reputation-based Software as a Service (“SaaS”) solution that inspects and kills dangerous network (in and outbound) connections.
Competition in the recruiting of personnel in the networking and data security industry is intense.
Competition in the recruiting of personnel in the networking and data security industry is intense. We believe that our future success will depend in part on our continued ability to hire, motivate and retain qualified management, sales, marketing, and technical personnel.
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After years of gathering global internet intelligence and working exclusively with government entities, the company released its first commercial product in 2021.
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For the fiscal years ended December 31, 2023, and 2022, we generated revenues of approximately $5.6 million and $7.5 million, respectively, and reported net loss of approximately $13.9 million and $16.2 million, respectively, and cash flow used in operating activities of approximately $7.8 million and $13.2 million, respectively.
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As noted in our audited financial statements, as of December 31, 2023, we had stockholders’ deficit of $9.6 million and a working capital deficit of $13.1 million.
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As a result of our historical recurring losses from operations, negative cash flows from operations, net working capital deficiency as well as our dependence on equity and debt financings, there is a substantial doubt regarding our ability to continue as a going concern.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe incur significantly increased costs because of operating as a public company, and our management is required to devote substantial time to compliance matters and initiatives. As a public company with an obligation to file reports with the SEC under the Exchange Act, we incur significant legal, accounting, and other expenses that we would not incur as a private company.
Biggest changeAs a public company with an obligation to file reports with the SEC under the Exchange Act, we incur significant legal, accounting, and other expenses that we would not incur as a private company. In addition, the Sarbanes-Oxley Act imposes various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls.
The factors that could cause us to lose these U.S. government customers or otherwise materially harm our business, prospects, financial condition, or results of operations include: · budget constraints affecting government spending generally, or specific departments or agencies, and changes in fiscal policies or a reduction of available funding; · re-allocation of government resources; · disruptions in our customers’ ability to access funding from capital markets; · curtailment of governments’ use of outsourced service providers and governments’ in-sourcing of certain services; · the adoption of new laws or regulations pertaining to government procurement; · government appropriations delays or blanket reductions in departmental budgets; · suspension or prohibition from contracting with the government or any significant agency with which we conduct business; · increased use of shorter duration awards, which increases the frequency we may need to recompete for work; · impairment of our reputation or relationships with any significant government agency with which we conduct business; · decreased use of small business set asides or changes to the definition of small business by government agencies; · increased use of lowest-priced, technically acceptable contract award criteria by government agencies; · increased aggressiveness by the government in seeking rights in technical data, computer software, and computer software documentation that we deliver under a contract, which may result in “leveling the playing field” for competitors on follow-on procurements; · delays in the payment of our invoices by government payment offices; and · national or international health emergencies, such as the COVID-19 public health pandemic.
The factors that could cause us to lose these U.S. government customers or otherwise materially harm our business, prospects, financial condition, or results of operations include: · budget constraints affecting government spending generally, or specific departments or agencies, and changes in fiscal policies or a reduction of available funding; · re-allocation of government resources; · disruptions in our customers’ ability to access funding from capital markets; · curtailment of governments’ use of outsourced service providers and governments’ in-sourcing of certain services; · the adoption of new laws or regulations pertaining to government procurement; · government appropriations delays or blanket reductions in departmental budgets; · suspension or prohibition from contracting with the government or any significant agency with which we conduct business; · increased use of shorter duration awards, which increases the frequency we may need to recompete for work; · impairment of our reputation or relationships with any significant government agency with which we conduct business; · decreased use of small business set asides or changes to the definition of small business by government agencies; 6 · increased use of lowest-priced, technically acceptable contract award criteria by government agencies; · increased aggressiveness by the government in seeking rights in technical data, computer software, and computer software documentation that we deliver under a contract, which may result in “leveling the playing field” for competitors on follow-on procurements; · delays in the payment of our invoices by government payment offices; and · national or international health emergencies, such as the COVID-19 public health pandemic.
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. 8 We must expend time and resources addressing potential cybersecurity risk, and any breach of our information security safeguards could have a material adverse effect on the Company.
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, and any breach of our information security safeguards could have a material adverse effect on the Company.
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. Item 1B. Unresolved Staff Comments. None.
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. 11 Item 1B. Unresolved Staff Comments. None.
Further, our new INTRUSION Shield solution represents our efforts to continue to provide state-of-the art first-in-time innovation for our customer’s 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.
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.
Business and Operational Risks Most of our current revenues are generated from one family of solutions with a limited number of customers, and the decrease of revenue from sales of this family of solutions could materially harm our business and prospects. Approximately 66.4% of our existing revenues result from sales of TraceCop a cybersecurity solution.
Business and Operational Risks Most of our current revenues are generated from one family of solutions with a limited number of customers, and the decrease of revenue from sales of this family of solutions could materially harm our business and prospects. Approximately 50.4% of our existing revenues result from sales of TraceCop, a cybersecurity solution.
We are highly dependent on sales of our current solutions through indirect channels, the loss of which would materially adversely affect our operations. For the years ended December 31, 2023, and 2022, we derived 2.6% and 31.5% of our revenues from sales through indirect sales channels, such as distributors, value-added resellers, system integrators, original equipment manufacturers and managed service providers.
We are highly dependent on sales of our current solutions through indirect channels, the loss of which would materially adversely affect our operations. For the years ended December 31, 2024, and 2023, we derived 35.4% and 2.6% of our revenues from sales through indirect sales channels, such as distributors, value-added resellers, system integrators, original equipment manufacturers and managed service providers.
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, we may continue to face risks if sales of this key solution to these limited customers were to decrease.
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, we may continue to face risks if sales of this key solution to these limited customers were to decrease. 5 We may not be successful in our efforts to broaden the marketing and sale of the INTRUSION Shield.
Furthermore, unless our public float exceeds $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.
If our public float as measured pursuant to General Instruction I.B.6 to Form S-3 falls below $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.
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 $78.00 and $4.40 during the year ended December 31, 2023.
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 and $0.35 during the year ended December 31, 2024.
While we expect that developing relationships with non-governmental customers will mitigate or eliminate this dependence on, and risk from, serving governmental entities, we can offer no assurances that we will be able to sufficiently diversify our customer portfolio in a time and manner to adequately mitigate this risk. 7 A decline in federal, state, or local government spending would likely negatively affect our product revenues and earnings.
While we expect that developing relationships with non-governmental customers will mitigate or eliminate this dependence on, and risk from, serving governmental entities, we can offer no assurances that we will be able to sufficiently diversify our customer portfolio in a time and manner to adequately mitigate this risk.
Should any of the component parts required for the hardware interface our customers use to access and to utilize the INTRUSION Shield product become scarce, we may have to delay or cancel our fulfillment of orders that could defer potential revenues or even result in customer cancellations, which would have a negative effect on our financial position and results of operations.
Should any of the component parts required for the hardware interface our customers use to access and to utilize the INTRUSION Shield product become scarce, we may have to delay or cancel our fulfillment of orders that could defer potential revenues or even result in customer cancellations, which would have a negative effect on our financial position and results of operations. 9 We incur significantly increased costs because of operating as a public company, and our management is required to devote substantial time to compliance matters and initiatives.
Some of our competitors may have, in relation to us, one or more of the following: · longer operating histories; · longer-standing relationships with OEM and end-user customers; and · greater customer service, public relations, and other resources.
We cannot assure you that we will be able to compete successfully with our existing or new competitors. Some of our competitors may have, in relation to us, one or more of the following: · longer operating histories; · longer-standing relationships with OEM and end-user customers; and · greater customer service, public relations, and other resources.
If we fail to meet these continued listing requirements, our common stock may be subject to delisting.
If we fail to meet these continued listing requirements, our common stock may be subject to delisting. On October 28, 2024, Intrusion, Inc.
Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results.
Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results. Risks Related to our Financial Position and Liquidity Certain regulatory limitations may affect our ability to consummate future financings.
Our current and potential competitors may have one or more of the following significant advantages over us: · greater financial, technical, and marketing resources; · better name recognition; · more comprehensive security solutions; · better or more extensive cooperative relationships; and · larger customer base. 9 We cannot assure you that we will be able to compete successfully with our existing or new competitors.
Our current and potential competitors may have one or more of the following significant advantages over us: · greater financial, technical, and marketing resources; · better name recognition; · more comprehensive security solutions; · better or more extensive cooperative relationships; and · larger customer base.
The success of the cybersecurity solutions we sell depends substantially on the amount of funds budgeted by federal, state, and local government agencies that make up our current and potential customers.
A decline in federal, state, or local government spending would likely negatively affect our product revenues and earnings. The success of the cybersecurity solutions we sell depends substantially on the amount of funds budgeted by federal, state, and local government agencies that make up our current and potential customers.
We face intense competition from both start-up and established companies that may have significant advantages over us and our solutions. The market for our solutions is intensely competitive.
This could hurt our operating results, damage our reputation, and seriously harm our business and prospects. 8 We face intense competition from both start-up and established companies that may have significant advantages over us and our solutions. The market for our solutions is intensely competitive.
In addition, if our solutions do not interoperate with those of our customers’ networks, demand for our solutions could be adversely affected, orders for our solutions could be cancelled, or our solutions could be returned. This could hurt our operating results, damage our reputation, and seriously harm our business and prospects.
In addition, if our solutions do not interoperate with those of our customers’ networks, demand for our solutions could be adversely affected, orders for our solutions could be cancelled, or our solutions could be returned.
A substantial percentage of our current revenues result from sales to U.S. government entities. If we were to lose one or more of these customers, our revenues could decline, and our business and prospects may be materially harmed.
If we were to lose one or more of these customers, our revenues could decline, and our business and prospects may be materially harmed.
For the year ended December 31, 2023, we had a net loss of $13.9 million and had an accumulated deficit of approximately $110.2 million as of December 31, 2023.
For the year ended December 31, 2024, we had a net loss of $7.8 million and had an accumulated deficit of approximately $118.0 million as of December 31, 2024.
We report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.
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.
These uncertainties could depress the interest or the ability of companies and governmental entities to test, evaluate, and deploy our INTRUSION Shield in their network environments. 6 A large percentage of our current revenues are received from U.S. government entities, and the loss of these customers or our failure to widen the scope of our customer base to include general commercial enterprises could negatively affect our revenues.
A large percentage of our current revenues are received from U.S. government entities, and the loss of these customers or our failure to widen the scope of our customer base to include general commercial enterprises could negatively affect our revenues. A substantial percentage of our current revenues result from sales to U.S. government entities.
However, these efforts depend, in large part, on the success of our channel partners as they market and sell INTRUSION Shield , which may not be successful.
We believe that we must expand our sales and marketing efforts for INTRUSION Shield to achieve marketplace acceptance and to generate revenue for the Company. However, these efforts depend, in large part, on the success of our channel partners as they market and sell INTRUSION Shield , which may not be successful.
Moreover, a successful claim of product infringement against us or our failure or inability to license the infringed or similar technology on commercially reasonable terms could seriously harm our business. 12 Our solutions are highly technical and if they contain undetected errors, our business could be adversely affected, and we might have to defend lawsuits or pay damages in connection with any alleged or actual failure of our solutions and services.
Our solutions are highly technical and if they contain undetected errors, our business could be adversely affected, and we might have to defend lawsuits or pay damages in connection with any alleged or actual failure of our solutions and services.
TraceCop revenues were $3.7 million for the year ended December 31, 2023, compared to $6.1 million for the year ended December 31, 2022.
TraceCop revenues were $2.9 million for the year ended December 31, 2024, compared to $2.5 million for the year ended December 31, 2023.
Further, these entities may also determine not to deploy their cash reserves in the face of such uncertainty.
Further, these entities may also determine not to deploy their cash reserves in the face of such uncertainty. These uncertainties could depress the interest or the ability of companies and governmental entities to test, evaluate, and deploy our INTRUSION Shield in their network environments.
We could experience damage to our reputation in the cybersecurity industry in the event that our INTRUSION Shield solution fails to meet our customers’ needs or to achieve market acceptance.
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. 7 We could experience damage to our reputation in the cybersecurity industry in the event that our INTRUSION Shield solution fails to meet our customers’ needs or to achieve market acceptance.
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 market for hiring and retaining certain technical personnel, including software engineers, has become more competitive and intense in recent years.
We cannot predict or estimate the amount of additional costs we will incur to meet our additional disclosure obligations under the Exchange Act or the timing of such costs. 10 The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures.
Our management and other personnel devote a substantial amount of time to these compliance initiatives. We cannot predict or estimate the amount of additional costs we will incur to meet our additional disclosure obligations under the Exchange Act or the timing of such costs.
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Risks Related to our Financial Position and Liquidity 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.
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As of February 25, 2025, our public float calculated in accordance with General Instruction I.B.6 of Form S-3 was $112.9 million. We must increase revenue levels in order to finance our current operations and to implement our business strategies.
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As of December 31, 2023, we had cash and cash equivalents of $139 thousand and negative working capital of $13.1 million.
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(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.
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Our primary source of cash for funding operations in 2023 has come from net proceeds received from a private offering of our common stock and warrants and net proceeds received from our at-the-market (“ATM”) program in an aggregate amount of approximately $7.0 million.
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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.
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To finance our operations and to continue as a going concern, we believe it will be necessary for us to raise additional funds through public or private financings, including the utilization of our ATM program.
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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.
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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.
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The Bid Price Notice indicated that the Company has been provided 180 calendar days, or until April 28, 2025, in which to regain compliance.
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We are subject to certain contractual and regulatory limitations on our ability to consummate future financings.
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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.
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Pursuant to that certain securities purchase agreements we entered into in March 2022 with Streeterville Capital, LLC and related issuance of two promissory notes, we agreed to be subject to certain restrictions on our ability to issue securities during the term of the notes issued under the agreement.
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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. 10 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.
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Specifically, we agreed to obtain Streeterville Capital’s consent prior to issuing any debt securities or certain equity securities where the pricing of such equity securities is tied to the public trading price of our common stock.
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Moreover, a successful claim of product infringement against us or our failure or inability to license the infringed or similar technology on commercially reasonable terms could seriously harm our business.
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Furthermore, we also must offer Streeterville the right to purchase up to 10% of future equity and debt securities offerings, subject to certain exceptions and limitations, in each case during the term of any note issued to Streeterville.
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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 March 25, 2024, our public float calculated in accordance with General Instruction I.B.6 of Form S-3 was $6.8 million.
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These restrictions may delay or prevent us from entering into funding arrangements or being able to access the capital markets on favorable terms or at all. 5 If we fail to comply with the restrictions and covenants in our March 2022 securities purchase agreement, there could be an event of default under the notes issued thereunder, which could result in an acceleration of payments due under those notes and other consequences.
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Failure to meet the restrictions, obligations, and limitations under the March 2022 securities purchase agreement may result in an event of default in accordance with the terms of the notes issued thereunder.
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An event of default would, among other things, provide the noteholder with the right to increase the outstanding balance by 15% for certain major events of default and 5% for others. Additionally, upon an event of default, the noteholder may consider the note immediately due and payable.
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Furthermore, upon an event of default, the interest rate may also be increased to the lesser of 18% per annum or the maximum rate permitted under applicable law. We must increase revenue levels in order to finance our current operations and to implement our business strategies.
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We may not be successful in our efforts to broaden the marketing and sale of the INTRUSION Shield. We believe that we must expand our sales and marketing efforts for INTRUSION Shield to achieve marketplace acceptance and to generate revenue for the Company.
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In addition, the Sarbanes-Oxley Act imposes various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel devote a substantial amount of time to these compliance initiatives.
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On September 26, 2023, the Company received the Notification Letter from Nasdaq notifying the Company that the closing bid price of the Company’s common stock over the thirty consecutive trading days from August 14, 2023, through September 25, 2023, had fallen below $1.00 per share and therefore, was not in compliance with the Minimum Bid Requirement.
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On October 26, 2023, we received a letter from Nasdaq’s Listing Qualifications Staff (the “Staff Determination”) notifying us that, based on the Company's non-compliance with the $35 million minimum value listing standard for continued listing on the Nasdaq, as set forth in Nasdaq Marketplace Rule 5550(b)(2), the Company’s securities are subject to delisting from Nasdaq.
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The Company requested a hearing before the Hearings Panel. This hearing was held on February 1, 2024, at which time the Company presented a plan to regain and sustain compliance with all the applicable requirements for continued listing on The Nasdaq Capital Market.
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The Hearings Panel granted the Company an extension until April 23, 2024, in which to regain compliance and cure the deficiencies for continued listing. The Company is executing a plan to gain compliance with an alternative Nasdaq listing criteria, Nasdaq Listing Rule 5550(b)(1) (the equity standard) which requires a minimum of $2.5 million in net equity.
Removed
Pursuant to this multi-step plan, the Company: 1) is continuing to utilize its ATM program, 2) closed on a private offering in November 2023 and is anticipating closing on an additional private offering of common stock in the near term, 3) sent warrant inducement letters to warrant holders from the Company’s 2022 registered direct offering and the November 2023 private offering temporarily reducing the exercise price of the outstanding warrants and 4) through a series of three transactions in the fourth quarter 2023 and two transactions in March 2024 exchanged $10.0 million in senior debt for $750 thousand in common stock and $9.3 million new preferred Series A stock. 11 In order to increase the share price of our common stock above the $1.00 Minimum Bid Requirement, we completed a reverse stock split of one share for twenty which was effective on March 22, 2024.
Removed
All of these steps combined provide a path for regaining compliance, however, there can be no assurance that the Company will be able to regain or maintain compliance with either Nasdaq listing criteria.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur Board of Directors is responsible for overseeing our enterprise risk management activities. The Board of Directors receives an update on the Company’s risk management process and the risk trends related to cybersecurity at least annually.
Biggest changeGovernance Our Board of Directors is responsible for overseeing our enterprise risk management activities. The CEO reports to the Board of Directors regarding cybersecurity risks, incidents, and mitigation strategies at least annually.
The VP of Engineering uses both internal and external resources to execute this process including our own INTRUSION Shield technology, to help prevent, identify, escalate, investigate, and resolve security incidents in a timely manner. The Company, with the oversight of the CTO, also requires all employees to complete an annual cybersecurity training course.
The VP of Engineering uses both internal and external resources to execute this process including our own INTRUSION Shield technology, to help prevent, identify, escalate, investigate, and resolve security incidents in a timely manner. The Company, with the oversight of the CEO, also requires all employees to complete an annual cybersecurity training course.
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As of the date of this filing, we have not experienced any cybersecurity incidents that have materially affected or are reasonably likely to materially affect our company, including our financial condition and results of operations.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeSee Note 5 – Right-of-use Asset and Leasing Liabilities to our Consolidated Financial Statements for additional information regarding our obligations under leases. 13
Biggest changeSee Note 5 – Right-of-use Assets and Leasing Liabilities to our Consolidated Financial Statements for additional information regarding our obligations under leases.
Item 2. Properties. Our corporate headquarters are currently located in 10,705 square feet of space at 101 East Park Blvd, Suite 1200, Plano Texas. This facility houses our corporate administration, engineering, sales, and marketing operations. The lease for this facility extends until March 2035.
Item 2. Properties. Our corporate headquarters is currently located in 10,705 square feet of space at 101 East Park Blvd, Suite 1200, Plano Texas. This facility houses our corporate administration, engineering, sales, and marketing operations. The lease for this facility extends until March 2035.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn addition to these legal proceedings, we are subject to various other claims that may arise in the ordinary course of business. We do not believe that any claims exist where the outcome of such matters would have a material adverse effect on our consolidated financial position, operating results, or cash flows.
Biggest changeWe do not believe that any claims exist where the outcome of such matters would have a material adverse effect on our consolidated financial position, operating results, or cash flows. However, there can be no assurance such legal proceedings will not have a material impact on our future results.
The settlement agreement provides in part for (i) an amendment to our Bylaws, committee Charters, and other applicable corporate policies to implement certain measures set forth more fully therein, to remain in effect for no less than three years; (ii) attorneys’ fees and expenses to plaintiff’s counsel of $0.3 million; and (iii) the dismissal of all claims against the Defendants, including the Company, in connection with the action.
The settlement agreement provides in part for (i) an amendment to the Company’s Bylaws, committee Charters, and other applicable corporate policies to implement certain measures set forth more fully therein, to remain in effect for no less than three years; (ii) attorneys’ fees and expenses to plaintiff’s counsel of $0.3 million; and (iii) the dismissal of all claims against the Defendants, including the Company, in connection with the action.
Plaintiff alleges that Defendants through various actions breached their fiduciary duties, wasted corporate assets, and unjustly enriched Defendants by (a) incurring costs and expenses in connection with the ongoing SEC investigation, (b) incurring costs and expenses to defend us with respect to the consolidated class action, (c) settling class-wide liability with respect to the consolidated class action, as well as ancillary claims regarding sales of our common stock by certain of the Defendants.
Plaintiff alleges that Defendants through various actions breached their fiduciary duties, wasted corporate assets, and unjustly enriched Defendants by (a) incurring costs and expenses in connection with the ongoing SEC investigation, (b) incurring costs and expenses to defend the Company with respect to the consolidated class action, (c) settling class-wide liability with respect to the consolidated class action, as well as ancillary claims regarding sales of the Company’s common stock by certain of the Defendants.
On September 28, 2023, we agreed to settle the claim. On October 2, 2023, public notice of the settlement agreement was given.
On September 28, 2023, the Company agreed to settle the claim. On October 2, 2023, public notice of the settlement was given.
On October 5, 2023, the court approved the final judgment with no penalties assessed against the Company. Stockholder Derivative Claim On June 3, 2022, a stockholder derivative complaint was filed in U.S.
Item 3. Legal Proceedings. Stockholder Derivative Claim On June 3, 2022, a verified stockholder derivative complaint was filed in U.S. District Court, District of Delaware (the “Court”) by the Plaintiff Stockholder on behalf of Intrusion against certain of the Company’s Defendants.
The $0.3 million settlement payment was paid by our insurance provider under our insurance policy since our $0.5 million retention was previously exhausted. A hearing is scheduled for April 3, 2024, to obtain court approval of the settlement, agreement for the court to rule upon any objections to the proposed settlement, and for entry of final judgment in the matter.
The $0.3 million settlement payment was made by the Company’s insurance provider under its insurance policy since the Company’s $0.5 million retention was previously exhausted. On April 3, 2024, the Court approved the settlement. In addition to these legal proceedings, we are subject to various other claims that may arise in the ordinary course of business.
Removed
Item 3. Legal Proceedings. Class Action Litigation On April 16, 2021, a class action lawsuit was filed in the United States District Court, Eastern District of Texas, Sherman Division, captioned Celeste v. Intrusion Inc. et al., Case No. 4:21-cv-00307 (E.D.
Removed
Tex.) against us, our now-former chief financial officer, and now-former chief executive officer alleging, among other things, that the defendants made false and/or misleading statements or omissions about our business, operations, and prospects in violation of Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder, as well as Section 20(a) of the Exchange Act.
Removed
The Celeste lawsuit claimed compensatory damages and legal fees. On May 14, 2021, a related class action lawsuit was filed in the United States District Court, Eastern District of Texas, Sherman Division, captioned Neely v. Intrusion Inc., et al., Case No. 4:12-cv-00374 (E.D. Tex.) against us, our now-former chief financial officer, and now-former chief executive officer.
Removed
The Neely lawsuit alleged the same violations under the federal securities laws as those alleged in the Celeste lawsuit. The Neely lawsuit also sought compensatory damages and legal fees. On November 23, 2021, the Court consolidated the Celeste and Neely actions, and appointed a lead plaintiff and lead plaintiff’s counsel.
Removed
The lead plaintiff filed his amended complaint on February 7, 2022.
Removed
The parties to the consolidated class action held a mediation on April 5, 2022, at the conclusion of which the parties executed a settlement term sheet setting forth the material terms associated with the resolution of the action, subject to the preparation of formal documents and a plan of distribution approved by the Court.
Removed
The settlement agreement was subject to certain terms and conditions and received final approval by the Court on December 16, 2022. At that time, a final judgement was entered dismissing the case, with the Court retaining jurisdiction over the action for purposes of enforcing the terms of the class settlement agreement.
Removed
The $3.3 million settlement was paid by our insurance provider under our insurance policy as our retention had previously been exhausted. The lead plaintiff in the class action filed a motion for distribution of settlement funds on February 21, 2023.
Removed
The court approved the parties’ class action settlement and plan of allocation on March 22, 2023, and cancelled the previously-rescheduled March 31, 2023, hearing on the motion for distribution, all remaining matters in the class action then-pending have been fully and finally adjudicated.
Removed
Securities Investigation On August 8, 2021, we received a notification from the SEC, Division of Enforcement, that it was conducting an investigation captioned In the Matter of Intrusion Inc. and requesting we produce certain documents and information.
Removed
On November 9, 2021, the SEC served a subpoena to us in connection with this investigation which formally requested substantially similar information as in the prior request. On September 26, 2023, we consented to the entry of final judgment, in the act styled Securities and Exchange Commission v Intrusion Inc, No. 4:23-CV-00859 (E.D. Tex. Filed September 26, 2023 ).
Removed
District Court, District of Delaware by plaintiff Nathan Prawitt (the “Plaintiff Stockholder”) on behalf of Intrusion against certain of our current and former officers and directors (collectively the “Defendants”).
Removed
However, there can be no assurance such legal proceedings will not have a material impact on our future results. 14 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeNumber of shares of common stock to be issued upon exercise of outstanding options (1) Weighted average exercise price of outstanding options Number of shares unvested restricted stock Weighted average grant date fair value No. of shares of common stock remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 50 $ 62.40 11 $ 26.20 82 Equity compensation plans not approved by security holders – – – – – Total 50 $ 62.40 11 $ 26.20 82 (1) Included in the outstanding options are 4 from the 2005 Stock Incentive Plan, twenty from the 2015 Stock Option Plan and twenty-six from the 2021 Omnibus Incentive Plan.
Biggest changeNumber of shares of common stock to be issued upon exercise of outstanding options (1) 43 Weighted average exercise price of outstanding options $61.26 Number of shares unvested restricted stock units 203 Weighted average grant date fair value $1.38 No. of shares of common stock remaining available for future issuance under equity compensation plans 2,258 (1) Included in the outstanding options are nineteen from the 2015 Stock Option Plan and twenty-four from the 2021 Omnibus Incentive Plan.
The following table provides summary information as of December 31, 2023, for all our equity compensation plans (in thousands, except per share data). See Note 10 – Stock-Based Compensation to our Consolidated Financial Statements for additional discussion.
The following table provides summary information as of December 31, 2024, for all our equity compensation plans (in thousands, except per share data). See Note 10 – Stock-Based Compensation to our Consolidated Financial Statements for additional discussion.
The Company does not have a history of paying dividends on its common stock and has no present intention to declare any dividends in the foreseeable future. All equity compensation plans under which our common stock is reserved for issuance have previously been approved by our stockholders.
The Company does not have a history of paying dividends on its common stock and has no present intention of declaring any dividends in the foreseeable future. All equity compensation plans under which our common stock is reserved for issuance have previously been approved by our stockholders.
Item 5. Market for Common Equity and Related Stockholder Matters and Business Issuer Purchases of Equity Securities. Our common stock trades on the Nasdaq Capital Market, where it is currently listed under the symbol “INTZ.” As of March 25, 2024, there were approximately ninety-five registered holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock trades on the Nasdaq Capital Market, where it is currently listed under the symbol “INTZ.” As of February 26, 2025, there were approximately sixty-four record holders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations Comparison of the Years ended December 31, 2023, and December 31, 2022 Year Ended December 31, Change (in thousands) 2023 2022 $ % Revenue $ 5,611 $ 7,529 (1,918 ) -25.5% Cost of Revenue 1,257 3,354 (2,097 ) -62.5% Gross Profit 4,354 4,175 179 4.3% Operating Expenses: Sales and marketing 5,670 6,510 (840 ) -12.9% Research and development 5,556 6,465 (909 ) -14.1% General and administrative 5,174 7,483 (2,309 ) -30.9% Operating Loss (12,046 ) (16,283 ) 4,237 26.0% Interest and Other Income 43 2,028 (1,985 ) -97.9% Interest Expense (1,888 ) (2,359 ) 471 20.0% Gain on Lease Termination – 385 (385 ) -100.0% Loss Before Income Taxes (13,891 ) (16,229 ) 2,338 14.4% Income Tax – – – – Net Loss $ (13,891 ) $ (16,229 ) 2,338 14.4% Revenues Total revenue decreased $1.9 million or 25.5% to $5.6 million in 2023 from $7.5 million in 2022.
Biggest changeWe 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. 13 Results of Operations Comparison of the Years ended December 31, 2024, and December 31, 2023 Year Ended December 31, Change (in thousands) 2024 2023 $ % Revenue $ 5,771 $ 5,611 160 2.9% Cost of Revenue 1,341 1,257 84 6.7% Gross Profit 4,430 4,354 76 1.7% Operating Expenses: Sales and marketing 4,736 5,670 (934 ) -16.5% Research and development 4,435 5,556 (1,121 ) -20.2% General and administrative 3,705 5,174 (1,469 ) -28.4% Operating Loss (8,446 ) (12,046 ) 3,600 -29.9% Interest expense (328 ) (958 ) 630 -65.8% Interest accretion and amortization of debt issuance costs, net 990 (930 ) 1,920 -206.5% Other (expense) income, net (6 ) 43 (49 ) -114.0% Net Loss $ (7,790 ) $ (13,891 ) 6,101 -43.9% Revenues 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.
Financing Activities For year ended December 31, 2023, net cash provided by financing activities was $6.3 million which consisted principally of proceeds from sales of common stock using our ATM program of $4.7 million and a private placement in November 2023 of $2.3 million offset partially by a $0.4 million paydown on the Streeterville notes.
For the year ended December 31, 2023, net cash provided by financing activities was $6.3 million which consisted principally of proceeds from sales of common stock using our ATM program of $4.7 million and a private placement in November 2023 of $2.3 million offset partially by a $0.4 million paydown on the Streeterville notes.
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, 2023, our Shield opportunities comprised a large percentage of our sales pipeline. Concentration of Revenues .
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. Concentration of Revenues .
Riley Securities, Inc. acts as sales agent under our ATM program, which allows us to potentially sell up to $50.0 million of our common stock using the shelf-registration statement on Form S-3 filed on August 5, 2021.
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.
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 Research and development expenses decreased to $5.6 million in 2023 compared to $6.5 million in 2022.
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 Research and development expenses decreased to $4.4 million in 2024 compared to $5.6 million in 2023.
During 2023, our primary focus has been building out our sales reseller and channel platform and working 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.
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.
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 we can sell pursuant to the ATM program to $15.0 million.
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.
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: i) identification of the contract with a customer; ii) identification of the performance obligations in the contract; iii) determination of the transaction price; iv) allocation of the transaction price to the separate performance obligations; and v) recognition of revenue upon satisfaction of a performance obligation. 21 Consulting services including reporting are typically done monthly, and revenue is matched accordingly.
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: i) identification of the contract with a customer; ii) identification of the performance obligations in the contract; iii) determination of the transaction price; iv) allocation of the transaction price to the separate performance obligations; and v) recognition of revenue upon satisfaction of a performance obligation.
Revenues from sales to various U.S. government entities totaled $2.6 million, or 46.2% of revenues, for the year ended December 31, 2023, compared to $5.0 million, or 65.8% of revenues, for the same period in 2022. In 2023 we had two government entities that individually accounted for over 10% of our revenues compared to three in 2022.
Revenues 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 2024 we had three government entities that individually accounted for over 10% of our revenues compared to two in 2023.
The estimated fair value of accounts receivable, accounts payable and accrued expenses approximate their carrying amounts due to the relatively short maturity of these instruments. Notes payable and financing and operating leases approximate fair value as they bear market rates of interest.
The estimated fair value of accounts receivable, accounts payable and accrued expenses approximate their carrying amounts due to the relatively short maturity of these instruments. Notes payable and financing and operating leases approximate fair value as they bear market rates of interest. None of these instruments are held for trading purposes.
SaaS arrangements are accounted for as subscription services not arrangements that transfer a license of intellectual property. 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 is a hosted arrangement subject to SaaS guidance under ASC Topic 606. SaaS arrangements are accounted for as subscription services not arrangements that transfer a license of intellectual property. 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.
The Company’s similar product and service offerings are not viewed as individual segments, as its management analyzes the business as a whole and expenses are not allocated to each product offering. Gross Profit Gross profit for the 12-months ended December 31, 2023, and 2022 totaled $4.4 million or 77.6% compared to $4.2 million or 55.5%.
The Company’s similar product and service offerings are not viewed as individual segments, as its management analyzes the business as a whole and expenses are not allocated to each product offering. Gross Profit Gross profit for the 12-months ended December 31, 2024, and 2023 totaled $4.4 million or 76.8% and $4.4 million or 77.6%, respectively.
INTRUSION Shield services provided to our customers for a fixed monthly subscription fee include: · access to Intrusion’s proprietary software and database to detect and prevent unauthorized access to our clients’ information networks; · use of all software, associated media, printed materials, data, files, online documentation, and any equipment that Intrusion provides for customers to access the INTRUSION Shield ; and · tech support, post contract customer support (“PCS”) including daily program releases or corrections provided by Intrusion without additional charge.
INTRUSION Shield services provided to our customers for a fixed monthly subscription fee include: · access to Intrusion’s proprietary software and database to detect and prevent unauthorized access to our clients’ information networks; · use of all software, associated media, printed materials, data, files, online documentation, and any equipment that Intrusion provides for customers to access the INTRUSION Shield ; and · tech support, post contract customer support (“PCS”) including daily program releases or corrections provided by Intrusion without additional charge. 19 Our contract provides for no other services, and our customers have no rebates or return rights, nor are any such rights anticipated to be offered as part of this service.
Sales to commercial customers totaled $3.0 million or 53.8% of total revenue for year ended December 31, 2023, compared to $2.6 million or 34.2% of total revenue for the same period in 2022. Two commercial customers individually accounted for over 10% of total revenues in both 2023 and 2022.
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.
Our principal sources of cash for funding operations in 2023 has been net proceeds received from sales of common stock using our ATM program of $4.7 million, a private placement offering completed in November 2023 of $2.3 million, and net funds through changes in working capital which includes receipt of the remaining ERC refund in the March quarter of $1.4 million.
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. ATM Program B.
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. 15 Much of 2022 was spent improving the INTRUSION Shield On-Premise performance and developing the Shield Cloud and End-Point solutions, both of which were released in September 2022.
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.
Allowances for Credit Losses We maintain allowances for credit losses for estimated losses resulting from the inability of our customers to make required payments. Our receivables are uncollateralized, and we expect to continue this policy in the future.
Upfront payment of fees is deferred and amortized into income over the period covered by the contract. Allowances for Credit Losses We maintain allowances for credit losses for estimated losses resulting from the inability of our customers to make the required payments. Our receivables are uncollateralized, and we expect to continue this policy in the future.
Many of the cost reduction measures taken in 2023 related to research and development costs. 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.
The savings in 2024 are a result of cost reduction measures implemented in late March 2023 which included the reduction of 13 FTEs and the reduced use of contractors. Research and development costs may vary over time as we determine the frequency of new releases, improved functionality and enhancements needed to be competitive with our product offering.
Income Taxes Our effective income tax rate was 0% in 2023 and 2022 as valuation allowances have been recorded for the entire amount of the net deferred tax assets due to uncertainty of realization. 18 Consolidated Statements of Cash Flows Our cash flows for the years ended December 31, 2023, and 2022 (in thousands) were: Year Ended December 31, 2023 December 31, 2022 Net cash used in operating activities $ (7,767 ) $ (13,190 ) Net cash used in investing activities (1,448 ) (1,479 ) Net cash provided by financing activities 6,339 13,584 Change in cash and cash equivalents $ (2,876 ) $ (1,085 ) Operating Activities Net cash used in operations for the year ended December 31, 2023, was ($7.8) million due to a net loss of ($13.9) million, offset by 1) adjustments for non-cash items of $4.7 million which are mostly comprised of depreciation, stock-based compensation, and interest related to Streeterville notes and 2) $1.4 million provided from working capital principally relating to the cash receipt of amounts due relating to ERC.
Consolidated Statements of Cash Flows Our cash flows for the years ended December 31, 2024, and 2023 (in thousands) were: Year Ended December 31, 2024 December 31, 2023 Net cash used in operating activities $ (6,293 ) $ (7,767 ) Net cash used in investing activities (1,809 ) (1,448 ) Net cash provided by financing activities 12,814 6,339 Change in cash and cash equivalents $ 4,712 $ (2,876 ) Operating Activities Net cash used in operations for the year ended December 31, 2024, was ($6.3) million due to a net loss of ($7.8) million, offset by 1) adjustments for non-cash items of $1.7 million which are mostly comprised of depreciation, stock-based compensation, and interest related to Streeterville notes and 2) ($0.2) million used for working capital.
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.
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. 14 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.
Investing Activities For the year ended December 31, 2023, net cash used in investing activities was ($1.4) million, which was principally the capitalization of internally developed software.
Investing Activities For the year ended December 31, 2024, net cash used in investing activities was ($1.8) million of which $1.2 million was the capitalization of internally developed software, $0.5 million was the purchase of equipment and $0.1 million was the deposit on financed equipment.
Product sales may include maintenance and customer support allocated revenue in an arrangement using 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.
Consulting services, including reporting, are typically done monthly, and revenue is matched accordingly. Product sales may include maintenance and customer support allocated revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy using the relative selling price method.
If certain customers do not meet our credit standards, we require payment in advance to limit our credit exposure. With our newest product, INTRUSION Shield , we began offering software on a subscription basis. INTRUSION Shield is a hosted arrangement subject to SaaS guidance under ASC Topic 606.
We do not offer payment terms that extend beyond one year and rarely extend payment terms beyond our normal terms. If certain customers do not meet our credit standards, we require payment in advance to limit our credit exposure. With our newest product, INTRUSION Shield , we began offering software on a subscription basis.
We defer and recognize maintenance, updates, and support revenue over the term of the contract period, which is generally one year. Normal payment terms offered to customers, distributors and resellers are net 30 days domestically. We do not offer payment terms that extend beyond one year and rarely extend payment terms beyond our normal terms.
All product offering and service offering market values are readily determined based on current and prior stand-alone sales. We defer and recognize maintenance, updates, and support revenue over the term of the contract period, which is generally one year. Normal payment terms offered to customers, distributors and resellers are net 30 days domestically.
Capitalized internal use software is amortized on a straight-line basis over its estimated useful life, which is generally three years. Revenue Recognition We recognize product revenue upon shipment or after meeting certain performance obligations. These products can include hardware, software subscriptions and consulting services. Most of our sales are from consulting services.
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. Revenue Recognition We recognize product revenue upon shipment or after meeting certain performance obligations.
Net cash used in operations for the year ended December 31, 2022, was ($13.2) million due to a net loss of ($16.2) million offset by adjustments for non-cash items of $5.0 million which are mostly comprised of depreciation, stock-based compensation and interest related to Streeterville notes, and changes in working capital consisting primarily of a reduction in trade receivables of $0.5 million; an increase in other receivables relating principally to the remaining ERC refund outstanding ($1.5) million; an increase in accounts payable and accrued expenses $0.2 million; and a decrease in operating lease liabilities ($1.0) million.
Net cash used in operations for the year ended December 31, 2023, was ($7.8) million due to a net loss of ($13.9) million, offset by 1) adjustments for non-cash items of $4.7 million which are mostly comprised of depreciation, stock-based compensation, and interest related to Streeterville notes and 2) $1.4 million provided from working capital principally relating to the cash receipt of amounts due relating to ERC.
The preliminary stage includes such activities 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.
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.
We also offer software on a subscription basis subject to SaaS. Warranty costs have not been material.
These products can include hardware, software subscriptions 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.
Pursuant to ASC Topic 250-40 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.
Capitalized Software Development We capitalize internally developed software using the Agile software development methodology which allows us to accurately track, and record costs associated with new software development and enhancements. 18 Pursuant to 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.
None of these instruments are held for trading purposes. 22 Recent Accounting Pronouncements See Note 2 to the Consolidated Financial Statements (Part II, Item 8 of this Form 10-K).
Recent Accounting Pronouncements See Note 2 to the Consolidated Financial Statements (Part II, Item 8 of this Form 10-K). Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Not applicable.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. Capitalized Software Development We capitalize internally developed software using the Agile software development methodology which allows us to accurately track, and record costs associated with new software development and enhancements.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.
Notes Payable 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.
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 $1.7 million was received on January 2 nd and 3 rd , 2025. 17 Notes Payable 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.
The significantly improved gross margin in 2023 is mostly due to the loss of the low margin contract discussed above and Shield revenues representing a larger percentage of revenues, 28.4% compared to 15.6% in 2022. To the extent Shield revenues become a larger percentage of revenues, we anticipate we will continue to see favorable growth in gross profit margins.
The gross profit margin remained relatively flat year-over-year as Shield revenues represented 26% and 28% of revenues in each of 2024 and 2023, respectively. To the extent Shield revenues become a larger percentage of revenues, we anticipate we will see favorable growth in gross profit margins.
Operating Expenses Operating expenses for the year ended December 31, 2023, totaled $16.4 million, a decrease of 19.8% when compared to $20.5 million for the year ended December 31, 2022.
Operating Expenses Operating expenses for the year ended December 31, 2024, totaled $12.9 million, a decrease of 21.5% when compared to $16.4 million for the year ended December 31, 2023. Factors contributing to the decrease most notably related to a reduction in staffing and contract labor expenses, in addition to reduced spending on sales and marketing.
Revenue is recognized monthly over the term of the contract. The Company’s standard initial contract terms automatically renew unless notice is given 30 days before renewal. Upfront payment of fees is deferred and amortized into income over the period covered by the contract.
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 automatically renew unless notice is given 30 days before renewal.
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.
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.
Funds used in financing activities included ($1.5) million in principal repayments on the Streeterville notes payable and ($0.6) million payments on equipment financing leases. 19 Liquidity and Capital Resources As of December 31, 2023, we had cash and cash equivalents of $0.1 million and a working capital deficit of ($13.1) million.
Liquidity and Capital Resources As of December 31, 2024, we had cash and cash equivalents of $4.9 million and $1.9 million in working capital.
Our principal source of cash for funding operations and growth in 2022 was issuance of the two Streeterville notes which contributed $9.3 million, net of issuance costs, and $6.4 million from the sale and issuance of common stock and warrants. ATM Program B.
Our principal sources of cash for funding operations in 2024 have been 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.
This customer was one of the original users of the product and had a non-standard custom implementation of INTRUSION Shield that is no longer supported. This non-renewal will impact revenues beginning in the second quarter 2024.
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.
Removed
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. As discussed in more detail below, on December 31, 2023, we had $0.1 million in cash.
Added
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.
Removed
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.
Added
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.
Removed
Consulting revenues decreased $2.3 million primarily resulting from the loss of a contract in the fourth quarter 2022 in which Intrusion’s prime sponsor chose not to renew the final option year of a contract that had been in place since 2018. This contract represented annual revenue totaling $2.6 million.
Added
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.
Removed
While the loss of this contract significantly impacted Intrusion’s top-line revenue, the gross margin on this contract was 14% and, as a result, had a marginal impact on profitability. We are continuing to pursue new consulting opportunities and expect to see an increase in consulting revenues in 2024.
Added
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.
Removed
The decline in consulting revenues was partially offset by an increase of $0.4 million in Shield revenues as a result of the expanded use of Shield from existing customers and new customers signed in 2023. 16 We announced a $5 million multi-year Shield award in October 2023.
Added
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.
Removed
The rollout of the Shield services to this customer has been delayed due to factors outside of our control, we expect this project to be back on track beginning in the second quarter 2024. Additionally, we were informed by our largest Shield customer that they will not be renewing their contract.
Added
Sales and Marketing Sales and marketing expenses decreased to $4.7 million in 2024, compared to $5.7 million in 2023. The 2024 period included approximately $0.2 million in one-time negotiated contract savings.
Removed
We have increased our Shield sales and marketing efforts by expanding our reseller channels.
Added
General and Administrative General and administrative expenses totaled $3.7 million in 2024 compared to $5.2 million in 2023.
Removed
Fourth quarter 2023 revenues declined 7% sequentially from third quarter 2023 primarily due to the continuing resolution and the absence of an approved federal budget, which has resulted in many new spending decisions from government customers being delayed.
Added
The $1.5 million reduction in the 2024 period relates principally to the elimination of two positions, reduced share-based compensation, and one-time negotiated cost savings of $0.5 million. 15 Interest Expense Interest expense for the twelve months ended December 31, 2024, was $328 thousand consisting principally of the stated interest related to the Streeterville and Scott notes, and finance leases.
Removed
Specifically, a long-standing Department of Defense contract has not been funded for the 2024 government fiscal year, this resulted in lower consulting revenues in the fourth quarter and has also impacted first quarter 2024 revenues.
Added
Interest expense for the year ended December 31, 2023, was $958 thousand. The decreased interest expense resulted principally from the $9.5 million aggregate exchange of the Streeterville debt to both common and preferred stock. As of December 31, 2024, $529 thousand of the Streeterville Note One remained outstanding.
Removed
The year over year change was most notably due to the reduced legal expense associated with the various litigation matters that arose in 2021 that for the most part are fully settled, and reduced contractor labor and employee costs.
Added
Interest expenses will vary in the future based on our cash flow and borrowing needs.
Removed
Employee headcount on December 31, 2023, totaled forty-nine compared to sixty-seven on December 31, 2022. 17 Sales and Marketing Sales and marketing expenses decreased to $5.7 million in 2023, compared to $6.5 million in 2022.
Added
Interest Accretion and Amortization of Debt Issuance Costs During March 2024, the Company entered into exchange agreements to convert $9.5 million in Streeterville debt to $9.3 million of Series A preferred stock and $0.2 million to common stock and, as a result, the Company reversed the interest accretion associated with the ability to stock-settle principal redemptions and wrote-off the remaining deferred debt issue costs resulting in a net credit to interest expense of $1.0 million.
Removed
General and Administrative General and administrative expenses totaled $5.2 million in 2023 compared to $7.5 million in 2022. The decrease in general and administrative expenses is primarily due to a reduction in legal costs of $1.4 million associated with various litigation matters that arose in 2021 and continued through 2023.
Added
For the year ended December 31, 2023, the interest accretion and amortization of debt issuance costs totaled $0.9 million in expense. Other (Expense) Income, Net Interest and other income were negligible in 2024 and 2023.
Removed
The majority of all matters have since settled as described in more detail in Item 3. Legal Proceedings of this report. In late 2022 we hired an in-house General Counsel which also contributed to the reduced outside legal costs in 2023.
Added
For the year ended December 31, 2023, net cash used in investing activities was ($1.4) million, which was principally the capitalization of internally developed software. 16 Financing Activities For year ended December 31, 2024, net cash provided by financing activities was $12.8 million which consisted principally of proceeds from sales of common stock using our ATM program of $9.8 million, a private placement in April 2024 of $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 principal payments on equipment finance leases of $0.5 million.
Removed
Other factors contributing to the decreased spend include (i) reduced use of consultants and contractors in 2023, (ii) recruiting fees incurred in the 2022 period, and (iii) voluntary temporary reductions in director and officer compensation.
Added
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.
Removed
Insurance expense for our Directors’ and Officers’ insurance policy increased in 2023 when compared to 2022 as a result of the class action lawsuits and related claims activity and, increasing coverage limits for our new policy year.
Added
We filed a replacement shelf registration on Form S-3 on January 30, 2025 with an effective date of February 10, 2025, pursuant to which we can sell up to $50.0 million of our common stock.
Removed
Interest Expense Our interest expense consists primarily of interest related to the Streeterville notes entered into in March and June of 2022 and related debt issuance cost amortization as well as interest expense from finance leases. Interest expense for 2023 totaled $1.9 million, a decrease of $0.5 million.
Added
As of February 25, 2025, our public float calculated in accordance with General Instruction I.B.1 of Form S-3,was $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 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.
Removed
The decrease primarily relates to the reversal of interest recorded to accrete the value of the Streeterville notes to the stock-settled value for potential redemptions paid in stock as no redemption payments in cash or stock were made in 2023.
Added
Standby Equity Purchase Agreement On July 3, 2024, we entered into a $10 million Standby Equity Purchase Agreement (“SEPA”) with Streeterville Capital, LLC (“Streeterville”) pursuant to which the Company has the right to direct Streeterville during the 24-month term of the agreement to purchase common stock subject to certain limitations and conditions set forth in the SEPA.
Removed
Interest and Other Income Interest and other income were negligible in 2023. 2022 included $2.0 million related to the Cares Act Employee Retention Credit (“ERC”). Gain on Lease Termination In 2022 we recorded a gain of $0.4 million relating to the settlement of our lease abandonment lawsuit.
Added
The shares of common stock purchased pursuant to SEPA will be at a purchase price equal to 95% of the lowest daily VWAP of the shares of Common Stock during the three consecutive trading days commencing on the date of the delivery of an advance notice.
Removed
Net cash used in investing activities for the year ended December 31, 2022, totaled ($1.5) million and was primarily related to capitalized internal use software of ($1.2) million for the new Shield Cloud and End Point solutions as well as enhancements to the Shield On-Premise solution and, the purchase of equipment for use with the Shield On-Premise solution, in the data center and by employees of ($0.3) million.
Added
“VWAP” is defined as the daily volume weighted average price of the shares of Common Stock for such trading day on the Nasdaq Stock Market during regular trading hours as reported by Bloomberg L.P. The Company will use 10% of the proceeds associated with each Advance to redeem the outstanding Series A Preferred Stock held by Streeterville.
Removed
Net cash provided by financing activities was $13.6 million for the year ended December 31, 2022.
Added
The maturity date for the first note was September 2024, we are in discussions with Streeterville to redeem or amend this note.
Removed
Primary sources of cash from financing activities included proceeds from the issuance of the two Streeterville notes payable, net of issuance costs, equal to $9.3 million (see Note 6 Notes Payable to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K), net proceeds received from our registered direct offering of $4.3 million, net proceeds from issuance of shares from our ATM program of $2.0 million, and proceeds received from a private placement sale of common stock equal to $0.1 million.

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